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Vietnam's stunning turn

America and Vietnam celebrated 20 years of the normalisation of relations on the July 11. The two nations have seen rare closeness in recent years including recent Vietnam visits by former US President Bill Clinton and US Secretary of Defense Ashton Carter.

Communist Party General Secretary Nguyen Phu Trong met current US President Barack Obama recently at the White House. While the current narrative might be greater military and strategic cooperation, the two nations' history of economic cooperation post-1995 is just as important.

" There's a huge opportunity for trade relationships [in the TPP] and Vietnam will be one of the winners."
Douglas Peterson, United States' first post-war ambassador to Vietnam

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Vietnam moved from one of the poorest nations in the world in the 1980s to a lower-middle income country a few years ago. As Douglas 'Pete' Peterson, the United States' first post-war ambassador to Vietnam told BlueNotes, the change has been remarkable.

April 30 saw the fourtieth anniversary of the end of the war and the reunification - or fall, depending on perspective - of Saigon. It was a big event, with parades through the city (largely ignored by most locals who simply sighed at the even more difficult than usual traffic).

For a communist nation, Vietnam today seems to be a very market-based economy. The skyscrapers, noise, fast food outlets, well-dressed locals and designer shops in downtown Saigon do give that impression. Even in 1991, American journalist PJ O'Rourke had noticed a certain irrepressible capitalist buzz in the country.

A PLACE TO DO BUSINESS

“The Bilateral Trade Agreement (of 2001) helped to secure the WTO membership (of 2007) and helped to develop the attraction for foreign investment and set Vietnam up as a place to do business," Peterson says. “We worked on that all the time I was there."

Though suspicion from both sides greeted his arrival, the trade negotiations actually found common ground over a separate issue: trust and communication in locating MIAs, something both countries still work on today. It was, Peterson said, “a common denominator" and helped ties to move forward.

Peterson now lives in Melbourne with his Australian wife Vi Le, the former Australian trade commissioner to Vietnam. A wartime air force pilot, Peterson spent six and a half years as a prisoner in northern Vietnam.

He later served as a Congressman in the Unites States and returned to Vietnam in the early 1990s to work with the Vietnamese on finding the bodies of servicemen declared missing in action (MIA).

Peterson and his wife are involved in charity work in Vietnam and attended recent celebrations in Hanoi with Clinton to mark the 20th anniversary. It was Clinton who lifted the embargo on Vietnam in 1994 and normalised relations in 1995. He is still well respected in the country.

Some have wondered why it took 20 years for diplomatic relations to resume, especially given Australia was the first western country to recognise North Vietnam in 1973.

The issue was complicated by Vietnam's 1978 invasion of Cambodia to unseat the Khmer Rouge, to which the US took exception. A 1979 retaliatory border war with China followed and Peterson says both sides should share some blame. To begin with, there was little interest from Hanoi in establishing ties until reforms began in 1986.

The North had endured decades of hardship and when the the country was unified in 1975. The collectivisation of farming led to huge famines and despite limited Soviet assistance the economy was staggering. In 1986 Hanoi instituted doi moi, or renewal, opening the economy to an extent and allowing private trading.

Did it save the country? “No doubt about it," says Peterson. “There was mass starvation in the late 80s. They finally broke the code. It's one of the world's best food baskets and it wasn't producing. In two years they were back to food secure. It was a remarkable change."

The other thing to consider, he points out, was the post-war population explosion. In 1975 at the end of the war the population was 49 million. Today the figure is 93 million. “The demand on the economic system to deliver food stuffs... it's been a huge challenge, driven by the growth of population."

THE IMPORTANCE OF TRADE

Both Vietnam and the US agree with the ambassador when it comes to the 14-year-old agreement. Viet Nam News, the rather staid official English language paper of the country, wrote recently, “US officials have said they have not seen economic ties with any country in the world develop as fast as they have with Vietnam in the last 15 years since they signed the bilateral trade agreement (BTA)."

The US State Department says trade went from $US451 million in 1995, a year after President Clinton lifted the embargo to close to $US35 billion last year (in contrast two-way trade between Vietnam and Australia is $A9.2 billion).

“US investors started before we were finished, it was almost immediate," Peterson says, “It so far exceeded expectations. We thought two-way trade would be several million, it was over a billion (soon after)."

American companies such as Coca Cola had begun selling in Vietnam earlier but used their Singaporean subsidiaries to move into the country.

The BTA was only one of many agreements; others included ones on science and technology, healthcare and HIV/AIDS and aviation. Vietnam has pursued trade with many nations, recently also signing an FTA with Korea and trading for years with Australia before the US. The BTA with the US has always been seen as bigger.

SMALL BUMPS

The 1997 Asian Financial Crisis set Vietnam back and entrenched scepticism of capitalism among the Party's hardliners. The economy recovered and the mid-2000s saw the most rapid growth rates in the region at 8 to 9 per cent, albeit starting from a smaller base than many of ASEAN's more established economies.

After the GFC, and partly thanks to Vietnam's own systemic problems (corruption allegations, clunky state owned enterprises and currency worries), growth dropped to 5 per cent and the housing market plunged. Both are now recovering. GDP grew by 6 per cent last year and is forecast to rise to 6.2 per cent in 2015.

Now, the US is the seventh-largest investor in the country, behind Japan and Korea, though its investments tend to grab the most headlines in the West - most recently the opening of the country's first McDonald's last year, run by the Prime Minister's son-in-law. KFC, in contrast, has been in the country since 1997, brought there by Singaporean Tony Chew.

China remains Vietnam's largest trading partner but trade has run at a worrying deficit for years. Vietnamese are increasingly boycotting Chinese goods since last year's standoff in the South China Sea that led to riots at what protesters supposed were Chinese factories (they were actually Taiwanese). Chinese workers were evacuated and many have not returned. Chinese tourism figures remain low.

THE GEOPOLITICAL CHALLENGE

Most of the focus this year has been on a closer strategic relationship between the US and Vietnam, mostly thanks to China's actions in the South China Sea.

General Secretary Trong's visit to the White House puzzled some as it not customary for a US President to meet with anyone except other heads of state, rather than heads of parties.

Vietnam's troika of Prime Minister, President and General Secretary is structured such that it is Trong, and not Prime Minister Nguyen Tan Dung, who is ultimately the most powerful man in the country. The President, whilst important, has even less influence.

The visit was greeted in Vietnam with huge excitement and Peterson agrees it is a historic breakthrough in relations, despite criticisms from both sides of the US government given Vietnam's human rights record.

An equally important step is the Trans-Pacific Partnership, which Vietnam is eagerly anticipating. It may will redress the trade imbalance with China and open new markets quickly for export. Peterson believes Vietnam will be one of the winners, with new markets to import raw materials.

“There's a huge opportunity for trade relationships and Vietnam will be one of the winners," he says. “There are concerns over some of the onerous aspects of it."

It may also force the nation to eliminate some of the tariffs it still keeps post-WTO and also force greater adherence to intellectual property laws, which remain patchy.

Given the complicated strategic plays and hedging between the US, Vietnam and China and Vietnamese boycotts over Chinese goods (newspapers regularly have stories about the health hazards of imports from China, from fruit to toys or even bubble tea) Vietnam is increasingly looking for more friends as well as different kinds of fellow travellers - and traders.

Helen Clark was a Hanoi-based foreign correspondent and magazine editor for six years. She has written for Time, The Economist, the Australian Associated Press and The Diplomat, among many others.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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