United States General Accounting Office

GAO Report to Congressional Committees

April 1995 U.S. VIETNAM

RELATIONS

Issues and Implications

GAO/NSIAD-95-42

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-257353 

April 14, 1995

The Honorable Craig Thomas

Chairman, Subcommittee on East Asian

 and Pacific Affairs

Committee on Foreign Relations

United States Senate

The Honorable Doug Bereuter

Chairman, Subcommittee on Asia and the Pacific

Committee on International Relations

House of Representatives

In early 1994, the United States ended its long-standing trade embargo

against Vietnam. This decision was attended by considerable controversy,

and debate about taking additional steps toward normalizing U.S.-Vietnam

relations has continued through the January 1995 announcement that the

United States and Vietnam were opening liaison offices in each other’s

capitals. Concerns remain as to whether the Vietnamese commitment to

resolving the fate of unaccounted-for U.S. service personnel is sufficient to

warrant continued movement forward.

Congressional notification and/or concurrence are required for some of

the additional steps that the United States may consider taking toward full

relations with Vietnam. To assist you in any deliberations you may have on

these matters, this report provides information on (1) ongoing changes in

Vietnam’s foreign and domestic policies and the international community’s

reaction to these changes, (2) changes in U.S. policy toward Vietnam and

the substance of bilateral relations between the two countries, (3) the

interests that the United States and Vietnam are pursuing in their relations

with one another, (4) prospects for Vietnam’s economic and political

development, and (5) key factors affecting the pace of movement toward

normalized relations. We did not evaluate the efficacy of current U.S. and

Vietnamese efforts to resolve the prisoner of war/missing in action

(POW/MIA) issue and are not making any recommendations.

Results in Brief Changes in Vietnam’s foreign and domestic policies have led to broader

acceptance of Vietnam by the international community. Vietnam’s

withdrawal from Cambodia and subsequent cooperation in the

U.N.-coordinated search for a peaceful settlement in that country, and

Vietnam’s ongoing program of market-oriented domestic reforms have

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largely removed the basis for the international community’s 1980s

consensus that Vietnam should be isolated as an outcast. Multilateral

organizations and most countries other than the United States have

re-established full relations with Vietnam.

Although the United States has not established full relations with Vietnam,

it has, among other things, ended its opposition to international financial

institution (IFI) lending to Vietnam and lifted its embargo against trade

with Vietnam by Americans. As legal restrictions have lessened, U.S.

private sector interests, including businesses, nongovernmental

organizations (NGO), and Vietnamese-Americans, have established growing

ties with Vietnam. Government agencies, including the Departments of

Defense and State, have established limited official ties. Constraints to full

relations remain, however. For example, U.S. government programs

typically used to facilitate foreign trade are statutorily barred from

Vietnam.

U.S. foreign policy interests include the promotion of human rights and

democracy in Vietnam, as well as U.S. commercial and security interests.

For its part, Vietnam has important commercial and security interests to

pursue with the United States.

Despite ongoing reforms and positive economic trends, Vietnam faces an

uncertain future. While agreeing that Vietnam has considerable potential

for growth and change, analysts point out that serious constraints remain.

Vietnam remains one of the world’s poorest countries, and the Communist

party continues to exercise a monopoly on political power. Given its

starting point, Vietnam is years away from developing an economy similar

to those of its dynamic neighbors in Asia. Informed observers generally

agree that political change is likely to come only gradually.

Executive branch officials and other analysts stated that the pace at which

the administration moves forward in taking additional steps toward full

bilateral ties will depend on U.S. conclusions regarding developments

within Vietnam, particularly with regard to progress on the POW/MIA issue.

Support for additional steps will also depend on the pace of political and

economic change in Vietnam toward greater democracy and a more

prosperous, market-oriented economy.

Background During the 1980s and early 1990s, U.S. policy focused on pressuring the

Vietnamese for cooperation in addressing a limited number of concerns.

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These included (1) clarifying the fate of U.S. POW/MIAs still officially

unaccounted for; (2) obtaining Vietnam’s cooperation in bringing about a

peaceful settlement in Cambodia, which Vietnam had invaded in 1978; and

(3) resolving issues related to emigration from Vietnam.1

To obtain Vietnamese cooperation on these issues, the United States

withheld diplomatic relations, enforced a complete bilateral trade

embargo, and continued to block access to frozen Vietnamese assets held

in the United States or under U.S. jurisdiction since 1975. Other countries,

including the members of the Association of Southeast Asian Nations

(ASEAN),2

 Japan, China, as well as the United States, cooperated in isolating

Vietnam, primarily to express their opposition to Vietnamese aggression in

Cambodia. Among other consequences, this internationally supported

isolation policy resulted in Vietnam’s being barred from access to credit

from IFIs. (See fig. 1 for a map of the Asia-Pacific region.)

1

The United States has been concerned about (1) freedom of emigration for Vietnamese citizens

stigmatized by association with the U.S. war effort in South Vietnam, including Amerasians and former

U.S. government employees and (2) the welfare of several hundred thousand people who began fleeing

Vietnam in the late 1970s to seek asylum in other countries.

2

Indonesia, Malaysia, Singapore, Thailand, the Philippines, and Brunei.

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Figure 1: The Asia-Pacific Region

Pacific


Ocean

United


States

Mexico

Canada

Vietnam

Russia

China

Laos

Indonesia

Thailand

Papua New Guinea 

Malaysia

Japan

South Korea

North Korea

Australia

Mongolia

Cambodia

Taiwan

Singapore

Vietnam Has Made

Important Changes in

Its Foreign and

Domestic Policies

Several internal and external factors combined in the late 1980s to force a

change in Vietnam’s foreign and domestic policies. Foremost among these

was the failure of Vietnam’s centrally planned economic system,

recognized in the Communist party’s December 1986 call for “Doi Moi”, or

renovation. Pressure for change was augmented by the continuing costs of

involvement in Cambodia, particularly the international community’s

resulting unfriendly stance toward Vietnam. The reform movement also

gained impetus from the collapse of the Soviet Union and Communist

governments in Eastern Europe, wherein Vietnam lost its major markets

and primary sources of economic assistance and political support.

In foreign affairs, Vietnam abandoned its goal of creating an Indochina

bloc and made promoting good relations with all nations its stated guiding

principle. Withdrawal from Cambodia in 1989 was followed by the

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conclusion in 1991 of an international accord to resolve the unsettled

political situation in that country. Since then, Vietnam has focused on

developing closer relations with its neighbors—particularly the members

of ASEAN—to promote domestic prosperity by becoming a participant in

the regional international-trade-based economic boom.

Improved relations with ASEAN members and other countries in the region

are also designed to promote economic progress indirectly by ensuring

regional peace and stability. Although still a point of contention with some

nearby countries, Vietnam has cooperated in working toward resolving the

situation of the thousands of Vietnamese remaining in foreign refugee

camps throughout the region through the U.N. Comprehensive Plan of

Action. Vietnam has also worked with the United Nations, the United

States, and other countries to regularize emigration from Vietnam through

the Orderly Departure Program. The program was established to provide a

legal alternative to the dangers of emigration by sea—the boat people

phenomenon.

Although Vietnam’s leaders have also worked to develop cordial relations

with China, they remain concerned about China’s intentions—particularly

with regard to sovereignty over the potentially oil-rich Spratly Islands.3

Greater integration with ASEAN is seen as strengthening Vietnam’s position

with regard to China.

Vietnam has increased its collaboration with the United States to

determine the fate of the more than 2,200 U.S. service personnel who are

still officially unaccounted for in Indochina. After gaining initial access to

crash sites in 1988, the U.S. Department of Defense opened a POW/MIA

investigative office in Hanoi in 1991 and has since gained expanded access

to crash sites, relevant archival material, Vietnamese witnesses, and other

sources of information. Vietnam’s primary contribution to this effort has

been cooperation with the Department of Defense Joint Task Force-Full

Accounting, which conducts search activities in Vietnam, as well as in

Laos and Cambodia. In July 1994, a U.S. delegation received Vietnamese

commitments to take additional steps, including unilateral actions, that

may shed light on some unresolved cases. For example, the Ministry of

Interior appointed a team to review archival materials for relevant

documents, and measures were taken by the government to solicit useful

information from the general public.

3

The Spratlys are located in the South China Sea and are the object of boundary disputes among

Vietnam, the People’s Republic of China, Taiwan, the Philippines, Malaysia, and Brunei.

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Domestically, Vietnam has made considerable progress in its Doi Moi

program of market-oriented reforms. Key structural steps taken to date

have included abandoning collectivized agriculture, decontrolling most

prices and the rate of exchange for the Vietnamese currency, introducing

positive interest rates to the banking system, reducing impediments to

international trade and investment, and increasing the autonomy of

state-owned enterprises. A new constitution, adopted in 1992, confirms the

legitimacy of the private sector, and the government continues its efforts

to create a legal framework adequate for a modern, market-oriented

economy.

Other Countries and

Multilateral

Institutions Have

Resumed Normal

Relations With

Vietnam

Vietnam has made substantial progress toward full integration into the

international community. Vietnamese withdrawal from Cambodia and

cooperation in working toward bringing an end to the conflict in that

country removed the primary cause for continued antagonism between

Vietnam and its neighbors. One indication of Vietnam’s growing

acceptance was the recent ASEAN decision to work toward elevating

Vietnam from observer status to full membership in the near future.

Vietnam was also granted observer status in the General Agreement on

Tariffs and Trade—now succeeded by the newly created World Trade

Organization.

During 1993, Japan and France led an international consortium that

arranged financing to settle Vietnam’s outstanding debt to IFIs so that these

institutions could resume lending to Vietnam. While the United States

delayed this consortium from clearing Vietnam’s debt for a time, U.S.

objections were eventually dropped. The World Bank, Asian Development

Bank, and International Monetary Fund have since resumed operations in

Vietnam.

This resumption of operations, coupled with the end of the U.S. trade

embargo in February 1994, has brought a surge of foreign public and

private sector interest in the Vietnamese economy. According to the

government of Vietnam, total foreign assistance disbursed to Vietnam in

1993 approached $500 million, compared with an average of about

$75 million annually during the last half of the 1980s. In the fall of 1993,

multilateral and bilateral donors combined pledged nearly $1.9 billion in

development assistance at the first international donors conference on

Vietnam. The World Bank pledged to provide approximately $400 million a

year for the next 5 to 10 years, the Asian Development Bank pledged about

$300 million for 1993, and the International Monetary Fund granted

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Vietnam access to credits in excess of $200 million for the initial year of

lending.4

Vietnam’s international trade (imports and exports combined) increased

from about $3.6 billion in 1988 to $8.2 billion in 1993,5

 while the stock of

foreign investment commitments rose from about $364 million in 1988 to

nearly $11 billion as of December 1994. In line with Vietnam’s stated

foreign policy orientation, Asian countries dominate Vietnam’s trade and

investment statistics. In addition to being by far the largest supplier of

foreign assistance with over $1 billion in development loan commitments

(focused primarily on infrastructure projects), Japan is Vietnam’s largest

trade partner, followed closely by Singapore. Table 1 lists Vietnam’s five

largest trade partners for 1993. Table 2 lists Vietnam’s largest sources of

foreign investment.

Table 1: Vietnam’s Largest Trading

Partners in 1993 Dollars in billions

Partner Total trade

Japan $1.72

Singapore 1.33

South Korea 0.82

Hong Kong 0.65

France 0.46

Others 3.23

Total $8.21

Source: International Monetary Fund.

Table 2: Five Largest Sources of

Foreign Direct Investment in Vietnam

(as of December 1994) 

Dollars in billions

Source Commitments

Taiwan $1.96

Hong Kong 1.79

Singapore 1.07

South Korea 0.88

Japan 0.78

Source: Vietnam State Committee for Cooperation and Investment.

4

An additional $2 billion was reported as pledged at the second annual donors conference in

November 1994, but complete information on these pledges was not immediately available.

5

The 1988 figure, including ruble-denominated trade, was provided by the Central Intelligence Agency.

The 1993 number was provided by the International Monetary Fund.

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In addition to Japan, other governments in the region have resumed full

diplomatic relations with Vietnam and are taking other steps to facilitate

growth in commercial relations. For example, during his 1994 visit,

Australia’s Prime Minister announced plans to provide about $200 million

(in Australian dollars) in assistance to Vietnam over the ensuing 4-year

period. One objective of this assistance is to promote Australian private

sector success in Vietnam. The government of Taiwan has also pledged a

substantial amount of assistance and, under its recently announced

southward trade and investment policy, has encouraged Taiwanese

companies to become engaged in Vietnam, along with other Southeast

Asian countries. Countries outside of the region, most prominently France,

have undertaken similar efforts. France’s President has visited Vietnam,

and France is providing Vietnam economic assistance and export credits.

The United States Has

Taken Significant

Steps Toward Full

Relations With

Vietnam, but

Constraints Remain

The United States and Vietnam have not yet established full diplomatic

relations. However, since 1991 the United States has taken several steps

toward resuming full relations. In April of that year, the United States

presented Vietnamese officials with a “road map” outlining a series of

actions to be taken by Vietnam to assist in resolving the POW/MIA issue and

the unsettled situation in Cambodia and to facilitate emigration for

persons in detention in Vietnam due to their association with the pre-1975

U.S. war effort. Progress in these areas on the Vietnamese side would be

met by a series of specific U.S. steps toward expanded relations. While not

specifically embracing the road map, the Clinton administration has stated

that additional movement toward full relations would depend on tangible

progress in specific areas of concern regarding the POW/MIA issue.

Beginning in 1991, the U.S. government permitted (1) financial institutions

to transfer remittances from Vietnamese-Americans back to their families

in Vietnam and (2) travel service providers to arrange travel to Vietnam.

During 1992, the U.S. government liberalized controls on NGO operations

and permitted U.S. companies to establish telecommunications links with

Vietnam, provide goods and services addressing basic human needs, and

sign executory contracts, in anticipation of the end of the embargo.

In 1993, the United States ended its opposition to resumption of IFI lending

and shortly thereafter permitted U.S. companies to participate in

IFI-funded projects. In February 1994, the President announced a decision

to expand the official U.S. presence in Vietnam to the level of a liaison

office (pending resolution of technical issues discussed later in this

report) and to end the trade embargo.

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In practical terms, the end of the embargo meant that persons subject to

U.S. jurisdiction were now free to engage in business with Vietnam. The

end of the embargo was accompanied by a downgrading of Vietnam’s

classification for export control purposes. Most U.S. exports to Vietnam

can now be made without restriction.6

The two countries announced the opening of liaison offices in each other’s

capitals at the end of January 1995. These offices will have small staffs

(e.g., 11 U.S. State Department personnel in Hanoi) and will be headed by

officials with the rank of consul-general, rather than ambassador. They

will, however, conduct most consular and other functions (e.g., economic

reporting) on a limited scale.

Though other legal constraints remain, the Foreign Operations

Appropriations Act for Fiscal Year 1995 removed certain of the

outstanding prohibitions on activity within Vietnam by a number of U.S.

agencies, including the U.S. Agency for International Development (USAID),

the Trade and Development Agency, the Overseas Private Investment

Corporation, and the Eximbank. The act omitted language included in

prior appropriations acts that specifically prohibited direct and indirect

assistance to Vietnam and repealed similar language that had been

included as section 13 of the State Department Appropriations

Authorization Act of 1973.7

 These changes built upon the executive

branch’s existing authority to establish a diplomatic presence in Vietnam

and take some other actions. Other legal constraints, discussed below,

continue to limit development of U.S. relations with Vietnam.

U.S. Private Interests Are

Building Relations With

Vietnam

Even before the trade embargo was lifted, U.S. companies, NGOs, and

Vietnamese-Americans had begun to build relations with Vietnam, as

permitted under regulations in effect during that time. These relationships

have continued to grow. According to the American Chamber of

Commerce in Vietnam, approximately 30 U.S. companies had established

offices in Vietnam by the time the embargo was lifted, and the number has

grown steadily since that time. During 1993, U.S. companies exported

products valued at less than $7 million to Vietnam, but this total increased

to about $156 million for the first 11 months of 1994. The total stock of

6

For export control purposes, Vietnam is now in the same country group as Russia. Commerce

Department officials noted that restrictions may still be applied to some exports—for example,

high-powered computers that may have potential for applications in nuclear weapons programs.

7

In 1990, Congress repealed an explicit prohibition on Public Law-480 food assistance to communist

countries, including Vietnam.

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U.S. investment commitments rose from nothing prior to the embargo’s

being lifted to a reported $270 million as of December 1994.

U.S. companies seeking opportunities or already doing business in a

variety of sectors in Vietnam include Fortune 500 companies as well as

smaller firms. Petroleum products companies figure prominently because

of interest in production from offshore oil fields, including some in or near

the disputed territory in the South China Sea. Others include service

companies (e.g., consulting, construction, banking, and insurance) and

companies selling manufactured goods ranging from aircraft to

pharmaceuticals and other consumer products.

Some U.S. NGOs were involved in Vietnam through the 1980s. However,

their presence has grown significantly in recent years. From 1990 through

1994, the number of U.S.-based NGOs reporting operations in Vietnam rose

from 49 to 73. One official estimated the value of U.S. NGO operations in

Vietnam during 1993 at approximately $15 million. Overall, officials in

Vietnam estimated that more than 200 foreign NGOs operated programs

valued at about $50 million during 1993. U.S. NGOs formerly focused on

health and education/exchange programs in order to comply with U.S.

restrictions, but now that restrictions have been removed the focus has

already broadened to include long-term development issues.

The Vietnamese-American community, estimated to number over 750,000

people, is made up largely of refugees and others who left Vietnam under

adverse circumstances. Vietnamese-Americans have maintained

substantial links to family and friends in Vietnam, sending back hundreds

of millions of dollars each year in cash and goods and visiting with some

frequency. Estimates of both remittances and travel vary considerably.

However, we were told that Vietnamese government sources estimated

that 1993 remittances amounted to about $600 million and that about

87,000 overseas Vietnamese visited Vietnam during that year.

Vietnamese-Americans have also begun to sponsor NGO activities focusing

on humanitarian assistance and educational and cultural exchange and are

moving in greater numbers to establish business relations with Vietnam.

Although the community has generally opposed movement toward

increased official U.S. ties with Vietnam, the intensity of that opposition

has declined to some extent in recent years. Nonetheless,

Vietnamese-American leaders continue to urge the United States to seek

improvements in democracy and respect for human rights before fully

normalizing relations with Vietnam.

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U.S. Government

Engagement With Vietnam

Even before the embargo was lifted, the U.S. government had already

engaged with Vietnam in a number of discrete areas. The most prominent

of these interactions have centered on POW/MIA resolution, the Orderly

Departure Program, and bilateral assistance programs. The United States

has also been contributing assistance to Vietnam through its share of

support for multilateral organizations active in that country. While

continuing to emphasize the necessity for continued progress toward

resolution of outstanding POW/MIA cases, U.S. officials have sought to

expand the scope of bilateral relations.

The priority that continues to be attached to the POW/MIA issue is reflected

in U.S. search and identification activities. While exact numbers are not

available, Department of Defense officials estimated total fiscal year 1994

expenditure on such activities at about $59 million.8

 According to

Department officials, expenditures for related activities within Vietnam

totaled more than $11 million in fiscal year 1994. Among other things, this

total includes expenditures for Vietnamese personnel assisting in joint

field activities, helicopter services provided by Vietnam, and per diem for

U.S. personnel on temporary duty in Vietnam.

With congressional support, the executive branch has established a

number of bilateral assistance programs in Vietnam. In commenting on a

draft of this report, State and Defense Department officials emphasized

the linkage between U.S. humanitarian efforts in Vietnam and Vietnamese

cooperation in resolving outstanding POW/MIA cases. U.S. bilateral programs

have included USAID-funded assistance to victims of war and displaced

children (valued at about $10.4 million during fiscal years 1991-94) and

State Department-funded assistance to NGOs assisting refugees returning to

Vietnam ($4.3 million through fiscal year 1994).

The U.S. government has also supported a number of programs aimed at

such purposes as encouraging Vietnam’s transition toward democracy or

development of free markets, or building foundations for greater

U.S.-Vietnamese understanding. For example, the National Endowment for

Democracy is currently providing about $580,000 to five different grantees

for such purposes as training Vietnamese legislators and journalists. The

Asia Foundation devoted about $336,000 of its 1994 congressional grant to

relevant programs, including support for grantees working to improve

8

This figure includes expenditures on resolution of POW/MIA cases stemming from U.S. involvement in

Vietnam, as well as other conflicts such as the Korean War and World War II. It does not include

regular pay and allowances for U.S. military personnel working on these issues.

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Vietnam’s legal, financial and monetary systems.9 In addition to supporting

Vietnamese-language broadcasting, the United States Information Agency

also funds Fulbright scholarships for Vietnamese students studying in the

United States. Total funding since 1992 has been about $4.3 million,

including support for the program’s recent expansion to include U.S.

scholars going to Vietnam.

The United States has not actively participated in international discussions

concerning economic assistance for Vietnam. Nonetheless, the United

States is an indirect source of development assistance to Vietnam through

its contributions to the IFIs and the United Nations. In 1993, the estimated

U.S. pro-rated share of aid pledged to Vietnam by multilateral

organizations exceeded $170 million. This estimate should not be regarded

as precise since it is not possible to establish a direct link between U.S.

contributions to each organization and specific activities in Vietnam.

The recent opening of liaison offices came only after resolution of two

technical issues: (1) consular access to U.S. citizens incarcerated in

Vietnam and (2) compensation to the Unites States for 22 diplomatic

properties expropriated by the Vietnamese.

Consular access became an issue because Vietnam officially permits its

citizens to renounce their citizenship only by approval of the government.

The government therefore regards naturalized U.S. citizens of Vietnamese

origin as citizens of Vietnam. This issue was resolved through an

agreement permitting U.S. officials to see U.S. passport holders within 

96 hours of their being detained by Vietnamese authorities.

Regarding the diplomatic properties in Vietnam, U.S. and Vietnamese

negotiators arrived at an agreement wherein compensation will be

provided to the United States through (1) outright return of 5 properties,

(2) cash compensation for 12 properties, and (3) exchange of the

remaining 5 for equivalent properties in Vietnam. To ensure that these

properties would be valued at fair market rates, the State Department

employed the services of valuation experts from internationally

recognized real estate firms.

At the time the liaison offices were opened, the Department of State also

announced the successful conclusion of negotiations aimed at obtaining

9

The East-West Center, a think-tank associated with the University of Hawaii, also receives substantial

support from the U.S. government, and is currently working with Vietnamese scholars on a variety of

development issues. According to the Center, however, all of its work with Vietnam is supported by

grants from private foundations.

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compensation for about $209 million in claims (including interest) by U.S.

private sector claimants and the Overseas Private Investment Corporation

for losses incurred due to Vietnamese expropriation. The private claims,

amounting to about $204 million of this total, were adjudicated by the U.S.

Foreign Claims Settlement Commission under a statutory program that

ended in 1985. Payment to claimants came from more than $350 million

(including interest) in blocked Vietnamese assets held in U.S. financial

institutions since 1975. Vietnam took possession of the assets that

remained after U.S. claims were satisfied.

Negotiations are still ongoing concerning agreement on a repayment plan

for more than $150 million in official debt owed to the U.S. government by

the former Republic of Vietnam. While Vietnam recognized its obligation

to pay the official debt of the former Republic of Vietnam in Paris Club

negotiations during 1993, these negotiations have proceeded slowly, and

matters are not yet resolved. The United States has also initiated a

dialogue on human rights with Vietnam.

In addition, State and Transportation Department officials are pursuing

the establishment of civil aviation links between the United States and

Vietnam. However, differing views on market access seem likely to delay

the initiation of regularly scheduled service between the two countries for

some time. U.S. negotiators are seeking to establish a bilateral relationship

based on open competition, while Vietnamese negotiators seek to strictly

limit market access.

Statutory Constraints

Remain

A complex set of statutory constraints continues to bar U.S. foreign

assistance and trade support agencies (USAID, the Trade and Development

Agency, the Overseas Private Investment Corporation, and the Eximbank)

from operating in Vietnam and otherwise restrict expansion of

U.S.-Vietnamese relations.10 Many of these constraints may be overcome if

the executive branch determines that certain conditions have been met.

Congressional notification and/or concurrence is required in some

instances—including for any proposals for USAID activity in Vietnam.

The most well-known of the remaining constraints is the Jackson-Vanik

amendment (section 402 of the Trade Act of 1974, as amended). Under this

provision, the United States cannot award most-favored nation (MFN) trade

10USAID programs in Vietnam to date have been limited to categories wherein successive

appropriations acts have permitted assistance to be provided “notwithstanding any other provision of

law.”

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status, extend official credits or investment guarantees,11 or conclude

commercial agreements with nonmarket economies unless they are found

to provide their citizens with the freedom to emigrate. The President can

overcome this provision either by issuing a report to Congress indicating

that the conditions listed in the law have been satisfied or by waiving

application of the conditions on the basis of his determination that the

waiver will substantially promote the amendment’s objectives.

Determinations of full compliance must be renewed every 

6 months, while waivers must be renewed annually. The waiver authority

provided by the amendment has been used on several occasions—for

example, for the People’s Republic of China. Provision is made in the law

for Congress to disapprove determinations of compliance or waivers by

joint resolution. In addition, MFN status cannot be granted until the United

States and Vietnam conclude a trade agreement approved by both houses

of Congress. Such an agreement must include a reciprocal grant of MFN

status and other specified provisions (e.g., protection for intellectual

property). Even if Vietnam becomes a full member of the World Trade

Organization, the United States cannot accord MFN status to Vietnamese

exports until the requirements of Jackson-Vanik are met.

In addition to Vietnam’s ineligibility for MFN status, Vietnamese access to

the U.S. market is further limited by Vietnam’s ineligibility for participation

in the Generalized System of Preferences. This program provides duty-free

access to the U.S. market for developing country products. Countries’

participation in the program is conditioned on a variety of factors. Some,

including progress toward adequate worker rights protection, may be

waived by the President if he determines that this is in the national

economic interest of the United States. Other factors, however, including

some that apply specifically to Communist countries, cannot be waived.

These include the precondition that a country have MFN status with the

United States and be a member of the General Agreement on Tariffs and

Trade (now succeeded by the World Trade Organization).

Section 620(f) of the Foreign Assistance Act prohibits assistance

(including through the Trade and Development Agency and the Overseas

Private Investment Corporation) to Communist countries (including

Vietnam) unless the President makes certain determinations or exempts a

country from application of this provision on the grounds that such a

11Affected credit programs include those provided through Eximbank and the Department of

Agriculture. However, Agriculture officials pointed out that legal restrictions on credit do not apply to

a number of programs in which food is donated or otherwise provided to other countries through

outright subsidization. This includes the USDA’s Export Enhancement Program and others aimed at

promoting exports of particular commodities.

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move is important to U.S. national interests. The matters to be determined

are that (a) the assistance is vital to U.S. security, (b) the country is not

controlled by the international Communist conspiracy, and (c) assistance

will promote independence from international Communism. The law also

suggests that progress in fostering democracy and respect for human

rights be one of the factors weighed in considering assistance to countries

that the President has exempted from application of this section. Action

has been taken under this provision on several occasions—for example,

for China during 1985 and for certain Eastern European countries and the

Soviet Union during 1989-91. In addition, the Eximbank is specifically

prohibited by its authorizing legislation from doing business in

Marxist-Leninist countries, but this restriction may also be waived by the

President if it is determined that proposed transactions are in the U.S.

national interest.

Foreign assistance legislation also prohibits assistance to countries with

which the United States has severed diplomatic relations or that have

(1) expropriated U.S. property without just compensation or (2) defaulted

on loan repayments.12 While the United States and Vietnam have reached

an agreement with regard to expropriated U.S. property, the two countries

still do not have full diplomatic relations, and, as already noted,

negotiations aimed at addressing outstanding Vietnamese debt to the

United States have not yet been concluded.

In the International Monetary Fund and the World and Asian Development

Banks, the United States abstains from voting on proposals for assistance

to Vietnam—except for projects addressing basic human needs. In the

case of the Fund, this policy was adopted in compliance with the Gramm

amendment (section 43 of the Bretton Woods Agreement Act, as

amended), which requires the United States to actively oppose Fund credit

facilities for Communist dictatorships. However, the amendment contains

a mechanism that allows U.S. support for individual proposed loans if the

executive branch certifies to Congress that such loans meet certain

criteria. These criteria are that loans (1) assist in correcting balance of

payments difficulties, (2) advance market-oriented forces, and (3) are in

the best economic interests of the majority of the population. This voting

pattern was extended to the banks as well as a matter of policy.

12Regarding countries with which the United States has severed diplomatic relations, see section 620(t)

of the Foreign Assistance Act of 1961, as amended. Regarding expropriated property, see section

620(e) of the Foreign Assistance Act of 1961 as amended (the Hickenlooper Amendment) and section

527 of the Foreign Relations Authorization Act for Fiscal Years 1994 and 1995 (the Helms

Amendment). Regarding delinquent loans, see section 620(q) of the Foreign Assistance Act of 1961 and

section 512 of the Foreign Operations Appropriations Act for Fiscal Year 1995 (the Brooke

Amendment).

Page 15 GAO/NSIAD-95-42 U.S. Vietnam Relations
B-257353 

A number of other constraints also exist. For example, Eximbank and the

Department of Agriculture can only provide credit to countries that they

deem to be acceptable credit risks—an uncertain issue for Vietnam at the

present. In addition, the Overseas Private Investment Corporation can only

operate in countries where it has determined that substantial progress is

being made toward providing adequate protection for internationally

recognized workers rights unless the President waives this restriction in

the national economic interest.

Several Features of Normal

U.S. Relations With

Developing Countries Are

Absent With Vietnam

The United States and its trading partners typically seek to protect their

commercial interests in each other’s territories through multilateral and

bilateral agreements regulating trade, investment, and taxation practices.

Because Vietnam does not belong to the World Trade Organization and has

concluded no bilateral agreements with the United States in these areas,

there is no international mechanism in place to regulate or protect U.S.

business interaction with Vietnam.

U.S. businesses in other countries can also typically benefit from (1) the

information and advocacy services provided by the U.S. Foreign and

Commercial Service and the Foreign Agricultural Service, (2) the credit

facilities of the Eximbank and the Department of Agriculture,

(3) investment insurance and other services through the Overseas Private

Investment Corporation, (4) feasibility studies and other activities by the

Trade and Development Agency, and (5) a number of types of activities

undertaken by USAID. However, legal restrictions and administration policy

keep these other agencies inactive in Vietnam for the most part. For

example, the U.S. and Foreign Commercial Service and the Foreign

Agricultural Service do not have personnel permanently assigned to

Vietnam. However, current policy does permit them to assist U.S.

businesses in a more limited fashion—for example through written and

electronic communications with Vietnam and ad hoc travel.

The U.S. policy of abstaining on most IFI votes on assistance to Vietnam

limits U.S. influence on the courses of action recommended to Vietnam by

these agencies. Since USAID is not active in Vietnam, the United States also

does not contribute to dialogue on Vietnamese policy making through this

agency’s operations.

Page 16 GAO/NSIAD-95-42 U.S. Vietnam Relations
B-257353 

U.S. and Vietnamese

Interests in Bilateral

Relations

Relations between the United States and Vietnam continue to be troubled

by the aftermath of the armed conflict between the two countries that

ended 20 years ago. U.S. decisionmakers continue to agree that highest

emphasis should be placed on obtaining tangible progress toward

obtaining the fullest possible accounting for U.S. service personnel still

unaccounted for as an underlying requirement for forward progress in

U.S.-Vietnamese relations. Executive branch officials, for example, stated

that the decisions to end the embargo and open liaison offices were made

only after concluding that significant tangible progress was being made on

this issue. Similarly, executive branch officials concluded that these

actions would contribute to further progress being obtained.

Although this issue remains the focal point of official U.S.-Vietnamese

interaction, the United States and Vietnam each have a number of other

interests in pursuing improved bilateral relations. Both have commercial

and security interests, while the U.S. agenda also includes promotion of

democracy and respect for human rights.

In the commercial area, a number of U.S. companies and business

organizations have pointed to opportunities in the Vietnamese market. In a

survey by the U.S.-ASEAN Business Council, 110 companies estimated that

they expected more than $8 billion in trade and investment opportunities

in Vietnam over the next 5 years. The projected points of concentration in

this universe reflect portions of Vietnam’s national agenda for investment

for development. They include the power sector, transportation, road

construction, and telecommunications, as well as the oil and gas sector.

Services and consumer goods are also expected to offer opportunities.

While name brand recognition is often already high for U.S. products,

private sector representatives pointed out that firms that successfully

establish themselves in this new market at an early date may have an

advantage over their later-arriving competitors. Vietnamese officials have

indicated that American products are welcome, while adding that U.S.

capital, technology, and management expertise are highly valued in

Vietnam. Aviation, oil and gas, and telecommunications are singled out as

sectors where access to superior U.S. technology is highly desired.

For their part, Vietnamese officials believe that the United States can be a

lucrative market for Vietnam’s exporters, just as it has proven to be a key

market for other developing countries in Asia. This will be especially true

if the United States grants Vietnam MFN status. U.S. imports from Vietnam

were reported to amount to about $48 million during the first 11 months of

1994, with coffee accounting for nearly 60 percent of this total. However,

Page 17 GAO/NSIAD-95-42 U.S. Vietnam Relations
B-257353 

the Vietnamese garment industry is growing, and, if the example set by

other Asian success stories is followed, Vietnamese exports of apparel,

electronics, and other labor-intensive products can be expected to rise

rapidly. In addition, while retaining, to a degree, the suspicions held over

from a prior era, Vietnamese authorities are anxious to benefit from the

assistance that can be provided by Vietnamese expatriates, especially

technical and managerial skills that are lacking in Vietnam. Improved

relations with the United States may facilitate Vietnamese access to this

expertise.

In the security area, the United States shares Vietnamese interest in

maintaining stability in the region. The United States has increased its

overall foreign policy emphasis on the Asia-Pacific region, largely because

of the United States’ increased stake in the area’s economic growth. In this

context, the United States has renewed its commitment to maintaining

peace and stability in the region. While maintaining a military presence in

the region, the United States has supported development of new regional

mechanisms to avoid conflict. These include the ASEAN Regional Security

Forum, which includes the United States and Vietnam, as well as China

and others in the region. Peaceful settlement of the regional dispute over

the Spratly Islands and other issues involving Vietnam that may arise is in

the interest of the United States. One motivating factor behind Vietnam’s

efforts to develop better relations with the United States is the balancing

effect that a U.S. presence can have on Chinese and Japanese influence in

Southeast Asia.

Promoting progress toward democracy and protection for human rights in

other countries is an established U.S. foreign policy goal. Vietnamese

officials have indicated that they will discuss these issues with U.S.

representatives, although their concepts in these areas differ from those

held in the United States. U.S. government and other analysts commented

that part of the rationale for moving forward with Vietnam is that opening

Vietnam to the world community generally, and U.S. involvement

specifically, will foster the spread of more democratic political thought.

As stated in the Foreign Assistance Act and related legislation, concern for

the welfare of the poor is also a traditional element in U.S. foreign policy.

International organizations as well as Vietnamese sources report that

poverty continues to be a severe problem in Vietnam. For example,

malnutrition rates among children are very high. Vietnam already has the

thirteenth largest population in the world, and current population growth

is adding about 1 million new Vietnamese to the population each year,

Page 18 GAO/NSIAD-95-42 U.S. Vietnam Relations
B-257353 

while the quality of social services, including health care and education,

has declined.

U.S. officials also share with their Vietnamese counterparts concern about

potential growth in drug trafficking both within and through Vietnam from

the nearby golden triangle opium-producing region. Finally, Vietnam

currently lacks the capacity to address major environmental problems that

have national and international implications, including ongoing

deforestation and destruction of fertile soils.

Vietnam Faces an

Uncertain Future

Prospects for Economic

Progress

Many U.S. and foreign analysts believe that Vietnam has the potential to

become the next dynamic Asian economy. Among other considerations,

these analysts cite (1) continued progress in the Doi Moi reform program;

(2) steady 6 to 8 percent rates of gross domestic product growth in recent

years while keeping inflation under control;13 (3) the relatively high quality

of Vietnam’s plentiful, low-cost labor force; and (4) the geographic

location of Vietnam, surrounded by others that have achieved remarkable

economic successes in recent years, such as Malaysia, Indonesia,

Thailand, and southern China.

While economic trends suggest that Vietnam is on course to accomplish its

goal of doubling its gross domestic product during the 1990s, this is not a

foregone conclusion. While noting positive aspects of the situation in

Vietnam, U.S. and foreign analysts also point out that the country is still

plagued by problems that developed during decades of war and

communist economic policies. These include an inadequate physical

infrastructure; legal and financial systems that, despite recent reform

measures, cannot support a modern market economy; and bureaucratic

obstacles that include unclear lines of authority and corruption. While

Vietnam will continue to require substantial infusions of foreign capital

from both private and official sources to accomplish its goals, actual

commitments from both sources have lagged behind announced pledges.

One Vietnamese official commented that less than one-quarter of

announced private foreign investments have been realized so far.

13Inflation has become a problem recently, however. For example, prices reportedly increased by more

than 7 percent during the first 2 months of 1995.

Page 19 GAO/NSIAD-95-42 U.S. Vietnam Relations
B-257353 

Even if Vietnam does achieve its goals, it will remain a relatively small

market in the near term. Table 3 provides a basis for comparing Vietnam’s

potential economic significance to the United States with the relative

significance of some other countries in the region. The table also gives

some indication of the importance that Vietnam might someday assume.

As the table shows, the United States has a trade deficit with all of these

countries.

Table 3: Vietnam’s Trade With the

United States Compared With That of

Other Asian Countries (1993) 

Dollars in billions

Country

Population in

millions Total trade

Exports to

U.S.

Imports

from U.S.

Vietnam 72 $ 8.2 • •

Indonesia 191 65.2 $ 5.2 $ 3.3

Philippines 64 29.2 4.3 3.6

Thailand 58 83.2 8.0 5.4

Malaysia 19 92.6 9.6 7.7

Hong Kong 6 273.7 31.2 10.3

China 1,188 195.5 17.0a 10.6

Singapore 3 159.5 15.1 14.0

South Korea 44 167.9 18.1 17.9

aU.S. figures show a much higher volume of Chinese exports to the United States, largely

because China counts many goods shipped to the United States through Hong Kong as exports

to Hong Kong. In 1993, the United States reported receiving about $31.2 billion in exports from

China and $10 billion from Hong Kong.

Sources: International Monetary Fund and, for Vietnam and Hong Kong populations, the Central

Intelligence Agency. Population figures for countries other than Hong Kong and Vietnam are for

1992.

Status of Human Rights

and Democratic

Development

According to academic studies and reports by human rights advocates,

Vietnam has stated that it is committed to the rule of law, and the

government allows some latitude for criticism of its policies. Among other

reported improvements, the revised labor code recognizes the right of

workers to go on strike. However, human rights advocates and U.S.

officials point out that implementation of improved legal systems has been

inadequate, the country remains a one-party state, and basic challenges to

the leadership role of the Communist party are not tolerated. The

government has been criticized for undue interference with the exercise of

religious freedom within Vietnam and for other violations of human rights.

Page 20 GAO/NSIAD-95-42 U.S. Vietnam Relations
B-257353 

In commenting on the future in Vietnam, some analysts observed that the

Communist party enjoys a high degree of legitimacy as the party that led

Vietnam to independence and national unity and that no other force is

likely to mount a serious challenge to party leadership in the foreseeable

future. Vietnamese and outside observers commented that the government

and the party have adopted a pragmatic approach to managing change that

is aimed at achieving economic growth while maintaining the party in

power. Vietnamese officials refer to the free-market, single-party

development paths followed by states like Singapore and Taiwan for

object lessons for Vietnam. However, the Communist party’s commitment

to development of a market economy cannot be viewed as unequivocal

because the party is concerned with the potential consequences, including

demands for greater political and personal freedom.

Role in Regional Affairs Though it traditionally played a dominant role in Indochina, Vietnam’s

current poverty severely limits its ability to exert influence in regional

affairs, militarily or otherwise. Its most threatening potential adversary,

China, possesses overwhelming military and economic resources. Vietnam

may eventually establish a leadership role within an expanded and

strengthened ASEAN but is not currently in a position to exercise

substantial influence on its own accord.

Pace of Forward

Movement

Executive branch officials and other analysts commented that the pace at

which the administration moves toward expanded bilateral ties will

depend largely on U.S. conclusions regarding developments within

Vietnam.

Administration officials emphasized that progress on the POW/MIA issue

remains the foremost consideration in evaluating possible additional steps

forward. The administration has predicated further progress toward full

relations on progress in specific areas of concern within this general issue,

including recovery and repatriation of American remains, resolution of

outstanding last-known-alive discrepancy cases,14 trilateral investigations

along the Lao-Vietnamese border, and recovery of relevant documentation

from sources inside Vietnam. Increased respect for human rights and

14These are individuals whose fate remains unknown, but who were alive when last in contact with

U.S. forces, and with regard to whom intelligence indicates that the government of Vietnam should be

able to either provide substantial information concerning their fate or recover their remains. One

example would be an individual who parachuted from a disabled aircraft in the immediate vicinity of

North Vietnamese ground troops but was never officially reported as killed or captured by North

Vietnam.

Page 21 GAO/NSIAD-95-42 U.S. Vietnam Relations
B-257353 

movement toward democracy within Vietnam are also viewed as key

concerns when considering additional steps, such as granting MFN status or

inaugurating activity by Eximbank and other agencies. While not at the

center of current discussions, U.S. commercial and security concerns are

also factors in the debate on the future of U.S.-Vietnam relations.

Agency Comments

and Our Evaluation

We discussed a draft of this report with representatives from the

Departments of State and Defense, and both Departments provided

written comments, reproduced in their entirety in appendixes I and II,

along with our specific evaluations of individual comments. Both agencies

emphasized that progress on the POW/MIA issue has been the foremost

consideration in U.S. diplomatic initiatives regarding Vietnam. We believe

that the report makes clear the linkage between executive branch actions

and the POW/MIA issue. The agencies also suggested some clarifications and

provided additional details, particularly with regard to the recent history

of U.S.-Vietnamese negotiations. These suggestions have been

incorporated into the report where appropriate.

Scope and

Methodology

To obtain information for the report, we interviewed and collected

documentation from officials of the U.S. and Vietnamese governments in

Washington, D.C., and New York, and from the embassies of Japan, Korea,

Australia, France, Indonesia, and Malaysia, and the Taipei Economic and

Cultural Relations Office. We spoke with representatives of U.S.

companies doing business, or interested in doing business, in Vietnam. We

also spoke with officials of business groups, IFIs and the U.N., NGOs with

operations in Vietnam, individuals and groups concerned with the POW/MIA

issue, representatives of the Vietnamese-American community, and

academics who have studied Vietnam and international affairs in

Southeast Asia in general. We did not evaluate the efficacy of U.S. and

Vietnamese efforts toward resolution of the POW/MIA issue.

We conducted this review from February 1994 through January 1995, in

accordance with generally accepted government auditing standards.

We are sending copies of this report to the Secretaries of State and

Defense. We will also make copies available to others upon request.

Page 22 GAO/NSIAD-95-42 U.S. Vietnam Relations
B-257353 

If you or your staff have any questions concerning this report, I can be

reached on (202) 512-4128. Major contributors to this report are listed in

appendix III.

Joseph E. Kelley

Director-in-Charge

International Affairs Issues

Page 23 GAO/NSIAD-95-42 U.S. Vietnam Relations
Contents

Letter 1

Appendix I 

Comments From the

Department of State

26

Appendix II 

Comments From the

Department of

Defense

29

Appendix III 

Major Contributors to

This Report

33

Tables Table 1: Vietnam’s Largest Trading Partners in 1993 7

Table 2: Five Largest Sources of Foreign Direct Investment in

Vietnam

7

Table 3: Vietnam’s Trade With the United States Compared With

That of Other Asian Countries

20

Figure Figure 1: The Asia-Pacific Region 4

Abbreviations

ASEAN Association of Southeast Asian Nations

IFI international financial institution

NGO nongovernmental organizations

MFN most-favored nation

POW/MIA prisoner of war/missing in action

USAID U.S. Agency for International Development

Page 24 GAO/NSIAD-95-42 U.S. Vietnam Relations
Page 25 GAO/NSIAD-95-42 U.S. Vietnam Relations
Appendix I 

Comments From the Department of State

Page 26 GAO/NSIAD-95-42 U.S. Vietnam Relations
Appendix I 

Comments From the Department of State

Page 27 GAO/NSIAD-95-42 U.S. Vietnam Relations
Appendix I 

Comments From the Department of State

Page 28 GAO/NSIAD-95-42 U.S. Vietnam Relations
Appendix II 

Comments From the Department of Defense

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

See comment 1.

See comment 1.

Page 29 GAO/NSIAD-95-42 U.S. Vietnam Relations
Appendix II 

Comments From the Department of Defense

See comment 2.

See comment 1.

See comment 3.

Page 30 GAO/NSIAD-95-42 U.S. Vietnam Relations
Appendix II 

Comments From the Department of Defense

Page 31 GAO/NSIAD-95-42 U.S. Vietnam Relations
Appendix II 

Comments From the Department of Defense

The following are GAO’s comments on the Department of Defense’s letter

dated December 20, 1994.

GAO Comments 1. Report text was modified to reflect this comment.

2. We agree that Vietnamese-American leaders continue to oppose

normalization of U.S.-Vietnamese relations on democracy and human

rights grounds. In the community at large, however, there has been some

reduction in the intensity of opposition to taking steps toward normalized

relations.

3. This statement has been deleted from the final report.

Page 32 GAO/NSIAD-95-42 U.S. Vietnam Relations
Appendix III 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Benjamin Nelson

Lawrence Suda

Michael McAtee

Dorena Rodriguez

Richard Kelley

(711070) Page 33 GAO/NSIAD-95-42 U.S. Vietnam Relations
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