Vietnam - United States Diplomatic, Defense and Economic Relationas in 2018 Carlyle Alan Thayer

Q1. How do you assess the status of the US-Vietnam relationship over the past year, with a focus on diplomacy, security, and economics and trade?

ANSWER: Vietnam and the United States kept up high-level diplomatic, defencesecurity and economic exchanges in 2018 demonstrating the effectiveness of bilateral cooperation across a broad range of issues under their framework comprehensive partnership. Nevertheless, there are some potential challenges Vietnam will have to surmount.

In terms of diplomacy, Secretary of State Mike Pompeo visited Hanoi in July after a trip to North Korea. Pompeo met with his counterpart Foreign Minister Pham Binh Minh and was received by the party Secretary General Nguyen Phu Trong and Prime Minister Nguyen Xuan Phuc. Pompeo came to discuss denuclearization on the Korean Peninsula. He extolled Vietnam’s successful model of opening up and international integration to North Korea’s leaders. This hints at a possible role for Vietnam in enticing North Korea out of isolation.

Secretary of Defense James Mattis met his counterpart Minister of National Defense General Ngo Xuan Lich four times during the year, including two visits to Vietnam. Mattis’ first visit took place in January shortly after the Pentagon released the U.S. National Defense Strategy. Mattis came to listen to Vietnam’s views on defence and security cooperation with the United States and to promote a networked security architecture to maintain regional stability and access to the South China Sea.

In March, Vietnam hosted the first visit of the USS Carl Vinson, a nuclear powered aircraft carrier, at Tien Sa port, Da Nang. Three months later Mattis and Lich met on the sidelines of the Shangri-La Dialogue in Singapore. In late June, Vietnam dispatched eight military officers to participate for the first time in the Rim of the Pacific Exercises in the waters near Hawaii. Previously Vietnam only sent observers.

In August, the United States hosted the eighth United States-Vietnam, Political, Security and Defense Dialogue in Washington at vice minister level. In October Vietnam hosted the ninth Defence Policy Dialogue also at vice ministerial level. The U.S. was represented by Randall Schriver, Assistant Secretary of Defense for Asian and Pacific Security Affairs. This was Schriver’s third visit to Vietnam during the year.

Secretary Mattis returned to Vietnam in October to meet General Lich in Ho Chi Minh City prior to attending the ASEAN Defence Ministers’ Meeting Plus in Thayer Consultancy ABN # 65 648 097 123 2 Singapore. Mattis viewed Agent Orange remediation efforts at Bien Hoa Air Base. He committed the United States to address war legacy issues and to assist Vietnam’s peacekeeping commitments in the South Sudan.

On the face of it bilateral relations appear to be on an upward trajectory but beneath the surface a potentially serious issue has arisen. In August, the U.S. Congress passed the Countering America’s Adversaries Through Sanctions Act (CAATSA). CAATSA threatens sanctions against countries that purchase weapons and military equipment from Russian defense companies. All the Russian companies Vietnam deals with are on the CAATSA list.

At the recommendation of Secretary Mattis the Senate Armed Services Committee has agreed to grant waivers exempting only three countries from sanctions - India, Indonesia and Vietnam. However, CAATSA excludes the possibility of waivers for countries dealing with Russian intelligence agencies and other entities engages in cyber attacks. Additionally, waivers are subject to review. The Trump Administration must certify that the countries granted a waiver are taking steps to sufficiently reduce their reliance on Russian weapon systems.

At the conclusion of ninth Defence Dialogue Vietnam informed the United States that it was cancelling fifteen joint military activities with the U.S. Army, Navy and Air Force scheduled for 2019. These activities had been negotiated over a period of several months and U.S. officials were surprised by Vietnam’s actions.

It was subsequently reported that Vietnam also has cancelled similar military activities with foreign countries scheduled for 2019. It can only be speculated that Vietnam responded to pressure to buy American military equipment and/or curtail its defence procurement from Russia.

In terms of economic relations, Deputy Prime Minister Vuong Dinh Hue met Treasury Secretary Steven Mnuchin in Washington to discuss outstanding issues such as U.S. designation of Vietnam as a non-market economy, U.S. tariffs on shrimp, catfish and steel and aluminium. While no major break through was made, the two ministers agreed to conduct a working level dialogue to discuss trade issues.

Q2. The Trump administration has announced incentives to beef up the US engagement in the Indo-Pacific region. What role can Vietnam play in the "free and open Indo-Pacific" strategy?

ANSWER: Secretary of State Mike Pompeo defined what the Trump Administration meant by the Free and Open Indo-Pacific (FOIP) when he addressed the U.S. IndoPacific Business Council on 31 July this year. According to Pompeo, a free Indo-Pacific has two main elements: (1) a region where all countries are able to protect their sovereignty against coercion by another country and (2) a region where all countries have unfettered access to the seas and oceans and where territorial and maritime disputes are resolved peacefully. An open Indo-Pacific means a “fair and reciprocal trade, open investment environments, transparent agreements… and improved connectivity.”

Vietnam can contribute to the two main elements of a free Indo-Pacific in two ways. First, Vietnam should continue to modernize and network its armed forces for joint operations by the People’s Army, People’s Navy and Air Defense-Air Force. Second, 3 Vietnam should expand its defense cooperation with the United States and other countries that support a free Indo-Pacific such as Japan and Australia to build up its self-defense capacity. Vietnam’s progress in both areas has developed too slowly and had not met potential.

With respect to an open Indo-Pacific, Vietnam needs to step up domestic economic reforms to maximize the benefit of multilateral and bilateral free trade agreements (BTA) such as the TPP and a BTA with the United States, respectively. Vietnam needs to be more proactive in pushing for agreement on a high-level Regional Comprehensive Economic Partnership in 2019.

Q3. Among the United States’ trading partners, Vietnam has the fifth largest trade surplus with the U.S. and many have speculated that Vietnam will become the next tariff target of the Trump Administration. However, several fund managers and experts have downplayed this possibility. What is your assessment?

ANSWER: Vietnam’s trade surplus with the United States has risen to $35 billion. As the United States completes BTAs with other countries Vietnam will come into focus. Vietnam has been quick to respond to the Trump Administration by agreeing to negotiate a BTA and to open market access to American companies and investors.

In addition to the hurdles mentioned above (non-market economy status and tariffs), Vietnam faces a potentially serious obstacle in economic relations with the United States – the export of manufactured goods whose components were made in China. The current U.S. tariffs on the export of aluminium and steel from Vietnam illustrate the danger for Vietnam. In addition, there have been reports of another possible difficulty for Vietnam – charges of currency manipulation through devaluation of the dong. Finally, there is another potential obstacle the so-called “poison pill,” this refers to a provision the Trump Administration has inserted in its bilateral free trade agreements with Mexico, Canada and Korea. If any signatory to a trade agreement with the United States signs a free trade agreement with a nonmarket economy, the U.S. has the right to withdraw. The provision of the “poison pill” is aimed at China but it could be applied to Vietnam.

The Trump Administration, in my opinion, is unlikely to apply major new tariffs on Vietnam as long as both sides negotiate in good faith. But Vietnam will have to move more quickly to carry out essential reforms to meet Pompeo’s criteria for an open Indo-Pacific – “fair and reciprocal trade” and an open investment environment.

U.S. relations with Vietnam will continue on their present trajectory despite Secretary Mattis’ resignation and his retirement from office by January 1, 2019. The U.S. Congress this month passed the Asia Reassurance Initiative Act. (ARIA) This will become law once President Trump signs it. Vietnam is singled out as an important security partner of the United States and this is a positive development.

On January 3, 2019 the Democratic Party will assume control of the House of Representatives. It is unclear what this means for Vietnam but it is likely that human rights and religious freedom issues will be raised and could be an irritant in bilateral relations. ARIA expresses serious concern over the rule of law and civil liberties in Vietnam (as well as four other Southeast Asian countries) but it does not include 4 restrictions on Vietnam that are placed on Cambodia, China, Myanmar, and the Philippines.