Expanding trade, slowly

President Clinton got it right in describing the recent trade agreement between the United States and Vietnam as a “historic step in normalization, reconciliation and healing.” It took five years of tough bargaining, and it took guts on each side to reach the accord.

The United States had to swallow its wounded pride at being defeated in the longest war in its history. It agreed to lower its punitive tariffs on Vietnamese imports and close its eyes to various human rights abuses by the one-party communist government and Vietnam’s low wage rates, offensive to many Americans but attractive to the ambitious, hard working Vietnamese who are glad to take such jobs.

For Vietnam, the agreement means that the Communist Party will gradually lose much of its control over the Vietnamese economy, with its many bloated and inefficient state-owned corporations. Bureaucratic red tape, which has slowed foreign investment, must give way, although on a gradual basis. For example, American retailers can enter the Vietnamese market, but with only one outlet each. And American financial firms could issue credit cards only after eight years. After years of backing and filling, Vietnam’s pragmatic reformers have won out. They still would not use the offensive term “capitalism,” but they have brought Vietnam the verge of entering the global market economy.

The prize for the United States, assuming that Congress approves, is entry into the Vietnamese market of 77 million people, with a thriving middle class eager to buy refrigerators, washers and dryers, televisions, computers and, before long, automobiles of their own. And they love anything American.

In appraising future prospects, don’t get hung up on Vietnam’s recent economic slump, part of a general Asian slowdown, or on horror stories about American firms that have abruptly pulled out in disgust over government delays and restrictions.

Instead, watch the big U.S. firms like General Electric, 3M and Chase Manhattan Bank. They are in Vietnam for the long haul and take for granted an occasional bump in the road. “This isn’t like doing business in Canada,” says one big-company analyst.

And if a Vietnamese shirt company gets a reduction from the present 45 percent tax it pays on exports to the United States (compared with 20.7 percent from Thailand), don’t see this as just another competitor for Hathaway. The competition from low-paying nations already has swamped the United States – now they’re competing among each other for their own market share. One benefit of this competition is that Vietnam will be able to earn the foreign exchange it needs to buy American products. At least that’s the way the global economy is supposed to work.