INTERVIEW: SANDRA KRISTOFF ON U.S.-VIETNAM TRADE TALKS
(Vietnam must open to take advantage of regional growth)Washington -- Progress in U.S.-Vietnam trade talks could result in an agreement this year, says former National Security Council senior adviser Sandra Kristoff.
During an interview with USIA Staff Writer Steve La Rocque June 17, Kristoff offered two compelling reasons for Vietnam to conclude a bilateral trade agreement with the United States as quickly as possible. "One, the longer that they delay economic opening, the longer it will take for economic growth to begin," she said. "We are coming out of an Asian financial crisis with predictions of strong growth resuming in the region. If Vietnam wants to get on the next surge of growth, then they have to get up to international standards. As this financial crisis bottoms out and economic trends move up, Vietnam has to be ready to take advantage of that."
The second reason, Kristoff continued, is that the World Trade Organization (WTO) 2000 round of discussions on trade rules starts in December. "It would be of great help to Vietnam to be part of that process, instead of two or four years down the road having to implement rules it had no part in crafting."
Trade negotiations, she said, are not a zero-sum equation because economic openness is an essential element of a successful economy.
"What we've discovered coming out of the Asian financial crisis," she said, "is that those countries that have moved toward market principles, that rely on open and transparent systems that are in line with international standards, those countries were the ones that withstood the crisis or moved out of it rapidly."
Kristoff, senior vice-president for international government affairs at New York Life International, visited Vietnam in February to talk with Vietnam Ministry of Finance officials about the political and economic aspects of a trade pact between the two countries and membership in the WTO. She went to Vietnam under the auspices of the U.S.-Vietnam Trade Council, a Washington-based organization interested in expanding trade relations between the two countries.
In addition to her service on the National Security Council staff, Kristoff also served as assistant U.S. trade representative for East Asia, deputy assistant secretary of state for East Asian and Pacific Affairs, director of East Asian affairs on the staff of the National Economic Council (NEC), and as U.S. Coordinator for Asia-Pacific Economic Cooperation (APEC).
Following is a transcript of the interview:
(begin transcript)
Q: What would be the benefit for Vietnam in agreeing to a bilateral trade agreement with the United States?
Kristoff: A bilateral trade agreement would allow for greater commercial transactions between the United States and Vietnam.
It would also assist Vietnam in becoming more fully integrated with the Southeast Asian economies and more fully integrated into the WTO.
It will encourage U.S.-Vietnam trade to expand beyond the very narrow area it now occupies. You would see major changes in the pattern of trade and the composition of the trade.
Finally, it helps put behind us any lingering clouds from the Vietnam War.
Q: Are there any immediate benefits for Vietnam in such a bilateral trade agreement?
Kristoff: The immediate benefit for Vietnam is the guaranteed access to the U.S. market. The second benefit is that they will see a spark of interest on the part of foreign investors, particularly U.S. investors, to set up operations.
In the financial services sector you will see an interest in the Vietnamese market which will provide a source of long-term capital for Vietnam to begin to undertake some of the larger projects it's interested in -- infrastructure, power development, creating a telecommunications grid.
Q: How are the bilateral trade agreement with the United States and Vietnam's bid to join the WTO related? Kristoff: The trade agreement with the United States would lay a firm foundation for Vietnam's entry into the WTO. Vietnam would have to sign a bilateral trade agreement with the United States in any event as a condition for WTO membership. Prospective WTO members have to agree to the protocols and rules of the WTO and conclude bilateral trade agreements with major trading nations.
Having gone through the process of discussion with the United States on issues such as investment and intellectual property rights, Vietnam has educated itself on the rules of the WTO.
When they go to do the WTO protocol negotiations, it won't be a complete surprise to them what the international disciplines are.
Q: In a trade negotiation, isn't there a winner and a loser? And if Vietnam opens its economy, doesn't it lose?
Kristoff: While some Hanoi officials may harbor beliefs that reflect a type of "mercantile Marxism," in reality trade negotiations aren't a zero-sum game. What we've discovered, coming out of the Asian financial crisis, is that those countries that have moved toward market principles, that rely on open and transparent systems that are in line with international standards, those countries were the ones that withstood the crisis or moved out of it rapidly.
The Philippines for example had a very strong IMF program in place before the crash of the Thai baht in July 1997, and emerged from the crisis largely unscathed. Other countries like Thailand and South Korea had to move quickly to get to a system of transparency and accountability in order to begin to get out of the crisis.
I don't see trade negotiations as a zero-sum equation because I believe that economic openness is an essential element of a successful economy. Within discreet areas in any negotiation, there will be feelings that one has given up more than what one has gotten, but in other areas it will be the flip side.
Q: What are some of the benefits to the United States, and what does Vietnam get in return?
Kristoff: Certainly, Vietnam's removal of restrictions on the right to trade or distribute or invest will give enormous market opportunities for the United States. What does Vietnam get in return for that? It gets a guaranteed access to the U.S. market, it gets access to capital that would otherwise not flow to that country. So there are benefits to both sides. Trade negotiations these days, because of globalization, is much less tit-for-tat.
Q: The United States is the world's largest economy, Vietnam is still a developing country. If a bilateral trade agreement is such a good thing, why is there hesitancy then in concluding an agreement?
Kristoff: There is an inequality in the economic power of the two countries at the table, but from experience, it seems to me that the hesitancy on the Vietnamese part comes less from the idea that "The United States has made a demand of us, and we don't want to make a concession" and more from the concern over "What does opening the insurance sector mean for Vietnamese insurance companies?" or "What does lowering the tariff mean for people who produce air conditioners in the country now? Can they handle the competition?"
Hesitancy comes more from your own calculation that your self-interest is going to be negatively affected than an awareness of the inequality of power.
Although there is the fact that the United States is an economic superpower sitting across the table from a Vietnam that was not unscathed by the Asian financial crisis. Vietnam really does need to make some dramatic economic opening moves in order not to miss out on the next wave of economic growth in the region.
Q: What would be the benefit of more U.S. imports for Vietnam?
Kristoff: I would look for companies to set up operations there, bringing machines into Vietnam to produce goods.
The big area for development, however, is financial services. Getting a strong banking and insurance sector going attracts long-term capital which allows you to do infrastructure projects. You begin to buy more sophisticated medical equipment and instruments. You begin to buy at the "high-value" end of the production chain which then produces benefits for your own citizens -- such as MRI imaging devices that would directly impact the health of Vietnamese.
Q: What would be some of the benefits of increased direct U.S. investment in Vietnam?
Kristoff: More jobs for Vietnamese. You would see a rise of consumption of goods and services. You would see long-term money come into the country that could create a mortgage market. That is probably the single most significant event that helps create a middle class. The availability of 30-year money in the United States is what created a middle class here. Something like that in Vietnam would be phenomenal.
Q: What are some of the worries that you've seen displayed by other command economies as they make the transition to a market economy?
Kristoff: The command economy struggles with its vested interests. As you open up, vested interests are exposed to competition. They then have to improve their product or they lose out to the companies that come in and provide the consumers with what they want.
If you're in a command economy, you worry about what competition does to your state-run enterprises and, if competition from outside companies results in job losses at the state-run companies, are you able to create enough new jobs to absorb those people?
Trade is also a political concern. There is the worry that as you liberalize your economy, what happens on the political side? Or, if you let Adam Smith in the front door, can you keep Thomas Jefferson from coming in the back door.
Q: Why are the Americans pushing for this bilateral trade agreement now? Why not wait a bit?
Kristoff: There are two compelling reasons why Vietnam should do this now. One, the longer that they delay economic opening, the longer it will take for economic growth to begin. We are coming out of an Asian financial crisis with predictions of strong growth resuming in the region. If Vietnam wants to get on the next surge of growth, then they have to get up to international standards. As this financial crisis bottoms out and economic trends move up, Vietnam has to be ready to take advantage of that.
If they don't, then they'll miss that "growth boat," if you will, and will have to wait for another generation before seeing the kind of economic development that you have seen in other Asian countries.
If you miss the "growth boat," the next wave of economic expansion in the region, that will continue to keep foreign investment down, and keep workers' incomes down.
The second reason is that in December we kick-off the WTO 2000 round of discussions on trade rules. It would be of great help to Vietnam to be part of that process, instead of two or four years down the road having to implement rules it had no part in crafting.
Vietnam should be a part of that round of discussion.
If you don't do it now, you become a victim of the U.S. political schedule as 1999 gives over to 2000, an election year in the United States. I think whichever president we end up with, there is always a break in period. You wouldn't be looking at wrapping this up in the first half of 2001. It might take quite some time for whoever comes in to sort out his position or posture regarding U.S.-Vietnam relations.
Q: How would you describe the progress in the talks between the two sides?
Kristoff: There were a couple of major breakthroughs in February. This round of talks, from what I understand from USTR, has a good chance to wrap up successfully in September. There apparently has been a meeting of minds regarding investment issues and financial services.
Q: From what you have seen in Vietnam, is there the entrepreneurial capital there to make the leap from a command economy to a free enterprise economy?
Kristoff: The Vietnamese people are very entrepreneurial. They are very market-oriented people who go into business. Those entrepreneurs have good, strong feelings about the United States. I think we would be welcomed back business-wise. So I think there would be some real opportunities for those risk-takers to create some small- or medium-sized businesses, which are, after all, the businesses that create most of the jobs in the world today.
(end transcript)
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