Now known for its dynamic economy, Vietnam has slowly but surely taken its place among the nations of the world.

BY MURRAY HIEBERT

Over the last four decades, Vietnam has morphed from the site of a bloody, protracted war into a country known for its dynamic economy, increasingly cooperative ties with the United States, and front-line status in the dispute with Beijing over the strategically critical South China Sea. During a visit to Vietnam in late 2013, Secretary of State John Kerry said that no two countries “have worked harder, done more and done better to try to bring themselves together and change history and change the future.”

Vietnam’s roughly 92 million people live on a long, narrow strip of land with a 2,000-mile coast along the South China Sea, at the crossroads between Northeast Asia and mainland Southeast Asia. After Hanoi’s communist troops defeated the U.S.-backed southern forces in 1975 and introduced hard-line socialist policies, the country’s economy went into a tailspin. Vietnam’s ouster of the brutal Khmer Rouge regime in neighboring Cambodia in 1979 triggered an invasion by China, raised tensions with neighboring countries and deepened its international isolation, including from the United States.

With its economy in shambles, the ruling Communist Party in 1986 courted foreign investors and freed farmers from socialist cooperatives. It also pledged to withdraw its troops from Cambodia and step up its efforts to account for U.S. servicemen missing in Vietnam from the war. In 1994, President Bill Clinton lifted the U.S. trade embargo against Vietnam and normalized diplomatic relations in 1995. That same year, the Association of Southeast Asian Nations, established at the height of the Cold War to block the spread of communism, welcomed Vietnam as a member in its regional economic and political grouping.

The Virtue of Trade

Freed from collectives, Vietnam’s farmers turned the country from a rice importer into one of the world’s top rice exporters. The country’s economy has grown an average of about 6 percent a year since 2000, boosting its per capita income to just under $2,000 a year by 2013. An October 2014 Pew Research Center poll found that a whopping 95 percent of Vietnamese are enthusiastic about the free market, compared to only 70 percent of Americans.

Bilateral trade with the United States soared from under $3 billion in 2001, when the two countries signed a bilateral trade agreement, to $35 billion last year. Today both countries are part of the 12-nation Trans-Pacific Partnership negotiations that, once completed, are expected to give bilateral economic relations an extra shot of adrenaline.

U.S. investment in Vietnam reached $1.1 billion in 2012 (the last year for which statistics are available), with an Intel Corp. wafer testing facility being the largest single investment by an American firm. Vietnam’s electronics exports have soared, and its economy has been more deeply integrated into the global electronics supply chain in recent years since South Korea’s Samsung Electronics Co. set up a $2 billion mobile phone assembly plant in Vietnam and has announced plans for a second one.

Despite the country’s relative economic success, its domestic economy is still being held back by slow progress in reforming inefficient, socialist-style, state-owned enterprises that siphon off critical credit and resources from the more dynamic private sector. Cleaning up the high percentage of nonperforming loans in the banking system is also a painfully slow process.

The World Bank’s “Ease of Doing Business 2014” report ranked Vietnam 99th out of 189 nations—behind neighbors like Thailand, but ahead of others like Indonesia. U.S. companies cite a number of problems holding them back in Vietnam, ranging from an overextended infrastructure to corruption. Transparency International last year ranked Vietnam 119th out of 175 countries. A related challenge is an inefficient bureaucracy that frequently changes government regulations.

Vietnam’s economic reformers hope that ratification of the high-standard TPP agreement, perhaps later this year, will help jumpstart reform in a number of areas by leveling the playing field between the private and state-owned sectors. U.S. companies anticipate that it will open a number of relatively closed sectors in Vietnam, including services. To facilitate Vietnam’s accession to the TPP, the U.S. Agency for International Development has invested in a program to promote competitiveness, boost accountability and support biodiversity through customs reforms.

In 2000, Bill Clinton became the first U.S. president to visit Vietnam since the end of the war.

Forging Closer Ties

Political and security ties between Vietnam and the United States have come a long way since the two countries normalized relations two decades ago. In 2000, Bill Clinton became the first U.S. president to visit Vietnam since the end of the war. Since then, Hanoi and Washington have stepped up high-level visits and established regular political, security and defense dialogues to tackle a raft of outstanding issues. Over the past few years, Vietnam has emerged as an increasingly important U.S. security partner in the region, as the two countries cooperate bilaterally and in multilateral forums.

Hanoi has made great strides in accounting for the nearly 2,000 U.S. military personnel missing at the end of the war. Washington has also started assistance programs aimed at environmental remediation and health support for areas and people affected by dioxin contamination from its use of Agent Orange. Hanoi would also like American help as it searches for its own roughly 200,000 servicemen missing from the war, and assistance in the removal of unexploded ordnance still in the ground in areas of heavy fighting.

Human rights issues continue to pose an obstacle to closer relations. In general, freedom of expression and religion has improved significantly since the early days of the country’s reunification. The government does not, however, tolerate activities that it sees as a threat to the Communist Party’s grip on power and a regularly rounds up bloggers, activists and dissidents. U.S. officials estimate that Vietnam is holding about 125 political detainees.

The two governments hold regular and frank discussions on these issues, but have not allowed them to derail economic and strategic ties. More detentions may come in the run-up to the ruling party’s next congress, slated for January 2016, at which many top leaders will be required to retire. Managing relations with China is another topic that will elicit wide-ranging comment among the country’s active (and nationalist) blogger community.

During his July 2013 visit to Washington, D.C., President Truong Tan Sang and President Barack Obama launched plans for a comprehensive partnership between the two countries. The agreement spelled out nine areas of cooperation ranging from political and economic ties to security relations, human rights and cooperation on tackling environmental issues.

Over the past decade, the two countries have taken the first steps to boost military-to-military relations. They have regular bilateral defense talks that explore issues such as military medicine, environmental security, demining, search and rescue, and peacekeeping. In recent years, the two sides have also discussed more active defense cooperation.

Last October, Washington agreed to partially lift its ban on arms sales to Vietnam, which has been in force since the end of the war and has been maintained due to human rights concerns. The move allows Hanoi to purchase radar and Coast Guard vessels to enforce its marine territory, but it still wants Washington to lift the ban entirely.

Dealing with China

Part of this warming of security ties has undoubtedly been driven by tensions in the economically strategic South China Sea, where Beijing, Vietnam’s northern neighbor and longtime communist ally, has pressed its so-called “Nine-Dash Line” claim. In particular, China has occasionally cut the seismic cable of Vietnamese oil exploration vessels and arrested Vietnamese fishermen around the Paracel Islands, which are claimed by Vietnam but have been controlled by China since the 1970s.

Tensions escalated in May 2014 when China moved a deep-water oil rig, accompanied by several naval vessels and scores of other ships, into water off the Paracel Islands to explore for oil. In a standoff over the next two months, the two countries harassed each other’s ships, ramming them and firing water cannons. In mid-July, at the height of typhoon season and just before a meeting of the ASEAN Regional Forum, a regional security dialogue in which China and the United States participate, Beijing withdrew the rig, declaring it had completed its exploration activities.

Despite tensions between Hanoi and Beijing, China is by far Vietnam’s largest trading partner and a major investor.

Despite tensions between Hanoi and Beijing, China is by far Vietnam’s largest trading partner and a major investor. China provides electricity to northern Vietnam and supplies many of the inputs for two of its largest exports, garments and rice.

Vietnam appreciates the U.S. approach, which calls for all parties to the South China Sea dispute to manage their differences peacefully and in accordance with international law, while remaining neutral on questions of territorial sovereignty over the sea’s land features. However, Hanoi has moved cautiously in expanding its naval cooperation and military ties with the United States, both over concern about irritating China and lingering resentment of the United States among some senior generals.

Hanoi’s relations have warmed dramatically with its Southeast Asian neighbors, even though ASEAN once pressured Vietnam to withdraw its forces from Cambodia. Today, Vietnam is one of the most active members of the 10-nation grouping and uses the ASEAN Regional Forum and East Asia Summit as vehicles to challenge China’s actions in the South China Sea.

Working together, Vietnam and the United States were a driving force in the 2010 establishment of the ASEAN Defense Ministers Meeting Plus, an 18-nation security forum whose members include Australia, China, India and Japan, where senior defense officials discuss regional security challenges.

Grassroots Efforts Bear Fruit

People-to-people engagement between Vietnam and the United States has been at the forefront of efforts to boost bilateral relations. Over the past two decades, Vietnamese students have become the largest contingent of Southeast Asians studying in the United States. Today there are 16,000 Vietnamese studying in U.S. colleges, some supported by U.S. government programs but most by their families. A key factor driving these numbers is the low quality of university education in Vietnam. It also does not hurt that the United States is viewed favorably by 76 percent of Vietnamese, according to a July 2014 Pew Research Center survey.

Washington and Hanoi are cooperating in efforts to open a private, nonprofit Fulbright University in Vietnam. Congress has approved nearly $18 million of the $70 million needed to establish the university, and organizers are now looking for funding from U.S. and Vietnamese companies. The organizers are seeking approval to name an independent board of governors and a guarantee that it will be granted independence in choosing its teachers and curriculum.

The two countries are also increasing joint efforts to address Vietnam’s environmental challenges resulting from population growth, industrialization and the impact of climate change. The Mekong Delta in southern Vietnam is threatened by the construction of hydropower dams along the Mekong River by China and Laos, Vietnam’s neighbor to the west. The dams disrupt the flow of fish, reduce the arrival of silt and cut the flow of water, resulting in rising salinity in the low-lying Delta. During his 2013 visit, Sec. Kerry announced a $17 million aid program to help communities in the Delta deal with environmental degradation and adapt to climate change.

Hanoi and Washington are also actively pursuing a possible visit to Vietnam by President Barack Obama this November, when he will be in nearby Malaysia and the Philippines for two regional summits. Whether the visit takes place will likely depend on progress in such areas as human rights in Vietnam, the prospects for increased trade and investment under the TPP agreement and closer military ties between the two countries.

Murray Hiebert serves as senior fellow and deputy director of the Sumitro Chair for Southeast Asia Studies at the Center for Strategic and International Studies in Washington, D.C. Prior to joining CSIS, he was senior director for Southeast Asia at the U.S. Chamber of Commerce, where he worked to promote trade and investment opportunities between the United States and Asia. Earlier in his career, Mr. Hiebert reported for the Wall Street Journal Asia Edition and the Far Eastern Economic Review. He is the author of two books on Vietnam: Chasing the Tigers (Kodansha, 1996) and Vietnam Notebook (Review Publishing, 1993).

Read More...

• John Kerry: Remarks to Ho Chi Minh City Business Community and Fulbright Economic Teaching Program Participants (Department of State, Secretary Remarks)
• Clinton ends Vietnam trade embargo on Feb. 3, 1994 (Politico, Feb. 3, 2008)
• A New Era in U.S.-Vietnam Relations: Deepening Ties Two Decades After Normalization (Center for Strategic and International Studies, 2014)
• Economy Rankings (World Bank Group)
• ASEAN Defence Minister’s Meeting (ADMM)
• Vietnam's president Truong Tan Sang on visit to Washington (South China Morning Post, July 25, 2013)
• Vietnam Reconsidered by Ed Marks (American Diplomacy)