By: Anna Sayre, reporter SanctionsAlert.com
Date: June 1, 2016
On May 23, 2016, the US officially lifted its 50-year historical embargo on Vietnam, triggering a major policy shift in global trade. The long-standing US sanction, imposed on Vietnam in 1975 after the Vietnam War, has now been fully removed. This follows a partial lifting of the embargo on non-lethal defense equipment and lethal weapons in November 2014. Now all kinds of trade with Vietnam is allowed, including sale and export of lethal military and naval defense equipment, subject to consideration on a case-by-case basis. According to President Barack Obama, it was an opportunity to end a “lingering vestige of the Cold War” and “to complete what has been a lengthy process of moving towards normalization with Vietnam”.
As President Obama suggests, for those following the relationship between the US and Vietnam, this most recent action by the US government should come as no great surprise. The US has made a number of key decisions in the last two decades, all with the aim to improve economic and political relations with Vietnam. These have had the consequence of augmenting trade and trust between the two countries, so much so that trade with the US has increased 10-fold to about $45 billion. Vietnam is now the US’s biggest Southeastern Asian exporter.
This growing amount of trade with Vietnam highlights the importance in understanding the historical significance of the Vietnam embargo as well as the potential impact of opening up all avenues of trade with Vietnam could have on the future of sanction policy.
This article comes in two parts: the first article will discuss the history of the embargo and its implications. The second article will focus more on the administration of the embargo and compliance.
Historical relations between the US and Vietnam
The end of the Vietnam War in 1973 marked a decade long struggle between the US and Vietnam, which did not end favorably for either country. In 1975, virtually all trade and communication was shut down between the two countries and this would remain the status quo for the next three decades.
In 1994, President Bill Clinton made history by lifting the then 30-year trade embargo with Vietnam, resulting in the restoration of diplomatic relations between the two countries. This marked the start of a long road toward fully restored cooperation between the US and Vietnam over the next two decades. As Bruce Zagaris, Partner at Berliner Corcoran & Rowe L.L.P. in Washington D.C. comments, “the fact that it took 20 years after normalization of relations in 1995 illustrates how much more difficult it is to remove than to impose an embargo”.
Events leading to the lifting of the Vietnam embargo
Since the 1990s, there have been a plethora of economic and relational developments between the US and Vietnam that have ultimately led to the full lifting of the embargo.
These include a number of agreements between the US and Vietnam, most namely: the Bilateral Air Transport Agreement in 2003 that paved the way for regular flights between Ho Chi Minh City and San Francisco, an agreement for the sale of certain non-lethal equipment with the aim of opening up maritime transport and services industries of Vietnam to US firms in 2007, and the US-Vietnam Comprehensive Partnership in 2013, a pact allowing for the transfer of nuclear fuel and technology from the US to Vietnam.
Also, in February 2016, the Trans-Pacific Partnership Agreement (TPP), a trade agreement similar to that existing between the US and the EU, was agreed between the US and 12 Pacific Rim countries. The TPP, which will enter into force by 4 February 2018, seeks to enhance trade and create stricter enforcement of domestic anti-corruption laws in TPP countries and cross-border cooperation between the signatories in combating corruption.
Timeline of Key Events
1964 – US enters the Vietnam War, which began with Viet Cong insurgency in 1957.
1969 – Nixon begins to reduce US troops in Vietnam as domestic opposition grows.
1973 – Ceasefire agreement in Paris, US troops pullout by March.
1975-1991 – The Socialist Republic of Vietnam is proclaimed; US embargo is implemented and remains in force.
1992 – The Communist Party adopts a new constitution allowing certain economic freedoms.
1994 – US lifts its 30-year trade embargo, which restores full diplomatic relations.
2000 July – President Clinton becomes the first US President to visit Vietnam since the war and implements a trade agreement.
2003 December – Bilateral Air Transport Agreement is signed.
2004 – First US commercial flight since the war touches down in Ho Chi Minh City.
2007 January – Vietnam becomes the 150th member of the World Trade Organization.
2007 – US allows the sale of certain non-lethal equipment to Vietnam.
2011– US banks agree to invest $1.5 billion into the Vietnamese infrastructure.
2013 October – Establishment of the US-Vietnam Comprehensive Partnership.
2014 – US approves a partial lifting of its longstanding arms embargo on Vietnam, now allowing the export of non-lethal defense equipment and lethal weapons.
2016 February – Trans-Pacific Partnership Agreement (TPP) signed.
2016 May – US fully lifts its embargo on arms sales to Vietnam, subject to license.
Implications for companies and institutions
When asked what the potential repercussions this lifting of the Vietnam embargo could have on the future of compliance programs and due diligence in trade dealings with Vietnam, Kenneth Rivlin, Head of Allen & Overy’s Regulatory Law Group in New York, comments “While the lifting of the Vietnam embargo is mostly symbolic given the increasingly close relationship between the U.S. and Vietnam, it will clearly expand some trading opportunities for U.S. defense companies. It is also another manifestation of the Obama Administration’s continued focus on deepening certain regional trade relationships as it seeks approval of the Trans-Pacific Partnership. The lifting of the Vietnam embargo comes on the heels of similar announcements by the State Department’s Directorate of Defense Trade Controls (DDTC) lifting arms embargoes on Sri Lanka and Côte d’Ivoire.”
Trying to comply with US control regulations regarding Vietnam has now become much more complex. There is more than one US agency that administers sanctions on Vietnam, each with its own regulations and lists, as well as differing penalty structures. As such, it is important to understand the nuances and application of these regulations so that clients can be well informed and avoid harsh export control penalties in their dealings with Vietnam.
Further specifics with regard to these agencies and their regulations are discussed in the second part of this article, which will be posted later this week on www.SanctionsAlert.com.