Senate Report 109-321 - A BILL TO AUTHORIZE THE EXTENSION OF NONDISCRIMINATORY TREATMENT (NORMAL TRADE RELATIONS TREATMENT) TO THE PRODUCTS OF VIETNAM

[Senate Report 109-321]
[From the U.S. Government Publishing Office]

Calendar No. 560
109th Congress Report
SENATE
2d Session 109-321

======================================================================

A BILL TO AUTHORIZE THE EXTENSION OF NONDISCRIMINATORY TREATMENT
(NORMAL TRADE RELATIONS TREATMENT) TO THE PRODUCTS OF VIETNAM

_______

August 30, 2006.--Ordered to be printed

Filed, under authority of the order of the Senate of August 4,
(legislative day August 3) 2006.

_______

Mr. Grassley, from the Committee on Finance, submitted the following

R E P O R T

[To accompany S. 3495]

[Including cost estimate of the Congressional Budget Office]

The Committee on Finance, to which was referred the bill
(S. 3495) to authorize the extension of nondiscriminatory
treatment (normal trade relations treatment) to the products of
Vietnam, having considered the same, reports favorably thereon
without amendment and recommends that the bill do pass.

CONTENTS

Page
I. Report and Other Materials of the Committee.......................2
A. Report of the Committee on Finance.................... 2
B. Trade Relations with Vietnam.......................... 2
1. U.S.-Vietnam Economic Relations................... 2
2. U.S.-Vietnam Trade Data........................... 3
C. Summary of Committee Consideration.................... 6
1. The Jackson-Vanik Amendment....................... 6
2. Description of the Bill........................... 6
3. Committee Consideration........................... 6
II. Budgetary Impact of the Bill......................................8
III.Regulatory Impact of the Bill and Other Matters..................10

IV. Changes in Existing Law Made by the Bill, as Reported............10

I. REPORT AND OTHER MATERIALS OF THE COMMITTEE

A. Report of the Committee on Finance

B. Trade Relations With Vietnam

1. U.S.-VIETNAM ECONOMIC RELATIONS

Vietnam is a densely-populated developing country. It ranks
as the world's 13th most populous country with nearly 85
million people in an area slightly larger than the size of New
Mexico. In 1986, Vietnam responded to disastrous economic
conditions with the doi moi (renovation) economic reforms.
Since then, Vietnam has had one of the fastest growing
economies in the world, with an annual gross domestic product
(GDP) growth rate of nearly eight percent. Despite its economic
development, nearly 20 percent of the Vietnamese population is
estimated to live in poverty as of 2004.
Since the early 1990s, the United States has taken gradual
steps to improve relations with Vietnam. On February 3, 1994,
President Clinton lifted the trade embargo on Vietnam in
recognition of the cooperation received from the Government of
Vietnam in Prisoner of War/Missing in Action (POW/MIA)
accounting. On July 11, 1995, the President announced the
establishment of diplomatic relations with Vietnam. On March 9,
1998, the President first determined that a Jackson-Vanik
waiver for Vietnam would substantially promote the freedom of
emigration objectives under the Act. On April 7, 1998, the
President issued Executive Order 13079, under which the waiver
entered into force. Vietnam has received a presidential
Jackson-Vanik waiver every year since 1998.
In 1997, the United States began negotiations with Vietnam
toward the conclusion of a U.S.-Vietnam bilateral trade
agreement (BTA). The negotiations culminated in a BTA, which
Congress approved in 2001. Under the BTA, Vietnam agreed to
implement significant economic reforms, expand the rule of law,
and broaden economic freedoms. In the years that followed,
Vietnam made important progress in implementing its commitments
under the BTA, though concerns remain, particularly with
respect to the protection of intellectual property rights.
Since 2002, the Administration has placed Vietnam on the
Special 301 watch list for poor protection of intellectual
property rights, particularly in the areas of music recordings
and trademark protection. In November 2005, Vietnam's National
Assembly passed a new, comprehensive, law on intellectual
property rights.
Vietnam applied to join the World Trade Organization (WTO)
on January 1, 1995. The WTO Working Party on the accession of
Vietnam was established on January 31, 1995. The eleventh
meeting of the Working Party was held in March 2006. On May 31,
2006, U.S. and Vietnamese negotiators signed a bilateral
agreement on the conditions for Vietnam's accession into the
WTO. This was the last of Vietnam's bilateral accession
negotiations to be concluded. Vietnam still needs to conclude
the negotiations with the multilateral Working Party, which
consists of 63 WTO members, including the United States. Once
the Working Party report is concluded and Vietnam accedes to
the WTO, the United States will have to extend unconditional or
permanent normal trade relations (PNTR) to Vietnam in order for
U.S. exporters to avail themselves of the market access
commitments Vietnam has made to join the WTO.
Since the U.S. trade embargo on Vietnam was lifted in 1994,
two-way trade between the United States and Vietnam has
increased steadily. During the period 1994-1996, two-way trade
increased from $223 million to $935 million. In 1997 the Asian
financial crisis had a dampening effect on two-way trade, which
fell to $666 million. Since then, two-way trade has been on a
continuous upward trend. During the period 1998-2005, two-way
trade increased from $789 million to $7.7 billion. In 2005,
U.S. exports to Vietnam totaled $1.2 billion, while U.S.
imports from Vietnam were valued at $6.5 billion. Top U.S.
exports to Vietnam include aircraft, cotton, polymers, milk,
footwear parts, and wood. Major U.S. imports from Vietnam
include furniture, clothing, footwear, shrimp, petroleum
products, nuts, and coffee.

2. U.S.-VIETNAM TRADE DATA

Vietnam ranks 58th as a U.S. export market, and 38th as a
source of U.S. imports. The following tables summarize the top
15 exports to Vietnam and top 15 imports from Vietnam during
the period 2000-2005:

U.S. EXPORTS TO VIETNAM, 2000-2005
[In U.S. dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Top 15 product descriptions,
HTS Chapter by HTS chapter 2000 2001 2002 2003 2004 2005
--------------------------------------------------------------------------------------------------------------------------------------------------------
88....................... Aircraft..................... 2,918,996 7,483,150 78,642,144 715,577,109 376,203,722 346,028,506
84....................... Boilers and Mechanical 78,302,366 78,895,614 121,586,326 121,298,360 114,638,618 106,670,521
Appliances.
39....................... Plastics..................... 17,649,915 22,117,086 26,564,371 36,882,341 57,926,186 83,888,107
85....................... Electrical Machinery......... 30,260,573 34,965,557 39,659,544 46,807,925 54,254,473 57,525,474
90....................... Optical, Photographic........ 12,521,281 18,859,652 22,272,905 41,250,426 37,366,352 54,730,877
52....................... Cotton Yarns and Fabric...... 14,508,449 29,178,243 27,585,335 33,715,744 66,571,078 48,716,284
44....................... Wood and Articles of Wood.... 1,639,483 6,342,629 18,970,559 20,302,054 38,962,897 43,315,222
87....................... Vehicles, Other Than Railway. 5,079,475 7,387,870 12,237,734 24,920,637 36,979,461 40,726,786
4........................ Dairy Produce................ 5,037,445 8,127,845 3,172,907 2,653,414 23,617,244 38,852,186
64....................... Footwear..................... 27,471,668 19,309,669 17,850,053 22,769,739 24,465,764 31,165,782
23....................... Waste From The Food 8,739,012 8,443,425 13,003,601 12,476,647 9,412,731 21,781,196
Industries.
72....................... Iron and Steel............... 3,681,125 2,898,975 4,380,944 5,295,662 75,736,593 17,617,952
48....................... Paper and Paperboard......... 7,183,041 12,014,730 10,655,970 16,732,905 23,294,203 17,125,812
47....................... Pulp of Wood................. 5,768,163 9,276,841 8,960,610 9,190,415 6,707,243 16,932,761
41....................... Raw Hides and Skins.......... 2,590,212 2,589,162 5,474,147 5,517,000 11,447,727 15,997,645
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: HTS denotes the Harmonized Tariff Schedule of the United States.
Source: U.S. International Trade Commission Dataweb.

U.S. IMPORTS FROM VIETNAM, 2000-2005
[In U.S. dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Top 15 product descriptions,
HTS Chapter by HTS chapter 2000 2001 2002 2003 2004 2005
--------------------------------------------------------------------------------------------------------------------------------------------------------
62....................... Woven Apparel................ 29,920,973 26,036,156 437,133,188 1,240,919,563 1,421,626,440 1,539,880,325
61....................... Knit Apparel................. 16,753,925 21,319,457 435,760,339 1,096,375,035 1,080,584,384 1,123,594,629
64....................... Footwear..................... 124,535,232 132,004,312 224,191,079 324,805,608 473,389,837 716,621,083
94....................... Furniture and Bedding........ 9,686,998 14,263,761 81,766,415 189,586,600 388,643,084 697,011,535
27....................... Mineral Fuels and Oils....... 90,713,774 156,693,042 179,340,422 209,176,775 249,515,516 501,629,565
03....................... Fish and Crustaceans......... 242,854,840 383,745,193 478,926,382 568,527,472 403,916,698 464,443,009
09....................... Coffee, Tea, Mate and Spices. 132,892,458 88,666,512 73,001,887 97,875,797 143,795,358 184,463,002
16....................... Meat, Fish, and Aquatic 57,717,966 93,048,467 138,101,069 161,969,116 161,662,318 162,755,772
Invertebrates.
08....................... Fruit and Nuts............... 51,146,615 48,087,034 70,535,333 99,206,684 171,918,868 154,367,931
42....................... Articles of Leather.......... 3,567,997 3,422,989 61,955,011 100,694,756 123,881,364 127,111,159
84....................... Boilers and Mechanical 1,207,502 1,432,266 19,911,509 66,843,656 62,027,576 126,365,035
Appliances.
85....................... Electrical Machinery......... 1,632,484 662,348 7,132,904 30,249,976 49,582,490 86,617,880
65....................... Headgear..................... 125,055 245,801 23,942,979 38,590,509 63,019,046 68,444,723
39....................... Plastics..................... 225,301 257,212 5,563,440 11,296,261 28,399,795 52,585,921
63....................... Made-Up Textiles............. 845,768 741,893 6,779,157 22,236,891 47,779,022 40,780,717
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: HTS denotes the Harmonized Tariff Schedule of the United States.
Source: U.S. International Trade Commission Dataweb.

C. Summary of Committee Consideration

1. THE JACKSON-VANIK AMENDMENT

Section 401 of Title IV of the Trade Act of 1974 requires
the President to continue to deny nondiscriminatory treatment
(normal trade relations treatment) to any country not receiving
such treatment at the time of the law's enactment on January 3,
1975. Section 402 of Title IV, also referred to as the Jackson-
Vanik amendment, provides that the President may extend normal
trade relations treatment on a recurring basis to a country
that is in full compliance with certain specified freedom-of-
emigration conditions. Section 402 also authorizes the
President to waive full compliance with the freedom-of-
emigration requirements if the President determines that such a
waiver would encourage freedom of emigration. Before the
President may extend conditional normal trade relations to a
country subject to Title IV, that country must first conclude a
bilateral commercial agreement with the United States pursuant
to section 405 of Title IV. Since Congress approved the BTA
with Vietnam in 2001, Vietnam has received conditional normal
trade relations pursuant to the President's waiver authority
under section 402.

2. DESCRIPTION OF THE BILL

S. 3495 authorizes the President to determine that title IV
of the Trade Act of 1974 (19 U.S.C. 2431 et seq.) no longer
applies to Vietnam and to proclaim the extension of
unconditional or permanent normal trade relations treatment
(PNTR) to the products of Vietnam.

3. COMMITTEE CONSIDERATION

S. 3495 was introduced on June 13, 2006, by Senator Baucus,
on behalf of himself and Senators Smith, McCain, Kerry, Hagel,
Lugar, Murkowski, and Carper. Since then, Senators Crapo,
Bennett, and Stevens have also joined as cosponsors. Also on
June 13, 2006, Congressman Ramstad introduced companion
legislation (H.R. 5602) in the House of Representatives.
Chairman Grassley convened a hearing of the Finance
Committee on July 12, 2006, to consider S. 3495. Testifying at
the hearing were: Ambassador Karan K. Bhatia, Deputy U.S. Trade
Representative, Office of the U.S. Trade Representative; Mr.
Eric John, Deputy Assistant Secretary, Bureau of East Asian and
Pacific Affairs, U.S. Department of State; Mr. Jon Caspers,
Former President, National Pork Producers Council (Swaledale,
IA); Mr. Christian Schlect, President, Northwest Horticultural
Council, (Yakima, Washington); Mr. Jeffrey R. Shafer, Vice
Chairman, Citigroup Global Markets (New York, NY); Mr.
Augustine D. Tantillo, Executive Director, American
Manufacturing Trade Action Coalition (Washington, DC); Mr.
Chris Seiple, President, Institute for Global Engagement
(Washington, DC); Mr. T. Kumar, Advocacy Director for Asia,
Amnesty International (Washington, DC); and Ms. Virginia B.
Foote, President, U.S.-Vietnam Trade Council (Washington, DC).
Invitations to appear and testify were also extended to the
AFL-CIO, the International Brotherhood of Teamsters, and the
Union of Needletrades, Industrial and Textile Employees. Due to
scheduling conflicts, those organizations were unable to
provide a witness to testify at the hearing.
The Finance Committee also received numerous statements for
the record. Many of the statements were in support of extending
permanent normal trade relations to Vietnam. Examples of
support include a letter from the Vietnam Veterans of America
Foundation to congressional leaders. Another letter of support
was submitted by the U.S.-Vietnam WTO Coalition and signed by a
number of respected individuals, including former Secretaries
of State Madeleine Albright, James Baker III, Warren
Christopher, Henry Kissinger, and Colin Powell, among others.
Separately, the Chairman of the Committee on International
Policy of the United States Conference of Catholic Bishops
wrote a letter to Ambassador Susan Schwab, the United States
Trade Representative, expressing support for the extension of
permanent normal trade relations to Vietnam.
Other statements submitted to the Committee expressed
reservations, particularly with respect to inadequate
protection of human rights and religious freedoms in Vietnam.
One such letter from a group of democracy advocates in Vietnam
and other organizations in the United States and abroad was
submitted to the Committee by California Assemblyman Van Tran.
Separately, testifying on behalf of the American Manufacturing
Trade Action Coalition, Mr. Augustine Tantillo expressed strong
opposition to extending permanent normal trade relations to
Vietnam.
During the hearing, Chairman Grassley and the Members of
the Committee expressed very strong concerns regarding the
protection of human rights and religious freedoms in Vietnam.
The Committee notes that the Department of State's 2005 Country
Reports on Human Rights Practices states that, with respect to
Vietnam, ``[t]he government's human rights record remained
unsatisfactory'' and that ``[g]overnment officials,
particularly at the local level, continued to commit serious
abuses, despite improvement during the year.'' Specific
concerns identified include arbitrary detention or restriction
of movement, or imprisonment, of persons for political and
religious activities; restrictions on freedoms of speech,
press, assembly, and association; and, police abuse of suspects
during arrest, detention, and interrogation. Separately, the
Department of State's 2006 report on human trafficking listed
Vietnam as a ``Tier 2'' country that ``does not fully comply
with the minimum standards for the elimination of
trafficking.''
The protection of religious freedoms is another matter of
serious concern to the Committee. In September 2004, the
Secretary of State designated Vietnam as a ``Country of
Particular Concern'' under the International Religious Freedom
Act for particularly severe violations of religious freedom.
The Department of State's International Religious Freedom
Report 2005 states that, with respect to Vietnam, a number of
U.S. government officials have ``raised concerns about the
registration and recognition difficulties faced by religious
organizations, the detention and arrest of religious figures,
the repression of Protestants in the Central and Northwest
Highlands, and other restrictions on religious freedom with the
Prime Minister, Deputy Prime Minister, government cabinet
ministers, Communist Party of Vietnam (CPV) leaders, provincial
officials, and others.'' In May 2005, the United States and
Vietnam concluded an agreement in which the Government of
Vietnam made a number of commitments to advance and protect
religious freedoms. While conditions are improving,
restrictions on religious freedoms continue to occur.
The Committee finds that engagement between the United
States and Vietnam has facilitated some improvement in the
protection of human rights and religious freedoms in Vietnam.
The Committee believes that concerns over inadequate protection
of human rights and religious freedoms are best addressed
through expanding such engagement, particularly via greater
involvement of U.S. citizens in Vietnamese society as a result
of expanding our bilateral trade relations. Still, the
Committee calls upon the Administration to continue to actively
engage the Government of Vietnam on these issues, particularly
with respect to adequate enforcement at the local level, in
order to facilitate continued improvement in the protection of
human rights and religious freedoms in Vietnam.
On July 27, 2006, Chairman Grassley convened the Committee
in open executive session to consider favorably reporting S.
3495. Senator Conrad filed one non-germane amendment to the
bill. The Conrad amendment was discussed by the Committee, but
the amendment was not offered. In the absence of a quorum,
Chairman Grassley recessed the executive session subject to the
call of the Chair. On July 31, 2006, Chairman Grassley
reconvened the Committee in open executive session, at which
time the Committee ordered S. 3495 favorably reported, without
amendment, by rollcall vote: 18 ayes, 0 nays, 2 present. Ayes:
Grassley, Hatch, Lott, Snowe, Kyl, Thomas, Frist, Smith, Crapo,
Baucus, Rockefeller, Conrad, Jeffords, Bingaman (proxy), Kerry
(proxy), Lincoln, Wyden, and Schumer. Present: Santorum,
Bunning (proxy).

II. BUDGETARY IMPACT OF THE BILL

U.S. Congress,
Congressional Budget Office,
Washington, DC, August 18, 2006.
Hon. Charles E. Grassley,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 3495, an act to
authorize the extension of nondiscriminatory treatment (normal
trade relations treatment) to the products of Vietnam.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Emily
Schlect.
Sincerely,
Donald B. Marron,
Acting Director.
Enclosure.

S. 3495--An act to authorize the extension of nondiscriminatory
treatment (normal trade relations treatment) to the products of
Vietnam

Summary: S. 3495 would allow the President to grant
permanent normal trade relations (PNTR) status to Vietnam. The
Congressional Budget Office estimates that the bill would
increase revenues by $18 million in 2007, by $108 million over
the 2007-2011 period, and by $253 million over the 2007-2016
period. Granting PNTR standing to Vietnam would have no impact
on tariff rates relative to CBO's revenue baseline assumptions.
However, if Vietnam were to become a member of the World Trade
Organization (WTO), which CBO assumes for baseline purposes is
very likely in the near future, quotas on Vietnamese products
would be liberalized, thereby increasing imports and yielding
more tariff revenue.
CBO has determined that S. 3495 contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act (UMRA) and would not affect the
budgets of state, local, or tribal governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 3495 over the 2007-2016 period is shown
in the following table.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
----------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES

Estimated Revenues.............. 18 22 22 23 23 25 27 29 31 33
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.

Basis of estimate: The legislation would remove Vietnam
from the list of countries under title IV of the Trade Act of
1974 (the Jackson-Vanik amendment). Removing Vietnam from
scrutiny under the Jackson-Vanik amendment would permit the
President to accord it PNTR standing. Vietnam has received
normal trade relations (NTR) status, renewed annually pursuant
to a Presidential waiver of the Jackson-Vanik amendment, since
2001. CBO's revenue baseline assumes that Vietnam will continue
to receive NTR status, so CBO estimates that making permanent
Vietnam's NTR standing would not affect tariff rates.
Granting Vietnam PNTR status would affect receipts, CBO
estimates, if that country were admitted to the WTO. With
Vietnam in the WTO, the United States would have to allow it
PNTR status in order for the two countries to trade with each
other under the WTO, because the rules of that body do not
allow member countries to discriminate against each other (with
certain exceptions). Further, any quotas in place on imports
from Vietnam would be liberalized. Because it appears that
significant types of imports from Vietnam are restricted by
binding quotas, CBO would expect that liberalizing those quotas
would result in an increase in imports (particularly of
textiles and apparel) from Vietnam and the associated tariff
collections. Those increases would be partly offset by
decreased imports from other countries.
Vietnam is currently negotiating to enter the WTO, and it
could become a member as early as October 2006. Indeed, CBO
assumes that it is highly probable that Vietnam will join the
WTO this fall. Taking that high probability into account, CBO
estimates that S. 3495 would increase revenues by $18 million
in 2007, by $108 million over the 2007-2011 period, and by $253
million over the 2007-2016 period. If Vietnam does not join the
WTO, however, these receipts would not materialize.
Intergovernmental and private-sector impact: The bill
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Estimate prepared by: Federal revenues: Emily Schlect.
Impact on state, local, and tribal governments: Melissa
Merrell. Impact on the private sector: Tyler Kruzich.
Estimate approved by: G. Thomas Woodward, Assistant
Director for Tax Analysis.

III. REGULATORY IMPACT OF THE BILL AND OTHER MATTERS

Pursuant to the requirements of paragraph 11(b) of rule
XXVI of the Standing Rules of the Senate, the Committee states
that S. 3495 will not significantly regulate any individuals or
businesses, will not affect the personal privacy of
individuals, and will result in no significant additional
paperwork.
The following information is provided in accordance with
section 423 of the Unfunded Mandates Reform Act of 1995
(``UMRA'') (Pub. L. No. 104-04). The Committee has reviewed the
provisions of S. 3495 as approved by the Committee on July 31,
2006. In accordance with the requirement of Pub. L. No. 104-04,
the Committee has determined that the bill contains no
intergovernmental mandates, as defined in the UMRA, and would
not affect the budgets of State, local, or tribal governments.

IV. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

Pursuant to paragraph 12 of rule XXVI of the Standing Rules
of the Senate, the Committee finds no changes in existing law
made by S. 3495, as ordered reported.