[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

    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.

                    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.

                                  
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