U.S. Vietnam Relations: Issues and Implications (Letter Report, 04/14/95,
GAO/NSIAD-95-42).

Although the United States has lifted its trade embargo against Vietnam
and allowed U.S. businesses to invest there, the United States has yet
to establish full diplomatic relations with Vietnam.  Additional steps
toward normalization of relations depend on political and economic
change in Vietnam and continued progress on the POW/MIA issue.  This
report discusses (1) ongoing changes in Vietnam's foreign and domestic
policies and the reaction of the international community, (2) changes in
U.S. policy toward Vietnam and the substance of bilateral relations
between the two countries, (3) the interest that the United States and
Vietnam are pursuing in their relations with one another, (4) prospects
for Vietnam's economic and political development, and (5) key factors
affecting the pace of movement toward normalized relations.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-42
     TITLE:  U.S. Vietnam Relations: Issues and Implications
      DATE:  04/14/95
   SUBJECT:  International relations
             Foreign trade policies
             Economic development
             International trade restriction
             Lending institutions
             Economic policies
             Foreign financial assistance
IDENTIFIER:  Vietnam
             Cambodia
             UN Orderly Departure Program
             International Monetary Fund
             USDA Export Enhancement Program
             Generalized System of Preferences Program
             Asia
             
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Cover
================================================================ COVER


Report to Congressional Committees

April 1995

U.S.  VIETNAM RELATIONS - ISSUES
AND IMPLICATIONS

GAO/NSIAD-95-42

U.S.  Vietnam Relations


Abbreviations
=============================================================== ABBREV

  ASEAN - Association of Southeast Asian Nations
  IFI - international financial institution
  NGO - nongovernmental organizations
  MFN - most-favored nation
  POW/MIA - prisoner of war/missing in action
  USAID - U.S.  Agency for International Development

Letter
=============================================================== LETTER


B-257353

April 14, 1995

The Honorable Craig Thomas
Chairman, Subcommittee on East Asian
 and Pacific Affairs
Committee on Foreign Relations
United States Senate

The Honorable Doug Bereuter
Chairman, Subcommittee on Asia and the Pacific
Committee on International Relations
House of Representatives

In early 1994, the United States ended its long-standing trade
embargo against Vietnam.  This decision was attended by considerable
controversy, and debate about taking additional steps toward
normalizing U.S.-Vietnam relations has continued through the January
1995 announcement that the United States and Vietnam were opening
liaison offices in each other's capitals.  Concerns remain as to
whether the Vietnamese commitment to resolving the fate of
unaccounted-for U.S.  service personnel is sufficient to warrant
continued movement forward. 

Congressional notification and/or concurrence are required for some
of the additional steps that the United States may consider taking
toward full relations with Vietnam.  To assist you in any
deliberations you may have on these matters, this report provides
information on (1) ongoing changes in Vietnam's foreign and domestic
policies and the international community's reaction to these changes,
(2) changes in U.S.  policy toward Vietnam and the substance of
bilateral relations between the two countries, (3) the interests that
the United States and Vietnam are pursuing in their relations with
one another, (4) prospects for Vietnam's economic and political
development, and (5) key factors affecting the pace of movement
toward normalized relations.  We did not evaluate the efficacy of
current U.S.  and Vietnamese efforts to resolve the prisoner of
war/missing in action (POW/MIA) issue and are not making any
recommendations. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Changes in Vietnam's foreign and domestic policies have led to
broader acceptance of Vietnam by the international community. 
Vietnam's withdrawal from Cambodia and subsequent cooperation in the
U.N.-coordinated search for a peaceful settlement in that country,
and Vietnam's ongoing program of market-oriented domestic reforms
have largely removed the basis for the international community's
1980s consensus that Vietnam should be isolated as an outcast. 
Multilateral organizations and most countries other than the United
States have re-established full relations with Vietnam. 

Although the United States has not established full relations with
Vietnam, it has, among other things, ended its opposition to
international financial institution (IFI) lending to Vietnam and
lifted its embargo against trade with Vietnam by Americans.  As legal
restrictions have lessened, U.S.  private sector interests, including
businesses, nongovernmental organizations (NGO), and
Vietnamese-Americans, have established growing ties with Vietnam. 
Government agencies, including the Departments of Defense and State,
have established limited official ties.  Constraints to full
relations remain, however.  For example, U.S.  government programs
typically used to facilitate foreign trade are statutorily barred
from Vietnam. 

U.S.  foreign policy interests include the promotion of human rights
and democracy in Vietnam, as well as U.S.  commercial and security
interests.  For its part, Vietnam has important commercial and
security interests to pursue with the United States. 

Despite ongoing reforms and positive economic trends, Vietnam faces
an uncertain future.  While agreeing that Vietnam has considerable
potential for growth and change, analysts point out that serious
constraints remain.  Vietnam remains one of the world's poorest
countries, and the Communist party continues to exercise a monopoly
on political power.  Given its starting point, Vietnam is years away
from developing an economy similar to those of its dynamic neighbors
in Asia.  Informed observers generally agree that political change is
likely to come only gradually. 

Executive branch officials and other analysts stated that the pace at
which the administration moves forward in taking additional steps
toward full bilateral ties will depend on U.S.  conclusions regarding
developments within Vietnam, particularly with regard to progress on
the POW/MIA issue.  Support for additional steps will also depend on
the pace of political and economic change in Vietnam toward greater
democracy and a more prosperous, market-oriented economy. 


   BACKGROUND
------------------------------------------------------------ Letter :2

During the 1980s and early 1990s, U.S.  policy focused on pressuring
the Vietnamese for cooperation in addressing a limited number of
concerns.  These included (1) clarifying the fate of U.S.  POW/MIAs
still officially unaccounted for; (2) obtaining Vietnam's cooperation
in bringing about a peaceful settlement in Cambodia, which Vietnam
had invaded in 1978; and (3) resolving issues related to emigration
from Vietnam.\1

To obtain Vietnamese cooperation on these issues, the United States
withheld diplomatic relations, enforced a complete bilateral trade
embargo, and continued to block access to frozen Vietnamese assets
held in the United States or under U.S.  jurisdiction since 1975. 
Other countries, including the members of the Association of
Southeast Asian Nations (ASEAN),\2 Japan, China, as well as the
United States, cooperated in isolating Vietnam, primarily to express
their opposition to Vietnamese aggression in Cambodia.  Among other
consequences, this internationally supported isolation policy
resulted in Vietnam's being barred from access to credit from IFIs. 
(See fig.  1 for a map of the Asia-Pacific region.)

   Figure 1:  The Asia-Pacific
   Region

   (See figure in printed
   edition.)


--------------------
\1 The United States has been concerned about (1) freedom of
emigration for Vietnamese citizens stigmatized by association with
the U.S.  war effort in South Vietnam, including Amerasians and
former U.S.  government employees and (2) the welfare of several
hundred thousand people who began fleeing Vietnam in the late 1970s
to seek asylum in other countries. 

\2 Indonesia, Malaysia, Singapore, Thailand, the Philippines, and
Brunei. 


   VIETNAM HAS MADE IMPORTANT
   CHANGES IN ITS FOREIGN AND
   DOMESTIC POLICIES
------------------------------------------------------------ Letter :3

Several internal and external factors combined in the late 1980s to
force a change in Vietnam's foreign and domestic policies.  Foremost
among these was the failure of Vietnam's centrally planned economic
system, recognized in the Communist party's December 1986 call for
"Doi Moi", or renovation.  Pressure for change was augmented by the
continuing costs of involvement in Cambodia, particularly the
international community's resulting unfriendly stance toward Vietnam. 
The reform movement also gained impetus from the collapse of the
Soviet Union and Communist governments in Eastern Europe, wherein
Vietnam lost its major markets and primary sources of economic
assistance and political support. 

In foreign affairs, Vietnam abandoned its goal of creating an
Indochina bloc and made promoting good relations with all nations its
stated guiding principle.  Withdrawal from Cambodia in 1989 was
followed by the conclusion in 1991 of an international accord to
resolve the unsettled political situation in that country.  Since
then, Vietnam has focused on developing closer relations with its
neighbors--particularly the members of ASEAN--to promote domestic
prosperity by becoming a participant in the regional
international-trade-based economic boom. 

Improved relations with ASEAN members and other countries in the
region are also designed to promote economic progress indirectly by
ensuring regional peace and stability.  Although still a point of
contention with some nearby countries, Vietnam has cooperated in
working toward resolving the situation of the thousands of Vietnamese
remaining in foreign refugee camps throughout the region through the
U.N.  Comprehensive Plan of Action.  Vietnam has also worked with the
United Nations, the United States, and other countries to regularize
emigration from Vietnam through the Orderly Departure Program.  The
program was established to provide a legal alternative to the dangers
of emigration by sea--the boat people phenomenon. 

Although Vietnam's leaders have also worked to develop cordial
relations with China, they remain concerned about China's
intentions--particularly with regard to sovereignty over the
potentially oil-rich Spratly Islands.\3 Greater integration with
ASEAN is seen as strengthening Vietnam's position with regard to
China. 

Vietnam has increased its collaboration with the United States to
determine the fate of the more than 2,200 U.S.  service personnel who
are still officially unaccounted for in Indochina.  After gaining
initial access to crash sites in 1988, the U.S.  Department of
Defense opened a POW/MIA investigative office in Hanoi in 1991 and
has since gained expanded access to crash sites, relevant archival
material, Vietnamese witnesses, and other sources of information. 
Vietnam's primary contribution to this effort has been cooperation
with the Department of Defense Joint Task Force-Full Accounting,
which conducts search activities in Vietnam, as well as in Laos and
Cambodia.  In July 1994, a U.S.  delegation received Vietnamese
commitments to take additional steps, including unilateral actions,
that may shed light on some unresolved cases.  For example, the
Ministry of Interior appointed a team to review archival materials
for relevant documents, and measures were taken by the government to
solicit useful information from the general public. 

Domestically, Vietnam has made considerable progress in its Doi Moi
program of market-oriented reforms.  Key structural steps taken to
date have included abandoning collectivized agriculture,
decontrolling most prices and the rate of exchange for the Vietnamese
currency, introducing positive interest rates to the banking system,
reducing impediments to international trade and investment, and
increasing the autonomy of state-owned enterprises.  A new
constitution, adopted in 1992, confirms the legitimacy of the private
sector, and the government continues its efforts to create a legal
framework adequate for a modern, market-oriented economy. 


--------------------
\3 The Spratlys are located in the South China Sea and are the object
of boundary disputes among Vietnam, the People's Republic of China,
Taiwan, the Philippines, Malaysia, and Brunei. 


   OTHER COUNTRIES AND
   MULTILATERAL INSTITUTIONS HAVE
   RESUMED NORMAL RELATIONS WITH
   VIETNAM
------------------------------------------------------------ Letter :4

Vietnam has made substantial progress toward full integration into
the international community.  Vietnamese withdrawal from Cambodia and
cooperation in working toward bringing an end to the conflict in that
country removed the primary cause for continued antagonism between
Vietnam and its neighbors.  One indication of Vietnam's growing
acceptance was the recent ASEAN decision to work toward elevating
Vietnam from observer status to full membership in the near future. 
Vietnam was also granted observer status in the General Agreement on
Tariffs and Trade--now succeeded by the newly created World Trade
Organization. 

During 1993, Japan and France led an international consortium that
arranged financing to settle Vietnam's outstanding debt to IFIs so
that these institutions could resume lending to Vietnam.  While the
United States delayed this consortium from clearing Vietnam's debt
for a time, U.S.  objections were eventually dropped.  The World
Bank, Asian Development Bank, and International Monetary Fund have
since resumed operations in Vietnam. 

This resumption of operations, coupled with the end of the U.S. 
trade embargo in February 1994, has brought a surge of foreign public
and private sector interest in the Vietnamese economy.  According to
the government of Vietnam, total foreign assistance disbursed to
Vietnam in 1993 approached $500 million, compared with an average of
about $75 million annually during the last half of the 1980s.  In the
fall of 1993, multilateral and bilateral donors combined pledged
nearly $1.9 billion in development assistance at the first
international donors conference on Vietnam.  The World Bank pledged
to provide approximately $400 million a year for the next 5 to 10
years, the Asian Development Bank pledged about $300 million for
1993, and the International Monetary Fund granted Vietnam access to
credits in excess of $200 million for the initial year of lending.\4

Vietnam's international trade (imports and exports combined)
increased from about $3.6 billion in 1988 to $8.2 billion in 1993,\5
while the stock of foreign investment commitments rose from about
$364 million in 1988 to nearly $11 billion as of December 1994.  In
line with Vietnam's stated foreign policy orientation, Asian
countries dominate Vietnam's trade and investment statistics.  In
addition to being by far the largest supplier of foreign assistance
with over $1 billion in development loan commitments (focused
primarily on infrastructure projects), Japan is Vietnam's largest
trade partner, followed closely by Singapore.  Table 1 lists
Vietnam's five largest trade partners for 1993.  Table 2 lists
Vietnam's largest sources of foreign investment. 



                           Table 1
           
            Vietnam's Largest Trading Partners in
                             1993

                    (Dollars in billions)

                                                       Total
Partner                                                trade
------------------------------------------------  ----------
Japan                                                  $1.72
Singapore                                               1.33
South Korea                                             0.82
Hong Kong                                               0.65
France                                                  0.46
Others                                                  3.23
============================================================
Total                                                  $8.21
------------------------------------------------------------
Source:  International Monetary Fund. 



                           Table 2
           
            Five Largest Sources of Foreign Direct
            Investment in Vietnam (as of December
                            1994)

                    (Dollars in billions)

                                                  Commitment
Source                                                     s
------------------------------------------------  ----------
Taiwan                                                 $1.96
Hong Kong                                               1.79
Singapore                                               1.07
South Korea                                             0.88
Japan                                                   0.78
------------------------------------------------------------
Source:  Vietnam State Committee for Cooperation and Investment. 

In addition to Japan, other governments in the region have resumed
full diplomatic relations with Vietnam and are taking other steps to
facilitate growth in commercial relations.  For example, during his
1994 visit, Australia's Prime Minister announced plans to provide
about $200 million (in Australian dollars) in assistance to Vietnam
over the ensuing 4-year period.  One objective of this assistance is
to promote Australian private sector success in Vietnam.  The
government of Taiwan has also pledged a substantial amount of
assistance and, under its recently announced southward trade and
investment policy, has encouraged Taiwanese companies to become
engaged in Vietnam, along with other Southeast Asian countries. 
Countries outside of the region, most prominently France, have
undertaken similar efforts.  France's President has visited Vietnam,
and France is providing Vietnam economic assistance and export
credits. 


--------------------
\4 An additional $2 billion was reported as pledged at the second
annual donors conference in November 1994, but complete information
on these pledges was not immediately available. 

\5 The 1988 figure, including ruble-denominated trade, was provided
by the Central Intelligence Agency.  The 1993 number was provided by
the International Monetary Fund. 


   THE UNITED STATES HAS TAKEN
   SIGNIFICANT STEPS TOWARD FULL
   RELATIONS WITH VIETNAM, BUT
   CONSTRAINTS REMAIN
------------------------------------------------------------ Letter :5

The United States and Vietnam have not yet established full
diplomatic relations.  However, since 1991 the United States has
taken several steps toward resuming full relations.  In April of that
year, the United States presented Vietnamese officials with a "road
map" outlining a series of actions to be taken by Vietnam to assist
in resolving the POW/MIA issue and the unsettled situation in
Cambodia and to facilitate emigration for persons in detention in
Vietnam due to their association with the pre-1975 U.S.  war effort. 
Progress in these areas on the Vietnamese side would be met by a
series of specific U.S.  steps toward expanded relations.  While not
specifically embracing the road map, the Clinton administration has
stated that additional movement toward full relations would depend on
tangible progress in specific areas of concern regarding the POW/MIA
issue. 

Beginning in 1991, the U.S.  government permitted (1) financial
institutions to transfer remittances from Vietnamese-Americans back
to their families in Vietnam and (2) travel service providers to
arrange travel to Vietnam.  During 1992, the U.S.  government
liberalized controls on NGO operations and permitted U.S.  companies
to establish telecommunications links with Vietnam, provide goods and
services addressing basic human needs, and sign executory contracts,
in anticipation of the end of the embargo. 

In 1993, the United States ended its opposition to resumption of IFI
lending and shortly thereafter permitted U.S.  companies to
participate in IFI-funded projects.  In February 1994, the President
announced a decision to expand the official U.S.  presence in Vietnam
to the level of a liaison office (pending resolution of technical
issues discussed later in this report) and to end the trade embargo. 

In practical terms, the end of the embargo meant that persons subject
to U.S.  jurisdiction were now free to engage in business with
Vietnam.  The end of the embargo was accompanied by a downgrading of
Vietnam's classification for export control purposes.  Most U.S. 
exports to Vietnam can now be made without restriction.\6

The two countries announced the opening of liaison offices in each
other's capitals at the end of January 1995.  These offices will have
small staffs (e.g., 11 U.S.  State Department personnel in Hanoi) and
will be headed by officials with the rank of consul-general, rather
than ambassador.  They will, however, conduct most consular and other
functions (e.g., economic reporting) on a limited scale. 

Though other legal constraints remain, the Foreign Operations
Appropriations Act for Fiscal Year 1995 removed certain of the
outstanding prohibitions on activity within Vietnam by a number of
U.S.  agencies, including the U.S.  Agency for International
Development (USAID), the Trade and Development Agency, the Overseas
Private Investment Corporation, and the Eximbank.  The act omitted
language included in prior appropriations acts that specifically
prohibited direct and indirect assistance to Vietnam and repealed
similar language that had been included as section 13 of the State
Department Appropriations Authorization Act of 1973.\7 These changes
built upon the executive branch's existing authority to establish a
diplomatic presence in Vietnam and take some other actions.  Other
legal constraints, discussed below, continue to limit development of
U.S.  relations with Vietnam. 


--------------------
\6 For export control purposes, Vietnam is now in the same country
group as Russia.  Commerce Department officials noted that
restrictions may still be applied to some exports--for example,
high-powered computers that may have potential for applications in
nuclear weapons programs. 

\7 In 1990, Congress repealed an explicit prohibition on Public
Law-480 food assistance to communist countries, including Vietnam. 


      U.S.  PRIVATE INTERESTS ARE
      BUILDING RELATIONS WITH
      VIETNAM
---------------------------------------------------------- Letter :5.1

Even before the trade embargo was lifted, U.S.  companies, NGOs, and
Vietnamese-Americans had begun to build relations with Vietnam, as
permitted under regulations in effect during that time.  These
relationships have continued to grow.  According to the American
Chamber of Commerce in Vietnam, approximately 30 U.S.  companies had
established offices in Vietnam by the time the embargo was lifted,
and the number has grown steadily since that time.  During 1993, U.S. 
companies exported products valued at less than $7 million to
Vietnam, but this total increased to about $156 million for the first
11 months of 1994.  The total stock of U.S.  investment commitments
rose from nothing prior to the embargo's being lifted to a reported
$270 million as of December 1994. 

U.S.  companies seeking opportunities or already doing business in a
variety of sectors in Vietnam include Fortune 500 companies as well
as smaller firms.  Petroleum products companies figure prominently
because of interest in production from offshore oil fields, including
some in or near the disputed territory in the South China Sea. 
Others include service companies (e.g., consulting, construction,
banking, and insurance) and companies selling manufactured goods
ranging from aircraft to pharmaceuticals and other consumer products. 

Some U.S.  NGOs were involved in Vietnam through the 1980s.  However,
their presence has grown significantly in recent years.  From 1990
through 1994, the number of U.S.-based NGOs reporting operations in
Vietnam rose from 49 to 73.  One official estimated the value of U.S. 
NGO operations in Vietnam during 1993 at approximately $15 million. 
Overall, officials in Vietnam estimated that more than 200 foreign
NGOs operated programs valued at about $50 million during 1993.  U.S. 
NGOs formerly focused on health and education/exchange programs in
order to comply with U.S.  restrictions, but now that restrictions
have been removed the focus has already broadened to include
long-term development issues. 

The Vietnamese-American community, estimated to number over 750,000
people, is made up largely of refugees and others who left Vietnam
under adverse circumstances.  Vietnamese-Americans have maintained
substantial links to family and friends in Vietnam, sending back
hundreds of millions of dollars each year in cash and goods and
visiting with some frequency.  Estimates of both remittances and
travel vary considerably.  However, we were told that Vietnamese
government sources estimated that 1993 remittances amounted to about
$600 million and that about 87,000 overseas Vietnamese visited
Vietnam during that year.  Vietnamese-Americans have also begun to
sponsor NGO activities focusing on humanitarian assistance and
educational and cultural exchange and are moving in greater numbers
to establish business relations with Vietnam.  Although the community
has generally opposed movement toward increased official U.S.  ties
with Vietnam, the intensity of that opposition has declined to some
extent in recent years.  Nonetheless, Vietnamese-American leaders
continue to urge the United States to seek improvements in democracy
and respect for human rights before fully normalizing relations with
Vietnam. 


      U.S.  GOVERNMENT ENGAGEMENT
      WITH VIETNAM
---------------------------------------------------------- Letter :5.2

Even before the embargo was lifted, the U.S.  government had already
engaged with Vietnam in a number of discrete areas.  The most
prominent of these interactions have centered on POW/MIA resolution,
the Orderly Departure Program, and bilateral assistance programs. 
The United States has also been contributing assistance to Vietnam
through its share of support for multilateral organizations active in
that country.  While continuing to emphasize the necessity for
continued progress toward resolution of outstanding POW/MIA cases,
U.S.  officials have sought to expand the scope of bilateral
relations. 

The priority that continues to be attached to the POW/MIA issue is
reflected in U.S.  search and identification activities.  While exact
numbers are not available, Department of Defense officials estimated
total fiscal year 1994 expenditure on such activities at about $59
million.\8

According to Department officials, expenditures for related
activities within Vietnam totaled more than $11 million in fiscal
year 1994.  Among other things, this total includes expenditures for
Vietnamese personnel assisting in joint field activities, helicopter
services provided by Vietnam, and per diem for U.S.  personnel on
temporary duty in Vietnam. 

With congressional support, the executive branch has established a
number of bilateral assistance programs in Vietnam.  In commenting on
a draft of this report, State and Defense Department officials
emphasized the linkage between U.S.  humanitarian efforts in Vietnam
and Vietnamese cooperation in resolving outstanding POW/MIA cases. 
U.S.  bilateral programs have included USAID-funded assistance to
victims of war and displaced children (valued at about $10.4 million
during fiscal years 1991-94) and State Department-funded assistance
to NGOs assisting refugees returning to Vietnam ($4.3 million through
fiscal year 1994). 

The U.S.  government has also supported a number of programs aimed at
such purposes as encouraging Vietnam's transition toward democracy or
development of free markets, or building foundations for greater
U.S.-Vietnamese understanding.  For example, the National Endowment
for Democracy is currently providing about $580,000 to five different
grantees for such purposes as training Vietnamese legislators and
journalists.  The Asia Foundation devoted about $336,000 of its 1994
congressional grant to relevant programs, including support for
grantees working to improve Vietnam's legal, financial and monetary
systems.\9 In addition to supporting Vietnamese-language
broadcasting, the United States Information Agency also funds
Fulbright scholarships for Vietnamese students studying in the United
States.  Total funding since 1992 has been about $4.3 million,
including support for the program's recent expansion to include U.S. 
scholars going to Vietnam. 

The United States has not actively participated in international
discussions concerning economic assistance for Vietnam.  Nonetheless,
the United States is an indirect source of development assistance to
Vietnam through its contributions to the IFIs and the United Nations. 
In 1993, the estimated U.S.  pro-rated share of aid pledged to
Vietnam by multilateral organizations exceeded $170 million.  This
estimate should not be regarded as precise since it is not possible
to establish a direct link between U.S.  contributions to each
organization and specific activities in Vietnam. 

The recent opening of liaison offices came only after resolution of
two technical issues:  (1) consular access to U.S.  citizens
incarcerated in Vietnam and (2) compensation to the Unites States for
22 diplomatic properties expropriated by the Vietnamese. 

Consular access became an issue because Vietnam officially permits
its citizens to renounce their citizenship only by approval of the
government.  The government therefore regards naturalized U.S. 
citizens of Vietnamese origin as citizens of Vietnam.  This issue was
resolved through an agreement permitting U.S.  officials to see U.S. 
passport holders within
96 hours of their being detained by Vietnamese authorities. 

Regarding the diplomatic properties in Vietnam, U.S.  and Vietnamese
negotiators arrived at an agreement wherein compensation will be
provided to the United States through (1) outright return of 5
properties, (2) cash compensation for 12 properties, and (3) exchange
of the remaining 5 for equivalent properties in Vietnam.  To ensure
that these properties would be valued at fair market rates, the State
Department employed the services of valuation experts from
internationally recognized real estate firms. 

At the time the liaison offices were opened, the Department of State
also announced the successful conclusion of negotiations aimed at
obtaining compensation for about $209 million in claims (including
interest) by U.S.  private sector claimants and the Overseas Private
Investment Corporation for losses incurred due to Vietnamese
expropriation.  The private claims, amounting to about $204 million
of this total, were adjudicated by the U.S.  Foreign Claims
Settlement Commission under a statutory program that ended in 1985. 
Payment to claimants came from more than $350 million (including
interest) in blocked Vietnamese assets held in U.S.  financial
institutions since 1975.  Vietnam took possession of the assets that
remained after U.S.  claims were satisfied. 

Negotiations are still ongoing concerning agreement on a repayment
plan for more than $150 million in official debt owed to the U.S. 
government by the former Republic of Vietnam.  While Vietnam
recognized its obligation to pay the official debt of the former
Republic of Vietnam in Paris Club negotiations during 1993, these
negotiations have proceeded slowly, and matters are not yet resolved. 
The United States has also initiated a dialogue on human rights with
Vietnam. 

In addition, State and Transportation Department officials are
pursuing the establishment of civil aviation links between the United
States and Vietnam.  However, differing views on market access seem
likely to delay the initiation of regularly scheduled service between
the two countries for some time.  U.S.  negotiators are seeking to
establish a bilateral relationship based on open competition, while
Vietnamese negotiators seek to strictly limit market access. 


--------------------
\8 This figure includes expenditures on resolution of POW/MIA cases
stemming from U.S.  involvement in Vietnam, as well as other
conflicts such as the Korean War and World War II.  It does not
include regular pay and allowances for U.S.  military personnel
working on these issues. 

\9 The East-West Center, a think-tank associated with the University
of Hawaii, also receives substantial support from the U.S. 
government, and is currently working with Vietnamese scholars on a
variety of development issues.  According to the Center, however, all
of its work with Vietnam is supported by grants from private
foundations. 


      STATUTORY CONSTRAINTS REMAIN
---------------------------------------------------------- Letter :5.3

A complex set of statutory constraints continues to bar U.S.  foreign
assistance and trade support agencies (USAID, the Trade and
Development Agency, the Overseas Private Investment Corporation, and
the Eximbank) from operating in Vietnam and otherwise restrict
expansion of U.S.-Vietnamese relations.\10 Many of these constraints
may be overcome if the executive branch determines that certain
conditions have been met.  Congressional notification and/or
concurrence is required in some instances--including for any
proposals for USAID activity in Vietnam. 

The most well-known of the remaining constraints is the Jackson-Vanik
amendment (section 402 of the Trade Act of 1974, as amended).  Under
this provision, the United States cannot award most-favored nation
(MFN) trade status, extend official credits or investment
guarantees,\11 or conclude commercial agreements with nonmarket
economies unless they are found to provide their citizens with the
freedom to emigrate.  The President can overcome this provision
either by issuing a report to Congress indicating that the conditions
listed in the law have been satisfied or by waiving application of
the conditions on the basis of his determination that the waiver will
substantially promote the amendment's objectives.  Determinations of
full compliance must be renewed every
6 months, while waivers must be renewed annually.  The waiver
authority provided by the amendment has been used on several
occasions--for example, for the People's Republic of China. 
Provision is made in the law for Congress to disapprove
determinations of compliance or waivers by joint resolution.  In
addition, MFN status cannot be granted until the United States and
Vietnam conclude a trade agreement approved by both houses of
Congress.  Such an agreement must include a reciprocal grant of MFN
status and other specified provisions (e.g., protection for
intellectual property).  Even if Vietnam becomes a full member of the
World Trade Organization, the United States cannot accord MFN status
to Vietnamese exports until the requirements of Jackson-Vanik are
met. 

In addition to Vietnam's ineligibility for MFN status, Vietnamese
access to the U.S.  market is further limited by Vietnam's
ineligibility for participation in the Generalized System of
Preferences.  This program provides duty-free access to the U.S. 
market for developing country products.  Countries' participation in
the program is conditioned on a variety of factors.  Some, including
progress toward adequate worker rights protection, may be waived by
the President if he determines that this is in the national economic
interest of the United States.  Other factors, however, including
some that apply specifically to Communist countries, cannot be
waived.  These include the precondition that a country have MFN
status with the United States and be a member of the General
Agreement on Tariffs and Trade (now succeeded by the World Trade
Organization). 

Section 620(f) of the Foreign Assistance Act prohibits assistance
(including through the Trade and Development Agency and the Overseas
Private Investment Corporation) to Communist countries (including
Vietnam) unless the President makes certain determinations or exempts
a country from application of this provision on the grounds that such
a move is important to U.S.  national interests.  The matters to be
determined are that (a) the assistance is vital to U.S.  security,
(b) the country is not controlled by the international Communist
conspiracy, and (c) assistance will promote independence from
international Communism.  The law also suggests that progress in
fostering democracy and respect for human rights be one of the
factors weighed in considering assistance to countries that the
President has exempted from application of this section.  Action has
been taken under this provision on several occasions--for example,
for China during 1985 and for certain Eastern European countries and
the Soviet Union during 1989-91.  In addition, the Eximbank is
specifically prohibited by its authorizing legislation from doing
business in Marxist-Leninist countries, but this restriction may also
be waived by the President if it is determined that proposed
transactions are in the U.S.  national interest. 

Foreign assistance legislation also prohibits assistance to countries
with which the United States has severed diplomatic relations or that
have (1) expropriated U.S.  property without just compensation or (2)
defaulted on loan repayments.\12 While the United States and Vietnam
have reached an agreement with regard to expropriated U.S.  property,
the two countries still do not have full diplomatic relations, and,
as already noted, negotiations aimed at addressing outstanding
Vietnamese debt to the United States have not yet been concluded. 

In the International Monetary Fund and the World and Asian
Development Banks, the United States abstains from voting on
proposals for assistance to Vietnam--except for projects addressing
basic human needs.  In the case of the Fund, this policy was adopted
in compliance with the Gramm amendment (section 43 of the Bretton
Woods Agreement Act, as amended), which requires the United States to
actively oppose Fund credit facilities for Communist dictatorships. 
However, the amendment contains a mechanism that allows U.S.  support
for individual proposed loans if the executive branch certifies to
Congress that such loans meet certain criteria.  These criteria are
that loans (1) assist in correcting balance of payments difficulties,
(2) advance market-oriented forces, and (3) are in the best economic
interests of the majority of the population.  This voting pattern was
extended to the banks as well as a matter of policy. 

A number of other constraints also exist.  For example, Eximbank and
the Department of Agriculture can only provide credit to countries
that they deem to be acceptable credit risks--an uncertain issue for
Vietnam at the present.  In addition, the Overseas Private Investment
Corporation can only operate in countries where it has determined
that substantial progress is being made toward providing adequate
protection for internationally recognized workers rights unless the
President waives this restriction in the national economic interest. 


--------------------
\10 USAID programs in Vietnam to date have been limited to categories
wherein successive appropriations acts have permitted assistance to
be provided "notwithstanding any other provision of law."

\11 Affected credit programs include those provided through Eximbank
and the Department of Agriculture.  However, Agriculture officials
pointed out that legal restrictions on credit do not apply to a
number of programs in which food is donated or otherwise provided to
other countries through outright subsidization.  This includes the
USDA's Export Enhancement Program and others aimed at promoting
exports of particular commodities. 

\12 Regarding countries with which the United States has severed
diplomatic relations, see section 620(t) of the Foreign Assistance
Act of 1961, as amended.  Regarding expropriated property, see
section 620(e) of the Foreign Assistance Act of 1961 as amended (the
Hickenlooper Amendment) and section 527 of the Foreign Relations
Authorization Act for Fiscal Years 1994 and 1995 (the Helms
Amendment).  Regarding delinquent loans, see section 620(q) of the
Foreign Assistance Act of 1961 and section 512 of the Foreign
Operations Appropriations Act for Fiscal Year 1995 (the Brooke
Amendment). 


      SEVERAL FEATURES OF NORMAL
      U.S.  RELATIONS WITH
      DEVELOPING COUNTRIES ARE
      ABSENT WITH VIETNAM
---------------------------------------------------------- Letter :5.4

The United States and its trading partners typically seek to protect
their commercial interests in each other's territories through
multilateral and bilateral agreements regulating trade, investment,
and taxation practices.  Because Vietnam does not belong to the World
Trade Organization and has concluded no bilateral agreements with the
United States in these areas, there is no international mechanism in
place to regulate or protect U.S.  business interaction with Vietnam. 

U.S.  businesses in other countries can also typically benefit from
(1) the information and advocacy services provided by the U.S. 
Foreign and Commercial Service and the Foreign Agricultural Service,
(2) the credit facilities of the Eximbank and the Department of
Agriculture, (3) investment insurance and other services through the
Overseas Private Investment Corporation, (4) feasibility studies and
other activities by the Trade and Development Agency, and (5) a
number of types of activities undertaken by USAID.  However, legal
restrictions and administration policy keep these other agencies
inactive in Vietnam for the most part.  For example, the U.S.  and
Foreign Commercial Service and the Foreign Agricultural Service do
not have personnel permanently assigned to Vietnam.  However, current
policy does permit them to assist U.S.  businesses in a more limited
fashion--for example through written and electronic communications
with Vietnam and ad hoc travel. 

The U.S.  policy of abstaining on most IFI votes on assistance to
Vietnam limits U.S.  influence on the courses of action recommended
to Vietnam by these agencies.  Since USAID is not active in Vietnam,
the United States also does not contribute to dialogue on Vietnamese
policy making through this agency's operations. 


   U.S.  AND VIETNAMESE INTERESTS
   IN BILATERAL RELATIONS
------------------------------------------------------------ Letter :6

Relations between the United States and Vietnam continue to be
troubled by the aftermath of the armed conflict between the two
countries that ended 20 years ago.  U.S.  decisionmakers continue to
agree that highest emphasis should be placed on obtaining tangible
progress toward obtaining the fullest possible accounting for U.S. 
service personnel still unaccounted for as an underlying requirement
for forward progress in U.S.-Vietnamese relations.  Executive branch
officials, for example, stated that the decisions to end the embargo
and open liaison offices were made only after concluding that
significant tangible progress was being made on this issue. 
Similarly, executive branch officials concluded that these actions
would contribute to further progress being obtained. 

Although this issue remains the focal point of official
U.S.-Vietnamese interaction, the United States and Vietnam each have
a number of other interests in pursuing improved bilateral relations. 
Both have commercial and security interests, while the U.S.  agenda
also includes promotion of democracy and respect for human rights. 

In the commercial area, a number of U.S.  companies and business
organizations have pointed to opportunities in the Vietnamese market. 
In a survey by the U.S.-ASEAN Business Council, 110 companies
estimated that they expected more than $8 billion in trade and
investment opportunities in Vietnam over the next 5 years.  The
projected points of concentration in this universe reflect portions
of Vietnam's national agenda for investment for development.  They
include the power sector, transportation, road construction, and
telecommunications, as well as the oil and gas sector.  Services and
consumer goods are also expected to offer opportunities.  While name
brand recognition is often already high for U.S.  products, private
sector representatives pointed out that firms that successfully
establish themselves in this new market at an early date may have an
advantage over their later-arriving competitors.  Vietnamese
officials have indicated that American products are welcome, while
adding that U.S.  capital, technology, and management expertise are
highly valued in Vietnam.  Aviation, oil and gas, and
telecommunications are singled out as sectors where access to
superior U.S.  technology is highly desired. 

For their part, Vietnamese officials believe that the United States
can be a lucrative market for Vietnam's exporters, just as it has
proven to be a key market for other developing countries in Asia. 
This will be especially true if the United States grants Vietnam MFN
status.  U.S.  imports from Vietnam were reported to amount to about
$48 million during the first 11 months of 1994, with coffee
accounting for nearly 60 percent of this total.  However, the
Vietnamese garment industry is growing, and, if the example set by
other Asian success stories is followed, Vietnamese exports of
apparel, electronics, and other labor-intensive products can be
expected to rise rapidly.  In addition, while retaining, to a degree,
the suspicions held over from a prior era, Vietnamese authorities are
anxious to benefit from the assistance that can be provided by
Vietnamese expatriates, especially technical and managerial skills
that are lacking in Vietnam.  Improved relations with the United
States may facilitate Vietnamese access to this expertise. 

In the security area, the United States shares Vietnamese interest in
maintaining stability in the region.  The United States has increased
its overall foreign policy emphasis on the Asia-Pacific region,
largely because of the United States' increased stake in the area's
economic growth.  In this context, the United States has renewed its
commitment to maintaining peace and stability in the region.  While
maintaining a military presence in the region, the United States has
supported development of new regional mechanisms to avoid conflict. 
These include the ASEAN Regional Security Forum, which includes the
United States and Vietnam, as well as China and others in the region. 
Peaceful settlement of the regional dispute over the Spratly Islands
and other issues involving Vietnam that may arise is in the interest
of the United States.  One motivating factor behind Vietnam's efforts
to develop better relations with the United States is the balancing
effect that a U.S.  presence can have on Chinese and Japanese
influence in Southeast Asia. 

Promoting progress toward democracy and protection for human rights
in other countries is an established U.S.  foreign policy goal. 
Vietnamese officials have indicated that they will discuss these
issues with U.S.  representatives, although their concepts in these
areas differ from those held in the United States.  U.S.  government
and other analysts commented that part of the rationale for moving
forward with Vietnam is that opening Vietnam to the world community
generally, and U.S.  involvement specifically, will foster the spread
of more democratic political thought. 

As stated in the Foreign Assistance Act and related legislation,
concern for the welfare of the poor is also a traditional element in
U.S.  foreign policy.  International organizations as well as
Vietnamese sources report that poverty continues to be a severe
problem in Vietnam.  For example, malnutrition rates among children
are very high.  Vietnam already has the thirteenth largest population
in the world, and current population growth is adding about 1 million
new Vietnamese to the population each year, while the quality of
social services, including health care and education, has declined. 

U.S.  officials also share with their Vietnamese counterparts concern
about potential growth in drug trafficking both within and through
Vietnam from the nearby golden triangle opium-producing region. 
Finally, Vietnam currently lacks the capacity to address major
environmental problems that have national and international
implications, including ongoing deforestation and destruction of
fertile soils. 


   VIETNAM FACES AN UNCERTAIN
   FUTURE
------------------------------------------------------------ Letter :7


      PROSPECTS FOR ECONOMIC
      PROGRESS
---------------------------------------------------------- Letter :7.1

Many U.S.  and foreign analysts believe that Vietnam has the
potential to become the next dynamic Asian economy.  Among other
considerations, these analysts cite (1) continued progress in the Doi
Moi reform program; (2) steady 6 to 8 percent rates of gross domestic
product growth in recent years while keeping inflation under
control;\13 (3) the relatively high quality of Vietnam's plentiful,
low-cost labor force; and (4) the geographic location of Vietnam,
surrounded by others that have achieved remarkable economic successes
in recent years, such as Malaysia, Indonesia, Thailand, and southern
China. 

While economic trends suggest that Vietnam is on course to accomplish
its goal of doubling its gross domestic product during the 1990s,
this is not a foregone conclusion.  While noting positive aspects of
the situation in Vietnam, U.S.  and foreign analysts also point out
that the country is still plagued by problems that developed during
decades of war and communist economic policies.  These include an
inadequate physical infrastructure; legal and financial systems that,
despite recent reform measures, cannot support a modern market
economy; and bureaucratic obstacles that include unclear lines of
authority and corruption.  While Vietnam will continue to require
substantial infusions of foreign capital from both private and
official sources to accomplish its goals, actual commitments from
both sources have lagged behind announced pledges.  One Vietnamese
official commented that less than one-quarter of announced private
foreign investments have been realized so far. 

Even if Vietnam does achieve its goals, it will remain a relatively
small market in the near term.  Table 3 provides a basis for
comparing Vietnam's potential economic significance to the United
States with the relative significance of some other countries in the
region.  The table also gives some indication of the importance that
Vietnam might someday assume.  As the table shows, the United States
has a trade deficit with all of these countries. 



                           Table 3
           
            Vietnam's Trade With the United States
              Compared With That of Other Asian
                       Countries (1993)

                    (Dollars in billions)

                                              Export  Import
                          Population   Total    s to  s from
Country                  in millions   trade    U.S.    U.S.
-----------------------  -----------  ------  ------  ------
Vietnam                           72   $ 8.2       -       -
Indonesia                        191    65.2   $ 5.2   $ 3.3
Philippines                       64    29.2     4.3     3.6
Thailand                          58    83.2     8.0     5.4
Malaysia                          19    92.6     9.6     7.7
Hong Kong                          6   273.7    31.2    10.3
China                          1,188   195.5  17.0\a    10.6
Singapore                          3   159.5    15.1    14.0
South Korea                       44   167.9    18.1    17.9
------------------------------------------------------------
\a U.S.  figures show a much higher volume of Chinese exports to the
United States, largely because China counts many goods shipped to the
United States through Hong Kong as exports to Hong Kong.  In 1993,
the United States reported receiving about $31.2 billion in exports
from China and $10 billion from Hong Kong. 

Sources:  International Monetary Fund and, for Vietnam and Hong Kong
populations, the Central Intelligence Agency.  Population figures for
countries other than Hong Kong and Vietnam are for 1992. 


--------------------
\13 Inflation has become a problem recently, however.  For example,
prices reportedly increased by more than 7 percent during the first 2
months of 1995. 


      STATUS OF HUMAN RIGHTS AND
      DEMOCRATIC DEVELOPMENT
---------------------------------------------------------- Letter :7.2

According to academic studies and reports by human rights advocates,
Vietnam has stated that it is committed to the rule of law, and the
government allows some latitude for criticism of its policies.  Among
other reported improvements, the revised labor code recognizes the
right of workers to go on strike.  However, human rights advocates
and U.S.  officials point out that implementation of improved legal
systems has been inadequate, the country remains a one-party state,
and basic challenges to the leadership role of the Communist party
are not tolerated.  The government has been criticized for undue
interference with the exercise of religious freedom within Vietnam
and for other violations of human rights. 

In commenting on the future in Vietnam, some analysts observed that
the Communist party enjoys a high degree of legitimacy as the party
that led Vietnam to independence and national unity and that no other
force is likely to mount a serious challenge to party leadership in
the foreseeable future.  Vietnamese and outside observers commented
that the government and the party have adopted a pragmatic approach
to managing change that is aimed at achieving economic growth while
maintaining the party in power.  Vietnamese officials refer to the
free-market, single-party development paths followed by states like
Singapore and Taiwan for object lessons for Vietnam.  However, the
Communist party's commitment to development of a market economy
cannot be viewed as unequivocal because the party is concerned with
the potential consequences, including demands for greater political
and personal freedom. 


      ROLE IN REGIONAL AFFAIRS
---------------------------------------------------------- Letter :7.3

Though it traditionally played a dominant role in Indochina,
Vietnam's current poverty severely limits its ability to exert
influence in regional affairs, militarily or otherwise.  Its most
threatening potential adversary, China, possesses overwhelming
military and economic resources.  Vietnam may eventually establish a
leadership role within an expanded and strengthened ASEAN but is not
currently in a position to exercise substantial influence on its own
accord. 


   PACE OF FORWARD MOVEMENT
------------------------------------------------------------ Letter :8

Executive branch officials and other analysts commented that the pace
at which the administration moves toward expanded bilateral ties will
depend largely on U.S.  conclusions regarding developments within
Vietnam. 

Administration officials emphasized that progress on the POW/MIA
issue remains the foremost consideration in evaluating possible
additional steps forward.  The administration has predicated further
progress toward full relations on progress in specific areas of
concern within this general issue, including recovery and
repatriation of American remains, resolution of outstanding
last-known-alive discrepancy cases,\14 trilateral investigations
along the Lao-Vietnamese border, and recovery of relevant
documentation from sources inside Vietnam.  Increased respect for
human rights and movement toward democracy within Vietnam are also
viewed as key concerns when considering additional steps, such as
granting MFN status or inaugurating activity by Eximbank and other
agencies.  While not at the center of current discussions, U.S. 
commercial and security concerns are also factors in the debate on
the future of U.S.-Vietnam relations. 


--------------------
\14 These are individuals whose fate remains unknown, but who were
alive when last in contact with U.S.  forces, and with regard to whom
intelligence indicates that the government of Vietnam should be able
to either provide substantial information concerning their fate or
recover their remains.  One example would be an individual who
parachuted from a disabled aircraft in the immediate vicinity of
North Vietnamese ground troops but was never officially reported as
killed or captured by North Vietnam. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

We discussed a draft of this report with representatives from the
Departments of State and Defense, and both Departments provided
written comments, reproduced in their entirety in appendixes I and
II, along with our specific evaluations of individual comments.  Both
agencies emphasized that progress on the POW/MIA issue has been the
foremost consideration in U.S.  diplomatic initiatives regarding
Vietnam.  We believe that the report makes clear the linkage between
executive branch actions and the POW/MIA issue.  The agencies also
suggested some clarifications and provided additional details,
particularly with regard to the recent history of U.S.-Vietnamese
negotiations.  These suggestions have been incorporated into the
report where appropriate. 


   SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :10

To obtain information for the report, we interviewed and collected
documentation from officials of the U.S.  and Vietnamese governments
in Washington, D.C., and New York, and from the embassies of Japan,
Korea, Australia, France, Indonesia, and Malaysia, and the Taipei
Economic and Cultural Relations Office.  We spoke with
representatives of U.S.  companies doing business, or interested in
doing business, in Vietnam.  We also spoke with officials of business
groups, IFIs and the U.N., NGOs with operations in Vietnam,
individuals and groups concerned with the POW/MIA issue,
representatives of the Vietnamese-American community, and academics
who have studied Vietnam and international affairs in Southeast Asia
in general.  We did not evaluate the efficacy of U.S.  and Vietnamese
efforts toward resolution of the POW/MIA issue. 

We conducted this review from February 1994 through January 1995, in
accordance with generally accepted government auditing standards. 


--------------------------------------------------------- Letter :10.1

We are sending copies of this report to the Secretaries of State and
Defense.  We will also make copies available to others upon request. 

If you or your staff have any questions concerning this report, I can
be reached on (202) 512-4128.  Major contributors to this report are
listed in appendix III. 

Joseph E.  Kelley
Director-in-Charge
International Affairs Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
STATE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)




(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Defense's
letter dated December 20, 1994. 

GAO COMMENTS

1.  Report text was modified to reflect this comment. 

2.  We agree that Vietnamese-American leaders continue to oppose
normalization of U.S.-Vietnamese relations on democracy and human
rights grounds.  In the community at large, however, there has been
some reduction in the intensity of opposition to taking steps toward
normalized relations. 

3.  This statement has been deleted from the final report. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Benjamin Nelson
Lawrence Suda
Michael McAtee
Dorena Rodriguez
Richard Kelley

