NOVEMBER 15, 1999

Behind Vietnam's Surprise Veto of a U.S. Trade Deal

A lone opposition voice and concerns about China's reaction prompted the impoverished country to walk away

For several months, American trade negotiators have been puzzling over what made the Vietnamese balk at normalizing trade relations with the U.S. Turns out it was largely the work of an 82-year-old man.

Over the summer, both countries had agreed in principle to cement their trade relations, initialing what U.S. diplomats heralded as the most comprehensive trade agreement ever negotiated with a foreign country. President Clinton and Vietnamese Prime Minister Phan Van Khai were supposed to sign the document at a summit meeting in September, and subsequent ratification both by the U.S. Congress and by the Vietnamese National Assembly was considered a sure thing.

Vietnam was happy because the agreement would give it normal trade status with the U.S. and dramatically boost exports from the impoverished country. U.S. companies were thrilled because the deal would significantly increase their access to Vietnam's market of 80 million people, which has been closed since the Vietnam War.

HANOI'S SILENCE. But at the last minute, Khai cancelled the signing ceremony with Clinton, saying he didn't have authorization from his Politburo back home. The U.S. negotiators scratched their heads. After all, they had been assured many times that Vietnamese leaders really wanted a deal. And the Vietnamese economy had the most to gain. Diplomats from Hanoi assured the U.S. that authorization would be coming soon. But since then, there has been only silence from Hanoi.

Finally, on Nov. 11 -- almost two months after the puzzling diplomatic breakdown -- Washington got an answer it wasn't expecting: Vietnam was scuttling the deal. The deputy director of the ruling Communist Party's Ideological & Cultural Commission issued a statement saying that the trade agreement needed further negotiation because it was "inequitable for Vietnam."

It turns out, according to interviews with academics, Vietnam specialists, and U.S. businessmen based in Hanoi over the last two months, that one man's objection halted the deal. Former Communist Party Secretary Do Muoi, an 82-year-old conservative ideologue who has long since retired but still sits on the Politburo, raised a lone objection. Because Vietnam places such a high premium on consensus, one voice was enough to block the deal. Supporters of the trade agreement were unable to convince him to change his mind before the scheduled meeting between Khai and Clinton. "If you don't have consensus on everything, the process just stops," says Robert Templer, visiting scholar at the University of California-Berkeley and author of a new book on modern Vietnam called Shadows and Wind.

BIG BROTHER BEIJING. Do Muoi, before he was party secretary, used to be Vietnam's Construction Minister in the 1960s. His contacts go deep into the part of Vietnam that was most threatened by dropping trade barriers -- the state-owned enterprises, most of which lose money and rely heavily on the government to stay operational. As soon as the provisions of the trade agreement were circulated among Vietnam's decision-makers, opposition within the industrial sectors grew -- and the lobbying began.

Vietnam had another concern as well: China's ongoing negotiations to join the World Trade Organization. Vietnam regards China as something akin to a big brother. And its own trade agreement would put Vietnam several steps closer to being able to join the WTO itself. "If they got a trade agreement with the U.S., they would see that as upstaging China," says Templer. "It's not that China told them not to sign it. It's just that they didn't want to upset China. Vietnam felt it was better to wait until China got its own WTO agreement first."

Now, with Vietnam saying both sides have to go back to the negotiating table, U.S. diplomats say a new agreement is unlikely anytime soon. Part of the push for signing the agreement in principle this summer was that U.S. domestic politics make it virtually impossible that Congress would normalize relations with Vietnam during a Presidential election year -- 2001 would be the earliest date for reconsideration.

Meantime, Vietnam will suffer. Economic growth is just half of what it was before the Asia crisis hit in 1997, and unemployment levels are suring past 20%. Foreign investment approvals have fallen to less than $1 billion this year, compared to $9.2 billion in 1996. Exports have dropped off a cliff. "This generation of leaders is not risk-taking, and they're reluctant to make any deep changes," says Templer. Unfortunately for Vietnam, that means more years of economic hardship.

By Sheri Prasso in New York