Vietnam, explained.
Shirts of the Saxony-Anhalt police force in Germany arrived after manufacture in Vietnam (Klaus-Dietmar Gabbert via Getty Images)
Clauses in Vietnam’s EFTA and CPTPP deals could spread Washington’s gains to European, Australian and Japanese firms.
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Vietnam’s other trade deals could claim Washington’s winsVietnam’s other trade deals could claim Washington’s wins
Vietnam says (Opens in new window) its trade agreement with the United States is “essentially completed”, though US officials have been more cautious (Opens in new window) and no text has been published. The framework the two sides announced a year ago said (Opens in new window) they would “continue to finalize commitments on digital trade, services, and investment”. A senior US Commerce Department official said (Opens in new window) that the US trade deficit with Vietnam is its largest with any partner. Whatever Washington secures in services and investment, however, may not benefit American firms alone. Vietnam’s other trade agreements could see to that.
The newest is the agreement Vietnam signed (Opens in new window) on 18 October with the European Free Trade Association (EFTA): Switzerland, Norway, Iceland and Liechtenstein. Article 4.4 (Opens in new window), its most-favoured-nation clause, requires each party to give the others’ service suppliers, “immediately and unconditionally”, treatment no less favourable than it accords like suppliers of any non-party. The provision covers measures affecting trade in services generally, not only sectors a party has opened. Two qualifications matter most here. The first exempts agreements that meet the World Trade Organisation’s test for a comprehensive services agreement, which requires substantial sectoral coverage. The second exempts measures each party listed in advance; Vietnam’s list (Opens in new window) names investment treaties, agreements within ASEAN, audiovisual co-productions and a maritime arrangement with Singapore.
The assembly line for VinFast electric scooters at the company's manufacturing plant in Hai Phong, Vietnam (Linh Pham/Bloomberg via Getty Images)
The clause does not hand EFTA states every promise in a US deal. What matters is whether Vietnam treats American service suppliers more favourably than like suppliers from EFTA states. If it does, and the US agreement does not qualify as a comprehensive services agreement, which Washington’s recent reciprocal agreements in the region do not appear to, EFTA governments could ask for equal treatment. Failing that, they could pursue state-to-state dispute settlement under the agreement. The obligation would apply once the agreement enters into force between Vietnam and the EFTA state concerned.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) supplies a second route, with different exceptions, and brings in Australia, Japan and Canada. It requires Vietnam to treat CPTPP investors and service suppliers no less favourably than those of any other country in like circumstances. Vietnam’s general reservation (Opens in new window) preserves preferences under agreements in force or signed before the CPTPP entered into force, under ASEAN agreements, and under later agreements on maritime matters, fisheries and aviation. Sector-specific reservations add further carve-outs, including for certain air transport services and port operations.
Telecommunications shows how these routes could matter. Vietnam’s CPTPP schedule (Opens in new window) records a 49% foreign-ownership ceiling for facilities-based basic telecommunications services, in effect operators that own their networks. That entry preserves Vietnam’s right to treat foreign investors less favourably than Vietnamese ones. It does not cover the separate obligation to treat investors from different countries equally. Vietnam’s separate telecommunications reservation (Opens in new window) on that obligation covers only networks and services for ethnic minorities in rural and remote areas. Suppose, then, that the US text let American investors, and only American investors, exceed the 49% ceiling. Australian, Japanese or Canadian investors in comparable circumstances could have grounds to seek the same, and EFTA governments could make a similar claim for their service suppliers.
It does not cover the separate obligation to treat investors from different countries equally.
One question needs closer examination. Vietnam and the United States have had a bilateral trade agreement since 2001 (Opens in new window). If new concessions were framed as implementing or amending it, the question would arise whether they fall within Vietnam’s CPTPP reservation for earlier agreements. The answer would depend on the reservation’s wording and on how the concessions were made. The EFTA list contains no comparable general reservation.
None of this means the clauses will be invoked often. Many digital commitments, such as rules on cross-border data transfers, are likely to apply to all partners anyway. The clauses matter where Vietnam gives American suppliers or investors more favourable treatment than comparable suppliers or investors from its other partners receive, subject to the relevant reservations and exceptions.
When the US–Vietnam text appears, the first question will be what Washington obtained. A second question for Canberra, Tokyo, Bern and Oslo is whether any of that treatment favours American firms in sectors Vietnam’s other agreements cover. If it does, some of Washington’s gains may not stay American.
About the author
Tran Hoang Tu Linh
Tran Hoang Tu Linh is a Lecturer in Law at Ho Chi Minh City University of Law, Vietnam, and a PhD Candidate at the Yong Pung How School of Law, Singapore Management University.
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