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. Last Updated: 07/27/2016

U.S., Hanoi Trade Pact Signed

HANOI, Vietnam -- A historic trade pact between the United States and Vietnam a quarter century after the end of a war between the countries marks a victory for the free-market reformers in the communist nation and could be the biggest boost to its struggling economy in years.

Under the agreement signed Thursday in Washington, Vietnamese goods and services will gain access to the world's largest market under the same system of low tariffs enjoyed by most nations. In return, Hanoi will implement measures to open up Vietnam's state-controlled markets to U.S. companies.

The deal is sure to restore economic momentum to the country, which has seen its gross domestic product growth cut in half in recent years and foreign investment pledges tumble 85 percent to under $2 billion last year from peaks of $8 billion.

In terms of commerce, the effects could be immediate for Vietnamese businesses, as U.S. tariffs averaging 40 percent drop below 3 percent under normal trading relations. The World Bank has estimated that the trade pact could bring an estimated $800 million to Hanoi's annual export revenues in the first year alone. Currently, the biggest export from Vietnam to the United States is coffee, but exports of shoes and textiles are expected to climb quickly.

For American businesses already in Vietnam such as Nike Inc., lowered U.S. tariffs could provide incentive to manufacture more goods in the country. The footwear giant currently produces about 10 percent to 12 percent of its total goods in Vietnam, said Chris Helzer, Nike's director of government affairs for Southeast Asia. Most importantly, the deal, which requires annual U.S. congressional review, would fundamentally change Vietnam's way of doing business, introducing an unprecedented level of competition and financial openness.

In a concession to Hanoi's fears that competition by American companies will overwhelm domestic industries, U.S. firms will initially have restricted access to Vietnam's banking, insurance, telecommunications, tourism and technical services markets. But there is a clear timetable in place for complete access.

The U.S. Congress still needs to ratify the agreement. With a shortened legislative calendar in a presidential election year, that may not happen until the next session late this year.

Still, the psychological boost of a signed deal shouldn't be underestimated, said Peter Ryder, head of the American Chamber of Commerce in Hanoi. "The interest in Vietnam is still out there. People have been waiting for a sign and this would be it," he said.