Possible Explanation for the Lifting of Vietnamese Economic Sanctions by the Clinton Administration in 1994

The United States government lifted economic sanctions on Vietnam nineteen years after the reunification of North and South Vietnam. The rationale behind the sanctions varied. During the Cold War period when the North Vietnamese government had a friendly relationship with the Soviet Union, the United States and its western allies imposed multilateral sanctions on the communist government. These sanctions on North Vietnam were extended to South Vietnam when its pro-western government fell in 1975. Although after the Cold War the United States’ western allies no longer imposed multilateral sanctions the United States continued to do so. Sanctions were originally imposed for various reasons including punition, coercion, and retribution. Moreover, many in Washington viewed the sanctions as political leverage for normalization with the Vietnamese government and as a mean to forcing Vietnam to cooperate in accounting for Americans soldiers listed as missing in action (MIA) in the Vietnam War. My paper will attempt to find motivations behind President Clinton’s decision to end the embargo after such a long period of imposition. I hope to answer directly the following question:

Why did the Clinton administration use the MIA issue as the rationale for lifting the sanctions on Vietnam instead of adopting the normal administrative rhetoric generally linking trade with democratization and increased living standards?

Before I discuss motivations behind Clinton’s decision, I will provide a historical background of the United States economic embargo, imposed first by the United States and its western allies, and imposed later solely by the United States. Next, a summary of events leading up to the cessation of the embargo will follow. Then, I will present two contrasting theories, that will be used to explain Clinton’s motivations, rational choice theory and prospect theory. An analysis of Clinton’s decision in light of these two views and its derivatives will be made. And lastly, I will conclude with future scenarios that might take place in these explanations.

Historical Survey of Sanctions

Sanctions come in many forms, such as embargoes on financial and commercial dealings, restrictions on the use of transport and restricted communications of all kinds. They also produce many results. For example, a ban on imports from the target nation produces a shortage of foreign exchange, unemployment in export industries and reduced use of industrial capacity. A ban on exports to the target nation deprives it of essential commodities. Moreover, financial sanctions deny the country access to foreign capital and money markets.

1. 1952. During the Cold War, the United States and its western allies imposed multilateral sanctions as part of their cold war strategy. They instituted controls over the export of strategic goods to the Soviet Union and East European Communist countries in 1948. The United States in particular regarded these Communists governments as being irreversibly opposed to their ideology. Therefore, all exports to these communist countries were considered strategic exports because they violated the strategic interests of the United States. The strategic embargo policy practiced by the United States reflected its economic cold-warfare view in its most extreme form in its trade, a total ban on United States exports.

All NATO countries with the exception of Ireland formed a Consultative Group (CG) to facilitate multilateral co-operation in controlling trade with the Communist world in January 1950. To implement policy decisions of the CG, a standing Coordinating Committee (COCOM) was established. A second coordinating committee, CHINCOM, was set up in September 1952 to deal with exports to Communist China and North Korea. CHINCOM imposed a virtual embargo on all exports of industrial equipment and raw materials, with supplementary restraints on shipping and bunkering. North Vietnam was later added to this list. Consequently, the United States maintained a full embargo on trade, shipping, and financial transactions with North Korea, North Vietnam, and Communist China. CHINCOM drew up lists that were more restrictive than the CoCom lists of 1950. The complete embargo lists contained more than 500 items, including various kinds of munitions, atomic materials, and ‘other products’ encompassing metal working equipment, specified chemical and petroleum products, rubber, electronic machinery, and specified minerals and metals. Items on the CHINCOM but not the COCOM lists included such things as rubber tubing, paraffin wax, refinery equipment, all forms of trucks and tractors, barbed wire, telescopes and binoculars, electrical motors, internal combustion engines and locomotives.

2. 1975 and Post - 1975. When North Vietnam forcibly reunified with South Vietnam in 1975, the United States government extended its sanctions to the newly united country. Despite signs from the Vietnamese showing interest in exploiting their rich agricultural areas and timber in the South and coal in the North and in investigating the possibility of producing oil offshore, the State Department was opposed to ending the embargo. In mid-May 1975, the Ford administration placed South Vietnam and Cambodia under its strictest limits – called Category Z. In mid-November 1975, under the Export Administration Act, President Ford notified congressional leaders that the United States remove Vietnam and Cambodia from the list of nations eligible for special tariff concessions. The Export Administration Act of 1969, amended in 1979, restricted the export, or re-export, to Vietnam goods and technology originating in the United States. Under the authority of this act, the Department of Commerce required licenses of different kinds for all exports of goods and technical data to Vietnam. This combination of restrictions, which were at the time already in effect for North Vietnam and North Korea, made it illegal for American businessmen to buy Vietnamese or Cambodian goods or to export their own products to those countries, even through a neutral middleman.

Events Leading Up to the Cessation of Sanction

As the Cold War period came to a final end, many Americans wanted to end the trade and investment sanctions in Vietnam. US companies lobbied in Washington to end these sanctions because they felt that they were missing out on important business opportunities to companies from other countries that have established trade links with Vietnam and that have intensified their business activities there. They felt that the United States was penalizing them and hindering economic reform and democratization in Southeast Asia, especially Vietnam. These countries, most of them U.S. allies, included Britain (committing US$113 million), France (with contracts totalling US$93 million,), Australia, Belgium, the Netherlands, Sweden, South Korea, Taiwan, Hong Kong and Thailand. The largest non-communist trading partner, Japan, had trade totaling US$519 million in 1989, but they were absent from the list of foreign investors because of the fear of angering the United States. Foreign capital was being invested in oil, fishing and seafood processing, textiles and garment making, tourism, hotels, and telecommunications.

Although many leading politicians in both parties supported bills aimed at lifting the sanctions, these bills were not passed in 1990. However, these bills signified that a growing number of people felt that the sanctions were hurting US business interests more than they were Vietnam’s. Although sanctions have been in effect for more a decade ago, it had not been very effective for some time.

The momentum to end the embargo against Vietnam and eventually normalize diplomatic relations between the United States and Vietnam was lost with the 1993 release of a final report by a Senate committee. The committee investigated the fate of American service personnel listed as missing in action from the Vietnam War. The report’s evaluation of Vietnam’s attitude was mixed. According to the report, Vietnam had made very substantial strides toward full cooperation but its help came after two decades of non-cooperation, stalling and deception. The report also pointed out the closed and non-democratic nature of Vietnamese politics and the lack of definitive evidence that exists to prove or disprove that some US personnel were kept in captivity in Vietnam beyond 1973. After weighing the information, Bush chose not to act and instead, took his time improving ties with Hanoi because Hanoi did not yet produce any remains of the American soldiers missing in action. Rather than taking final charge of the situation, Bush passed the Vietnam issue to Clinton.

Certain aspects of the sanction had been slowly lifted. On December 1991, the American government authorized travel service providers to facilitate group or individual tours and travel to Vietnam. In 1992, they allowed U.S. telecommunications links with Vietnam; permitted commercial sales to meet basic human needs; lifted restrictions on projects by non-governmental and non-profit organizations; and then permitted U.S. firms to sign contracts that were executed after the embargo was lifted. Later that year, they implemented a decision that permitted a liberal licensing policy allowing commercial transactions relating to contracts, including opening offices Vietnam, hiring staff, writing and designing plans, and carrying out preliminary studies and engineering and technical surveys.

On July 2, 1993 Clinton removed the standing US objections to international lending to Vietnam, making it possible to extend development loans to Vietnam. Then, on September 13 he renewed the embargo but relaxed it slightly to allow American companies to bid on multimillion-dollar contracts in Vietnam that would be financed by the World Bank and the Asian Development Bank. This allowed American companies to competed for a role in development projects that would be financed by the international agencies. The U.S. Treasury issued liberal rules concerning American companies’ participation in Vietnamese projects funded by international financial institutions.

On January 27, 1994, Senate voted 62-38 to endorse an end to the economic embargo against Vietnam. Clinton cited ‘one factor and one factor only,’ the 2,238 Americans then still missing in action from the Vietnam War, as his reason for lifting the embargo on February 4, 1994.

Two Theories, Rational Choice Theory and Prospect Theory, that Explain Clinton’s Decision

The processes for rational decision making includes identifying options, estimating likelihood consequences of options; considering cost, benefit, and likelihood of success; trading off expected costs and benefit to establish highest expected value; and lastly, selecting the option that promises the highest expected value, either the highest benefit or the lowest loss. Rational choice decision making involves the most efficient choice (or alternative) and the most reasonable estimate of the future. The most reasonable estimate of the future is the likeliest consequence of the future. Thus, coercion and deterrence work when applied to rational opponents who would rationally choose to avoid incurring punitive costs.

Biases in information processing influence decision making. The fewer the biases, the less distorted the information processing is and the more rational the decision makers are. When decision makers do not give enough attention or resist new information, or when they are compelled, the decision maker deviates from rationality.

A critique of rational choice theory is that decision makers look at external threats and opportunities without giving enough attention to internal characteristics of other actors. They assume others will seek rewards and avoid punishment, and thus, they spend little time getting empirical information.

In contrast to rational theory, prospect theory and endowment effects (where one puts more value on what he must part with, then what it would normally be valued at) states that the decision maker’s framing of an event dictates his preferences. In other words, the framing of event determines what type of path he chooses. When biases take place and certain outcomes are heavily emphasized, then it is the mere gain or the mere loss that motivates a leader.

The framing of a situation and reference point are very important because they are factors that determine which decisions are made. First, a reference point can be related to the status quo, or what a person/country thinks the status quo should be. The reference point is an anchoring mechanism because it anchors the decision maker in light of other events and decisions. According to the decision maker’s reference point, he will frame the situation where a loss is more salient or where a gain is more salient.

Prospect theory also deals with availability. Availability is an inference about the frequency of events, where such frequency is judged according to associations triggered in memory or imagination. The concept of availability explains why one fails to recognize that perceptual salience may not always provide accurate reflection of actual frequency. An example is when losses are so salient in a person’s mind, that he will risk more to avoid losses in spite of possible gains. If a person pays more attention to gain than loss, then the person is more likely to be risk averse. Caution is the mind set when pursuing gains.

Also related is a certainty effect, which causes a person to choose the guaranteed over the risky, even if the risky outcome has the highest expected value. In contrast to a rational person who chooses the option with the highest expected value, he chooses the certain option over the uncertain one, irrespective of its expected value. If a person sees his losses as more salient, this leads to loss aversion. Loss aversion is where he risks more in order to avoid a loss than he would risk to achieve a gain because he is so preoccupied with the possible loss that he risks all in order to avoid losing or getting to far from his reference point. In other words, this person is risk accept.

Analysis of Clinton’s Decision in Light of Rational Choice Theory and Prospect Theory

In 1975, Hanoi ended its protracted war against South Vietnam and the United States. Throughout this time, Hanoi regarded the United States as their main enemy. After 1975, Vietnam became a client state of Soviet Union and received massive subsidies from them. When the United States called upon the American MIA issue as the main reason for continuing the embargo, Vietnam would not cooperate because Vietnam did not at the time trade with the United States and its allies since it was the Soviet Union’s economic partner. Furthermore, Vietnam viewed the United States MIA claims as political rhetoric serving to justify the isolation of Vietnam. Vietnam, which had a much graver problem with Vietnamese soldiers missing in action, considered American concern over their MIA as ludicrous. Vietnam had hundreds of thousands of MIA compared to two thousand American MIA’s. Lastly, Vietnam confronted many problems after the war. Destitute by the war, Vietnam was trying to rebuild its country.

Although there had some much foreign investment by United States’ western allies, Vietnam was affected greatly by the embargo. Because the United States had blocked aid from the IMF and the World Bank, Vietnam had concentrated on exporting natural resources, rice and cheap labor. With financing problems and without foreign credit, the country was not able to build factories or import equipment to process its raw materials and agricultural products before they were exported. Some business agreements with foreign countries were not concluded because equipment included US components.

Hanoi’s view towards the United States changed with the collapse of the Soviet Union. Their reference frame, the point from where they framed their problem, changed. The reference frame is a threshold, where below the threshold is loss and above the threshold is gain. Before, they did not view trade with the United States as important. Now, with fleeting subsidies from the collapsing Soviet Union, trade with the United States was important for economic development. The Vietnamese now stood more to lose in not dealing and cooperating with the United States. Economic subsidies ended, and the ideological underpinnings of communism were brought into serious questions by the Vietnamese leadership. Vietnam wished to integrate itself into global economy into a much greater extent and central to this was the lifting of the United States trade embargo. Consequently, they began to seek a policy of conciliation with the United States over the MIA issue. This occurred simultaneously with the United States seeking conciliation with the Vietnamese, especially after the United Nations agreements over Cambodia, and were led largely by US multinationals hoping to do business in the new Vietnam as well as elements of American polity morally opposed to long standing trade sanction.

President Clinton’s decision to lift the embargo on American economic sanctions could have been based on many factors. One important factor was the alleged effect of economic development on the creation of democratic institutions. Economic intercourse with the United States would open Vietnamese society to American ideas about democracy. Economic growth stimulated by the end of the embargo could strengthen a Vietnamese middle class whose members might in time demand greater respect for human rights, perhaps even an end to the Communist Party’s monopoly of power. And if Vietnam together with the rest of Southeast Asia became more democratic, regional peace would ensue because democracies are not believed to go to war with each other. Although Clinton’s decision seemed to have been driven by the logic of evolutionary linkage, where the resumption of trade necessarily leads to Vietnam democratization, that may not be the case here.

Despite the fact that the decision to lift the embargo was ideally suited to presidential justification through terms of security, prosperity and democracy, Clinton instead explained his action as determined by "one factor and one factor only, gaining the fullest possible accounting for our prisoners of war and our missing in action." The 2,238 Americans then still missing in action from the war were Clinton’s stated rationale behind his action. This is ironic because on the one occasion for Southeast Asia where he could have appeared to enunciate his grand vision of regional security, prosperity, or democracy, he felt obligated to not do so.

Clinton’s decision to lift the embargo is a puzzle to me in terms of rational choice ideas. Why did Clinton base his decision on a full accounting of American MIA’s rather than on the role that economic development played on democracy, especially when America was the epitome of democracy? What were biases in Clinton’s information processing that caused him to use the MIA rhetoric as the rationale for his decision to end the sanction?

At its onset, the sanction was a tool used by the United States government on Vietnam for punitive, coercive, and retributive reasons. The United States embargoes were politically motivated, and had little to do with the amount or kind of trade with Indochina. By imposing the embargo, the United States wanted to punish the Communist leadership in Hanoi for its past aggression and to deter it from similar action in the future, and also, to compel the Vietnamese to alter either aspects of their foreign policy. The embargoes were economic attempts to deprive it of something it values, in essence forcing it to abandon the behavior offensive to the initiating state or states. Furthermore, the embargo was intended to destabilize the Communist regime and to deprive them of the means to conduct military operations by slowing Vietnam’s industrial growth through the creation of dislocations, bottlenecks and shortages in sectors of its economy. External pressures including economic ones would then lead to the collapse of the regime.

When the United States imposed the sanction, it announced to the world its resolve to rid the world of communism. Sanctions, even inefficient ones, contributed to the containment of an expansive Vietnamese Communist regime because they signaled to non-Communist Asia the resolve of the United States. The United States demonstrated its resolve by its willingness to absorb significant financial losses in containing communism. According to this rationale, the greater the suffering that they endured, the greater their credibility. The United States also signaled that similar behavior by Vietnam or by other states would receive the same punishment, and thus, should avoid this behavior. The United States hoped to deter and thus prevent similar behavior from other actors.

Although some viewed the embargo as a way to satisfy the United States’ desire for revenge, others perceived it as a mean to force Vietnam to cooperate in accounting for American soldiers listed as missing in the Vietnam War. This view was the status quo in President Bush’s administration, when he started the policy of improving economic relations with Vietnam in return for progress on the missing in action issue. President Clinton determined that enough progress had been made by 1993 to carry it a major step forward; he lifted the embargo on February 4, 1994. His view that the best way to assure Vietnam’s continued cooperation was the ending of the embargo became his status quo. His decision was "guided by one factor, and one factor only, gaining the fullest possible accounting for our prisoners of war and our missing in action…I am absolutely convinced it offers the best way to resolve the fate of those who remain missing and about whom we are not sure." The status quo of the United States towards Vietnam changed with Clinton’s administration. In contrast to his predecessors, Clinton wanted to reward them and at the same maintain their cooperation in accounting for the American soldiers missing in action.

He insisted that the only criteria that mattered was the fate of military personnel missing since the war, though promoting U.S. economic interests is a major goal of his foreign policy, it was not a priority. Although organized business efforts argued that the net effect of the American embargo was not to deny Vietnam access to Western technology and financing, but rather to penalize U.S. companies to the benefit of their foreign competitors, Clinton argued that this was not the reason for the cessation. He comments on the political and economic impact of the lifting, "I never had a briefing on it and we never had a discussion about it and I thought it was very important for that not to be a part of this decision. I don’t think we’re giving up anything. It was the consensus of all those who had been there, who had worked there, that we had gotten so much more cooperation and that we needed to keep moving the process forward." He saw his decision as a way to maintain political leverage and to increase prospects for Vietnamese cooperation in the full accounting of Americans missing from the Vietnam War. In contrast to those who argued that he was throwing away his political leverage, he saw the lifting of the sanctions as a way to maintain it. He argued that with this decision, he has not "given up anything…Nothing we’re doing today is irreversible if the cooperation ceases. So, I’m convinced we’re moving in the right direction for the right reasons." Clinton argued that his administration still retained significant leverage with normalization and trade.

Clinton’s argument is a complete contrast to those of his predecessors, who used the sanction as a means to obtain information concerning American MIA from the Vietnamese government. His predecessors saw the sanctions as their bargaining chip with the communist government. If they could not physically force the Vietnamese to comply with them during the 1960s, they would now do it with economic force. In a domain of loss, they lacked the physical power to change Vietnam’s foreign policy at that period of time. Clinton, on the other hand, viewed the MIA issue from a domain of gain because of the new situation that arose in Vietnam after the Soviet Union collapsed. He was in a "win-win" situation. The Vietnamese wanted economic sanctions lifted for economic development in their country. They were the ones giving away their bargaining chips. Clinton realized that by cooperating with their need, he would be able to gain support in two important areas, the business community and most importantly, the families of the MIA. He saw that with Vietnam’s new change of reference, the United State reference has changed as well. In this new domain, he had a lot to gain such as new information about the MIA and increased trade with Vietnam. Clinton therefore focused on these newly realized possibilities. If he gained information about MIA, he was above his threshold point and in the domain of gain. Consequently, if he did not gain any information, he was below his threshold point and in the domain of loss. In order to deflect criticisms that would normally pursue if the sanction was lifted, Clinton borrowed the MIA rhetoric.

Although he had a lot to lose, he had much more to gain. By framing his decision so that it seemed as though the United States was in a domain of loss, and thus needed to work with the Vietnamese to get the full accounting of MIAs, the public would be willing to risk more, even the loss of political leverage, in order to get that information. Although the United States was not in a domain of loss at all, Clinton needed to present the decision of ending the embargo to the American public in the form that they would embrace. Clinton framed the situation in a domain of loss, where they now saw the ending of the embargo as the means to obtain information, and thus a requirement for greater accounting of MIA and increased cooperation from the Vietnamese government.

With the right rhetoric to deflect the criticisms, Clinton ended the sanctions. However, there were still some who criticized Clinton’s decision. The Veterans of Foreign Wars of the U.S.A opposed the lifting the ban, and the relatives of MIA remained ardently opposed to normalization. A controversial Vietnamese document surfaced in 1993, suggesting that in 1972 Hanoi held 837 more US prisoners of war than it has acknowledged. Despite doubts about the authenticity of the document, it still made it harder for Clinton to approve IMF aid for Hanoi. Meanwhile, some on Capitol Hill viewed Clinton’s decision as the giving away of political leverage, and thus making the search for MIA more difficult. They argued that the United States was rewarding Vietnam by lifting the embargo even though the Vietnamese has not provided answers to families of MIAs. They viewed Clinton’s decision as sending a mixed signal, when instead he could have drawn a line in the sand and said to Vietnam, look you cooperate fully or we’re not going to cooperate with you. By adopting the MIA rhetoric in his justification of ending sanctions, he "stole the thunder" of the pro-sanction political groups, thus deflecting their criticisms.

Clinton was already in an unpopular light with his constituencies when he slashed the defense budget, closed military bases and modified the policy of homosexuals in the military. He did not want to push for anything that would invite political changes at home by veterans and families of missing POWs due to the appeasement of Hanoi because of his shaky draft record during the Vietnam War. Clinton was indecisive whether to lift the embargo, especially now that institutions have decided to lend to Vietnam. Continuing a total embargo would leave American businesses ineligible to compete for projects funded in good part by American taxpayers. Clinton delayed the real decision of lifting the embargo by allowing American firms to participate in projects, but only if they were funded by international development groups. Clinton was caught in a bind, Vietnam’s thuggery abounded as evident in the mistreatment of political prisoner Nguyen Dan Que. Contesting this was the post-Cold War belief that the most effective catalyst for democratization is the contagion of markets and middle-class aspirations (where foreign investment and trade speeds this process along).

Clinton had to resolve the MIA issue and win support from his constituents. He took advantage of the bargaining chips that the Vietnamese gave and thus lifted the sanctions, satisfying American business and opening Vietnam to more liberalizing influences while at the same time, holding out diplomatic normalization pending progress on political fronts. By ending the sanctions he hoped to reward and encourage Vietnam’s cooperation in the MIA issue. Already open to charges of callousness toward those who had fought and died in a war he had avoided, Clinton felt he could not appear to have been influenced by considerations of security, prosperity or democracy for either the US or Vietnam. Instead, he had to project a desire to resolve the MIA issue and assuage the pain of surviving friends and families.