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US and Vietnam: Tiptoeing Towards a Procurement Relationship

Commentary, 8 June 2016
China, United States, International Security Studies, Defence Policy
US President Barack Obama’s recent announcement that the US will lift its embargo on exporting defence equipment to Vietnam grants Hanoi comprehensive access to the US defence market. Questions remain however, over the country’s readiness for the international defence market.

The US has lifted a decades-old arms embargo on Vietnam, in a historic move that follows the country’s growing assertiveness against China’s influence in the region. Speaking on a visit to Hanoi on 23 May, US President Barack Obama said Washington had fully lifted ‘the ban on the sale of military equipment to Vietnam that has been in place for some 50 years’. ‘At this stage’, added Mr Obama during a joint press conference with the Vietnamese president, Tran Dai Quang, ‘both sides have developed a level of trust and cooperation’.

What Vietnam Wants

In the short term, Vietnam is likely to seek to purchase platforms from US suppliers that will fill the gaps in those areas where it doesn’t have a strong capability, but for which there is a strong operational requirement. Air and maritime platforms will take priority, given Vietnam’s need to improve its coastal defences and its capability in intelligence, surveillance and reconnaissance (ISR) in the South China Sea.

US maritime surveillance aircraft such as the Lockheed P-3 Orion will thus figure high on Vietnam’s wish list. Russia, which is Vietnam’s largest defence supplier, stopped manufacturing basic maritime surveillance planes in the 1990s, and Vietnam has been left wanting. The Orion, in service with the US military for over 50 years, can presumably be purchased at low cost as military surplus from the US government. The Lockheed Corporation’s C-130 Hercules transport aircraft is another low-cost option that could be adapted with ISR capabilities. Raytheon coastal radar systems are reportedly also being considered, although Vietnam has procured similar technologies from Israel. Trade in services such IT, informatics, and cyber security training may also yield opportunities for Western firms.

Why

Diversification of defence equipment supply has been a policy of Vietnam’s defence establishment for some years, and is consistent with the country’s broader foreign policy of avoiding dependency on a single state. Traditional suppliers have been Russia and the former Soviet Union states, relationships that date back to the Cold War. While Russia is a source of relatively low cost defence equipment, Moscow has traditionally compensated for low unit costs by charging high prices for after- sale services, equipment maintenance and training. Vietnam has found ways around the latter problem by outsourcing training to other users of Russian equipment, such as India. For example, Delhi is training the crew for Vietnam’s Russian-designed Kilo Class submarines (six of which are scheduled to be delivered to Vietnam as part of a complex deal which also includes the Russian construction of a nuclear power station) and the Indians are also training Vietnamese crews in the operation of the SU-30 fighter jets, of which the Vietnamese air force may be operating around 36. Nonetheless, there is a clear benefit for Hanoi in gaining access to a more competitive market, as this would provide it with greater leverage over Moscow and access to lower cost equipment elsewhere.

In the long term, Vietnam also maintains great ambitions to develop its domestic capability in defence manufacturing, particularly the design and construction of its own warships, which absorb a large chunk of the current defence budget. Vietnam’s current indigenous shipbuilding capacity is limited to the old Soviet Tarantul class missile corvette, which is built under license from Russia. Still, Vietnam has recently procured vessels from Japan and South Korea, and remains particularly keen on cooperative  ventures that involve the joint design and development of warships. 

Diplomatic Implications

As part of its ‘Rebalance’ policy, the US Government has significantly improved ties with Vietnam’s Ministry of Foreign Affairs. Relations with the more conservative Ministry of National Defence (MND), however, are still sensitive and marked by suspicion. The proposed liberalisation of defence industry ties could help change this, given the MND’s major role in Vietnamese defence procurement. The MND’s Department of Planning and Investment (DPI) coordinates with the service arms to identify state procurement needs, decides on the partner, and grants permission to Vietnamese defence companies (which are all state-owned) to facilitate the transaction. The MND/DPI is the architect of defence procurement in Vietnam, and will play a major role in any future defence deal with the US. Improved relations in the defence industry space will undoubtedly impact ties at the political and military-to-military level. 

One detail is, however, clear enough: nobody took seriously President Barack Obama’s reassurance that his decision to lift the arms embargo on Vietnam had nothing to do with China.

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