JAPAN: FLIRTING WITH VIETNAM?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000606390001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: March 14, 2011
• Sequence Number: 1
• Publication Date: September 2, 1986
• Content Type: MEMO

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Central Intelligence Agency
2 September 1986
Japan: Flirting with Vietnam?
Summary
Economic reformists in Hanoi realize that Western loans, aid, and
technology are essential to reviving Vietnam's faltering economy, and if
they remain influential, Japan is likely to be a major target of efforts to
attract Western assistance. Following the Vietnamese invasion of
Cambodia, the Japanese Government supported ASEAN's call for troop
withdrawal and suspended economic aid to Vietnam. With a strong
strategic and economic relationship with ASEAN, Tokyo maintains only
limited ties to Vietnam and is unlikely to get out ahead of ASEAN, the
United States, and China by extending economic aid to Hanoi. The
Japanese private sector, however, already plays an important role in
Vietnam's economy, providing Hanoi with hard currency earnings,
necessary equipment for its exports, and import credits. Both the
government and private sector remain poised to move quickly to improve
relations in the event that the Cambodia issue is resolved
This memorandum was prepared by Office of East Asian Analysis.
Information available as of 2 September 1986 was used in its preparation. Comments
and queries are welcome and may be directed to the Chief, Japan, Northeast Asia
Division, OE
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The death of Party Chief Le Duan and resulting changes in Vietnamese leadership
expected to be announced at the Sixth Party Congress late this year could give renewed
impetus to Hanoi's efforts to reform its troubled economy. In our view, successful
agricultural experiments in southern Vietnam and the growing recognition by Hanoi of
the need to try a new approach to economic management may tip the balance in favor
of the reformers in the succession struggle. The reformers advocate using incentives to
stimulate production as well as decentralizing management of enterprises and permitting
some private ownership of small businesses. They also would probably step up efforts
to use a new foreign investment code designed to attract Western money.
If the pragmatists do gain the top positions, Japan is certain to be a major target
of Vietnamese efforts to gain Western funding and technology. Indeed, Hanoi is already
looking to Japan for such assistance. the Vietnamese
Ministry of Foreign Trade issued a directive last spring urging Vietnamese companies to
try to induce Japanese business to invest money and technology to improve the quality
of their exports, such as textiles and rubber. Hanoi also wants Japanese companies to
provide funding and equipment--and thus reduce dependence on the Soviet Union--for
its offshore oil development. Given Tokyo's large economic aid budget, Hanoi may hope
that economic reforms would soften Tokyo's decision to suspend aid in the wake of the
Vietnamese invasion of Cambodia in 1978. Most in Hanoi recognize, however, that it will
be difficult to obtain Japanese aid until Vietnamese forces are withdrawn from
Cambodia.
Tokyo's Double Track Approach
Although Tokyo considered adopting a "balanced" approach toward Vietnam and
ASEAN following the fall of Saigon in 1975, its far more important equities in
non-Communist Southeast Asia tilted Japan toward ASEAN. Tokyo considers Southeast
Asia a region of critical strategic importance, with vital sea lanes for transportation of
goods to and from Japan. After Vietnam's invasion of Cambodia, Japan came to share
ASEAN's belief that the Indochina conflict, with its linkage to Sino-Soviet rivalry,
threatened the stability of the entire region. In addition to condemning the Vietnamese
action, Tokyo showed support for ASEAN by pledging not to give economic aid to
Vietnam until all troops were withdrawn from Cambodia.
Japan's large economic stake in ASEAN also was a factor in Tokyo's decision to
side with those states. Trade with the five ASEAN states accounts for about 11 percent
of Japan's total trade, or slightly more than trade with the 12 members of the European
Community. By comparison, exports to Vietnam total only 0.1 percent of Japan's total
exports and imports are negligible. Nearly 18 percent of Japan's overseas direct
investment is in ASEAN, reflecting in part Indonesia's and Malaysia's roles as major
suppliers of raw materials and fuels. Because of its economic and strategic interest in
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ASEAN, Japan allocated about $800 million in development assistance to the region, over
one-third of its annual appropriation. 25X1
Reflecting its strong support for ASEAN, Tokyo has made only limited efforts to
maintain ties to Vietnam. The Foreign Ministry has continued to exchange visits with
Vietnamese officials, such as the Asian Affairs Deputy Director's trip to Hanoi in July.
Tokyo has also given token amounts of cultural and humanitarian aid since the invasion.
The Japanese have provided technical assistance, involving training of Vietnamese
students, but the number of Vietnamese students is relatively small compared with
those from ASEAN. (See chronology)
The Foreign Ministry rationalizes its policy of keeping open the lines of
communication to Vietnam by arguing that isolating Vietnam will only strengthen Hanoi's
dependence on the Soviet Union. Moreover, the Ministry doubts that isolation will
convince Hanoi to withdraw from Cambodia. According to the US Embassy in Tokyo,
the Foreign Ministry official in charge of Indochina policy has stated that time is on the
side of the Vietnamese and against the non-Communist resistance in Cambodia. The
view, which reflects an important working level perspective, is not a new one in the
Foreign Ministry, and also has its roots in previous Japanese efforts in the 1970s to
serve as a self-styled bridge between ASEAN and Hanoi. Some in the Foreign Ministry
appear to believe it would be in the best interest of Japan, the United States, ASEAN,
and China to strike a deal with Vietnam--perhaps even accepting the status quo--in the
near future. Tokyo recognizes it has no role to play in a Cambodian settlement for the
present, but such sentiments suggest it still hopes eventually to play one.
Role of the Japanese Private Sector
We believe Japanese private sector involvement in Vietnam has been tempered
by Tokyo's policy of adhering to the US and ASEAN aid embargo and its denial of official
export credits following the invasion of Cambodia. Tokyo, moreover, provides only
short-term export insurance to companies doing business with Vietnam. According to
trade journal reports, despite Vietnamese incentives for Japanese participation in
offshore oil development, private firms remain reluctant to provide large-scale funding
without financial backing or guarantees from the Japanese Government. Vietnam's poor
economic situation has further limited its attractiveness as a trading partner. Indeed,
various reporting indicates that only a handful of trading companies--such as Mitsubishi,
Nissho Iwai, Mitsui, and C. Itoh--are operating in Vietnam.
From the Vietnamese perspective, the bilateral trade relationship is important.
Over the last several years Vietnamese exports to Japan--which provide nearly half of
Hanoi's hard currency earnings--have grown to $62 million in 1985. (see figure 1) In
hopes of expanding trade even further, the Vietnamese Government has agreed to allow
Nissho lwai to open the first resident trade office of a Western company in Hanoi by the
end of August. Vietnam also relies on Japan to supply necessary machinery and
equipment maintenance for some of its key exports such as coal and shrimp. Much of
the trade is conducted through barter. But Japanese banks and companies, unlike their
counterparts in most other Western countries, also have been willing to provide credit.
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Last year, for example, Mitsubishi Corporation doubled its credit line to Vietnam to $120
million, and Nissho Iwai approved a Vietnamese request for a $40 million loan to
purchase Japanese machinery and equipment.
These trading companies appear to want to keep their presence in Vietnam,
despite Hanoi's current debt problems, in hopes of making long-term gains. If Hanoi
can effectively implement the proposed foreign investment law and dismantle some
bureaucratic roadblocks--a big "if" in our view--the Japanese are likely to try to make
use of Vietnam's cheap labor force. Furthermore, trading companies that specialize in
infrastructure development want to maintain access to the Vietnamese market in order
to be well positioned to receive contracts should the current aid embargo be lifted.
Opportunities in this area could include port development, irrigation dams, and electric
power plants. Even then, however, these opportunities pale compared with the
attraction to the ASEAN market.
Outlook: Will Tokyo Change its Position?
In Tokyo's almost annual discussion and policy review on resuming economic aid
to Vietnam, the Foreign Ministry officials responsible for relations with Indochina are
certain to continue to present arguments in favor of providing Japanese aid to help
resuscitate Vietnam's economy and to give Hanoi's new leadership incentive to moderate
its behavior. Japan's response to other regional issues would suggest, however, that
Tokyo weighs reactions to hints of Japanese policy departures from ASEAN, Beijing, and
Washington with great care and will continue to do so before moving closer to Vietnam.
The Japanese clearly recognize the strategic importance of the US-ASEAN-Japan
relationship. Tokyo's concern over increasing trade frictions with ASEAN, Beijing, and
especially Washington would probably lead it to calculate that it is not worth adding
other tensions in these connections for the sake of improved ties to Hanoi, at least in
the short run.
In the longer term, if Vietnam's economic reforms are successful, Tokyo's
discussions on resuming aid may become more active--although an improved economy
by itself is not likely to tip the balance in favor of resuming aid. Japanese trading
companies interested in project contracts and oil development in Vietnam, who would
clearly profit if the government extended aid, will probably lobby more strongly for
resumed aid.
But the decision to
resume aid is not made solely by bureaucrats who sympathize with the business view;
thus it would have to clear major political hurdles. In our view, absent a change in the
US and ASEAN position toward Vietnam, we doubt Tokyo will provide major new aid
before the Cambodian issue is resolved even if the reformers come to power in Hanoi.
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Selected Chronology
3/83 Foreign Minister Ha Van Lau to Japan
5/83 Prime Minister Nakasone tours ASEAN
12/83 Foreign Ministry Asian Affairs Director General to Vietnam
10/84 Foreign Minister Nguyen Co Thach to Japan
1/85 Former Foreign Minister Sakurauchi to Vietnam
(also chairman of Japan-Vietnam Parliamentarian League)
7/85 Deputy Foreign Minister scheduled to go to Vietnam;
Asian Affairs Director goes instead
7/86 Asian Affairs Deputy Director to Vietnam
Humanitarian and Cultural Aid.
1981 $130,000 humanitarian aid to Choray Hospital
1982 $100,000 typhoon disaster relief
1984 $85,000 cultural grant for language lab
1985 $85,000 emergency humanitarian aid for encyphalitis
1985 $200,000 typhoon disaster relief
Technical Assistance
1982 Dispatch of 6 JICA experts (Japan International Cooperation
Agency)
1983 Equipment for Choray Hospital
1983 Dispatch of 1 JICA expert
1984 Acceptance of 13 trainees
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Figure 1
Japanese Trade with Vietnam
Legend
- Imports
- Exports
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SUBJECT: Japan: Flirting with Vietnam?
Distribution:
Original - Japan Branch, OEA
1 - Donald Gregg, Assistant to the Vice President
1 - Thomas Hubbard, Director, Office of Japanese
Affairs/State
1 - Charles Kartman, Deputy Director, Office of
Japanese Affairs/State
- William Brooks, INR/EAP/Japan
- Dottie Avery, INR/Vietnam
- Chuck Lomar, State/VLC
Steve Danzansky, Staff Member NSC
1 - LDA/EAD/AB (11-118)
1 - DDO/E.
of Treasury
1 - D/DCI/DDCI Executive Staff (7D60)
1 - DDO/EA._(5C28)
1 - NIO/EA (7E62)
1 - NIO/Economics
1 - C/EA/RR (5E18)
1 - OGI/IIC/PI
1 - OEA/NEA/Korea Branch
1 - OEA/NEA/STI Branch
1 - OEA/NEA Division
1 - OEA/SEA Division
1 - D/OEA (4F18)
1 - C/Production/OEA
1 - FBIS Analysis Group
1 - DDI
1 - Senior Review Panel
1 - PDB Staff (7F30)
5 - CPAS/IMC/CG (7G07)
1 - CPAS/ILS (7F50)
1 - C/PES (7F24)
1 - NIC/AG (7E47)
1 - DDO/EA Division
1 - Maureen Smith, Japan Desk/Dept. of Commerce
1 - Doug Mulholland, Office of the Special Assistant
to the Secretary for National Security/Dept.
- Bryon L. Jackson, Office of the Intelligence
Liaison/Dept. of Commerce
DDI/OEA/NEA/Japan
3 September 1986
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