Chapter 4: Restoring Economic Assistance to Vietnam without Upsetting the U.S.-Japan Relationship 1989-1992

When Vietnam withdrew its forces from Cambodia in September 1989, Hanoi fulfilled a long-standing requirement for restoration of economic assistance from Japan. However, nuances of the Japan-U.S. relationship, Japan's position among regional powers, and Tokyo's domestic agenda prevented an immediate restoration of aid. The Cold War was over, and Vietnam no longer posed a viable threat as a Soviet satellite or as a loose cannon in Indochina. Hanoi, now abandoned by Moscow and Eastern Europe, grew more and more anxious for help from the West, especially from Japan. Tokyo, while eager to resolve the Indochina problem through aid and economic assistance, faced strained U.S-Japan trade relations and still-dormant U.S.-Vietnam relations, two factors preventing liberalization of its policy. Economic assistance would not come until November 1992. This three-year end game, in which the basic requirements for restoring aid had been met but international politics outside the Japan-Vietnam relationship determined Tokyo's policy, gave Tokyo in a difficult problem: how to move ahead of the U.S. in restoring aid to a communist government without creating an overly dominant profile in East Asia or compromising the alliance with the United States.

To explain why Japan hesitated until 1992 to restore economic assistance, I first give an overview of the bilateral direct dealings between Japan and Vietnam and then address international factors and Japan's reactions to movements by regional powers, reactions that in turn affected the relationship with Vietnam. After investigating the international factors, I then examine domestic factors such as the policies of the bureaucracies, the political parties, and the private sector to show how emerging economic pressures to restore assistance programs began to add urgency to Tokyo's dealings with Vietnam.

Bilateral Relations

Both Japan and Vietnam foresaw the resumption of economic assistance as the next logical step toward closer ties. Vietnam needed aid badly to shore up its economy after Soviet assistance virtually dried up. Japan had begun to place more emphasis on its own role as a regional leader, diplomatically and economically. To further this goal of leadership, Tokyo hoped to bring peace and economic development to Indochina.

Vietnam's need for aid

In 1989, with the troop withdrawal confirmed by the United Nations and real progress made toward a viable political solution in Cambodia, both Vietnam and Japan were eager for Tokyo to resume official economic assistance. Vietnam desperately needed aid because economically collapsing Eastern bloc countries could no longer support subsidies to Hanoi. As Soviet governments laid out their five-year plans for 1991-1995, the outlook from a senior Soviet official was grim:

In the next five-year plan, Vietnam won't get much economic aid. We'll exchange goods and provide technical assistance, but subsidies will depend on the Supreme Soviet. I don't think they will be very high.

After 1990, aid from the Soviet Union dropped to a fraction of previous levels. Vietnam's imports from the Soviet Union began to drop from a high of 1.79 billion rubles in 1988 to 1.53 billion rubles in 1989. By 1991, imports had dropped to one-third of 1989's level. Clearly, Vietnam could no longer depend on its parent state for economic assistance.

Vietnamese leaders were very public about their need for help. Vo Dong Giang, a senior member of Vietnam's Investment Committee, called on Japan to help rebuild and strengthen Vietnam's roads and railways as well as its manufacturing sector. Vietnam recognized its war-torn infrastructure as the biggest obstacle to an improved economy. Unfortunately, the size of such infrastructure projects required amounts of money that only official government loans or grants could cover. Dr. Pham Khac Chi, general director of the state-controlled Foreign Investment Service Company (under the Ministry of Foreign Economic Relations), invited Japan to "take the initiative" in improving Vietnam's economic situation, commenting that the international finance troubles facing Hanoi would improve quickly following Tokyo's lead.

Vietnamese Foreign Minister Nguyen Co Thach visited Tokyo in October 1990. Japan's foreign Ministry heralded the visit as the beginning of a "new era in Japanese-Vietnamese relations," but the ministry was quick to say the situation was still premature for a resumption of aid. Here again, relative inferior/superior positions of Vietnam and Japan are clear: the Vietnamese Foreign Minister was granted audience in Tokyo, but hat in hand, for the first time in over a decade. Japan's Foreign Ministry extended the invitation as a reward for Vietnam's improved relations with the West and for the improvement of the Cambodian situation. Following Thach's trip to Japan, the state-run media in Vietnam regularly featured news about Japan and its economic investment power. The propaganda attempted to link the two countries, drawing parallels between Japan's Meiji Restoration and Vietnam's concurrent intellectual awakening.

Tokyo was warming up to Hanoi as well. Japanese officials listed Vietnam's importance in both commercial and geopolitical terms. The raw material supply in Indochina and Vietnam's potential market of 70+ million consumers would dovetail nicely with Japan's economy. Japanese diplomats weighed Vietnam as a central player in resolving the Cambodian issue and bringing peace to Indochina:

We regard Vietnam as one of the most important countries for stabilizing Asia and the Pacific. Yet control of the relationship still lay in Tokyo's half of the court. Vietnam could only hope for a resumption of economic assistance; it had already fulfilled the major obligations by withdrawing troops from Cambodia and setting its economy on the road to recovery. But, interestingly enough, Hanoi's destiny lay in the hands of its former enemy, the United States, which still exerted a veto power over international aid agencies and pushed allies like Japan into delaying action.

Clearly, Vietnam couldn't progress much further economically without ODA money from the West, as Bui Xuan Nhat, director of the Vietnamese Foreign Ministry's Economic Cooperation Department explained:

We consider ODA as pre-investment [assistance], paving the way for private investors to come. The best way to pave the way is by developing the infrastructure, which is now still so weak.

Vietnam's Premier Vo Van Kiet echoed a similar position in a meeting with the president of Nihon Keizai Shimbun:

Hopefully, the cooperative relationship Vietnam now enjoys with Japan, including assistance in developing Vietnam's infrastructure, will improve in the near future.

Vietnam would wait until November 1992, when Tokyo would announce that it was resuming economic grants and commodity loans. Japan showed signs of its willingness to resume aid, but the U.S.-Japan relationship, Hanoi's debts to the IMF, and the continued political disarray in Cambodia prevented closer official ties.

Japan's willingness to resume economic assistance

By 1989, Japan had begun to directly pressure Vietnam for a solution in Cambodia. Foreign Minister Nakayama kept the carrot right in front of Vietnamese Foreign Minister Thach in order to gain Vietnam's cooperation:

If Vietnam is willing to cooperate with the guerrilla

         alliance, Japan will come up with a variety of measures to help

         reconstruct the Vietnamese economy, including the resumption of

         assistance, which has been suspended since fiscal 1979.

This baiting of Vietnam came as a companion to the policy of providing aid to the entire region that had been discussed with ASEAN officials earlier. Japan had stopped alluding to ethereal concepts of regional harmony or hinting at assistance levels for the entire region. Tokyo had stepped up its pressure on Hanoi, with direct references to aid in exchange for cooperation.

Although official visits by high-ranking Japanese officials were suspended in 1978, parliamentarians and bureaucrats increasingly paid unofficial calls to Hanoi, starting in 1987. These visits reached a new level in September 1989, when former Prime Minister Noboru Takeshita (still a power-wielding member of the LDP) met with Vietnamese Vice Premier Vo Nguyen Giap in Beijing, just as troops were withdrawing from Cambodia. The two agreed to "expand bilateral relations" and do their utmost to "develop friendly and cooperative ties." This marked a new acceptance of Vietnamese leaders, though no concrete plans were presented because the meeting was not official. In fact, Takeshita stressed that cultural ties should precede economic ties, and the meeting had been hurriedly arranged by Giap's aides, once again evidence of Vietnam's insecurity relative to Japan.

Official visits to Vietnam by high ranking Japanese began in September 1990, when Rep. Michio Watanabe, vice-chairman of the Japan-Vietnam Parliamentarians Committee, toured Indochina and ASEAN countries. His review of Japan-Vietnam relations sounded promising:

All the conditions for Japan to begin economic cooperation

         with Vietnam are in place.  In order to secure stability and

         economic growth in the Asian-Pacific region, weight must be

         given to cooperation in the rebuilding of Vietnam's

         infrastructure.

Vietnam emphasized the visit as a precursor to a visit in November 1990 by Vietnamese Foreign Affairs Minister Nguyen Co Thach and by Nguyen Mai, vice chairman of the State Committee for Cooperation and Investment, which marked a new era in bilateral relations. Officials were beginning to transit between Hanoi and Tokyo at an almost complementary, reciprocal level-- an important step for Vietnam.

When Minister Thach met with his counterpart, Foreign Minister Taro Nakayama, in November 1990, the Japanese minister followed through with Tokyo's intent to include Vietnam as a key player in solving the Cambodian issue. Nakayama congratulated Vietnam on its withdrawal of troops and "asked Vietnam to cooperate"; the congratulations and request show a change of tone from the days of economic threats and sanctions. Furthermore, Nakayama discussed plans for development in Indochina, an obvious reference to the huge amounts of aid that would be forthcoming if a comprehensive solution could be found. For the time being, Nakayama offered continued humanitarian aid and cultural cooperation. Tokyo's policy remained as it was, but the stage was being set for the resumption of economic assistance. Nakayama's statements reveal Tokyo's positive outlook, but outside pressures (the U.S.) exerted enough influence to keep Japan's policies conservative.

By June 1991, Tokyo was willing to offer a "limited aid package" to assist and encourage Vietnam's economic reforms. However, Foreign Ministry officials made clear that this package not involve any financial assistance. Masaharu Kohng, Director in charge of Indochinese Affairs, announced this aid just prior to Nakayama's visit to Vietnam and just prior to the Seventh Congress of the Vietnamese Communist Party. Timing seems to be the crucial element of this announcement, and Japan was anxious to see the Vietnamese Congress move further with its reforms and not slip back into a command economy:

It is a rather encouraging sign that this doi moi policy has

         taken root since the last party conference in 1986.  We would

         like to encourage this direction which the Vietnamese

         government has been taking.

Kohno explained that the aid constituted technical and intellectual aid that would be "conducive to the advancement of the reform policies. Diplomatically, Nakayama's visit was intended to strengthen the foundation of bilateral ties and be a gesture of Japan's support for Vietnam's taking a "more active" role in rebuilding peace in Indochina. Here again, Tokyo treated Hanoi as part of the solution, not part of the problem. Kohno echoed Japan's position of strength between Vietnam and ASEAN:

The purpose [of the visit] is to have a political dialogue
with Vietnam.  I am quite confident there will be no negative
response from the ASEAN countries because we stand firm on
the Cambodian issue and we have no intention to jeopardize the
peace process.

Nakayama discussed Vietnam's future role in the region with Thach and other Vietnamese leaders and promised Japanese aid in the expansion of cultural ties by accepting more Vietnamese students, building a Japan study center in Vietnam, and donating aid monies to preserve Vietnamese cultural assets. Cultural ties and nonfinancial aid incurred little political cost for Japan because such measures did not upset ASEAN, the U.S., or China by crossing the line drawn against Hanoi. For Tokyo, however, the overtures showed Japan's sincerity toward Hanoi, and intimated the amounts of ODA that would come, once a conducive international setting could be created.

By January 1991, Japan had stepped to the doorway of resuming economic assistance to Vietnam by openly setting amounts of ODAas well as dates by and conditions on which ODA would resume. Japanese government sources cited expectations of a viable solution coming from the Cambodian peace talks to be held in Paris from October 21 to 23 that same year. They saw the peace talks as a benchmark from which to gauge timetables for the resumption of aid. Initial estimates of aid amounted to roughly ・0 billion ($76 million) for each country. However, the officials added that aid would only be forwarded after consultations with the IMF, the World Bank, and Western governments.

The announcement of a semidefined timetable and estimated amounts of aid was a big change in Japan's policy-- Tokyo had announced levels of aid before conditions governing that aid had been met. Prior to this announcement, Tokyo had only hinted and alluded to forthcoming aid, never giving amount estimates or defining timetables. After an agreement had been signed in Paris in October, Foreign Minister Nakayama further refined Tokyo's position by spelling out specific goals for Hanoi such as settling Vietnam's overdue debts with Japan. In retrospect, this conditional statement might have been a stalling tactic by Tokyo, intended to preserve Japan-U.S. relations. Nakayama, while taking an affirmative stance on Indochina, stated Japan's "no-rush" position for resuming aid after meeting with U.S. Secretary of State James Baker:

We want to proceed with economic reconstruction of
Indochina in concert with the Association of Southeast Asian
Nations and the United States.

After the mostly successful summit in Paris, Japan was poised to resume assistance to Vietnam. The only remaining obstacles were cooperation issues among the Cambodian factions and the logistics of how to clear Vietnam's debts with Japan.

In January 1992, Foreign Minister Michio Watanabe acknowledged Japan's intent to provide aid and announced that an official aid mission would be dispatched to Vietnam from January 11 to 19 to discuss how to resolve Hanoi's ・0 billion ($160 million) debt to Japan. The Vietnamese press leaked that Japan was contemplating providing ・ billion ($32 million) beginning in April (the start of the fiscal year) but Japan denied this statement. According to one Japanese official who went on the investigative mission, the situation looked promising:

Personally, I think Japan should commit ・0-40 billion
($240-320 million) in commodity loans as a shot in the arm for
the Vietnamese economy.  Ideally, most of the Japanese loans
should be used to buy commodities from ASEAN countries.  We
want to avoid a situation under which Japanese companies would
flock there looking for aid-related business.

However, commodity loans would have to wait for Vietnam to clear its debts with Japan. Koji Kakizawa, Parliamentary Vice-Minister for Foreign Affairs, told a lunch meeting that aid could resume by the end of 1992 if the outstanding debt could be resolved. The Foreign Ministry spokesman, commenting on Kakizawa's statement, offered a solution: Tokyo might negotiate a deal with Hanoi whereby Japan could offer fresh loans or assistance to Vietnam in return for a pledge that outstanding debts would be repaid.

As late as 15 October 1992, no decision to resume full economic assistance (commodity loans, economic grants) had been reached. However, Japan was willing to donate ・ million toward two community projects via a small-grant program, initiated in 1989, that provided funds of around ・ million to grassroots projects in developing countries. This program was not a resumption of full assistance, but it marked the first economic assistance to Vietnam outside of humanitarian (food and medicine) grants in thirteen years.

By 30 October 1992, Tokyo and Hanoi had moved to resolve the debt issue in the manner suggested earlier by the Foreign Ministry. A series of fresh loans would be used to bridge the outstanding debt and unlock economic assistance. One official remarked:

[It's] a matter of time.  There's no question that we are
heading in the direction of a resumption of aid.

A week later, the long period of economic isolation officially ended. With a Cambodian peace settlement, signed a year earlier in October 1991, and bridge loans to cover Vietnam's debt, Tokyo was poised to announce the huge grants and loans to which officials had been alluding since 1989.

On 6 November 1992, the Japanese government announced the extension of a ・5.5 billion ($370 million) credit to Vietnam. Hanoi repaid the outstanding debt, and an agreement was signed in Hanoi by Vietnam's Deputy Foreign Minister Vu Khoan and Japanese Ambassador Hiroyuki Yushita. The amount was derived directly from Vietnam's debt repayment via a separate bridge loan provided by a syndicate of six Japanese banks. The banks provided Hanoi with ・3.5 billion and resolved the last standing condition of the Foreign Ministry:

The long-standing debt problem with Vietnam has been

         resolved, thus removing an obstacle to Japan's economic

         cooperation.  Japan's assistance to Vietnam's ongoing effort

         toward economic openness and reform will contribute to the

         stability of Vietnam and of the Southeast Asian region.

The announcement also included plans for a thirty-year commodity loan (1 percent with a ten-year grace period) through the Overseas Economic Cooperation Fund, which would be used to pay for Vietnamese imports, although the loan would not be tied to the purchase of Japanese goods or services.

Bilateral economic assistance to Hanoi had resumed after almost fourteen years of official isolation. Vietnam had fulfilled Japan's expectations by withdrawing troops from Cambodia, pressing its Heng Samrin puppet-faction to cooperate with the opposition triumvirate, and pledging renewed diligence on clearing its outstanding debts. Hanoi's status in Tokyo took another step forward when Vietnamese Prime Minister Vo Van Kiet visited Japan in March 1993. This visit was the first visit of a Vietnamese head of state since diplomatic relations were established in 1973 and Kiet's first visit to a major industrial nation. Japan Prime Minister Miyazawa welcomed Kiet's visit, which "opened up a new era in Japan-Vietnam relations.

However, the fact that Japan waited until November 1992 to restore economic assistance raises several questions. What prompted Tokyo's three-year delay after troops began to withdraw in September 1989? More specifically, why did Tokyo hesitate a full year after the Cambodian Peace Agreement was signed in October 1991? What international concerns or pressures influenced policymakers at Japan's Ministry of Foreign Affairs, and what factors influenced the programs created in conjunction with the Ministry of Finance's Vietnam policies? These issues will be addressed in the rest of this chapter.

International Factors

Having discussed the direct dealings between Japan and Vietnam, an investigation of the various actions of regional players would clarify our understanding of the possible motives for Tokyo's policies within this bilateral relationship. Although Japan's foreign policy had matured in regional leadership and developmental assistance, Washington's agenda for Southeast Asia, the agenda of international organizations, and the perception of Japan's role by its Asian neighbors affected that policy. Having successfully steered a middle course between Vietnam and the United States, ASEAN, and China, Tokyo needed to upgrade relations with Hanoi without detracting from its relationships with these other regional players. Thus, the policies of Washington, the ASEAN countries, and Beijing held some sway on the speed of Japan's liberalization toward Vietnam.

Return to the IMF

The International Monetary Fund (IMF) had suspended its assistance to Vietnam in 1985 because Hanoi could not pay off its outstanding debts to the organization. Though political issues are technically not supposed to affect IMF policy, the United States, as the largest shareholder in the IMF, succeeded in preventing access by Vietnam until a viable political solution could be found in Indochina. But, in 1990, U.S. officials were willing to let the IMF sell $1.2 billion in gold in order to help eleven of the world's poorest nations, including Vietnam and Cambodia, pay off debts to the fund. However, United States officials with the IMF still refused Vietnam's reentry into the IMF loan schemes. The gold sale was more for the benefit of the bank rather than the countries involved.

Vietnam was not without its supporters in the IMF. A group led by France and including Sweden, Italy, Canada, and Australia looked toward resolving Vietnam's debt problems, estimated at $110 million. France and the other supporters were proposing a scheme in which Vietnam could earn "rights" toward future financing after adopting IMF- approved economic restructuring measures. But both Washington and Tokyo opposed any action on behalf of Vietnam until a political settlement in Cambodia could be reached.

By September 1990, France had declared its willingness to raise up to $10 million toward Hanoi's debt relief and normalization with the IMF. Sweden and Australia mentioned similar amounts with the latter committing to at least $4.1 million. French banks, looking to syndicate the bridge loan for the full debt owed to the IMF, continued to be frustrated by the adamant conditions from the U.S. and Japan, because any bridge loan would depend on Hanoi's access to IMF monies for repayment. The Banque Francaise du Commerce Exterier (BCFE) hoped to include Japanese banks in the syndication plan, but the Japanese banks had received instructions not to participate from Japan's Ministry of Finance. Furthermore, the BCFE was frustrated because officials in Paris decided to wait for Washington to stop pressuring Japan and others to stand against Hanoi. At the IMF board meeting, on 26 October 1990, the United States and Japan remained opposed to a structural-adjustment program for Vietnam. By November, France and the other supporters for Vietnam's readmission thought to perhaps extend the loans independently of the IMF.

Washington's pressure on Tokyo to maintain the hard-line stance against Hanoi's readmittance into the IMF continued through 1991. Senior Japanese officials reaffirmed their position of both "respecting U.S. leadership" and "remaining in the fold" with other donors in regards to Vietnam:

I think the understanding about Vietnam's situation is there. But the IMF cooperation is not finally agreed on among the countries and that is very important. That is something we have to discuss from now on. [italics added]

Japan's leaders neither openly supported France's efforts to restore IMF assistance to Vietnam nor took the lead position in continuing to reject Vietnam's reinstatement. The above statement stresses the lack of cooperation and consensus among the IMF countries (namely, the United States and France) as its reason for agreeing (or not agreeing) to any proposals.

Two weeks following Tokyo's announcement of the ・5.5 billion commodity loan to Vietnam in November 1992, Japan and France announced their intention to assume responsibility for Vietnam's $140 million in overdue debt to the International Monetary Fund. Tacit agreement from the U.S. took the form of American officials commenting they would not block the efforts once progress came on the MIA issue. In other words, Washington would allow the loans if Hanoi granted further access to U.S. investigators. The speed of the announcement, coming just after the renewed bilateral commodity loans, showed that Japan sided with France and Vietnam on Hanoi's bid to return to the IMF, but had deferred action until other issues could be resolved. Pressure from the United States negated any possibility for action until November 1992. Just like the bilateral aid issue, Tokyo took a stance between Hanoi and Washington, carefully keeping both channels open. Open U.S. support of IMF loans to Vietnam came eight months later, when President Clinton announced that his government was dropping its objection to IMF lending to Vietnam.

Japan acting through the United Nations

Japan also used the United Nations to nurture ties in Indochina. Such action provided Tokyo with anonymity that protected its delicate relationship with the United States and China. In 1990, Japan resumed cultural aid to Vietnam via the trust fund of the United Nations Educational, Scientific, and Cultural Organization (UNESCO), starting with an estimated $100,000 donation for the restoration of the royal palace in Hue in central Vietnam. Japan fully supported a so-called United Nations plan to resolve the Cambodian conflict, sponsored by United States Congressman Stephen J. Solarz and Australian Foreign Minister Gareth Evans. The plan essentially called for the United Nations to step in and run key government ministries in Cambodia during a "transition" period leading to democratic elections that involved all the Cambodian factions. Supporters of the plan looked to Tokyo for financial support of the estimated $20 billion it would cost to run the ministries under UNESCO command. While Tokyo did not initially confirm its financial commitment to the full amount, Japan assumed much of the costs in Cambodia.

Pressure from the United States

The influence of the United States in this final stage before resumption of economic assistance is quite strong. As stated above, Tokyo waited until 1992 to begin commodity loans and to underwrite Vietnam's debts to the IMF. Though Japan had been hinting at proceeding with aid for Indochina since 1989, its stated conditions of a comprehensive solution in Cambodia were always made in conjunction with U.S. demands. The signals sent to Hanoi were clear: Japan wanted to restore aid, but older brother America was applying too much pressure to allow it. Washington, after a long period of disengagement begun in the Carter administration, now searched for a positive role in Indochina. Unfortunately, the POW/MIA issue, and perhaps a collective bitterness left from the war, prevented U.S. leadership and hindered Japan's efforts in the region.

When Vietnam began to unilaterally withdraw its troops in 1989, Washington was faced with a quandary: how to encourage the withdrawal without leaving Cambodia in anarchy. Both the United States and Japan began to actively nudge Hanoi into accepting an internationally supervised withdrawal. When Vietnam withdrew without supervision, Washington had no choice but to withhold support on French and Japanese intentions to resume aid. Japan, mindful of the long-term goals of development and stability in Indochina, agreed with the U.S. and insisted on Vietnam's participation in a comprehensive political solution in Cambodia before Tokyo would resume aid.

After fifteen years of diplomatic disengagement from Indochina, the United States moved to reinvolve itself in finding positive steps toward resolving the POW/MIA issue and the Cambodian quagmire. Secretary of State James A. Baker signaled this new approach in Paris on 18 July after a meeting there with Soviet Foreign Minister Eduard Schevardnadze. Baker announced that the United States would no longer support the occupation of Cambodia's U.N. seat by a coalition that included the Khmer Rouge. This signaled Phnom Penh and Hanoi that America was moving more toward the center. In September 1990, Foreign Minister Nguyen Co Thach met with Baker in Washington, the first of such a level in seventeen years. Assistant Secretary of State Richard Solomon announced in December 1990 that the United States would soon be prepared to "formally begin the process of U.S.- Vietnam normalizations." Pressure was mounting from Congress in the form of bipartisan efforts to push the administration toward direct dealings with Hanoi.

For Japan, the warming climate between Washington and Hanoi could only help. Tokyo strengthened its position with Hanoi by openly declaring the reasons it could not extend aid: Washington's hard-line position. Because of the trade embargo on U.S. corporations, and the implied threat of extending sanctions to any Japanese corporation found trading with Vietnam [see chapter 3, The United States v. Honda Motor Co.] under the Trading with the Enemy Act, Japanese officials laid the blame for slow rates of Japanese investment in Vietnam squarely at the foot of the U.S. Capitol. But members of Congress were beginning to see the diplomatic leverage to be gained via Hanoi's economic straits. In a hearing before the House Committee on Foreign Affairs, a regional expert spelled out the possibilities for resolving U.S.-Vietnam difficulties:

If the United States wishes to assert claims, it has lots of authority to do so. The Vietnamese want access to our markets, the World Bank, Asian Development Bank. . . . The Vietnamese need billions of dollars worth of help and expertise. Our negotiators will have plenty of room to negotiate at the table if they want this.

Japan had realized the power of the economic leverage, or "aid card," in Hanoi long before. Washington's shift from security to economic priorities in its dealings with Vietnam only strengthened Tokyo's point position in Indochina.

However, a seemingly unrelated event affected Japan's progress in Indochina. The Gulf War and its subsequent diplomatic fallout painted Japan's foreign policy as "checkbook diplomacy" when Tokyo shelled out massive amounts toward the allied effort but refused to commit troops. Officials in Tokyo noted the need to refrain from allowing Japanese corporations to snap up the huge reconstruction contracts in Kuwait, but rather to let them go to American firms. However, the same tacit exclusion from the Middle East made Vietnam a more attractive target for reconstruction and infrastructure contracts. Son Sann, the Cambodian resistance leader, urged Japan and the West to refocus on Cambodia after having been distracted by the Gulf War:

Japan has agreed to help us. . . . Now that the [Gulf] war is over, Japan must seize the opportunity to work towards a solution.

Progress came at Washington's pace, and the scale of infrastructure projects in Cambodia and Vietnam required government backing from Tokyo, which was following Washington.

Japan began to fulfill the role of mediator between the United States and Vietnam, a role it had offered to play since the end of the war in 1975. Vice President Quayle met with Japanese Foreign Minister Taro Nakayama in May 1991 to address the situation in Indochina. Quayle reiterated the American position that Washington would move toward normalizing ties with Hanoi only after the settlement of the Cambodian problem. Nakayama reassured the vice president that Japan would continue to withhold financial aid until a settlement was reached, and offered his services in urging Hanoi to cooperate with the peace process. Japan's position between Washington and Hanoi is evident from Quale's discussing bilateral relations between the United States and Vietnam with Japan and from Nakayama's offer to speak with Hanoi on behalf of the Western powers. In November of the same year, Foreign Minister Michio Watanabe told visiting Secretary of State James Baker that Japan would ask Vietnam to respond to U.S. inquiries on the POW/MIA issue. Baker, in turn, asked for Japan to contribute financially to the United Nations Transitional Authority in Cambodia (UNTAC). Watanabe promised not only financial and material aid for UNTAC but said that Japan would dispatch personnel to serve in UNTAC, the offer of personnel a lesson undoubtedly learned from the Gulf War.

The American diplomatic efforts toward Vietnam by Vice President Quayle and Secretary Baker used Japan's strong position as aid donor and regional leader in Southeast Asia. While Washington could only pressure Tokyo to withhold economic assistance until Cambodia reached a comprehensive peace, Washington also tried to upgrade its own standing in Hanoi by speaking through Japan. Baker's calls for Japan to continue withholding aid were wearing thin, and the United States was clearly playing catch-up to Japan's position in Vietnam. In his response to Baker's requests, Watanabe would only stress Japan's intention of asking Vietnam to cooperate, a noncommittal answer that may have signalled that Japan was going to resume aid ahead of the United States. Japan, along with France and the EC, were starting to move ahead of the United States in restoring aid to a number of regimes (South Africa, Poland), a clear indication of the erosion of American primacy in determining allied foreign policy. By January 1992, Tokyo announced it would move to lift economic sanctions against Vietnam, though in consultation with the United States. While the U.S. did not oppose such moves, American officials said they preferred Japan to extend its aid gradually.

Although Tokyo was preparing to restore economic assistance to Vietnam, the U.S. Congress still held some sway with Japanese corporations. Indeed, private firms were never prohibited from doing business with Vietnam by the Japanese government. Only the implied threat from the U.S. Congress served to limit trade between Japan and Vietnam throughout the Cambodian occupation. Song Joon, chairman of the Tokyo-based Overseas Economic Research Institute (OERI), explained:

Japan's leading companies, which depend heavily on the U.S. market, are likely to refrain from launching full-fledged business transactions with Vietnam until Washington lifts its sanctions. At the same time, many companies are quietly engaged in feasibility studies for future sales and production in Vietnam.

Mr. Song made this statement as late as February 1992, indicating Washington's continued influence despite Tokyo's initiatives.

In March 1992, U.S. Assistant Secretary of State Richard Solomon stopped in Tokyo on his way back from talks in Hanoi. He met with Japanese Parliamentary Vice Foreign Minister Koji Kakizawa to update Japan on U.S. efforts in Vietnam. Hanoi had come far on the MIA issue, allowing unprecedented access to documents and government archives. Earlier, Watanabe had sent a letter to his Vietnamese counterparts, stressing the need for cooperation between Hanoi and Washington and adding that "Japan would not extend massive aid to Vietnam if it jeopardized Tokyo's relationship with Washington." This letter verifies Japan's prioritizing its ties with the United States above any dealings with Vietnam. Kakizawa furthered Japan's role of mediator because of its friendly relations with both the U.S. and Vietnam when he declared his hopes of playing the role of "an honest broker" between the two. Kakizawa carried another letter from Watanabe, addressed to Vietnam's Premier Vo Van Kiet and his cabinet, which urged them to implement their previous pledges if they wished to receive Japanese aid. However, Japanese officials also hinted that Japan could go ahead with aid if Vietnam seemed to be cooperating to the best of its ability and if Washington hesitated for purely domestic American reasons.

In the end, Japan waited until November 1992 to restore economic assistance to Vietnam. Although Tokyo openly declared its intentions to do so as early as January 1992, and although at the time, the U.S. gave its tacit approval, officials at the Ministry of Foreign Affairs considered the U.S-Japan relationship too important to jeopardize for the sake gaining of a few months. Some reports, such as those in the Far Eastern Economic Review and the Japan Economic Journal, saw the changing of the guard in the U.S. presidential election as the final clearance to announce the aid, as the announcement came only one week after the election of President Clinton. A September 1992 report in the Japan Times quoted an anonymous Ministry source:

Japan wanted to resume official yen loans to Vietnam much earlier, but has delayed doing so out of foreign-policy consideration to the United States. Japanese yen loans to Vietnam will not be provided until after the U.S. presidential election in early November.

Just before the 1992 election, President Bush received the positive results of a presidential mission to Hanoi, led by retired General John Vessey, who returned to Washington with Hanoi's pledge to grant greater access to U.S. investigators. On 23 October 1992, President Bush declared, "[T]oday, finally, I am convinced we can begin writing the last chapter of the Vietnam War."

With that statement, the president changed U.S. policy toward Vietnam from a punitive to a supportive role and cleared the way for Japan to resume its economic assistance.

France

France, the former colonial power in Indochina, had ceased any claims to governmental rights in Vietnam when it lost to Ho Chih Minh's forces at Dien Ben Phu in 1954. By the late 1980s, France searched for reconciliation through aid and support for Hanoi in international forums such as the United Nations and the IMF. France was the first major Western country to restore aid to Vietnam following the troop withdrawal in September 1989. However, French officials admitted their weak standing in the region:

France doesn't have a big influence in Southeast Asia. 
Through relations with Vietnam and Indochina, France intends
gradually to expand its relations with other countries in the
Southeast Asia.

In 1990, Foreign Minister Taro Nakayama received French Prime Minister Michel Rocard in Tokyo and agreed to start discussing economic aid to the Indochese countries of Vietnam, Cambodia and Laos. Nakayama looked to France for guidance before his trip to Laos, and Rocard's reply reflected France's sense of duty:

[France] has a historical responsibility with regard to the
future of Laos, Cambodia, and Vietnam.

Indeed, by 1991 French investment in Vietnam topped the list at $125.6 million dollars, while Japan still lagged behind Canada, Britain, and Belgium.

As stated earlier, France led the team of supporters within the IMF to reinstate Vietnam's ability to draw loans. French aid to Vietnam nearly doubled every year after 1989 and reached Ffr 250 million ($47 million) by 1992, placing it third behind Japan and Sweden. Whenever French officials paid visits to Tokyo, Japanese officials expressed their desire to aid Vietnam in conjunction with French plans for Indochina. Just as with the United States and Vietnam, Tokyo sought the middle territory between the United States and France-- Japan looked forward to development schemes for the region but attended to Washington's anxiety over rewarding Hanoi prematurely. Japan continued to side with the United States in refusing Hanoi access to IMF funding, though it listened intently to French designs. In the end, Japan moved in concert with France to clear Vietnam's arrears to the IMF in November 1992, soon after the announcement of bilateral aid.

China

China upset world opinion when Beijing cracked down on protesters in Tienanmen Square on 4 June 1989. Japan acted with most Western governments to stop aid following the incident. However, a year later, Michio Watanabe, now a senior official of the Liberal Democratic Party, visited China and promised that aid would return soon. For China, the short term as a pariah state might have drawn Beijing closer to Hanoi (one of the few remaining socialist states), as evidenced by a remark of Chinese Vice Premier Wu Xueqian:

China wants to improve its contacts with Vietnam to the
point where we are both comrades and brothers.

By the summer of 1990, China had agreed to greatly reduce its support of the Khmer Rouge. As the ongoing Cambodian peace talks gained a higher profile in the international community, Beijing became aware of the potential economic damage that would be incurred if China appeared to be slowing the process of peace in Indochina-- a lesson reinforced by the Tienanmen incident. Thus, China became much more cooperative on the Cambodian issue. This cooperation made room for Vietnamese demands about diminishing the role of the Khmer Rouge, and therefore led both sides toward the middle in a comprehensive solution and toward the eventual institution of a ruling commission led by Norodom Sihanouk in Cambodia.

The Association of Southeast Asian Nations

Beginning in 1987, the ASEAN countries, which had been so vocal in their opposition to Hanoi's actions earlier, began to split over how to resolve the Cambodian question. Cambodia's neighbor Thailand favored reconciliation with Vietnam once the troop pullout was complete, while Singapore still favored holding out until Vietnam cooperated fully in a comprehensive peace-- anything short of full cooperation would be rewarding a loose-cannon regime. Either way, ASEAN began to shift from security oriented pressuring tactics to economic enticements, a shift boosted by Tokyo's pledges to aid the entire region if a settlement could be reached.

Thailand's Prime Minister Chatichai Choonhavan signalled to Tokyo in 1990 that Japan should restore aid to Vietnam now that the September 1989 troop pullout had occurred. Previously, Thailand had followed the United States in not accepting the veracity of the claimed pullout, but now Chatichai turned toward acceptance. That same year, Singapore noted Vietnam's slow political reforms despite its economic progress as evidence that Hanoi should not be rewarded too early. Furthermore, Singapore Prime Minister Wong Kan Seng lambasted the Vietnamese-backed Hun Seng regime in Cambodia for being "unwilling to compromise."

Japan responded to these divided calls from ASEAN with further promises of increased cooperation and aid. Tokyo realized that the simple bilateral aid relationship would no longer curry enough favor for the region. Rather than a scheme of Japan (giver) and ASEAN (receiver) for aid and assistance, Tokyo began to shift toward a triangular model: Japan (initiator) to ASEAN (conduit) to Indochina (receiver). Such a scheme would double the mileage of Japan's aid, benefiting not only the receiving countries (Vietnam, Cambodia, Laos), but also the industries supplying infrastructure materials in the conduit countries (Malaysia, Indonesia). Foreign Ministry officials explained these plans prior to Prime Minister Kaifu's tour of the Southeast Asia region, in which Kaifu would discuss this "more mature" relationship with the ASEAN countries.

Japan hoped to increase its diplomatic pull in the region with Kaifu's tour. As Beijing began to warm up to Southeast Asia and settle differences with Hanoi, Tokyo sought to counterbalance the Chinese influence in Indonesia and Singapore, two countries that were normalizing relations with China at the time. In addition, Tokyo sought to keep its central position among the regional powers. After Tokyo hosted a conference to solve the Cambodian solution that made little progress, officials proposed that the next conference be held under an "international conference" banner in an ASEAN context in order to work out "what should be our respective policies for economic cooperation with Vietnam."

The ASEAN's hard line against Hanoi had faded significantly by 1992. Thailand, eager to restore relations with its Indochinese neighbors, moved ahead of the other countries and sent Prime Minister Anand to Vietnam in February 1992, the first Thai head of government to visit that country since 1976. Anand also pledged to give Vietnam long-term credits worth about $5.8 million to buy Thai goods and services. Anand's announcement came weeks following Japan's initial signals that it would resume aid within the year. Clearly, for Thailand, the economic possibilities had gained priority over the security issues that gripped ASEAN back in 1978, when Vietnam was seen as a threat to the rest of Indochina.

Indochina

By 1989, the factions fighting for control of Cambodia has settled into three basic camps: (1) the Hun Seng regime backed by Vietnamese troops, installed shortly after the invasion in 1978, (2) the Cambodian "Nationalists," a combination of the faction headed by Prince Sihanouk and the army of guerilla leader Son Sann, and (3) the Khmer Rouge, or Pol Pot regime that was ousted from power by the Vietnamese in 1978. Vietnam backed the Hun Seng regime, China backed the Khmer Rouge, and the United Nations, Japan, and the United States favored Sihanouk's party, which seemed the to play centrist role.

Tokyo supported what came to be known as the "UN plan": power would be given to UNTAC (UN Transitional Authority in Cambodia) to run the ministries while political power would rest in the Supreme National Council (SNC). The debate now shifted to who would control the SNC. The Vietnamese-backed Cambodian Prime Minister Hun Sen had vied for Tokyo's favor following the Paris talks in 1989:

The position of the Japanese government seems very
positive and very much in line with my government.

In retrospect, the statement appears to be a propaganda ploy to paint Hun Sen's regime as centrist and cooperative. Japan continued to back Sihanouk's faction. Japanese Foreign Minister Nakayama voiced this opinion to the Vietnamese government when Foreign Minister Thach visited Tokyo in 1990. Thach's visit coincided with a decision by the UN Security Council to welcome Sihanouk as the head of the SNC if he were chosen by the Cambodian people. Tokyo obviously sided with the decision because it had backed Sihanouk's faction from the start. However, Tokyo remained hospitable to Thach and Vietnam while continuing to back the alliance against the Heng Samrin (Vietnamese-backed) faction.

Son Sann, who also enjoyed Tokyo's favor, took special note to warn Japan and the West about rewarding Vietnam and Hun Sen too soon. As late as March 1991, Son Sann called on Japan to withhold aid and economic assistance for at least another eighteen months in order to force acceptance of the UN peace plan:

I ask all friendly people to maintain the embargo for 18

         months more.  Vietnam has economic, political and social

         difficulties and will be compelled to accept the UN plan.

Son Sann made references to private companies who had increased trade with Vietnam and thus diminished the incentive to negotiate, an obvious reference to Thailand's renewed efforts as well as to the Japanese trading houses.

When Thach visited Tokyo again in 1991, Nakayama pushed once again for cooperation. In addition, Nakayama tacked on the condition that any comprehensive plan include participation of the Khmer Rouge, a point the Vietnamese were adamantly against. This condition echoed the opinions of Sihanouk, ASEAN, and obviously China. Although the United States opposed participation by the Khmer Rouge because of their atrocious human rights record, Washington recognized the need for a solution:

Secretary Baker has stated clearly that, from an American

         perspective, we want no role for the Khmer Rouge in a future

         Cambodian Government.  However, the judgement of Prince

         Sihanouk, China and the ASEAN countries-- as expressed in the

         communique of their annual ministerial meeting this past July--

         has been that the chances for peace are better if the Khmer

         Rouge is included in a four-party interim coalition.

Thach insisted that any inclusion of the Khmer Rouge must also include a reference to their abominable history of slaughter. This would run counter to the UN plan, which included no references to the Khmer Rouge's history. In contrast to Thach's favored SNC control, in which the Hun Seng regime held significant power, Nakayama favored UNTAC control until elections could be held:

I believe that this peace proposal is the most realistic
         approach for ending the Cambodian conflict.  As the Pol Pot
         faction refuses to sit down with the other factions to negotiate a
         peace plan, it is highly doubtful that the SNC can immediately
         function as a forum for promoting constructive talks among the
         four feuding parties.

Nakayama did, however, offer Thach some relief. The Japanese Foreign Minister told Thach he would "urge" Chinese Foreign Minister Qian Qichen to cooperate in ending the conflict when Qichen visited Tokyo at the end of the month. Here again, Nakayama attempted to place Japan in the middle between two extremes. While Tokyo backed the Sihanouk faction and not the Vietnamese or Chinese factions, Nakayama offered to relay Thach's concerns to China, a move more on behalf of Japan-Vietnam relations and Sino- Japanese relations more than for the sake of the Khmer Rouge or Hun Seng.

The Soviet Union

In accounting in international factors that affected Japan's policy toward Vietnam, we have seen the shift move from cold war puppeteering to economic competition. The USSR was noticeably absent because the Soviet Union had fallen into such economic straits that it could no longer provide aid and therefore could have little influence in Southeast Asia. Soviet influence, if any, took the form of broader strokes at the end of the Cold War and Gorbachev's dismantling of Brezhnev's expansionist policies. After 1989, the Soviets had begun a dialogue with China and were in full retreat from Afghanistan and Cam Ranh Bay. From the viewpoint of the United States and the West, China's backing of the Khmer Rouge in Cambodia was the focus of attention, far outweighing any remaining strings from Moscow to Hanoi to Phnom Penh.

Overall, the United States carried the greatest third-party effect on the Japan-Vietnam relationship. Washington adamantly refused to grant any leeway to Hanoi on readmittance to the IMF or to endorse aid from France and Japan. The United States clearly insisted that Japan's Foreign Ministry withhold economic assistance well into 1992. The ASEAN countries became divided over the conditions to extend aid to Indochina, and the loss of solidarity cost the group the lead position in determining policy toward Vietnam. China, eager to accelerate its economic programs and relations with the West, came to terms with the Soviet Union and Vietnam, a move crucial in the path to a solution in Cambodia.

Analysis of international factors

Clearly, the most influential external factor in Japan's policy toward Vietnam was the pressure from the United States to hold off a resumption of economic assistance until 1992. International bodies such as the IMF and World Bank had begun to hint about restoring Hanoi's eligibility for loan guarantees, but the vetoes from Washington and Tokyo and the comments by IMF officials about Washington's pressure on Tokyo give clear evidence of Japan's alignment with the United States. While France pushed for liberalization, the U.S. preached caution and demanded a comprehensive solution in Cambodia as well as progress on the POW/MIA issue. Japan may have felt some competitive pressure from France for control of Indochina's markets, but relations with the United States took precedence. Furthermore, any fears of losing regional leadership in Southeast Asia to France were allayed when ASEAN representatives maintained a hard-line stance against Hanoi-- similar to the stance taken by the United States and Japan.

The shift in priorities toward economic development continued to isolate the Soviet Union and China in terms of projectable power. Both countries had overwhelming domestic concerns, problems powerful enough to dismantle the regime in the Soviet Union and almost cause a civil war in China. Subsequently, the Soviet Union became a non entity in Southeast Asia, and China's position at the bargaining table was seriously compromised. Thus, Tokyo's foreign policy took its cues from the United States and ASEAN instead of France, and Japan practically ignored the Soviet Union and held the upper hand in Sino-Japanese relations.

Domestic factors

As mentioned earlier in this work, the emphasis in policy toward Vietnam had long since shifted from security issues to economic development. Subsequently, action between Japan and Vietnam came to center around private sector trading houses and oil development corporations rather than the political debates over ideology that had dominated the relationship when the suspension first began. The Japan Communist Party stood greatly diminished by the end of the Cold War, and the Liberal Democratic Party's hard-line stance against communist nations had softened. Bureaucratically, the Ministry of Foreign Affairs (MoFA) maintained its lead position in determining Tokyo's dealings with Hanoi. The Finance Ministry and the Ministry of International Trade and Industry (MITI) sent missions to Vietnam when the lifting of aid sanctions approached, but these missions came under the auspices of the Ministry of Foreign Affairs.

Ministry of Foreign Affairs

Despite the optimism shared by France and Thailand following Vietnam's withdrawal in 1989, officials in the Ministry of Foreign Affairs were quick to spell out their conditions for Hanoi:

Until and unless what we term as a comprehensive solution
to the Kampuchean problem is achieved, we are not in a position
to start extending economic aid either to Kampuchea or to
Vietnam.  It is true that Vietnamese forces are pulling out of
Kampuchea.  That is something we should really watch.

Ministry spokesman Taizo Watanabe went on to chide Hanoi for withdrawing unilaterally rather than under UN supervision. The Foreign Ministry continued to hold a hard-line stance demanding a comprehensive solution in Indochina. This stance was consistent with the Foreign Ministry's goals: maintain the U.S.-Japan relationship, expand relations with ASEAN (thus the need for a long-lasting peace) and keep smooth the touchy Sino-Japanese relationship in the wake of Tienanmen Square.

The Ministry of Foreign Affairs took a significant step toward improving relations with Vietnam in 1990 when it resumed grants for cultural cooperation and exchanges. Simultaneously, the Ministry planned its next step: an increase in humanitarian grants and assistance to hospitals as a method of expanding aid to Vietnam without violating the sanctions against official economic assistance. Japanese ambassadors to East Asian countries urged flexibility in restoring aid to Vietnam, bringing the carrot closer for Hanoi and increasing Japan's diplomatic influence in Indochina.

By February 1991, top officials within the MoFA openly recommended moving ahead with increased humanitarian grants. In a panel discussion in the Gaiko Forum, a monthly diplomacy magazine published under the auspices of the Foreign Ministry, Sakuro Tanino, director general of the ministry's Asian Affairs Bureau, commented that Japan should increase aid for "humanitarian" reasons, because of Vietnam's economic straits.

Japan's Foreign Ministry proposed a plan to disarm the four warring Cambodian factions that drew criticism from both Washington and Hanoi. Washington thought the plan constituted too much interference from the outside (a formula for disaster in the U.S. collective memory) while Hanoi rejected the plan because it could give military power to the Khmer Rouge.

The primacy of the Foreign Ministry in determining overall policy toward Vietnam continued through 1992. Tokyo announced in January 1992 that it would resume aid within the year and sent an official aid mission to Vietnam. Although bureaucrats from the Finance Ministry, MITI, and secondary bureaus connected with various branches all attended, the mission was organized and directed by the Foreign Ministry. The Foreign Ministry, and not the Finance Ministry, announced in March 1992 that Japan would perhaps syndicate a bridge loan to clear Vietnam's arrears before economic assistance would resume.

Ministry of Finance

The Ministry of Finance had followed the rules spelled out by the Ministry of Foreign Affairs ever since official aid was suspended in 1979. While Official Development Aid (ODA) was under the jurisdiction of the Ministry of Finance, the permission to transfer the funds that had been marked for Hanoi had to come from the Ministry of Foreign Affairs. In January 1992, as the MoFA began to signal that it would soon allow the resumption of economic assistance, the Ministry of Finance participated in official missions to Vietnam for preliminary research to find worthy aid projects. However, even these missions were headed by bureaucrats from the Ministry of Foreign Affairs.

Apart from suspending official economic assistance to Vietnam, Tokyo limited trade by suspending import-export insurance for Japanese firms trading with Vietnam. This insurance, like ODA, also came under the jurisdiction of the Ministry of Finance. As mentioned earlier, the Finance Ministry followed the lead of the Foreign Affairs Ministry in dealing with Hanoi over the issue of restoring ODA. However, restoration of insurance came long after political differences with Hanoi were solved. Interestingly, the Ministry of Finance's conservatism prevented restoration of the short-term trade and investment insurance system for Japanese private companies doing business with Vietnam until well into 1993. The Finance Ministry moved to restore the insurance only after Vietnam had proved its sincerity by repaying the nearly ・0 billion owed to private Japanese corporations by using the ・5.5 billion in commodity loans extended to Hanoi in November of 1992.

The Ministry of International Trade and Industry (MITI)

Like the Ministry of Finance, MITI waited until 1992 to commit to any serious steps toward restoring ties with Hanoi. However, MITI acted with foresight and long-term planning in its dealings with Vietnam. Beginning in 1991, the agency started subsidizing feasibility studies on infrastructure projects, studies conducted by consulting firms within Japan. This action did not violate the official suspension of aid because the funds were channeled domestically. The Japan International Cooperation Agency (JICA), an arm of MITI, received fifty trainees from Vietnam throughout 1991. This number was up from sixteen trainees in the previous year.

The Ministry searched for creative ways to forge ties with Vietnam despite the official ban. MITI officials discussed ways to upgrade existing infrastructure (roads, bridges) without having to incur huge foreign aid levels for new construction. The Institute of Energy Economics (IEE), another arm of MITI, sent a study group to Vietnam in April 1992 that included representatives of private firms who paid their own expenses. The group thus avoided appearing official. The reason for these preliminary trips, as stated by Toru Kimura of the IEE, was typical of MITI's philosophy and zest for planning ahead:

Hanoi is frustrated that Japan keeps researching and
studying Vietnam's problems, but does nothing.  But before it
spends any money, Tokyo must make a priority list of potential
projects.

The Ministry seemed eager to open trade channels with Vietnam as much as possible the closer the resumption of aid loomed. In September 1992, just two months prior to the Ministry of Foreign Affairs announcement, MITI petitioned for a relaxation of regulations under the Coordinating Committee for Multilateral Export Control (COCOM) regulations imposed on Vietnam as a socialist state. COCOM limits on trade were harming industrialization within Vietnam, according to Japanese sources, because the regulations applied to construction machinery and communications equipment. These two commodities had been leading exports for Japanese firms throughout Southeast Asia. Earlier, Japan had called for easing COCOM restrictions against all Asian nations except North Korea. To reassure the Paris-based organization of Western countries, officials from MITI and the Foreign Affairs Ministry promised to monitor export controls to Vietnam.

At the bureaucratic level, the Ministry of Foreign Affairs maintained its lead position in determining policy toward Vietnam up through November 1992, when resumption of aid was finally announced. Although the Finance Ministry and MITI began to strengthen ties in the spring of 1992, they took no official action without the participation and oversight of the Foreign Affairs Ministry. Attitudinally, MITI seemed eager to resume ties with Vietnam, especially in light of the huge trade deficits that had been accumulating since 1986 (see Chart 4.1). Conversely, the Ministry of Finance seemed reluctant to resume insurance and other trade assistance programs with Hanoi, given the country's abominable financial state.

The private sector

The sea change from security issues to economic development throughout Southeast Asia meant an increasing role for the private sector in Japan-Vietnam relations. Corporations were moving ahead of the government by establishing branch offices and trade representatives in Hanoi and Ho Chih Minh City. By 1990, following the troop pullout, Japan's financial sector could sense the eventual return of official aid relations, and it began to openly call for the resumption of full official economic ties. An editorial in the Japan Economic Journal summarizes the call:

The U.S. understandably may require more time to
liquidate legacies of the war to enter full relations.  But Japan,
free from such restrictions, is now definitely in a position to
facilitate the new wave in situations in the Indochina Peninsula. 
This means that Japan should drop its rigid stance that it will
withhold economic assistance for Vietnam until a comprehensive
peace settlement in Cambodia is achieved.  It's time for Japan to
consider an early resumption of aid.

The editoral articulated two important positions: (1) Japan should move ahead of the United States, and (2) Japan should not hold out for the comprehensive peace settlement-- the last remaining condition from Tokyo. Clearly, the private sector wanted to move into Vietnam as soon as possible, regardless of the overarching concerns of the Ministry of Foreign Affairs.

Mitsubishi Corporation confirmed these intentions when it opened an office in Vietnam in January 1991, becoming the largest Japanese trading company to establish a base in Vietnam. Sumitomo Corporation and Kanematsu Corporation, two other trade house giants, had already received Hanoi's permission, while Marubeni Corporation and Nichimen Corporation had begun the approval process. By March 1991 (and with very little announcement in light of Washington's position), the nine largest trading houses had established offices in Hanoi. These trading firms handled the lack of export-import insurance and other official monetary devices by dealing in trade credits-- a sort of elaborate bartering system similar to the Pepsi/Vodka trades that occurred with the Soviet Union. That same summer, the national carrier Japan Airlines announced it would soon open a route to Vietnam.

However, Japan's banks did not share this optimism. Similar to the Ministry of Finance, Japanese banks could not overlook Vietnam's debt problem as well as its atrocious repayment record. In 1990, Hanoi tried negotiating with the Bank of Tokyo to reschedule its debt of roughly $150 million, but with little progress. Until official economic assistance and ADB and World Bank funds could enter the pipeline to Vietnam, Japanese banks remained wary of Hanoi. Eventually, a bridge loan to clear Hanoi's arrears came from a syndicate of these same banks, but only after the green light had been given in November 1992 for commodity loans and economic assistance.

By August 1991, the quasi-official organization Keidanren (Japan Federation of Economic Organizations), which had deep ties within the bureaucracy and represented over five hundred of the top Japanese firms, launched an Indochina Relations Committee and announced that a mission of senior Japanese executives would go to Vietnam. Along with the above-mentioned trading firms, representatives from Toyota Motor Corporation, Showa Shell Sekiyu KK, Toshiba Corporation, Honda Motor Company and Nippon Telegraph and Telephone Corporation would go on the mission. Other organizations within the private sector attempted to forward relations between Japan and Vietnam. The Japan-Vietnam Trade Association, consisting of members from the major trading houses gathered to negotiate collectively with Hanoi, signed an economic cooperation agreement with the Vietnam State Committee for Cooperation and Investment in an effort to promote investment by small- and medium-sized Japanese companies. Summarily, the group sponsored trips to Vietnam in order to research infrastructure projects as well as sponsor technical tours of Japanese factories by Vietnamese officials.

While the private sector had moved ahead of the government in increasing relations with Vietnam, the eventual resumption of official aid still remained the key to achieving higher levels of investment and trade, according to one trading company representative in Hanoi:

The aid delegation is very significant.  The major part of
our business [in Vietnam] will be ODA-related. We're preparing
for many projects utilizing soft loans as well as grants.

The Keidanren dispatched its mission to Vietnam in October 1991. Upon good recommendations from the returning delegates, the organization formed its first Japan-Vietnam Economic Relations Committee in November, nominating Nissho Iwai President Akira Nishio as committee chairman. Nissho Iwai had been the lead trading house since the mid-1980s, with a majority of the oil projects under its control.

Immediately following the announcement of the ・5.5 billion in November 1992, the second wave of firms announced they would open branch offices in Vietnam. These included construction firms such as Kajima, Obayashi, and Hazama, along with concrete and heavy machinery companies like Komatsu and Tomen. The logic here is obvious: these firms depended on contracts for infrastructure projects to rebuild roads, bridges, and ports, projects that were dependent on the huge amounts of ODA and economic assistance for funding.

Japan's trade with Vietnam had been growing steadily since 1985, and it accelerated in 1989, when the troop pullout signalled that peace would soon come to the peninsula (see Charts 4.1 and 4.2). Exports to Vietnam were dominated by the basic manufactures trade sector, which included parts for assembly by Vietnamese labor as well as finished consumer goods. By 1992, crude oil came to be the major import from Vietnam in terms of total dollars, with trade of mineral fuels topping $545 million. The classical colonial model was forming between Japan and Vietnam: raw materials traded for finished goods. However, the relationship was beneficial for cash-strapped Vietnam because Hanoi had enjoyed a net trade surplus with Japan since 1987 (see Chart 3.3).

The private sector moved well ahead of the bureaucrats in establishing ties with Vietnam. Although the U.S. Congressional backlash against Honda in 1987 had served as a warning to these firms, trading houses were able to quietly establish branch offices in the months prior to an official resumption of aid. The timing of these moves indicates the remaining influence of the threat of Washington's wrath, but legally, the companies could operate unfettered by Tokyo's regulations. Japan's official policy toward Vietnam covered only official economic assistance and ODA. The freedom to operate had been spelled out in 1987 when ASEAN complained of Nissho Iwai's oil development plans and Tokyo responded that it could only ask for the company's cooperation. When the Foreign Ministry began to signal the resumption of aid by early 1991, the private sector moved swiftly to establish a beachhead in Vietnam's virgin market of raw materials and consumers.

Increasing domestic influences

The shift toward economic development throughout the region and Tokyo's subsequent emphasis on economic developmental plans for peace certainly placed greater power in the Ministry of Finance, MITI, and the private sector's dealings with Vietnam. Trade with Vietnam had escalated steadily since 1985. By 1990, Vietnam had become a major supplier of seafood, oil, and lumber. Ironically, this very same success virtually subtracted MITI and the private sector as a serious pressure for reinstating economic assistance. In other words, trade had not been seriously hampered by the suspension of aid; therefore, MITI and the private sector went about business anyway, despite Tokyo's official policy. Major infrastructure projects for Vietnam's roads and harbors lay waiting, but funding for these projects couldn't come without the blessings of the Ministry of Finance. However, Vietnam's economy, regardless of the international political situation in Indochina, was deemed unfit for loans and insurance until after the IMF debt and other arrears were cleared. Therefore, the domestic pressures from the business-oriented bureaucracies were completely subject to the international situation and to strong-arming from Washington.

Overall, the differing goals of the bureaucracies provide the best explanation of their behavior: the Foreign Affairs Ministry's prime responsibilities are to keep good relations with the United States, ASEAN, China, and the rest of the world, in that order. Any premature movement toward normalizing aid relations with Hanoi would jeopardize those priorities. The Finance Ministry's prime concern is Japan's budget. Premature extension of export insurance or ODA would only result in bad loans and a loss of funds. The MoF acted only after Hanoi possessed the currency (・5.5 billion) to prop up any huge losses. Conversely, the Ministry of International Trade and Industry was eager to ratchet up Japanese exports to Vietnam in order to offset the trade deficits resulting from oil, timber, and seafood imports from Vietnam. While no official action could be taken, organizations such as JICA and IEE moved to ensure that Japan's influence in Hanoi would foster trade once aid sanctions were lifted.

Conclusion

This chapter assumed Tokyo wanted to move ahead with aid for Vietnam but could not because of Japan's relations with the United States. When Vietnam withdrew its troops in September 1989, it fulfilled Tokyo's biggest condition for resuming economic assistance, but aid was three more years in coming. Japan, in light of the chaotic situation in Cambodia and because of the "checkbook diplomacy" label derived from its behavior in the Gulf War, hesitated to make any bold gestures toward Vietnam. Japan wanted to move ahead with aid, as evidenced by the timetables and the amounts hinted at as early as January 1991.

Countries in the region had all moved to positions conductive for resuming aid to Vietnam. The ASEAN countries of Indonesia and Thailand had expressed leniency toward Vietnam in hopes of becoming conduits for the huge amounts of multilateral and Japanese bilateral aid that had been promised to Indochina. Beijing had started to bury the hatchet with its southern neighbors (except on the Spratly Islands issue), a move in keeping with the new diplomatic measures it took in order to fulfill the goal of filling the vacuum in East Asia left by the retreating Soviet Union.

When a peace plan was signed by the Cambodian factions in the fall of 1991, nothing stood in the way of resuming aid except Tokyo's deference to Washington. Japan's policy toward Vietnam gives strong indications of the factors guiding foreign policy in Tokyo. Despite the end of the Cold War, the United States still held a leadership role in the Southeast Asian region and in Japan. However, as the role of economic factors began to heavily outweigh security issues, Tokyo's position in the region and in Southeast Asia increased to the point where it could openly hint about moving ahead of the United States. In the end, concerns between Tokyo and Washington held the suspension of aid until November 1992, when Japan finally announced it would forward ・5.5 billion to Vietnam.

Japan's Foreign Policy Toward Vietnam 1978-1992/Chapter 4