Thayer Consultancy Background Brief

ABN # 65 648 097 123

Vietnam to Procure $94.7 million
in U.S. Defence Equipment
August 7, 2018

We would like to ask for your assessment of a few issues related to Vietnam-U.S.
military equipment deals for a report we are preparing.
Q1. One source in U.S. State Department told us that Vietnam has signed contracts to
buy U.S. military equipment worth $94.7 million via Foreign Military Financing and
Direct Commercial Sales schemes. Does this surprise you?
ANSWER: No, it is not surprising that Vietnam would increase its purchases of defence-
related technology and equipment from the United States. The figures for U.S. sales
to Vietnam are not consistent however but a rough chronology of sales since 2009
follows.
According to the U.S. Congressional Research Service:
In April 2007 the Department of State amended International Trafficking in Arms
Regulations to permit “on a case-by-case basis licenses, other approvals, exports or
imports of non-lethal defense articles and defense services destined for or originating in
Vietnam.”
…Vietnam was subsequently permitted to participate in the Foreign Military Financing
(FMF) program, administered by the State Department, starting in fiscal year 2009 (see
Table 1). Via FMF, Vietnam was able to purchase spare parts for Huey helicopters and
M113 Armored Personnel Carriers captured during the Vietnam War. According to the
Defense Security Cooperation Agency (DSCA), U.S. military sales agreements with Vietnam
rose from $653,000 in fiscal year 2011 to $20 million in fiscal year 2016.
Table 1. Foreign Military Financing for Vietnam
in millions of U.S. dollars
Fiscal 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year
Amount 0.5 2.0 2.0 2.3 9.5 10.0 10.8 10.8 12.0
Source: Congressional Research Service analysis of U.S. budget data.
According to a State Department official quoted recently in the Vietnamese media, as
early as 2012 the U.S. State Department gave its approval to Vietnam for the
purchases of military electronic equipment. These sales are estimated to have reached
a total of $25 million in value by 2017.
According to the Congressional Research Service:
In October 2014, Obama Administration partially relaxed U.S. restrictions on the transfer
of lethal weapons and articles to Vietnam to permit “future transfer of maritime security-
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related” defense articles, again on a case-by-case basis. The Department said that the
move would help the United States “integrate Vietnam fully into maritime security
initiatives” by helping Vietnam to “improve its maritime domain awareness and maritime
security capabilities’…
Following the 2014 partial easing of the arms export ban, few lethal defense articles were
sold or transferred to Vietnam from the United States.
In 2015, the U.S. Commercial Services Office in the U.S. Embassy in Hanoi, working in
cooperation with the Office of Defense Cooperation, hosted the first U.S. Defense
Industries Promotion Symposium. The second symposium was held in May 2016 on
the eve President Obama’s visit to Vietnam. At the second symposium sales
representatives from Boeing and Lockheed Martin were able to make direct contact
with representatives from Vietnam’s Ministry of National Defence. Reportedly a third
symposium is being planned for 2018.
In May 2016, during his visit to Vietnam, President Obama announced the removal of
remaining International Trafficking in Arms Regulations restrictions on sales of lethal
weapons and related services to Vietnam. According to the Congressional Research
Service:
At the time, U.S. officials and some observers argued that such an action would help
improve Vietnam’s capacity to respond to China in the South China Sea and solidify the
growing strategic partnership between the United States and Vietnam. Others, however,
called the move premature without improvements in human rights conditions in Vietnam.
Therefore, ever since President Obama lifted the restrictions on arms sales to
Vietnam, it was very likely that Vietnam would step up its purchases of defence-
related technology or even weapons.
In May 2017, Vietnam took delivery of its first refurbished Hamilton-class cutter for its
Coast Guard. The cutter was transferred to Vietnam through the Excess Defense
Article program. Also that month, Vietnam took delivery of six Metal-shark Defiant-
class patrol boats financed through the FMF program. In late March 2018, Vietnam
took delivery of six more Defiant-class patrol boats.
According to the Congressional Research Service:
The Trump Administration has indicated that it sees increased U.S. arms sales to Vietnam
as one means of reducing the bilateral merchandise trade deficit, as well as strengthening
the security partnership with Vietnam. The State Department reportedly is encouraging
Vietnam to diversify its source of arms away from its “historical suppliers” (such as Russia)
and include more U.S. equipment. Overseas U.S. weapons sales also are an important part
of the Trump Administration’s “Buy American” proposal, which reportedly will require the
Pentagon and U.S. diplomats to play a more active role in promoting arms trade, as well
as possible easing of ITAR restrictions.
Q2. It seems that President Trump’s transactional approach works. What are your
views on that?
ANSWER: In 2017, President Trump received four heads of government from
Southeast Asia in The White House. Prime Minister Nguyen Xuan Phuc was the first
government leader followed by the prime ministers from Malaysia, Thailand and
Singapore. The joint statement issued after Trump met Phuc declared that they
“welcomed the announcement of $8 billion in new commercial deals.” Similar
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statements were made after the visits by the other leaders from Southeast Asia. One
analyst has coined the phrase “shopping diplomacy.”
President Trump certainly made a splash during his November 2017 visit to Hanoi
when he met Prime Minister Phuc. The media quoted Trump as saying Vietnam should
buy missiles and other weapons systems from the United States. Trump was quoted
as saying, the United States, "makes the greatest missiles in the world.”
In one sense, yes, Trump’s transactional approach works. In Vietnam’s case, however,
buying military weapons and equipment from the United States is a sensitive issue
due to the cost factor, technology integration issues and Vietnam’s legacy of relying
on the Soviet Union/Russian Federation for modern weaponry and service support.
Q3. The State Department official declined to respond when asked whether the
military equipment that Vietnam wanted to acquire was aimed at maritime
protection. What is your assessment? What does Vietnam want to buy?
ANSWER: Making purchases from the United States, either under the FMF or Direct
Commercial Sales, is a very complicated process. U.S. officials have given their time to
explaining to Vietnamese officials how they should proceed. Vietnam has been
reluctant to make a request unless they are assured it will be approved.
The priority area for Vietnam is equipment to improve its capacity in maritime
security. It is likely that Vietnam will purchase military technology related to maritime
intelligence surveillance and reconnaissance (ISR) equipment, such as sensors, radar,
drones and perhaps the P-3C Orion maritime patrol aircraft that is being retired from
service than procure “big ticket” weapon systems. Vietnam will most likely use FMF to
fund future procurements of U.S. defense articles.
According to the Congressional Research Service:
Congress will have oversight of some exports of military items to Vietnam, pursuant to
Section 36(b) of the Arms Export Control Act (AECA; P.L. 90-629). That law requires the
executive branch to notify the Speaker of the House, the Senate Foreign Relations
Committee, and the House Foreign Affairs Committee before the Administration can take
the final steps to conclude either a government-to-government or commercially licensed
arms sale. For potential sales to Vietnam, the Administration is required to notify the
congressional committees and leadership 30 calendar days before concluding sales of
major defense equipment, defense articles, defense services, or design and construction
services meeting certain value thresholds.
There were initial reports quoting a Pentagon official that Vietnam was in the process
of using U.S. grant funding to purchase the Boeing-Insitu ScanEagle drones for
maritime surveillance. But this report was later downplayed by U.S. officials possibly
because this purchase had not yet been officially approved by the U.S. Congress.

Suggested citation: Carlyle A. Thayer, “Vietnam to Procure $94.7 million in U.S.

Defence Equipment,” Thayer Consultancy Background Brief, August7 , 2018. All
background briefs are posted on Scribd.com (search for Thayer). To remove yourself
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Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.