It also paves the way for Vietnam to join the World Trade Organization (WTO), giving it access to the organisation's 150 members.
The US, a former enemy, was the last country Vietnam had to negotiate a treaty with for WTO access although it must still win approval for permanent normal trading relations from US Congress.
It is hoping for a positive vote from Congress before it breaks in August, and access to the WTO by the year-end.
In the meantime, the trade pact with the US, which will see tariffs significantly reduced on most American foods and agricultural raw materials, is likely to increase competition in Vietnam's food industry.
Vietnam's current average tariff on agricultural products is 27 per cent but under the pact, more than three quarters of US agricultural exports will be bound at a rate of 15 per cent or less. The products concerned include apples, grapes, pears, cherries and nuts, as well as boneless beef, offal, ham and processed pork products.
Cheesemakers will benefit with whey tariffs reduced from 20 and 30 per cent to 10 per cent over five years, and these will be harmonized early in the implementation period increasing the competitiveness of US whey. MFN rates on imports of cheese itself will be reduced from 20 per cent to 10 per cent immediately, and ice cream tariffs will drop from 50 per cent to 20 per cent over five years.
Tariffs on most processed foods will also be cut. The MFN tariff on frozen fries and potato chips will go down from 50 per cent to 40 per cent immediately, and then to 13 per cent over six years and the rate for chips will fall to 18 per cent over five years.
Vietnam will also lower the MFN rate on peanut butter and chocolates. Tariffs on cookies and cereals will fall from 40 per cent to 15 per cent over five years.
Tariffs on soybeans will fall from 15 per cent to 5 per cent over three years, with tariffs on soybean oil and soybean flour also going down. Vietnam will bind its applied rate of 5 per cent for both corn and wheat.
Imports of US foods have grown in recent years as Vietnamese people consume more processed food and the retail sector expands rapidly, although Vietnam still exports more to the US than it imports from the country.
The US Foreign Agricultural Service (FAS) says Vietnam imported $252 million of consumer-ready foods in 2003, up from $239 million in 2002, and $152 million in 2000, although the actual level of consumer-ready imports is higher given Vietnam's porous borders and under-invoicing problems.
Last year, agricultural exports to the country exceeded $192 million, almost 17 per cent of total US exports to Vietnam and over 20 per cent more than in 2004, according to the FAS.
US agribusiness giant Cargill, which already has seven feed mills in Vietnam run by a wholly-owned subsidiary, says it will now be able to expand its trading and distribution operations in the country.
"Right now, if we send a 50,000 tonne ship to Vietnam we need to get our clients down there to take the goods. Now we will be able to bring in a big load of soybeans, warehouse it and sell the beans as our customers need them," said Bruce Blakeman, responsible for corporate affairs.
"It certainly allows us to take advantage of the market opportunities, which we consider to be similar to those in China," he added. "In China, once we got trading and distribution rights our business jumped exponentially."
Vietnam's economy grew by 8.4 per cent during 2005 to reach a GDP of VND837.86 trillion ($53 billion), and bringing per capita income to $636 per year. This makes it one of the fastest growing south-east Asian countries.
Under the new agreement with the US, Vietnam also agreed to adopt numerous improvements in its implementation of sanitary and phytosanitary measures, including shelf-life requirements and it now recognizes the US system of approving beef, pork and poultry as 'equivalent' to its own. It is also eliminating BSE restrictions on all US beef under 30 months of age immediately.
