The tentative plan, which still requires approval by the U.S. Congress and Vietnam's National Assembly, is considered the last major step in normalizing relations in the wake of the Vietnam War that ended more than 24 years ago.
It also could pave the way for Vietnam, one of the world's poorest nations, to join the World Trade Organization.
"We in the U.S. believe this agreement will assist in the transformation and modernization of Vietnam," Deputy U.S. Trade Representative Richard Fischer told reporters.
Vietnam began opening its markets in the mid-1980s with the Doi Moi restructuring process but has been hit hard by the fallout from the Asian financial crisis.
The pace of reforms has slowed to a crawl over the last two years, and the government has been under growing pressure to speed them up, particularly in restructuring the debt-ridden banking system and improving competitiveness of loss-making state-owned enterprises.
With declines in foreign investment and exports and a rise in unemployment, the government is eager for the hundreds of millions of dollars the deal is expected to infuse into the economy.
Work began in 1996 on the bilateral trade pact that would give Normal Trading Status, formally known as Most Favored Nation Status, to Vietnam. Only a few countries, including Cuba and North Korea, do not enjoy such status with Washington. That would provide Vietnamese exporters entry to the huge U.S. domestic market and grant improved access to the Vietnamese market for U.S. firms.
Talks had stalled over Vietnam's tariffs and unwillingness to open its markets to U.S. investment and services, along with fears that its fledgling businesses would be at a disadvantage in competing with American companies.
Vietnamese legislative changes are likely to be necessary, along with major reforms in Customs and the financial sector.
Most analysts agree that Vietnamese industries are not yet ready to compete with major international companies but say competition would be one of the best ways to help them get up to world standards.