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Cablegate: Tifa Meetings Focus On Trading Rights, Ipr and Market

VZCZCXRO7103
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0358/01 0880924
ZNR UUUUU ZZH
P 280924Z MAR 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 7488
INFO RUEHHM/AMCONSUL HO CHI MINH 4501
RUEHGP/AMEMBASSY SINGAPORE 2568
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 05 HANOI 000358

SIPDIS

SENSITIVE
SIPDIS

SINGAPORE FOR TREASURY
BANGKOK FOR JNESS
TREASURY FOR SCHUN
USTR FOR BISBEE AND RBAE
COMMERCE FOR A/S SPOONER AND SSU

E.O. 12958: N/A
TAGS: ETRD ECON EAGR EFIN KIPR EIND EPET KTDB VM
SUBJECT: TIFA MEETINGS FOCUS ON TRADING RIGHTS, IPR AND MARKET
ACCESS

REF: HANOI 345

HANOI 00000358 001.2 OF 005


This cable is Sensitive But Unclassified. For official use only,
not for dissemination outside USG channels or posting on the
internet.

1. (SBU) Summary: The United States and Vietnam conducted Trade and
Investment Framework Agreement (TIFA) talks in Hanoi from March 19 -
21, during which the sides followed up on a full range of WTO
implementation and other issues including IPR, market access for
pharmaceuticals and cultural products and excise taxes on alcoholic
beverages. USTR Southeast Asia Director David Bisbee, who led the
U.S. delegation, pressed the Vietnamese to continue to implement its
WTO accession commitments and make progress on outstanding issues to
accelerate the development of our bilateral trade and investment
relationship. IPR issues - both long-standing ones like issuance of
a criminal circular and emerging issues like internet piracy and
ineffective implementation of data protection regulations - loomed
large as the biggest hurdles in the trade relationship. Bisbee
pushed hard for increased market access for U.S. IP-based industries
as a way to create a legitimate alternative to pirated products and
allow U.S. right holders to play an active role in supporting better
IP protection here. The discussions under TIFA underscored the
potential impact that Vietnam's weak IPR enforcement and protection
regime could have on its goals to promote greater foreign investment
and to be eligible for the U.S. GSP program. This second round of
TIFA talks was productive and largely positive, although there are
growing concerns and frustrations on the IP front. End summary.

2. (U) From March 19-21, Office of the U.S. Trade Representative
(USTR) Director for Southeast Asia David Bisbee met with officials
from more than 15 Government of Vietnam (GVN) ministries to follow
up on discussions begun during the first TIFA meeting in December
2007 and to raise new issues under the umbrella of the TIFA. U.S.
Patent and Trademark Office (USPTO) Regional IP Attache Jennie Ness
also participated, along with officers from Embassy Hanoi's Economic
and Foreign Commercial sections.

PRIVATE SECTOR MEETING
----------------------

3. (U) Before the TIFA kicked off, the U.S. delegation met on March
19 with the U.S. business community in Vietnam at a roundtable
organized by the US-ASEAN Business Council. The meeting was
attended by representatives from GE and GE Money, Chevron, AES,
Microsoft, GlaxoSmithKline, Emerson Electric, Ford, Motorola, UPS,
Citibank, Pfizer, Merck, the Duane Morris, Baker McKenzie and
Tilleke & Gibbins firms, and AmCham Hanoi.

4. (SBU) The private sector representatives described engagement
with the GVN as largely positive, especially at the higher levels.
They noted, however, a lack of follow-up among working-level and
implementing officials. Many, including Ford and GE Money, cited
cases where they are afforded insufficient time to comment on
regulations affecting their sectors, and instances where they were
not shown drafts at all prior to issuance. Bisbee agreed that in
many instances the GVN seems to lack the "right set of tools" to
deal with implementation, and encouraged the private sector to keep
USTR and the Embassy aware of their specific concerns, to be able to
point to specific areas for improvement in discussions with the GVN.
The pharmaceutical industry noted their particular interest in
working with USTR to ensure Vietnam has in place regulations to meet
its WTO commitments and that the industry is ultimately able to
establish a commercial presence in Vietnam and engage in a full
range of business activities. A key goal shared by all present at
the briefing was a desire for all regulations to be sufficiently
clear for local and provincial level officials to implement fully.

5. (SBU) The USG and private sector participants discussed areas in
which they could cooperate to improve capacity building, including
in the judicial system. "People would be happy to settle disputes
in Vietnam if the court system was adequate," the managing partner
of Baker McKenzie commented. Bisbee noted Embassy Hanoi's education
initiative as another promising area of private sector-USG-GVN
partnership.

TRADE AND DISTRIBUTION RIGHTS
-----------------------------


HANOI 00000358 002.2 OF 005


6. (SBU) The TIFA talks coincided with an announcement from the
Ministry of Industry and Trade (MOIT) that it was considering a
repeal of the much-criticized one-distributor restriction, and
allowing foreign firms - that are registered to do business in
Vietnam but not licensed to conduct distribution activities - to, in
effect, wholesale imported goods to multiple distributors -- albeit
with some restrictions intended to prevent those foreign firms from
operating a full-scale distribution network. USTR and Mission
Vietnam have worked for months to persuade Vietnam to apply less
restrictive measures on the distribution services sector, which is
set to open to most foreign-owned firms in January 2009.

7. (SBU) At the TIFA meeting on March 19, Bisbee and Econoff
suggested to the MOIT that it would be simpler and easier to open
the distribution sector (which includes retail sales) now and simply
be done with all restrictions, rather than work to redraft
regulations that would be obsolete in nine months. Hoang Thi Hoa,
Deputy Director of the MOIT Planning and Investment Department (and
in charge of implementing the distribution rights schedule), said
that she agreed but that with all the work done on redrafting the
regulations (known as "Circular 9"), the GVN would probably go ahead
and issue them. Ms. Hoa said that her team is still working on the
new Circular 9, and hoped to issue it sometime in April. The two
sides agreed to continue to coordinate closely on this issue under
the TIFA to ensure that any future revisions to the implementing
guidelines would be consistent with Vietnam's WTO obligations.

8. (U) Bisbee also advised Ms. Hoa to do away with the "Economics
Needs Test" (ENT), a provision that Vietnam had negotiated as part
of its WTO service sector commitments, which now looks like
"nobody's child." The GVN has shown a murky understanding of what
the ENT aims to do. Ms. Hoa agreed that it was unclear and maybe
not needed at all, and asked for assistance in finding alternate
ways of regulating business zones. (Note: During the last TIFA, in
December 2007 in Washington, Ms. Hoa led a trade and distribution
delegation to the United States sponsored by USAID. During that
trip, USTR had her and the delegation meet with Alexandria, VA,
planning and zoning authorities when it became apparent that what
the GVN understood by ENT was more akin to U.S. land use and zoning
regulations.)

VIETNAM'S GSP SUBMISSION
------------------------

9. (SBU) The GVN acknowledged that it had work to do to improve
labor standards and intellectual property rights (IPR) in the
country; issues particularly relevant as the government consider
seeking eligibility for the U.S. GSP program. The two top officials
of the MOIT's Americas Department said that they submitted a report
to the Prime Minister the second week of March outlining the
advantages and risks of submitting a GSP application. A high-level
official from the Labor Ministry (MOLISA) reported at the TIFA
meeting that the GVN has asked the ILO for assistance in revising
its Labor Code, including provisions relating to freedom of
association and collective bargaining rights. MOLISA also informed
the delegation that the ministry was preparing written comments to
provide updates to an existing CRS report on Vietnam's labor
regime.

10. (SBU) The MOIT report recommended that the Prime Minister or
some other high-level GVN official submit the GSP application,
presumably during a visit to the United States. The MOIT officials
said that it could well be during MOIT Minister Hoang's intended
U.S. visit in late May or early June. Concurrently, Vietnam is
planning to apply for GSP with the EU, according to our EU
counterparts.

IPR CONCERNS LOOM LARGE
-----------------------

11. (SBU) The U.S. delegation noted ongoing concerns over Vietnam's
IPR protection and enforcement to a roundtable of IP agencies led by
the National Office of Intellectual Property (NOIP). Most
prominently, the U.S. officials reiterated longstanding and serious
concerns with Vietnam's outstanding commitment to draft a regulation
("Criminal Circular") to provide criminal remedies for commercial
scale trademark and copyright violations. Vietnam committed to
issue this Criminal Circular upon accession to the WTO in January
2007, and is now more than 14 months overdue. USTR Director Bisbee

HANOI 00000358 003.2 OF 005


noted that the U.S. has worked closely with the drafters and has
provided comments and suggestions on this Circular for over two
years, yet the latest draft raises serious WTO TRIPS concerns.
Bisbee urged the GVN to delay issuance of the draft if U.S. comments
had not been incorporated. (Note: Post later learned that the draft
circular was issued on March 18, and will take effect April 2.)

12. (SBU) The language of the latest Criminal Circular appears to
fall far short of what is needed to meet Vietnam's TRIPS obligations
and to provide an effective deterrent to piracy, Bisbee continued,
underscoring why the United States wants to engage with the
legislative drafting committee for upcoming revisions to Vietnam's
criminal code as soon as possible. While the two sides have a
tremendously strong relationship, Vietnam's failure to meet this
important WTO accession commitment is overshadowing progress in
other areas, and has the potential to stop other initiatives from
moving forward until the deficiencies are fixed, he stated.

13. (SBU) The U.S. delegation observed that Vietnam's reliance on an
administrative system to deal with IP violations, which appears to
be modeled after China's system, is not effective and is not
deterring pirates and counterfeiters. The fines are too low, right
holders are required to send warning letters to infringers before
any administrative action can be taken and administrative officials
do not know how to determine what is infringing or counterfeit (NOIP
no longer will perform this role). In civil cases, the burden on IP
right holders to prove actual damages serves as a bar to taking
action. They explained that the United States wants to work with
Vietnam to address these concerns, particularly as China's system
has already proven to be ineffective and controversial; highlighting
that ASEAN countries themselves point to China as the biggest source
of the region's IP woes. NOIP General Director Tran Manh Hung
acknowledged some of these faults but countered that the
administrative system, while not perfect, provides a "rapid and
effective" way to address IP violations. He welcomed continued
engagement from the United States to improve IPR enforcement.

14. (U) Citing cooperation between the two governments last year to
end the pirating of cable broadcast content by VTC, the state-owned
cable company, the U.S. delegation asked the GVN's assistance in
addressing a new issue - internet based piracy. Two websites owned
by state-owned telecom giant VNPT, socbay.com and zing.vn, offer
links to download free music without the artists' authorization.
Although pirated foreign music is available at these sites, the U.S.
side pointed out that the biggest victims are Vietnamese artists.
NOIP's Hung and representatives from the Ministry of Information and
Communications and the Ministry of Culture, Sport and Tourism
(MOCST) agreed to look into this issue. USPTO's Ness encouraged
Vietnam to consider joining the WIPO Internet Treaties, which she
said could help Vietnam to stamp out this type of problem.

PHARMACEUTICAL IP ISSUES AND MARKET ACCESS
------------------------------------------

15. (SBU) Officials from the Ministry of Health's (MOH) Drug
Administration told the U.S. delegation that pharmaceutical
companies (including Swiss firms Novartis and Astra-Zenica) have
filed five applications thus far under Vietnam's regulations for
protection of data submitted in drug registration dossiers. All
five applications have been denied based on MOH officials'
assessments that the products have been on the market "for years" in
other countries and that the data is therefore publicly available
and undeserving of protection in Vietnam. MOH officials then
described their process for assessing whether each dossier merits
protection, including research to see whether the information in the
dossier is a trade secret. (Note: Pharmaceutical companies had
separately told the delegation that MOH also required them to submit
evidence of the costs of their clinical trials so as to prove that
the data was the product of "remarkable investments." End note.)
The U.S. delegation expressed concerns that the evaluation process
the officials described is not consistent with the system Vietnam
explained it would use to meet its WTO and BTA commitments during
previous discussions. MOH agreed that it would send the U.S. side
an official response describing the reasons for refusal in these
five cases and listing the conditions that companies must meet to
merit data exclusivity.

16. (U) Bisbee also asked the Drug Administration officials for
clarification on a recent GVN circular seeking to regulate drug

HANOI 00000358 004.2 OF 005


prices in Vietnam by referencing prices for those drugs in other
countries in the region. Specifically, he raised concerns that this
policy appears to only focus on the drug prices of foreign firms but
not those of domestic drug producers. The Vice Director of the Drug
Administration Nguyen Van Thanh responded that the circular was
passed to avoid "sudden surges" of drug prices in Vietnam and to
protect Vietnamese consumers and patients from paying "unreasonably
high" prices. Initially insisting that the policy does not
discriminate against foreign firms, Thanh ultimately admitted that
it puts in place different systems to evaluate the prices used by
foreign firms and by those who do not export. He agreed to report
this issue to his ministry's leadership, and will respond to the USG
in writing. Thanh also committed to answer U.S. questions about
which activities foreign drug companies are permitted to conduct in
Vietnam, and to address requests about how Vietnam's clinical trial
requirements (i.e., drug companies can not rely on clinical trials
performed in any other country to seek registration in Vietnam)
relate to plans for further ASEAN integration on drug registration.

FOREIGN INVESTMENT IN SOME CULTURAL AREAS STILL TABOO
--------------------------------------------- --------

17. (SBU) The Ministry of Culture, Sports and Tourism confirmed that
foreign companies have limited access to Vietnam's film market, and
can work with local partners on certain book publications, but the
sound recording and performance arts sectors remain closed.
Pointing to a 1999 regulation, MOCST officials said that foreign
investors are prohibited from the music, performance art, video and
CD industries. Although the ministry plans to update the regulation
in the near future, there are currently no plans to expand market
access for foreign firms. Paradoxically, one MOCST official said
that Vietnam first wants to rein in the rampant piracy of cultural
products before it permits foreign investment. To this end, MOCST
has asked the Copyright Office of Vietnam to draft a decree on
optical media regulation. The MOCST officials emphasized that they
take fighting IPR violations seriously, but could not initiate an
immediate, wide-scale crackdown on stores selling pirated goods for
fear it "may violate the human rights of those vendors." USTR's
Bisbee responded that permitting foreign investment and providing a
legitimate market would allow foreign firms to become involved in
efforts to combat piracy, and urged the GVN to consider permitting
foreign participation in these "culturally sensitive" areas in the
near future. The MOCST officials agreed to continue dialogue on
this issue with the U.S. side, and will provide further written
clarification on permissible activities for foreign firms offering
cultural products.

RESPONSE ON BIT IS COMING SOON
------------------------------

18. (SBU) An official from the Ministry of Planning and Investment's
(MPI) Legal Department, the lead agency in ongoing BIT exploratory
talks, told the U.S. delegation that the GVN faces "many challenges"
before it can enter into a Bilateral Investment Treaty (BIT) with
the United States. The official pointed out that Vietnam is
considering how this new agreement would affect the "the BTA and WTO
commitments it has already undertaken," while also studying how a
BIT would impact Vietnam's commitments under other frameworks such
as ASEAN. He underscored that Vietnam is also busy negotiating
agreements with Japan, the EU, New Zealand, ASEAN, and most
recently, Canada and Croatia, which is straining Hanoi's limited
resources. These "challenges" notwithstanding, Vietnam wants to
continue BIT discussions and hopes to send its comments to the
United States "very soon," the MPI official continued. (Note: In a
separate March 21 meeting, MPI Minister Vo Hong Phuc told visiting
Deputy National Security Advisor Dan Price that Vietnam wants to
pursue BIT talks -- REFTEL.)

EXCISE TAX ON ALCOHOL
---------------------

19. (SBU) Ministry of Finance officials told USTR's Bisbee that a
recently-formed drafting committee will soon begin work on an Excise
Tax Law to fulfill Vietnam's commitment to transition to a WTO
consistent excise tax regime by 2010. Bisbee stressed the
importance of Vietnam finishing this law in time. The MOF officials
insisted they will complete the regulation by 2010, even allowing
for the necessary National Assembly review and passage. The
Ministry plans to have a draft ready by June and wants to submit it

HANOI 00000358 005.2 OF 005


to the National Assembly for review during its November 2008
session. At Bisbee's request, the MOF officials confirmed that
Vietnam would share the draft with the United States and will make
it available for public comment on its website.

20. (U) On a related issue, the MOF officials confirmed that
Vietnam's import duty tariffs on alcohol will fall from the WTO
initial rates to the final bound rates in equal linear stages, if
not faster - pointing out that the 2008 rates were actually lower
than required to meet Vietnam's commitments. This confirmation was
in response to questions raised by the delegation on behalf of the
U.S. beer industry which had been incorrectly informed that Vietnam
had not lowered its duty on beer as of January 1, 2008.

OTHER ISSUES
------------

21. (SBU) The United States consulted with the Vietnamese on their
willingness to become an observer to the Government Procurement
Agreement in the WTO and to consider joining the Multi-chip
Agreement, an initiative discussed under the U.S.-ASEAN TIFA. The
MOIT expressed interest in both but was noncommittal. The U.S.
delegation also asked for more dialogue on Vietnam's draft Law on
Laws, which sets forth the GVN's procedures for issuing new laws,
including consultation timeframes. "We want to ensure that the
private sectors from both our countries have the opportunity to
comment and engage Vietnam on important legislation," USTR's Bisbee
noted. An official from the Office of the Government commented that
a mission from Vietnam's National Assembly would soon travel to
Washington to learn more about U.S. lawmaking procedures.

22. (SBU) The GVN also raised concerns over the Department of
Commerce monitoring program for garment exports, particularly as the
time approaches for the Import Monitoring Program's (IMP) next
report in a few weeks' time. The Director of the International
Department of the Office of the Government, Bui Huy Hung said that
he hoped that Commerce officials "do the same thing that they did
the last time," when they came to Vietnam to explain how the IMP
works in the weeks preceding the first report, released on October
26, 2007. In fact, a Commerce technical group will be in Hanoi in
late March - early April to discuss garment exports and the IMP with
the GVN and other interlocutors.

COMMENT
-------

23. (SBU) The second round of TIFA talks moved forward a number of
issues of bilateral importance and broadened our dialogue on trade
and investment matters. Vietnamese press reported positively on the
talks; a sentiment which was underscored by press coverage of
visiting Deputy National Security Advisor Dan Price's meetings. GVN
interlocutors throughout the meetings expressed an interest and
willingness to continue to engage on key issues, including those on
which the two sides do not fully agree. IPR concerns, however, are
becoming more prominent and threaten to stall progress in other
areas, including Vietnam's aspirations for eligibility in the GSP
program and desire to have the United States remove it from the
Special 301 Watch List. Despite U.S. technical assistance and
extensive engagement on IP issues, Vietnam has put in place a legal
framework and mechanisms which, in practice, have not yet resulted
in deterrent penalties and appear to shield violators from effective
prosecution. Vietnam's rush to move forward with a highly
problematic Criminal Circular that does not appear to take U.S.
concerns into account is particularly troubling. The TIFA remains
an important tool to address this, and other outstanding issues.
End comment.

24. (U) This telegram was cleared by USTR's David Bisbee and USPTO's
Jennie Ness.

MICHALAK

1

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