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Cablegate: Scenesetter for Codel Costello

VZCZCXRO7515
PP RUEHCHI RUEHDT RUEHNH
DE RUEHHM #0689/01 2101007
ZNR UUUUU ZZH
P 281007Z JUL 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC PRIORITY 4703
INFO RUEHHI/AMEMBASSY HANOI PRIORITY 3166
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHHM/AMCONSUL HO CHI MINH CITY 4931

UNCLAS SECTION 01 OF 04 HO CHI MINH CITY 000689

SENSITIVE
SIPDIS

STATE PASS TO H LMO KAREN GATZ AND EAP/MLS

E.O. 12958: N/A
TAGS: PGOV PREL ECON EAIR ELTN VM
SUBJECT: SCENESETTER FOR CODEL COSTELLO

HO CHI MIN 00000689 001.2 OF 004


SUMMARY AND INTRODUCTION
------------------------
1. (SBU) Mission Vietnam looks forward to welcoming you to Ho
Chi Minh City. Prime Minister Nguyen Tan Dung's June visit to
Washington exemplifies a U.S.-Vietnam relationship that
continues to broaden and mature, in the process spurring
economic, social and technological development that has eased
the path for a limited expansion of personal freedom and
expression for the people of Vietnam. As such, the United
States is viewed by the majority of Vietnamese as a key partner
in Vietnam's current and future success. High-level visits
like yours create opportunities for us to influence developments
and respond to Vietnam's interest in globalization, reform,
combating corruption, and enhancing educational opportunities
for its people. Your particular interest in infrastructure and
transportation coincides with one of the Government of Vietnam's
greatest challenges and priorities, as maintaining Vietnam's
burgeoning integration into global markets is straining its
outdated system.

2. (SBU) Vietnam's economic successes have translated into
greater international clout. Vietnam has just stepped down from
chairing the U.N. Security Council in July, a major diplomatic
achievement for the GVN. While GVN leaders are not fully sure
how to handle all the attention, they understand that the United
States plays a direct role in creating the conditions for their
nation's success. Leaders here are thankful, in particular, for
the key technical assistance we've given over the past seven
years to help reform the system of economic governance.

3. (SBU) Challenges of course remain. GVN leaders assume the
Communist Party's preeminent political role to be the linchpin
of stability, and human rights remain a major sticking point in
our relationship with the GVN. China remains the GVN's critical
strategic preoccupation, but many Vietnamese view improving
relations with the United States as a key indicator of the
tremendous progress since the dark days of the 1970's and
1980's. For these reasons, Vietnam's leaders are committed to
continued progress in bilateral relations and will speak
optimistically about the future of U.S.-Vietnam ties. End
summary.

ECONOMIC SUCCESSES AND CHALLENGES
---------------------------------
4. (SBU) After a decade of isolation and failed economic
policies, Vietnam is determined to catch up with the Asian
tigers. Vietnam's "doi moi" (renovation) program of economic
reform, begun in 1986, has set the country on a successful
market economy path, with an average growth rate of 7.5 percent
over the past decade. A recent World Bank study described
Vietnam's poverty reduction rate as the most significant in such
a short period of time of any nation in history. The GVN
focuses on exports and foreign direct investment in its drive to
achieve middle-income status by 2010. Vietnam is second only to
Thailand in rice exports, and second only to Brazil in coffee.
Other leading exports include crude oil, apparel, footwear and
aquatic products. Vietnam is also "moving up the value chain" by
increasing its exports of furniture, machinery, cameras,
computers, printers, consumer electronics, and other diverse
products. U.S. investors tell us the key challenges they face
in Vietnam are underdeveloped infrastructure, a shortage of
skilled workers and managers, and the considerable level of
state participation in the economy. For its part, the GVN is
grappling with issues of corruption, improving the legal
environment, and implementing its WTO commitments.

5. (U) The United States is currently Vietnam's largest export
market and third largest overall trade partner. Total two-way
trade in goods with the United States in 2007 was USD 12.53
billion, up 29 percent from 2006. One of the most positive
stories from 2007 was the surge in U.S. exports to Vietnam from
USD 1.1 billion to USD 1.9 billion, driven by agricultural
exports such as cotton (up 92 percent), soybeans (up 1,480
percent), and wheat (up 1,120 percent). U.S. commodities
including hardwood, hides and skins, tree nuts, fresh fruit, and
poultry and red meats also posted record gains in 2007. Driven
by the technology industry, the United States is Vietnam's
seventh largest investor, with USD 2.6 billion in registered FDI
since 1988, and USD 2 billion more in "U.S.-related investment."

6. (SBU) While the great majority of experts consider Vietnam's
long-term economic prospects to be bright, short-term
macroeconomic imbalances are worrying investors. Vietnam's
current turmoil is rooted in high inflation (26 percent
year-on-year July), the current account deficit, and inefficient
allocation of resources, which is particularly obvious in the
disproportionate amount of state resources devoted to
inefficient State Owned Enterprises (SOEs).


HO CHI MIN 00000689 002.2 OF 004


TRANSPORTATION AND INFRASTRUCTURE
---------------------------------
7. (U) Rapid economic growth means that demand for
transportation greatly outstrips the country's antiquated
infrastructure and the GVN is racing to expand and modernize the
country's network of roads, seaports, airports, and railways to
meet increasing demand. The task falls to Vietnam's Ministry of
Transport, which has dozens of constituent agencies and
organizations, including the Civil Aviation Administration
(CAAV), the Maritime Administration (Vinamarine), the Inland
Waterway Administration, Vietnam Railways, and the Vietnam Road
Administration (VRA).

CIVIL AVIATION: HIGHS AND LOWS
------------------------------
8. (U) The GVN will spend USD 850 million to build a second
terminal at Hanoi's Noi Bai International Airport, increasing
capacity from six million to sixteen million passengers per
year. Vietnam will also build a second international airport in
southern Vietnam to supplant Ho Chi Minh City's congested Ton
Son Nhat International Airport. The new facility, Long Thanh
International Airport, will be located approximately 40
kilometers northeast of Ho Chi Minh City and will serve 50-80
million passengers per year when it opens in 2012. The GVN will
is also expanding Danang and Hue International Airports and is
converting various regional airports, such as Haiphong's Cat Bi
Airport, the Nha Trang Airport and the old military airport in
Can Tho, into international facilities.

9. (U) Vietnam's commercial air sector has grown rapidly over
the last decade. State-run Vietnam Airlines, which plans to
equitize partly in 2009, flies international routes aboard ten
modern Boeing 777 airplanes, has 21 Boeing 787 "Dreamliners" on
order (with plans to order at least eight more in 2008), and has
ambitions to become one of the preeminent air carriers in
Southeast Asia. In addition, Vietnam's first two privately held
carriers, Viet Jet Air and Air Speed Up, recently signed
agreements to procure Boeing 737 jets and expect to begin
flights in late 2008.

10. (U) Vietnam's civil aviation regulator, however, has failed
to keep pace with the country's rapidly expanding commercial air
traffic. A recent audit by the International Civil Aviation
Organization (ICAO) found serious shortcomings in Vietnam's
aviation safety system. The CAAV hopes to correct many of the
problems through its work on a USD 1.4 million
technical-assistance project funded principally by the U.S.
Trade and Development Agency. The project, currently underway
and scheduled to conclude in 2010, will help the CAAV upgrade
its aviation safety oversight role and may help Vietnam secure
an FAA Category I safety rating, allowing Vietnam Airlines to
access U.S. airports.

LACK OF DEEP WATER PORTS IMPEDES GROWTH
---------------------------------------
11. (U) Export-led growth has imposed particular strains on
Vietnam's port system. Although Vietnam has more than one
hundred ports stretching along its 3,200-kilometer coastline,
most are not deep-water container ports, cannot accommodate
full-size container ships, and have poor infrastructure and
logistical support services. Vietnam's three largest seaports
-- in Saigon (south), Haiphong (north), and Danang (central) --
are all smaller than terminals in Hong Kong, Singapore, Malaysia
and Thailand. Vietnam operates at a distinct disadvantage to
its neighbors because it must route all of its
transpacific-bound exports through Singapore and Hong Kong due
to a lack of deepwater ports.

12. (U) Saigon Port, which you will visit, has been in operation
for 130 years and is Vietnam's highest volume port. The
facility's main export is rice, and major imports include
fertilizer, steel, iron, wheat, machinery and chemicals. The
container port operates on a massive scale and handles roughly
three-fourths of all containerized traffic into and out of
Vietnam.

HUMANITARIAN, EDUCATIONAL, AND TECHNICAL ASSISTANCE
--------------------------------------------- -------
13. (U) U.S. Agency for International Development (USAID)
programs provide aid in legal reform, governance, economic
growth, HIV/AIDS, environmental protection, and disaster
prevention. For FY 2007, U.S. aid from all agencies was about
USD 86.6 million, the bulk of which has gone towards providing
health-related assistance, notably in the areas of HIV/AIDS and
avian influenza. Vietnam is one of fifteen countries receiving
assistance from the President's Emergency Plan for AIDS Relief
(PEPFAR), through which the United States will provide USD 88
million in FY 2008 to expand integrated HIV/AIDS prevention,
care and treatment programs. The U.S. Centers for Disease

HO CHI MIN 00000689 003.2 OF 004


Control and Prevention (CDC) provides assistance in HIV/AIDS,
avian influenza, and emergency outbreak response.

14. (U) U.S. assistance in areas other than HIV/AIDS remains
very modest in relation to spending in smaller neighboring
nations, but increased substantially in FY08 from that low base
to more than USD 10 million due to earmarks for governance
programming and demining. The Administration's FY09 request
roughly equals the total for FY08. To a large degree, the FY08
earmarks reflect the profound impact of several U.S. programs.
U.S. programs such as Support for Trade Acceleration (STAR) and
the Vietnam Competitiveness Index have helped to reshape trade
and economic regulation, with huge positive impact on governance
throughout the country. Regarding education, the United States
now sponsors well over 200 students for graduate study in the
United States through a combination of Fulbright grants and the
Vietnam Education Foundation (VEF). In-country, the Fulbright
Economics Teaching Program trains mid-level Vietnamese
professionals in economics and public policy. Both Embassy
Hanoi and ConGen HCMC are actively involved in promoting
educational exchanges.

ADOPTION ISSUES
---------------
15. (SBU) The selling and buying of babies and children for
international adoption is a serious issue in Vietnam. Due to
pervasive problems with fraud and children being offered for
adoption without the consent of their birth parents, we have
informed the GVN that we will not renew the current bilateral
agreement which expires in September. As of July 1, no new
applications for adoptions are being accepted by the GVN. The
clear "way forward" for Vietnam is to accede to the Hague
Convention on Inter-Country Adoption, which it says it wishes to
do, as soon as possible.

HUMAN RIGHTS CHALLENGES
-----------------------
16. (SBU) Serious deficiencies related to human rights in
Vietnam include lack of freedom of speech, freedom of assembly
and freedom of the press; the recent arrests and sackings of
Vietnamese reporters and editors in the wake of a corruption
scandal reveals the on-going battle within the GVN over the role
of freedom of the press. One of our key objectives is to end
the use of catch-all "national security" provisions for the
prosecution of peaceful dissent. We continue to call for the
release of all prisoners of conscience, but where we see
individuals expressing their political opinions, many of our
government interlocutors see "lawbreakers" trying to destabilize
the regime. The continued existence of groups in the United
States that advocate regime change complicates human rights
engagement by providing ammunition to hard-liners who want to
stoke the fading paranoia that we are indeed still "the enemy."
Reassuring the GVN that the USG does not support separatist
groups can assist in building a better human rights dialogue
based on mutual trust. Despite these obstacles, real progress
has been made. Key Vietnamese leaders are committed to
enhancing governance, establishing the rule of law, and
combating corruption. Vietnam's leading newspapers are more
aggressive in terms of the types of news they publish and their
willingness to push back against censors, peaceful protests
involving a myriad of issues have been tolerated, and surprising
progress on religious freedom has been made. While the problems
remain, we removed Vietnam from our list of countries of
particular concern for religious freedoms in late 2006.

MIA/POW - FULLEST POSSIBLE ACCOUNTING
-------------------------------------
17. (U) Obtaining the fullest possible accounting of American
POW/MIAs remains an important goal in the bilateral relationship
for the United States. The Joint POW/MIA Accounting Command has
operated in Vietnam since 1988. JPAC has accounted for 880
Americans previously listed as MIA; 1766 remain missing
throughout Southeast Asia.

AN ELEPHANT IN THE ROOM - WAR LEGACY ISSUES
-------------------------------------------
18. (SBU) In your meetings, you may hear references to
"consequences of war" or "legacies of war" issues, which include
Agent Orange(AO)/Dioxin, unexploded ordnance (UXO), land mines,
and Vietnamese MIAs. While debate continues over the human
impact of AO, recent studies reveal that dioxin contamination is
concentrated in approximately 20 "hotspots," mostly former U.S.
bases where AO was stored. Areas subjected to heavy aerial
spraying do not currently have soil concentrations considered
hazardous. Our engagement on this issue has accomplished much,
in both transforming the tone of the dialogue and capacity
building. Projects have included work at the Danang airport as
well as a USD 3 million Congressional appropriation for "dioxin
mitigation and health activities." The USG is continuing to

HO CHI MIN 00000689 004.2 OF 004


work together with the GVN, UNDP, Ford Foundation and other NGOs
to discuss the next steps in the environmental remediation of
three priority hotspots in Danang, Hoa Binh and Phu Cat
airfields.

19. (SBU) Since 1989, USAID, through support from the Patrick J.
Leahy War Victims Fund (LWVF) and other sources, has provided
more than USD 43 million to support organizations to develop
programs for disabled people. The USG has invested more than
USD 37 million in a broad spectrum of programs not only to
remove unexploded ordnance and landmines but also to address the
effects of UXO on Vietnamese living in affected areas. Today,
various NGOs conduct UXO and land mine clearance, risk
education, and victim rehabilitation. The USG has also donated
equipment to the PAVN to assist in UXO and landmine clearance
and return land to productive use. In 2006, the State
Department provided USD 3.5 million to support UXO action and
demining activities in Vietnam, almost a third of which went
directly to PAVN in the form of donated demining equipment. For
FY08, an additional USD 2.5 million will be provided to
underwrite mine action related activities in Vietnam. For FY08,
Congress stipulated that approximately USD 2.5 million be spent
on demining programs, a substantial increase from the $800,000
requested by the Administration.

EVER-PRESENT CHINA
------------------
20. (SBU) While Vietnam's engagement with the United States will
continue to broaden, China necessarily constitutes Vietnam's
most important strategic preoccupation. This is not to say that
Vietnam is "choosing" China over the United States; the
situation is much more complex than that. For starters,
Vietnam's leadership is sophisticated enough to realize that
relations with China and the United States do not represent a
zero sum game; it is possible to have good relations with both.
While China constitutes a vital and necessary commercial partner
and former ally, it is also perceived as a significant and
frustrating constraint to Vietnam's freedom on action.
Continuing disagreements over territorial issues in the South
China Sea threaten to reawaken Vietnam's long-standing animosity
for their former colonial master. China also looms large on
security issues, as the GVN is understandably cautious with
regard to Chinese reactions to increased cooperation with the
United States.

WHAT YOU CAN EXPECT
-------------------
21. (SBU) You can expect your interlocutors not only to be
articulate and well informed, but also to speak in terms
generally supportive of growth in the bilateral relationship.
As noted above, lingering suspicions still exist among
conservatives about the development of closer ties with the
United States. Nonetheless, we fully expect the overall tenor
to be one of support and interest at a measured pace that will
not upset the GVN's calibrated attempts to maintain balance
among its other regional partners. The members of the private
Vietnamese business community whom you will meet will most
likely strike you as determined, resourceful and completely open
to new ideas. There may be media interest among Vietnamese
outlets. You should expect reporters/photographers at some
events such as the People's Committee meeting. Given the
opportunity, they will likely ask about the bilateral
relationship and your impressions of Vietnam. There is a great
deal of media interest in U.S. elections, so you may want to
expect some questions dealing with that topic.

22. (U) Again, we look forward to your visit and stand ready to
do everything we can to make your visit to Vietnam as productive
as possible.

23. (U) This cable was coordinated with Embassy Hanoi.
FAIRFAX

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