Cablegate: Vietnam's Export Processing Zones and Industrial Parks:

DE RUEHHI #0981/01 2350947
R 220947Z AUG 08




E.O. 12958: N/A

HANOI 00000981 001.2 OF 004

1. (SBU) Summary. Industrial Parks (IPs) and Export Processing Zones
(EPZs) are key components of Vietnam's growing economy. However,
IPs and EPZs emit large amounts of air and water pollutants, while
producing growing quantities of solid wastes. While the Government
of Vietnam (GVN) has several environmental management tools at its
disposal and EPZ/IP managers are tasked with ensuring the
environmental compliance of their tenants, in practice, the system
has done little to manage pollution. Therefore, many businesses are
faced with trying to comply with unclear standards. Some
multinationals rely on internal company codes of conduct. The GVN
fears that many others simply discharge wastes directly into the
environment. End Summary.

EPZs and IPs Play a Key Role
in Vietnamese Economic Growth

2. (U) IPs and EPZs play a major and growing role in GVN development
plans, particularly in attempts to attract Foreign Direct Investment
(FDI) and to integrate Vietnam into the global economy. EPZs and
IPs also assist in poverty alleviation and in the distribution of
economic benefits. As of 2007, Vietnam contained 154 IPs and EPZs
and 9 Economic Zones (EZs) covering 32,000 hectares in 48 cities and
provinces nationwide. By 2010, Vietnam plans to add an additional
15,000-17,000 hectares with another 27,000-30,000 hectares
(including 115 new IPs and EPZs) by 2015. Initially, IPs and EPZs
were concentrated in southern Vietnam, particularly near Ho Chi Minh
City. While the majority of IPs and EPZs remain in the south, the
GVN actively promotes expansion into the north and central regions.
Dong Nai Province, just north of Ho Chi Minh City, contains 39
percent of all IP and EPZ investment capital, closely followed by
its western neighbors, Binh Duong Province and Ho Chi Minh City,
each with 15 percent. Hanoi with 10 percent of total investment
capital, ranks fourth.

3. (U) In 2006, EPZs and IPs accounted for 29 percent of gross
national industrial output (USD 17 billion). EPZs and IPs produced
export revenue of USD 8.3 billion and contributed USD 880 million to
the Vietnamese budget, while employing 918,000 people. They
currently constitute 45 percent of industrial production, which the
GVN expects to jump to 50 percent by 2010 and 60 percent by 2015.
According to the Hanoi Authority for Industrial and Export
Processing Zones (HIPZA), EPZ and IP production constitutes 30-35
percent of industrial production and 35-40 percent of exports from
the Hanoi region, while provincial authorities in Haiphong note that
EPZs produce one third of total exports from Haiphong. Foreign
investment makes up the large majority of total projects, with
investment capital of USD 21.8 billion, accounting for 35.7 percent
of all FDI projects and 36 percent of FDI capital nation-wide.
Local investment totals USD 6-7 billion. Taiwan, Japan, and Korea
are the primary investors in EPZs and IPs with total projects valued
at over USD 12.3 billion. U.S. investment in 103 projects in EPZs
and IPs equals USD 720 million or 3 percent of the total.
Additionally, a small number of U.S. businesses, including AIG, have
entered into the IP/EPZ development and management sector.

EPZs and IPs also Play a Key Role in Pollution Problem
--------------------------------------------- ---------

4. (U) The growth of EPZs and IPs has led to increasing
environmental impacts. While the entities that oversee EPZs and IPs
argue that these facilities have relatively minimal impacts on the
environment, most acknowledge that discharges from these entities do
not meet Vietnamese environmental standards. For example, in May
2008, in Tan Binh Industrial Zone, in HCMC's north, coliform in
waste water at the treatment station was found to be 84.6 times
higher than acceptable limits. Earlier this month, the Dong Nai
Department of Natural Resources and Environment announced that the
Bien Hoa 1 Industrial Zone dumped nearly 15,000 cubic meters of
untreated water directly into the Cai River, which feeds the Dong
Nai river. Dong Nai officials stated that the liquid effluent
contained unacceptably high levels of several metals and coliform.
Dong Nai officials also stated that tenants at the facility
stockpiled dangerous and untreated industrial wastes and could not
control dust emissions. A media report from last week noted that
several Japanese vessels refused to call at a river port in Dong Nai
province after five days in the polluted port removed paint and
decreased hull thickness by eight millimeters (about a third of an
inch) from company ships. The national Ministry of Natural Resources

HANOI 00000981 002.2 OF 004

and Environment (MONRE) recently declared that river "virtually
dead" due to industrial pollution. MONRE also recently found
pollution of underground water resources in Hanoi by toxic
substances, particularly in areas surrounding IZs.

Environmental Considerations
in General EPZ/IP Planning

5. (SBU) The Ministry of Planning and Industry must approve all EPZ
and IP development, though it coordinates planning and development
with other ministries, as well as provincial and local authorities.
According to Dr. Tran Ngoc Hung, Deputy Director of the Department
for Industrial and Export Processing zones, MPI considers
environmental issues when making policies and strategizing about
EPZs and IPs, which face stricter environmental requirements than
facilities operating under more general environmental laws. The GVN
is now completing regulations for environmental protection in IPs
and EPZs to balance investment with environmental protection and to
include some means to limit importation of polluting/out-of-date
technologies. MPI claims that it ensures that all projects have
adequate infrastructure inside and outside the facilities (roads,
waste treatment, power etc.) and requires heavily polluting
industries to locate in special areas, away from urban centers. A
recent Prime Ministerial instruction requires all existing EPZs and
IPs to build central wastewater treatment plants by 2010, for which
the GVN will provide financial incentives. By 2010, the GVN plans to
build independent monitoring stations in EPZs and IPs to measure
pollution levels, though it has not yet identified funding for these
stations, which MPI estimates to cost up to USD 1 million apiece.

Environmental Impact Assessments

6. (SBU) Vietnamese environmental officials rely upon Environmental
Impact Assessments (EIA) as their primary means to protect the
environment at EPZs and IPs. GVN regulations require an EIA prior
to construction of an IP or EPZ and IP/EPZ managers must file a new
EIA if new facilities in the IP/EPZ cumulatively change the
environmental impact of the IP/EPZ. For example, the Dinh Vu EPZ in
Haiphong had to produce a separate EIA when it constructed a liquid
jetty to allow its tenants to offload petroleum from ships on the
river. Officials determine the need for EIAs for individual
factories within IP/EPZs on a case-by-case basis. Investors that
anticipate that their projects will have a serious environmental
impact must file an Environmental Impact Statement (EIS) with the
provincial DONRE, and the EPZ or IP must file a separate,
comprehensive EIA. The EIS is used as a basis for granting (or not)
an investment license. Projects that do not require EIAs need to
sign environmental commitments with the management boards of the
EPZ/IP to ensure compliance with environmental requirements.
Normally, committees of provincial authorities and local
environmental experts review and approve EIAs.

IP/EPZ Environmental Requirements and Provisions
--------------------------------------------- ---

7. (SBU) IP and EPZ managers, working with provincial and central
environmental authorities, generally set environmental standards
which the tenants must follow. However, concern about environmental
issues varies among the EPZs and IPs scattered around the country.
Some, like Dinh Vu in Haiphong, have a centralized environmental
plan and require tenants to meet basic environmental standards prior
to opening and during operations. Some EPZs and IPs monitor
environmental practices of tenants. When they detect problems, they
may warn the company or notify local environmental authorities.
Some IZs will refuse to permit polluting industries to operate
within their boundaries or try to ensure that tenants only use
up-to-date production technologies. The Chan May Lang Co Industrial
Park management board recently rejected a proposal from Vinashin,
Vietnam's major state-owned shipbuilder, for a ship assembly in the
zone because of deleterious environmental effects (Note: Provincial
authorities in central Khanh Hoa province recently fined Vinashin
for a series of environmental violations over the past several
years, including the improper discharge of toxic waste).

Enforcement Difficulties

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8. (SBU) Though central and provincial authorities, together with
IP/EPZ management, all claim to focus on environmental
considerations, actual implementation of environmental requirements
remains haphazard and communications between these entities and the
regulated facilities can be unclear. According to HIPZA and other
local Hanoi authorities, many polluting tenants in IPs/EPZs do not
comply with environmental standards. Despite GVN policy/regulations
now requiring them, as of early 2008, only 56 of the 154 EPZs and
IPs have central wastewater treatment systems. Only six of Ho Chi
Minh City's 15 industrial and export processing zones have waste
water treatment plants. Many facility developers consider the 3
million and USD 7 million cost of developing such centralized
facilities - prohibitive. In Ho Chi Minh City, earlier this year, 98
out of 106 companies inspected by the provincial Department of
Natural Resources and Environment (DONRE) were fined for flouting
waste water treatment regulations.

9. (SBU) Even where officials attempt to enforce pollution
standards, their efforts often are thwarted by the limited amount
authorized to fine violators. Provincial DONREs can and do inspect
IZs for environmental compliance, though these inspections can be
inconsistent. Additionally, DONREs normally must announce upcoming
inspections, providing violating facilities the opportunity to
conceal violations. According to Deputy Director General Bui Cach
Tuyen of the General Department of Environment under MONRE, the
maximum fine for environment violations is VND80 million (USD
5,000), an insignificant amount compared to the cost savings a
business can make by not properly treating its waste water. While
central authorities have the power to shut down factories that
repeatedly flout environmental laws, they rarely do so due to the
need to coordinate with district, city and ward officials and to
economic and labor concerns. (Note: the Haiphong DONRE stated that
two years ago it closed Haiphong Cement Manufacturing, which had
operated for 100 years, due to continued environmental problems).

Waste Management Difficulties

10. (SBU) At many EZs and IPs, industrial wastes management remains
ad hoc, with many provincial authorities unaware of treatment
arrangements. Tenants are responsible for sorting and classifying
solid and/or hazardous wastes, which (theoretically) are removed
from the EPZ or IP by a licensed waste handler, either a private
company or a government service, hired by the park management,
though our contacts provided little information about their
qualifications or disposal practices. Even where disposal services
exist, it can be difficult to transport those wastes to disposal
facilities. According to Vice Manager Le Van Huong of the Tra Vinh
Industrial Zone Management Board, environmental waste disposal
companies pick up solid and liquid waste by truck and deliver it to
Ho Chi Minh City for disposal. (Note: Tra Vinh is 200 km from HCMC,
accessible only by poor roads.) Representatives of Chevron, which
operates two facilities near Haiphong, stated that the Haiphong area
contains no licensed hazardous waste collectors, requiring residents
in local EPZs and IPs to hire companies from Hanoi, three hours
away. With little capacity in Vietnam to properly treat certain
industrial and hazardous wastes, facility owners face three choices;
store the waste indefinitely, pay high fees for a distant, licensed
disposal company to handle the wastes, or hire a local firm to make
the wastes "go away." The owner of an Australian steel wiring
facility noted that local authorities recently offered to arrange
the removal of industrial wastes from his facility but could not
explain how or where the wastes would be treated. The owner instead
decided to store the wastes on site until he could be certain of
proper disposal.

Fears of Importing Pollution

11. (SBU) Though Vietnamese officials actively promote IPs and EPZs
as destinations for foreign investment, they voice concerns that
some foreign investors, notably China, Taiwan and Korea, see Vietnam
as a destination for less-efficient and higher-polluting production
technologies or environmentally unfriendly practices. These
investors "export pollution" to Vietnam. HIPZA officials in Hanoi
singled out United Motor Vietnam, a wholly-Chinese owned company,
manufacturing motorbikes at the Noi Bai industrial zone near Hanoi's
international airport, as a particular problem. According to
Haiphong officials, a Chinese investor wants to import used plastic

HANOI 00000981 004.2 OF 004

bottles to Vietnam for cleaning. The plastic bottles would then be
sent to China for recycling, while Vietnam would have to manage the
cleaning waste. The Haiphong DONRE recently refused to issue a USD
128 million license for a Chinese urea fertilizer project which
would have used 1960s technology. The Dinh Vu IZ has refused three
Taiwanese chemical projects due to environmental concerns.

12. (SBU) While the GVN understands the potential environmental
consequences, environmental officials lament that Vietnam lacks
environmental standards or other "barriers" to prevent the
importation of such technology and does not have the capacity to
define modern versus out-of-date or inefficient. While the Ministry
of Science and Technology (MOST) and MONRE control the importation
of technology for large projects and attempt to ensure that only
modern, efficient technologies come to Vietnam, the central
government cannot control technologies involved in smaller projects,
which only need approval from local People's Committees. According
to Professor Pham Ngoc Dang, the chair of the Vietnam Clean Air
Partnership, many such agreements exist between China and Vietnamese
localities. Officials in less prosperous provinces rarely focus on
environmental concerns, instead only looking at the short-term
economic bottom line. The Haiphong DONRE reported that when it
refused to accept waste materials for reprocessing, other Vietnamese
localities jumped in to sign the deal. Recently, another foreign
investor sought to invest in ship breaking. Haiphong refused the
investment, which tried to move to an IP in Ninh Binh. While the
Dinh Vu IP notified provincial authorities of its concerns regarding
the proposed Taiwanese chemical investment, it had no means to
communicate with management of other IPs that might be contacted in
the future.


13. (SBU) EPZs and IPs have been an economic blessing, but an
environmental curse. Unfortunately, we expect the situation will
get worse before it gets better. GVN and provincial officials,
though cognizant of environmental concerns, do not have the capacity
to implement and enforce environmental standards. As the economy
grows and more EPZs and IPs spring up, waste discharges will also
increase. Nonetheless, this presents us with an opportunity, as our
interlocutors at all levels have requested our assistance.
Responding to industrial pollution will be difficult, and we
understand the significant financial constraints upon U.S.
assistance in this area. Nevertheless, given the scope of this
issue and its likely impact on the economy, environment, and public
health, we have identified three meaningful venues for possible U.S.
support. First, we can build upon earlier U.S. efforts to assist
Vietnam to develop monitoring and analysis capability to better
identify the nature and sources of pollutants. Second, we can help
improve the capacity of civil society and the press to recognize,
understand and publicize these issues. Finally, we can expand
ongoing wildlife trafficking enforcement training to include
pollution-related offenses. Additionally, we will continue to look
for opportunities for U.S. companies with products, services and
technologies that provide solutions to these growing environmental

14. (U) This cable was coordinated with Consulate General Ho Chi
Minh City.


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