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Cablegate: Pharma, Ipr and Market Access Top Tifa Agenda

VZCZCXRO4577
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1072/01 2610939
ZNR UUUUU ZZH
P 170939Z SEP 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8476
INFO RUEHHM/AMCONSUL HO CHI MINH 5123
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 04 HANOI 001072

SENSITIVE
SIPDIS

SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE

E.O. 12958: N/A
TAGS: ETRD EINV KIPR ECON EAGR ECIN EIND POL VM
SUBJECT: PHARMA, IPR AND MARKET ACCESS TOP TIFA AGENDA

REF: A) Hanoi 1027 (Vietnam Endorses Economic Liberalization);
B) GSP Phrma Submission, August 4, 2008;
C) Hanoi 194 (Vietnam Should Remain on the 301 Watch List);
D) Hanoi 738 ("Focus on U.S. Business Concerns");
E) Hanoi 243 ("Vietnam Trade in 2007");
F) Hanoi 451 (Vietnam Opens the Door Wider on Distribution)

HANOI 00001072 001.2 OF 004


1. (U) This cable is sensitive but unclassified. For official use
only, not for dissemination outside USG channels or posting on the
internet.

2. (U) SUMMARY. The United States and Vietnam held the latest round
of discussions under the Trade and Investment Framework Agreement
(TIFA) in Hanoi during August 25-28. The TIFA agenda included
expanding market access for U.S. beef, pharmaceuticals and media
products, and strengthening Vietnam's IPR regime, among other
issues. Vietnam raised market access for its fruits, concerns about
the extension of the U.S. import monitoring program for apparel from
Vietnam, and its pending application for eligibility for the
Generalized System of Preferences (GSP). The TIFA, just over a year
old, has proven to be one of the most useful mechanisms at our
disposal to address and resolve common investment and trade concerns
and to develop new initiatives to further deepen bilateral ties. END
SUMMARY.

3. (U) Vietnam and the United States held the fifth meeting in an
ongoing series of discussions under the TIFA since its inception in
2007 (two at the ministerial level in the United States and three at
the senior official level in Hanoi) from August 25-28. The U.S.
team was led by Deputy USTR John Veroneau (REF A) and included USTR
Southeast Asia Director David Bisbee and Embassy Hanoi Economic and
Commercial officers. The Vietnamese TIFA side was led by the Office
of the Government and the Ministry of Industry and Trade, and
included the ministries of Foreign Affairs, Planning and Investment,
and Health, and the National Office of Intellectual Property. Some
of the discussions also included the National Assembly.

OPENING A DOOR TO U.S. PHARMACEUTICALS
--------------------------------------

4. (U) A series of meetings with the Ministry of Health (MOH) during
these TIFA discussions and the previous round in May showed the
possibility of breakthroughs in simplifying regulations governing
data exclusivity and clinical trials (REF B). In May, MOH Officials
had acknowledged that GVN policy on both issues had caused confusion
among international pharmaceutical firms, and expressed an interest
in improving implementation and ensuring Vietnamese policy is in
line with international standards. At the August 26 meeting, the
MOH presented us with a new draft for clinical trials and asked us
to comment on it and share it with the pharmaceutical industry for
comments, which post and USTR have done.

5. (SBU) On data exclusivity, the Director General of the MOH's Drug
Administration (DAV) expressed a willingness to consider making
changes to DAV's process for granting data exclusivity, which, if
implemented, would provide the protection that the pharmaceutical
industry seeks, as well as relieve the overwhelmed DAV adjudicators
from having to examine every detail in new drug applications -- a
practice so cumbersome that it has virtually paralyzed the
application process. The Deputy Director General of the National
Office of Intellectual Property (NOIP), Phi Anh, agreed that this
could be a good solution, and both offices will now submit the
proposal up their chains of command.

6. (U) At the meeting with the MOH, the two sides also discussed the
need for a roadmap to clarify pharmaceutical industry access to the
Vietnamese market. [Vietnam excluded pharmaceutical products from
its WTO distribution services commitments, creating considerable
ambiguity regarding future opportunities for U.S. pharmaceutical
firms.] In January 2009, foreign firms will be able to exercise
import rights for pharmaceutical products. Under current Vietnamese
trading rights regulations this would include extending importation
privileges to foreign importers operating inside Vietnam. For
pharmaceutical firms to take advantage of this phase-in they would
need to establish a legal entity in Vietnam which would serve as the
importer and initial link to the current distribution network.

7. (U) Currently, most pharmaceutical firms not engaged in
production are registered in Vietnam as representative offices and,
as such, are not permitted to carry out commercial activities. Some
of these firms have expressed an interest in transitioning their
representative offices into branch operations, but Vietnamese
authorities are having difficulty coming up with a way to regulate
the scope of operations of branches, particularly how to keep them

HANOI 00001072 002.2 OF 004


from engaging in restricted activities (key concerns being
distribution and to some degree the activity known in the trade as
'detailing' or promoting products through direct outreach to
physicians and practitioners). The two sides promised to continue
discussions, and the Mission will monitor the situation closely, as
the import rights implementation date approaches.

IPR ISSUES ON THE TABLE
-----------------------

8. (SBU) NOIP Deputy Director General Phi Anh chaired a meeting of
the TIFA IPR working group, which included officials from NOIP, the
ministries of Industry and Trade (MOIT), Justice, Information and
Communication, Culture, and Health. The two sides continued their
ongoing discussion on creating a work plan to address key
deficiencies in Vietnam's administrative enforcement system as
identified by U.S. and local rights-holders and based on extensive
engagement by Post. The U.S. side raised concerns by U.S. book
publishers and music and film producers about the significant
hurdles they face in entering the Vietnamese market because of
restrictive regulations and weak enforcement of copyright
protections. The U.S. side also raised the issue of Ephim.com, a
geo-restricted Vietnamese internet site that offers pirated U.S.
media content and is hosted by FPT, Vietnam's largest privately
owned ISP. The GVN side said it would look into the matter.

IPR ENFORCEMENT AND LEGISLATION
-------------------------------

9. (U) The TIFA IPR working group committed earlier this year to
examine the primary obstacles in Vietnam for rights-holders seeking
IPR enforcement, and review which information would be useful in
facilitating enforcement cooperation. Both sides agreed on the need
to update and revise the Embassy Hanoi-created web-based "IPR Tool
Kit," and DDG Anh said that his office would seek U.S. technical
assistance to update the Toolkit. One of the issues discussed
earlier this year was the complaint by rights-holders that a cap on
administrative fines levied for IP piracy due to a conflict between
laws. Vietnam took steps to address this conflict and during the
meeting provided an update on newly issued Ordinance Number 4/2008,
which clarified for GVN administrative agencies that the fines in
the IP law are to be applied in cases of IP violations.

10. (U) As part of the IPR Toolkit enhancement exercise, USTR
Southeast Asia Director David Bisbee asked if the NOIP could produce
a list of all the GVN agencies with administrative authority over IP
issues, with specific contact information and a detailed list of
procedures and formalities required by each agency for
administrative action. Such information would be useful for U.S.
rights holders and would help them navigate the confusing set of
agencies responsible for IP enforcement under Vietnam's
administrative system. DDG Anh said that he aimed for a "one-door"
policy when it comes to IPR issues.

11. (U) Bisbee said the United States recognizes Vietnam's progress
in the area of IP protection and, with continued work by Vietnam,
hopes the USG can acknowledge this progress during the next Special
301 Review in February 2009. He suggested that a "roadmap" could be
a good way for NOIP to prepare for the next review. DDG Anh asked
the U.S. side to consult with NOIP in advance of the next 301 Review
to resolve misunderstandings or correct discrepancies.

12. (U) The U.S. side also encouraged the GVN to join the World
Intellectual Property Organization (WIPO) treaties, saying it would
reaffirm Vietnam's commitment to IP protections. The U.S. side
pointed out that U.S. industry is very supportive of Vietnam's
progress and, in its view, Vietnam has already completed much of the
necessary work to implement the treaties. Vietnam would be among
the first countries in Southeast Asia -- and the first developing
country in the region -- to actually implement the WIPO treaties.
Bisbee urged the GVN to step up its enforcement of IP over the
coming months, particularly in the digital environment. He
reemphasized the United States' willingness to deepen cooperation
with the Ministry of Justice (MOJ) as it proceeds with the
long-promised revision of Vietnam's criminal code provisions related
to IP. MOJ is currently working on the latest draft of the IP
amendments, and indicated in the meeting that it hopes to have a
final version passed by the National Assembly in November.

BEEF AND FRUIT ACCESS
---------------------

13. (SBU) The U.S. side asked the Vietnamese to identify which
specific concerns were holding back full market access for U.S. beef

HANOI 00001072 003.2 OF 004


imports. The GVN officials told us that they would be in a position
to make a decision on granting market access to live cattle and beef
from animals older than 30 months after it concludes its ongoing
risk assessment. On September 15, Vietnam presented a preliminary
and inconclusive risk assessment that calls for further data
gathering, which the relevant USG agencies are examining.

14. (U) The GVN representatives said that they were eager to gain
market access for longan, lychee and rambutan fruits (dragonfruit
exports to the U.S. were approved on July 29, 2008). They said that
an Agriculture Ministry (MARD) delegation would visit the U.S. in
October to discuss both the beef and fruit issues.

GSP
---

15. (SBU) At all levels, GVN officials reiterated their interest in
getting GSP approval before the end of the year. The U.S. team
urged the Vietnamese to pay close attention to the public comments
that were submitted during the process, and address particular areas
of concern. The U.S. side noted that labor, for instance, "will
always come up in the trade context, so this is a great opportunity
to address it and do a roadmap to move forward." OOG Minister Phuc
assured Veroneau in an August 26 meeting that Vietnam would make
efforts to address the labor concerns.

APPAREL IMPORTS AND MARKET ECONOMY
---------------------------

16. (U) Vietnamese officials also expressed alarm that the Import
Monitoring Program (IMP) for textile and apparel Vietnamese exports,
which expires in December of this year, may be extended. The U.S.
side stated that the Administration has no plans to extend the
program, but acknowledged that this did not foreclose the
possibility of a congressionally-mandated extension. Vietnam and
the United States also discussed the way forward on the bilateral
working group to review trade remedies and market economy status,
and the Department of Commerce's proposal to have the first round of
meetings on December 11-12, 2008 in Vietnam.

BIT
----

17. (SBU) The Vietnamese, up to the Prime Minister, reaffirmed their
support for the Bilateral Investment Treaty. Their team, led by the
Planning and Investment Ministry (MPI), promised to share possible
dates with us in order to schedule the first round of negotiations.
Since then, however, the MPI negotiators have not committed to
negotiation dates. Post is following up with them and other GVN
officials to commit to a first round timetable.

IMPORT LICENSING AND OTHER AUTOMOTIVE CONCERNS
--------------------------------------------- -

18. (U) Faced with a trade deficit that has reached a record $16
billion up to August, Vietnam has tried several ways to curb import
demand. One of those has been the institution of an "automatic"
import licensing scheme that requires importers to apply for a
permit for imports, showing proof of payment, among other things.
The scheme, which has yet to be put into effect, would be burdensome
and costly, according to foreign automakers and others in the
private sector. During the TIFA meetings, Industry and Trade
Ministry (MOIT) officials said that they only sought to collect
information in order to anticipate their foreign reserve needs, and
assured us that no license would ever be turned down. Relevant U.S.
agencies are currently reviewing the new regime and developing a
strategy for engagement.

LUXURY TAXATION ON CARS AND LIQUOR
----------------------------------

19. (U) Another concern from the automakers is the Special
Consumption Tax (SCT or luxury tax) proposal under consideration by
the GVN. On automobiles, the tax regime would focus on engine size
rather than capacity, as is the case now, hitting U.S. large engine
manufacturers hardest. (REF D) More problematic, the Ministry of
Finance, which prepared the draft SCT law, is seeking to accelerate
the implementation date of these changes from 2010 to 2009, which
would not allow the carmakers sufficient time to adjust their
production lines.

20. (U) Embassy Hanoi, within the TIFA discussions and on other
occasions, asked the National Assembly, the MOIT and the Ministry of
Finance (MOF) to consider the automakers' concerns as well as the

HANOI 00001072 004.2 OF 004


overall implications of the rushed-in taxes on the country's
business climate. On September 9, the MOIT proposed a compromise
that would reduce the tax burden on larger engine cars and reset the
implementation date back to 2010, although it is not clear whether
other concerned Vietnamese government agencies will agree to this
position. Post will continue to follow up on this issue.

21. (U) The SCT draft would also harmonize luxury tax rates between
domestic and foreign liquor (spirits, wine and beer), in line with
Vietnam's WTO commitments. Embassy Hanoi has met with the industry,
which has been receptive of the draft. During the TIFA discussions,
the U.S. side noted, however, the irony of the GVN's justification
of the 2010 implementation date for luxury taxes on liquor ("to
allow more time for our domestic industry to adjust") with the MOF's
refusal to consider doing the same for the automotive industry.

DISTRIBUTION, ASSOCIATIONS AND REGIONAL DISSONANCE
--------------------------------------------- ------

22. (U) All of the issues described above will continue to form part
of the bilateral trade and investment discussion for the foreseeable
future. During this and previous TIFA meetings the U.S. has also
raised our interest in engaging in other key issues, such as freeing
Vietnam's regulations on associations (trade and otherwise),
addressing complaints from the provinces that trade regulations are
sometimes interpreted more restrictively at the regional level than
by the central government (Septel), and our interest in ensuring a
smooth opening of the distribution sector to fully-foreign owned
firms in 2009.

COMMENT: THE TIFA PROVING ITS WORTH
-----------------------------------

23. (SBU) The Vietnam-United States trade and investment
relationship is moving at a very fast pace. Bilateral trade this
year has increased by 25% up to July from the same period in 2007,
which was a banner year itself (REF E). Our exports to Vietnam this
year are up by 104% over the same period in 2007, while Vietnamese
exports are down slightly by 12%. U.S.-committed investment this
year alone accounts for half of all U.S. investment over the last 10
years. By virtue of its flexibility, the TIFA has been one of our
most useful tools in dealing with issues raised by this burgeoning
relationship as they arise, whether in fixing troublesome
distribution sector rule (REF F), IPR piracy or investment-related
fixes.

24. (U) This telegram was coordinated with the office of the USTR.

MICHALAK

8

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