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Cablegate: Vietnam's Distribution Sector Readies for Foreigners

VZCZCXRO0830
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1265/01 3190728
ZNR UUUUU ZZH
P 140728Z NOV 08 ZDK
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8732
INFO RUEHHM/AMCONSUL HO CHI MINH 5298
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 02 HANOI 001265

SENSITIVE
SIPDIS

STATE FOR EAP/MLS MBROWN
SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE
COMMERCE FOR JBENDER

E.O. 12958: N/A
TAGS: ETRD ECON EINT KTDB VM
SUBJECT: VIETNAM'S DISTRIBUTION SECTOR READIES FOR FOREIGNERS

REF: A) Hanoi 451 (Door Widens On Distribution);
B) Hanoi 1139 ("Reviewing The Trade Agenda");
C) 07 Hanoi 1918 (Gains in Provincial Competitiveness)

HANOI 00001265 001.4 OF 002


1. (U) Summary. In less than two months, Vietnam will open its
distribution and retail sectors to fully foreign-owned firms.
Preparations for these important changes have not been problem-free,
and both the GVN and the private sector have at times seemed to talk
past each other. There is also a vocal domestic sector that is
lobbying for less-than-wide opening. Despite these challenges,
Vietnam's authorities appear to have readied the most important
adjustments to welcome foreign firms to the local market. End
Summary.

READY FOR THE OPENING
--------------------

2. (SBU) The distribution sector, which includes retailing and
franchising along with wholesale distribution services, will open on
January 1, 2009 to fully foreign-owned firms. Many U.S. businesses
have expressed interest in this sector, especially because it will
allow them to organize and control their supply chains. Although
the Mission does not know of any U.S. retailer interest yet, dozens
of other large U.S. firms interested in sales of cars, engines,
fertilizer and feed, and toiletries and consumer products, are
poised to enter the market or expand existing operations. Some of
these firms already have their licenses ahead of the opening date.

3. (U) Officials from the Ministry of Industry and Trade in Hanoi
and some of the most business-intensive provinces in the south told
Mission Econoffs that they would be ready "from day one" to allow
foreign firms to engage in distribution-sector activities. Ho Chi
Minh City's licensing officers, who probably issue more new business
licenses than any other jurisdiction in Vietnam, told us that they
would be taking applications from mid-November in order to have them
ready for the January 1, 2009 opening. The head of the city's
Planning and Investment Department, which will review and issue the
applications, said that they could look at applications "even
sooner" on an advisory basis, in order to ensure that everything
would be in order and forestall bureaucratic delays.

EARLY OPENING FOR MANY
---------------------

4. (SBU) Many U.S. firms already have obtained their licenses. One
of the three big U.S. automakers got its license in November while a
large commodities trader has been distributing and selling feed
directly to end-users since earlier this year. In fact, since March
2009, many fully foreign-owned businesses have been allowed to
import their goods and then look for buyers in-country (although not
sell them to the end-users), an early opening that was little
understood and the source of many complaints from those who took it
as a restriction rather than the concession it really was (REF A).

DISPELLING FEARS ABOUT THE ENT
------------------------------

5. (U) Another source of misplaced angst has been the "Economic
Needs Test" (ENT). In theory, when businesses apply to open a
second "retail outlet" they need to show that they have adequate
facilities and surrounding infrastructure to support their intended
operations. In many ways, this operates like American-style zoning.
Businesses also have to present an economic impact statement
addressing areas like "market stability" and "project suitability."
The requirement of an economic impact statement for prospective
businesses --in essence what the ENT amounts to-- predates Vietnam's
entry into the WTO. These statements have been required from
prospective investors for over a decade, seemingly without much
controversy.

6. (U) Both the zoning-like requirements and the economic impact are
contained in the "master plans" that all regional governments have
in place. These plans are a hybrid of modern zoning laws and
Communist-era central planning, and combine infrastructure
capacities with notions of "ideal" or "suitable" business
development. Although the term "ENT" appears in Vietnam's WTO
Schedules (the result of negotiations with the Europeans, who use
ENT), the Government of Vietnam does not use the ENT term as such.
Nor, it seems, does it understand it fully.

7. (SBU) To date, the economic impact or ENT concept has been used
sparingly in the distribution sector and, as far as we know, without

HANOI 00001265 002.2 OF 002


detriment to either U.S. or foreign firms (REF B). The Mission also
is not aware of cases where impact statements have posed significant
obstacles to investors in other sectors. An American lawyer, with a
British law firm in Hanoi, noted that businesses can expect a slight
uptick in red-tape whenever a new sector opens. "Some [licensing]
authorities are less confident whenever a new sector is concerned,"
he said, but added that it is just as often the case that aggressive
provinces will march ahead and take the most business-friendly
interpretations possible until a widespread practice establishes
itself.

LIMITED USE OF IMPACT STATEMENTS AND ENT
-----------------------------------

8. (U) In the distribution sector, the Ministry of Industry and
Trade in Hanoi has so far limited impact statements to "large retail
establishments," like shopping centers and hyper-stores. Provincial
authorities in both HCMC and Binh Duong, two of Vietnam's most
business-intensive provinces (REF C), told us that they too were
applying ENT to this limited range of businesses.

9. (SBU) Even in the case of large retail establishments, we were
told by both public and private sector contacts, impact statements
or ENTs are hardly ever problematic. An American lawyer who works
for a Vietnamese law firm told us that, even among his foreign
retail sector clients (none American), overcoming an impact
statement or ENT comes low in the priority list. Provincial
authorities in Binh Duong could also not recall instances where
investors' plans came into conflict with their master plans. "The
master plans are revised frequently," they said, explaining that
these are often more notional than actual guidelines. The
proliferation of foreign retail stores in Vietnam's largest
metropolitan centers further attests to this.

ALL BUT LOCAL RETAILERS ARE MOVING ON
----------------------------

10. (SBU) Although an American law firm and even the AmChams at
first lobbied for regulations defining ENT, they seem to have moved
on. "It's now academic," the managing partner of the law firm told
us. When we asked about the subject, the head of AmCham in HCMC
replied that he did "not recall what happened to that issue."
Ironically, one sector that has not moved on is Vietnam's domestic
retailers. In September, an association of Vietnamese retailers
vowed to present the Trade Ministry with draft regulations on ENT to
slow down foreign penetration of their market. Trade Ministry
officials, however, have assured Embassy that nothing will come of
these efforts and they do not anticipate further regulations for the
sector's opening.

COMMENT: ELIMINATE NOT REFORM, THE ENT
---------------------------------

11. (SBU) The important distribution sector appears ready for
opening in 2009. It has no doubt benefitted from the partial
opening of the last year and the many interactions that the GVN has
had with the private sector to fix and tweak the sector. Post has
continued to suggest to the Trade Ministry, most recently on
November 10, to eschew the economic impact and ENT concepts
altogether and move to a completely neutral zoning system, a
proposal to which officials appear to be receptive. Domestic
retailers may now pose the biggest threat to foreign penetration of
this sector. The Mission will continue to monitor implementation
and continue to work with the USG interagency community and the
private sector to overcome obstacles as they arise. End Comment.

12. (U) This telegram was coordinated with ConGen Ho Chi Minh City.

MICHALAK

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