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Cablegate: Bilateral Working Group Discusses Vietnam's Progress Toward

VZCZCXRO4154
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1403/01 3590422
ZNR UUUUU ZZH
P 240422Z DEC 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8928
INFO RUEHHM/AMCONSUL HO CHI MINH 5426
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 001403

SIPDIS

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

E.O. 12958: N/A
TAGS: ECON EINV ELAB KPRV KTEX PGOV VM
SUBJECT: BILATERAL WORKING GROUP DISCUSSES VIETNAM'S PROGRESS TOWARD
MARKET ECONOMY STATUS

REF: A) U.S. and Vietnam Joint Statement of June 24, 2008;
B) Hanoi 654 ("SOE Reform Key to Improving Business Climate")

HANOI 00001403 001.2 OF 002


1. (U) Summary: At the first meetings of the Market Economy Working
Group, the United States and Vietnam discussed the latter's progress
in transitioning to a market economy. The U.S. delegation, led by
the Department of Commerce, emphasized that substantial work remains
to be done to reduce the government's intervention in the economy,
and to level the playing field between the private sector and
Vietnam's large state-owned sector. Vietnam acknowledged these
shortcomings but pointed to its ongoing efforts to allow market
economy forces to assert themselves over the economy. The U.S. side
also pointed to restrictions on labor freedoms as another factor
weighing down Vietnam. The Working Group agreed to hold its next
meeting in the first quarter of 2009. End summary.

FIRST MEETING OF THE MARKET ECONOMY WORKING GROUP
--------------------------------------------- -

2. (U) The Market Economy Working Group (MES WG), the creation of
which had been announced during Prime Minister Nguyen Tan Dung's
visit to the United States in June 2008 (REF A), held its first
meetings in Hanoi on December 11 and 12. The U.S. side was led by
Department of Commerce Import Administration Assistant Secretary
David Spooner, while the Vietnamese side was headed by Bach Van
Mung, Director General of the Ministry of Industry and Trade's
Competition Department. Embassy Econoff, three DOC experts and
Spooner's chief of staff joined, and representatives from several
ministries of the Government of Vietnam (GVN), such as Labor,
Foreign Affairs, Finance, and Planning and Investment, also
attended.

REVIEWING VIETNAM'S PROGRESS
---------------------------

3. (U) The U.S. side began the first session by recognizing the
significant efforts that Vietnam has taken to introduce market
economy practices, particularly since the 2002 U.S. Commerce
Department determination that Vietnam was not a market economy as
part of an investigation on Vietnamese catfish exports. The
Vietnamese pointed out that production costs are determined by
market forces, that state owned commercial banks are for-profit
ventures, and wide access to foreign exchange and profit
repatriation, as signs that Vietnam had made much progress since
2002.

4. (U) The U.S. delegation noted, however, that implementation gaps
remain even in areas where Vietnam has taken action, such as
state-owned enterprise (SOE) privatization and the Investment Law.
"It's important to distinguish between 'de jure' and 'de facto'
reforms," DOC Senior Economist Albert Hsu, said. Spooner reassured
the Vietnamese that the United States did not intend to "pass
judgment over Vietnam's policy choices," and that it did not expect
Vietnam to comply with every single criteria in order to 'graduate'
into market economy status. The U.S. delegation also reassured the
Vietnamese that, in reviewing market economy status, the United
States distinguishes between market economy issues and other issues
typical of developing economies such as Vietnam's.

STATE INTERVENTION IN THE ECONOMY AND SOES
-----------------------------------------

5. (U) In particular, the U.S. side pointed to many areas where the
GVN remains heavily involved in the economy. It cited, for example,
the large size of the SOE sector, especially in banking. They cited
the GVN's role as both regulator and owner of state owned commercial
banks as particularly problematic. "It would be useful to separate
those two roles and allow the State Bank of Vietnam true
independence," Hsu said. In addition, the U.S. stated that SOEs
enjoy disproportionate and preferential access to land rights, while
many investment sectors remain open only to SOE operators.

6. (U) In response, the Vietnamese side acknowledged that the SOE
sector was problematic. "True, there have been sectors that were
monopolized by SOEs and [where there has been] no level playing
field," Director General Mung said. "Vietnam is still in
transition, that is why there are still some sectors that are
controlled by SOEs." He said he hoped that the GVN's slow-moving
roadmap for the partial privatization (or 'equitization') of SOEs
(REF B) would address these shortcomings in the near future.

LABOR HURDLES

HANOI 00001403 002.2 OF 002


-------------

7. (U) Labor also emerged as one of the factors weighing against
Vietnam. The U.S. team stated that wages typical of a market
economy had to be the result of "a genuine bargain between labor and
management," and that workers had to be free to negotiate about the
terms of employment. "We look at the state of trade unions and
collective bargaining," the U.S. experts said. Vietnam claimed that
its workers had rights to collective bargaining" and could negotiate
wages freely. [Note: Vietnam, however, appears unwilling to make
the necessary reforms to enable freedom of association and
collective bargaining before 2011. Septel.]

THE ROAD AHEAD
--------------

8. (U) Although the Vietnamese side recognized that they still did
not meet the criteria to graduate to market economy status, many
from the GVN interagency group, including Director General Mung
himself, expressed hopes that Vietnam could request a review in the
very near future. They floated the idea of graduating some sectors
of the economy separately, but the United States team responded that
it was hard to envision how an economy could be a true market
economy when there were sectors that remain non-market.

9. (U) The two sides agreed to meet again in late spring of 2009 at
the experts' level in Vietnam (to save their much larger side the
cost of travel), and in the summer at the Assistant Secretary's
level, at alternating sites.

PRIVATE SECTOR ROUNDTABLES
--------------------------

10. (U) Assistant Secretary Spooner also met with U.S. and
Vietnamese private sector representatives on the margins of the MES
WG meetings. At a meeting hosted by the U.S.-ASEAN Business
Council, Spooner and U.S. business officials discussed, in addition
to the MES WG work, the Bilateral Investment Treaty negotiations,
Vietnam's request for Generalized System of Preferences
consideration, and the Transpacific Partnership agreement. Several
of the companies, including Chevron, thanked the A/S for recent
Commerce Department advocacy on their behalf by Secretary Gutierrez
during Deputy Prime Minister Hai's trip to Washington, DC in
November. At a discussion with textile and steel members of the
Vietnam Chamber of Commerce earlier, A/S Spooner discussed steps
Vietnam and individual industries would have to take to qualify for
market economy status under U.S. law. Textile companies expressed
their appreciation for the results of DOC's third and latest data
review of Vietnamese textile exports which demonstrated insufficient
evidence to initiate anti-dumping action.

COMMENT: ANOTHER LEVERAGE FOR REFORM
------------------------------------

11. (U) Like GSP and TPP, market economy status provides us with
another avenue to press systemic reforms in Vietnam, and all three
are Vietnam-driven issues. After the two-day rounds of the MES WG,
it looks like graduation is not entirely out of the question,
especially if Vietnam gets serious about pursuing it. However,
reform moves slowly in Vietnam, even when it leads to a desirable
outcome, as we have see with GSP (Septel). Continuing to engage on
Market Economy, and allowing the Vietnamese to understand clearly
what they need to do, can only help it make the transition to a
modern economy and polity. End Comment.

12. (U) This telegram was coordinated with the Department of
Commerce.

MICHALAK

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