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Cablegate: Vietnam: Second Annual U.S.-Vietnam Bta Joint

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 08 HANOI 000386

SIPDIS

SENSITIVE

STATE PLEASE PASS TO USTR HUNTSMAN AND EBRYAN
STATE ALSO FOR E, EB AND EAP/BCLTV
STATE ALSO PASS USAID FOR ANE/DEL MCCLUSKEY AND AFERRARA
USDOC FOR 6500 AND 4431/MAC/AP/OKSA/VLC/HPPHO
USDA FOR FAS/ITP/SHEIKH AND HUYNH
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ETRD EINV ECON EAID PREL OVIP VM
SUBJECT: Vietnam: Second Annual U.S.-Vietnam BTA Joint
Committee: Scenesetter - the BTA at One Year

1. (U) Sensitive but Unclassified -- Please protect
accordingly.

--------
OVERVIEW
--------

2. (SBU) Ensuring timely and effective implementation of the
U.S.-Vietnam Bilateral Trade Agreement (BTA) continues to be
the centerpiece of our economic relations with Vietnam. The
BTA continues to be our best tool to achieve a broad range
of policy objectives in the coming years. It is now 14
months since the U.S. -Vietnam Bilateral Trade Agreement
came into force on December 10, 2001 and almost one year
since the USAID-funded Support for Trade AcceleRation (STAR)
Project began working with the Vietnamese government,
joining our other USG sponsored technical assistance
programs provided by individual agencies and the U.S.-
Vietnam Trade Council (USVTC). The GVN has made
significant changes since December 2001, although progress
has been uneven. The bulk of Vietnam's core commitments
were due upon entry and we believe that the GVN is in most
cases making a good faith effort to meet most of those
obligations in the face of continued weak capacity. The GVN
spent much of the last year trying to formulate action plans
for implementation by reviewing the legal framework and
assessing needed changes to bring laws, rules, and
regulations into conformity with the BTA. The USG has been
instrumental in assisting the GVN take on this sizeable and
complicated task.

3. (SBU) The trade playing field is starting to level slowly
- US exports increased more than 30% in 2002, primarily due
to lower tariffs but also due to increased interest in the
market. The GVN still plays a dominant role in Vietnam's
economy but the private sector is seeing robust growth, with
strong job creation and a growing percentage of industrial
production. International economic integration is
proceeding with a number of AFTA commitments kicking in this
year even if WTO accession talks are proceeding more slowly
than expected. Legal reform continues to occupy center
stage in the GVN's implementation efforts, with several
significant new or revised laws, rules, and regulations
passed in 2002. While the GVN is behind schedule in a
number of areas, overall, progress is being made. We will be
meeting with the Government of Vietnam (GVN) March 10 for
the second annual U.S.-Vietnam Joint Committee under the BTA
(following expert level talks on March 4-5). The following
scene setter provides Embassy review of the status of BTA
implementation, an update on the progress of various
technical assistance programs, and issues that should be
highlighted at the Joint Committee.

---------------------
The Honeymoon is Over
---------------------

4. (SBU) When DUSTR Huntsman and then Minister of Trade Vu
Khoan convened the first BTA JC last May, we were clearly
still in the "honeymoon" period after the ratification and
entry-into-force of the agreement. The atmosphere for these
talks has changed - the honeymoon is definitely over. Vu
Khoan has moved up to the Deputy Prime Minister's office and
former Minister of Trade and BTA negotiator Truong Dinh
Tuyen has once again picked up the reigns at MOT. The
antidumping case on frozen fish fillets (or the fish
formerly known as catfish) and threats of an antidumping
case on shrimp have quickly dissipated much of the positive
political capital that should have been accruing this year
based on the tremendous success of Vietnam's exports to the
U.S. In addition, the US and Vietnam will have just begun,
if not finished, textile negotiations - which will put in
place an agreement to limit the exports to the U.S. of
textiles - one of Vietnam's fastest growing export
commodities this past year. In many ways, the reality of
the required BTA commitments has started to sink in and is
perhaps at contrast with original expectations and
understanding of what the BTA would do. Many GVN officials
viewed the BTA as the culmination of a process rather than
the beginning, and have genuinely been surprised by recent
trade disputes with the U.S.

5. (SBU) We should acknowledge Vietnam's progress and
encourage continued reform, while stressing the need for
Vietnam to move more quickly to reflect its BTA commitments
in law and in practice. Many GVN officials either do not
understand (or choose not to understand) which issues fall
under the BTA and which fall under the category of general
trade relations. On the date of entry into force, the U.S.
fully met all its obligations under the BTA; the GVN's
obligations are phased in over 9 years and the GVN is still
struggling to implement many obligations that were due upon
entry. Thus, any time there is an assessment of the
progress of BTA implementation, the GVN, by default, bears
the brunt of the criticism. While the GVN may have
legitimate complaints regarding the catfish antidumping
case, they are also clearly searching for issues to raise
under the BTA to "even the score", such as limitations on
business visas or other "business facilitation" issues. In
addition, the GVN has and will likely continue to downplay
the tremendous success Vietnam has seen on the trade side
this past year. In a period where Vietnamese exports to
other countries either decreased or remained relatively
static, exports to the U.S. increased more than 100 percent.
By any definition, this is an impressive result. In the
MOT's official report on implementation sent to the Prime
Minister in December, however, the MOT stated that although
the trade relationship had taken some "promising steps in
the spirit of the BTA. trade turnover figures between the
two countries remain low, and some matters have arisen
showing inequality in the trade relationship between the two
countries, notably the catfish dispute."

6. (SBU) The GVN has had difficulty in ensuring enforcement
of BTA implementation at the provincial levels - a problem
that, if not addressed more effectively by the GVN, will
seriously impede Vietnam's ability to meet its BTA
commitments - particularly in the area of investment. With
little ability to force provincial officials to toe the
line, the GVN has focused on an information campaign
regarding obligations under the BTA to try to bring those
officials along - with only mild success. One key GVN
official argued that it is difficult to convince the
provincial and local governments that the BTA will benefit
them in the face of the frozen fish fillet and other trade
disputes. We need to impress upon the GVN that ultimately
the central government alone bears the responsibility to
ensure that central, provincial, and local government
officials fully implement the BTA.

------------------------
BTA - The WTO and Beyond
------------------------

7. (SBU) This visit presents another important opportunity
to remind the Vietnamese of the broader implications and
benefits associated with implementation of the BTA. The BTA
is the GVN's most effective roadmap to reform consistent
with international standards. The reform and international
integration efforts called for under the BTA are critical to
the GVN's own growth and development objectives. WTO member
countries see Vietnam's progress in BTA implementation as an
indication of how serious Vietnam is in its efforts to
integrate. If BTA implementation falters, Vietnam's efforts
to accede to the WTO will be setback significantly. We also
need to remind the Vietnamese that the benefits of the BTA
reach far beyond the quick boost in trade that lower tariffs
promise; proper implementation will create in Vietnam the
type of environment that will attract high quality
investment and trade.

------------------------------
Issues for the Joint Committee
------------------------------

8. (SBU) While other members of the delegation will have an
opportunity in the "expert sessions" to explore fully the
technical issues of implementation, there are a number of
key themes that DUSTR Huntsman may wish to address in the
plenary session on March 10.

THEME ONE: The U.S. already has fully implemented the BTA
and opened wide its market to Vietnamese goods, services and
investment. Vietnam is already reaping significant benefits
from this market access.
--------------------------------------------- -------------

9. (SBU) The overall tone of our discussion should be
positive and cooperative, but we also must lay down
appropriate markers that we will not ignore Vietnam's
commitments and that greater effort must be made to stick to
the implementation timetable. We continue to need to
stress the point that the U.S. has already fully implemented
the BTA. This is perhaps even more important now that much
GVN rhetoric over the last year has focused on "lack of U.S.
commitment" to the spirit if not the letter of the BTA due
to the catfish antidumping case and other irritations in the
bilateral economic relationship. The GVN has sought to
bring all disagreements under the rubric of the "spirit of
the BTA." MOT's year-end report on the status of BTA
implementation concluded, ""Although the US undertook to
liberalize trade, it has in fact erected barriers and needs
to take anti-dumping and other measures."

10. (SBU) The GVN has on several occasions implicitly and
explicitly linked BTA implementation with favorable outcomes
on unrelated issues - most specifically the frozen fish
dumping case. In October, during a meeting with USG
officials, an official from the Office of the Government
(the Prime Minister's office) attempted to explicitly link a
"reasonable resolution" of the frozen fish fillet dumping
case to progress on IPR and other BTA implementation issues.
DPM Vu Khoan echoed this sentiment recently when he told
news agencies that the decision by the USDOC that Vietnam is
dumping frozen fish fillets on the U.S. market will "curb
the acceleration of BTA implementation." In addition, at
the one-year anniversary of the BTA, the GVN seemed to make
a conscious decision to downplay the enormously successful
results on the trade side - not acknowledging that we had
opened our markets fully and that Vietnam has benefited
significantly.

11. (SBU) The GVN has also failed to acknowledge when the
U.S. is actively enforcing its BTA commitments, such as
trademark protection. The GVN has complained about several
cases where competing trademark applications for Vietnamese
products, such as Trung Nguyen (coffee) and PetroVietnam
have been filed with the U.S. Patent and Trademark Office.
Although the cases are being handled appropriately, i.e. in
a transparent and legalistic manner, the GVN has attempted
to link the lack of political intervention in the process as
evidence of a lack of will by the USG to uphold its
commitments, stating that "the US has complained that
Vietnam is late in implementing TRIPS, whereas in fact under
the BTA both sides are in breach."

THEME TWO: The U.S. and Vietnam have worked together in a
positive and constructive manner to assist the GVN in its
reform effort and implementation of the BTA.
--------------------------------------------- --------------

12. (SBU) The progress over the last year across the board
on cooperative, constructive engagement has been
significant. USG agencies and our technical assistance
providers have worked with the GVN on issues ranging from
training for Supreme Court justices to international
arbitration to rule of law and sectoral issues like tariff
reform, insurance, and banking reform. USG technical
assistance and our providers are working with more than 40
government ministries, departments, agencies and local
people's committees. The breadth and depth of this effort
should be highlighted and commended on both sides. We
should stress that we place a priority on continued positive
momentum and real results.

THEME THREE: Vietnam has made commendable progress in
implementing new legislation, but many laws, regulations and
administrative practices do not yet meet BTA obligations.
Despite this, we expect that U.S. nationals, products and
companies will be accorded BTA treatment even when existing
regulations are contradictory.
--------------------------------------------- --------------

13. (SBU) Over the last year, a number of important laws
have been drafted or revised, such as the Law on the
Promulgation of Legal Normative Documents ("Law on Laws")
and the Ordinance on Most Favored Nation and National
Treatment, bringing them closer to BTA compliance but in
some cases still falling short. Additionally, numerous
others remain inconsistent with BTA obligations that were
due upon entry-into force, due at the one year mark or are
due in the near future. While acknowledging the depth and
breadth of the Vietnamese effort to reform the legal
framework, we should strongly emphasize that regardless of
the status of reform of laws and regulations, we expect that
Vietnam will meet its commitments and provide assurances
that U.S. nationals, products, and companies will be
accorded BTA treatment even when existing regulations are
contradictory.

THEME FOUR: Normal, active trade and economic
relationships require regular dialogue. Encourage Vietnam
to work with us on a daily basis to resolve ongoing issues
on both sides. The key is to work together to resolve
issues in a cooperative manner.
--------------------------------------------- --------------

14. (SBU) The GVN tends to see political messages behind
even minor technical trade/economic issues and thus often
reserves problems or concerns for discussion at high-level
meetings, such at the annual Joint Committee meetings.
While we will always have a mismatch of delegation of
authority (i.e. we make decisions at much lower levels),
this preference for a more formal route for what may be
mundane or minor issues is a less-than-efficient use of
senior officials time. Additionally, many of the questions,
problems, and issues that have been informally proposed for
Joint Committee meetings could easily be resolved through
informal working level discussions (for example questions
about SA8000 certification). We should stress that as our
economic relations expand, issues will arise - it is a
normal if somewhat unfortunate situation. We should
encourage the GVN to relay issues as they come up so that
they can be addressed quickly in the appropriate forum.

--------------------------------
General update on implementation
--------------------------------

Trade in Goods
--------------

15. (U) MFN/National Treatment for Imports: Vietnam did
enact an NT and MFN ordinance this year which covers goods
as well as services, and investment (Hanoi 1766) and that's
a good start. However, a broad array of regulations related
to VAT taxes, special inspection and quality-control
requirements and rules for trading that are not applied
equally to domestic goods remain inconsistent with Vietnam's
commitments to provide national treatment, except for
exempted goods. Vietnam is currently working to bring these
regulations into conformity but we need to stress we expect
BTA treatment regardless.

16. (U) In 2002 the USAID-funded STAR project provided the
GVN with detailed analysis of key pieces of legislation
related to the Trade in Goods chapter of the BTA including
the draft Ordinance on Commercial Arbitration, the draft
Commercial Law, and the draft Ordinance on E-Commerce. STAR
also provided training and workshops on E-Commerce, trade
policy procedures and customs issues. USG-funded technical
assistance projects related to trade in goods planned for
2003 include:

-- (STAR) Follow-up assistance in revising and implementing
the draft Ordinance on Commercial Arbitration and the draft
Commercial Law.

-- (STAR) Training and technical assistance for Customs on
meeting BTA obligations.

-- (STAR, USDOC) Support for a conference on trade-related
technical standards for the Ministry of Science and
Technology (MOST).

-- (STAR) Provide support to the Ministry of Fisheries in
implementing BTA obligations.

-- (USVTC) A study tour in the U.S. on technical regulations
and standards. Participants will include: GVN officials
from the MOT, MOST, the Ministry of Health (MOH), and the
Ministry of Industry (MOI) as well as the National Assembly.

-- (USVTC) A study tour in the U.S. on Sanitary and
Phytosanitary (SPS) Measures. Participants will include:
GVN officials from the Ministry of Agriculture and Rural
Development (MARD), MOH and MOT.

Intellectual Property Rights
----------------------------

17. (SBU) Vietnam has come a long way in revising
legislation to bring its IPR laws into compliance with its
BTA commitments, but gaps remain. Commitments related to
trademarks and patents were due 12 months after entry into
force (December 2002); commitments on copyright and trade
secrets are due in May 2003. The main issue continues to be

SIPDIS
lack of IPR enforcement, particularly with respect to
copyrights and trademarks. Vietnam committed in the BTA,
upon entry-into-force, to enforce existing laws, the U.S.-
Vietnam Copyright Agreement, and the Paris Convention. No
such routine and reliable enforcement exists. While there
have been some well-publicized raids over the last year,
they are few, ineffective and prompted by the
copyright/trademark holders with little to no independent
action by GVN authorities.

18. (U) Microsoft, for example, worked with HCMC law
enforcement officials earlier this year to raid shops
selling pirated Microsoft software. Authorities raided 6 or
7 of the probably hundreds of shops in the city which openly
sell pirated software. Only nominal fees were levied (12
million Dong per violator, or approximately USD 780), there
has apparently been no follow up by local authorities, and
the shops quickly re-opened. Although the raids can be seen
as a positive first step, clearly much needs to be done
before Vietnam can be considered serious in addressing IPR
enforcement concerns.

19. (U) In 2002 the STAR program supported several seminars,
workshops and conferences on IPR for judges, court
officials, government officials, business leaders and IP-
related agencies. STAR also sent a delegation from the
Supreme People's Court to Thailand to learn about Thailand's
specialized IP court. USG-funded technical assistance
projects related to IPR planned for 2003 include:

-- (STAR) Support the Ministry of Culture and Information
(MOCI) in the development of stronger regulations for
optical disc production and distribution.

-- (STAR) Provide detailed comments to the Ministry of
Justice (MOJ) on the revision of Part VI of the Civil Code,
which establishes the legal basis for IP protection in
Vietnam.

-- (STAR) Support GVN efforts to meet the standards
necessary to accede to the IP conventions cited in the BTA.

-- (STAR) Provide support to the Supreme People's Court and
Customs in meeting BTA IPR-related obligations.

-- (USVTC) Conduct a study tour to the U.S. on IPR issues,
particularly those related to Special 301. Participants
will include officials from the MOCI.

-- (USVTC) Conduct a study tour to the U.S. on IPR
enforcement issues. Participants will include: GVN
officials from the MOCI, MOST, Customs, and the Supreme
People's Court.

Trade in Services
-----------------

20. (U) Vietnam's commitments to provide increased market
access, MFN and National treatment to US service providers
are phased in over 2 to 9 years after entry-into-force of
the agreement (depending on the sector). However, in some
areas Vietnam has begun on a case-by-case basis to grant
greater access by U.S. firms in advance of its BTA
obligations in some limited sectors (insurance, banking).

21. (U) In 2002 STAR organized workshops, a study tour, and
provided detailed comments on revisions to the draft Decree
on Foreign Lawyers. STAR also supported workshops and
conferences on E-Commerce, telecommunications, and financial
services. USVTC conducted a study tour to the U.S. on WTO
services issues. In addition, in cooperation with the
Embassy, the Pacific Investment Management Company (PIMCO)
hosted a two-day seminar for key GVN and State Bank
officials in early January related to banking reform, and
plans to host another seminar at the end of February. USG-
funded technical assistance projects related to Trade in
Services planned for 2003 include:

-- (STAR) Provide technical support to the Ministry of Post
and Telecommunications (MPT), the State Bank of Vietnam
(SBV), the Ministry of Construction and the Ministry of
Finance (MOF) on BTA implementation issues related to
telecommunications, construction and financial services.

-- (USVTC) Conduct a study tour to the U.S. focused on
implementation of BTA obligations related to
telecommunications services and banking and financial
services. Participants will include: GVN officials from
the MPT, the Ministry of Public Security (MPS), the Ministry
of Planning and Investment (MPI), the Office of the
Government and the National Assembly.

-- (USVTC) Conduct a study tour to the U.S. on banking and
financial sector development. Participants will include:
officials from the SBV, the MOF and the Office of the
Government.

Investment
----------

22. (U) The 2000 revised Law on Foreign Investment
represents a significant step forward in bringing the GVN's
investment regime into compliance with the BTA. However,
Vietnam still has much work to do to bring its laws and
regulations on foreign investment fully into conformity with
BTA obligations that were due upon entry-into-force. Most
of the inconsistencies are related to a lack of national
treatment. Additionally, even where the laws are clear,
the GVN has had difficulty enforcing them at the provincial
and local levels. Enforcement of arbitral awards and the
courts interpretation of Vietnam's obligations under the New
York Convention are other areas for particular concern.

23. (SBU) At the First BTA Joint Committee, we raised the
case of McCullagh Krong Ana Joint Venture, which involves a
U.S. company involved in a joint venture in Dak Lak province
that has been trying to buy out its Vietnamese partner since
1998. Both the partner and MPI have approved the buyout.
However, the Provincial Department of Planning and
Investment in Dak Lak refuses to allow the transaction to
occur. The case potentially violates the National Treatment,
MFN and technology transfer portions of the investment
chapter. We are continuing to press the GVN to resolve this
issue.

24. (SBU) In a second case, the Mission has been assisting
Tyco Services Singapore since 2001 in its attempts to get
two arbitral awards enforced in Vietnam. In January the
Vietnamese Supreme Court reversed a May 2002 landmark
decision by the Ho Chi Minh City Economic Court (supported
by the Ministry of Justice) that would have recognized an
international arbitral award for the first time. We believe
that this case highlights the current lack of understanding
at the highest judicial levels of modern, market-based
normal business transactions (in particular the definition
of a commercial transaction or contract), Vietnam's
international obligations, and a continuing lack of
transparency in legal decisions. It also raises questions
about Vietnam's ability to live up to its obligations under
the BTA and the New York Convention. We understand that
Tyco officials are considering requesting a review of the
Supreme Court decision. We recommend that this issue be
raised in the BTA Joint Committee meeting, not to argue the
merits of the case but to stress our expectation that U.S.
businesses will be treated fairly by the Judicial system and
that international commitments will be respected.

25. (U) In 2002 STAR supported the MPI in the development
and publication of an "Investment Guidebook for Vietnam" and
provided MPI with detailed comments on proposed amendments
to Decree 24 on investment procedures. In October, USVTC
hosted a delegation of eight inter-ministerial officials to
the U.S. to look at issues relating to Vietnam's membership
in the International Center for the Settlement of Investment
Disputes (ICSID). USG-funded technical assistance projects
related to Investment planned for 2003 include:

-- (STAR) Provide support to MPI in its efforts to revise
the Law on Foreign Investment.

-- (STAR) Provide training related to implementing ICSID
procedures.

-- (STAR) Support MPI in 1) developing a website for
disseminating information on foreign investment policies and
procedures and 2) developing a systematic analysis of the
difficulties faced by foreign investors in Vietnam.

-- (USVTC) Conduct a study tour to the U.S. on investment
and investment disputes.

-- (USVTC) Conduct follow-on workshops on accession to
ICSID.

Business Facilitation
---------------------

26. (SBU) The GVN may raise the issue of business visas for
Vietnamese nationals. On many occasions the GVN has
complained about 1) visa issuance requirements (which have
resulted in the refusal of applicants); how long the
application process takes; and 3) the short length of stay
allowed in the U.S. Post will provide DUSTR Huntsman and
participants in the "expert sessions" with background and
talking points on this issue upon arrival in Hanoi.

Transparency
------------

27. (SBU) Vietnam moved forward on efforts to enhance
transparency, but Vietnam's laws, regulations, and rule-
making processes are still far from compliant with this
obligation. After much debate, the National Assembly passed
a revised "Law on Laws" at the end of 2002, which is
supposed to provide the legal framework for many of the
changes related to transparency commitments that were due
upon implementation. While the revised law made noteworthy
improvements, it still does not conform with BTA
obligations. Of particular concern, the revised law 1) does
not adequately address the issue of public comment and 2)
does not include GVN orders, decisions, directives or
circulars in the definition of a "legal normative document."

28. (SBU) Although many GVN officials will admit that in the
cases where Vietnam has circulated draft laws and
regulations to industry and technical assistance providers,
the end result has been much better laws and rules, the
National Assembly saw the issue of public comment in terms
of national sovereignty and deleted that provision from the
final version of the revised law. Likewise, when new rules
have been published well in advance of their effectiveness,
implementation has been much smoother and the rules have
been much better received by the business community.

29. (SBU) However, Vietnam has not yet instituted a formal
regime to publish all laws, regulations, and administrative
practices promptly in a centralized source and in advance of
implementation to give companies an opportunity to adjust
their operations accordingly, and to provide opportunity for
input into the formulation process. We have been trying to
follow this issue closely and work with US firms to ensure
that any lack of transparency regarding new rules and
regulations does not have a negative impact on their
operations. There have been some noteworthy cases; at the
top of the list was a December 2002 decision by the Ministry
of Finance, which would have doubled import tariffs on auto
kits. The decision was based on a non-public "official
letter" from the Prime Minister and although it was due to
take effect on January 1, as of December 18, it had not yet
been issued publicly, published in the Official Gazette or
officially conveyed to the auto producers. (MOF
subsequently agreed to "delay" the decision.)

30. (U) In 2002 STAR supported the Office of the
Government's efforts to develop an "Action Plan for
Transparency," provided detailed comments on proposed
revisions to the Law on Laws and the draft Decree on the
Official Gazette, and hosted conferences and workshops on
transparency related obligations. USG-funded technical
assistance projects related to transparency planned for 2003
include:

-- (STAR) Support GVN efforts to further revise the Law on
Laws and improve the legal framework for the Official
Gazette.

-- (STAR) Support the MOJ in drafting a new "Law on
Promulgation of Local Level Legal Normative Documents."

-- (STAR) Support efforts to improve publication of laws and
court decisions at all levels of government.

Burghardt

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