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Cablegate: Vietnam: Mot Affirms No Mfn for U.S. Wines

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

UNCLAS SECTION 01 OF 03 HANOI 000821

SIPDIS

SENSITIVE

STATE PLEASE PASS TO USTR EBRYAN
STATE ALSO FOR E, EB AND EAP/BCLTV
USDOC FOR 6500 AND 4431/MAC/AP/OPB/VLC/HPPHO
USDA FOR FAS/ITP/SHEIKH
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ETRD EAGR ECON VM BTA WTO
SUBJECT: Vietnam: MOT Affirms No MFN for U.S. Wines

Ref: HANOI 696

Sensitive but Unclassified -- Please protect accordingly.

1. (U) Summary: In a meeting with the Ambassador on March
16, Minister of Trade Truong Dinh Tuyen asserted that
textile agreements are outside the "WTO track" and exempt
from MFN. He confirmed that the GVN believes it is not
obligated to extend tariff reductions given to EU wines in
the context of a bilateral textile agreement to U.S. wines
on an MFN basis. Ambassador highlighted the importance of
MFN in the WTO context and stressed that neither the WTO nor
the U.S.-Vietnam Bilateral Trade Agreement (BTA) exempts
textile agreements from application of MFN duty rates. End
summary.

2. (U) On March 16, Ambassador called on Minister of Trade
Tuyen specifically to discuss the GVN's refusal to reduce
duties on imports of U.S. wines on an MFN basis with
reductions already accorded to European wines. (Reftel) The
Ambassador noted that the U.S. has supported Vietnam's
efforts to accede to the WTO because we believe that Vietnam
supports the fundamental principles of the WTO. MFN is the
very first principle of both the GATT and the WTO; it is the
essence of the international trading system. Any country
that wants to accede to the WTO, must accept this. Using a
Vietnamese expression, the Ambassador concluded that if a
country does not respect MFN, then it is not ready for the
"big game."

Textiles outside the WTO system
-------------------------------

3. (U) In response to the Ambassador's opening remarks,
Minister Tuyen launched into a lengthy, disjointed, and
often contradictory discussion of the GVN's position on MFN.
Noting more than once that he was not only speaking for the
MOT but also for the Government, Tuyen repeatedly stated
that the GVN's official position is that textile agreements
are "outside the WTO track" and "exempt from MFN." It is
the GVN's right to include preferential tariffs on wine in a
bilateral textile agreement with the EU, he asserted. These
tariff concessions were made in order to get additional
textile quota. When Vietnam signed this "textile"
agreement, it believed that as long as Vietnam was not a WTO
member and textile agreements were exempt from the WTO
system, Vietnam would not be obligated to extend any of the
concessions included in it to other countries. Tuyen also
said he believed textiles are not part of the BTA, which is
why the two countries needed to negotiate a separate
agreement.

4. (U) If textile agreements were subject to MFN, Tuyen
continued, the U.S. would have to accord the same quotas to
all countries - which it does not. In addition, if Vietnam
were to apply the tariff reductions to U.S. imports,
countries like China and Russia would press for equal
treatment. Vietnam cannot satisfy these requests "for its
own reasons."

5. (U) Ambassador replied that the fact that tariff
reductions for EU wines were included in a textile agreement
is irrelevant. Wine tariffs are not exempt from MFN under
the WTO. The Ambassador also stressed that the only
exemption for textiles in the BTA is an exemption for
quotas. There is nothing in the BTA that says that items
grouped with textiles are exempt from MFN. Finally, the
Ambassador pointed out that the heart of Vietnam's problem
is its reliance on tariffs for revenue. Vietnam needs a
better revenue system so that it does not have to worry so
much about tariff levels. In most countries, customs
revenues represent a very small percentage of revenue, so
there is less anxiety about lowering them.

U.S. can ask for lower Wine Tariffs Bilaterally
--------------------------------------------- --

6. (SBU) At one point in the discussion, Tuyen said that if,
during bilateral textile agreement negotiations last year,
the U.S. had asked for a reduction in wine tariffs, the GVN
would have accepted this request on the basis of
reciprocity. The U.S. did not think of doing this, but the
EU did, he added. Tuyen then noted that the U.S.-Vietnam
bilateral textile agreement would expire at the end of 2004.
When the two countries renegotiate this agreement, the U.S.
side can propose tariff reductions for wine, he proposed.
(Note - the two sides have not agreed to renegotiate the
textile agreement. End note.) In response the Ambassador
noted that if he repeated this "offer" back in Washington,
people would say Vietnam is not "ready for the big game."

BTA Tariff Reductions for the U.S. Only
---------------------------------------

7. (SBU) Tuyen then noted that when the GVN reduces 250
tariffs at the end of this year in accordance with its BTA
obligations, it has no intention of extending these tariff
reductions to other countries. (Note: Although the BTA is
not a textile agreement, Tuyen offered no explanation of why
BTA tariff reductions would not be subject to Vietnam's MFN
agreements with other countries. End note.) The Ambassador
responded that other countries that have MFN arrangements
with Vietnam are also entitled to those reductions.

What about customs valuation for wine?
-------------------------------------

8. (U) The Ambassador then told Minister Tuyen that the
Embassy has received complaints from importers that the GVN
is not using transaction value as the basis for assessing
duties on imports of U.S. wines, despite a BTA obligation to
do so. The Minister responded that, as far as he knew,
Vietnam began using transaction value for all imports from
the U.S. in December 2003. "If the Ministry of Finance is
not implementing transaction value for all U.S. products, I
will tell them to fix it," he said.

A Small Opening
---------------

9. (U) On March 17, Ambassador, USTR Textile Negotiator
David Spooner and Department of Commerce Deputy Assistant
Secretary James Leonard called on Minister Tuyen to discuss

SIPDIS
textile quotas. (The full discussion on textiles will be
reported septel.) Minister Tuyen raised the issue of MFN,
noting that he had studied the Agreement on Textiles and
Clothing (ATC) and the Multi-Fiber Arrangement (MFA) and
found nothing indicating that MFN is applicable to textile
agreements. However, he also admitted that, after meeting
with the Ambassador the day before, he had gone back to his
staff for more information on Vietnam's MFN obligations but
did not get a clear answer. Minister Tuyen then said he
needed clear information so that he could advise the
Government accurately.

10. (U) Spooner responded that while the Minister is correct
that the ATC and MFA allow different treatment for textiles,
that treatment extends only to quotas, not tariffs. Even
then, Spooner added, the ATC will expire at the end of 2004.
The Ambassador added that the BTA is also very clear on this
issue: like the ATC, the BTA only exempts the quotas, not
the tariffs associated with textiles. It is up to Vietnam
whether it wants to make progress to join the WTO, the
Ambassador said. This issue is not just important to the
U.S. If other countries see that Vietnam does not respect
MFN, Vietnam will not make progress toward WTO accession.

11. (SBU) Comment: The GVN continues to believe that making
special bilateral deals remains appropriate despite MFN
obligations. The latest iteration is through the loophole
of inserting tariff reductions into "textile" agreements.
This logic is confirmed by Minister Tuyen's assertion that
BTA tariff reductions will not be applied to other trading
partners on an MFN basis. However, Minister Tuyen's
willingness to revisit the issue gives us some hope that we
may be able to get the GVN to correct itself on this
important issue. We will continue to lobby the GVN.
Ambassador plans to send a letter to DPM Vu Khoan asking
that he correct the MFN problem prior to the next meeting of
the BTA Joint Committee and/or the next WTO Working Party.
Text of the letter has been sent to the Department for
clearance.
Burghardt

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