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Cablegate: Vietnam: Suggested Revisions for 2005 Nte

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

UNCLAS SECTION 01 OF 11 HANOI 003332

SIPDIS

STATE FOR EAP/BCLTV
STATE PASS USTR FOR GBLUE AND EBRYAN
USDOC FOR ITA/IA
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO

E.O. 12958: N/A
TAGS: ETRD EFIS VM BTA IPROP SOE FINREF
SUBJECT: VIETNAM: SUGGESTED REVISIONS FOR 2005 NTE

REF: STATE 240980

1. This cable transmits post's suggested revisions to the
text of the 2005 National Trade Estimate Report for Vietnam.
As instructed reftel, text was sent via email attachment
separately to USTR.

2. Begin text of draft NTE report:

VIETNAM

TRADE SUMMARY

The U.S. trade deficit with Vietnam was 3.4 billion in the
first 10 months of 2004, an increase of USD 640.6 million
from the same period in 2003. U.S. goods exports in the
first 10 months of 2004 were 1.02 billion, down 16.2 percent
from the previous year. Corresponding U.S. imports from
Vietnam in the first 10 months of 2004 were USD 4.4 billion,
up 11.1 percent.

The stock of U.S. foreign direct investment (FDI) in Vietnam
in 2003 was USD45 million, down from USD 139 million in
2002.

IMPORT POLICIES

Tariffs

Vietnam's tariff schedule was rationalized in 1992 and
simplified in 1999, following Vietnam's accession to the
ASEAN Free Trade Area (AFTA). Currently, there are three
sets of tariff rates: most favored nation (MFN) rates that
apply to about 75 percent of total imports from about eighty
countries that have bilateral trade agreements with Vietnam,
including the United States; Common Effective Preferential
Tariff (CEPT) rates that apply to imports from ASEAN
countries; and general tariff rates (50 percent higher than
MFN) that apply to all other countries. Under the terms of
the U.S.-Vietnam Bilateral Trade Agreement (BTA), Vietnam is
obligated to reduce significantly tariffs by an average of
about one-third to one-half on a broad range of U.S. imports
(approximately 244 lines) over a period of three years
beginning in December 2004. A Ministry of Finance Decision,
effective December 10, 2004, reduced the MFN tariff rates on
more than 1100 tariff lines to meet this BTA obligation.
The tariff reductions apply to imported goods having
certificates of origin from the United States as well as
imports from other countries that have an MFN agreement with
Vietnam.

On September 1, 2003, a new tariff system took effect that
is based on the eight digit Harmonized System and conforms
to ASEAN's Harmonized Tariff Nomenclature (AHTN). The new
system consists of 10,689 lines (4200 more than the old
one), of which 5,300 lines are at four and six digits and
5,400 lines are at eight digits. There are now fifteen
tariff rates (down from twenty) and the simple average
tariff rate increased from 16.8 percent to 18.2 percent. In
implementing the new tariff system, the Government of
Vietnam raised tariff rates on 195 items and reduced them on
106. Protection on 72 items, except for welding steel
tubes, was converted from price differential surcharges to
tariffs. Tariff rates on petrol and oils (heading 2709 and
2710) are not specified in the new schedule.

The National Assembly retains authority over setting tariff
bands for each product and the government is free to adjust
applied tariffs within the bands. There is no online
published tariff schedule, and it is often difficult to
determine when and how much tariffs have changed.

Non-tariff barriers

Non-tariff barriers (NTB's) were introduced in Vietnam when
the country shifted from a centrally controlled economy
toward market trade in the late 1980s to early 1990s and
quickly became a key component of Vietnam's trade policy.
In the past few years, Vietnam has made significant progress
in reducing the use of NTBs and, under the terms of the BTA,
Vietnam agreed to eliminate all non-tariff barriers,
including import and export restrictions, quotas, licensing
requirements, and controls for all product and service
categories over a period of three to seven years, depending
on the product.

Import prohibitions: Vietnam currently prohibits the
commercial importation of the following products: arms and
ammunition, explosive materials (not including industrial
explosives), military technical equipment and facilities,
narcotics, toxic chemicals, "depraved and reactionary"
cultural products, firecrackers, some children's toys,
cigarettes, second-hand consumer goods, right-hand drive
motor vehicles, used spare parts for vehicles, used internal
combustion engines of less than 30 horsepower, asbestos
materials under the amphibole group, various encryption
devices, and encryption software. Vietnam prohibits
importation and registration of motorcycles with engine
capacity exceeding 175 cubic centimeters for traffic safety
purposes. Importation of such motorcycles is allowed only
for special purposes such as for the armed forces, security
personnel, or for competitive sports.

Quantitative restrictions and non-automatic licensing:
Vietnam has been phasing out the use of quantitative
restrictions on imports. An April 2001 Decision of the
Prime Minister phased-out quantitative restrictions on
imports with the exception of sugar (until 2005). A
September 2003 Government Decision set up conditions for
importing and re-exporting petroleum. The trading is subject
to annual licensing and price regulation. Quantitative
limitations on exports in most sectors have been eliminated,
with the exception of textiles, garments, and a list of
sensitive items.

In May 2003, the Prime Minister issued a decision to
implement tariff-rate quotas (TRQs) on certain agricultural
products that were not previously under quotas. A May 2003
Government decision applied the TRQs to seven items starting
January 2004: cotton, raw tobacco, salt, milk, condensed
milk, corn, and chicken eggs. A Ministry of Trade Circular
issued in December 2003 provided details on management of
these TRQs, established the in-quota volumes for tobacco and
salt and set the quota volumes for cotton, milk, condensed
milk, corn and eggs equal to demand. In practice, only salt
and raw tobacco exporters are currently restricted by
quotas. The Ministry of Trade has primary responsibility
for establishing quota volumes and allocation of quota,
while Ministry of Finance determines the in- and out-of
quota tariff rates.

Currently all state companies are required to apply for
annual quotas in order to import foreign pharmaceutical
products.

Special authority regulation: Previously, importers
required approval from the relevant ministry(ies) to import
many goods. This system was changed in 2001. Now, seven
ministries and agencies are responsible for overseeing a
system of minimum quality/performance standards for animal
and plant protection, health safety, local network
compatibility (in the case of telecommunications), money
security, and cultural sensitivity. Goods that meet the
minimum standards can be imported upon demand and in
unlimited quantity and value.

Foreign Exchange system: In 1998, the State Bank of Vietnam
(SBV) issued a foreign exchange surrender requirement for
all exporters, including foreign invested enterprises. A
series of reductions decreased this requirement from 80
percent of foreign exchange balances to 30 percent as of May
2002. In April 2003, Government Decision 46 reduced the
foreign exchange surrender requirement to zero percent.

May 2000 amendments to the Law on Foreign Direct Investment
(FDI) allowed FDI enterprises to purchase foreign currency
at authorized banks to finance current and capital
transactions and other permitted transactions. Controls on
current account transactions have been liberalized. A 1998
Decree allowed both residents and non-residents to open and
maintain foreign exchange accounts with authorized banks in
Vietnam. A 2001 Circular permitted foreign investors to
transfer abroad profits and other legal income upon
presentation of relevant documents to the authorized banks.
A 2003 Decree contains the government of Vietnam's guarantee
to assist in the balancing of foreign currency for foreign
invested enterprises and foreign business cooperation
parties that invest in the construction of infrastructure
and certain other important projects in the event that banks
permitted to trade foreign currency are unable to fully
satisfy their foreign currency demand.

Customs: Under the terms of the BTA, by December 2003
Vietnam was obligated to apply transaction value for U.S.
imports and to ensure that no administrative fee or charge
imposed by customs authorities in connection with importing
or exporting any good exceeds the actual cost of the service
provided by Customs. In June 2002, the Government issued
Decree 60 establishing rules for customs valuation based on
transaction value, in accordance with WTO principles.
Subsequently the Ministry of Finance issued Circular 118
(December 2003) implementing the provisions of Decree 60 and
Circular 87 (August 2004) abolishing the use of all minimum
import prices. Vietnam has also committed to apply
transaction value to imports from ASEAN countries as well as
56 other countries on the basis of reciprocity. These
changes have significantly improved customs valuation in
Vietnam over the last year. However, application of CVA is
not entirely uniform and importers complain about the low
level of automation of Vietnam's customs system. The
Government plans to amend the Customs Law of 2000 by May
2005 in order to address remaining problems and facilitate
implementation of a USD 70 million World Bank loan-supported
customs modernization project in Vietnam.

Trading rights:

The Government of Vietnam currently maintains different
regulations on trading rights for domestic and foreign-
invested enterprises. Domestic Vietnamese enterprises are
entitled to import in accordance with the business line(s)
prescribed in their business registration certificates.
They are not required to apply for an import license, except
for goods for which MOT requires a non-automatic import
license. Foreign invested enterprises are not permitted to
import goods freely in Vietnam. Foreign invested
enterprises are allowed only to import goods used as inputs
in the manufacturing process, as well as machinery
equipment, transportation means and materials used in the
construction and installation of their project in accordance
with their investment license.

Under the terms of the BTA, beginning in December 2004,
enterprises with capital directly invested by U.S. nationals
and companies in production and manufacturing will be able
to engage in trading activities in most products and will be
able to enter into joint ventures with Vietnamese partners
to engage in trading activities in all products, as long as
the U.S. partner holds no more than a 49 percent share in
the venture. Beginning in December 2008, U.S. companies
will be able to establish wholly owned trading companies in
Vietnam. The right to trade in certain goods is subject to
a phase in period.

Taxes

In December 2002, the Government issued a strategy for the
auto sector with a primary goal of significantly increasing
the local content in domestically produced vehicles. At the
same time, the Ministry of Finance issued a decision to
raise the import duty rates for automobiles produced from
kits (CKDs). A joint campaign waged by affected foreign
auto companies and their representative Embassies resulted
in postponement of the change. However, in May 2003, the
National Assembly passed a Ministry of Finance proposal to
impose a 10% VAT on all cars and increase the special
consumption tax (SCT) on cars manufactured from CKDs
starting in 2004 and going up to 80% on some models by 2007.
The SCT was increased from 5% to 24% in January 2004 and
from 24% to 41% in January 2005. Under a Ministry of
Finance 2004-2010 roadmap for the harmonization of tariff
rates applied to CKDs and completely built units (CBUs), MFN
tariff rates applied to CKDs will rise 5-10% per year until
2008. The changes to the tax and tariff policy were made
years after foreign auto manufacturers had committed
significant resources to Vietnam. They have driven sales
down and are endangering the profitability of foreign
automakers in Vietnam.

STANDARDS, TESTING, LABELING AND CERTIFICATION

Sanitary and Phytosanitary Measures

Vietnam is currently working on the establishment of an SPS
regime based on international standards, guidelines and
recommendations. Its current regime is based on CODEX and
FAO/WHO standards, the standards of regional or developed
countries, or national standards. Vietnam has an inter-
ministerial Working Group that coordinates SPS activities
and the Ministry of Agriculture and Rural Development (MARD)
currently serves as a general enquiry point for information
on sanitary and phytosanitary requirements. Specific
responsibility for sanitary and phytosanitary control, plant
and animal quarantine, health quarantine and fisheries
inspection is further assigned to other Ministries and
agencies.

In December 2003 the Government banned imports of U.S. beef
because of a fear of BSE (Bovine Spongiform Encephalopathy),
a degenerative neurological disease affecting the central
nervous system in cattle. On October 5, 2004 the Ministry
of Agriculture and Rural Development issued a notice that it
would allow imports of U.S.-origin boneless beef, with the
conditions that the beef not originate from the state of
Washington and only be consumed in hotels and restaurants.
One month later, under pressure from USDA, MARD lifted these
restrictions. However, issues regarding the language used
in meat export certificates still need to be resolved.

Standards and Technical Barriers to Trade

The main ministry involved in standardization and quality
requirements is the Ministry of Science and Technology
(MOST). The Directorate for Standards and Quality (STAMEQ)
under the MOST is generally responsible for advising the
Government on issues related to standards, measurements, and
quality. There are currently three levels of standards:
national standards, sectoral standards, and company
standards. The system is complicated and not always
transparent. Some items are subject to voluntary
application; some items are subject to regulation by the
line ministries. Exporters and importers must obtain a
permit from the line ministries or a receipt showing an
inspection is in process for the controlled items to be
allowed through customs.

On March 25, 2003 Vietnam's TBT enquiry and notification
Point was formally established in the offices of STAMEQ.
However, this enquiry point will not be fully functional
until the end of 2005 or upon Vietnam's WTO accession.

Pharmaceutical companies face significant barriers to trade.
The Ministry of Health now prohibits the registration or re-
registration for import of 11 pharmaceutical products
(reduced from 23) that are produced domestically. In
addition, pharmaceutical companies complain that the
registration process for pharmaceuticals lacks transparency.
Guidelines and regulations are unclear and/or are not
applied in a consistent manner. The Ministry of Health
issues product visas with validity periods as short as one
year. The Government requires that all pharmaceutical raw
materials be imported into Vietnam within six months of the
date of manufacture. Additionally, foreign manufacturers of
vaccines are required to conduct clinical trials in Vietnam
before being permitted to register their vaccines for sale.

GOVERNMENT PROCUREMENT

Government procurement practices can be characterized as a
multi-layered decision-making process, which often lacks
transparency and efficiency. Although the Ministry of
Finance allocates funds, various departments within the
ministry or agency involved determine government procurement
needs. Competition for government procurements may take any
of several forms: sole source direct negotiation, limited
tender, open tender, appointed tender, or special purchase.
Currently, ministries and agencies have different rules on
minimum values for the purchase of material or equipment,
which must be subject to competitive bidding. High-value or
important contracts such as infrastructure (except World
Bank, Asian Development Bank, UNDP, or bilateral official
development assistance projects) require bid evaluation and
selection and are awarded by the Prime Minister's office or
any other competent body. No consolidated or regular
official listing of government tenders exists; however, some
solicitations are announced in the both Vietnamese and
English language newspapers.

EXPORT SUBSIDIES

Export credit is very limited in Vietnam. The Export
Promotion Fund managed by the Ministry of Finance, provides
subsidies in the form of interest rate support (full or
partial refund of interest incurred on ordinary bank loans),
direct financial support (to first-time exporters, for
exports to new markets, or for goods subject to major price
fluctuations) and export rewards and bonuses. Since 1998,
the average annual export reward provided to eligible
enterprises has ranged from USD 2,900 to USD 4,710.
Provision of export bonuses, originally targeted for exports
of agricultural products, was expanded in 2002 to include
non-agricultural products such as handicrafts, rattan and
bamboo ware, plastic products and mechanical products.
Since 2001, the Export Promotion Fund has also provided
support to enterprises for expenditures on trade promotion
activities.

Since September 2001, the Development Assistance Fund has
administered an export credit program that has provided
short-term loan guarantees, medium and long-term investment
loans, post-investment interest rate support and investment
credit guarantees to domestic enterprises.
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
Vietnam is a member of the World Intellectual Property
Organization (WIPO) and is a signatory to the Paris
Convention for Industrial Property. It has acceded to the
Patent Cooperation Treaty and the Madrid Agreement. On
October 26 2004, Vietnam officially joined the Berne
Convention on Copyright Protection for Literary and Artistic
Works. Vietnam is also obliged, under the terms of the 1997
U.S.-Vietnam Bilateral Copyright Agreement, to provide U.S.
copyrights protection on a national treatment basis in
accordance with the terms of the Berne Convention. Under
the terms of the BTA, Vietnam was obligated by December 2003
to make its system for protecting IPR, including
enforcement, consistent with the WTO TRIPS agreement.
Considerable progress has been made over the past few years
in establishing the legal framework for IPR protection. New
legislation in 2004 included more detailed regulations on
plant varieties and administrative sanctions against
counterfeiting. However, the legal reform process is not
yet complete. The Government has instructed the Ministry of
Science and Technology (MOST) and the Ministry of Culture
and Information (MOCI) to draft a separate law on
intellectual property rights. The GVN plans to submit the
law to the National Assembly for approval in 2005.

Enforcement of IPR protection remains extremely weak. The
BTA requires the government of Vietnam to provide
expeditious remedies to prevent and deter infringement of IP
rights, including particular judicial and administrative
procedures, prompt and effective provisional measures
secured by sufficient evidence, and criminal procedures and
penalties for willful trademark counterfeiting or
infringement of copyrights or neighboring rights on a
commercial scale.

Patent and Trademarks

Trademark registration in Vietnam is relatively
straightforward, although infringement is widespread and
enforcement of administrative orders and court decisions
finding IPR infringement remains problematic. Vietnam's
laws offer some protection for foreign patent holders, but
there are infringements. The National Office of
Intellectual Property (NOIP), under the Ministry of Science
and Technology, administers Vietnam's patent and trademark
registration systems. NOIP has made significant progress in
recent years to build adequate capacity to record and
adjudicate patent and trademark claims, and is working with
a number of foreign patent and trademark agencies to enhance
its systems. Obtaining expeditious adjudication and
administrative enforcement of patent and trademark
violations remains difficult. Victims of infringement have
encountered difficulties implementing NOIP enforcement
decisions.

The BTA guarantees national treatment for the acquisition of
IPR. However, currently the National Office of Intellectual
Property (NOIP) charges higher amounts to foreigners than it
does to Vietnamese nationals for fees associated with
registering and maintaining industrial property. Fees
charged to foreigners range from 417 percent to 471 percent
higher than fees charged to Vietnamese for the same service.
In May 2004, the Ministry of Finance and the Ministry of
Science and Technology drafted a joint circular that will
harmonize the industrial property fees charged to Vietnamese
and foreigners, but the circular is still pending approval.

Copyrights

The Vietnam Office of Literary and Artistic Copyright is
under the control and supervision of the Ministry of Culture
and Information. Significant progress has been made in
putting in place the legal framework required to protect
copyrights, including those belonging to foreigners, but
enforcement is almost non-existent. This is particularly
true for certain categories of products, such as PC
software, music and video CDs, VCDs, and DVDs. Industry
estimates of piracy rates for software, music, and videos
run as high as 92 percent. Local police authorities often
are slow to act on administrative orders fining infringement
and enforcing court decisions. After Vietnam joined the
Berne Convention, the Ministry of Culture and Information
made an effort to tighten copyright regulations on foreign
musical and theatrical works. All organizers must now
obtain permission in writing from the copyright holders
before performing their works.

SERVICES BARRIERS

Under the terms of the BTA, Vietnam agreed for the first
time to liberalize a broad array of services sectors,
including telecommunications, accounting, banking, and
distribution services, and to apply MFN treatment to U.S.
services suppliers in all sectors and for all modes of
supply (with itemized exceptions). The BTA also
incorporated the WTO Agreements on Trade in Services (GATS)
(except Paragraphs 3 and 4), Annex on Movement of Natural
Persons, Annex on Telecommunications (except Paragraphs 6
and 7), and the Telecommunications Reference Paper.
Vietnam's commitments to liberalize market access on
services are phased in over specified time periods depending
on the sector. The commitments by sector are as follows:

Accounting, Auditing, and Bookkeeping Services: For the
first three years under the BTA, licenses will be granted on
a case-by-case basis. The company must employ at least five
persons with licenses to be a CPA in Vietnam who have
practiced in Vietnam for more than one year. For the first
two years under the BTA, firms with U.S. equity will only be
allowed to supply services to foreign-invested enterprises
and foreign funded projects in Vietnam. Two new decrees in
2004 revised the regulations for the accounting and auditing
sectors. Government Decree 105 allows auditing firms to be
established in the form of partnerships, private enterprises
or foreign invested enterprises. Decree 105 allows foreign
invested auditing firms to set up branches in Vietnam.
Government Decree 129 allows accounting firms to be
established in the form of limited liability companies,
partnerships or private enterprises. Branching is not
permitted.

Taxation Services: For the first five years under the BTA,
licenses will be granted on a case-by-case basis, and firms
with U.S. equity will only be allowed to supply services to
foreign-invested enterprises and foreign funded projects in
Vietnam. Branching is not permitted.

Architectural, Engineering, and Computer Services: For a
period of two years from the date of establishment and
operation, U.S.-owned companies may only provide services
with foreign-invested enterprises in Vietnam. U.S.
companies have to be legally registered in the United
States. Branching is not permitted.

U.S. companies and companies with U.S. directly-invested
capital are not permitted to carry out topographic,
construction, geological, meteorological, and environmental
investigations; or technical investigations for designing
rural-urban construction plans, unless otherwise authorized
by the Government of Vietnam.

Legal Services: Under the terms of the BTA, 100 percent
equity ownership in companies, joint ventures, and branches
is permitted. U.S. lawyers may not appear before Vietnamese
courts. However, U.S. firms may advise on Vietnamese law if
they hire persons with Vietnamese law degrees who satisfy
the requirements applied to like Vietnamese practitioners.
Branches of law firms may receive a five-year renewable
license. In July 2003, the government promulgated Decree 87
significantly reforming the regulatory framework for the
operations of foreign law practices and foreign law firms.
The decree substantially broadened the scope of practice of
foreign law firms in Vietnam. Foreign law practices are
permitted to provide advice on foreign and international law
in the areas of business, investment and commerce, which had
been prohibited previously. By virtue of these reforms,
foreign law firms may now offer a full range of legal
services and employ Vietnamese lawyers.

Advertising Services and Market Research: Vietnam has not
agreed to provide market access for advertising services for
wines and cigarettes or for the cross-border supply of
market research services. U.S. companies in these sectors
may initially only establish a commercial presence through
joint ventures or business cooperation contracts with
Vietnamese partners. U.S. investment is limited to 49
percent of the legal capital for the first five years under
the Bilateral Trade Agreement, 51 percent for years six and
seven, and is unlimited after that. Vietnam has not agreed
to ensure national treatment for the cross-border supply of
market research services.
Management Consulting: U.S. companies may only establish a
commercial presence through joint ventures or business
cooperation contracts. After the BTA has been in effect for
5 years, enterprises with 100 percent U.S. ownership will be
permitted.

Telecommunication Services: Initially, the provision of
basic telecommunications services, value-added
telecommunications services, and voice telephone services
are only permitted through business cooperation contracts
with Vietnamese gateway operators. According to the terms
of the BTA, U.S. value-added telecommunications service
providers may establish joint ventures with Vietnamese
partners with up to 50 percent equity ownership. These
joint ventures may not, however, construct their own long-
distance and international circuits. However, Vietnamese
law does not yet provide for joint ventures in the telecom
sector, and the Government has not issued any regulations or
other documents specifically authorizing joint ventures with
U.S. companies or clarifying the procedures for such
partnerships in the telecom sector. Four years after entry-
into-force of the BTA, U.S. basic telecommunications service
suppliers can establish joint ventures with Vietnamese
partners with up to 49 percent U.S. equity ownership. These
joint ventures may not, however, construct their own long-
distance and international circuits. Six years after entry-
into-force of the Agreement, U.S. voice telephone service
providers may establish joint ventures with Vietnamese
partners with up to 49 percent U.S. equity ownership.

Audiovisual Services: Vietnam has not agreed to provide
market access or national treatment for cross-border supply
or consumption abroad of audiovisual services. U.S. service
suppliers may establish a commercial presence only through a
business cooperation contract or joint venture with a
Vietnamese partner. For the first five years after entry-
into-force of the BTA, U.S. ownership may not exceed 49
percent. After five years, U.S. ownership may not exceed 51
percent. The Government strictly limits the importation of
foreign films, videos, television and books. Numerous
licensing, pricing and remittance restrictions exist. IPR
protection for audio-visual products is ineffective,
censorship is restrictive and rules are often applied in an
ad-hoc manner.

Construction and Related Engineering Services: Vietnam has
not agreed to provide market access or national treatment
for the cross-border supply of construction and related
engineering services. Branches are not permitted. For the
first three years after their establishment and operation,
100 percent U.S.-owned enterprises may only provide services
to foreign-invested enterprises in Vietnam. U.S. companies
must be legally registered for operation in the United
States.

Distribution Services: Vietnam does not provide market
access or national treatment for the cross-border supply of
distribution services. Three years after entry-into-force
of the BTA, U.S. service providers may establish joint
ventures with Vietnamese partners with up to 49 percent U.S.
equity. After six years, U.S. ownership in joint ventures
will be unlimited. After seven years, companies with 100
percent equity will be allowed. One retail outlet per firm
may be established upon entry into force of the BTA, while
additional outlets will be considered on a case-by-case
basis. For some agricultural and industrial products,
market access in this sector is subject to additional
limitations, which will be phased out over a period of three
to five years. There are a limited number of products for
which Vietnam did not commit to allow distribution services.

Educational Services: Vietnam will not provide market
access or national treatment for the cross-border supply of
educational services. For the first seven years after entry-
into-force of the BTA, U.S. companies may only establish a
commercial presence through a joint venture. After that,
schools with 100 percent U.S.-invested capital may be
established. Foreign teachers employed by educational units
with U.S.-invested capital must have five years teaching
experience and be recognized by the Ministry of Education.

Insurance Services: Vietnam has agreed to allow market
access for the cross-border supply of insurance services to
enterprises with foreign invested capital or foreigners
working in Vietnam; reinvestment services; insurance
services in international transportation; insurance
brokering and reinsurance brokering services; and advisory,
claim settlement, and risk assessment services. Three years
after entry-into-force of the BTA, U.S. companies can
establish joint ventures with Vietnamese partners with up to
50 percent U.S. equity participation. After five years, 100
percent U.S.-invested companies may be established.

While the Government has allowed foreign investment in both
the "life" and "non-life" insurance markets, access has been
extremely limited for U.S. service providers (only one U.S.
"life" insurer has been issued a 100 percent foreign-owned
license to operate.) Some joint ventures with Vietnamese
companies have been allowed to convert to 100 percent
foreign ownership, but the terms have been arbitrary and
subject to the "ad hoc" approval of the Government.

Companies with U.S.-invested capital cannot provide
insurance for motor vehicle third party liability, insurance
in construction and installation, insurance for oil and gas
projects, or insurance for projects and construction of high
danger to public security and environment. Three years
after entry-into-force of the BTA, this limitation is
eliminated for joint ventures. After six years, this
limitation is eliminated for companies with 100 percent U.S.
capital.

For the first 5 years after entry-into-force of the BTA, any
company with U.S. capital must reinsure part of the accepted
liabilities (currently at a minimum rate of twenty percent)
through the Reinsurance Company of Vietnam.

Banking: Vietnam has not agreed to provide market access or
national treatment for the cross-border provision of banking
services, except for financial information services and
advisory, intermediation, and other auxiliary services.
U.S. banks may establish branches, joint ventures with
Vietnamese banks, wholly owned U.S. financial leasing
companies or joint venture financial leasing companies with
Vietnamese partners. However, foreign branches cannot be
opened in both Hanoi and Ho Chi Minh City (with full branch
status) to operate as one entity.

For the first three years after entry-into-force of the BTA,
the only legal form apart from banks and leasing companies
in which U.S. companies may provide financial services is
through joint ventures with Vietnamese banks. During the
first nine years, U.S. equity in joint venture banks must be
between 30 percent and 49 percent. After nine years, 100
percent equity participation in subsidiary banks will be
allowed. The Government recently amended the Law on Credit
Institutions, laying the groundwork for the establishment of
100 percent foreign owned banks ahead of Vietnam's BTA
obligations. A Decree on Foreign Banks (currently in draft)
and an implementing circular need to be promulgated before
this change will come into effect. It is expected that
these regulations will be completed late in 2005.

The right of U.S. banks to accept Vietnamese currency
deposits on the same basis as domestic banks is phased in
over eight years for business clientele and ten years for
retail depositors. After this, U.S. bank branches will be
entitled to full national treatment. Vietnam is fulfilling
this commitment by gradually allowing U.S. banks to increase
the amount of deposits in Vietnamese Dong (i.e. the local
currency) relative to the branch's legal paid-in capital
with the ratio presently at 400 percent for legal persons
and 350 percent for natural persons. (Prior to entry-into-
force of the BTA, this ratio was 25 percent.) In addition,
financial institutions with U.S. equity cannot issue credit
cards on a national treatment basis until eight years after
entry-into-force of the BTA. U.S. banks are now allowed to
place automatic teller machines outside their office on a
national treatment basis.

Vietnam reserved the right to limit, on a national treatment
basis, equity investment by U.S. banks in privatized
Vietnamese state-owned banks.

U.S. bank branches, subsidiaries, or U.S.-Vietnam joint
ventures must obtain a license to establish a commercial
presence in Vietnam. A U.S. parent bank must provide
minimum capital of USD 15 million to establish a branch.
Establishing a U.S.-Vietnam joint venture bank or a U.S.
bank subsidiary requires minimum capital of USD 10 million.
Authorized capital levels for state-owned commercial banks,
joint-stock commercial banks, investment banks and joint
venture banks are set at more advantageous levels

For the first three years after the entry-into-force of the
Agreement, financial institutions with 100 percent U.S.
equity ownership may not take an initial mortgage interest
in land use rights. After three years, these institutions
will be allowed to take an initial mortgage interest in land-
use rights held by foreign-invested enterprises, and may use
mortgages or land-use rights for the purpose of liquidation
in case of default.
Establishing a wholly owned subsidiary of a U.S. financial
leasing company or a joint venture leasing company requires
three consecutive profitable years, and USD 5 million in
legal capital.

For the first three years under the BTA, Vietnam is not
obligated to provide national treatment with respect to
access to central bank rediscounting, swap, and forward
facilities. However, in 2003, the State Bank of Vietnam
allowed one U.S. bank with branches in Vietnam (and some
local banks) to provide swap service on a pilot basis. In
May 2004, the State Bank of Vietnam issued Decision 648
allowing commercial banks to provide forward and swap
facilities to their clients.

Licenses for foreign banks currently are limited in validity
to only 20 to 30 years and extensions (if any) are subject
to the approval of the State Bank of Vietnam.

Non-banking Financial Services: The BTA allows 100 percent
U.S. equity in financial leasing and in other leasing after
3 years. Government Decree 79 issued in 2002 permits the
establishment and operation of finance companies in Vietnam,
including joint venture and wholly foreign owned finance
companies.

Securities-Related Services: Vietnam has not agreed to
provide market access or national treatment for the cross-
border supply of securities-related services. Non-bank U.S.
securities service suppliers may only establish a commercial
presence in Vietnam in the form of a representative office.
In 2003 the Government issued Decree 144 on Securities and
Securities Trading, allowing foreign investment in
securities investment funds and fund management companies.
Government Decision 146 issued in July 2003 limited foreign
capital contribution in joint venture security companies or
joint venture fund management companies to 49 percent.

Health-Related Services: U.S. operators may provide
services through the establishment of 100 percent U.S.-owned
operations, joint ventures with Vietnamese partners or
through business cooperation contracts. The minimum
investment capital is USD 20 million for a hospital, USD 2
million for a polyclinic, and USD 1 million for a specialty
unit.

Tourism and Travel-Related Services: U.S. companies may
establish a commercial presence to provide hotel and
restaurant services, provided that this is done in
conjunction with investment for the construction of a hotel.
The commercial presence may take the form of a business
cooperation contract, a joint venture with Vietnamese
partners, or a company with 100 percent U.S. equity
investment.

There are limitations with respect to travel agencies and
tour operators. U.S. companies supplying these services may
establish a commercial presence only through a joint venture
with Vietnamese partners and can initially only contribute
49 percent of the capital. Three years after entry-into-
force of the BTA, 51 percent participation will be allowed,
and all limitations will be abolished after five years.
Tourist guides in joint ventures must be Vietnamese
citizens. Service supplying companies with U.S.-invested
capital may only supply inbound service.

INVESTMENT BARRIERS

At present, the government of Vietnam maintains an extensive
investment licensing process, which is characterized by
stringent and time consuming requirements that are
frequently used to protect domestic interests, limit
competition, and allocate foreign investment rights among
various countries. Foreign businesses are permitted to
remit profits, share revenues from joint ventures, incomes
from services and technology transfers, legally owned
capital, and properties in hard currency. Foreigners are
also allowed to remit abroad royalties and fees paid for the
supply of technologies and services, principal and interest
on loans obtained for business operations, and investment
capital and other money and assets under their legitimate
ownership.

The BTA provides a broad range of benefits to U.S. investors
in Vietnam that should significantly enhance the investment
environment for U.S. firms. Vietnamese investment
obligations under the BTA include: providing national and
most-favored-nation treatment, except where explicit
exceptions have been made; ensuring treatment of
expropriation consistent with international standards; and
guaranteeing access to third-party investor-state dispute
settlement. In practice, however, recognition and
enforcement of foreign arbitral awards in Vietnam currently
remains questionable.
In addition, Vietnam is obligated under the BTA gradually to
discontinue application of any Trade-Related Investment
Measures (TRIMS) or performance requirements inconsistent
with the WTO TRIMS agreement.

Under the terms of the BTA, Vietnam retained the right to
require that an investment project export at least eighty
percent of its production for seven years in the following
sectors: cement; paint; toiletry tiles and ceramics; PVC
and other plastics; footwear; clothing; construction steel;
detergent powder; tires and inner tubes for cars and
motorbikes; NPK fertilizer; alcoholic products; tobacco; and
paper. In December 2001 (three days prior to entry-into-
force of the BTA), Ministry of Planning and Investment
Decision 718 revised the list of products subject to an
export requirement. However, many of the products
identified in Decision 718 are not in the list agreed upon
in the BTA. According to Decision 718, Vietnam currently
has an eighty percent export requirement for: motorcycles;
minibuses and trucks (less than 10 ton); some irrigating
pumps; medium voltage, low voltage and normal electric
transmission cables; cargo ships, audio-visual products;
aluminum profiles products; construction glass; NPK
fertilizer; PVC; bicycles and bicycle parts; transformers
under 35 KV; and diesel motors under 15 CV.

Vietnam is also obligated to refrain from imposing
requirements to transfer technology as a condition for the
establishment, expansion, acquisition, management, conduct,
or operation of an investment. Vietnam currently imposes a
number of performance requirements with respect to the
establishment of an investment and/or the receipt of a
benefit or incentive. Vietnam retains restrictions on
foreign shareholding in Vietnamese companies, although the
ratio has been raised from twenty to thirty percent. In
March 2003, the government issued Decree 27 amending the Law
on Foreign Investment, removing trade balancing requirements
and foreign exchange controls. In April 2003, the
government issued a decision to reduce the foreign exchange
surrender requirement to 0 percent.

Decree 27 also now allows foreign investors to recruit
Vietnamese workers directly, without having to go through
labor recruitment agencies. However, in September 2003,
Government Decree 105, drafted by the Ministry of Labor,
Invalids and Social Affairs, established a regulation
limiting all enterprises operating in Vietnam to employing
foreign nationals at the lesser of 1) a maximum rate of 3
percent of their total work force or 2) 50 persons. Despite
repeated complaints from the foreign business community, the
government appears unwilling to lift the cap. Proposed
amendments to the Decree may provide exemptions for certain
sectors and types of employment and eliminate the 50-person
limit

In the BTA, Vietnam committed to gradually shift to an
investment registration regime for most sectors.
According to Decree 27, the following types of investment
are no longer subject to investment licensing: investment
projects that export eighty percent of products; investments
in "encouraged" or "specially encouraged" projects located
in industrial zones (with some exceptions); and investment
in the manufacturing sector with a value of up to USD 5
million in investment capital.

Vietnam's technology transfer regime needs to be revised.
According to Government Decree 45 (from 1998) the royalty
rate for technology transfer cannot exceed 5 percent of the
"net selling price" of the products produced with the
technology. Decree 45 also narrowly defines the "net sales
price" to which the royalty is applied resulting in very
small royalties.

ELECTRONIC COMMERCE

To date, electronic commerce has not made much progress in
Vietnam. Obstacles to its development include: the low
number of Internet subscribers in-country, obtrusive
firewalls, limited bandwidth and other problems with the
Internet infrastructure, limitations of the financial system
(including the low number of credit cards in use), and
regulatory barriers. However, recent developments to
facilitate the growth of electronic commerce in Vietnam
include legal acceptance of e-signatures and implementation
of the electronic inter-bank transaction system. The number
of online transactions has been increasing. The National
Assembly Committee for Science, Technology and Environment
is will be drafting an e-transaction law, which will include
electronic commerce issues. The Committee expects to submit
the draft to the National Assembly for approval late in
2005.

The government of Vietnam continues to attempt to keep close
control on all websites established in Vietnam. In October
2002, the government of Vietnam passed a new regulation on
the establishment and modification of websites. The
regulation requires domestic and foreign agencies,
organizations, and enterprises to obtain a license from the
Ministry of Culture and Information before establishing new
websites. The Ministry then has 30 days to make a decision
on granting the license. The regulation also requires
diplomatic and other foreign entities to obtain written
approval from the Ministry of Foreign Affairs (MFA) before
requesting a license from MOCI. Vietnam may also require
organizations to request permission from MOCI before making
changes to the content of their existing websites based on
licensing requirements in the regulation.

OTHER BARRIERS

U.S., other foreign, and domestic firms have identified
corruption in Vietnam in all phases of business operations
as an obstacle to their business activities. Vietnam scored
a 2.6 out of a possible high score of 10 points on
Transparency International's Corruption Perception Index.
In large part due to a lack of transparency, accountability,
and media freedom, widespread official corruption and
inefficient bureaucracy remain serious problems that even
the Communist Party of Vietnam and the government of Vietnam
admit they must address on an urgent basis. Competition
among government agencies for control over business and
investments has created a confusion of overlapping
jurisdictions and bureaucratic procedures and approvals,
which in turn create opportunities for corruption. Low pay
for government officials and woefully inadequate systems for
holding officials accountable for their actions compound the
problems. Implementation of the government of Vietnam's
public administration reform program, developed with the
assistance of the World Bank, as well as Vietnam's
obligations under the transparency provisions of the BTA
promise some improvement in the situation in the medium to
long term, but it appears unlikely there will be much
improvement in the near term.

Vietnam maintains a policy of bias in favor of domestic-
market oriented industries, particularly those dominated by
state-owned enterprises. Although all registered firms,
regardless of ownership, can engage legally in foreign
trade, barriers exist that discourage trading by non-state
enterprises. Monopolies in production result in monopolies
in trading, as in the case of coal. The tariff structure
also favors domestic industries, particularly those
dominated by state-owned enterprises. Most lower tariffs
are on items predominantly used by those enterprises as
inputs.

In April 2003, the United States and Vietnam concluded a
textile trade agreement. The textile agreement assists U.S.
domestic manufacturers by including Vietnam within the
global textile quota regime and helps our importers by
providing certainty and avoiding the unpredictability of
frequent, random, unilateral limits. This agreement also
contains a labor provision. Both parties reaffirm their
commitments as members of the ILO and also indicate their
support for implementation of codes of corporate social
responsibility as one way of improving working conditions in
the textile sector. The agreement also calls for a review
of progress on the goal of improving working conditions in
the textile sector through consultations between the U.S.
Department of Labor and the Vietnamese Ministry of Labor,
Invalids, and Social Affairs.

End draft text.

BOARDMAN

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