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Cablegate: Vietnam: Wto Legislation Worries Us Lawyers

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





E.O. 12958: N/A

REF: A) HCMC 914

1. (SBU) SUMMARY: In the rush to meet its WTO accession
deadline, Vietnam is processing a large volume of
legislation. HCMC legal experts are concerned that
principles important to U.S. business may be lost or
diluted, particularly through implementing decrees. In
their view, top GVN leaders are not adequately monitoring
draft implementing decrees, and mid-level bureaucrats are
using the decrees to increase their power and roll back
liberalization in some areas. ConGen contacts also observe
that the lack of coordination between ministries on
legislation could result in a tangle of conflicting rules
that slow Vietnam's economy. END SUMMARY.

Decrees - Problem Areas

2. (SBU) In meetings with EconOff, HCMC legal experts
expressed concern about implementing decrees and ordinances
that are being drafted to supplement laws aimed at
fulfilling obligations for Vietnam's membership in the World
Trade Organization (WTO). Potential problems were
identified in decrees on franchising, multi-level marketing,
and in an ordinance on standards. (Problems with
legislation relating to trading rights and distribution
services were outlined in reftel.)

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3. (SBU) FRANCHISING: Lawyers at the HCMC branches of the
law firms Johnson Stokes & Master and Baker & McKenzie
reported their dissatisfaction with a draft decree and
possible conflicts between it and new rules on technology
transfer. (NOTE: Until now Vietnamese law has not provided
for franchises, except under rules of technology transfer.
END NOTE.) The draft franchising decree currently calls for
every branch of a franchise to be registered seperately,
with burdensome and repetitive documentary requirements for
each. In addition, lawyers at both firms said they were
observing a clash on the issue of franchises between the
Ministry of Trade (MOT) and the Ministry of Science and
Technology (MOST), which has responsibility for a new
technology transfer decree. Both ministries are fighting
for control of the issue and for revenues resulting from
registration and licensing fees. The lawyers noted that
companies trying to establish franchises may find themselves
caught in the middle of this bureaucratic struggle or
stymied by possibly conflicting rules on franchising and
tech transfer.

4. (SBU) MULTI-LEVEL MARKETING: Problems with a draft
multi-level marketing decree are similar to the problems
with the draft franchising decree. (NOTE: In multi-level
marketing companies, like Avon or Amway, sell to consumers
through tiers of independent agents. Such systems can be
subject to abuse by fraudulent mid-level agents unless
properly regulated. END NOTE.) Fred Burke, managing
partner at Baker & McKenzie Vietnam, (protect) reviewed one
version of the draft decree that would prohibit foreign
participation in multi-level marketing. Burke said the
intention of this provision is to prevent foreigners from
engaging in multi-level marketing directly while allowing
foreign companies that to use multi-level marketing to
operate through Vietnamese agents. Burke worries, however,
that this provision may be interpreted to prevent even U.S.
companies currently in this market from continuing to
operate in Vietnam. However, another HCMC lawyer, Sesto
Vecchi, (protect) noted he had seen a draft of the decree
that did not include a ban on foreign participation but did
require each retail outlet, or agent, to register
individually, another example of burdensome and repetitive
documentary requirements. Steve Parker, director of the
USAID-funded Support for Trade Acceleration (STAR) project,
noted that while the GVN is right to be concerned about
multi-level marketing, which has a potential for fraud and
abuse, it makes little sense to target foreign companies,
many of which have a track record of legitimate operations,
while allowing unproven domestic companies to operate

5. (SBU) STANDARDS: Even ordinances relating to standards
are not without problems. Burke reported that a draft
ordinance on standards does not allow for foreign comment on
standards setting. In addition, while most countries use
internationally accepted language on standards that meets
the requirements of the WTO Agreement on Technical Barriers
to Trade (TBT), Vietnam has opted to develop its own rules
that, in Burke's view, do not meet all the requirements of
TBT. Burke noted that these rules will have implications
for such sectors as fertilizers, chemicals, and automobile
and industrial parts, all sectors in which U.S. firms could
be strongly competitive in Vietnam, providing standards
adhere to international norms.

Coordination and Capacity Issues
6. (SBU) Burke and Dao Nguyen, partner at the HCMC branch of
law firm Johnson Stokes & Master, (protect) both highlighted
conflicts among the Unified Enterprise Law, the Common
Investment Law and other legislation. In Burke's view, the
use of the investment law to define tax rules is sensible,
but he is disturbed by what he sees as a tendency towards
conflicting jurisdictions and increasing bureaucratic
control, which could create opportunities for graft and
corruption. For example, Burke noted that the Ministry of
Planning and Investment (MPI) had included new rules on
tendering in a draft of the investment law, but it was
unclear how these rules affected existing tendering rules
laid down by other ministries. Nguyen noted drafts of the
investment and enterprise laws were attempting to ensure
that a set of common rules applies to foreign and domestic
enterprises, but the result seemed to be an increase in
required paperwork and a variety of lists of projects types
and documentary requirements for each. Nguyen observed that
while most foreign-invested enterprises were accustomed to
some of these rules, they may come as a surprise to some
Vietnamese companies that have not had to worry about such
rules in the past. Burke also expressed concern that in
practice these rules would be applied more strictly to
foreign firms, a concern he based on experience with uneven
enforcement of rules in other areas.

7. Some of the Embassy's economic growth consultants in
Hanoi were critical of the draft new Investment Law. In
their view, a major accomplishment of recent years was
shifting to a simple system of registration for domestic
companies to get a business license, which has made it
relatively easy to start a business. However, the proposed
Investment Law, which would apply to both domestic and
foreign businesses, would require a license for virtually
every concrete investment decision. They believe that the
original intent of government reformers had been to extend a
simple registration system of licensing to foreign as well
as domestic firms, at least in non-sensitive areas of
investment, this intent has been stymied by the desire of
the MPI to increase its control. (COMMENT: While we want to
encourage the GVN to treat foreign and domestic companies
equally, we would prefer that the GVN reduced bureaucratic
hurdles for foreign companies, rather than extending these
hurdles to Vietnamese companies. END COMMENT.)

8. (SBU) All the lawyers to whom EconOff spoke raised doubts
about the ability of the GVN's executive and judicial
branches to adequately administer the laws and regulations
once they are passed. Burke said GVN officials had
expressed concern to him regarding their ability to
implement the Commercial Law, many provisions of which
require trained economists to evaluate market conditions and
make determinations about such things as market share and
unfair trading practices. The result, according to Burke,
is that many companies have put mergers on hold while
waiting to see how implementation of the law is handled. Le
Cong Dinh, a partner at YKVN law firm, which is affiliated
with the U.S. firm White & Case, expressed skepticism at the
ability and willingness of many judges to incorporate new
economic laws into their rulings. Only by improving both
incentives and training will the judicial system begin fully
to adopt the new rules, Dinh said.

9. (SBU) COMMENT: Burke, Nguyen and Dinh all voiced dismay
over the proliferation of licenses and permits which will be
required under laws and decrees included in the WTO
legislative process. Burke and Nguyen opined that while top
GVN leaders have the right legislative vision, they need to
exert control over mid-level bureaucrats scrambling to
maintain power and opportunities for "rent" collection. In
an August 1-5 study mission to the United States organized
by the U.S.-Vietnam Trade Council (USVTC) drafters of the
investment and enterprise laws said the proposals for more
permits and registrations reflected in part Vietnam's
ignorance of how best to frame the laws. Lacking
understanding of other alternatives to organizing economic
activity, the fallback has been more permits and
registrations. The danger is that in addition to creating
onerous regulatory frameworks and opportunities for
corruption, the new laws and decrees will conflict with each
other, which could deter new foreign investment and act as a
drag on Vietnam's economy.


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