Cablegate: Vietnam: Preparing for the Joint Committee Meeting

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OO RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHPB
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O 140805Z JUN 06
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2328
INFO RUEHHM/AMCONSUL HO CHI MINH CITY 1326
RUEATRS/DEPTTREAS WASHDC
RUEHGV/USMISSION GENEVA 1085
RUCPDOC/USDOC WASHDC
RUEHRC/USDA WASHDC
RUEHRC/USDA FAS WASHDC
RUEAIIA/CIA WASHDC
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RUEHZU/APEC COLLECTIVE
RUEHZS/ASEAN REGIONAL FORUM COLLECTIVE

UNCLAS SECTION 01 OF 08 HANOI 001434

SIPDIS

STATE FOR EAP/MLS AND EB/TPP/BTA/ANA
STATE PASS USTR GREG HICKS, DAVID BISBEE
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
TREASURY FOR OASIA

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ETRD EINV EAID ECON KIPR PREL VM
SUBJECT: VIETNAM: PREPARING FOR THE JOINT COMMITTEE MEETING
-- REVIEW OF KEY ISSUES

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1. (SBU) Summary and Introduction: The United States and
Vietnam will convene a meeting of the Bilateral Trade
Agreement (BTA) Joint Committee in Hanoi, June 19-20. In
preparation, Mission is providing a review of implementation
issues to raise with the Vietnamese side during the
discussions. In our view the most important issues are:
WTO/BTA inconsistent provisions in Vietnam's new IPR law and
draft regulations and continued poor IPR enforcement,
clarity on how the new Common Investment Law (CIL) and
Unified Enterprise Laws (UEL) are consistent with BTA
provisions, confirmation that sanitary and phyto-sanitary
(SPS) regulations will be science-based and not unduly
inhibit trade, continued cases of use of reference pricing
by Customs, and the need for regulations defining the
trading/distribution rights of foreign companies. However,
while continuing to note areas where implementation is
lagging, we should also acknowledge the tremendous progress
that Vietnam has made. End summary and introduction.

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

2. (SBU) The new IPR law is a vast improvement over
previous laws, bringing Vietnam's substantive law into
closer conformity with international norms and strengthening
enforcement. However, serious concerns remain:

-- Term of Copyright protection: Article 27 provides for a
term of 50 years from publication for films, photos,
dramatic works, applied art works, or anonymous works. For
other works the term is life of the author plus 50 years.
This term does not comply with the BTA, which requires that
where the term of protection of a work is not based on the
author's lifetime, the term must not be less than 75 years
from publication or, if the work is not published within 25
years from its creation, 100 years from creation.

-- Content-Based Restrictions on Copyright Protection:
Articles 7 and 8 of the new IPR law provide that IP rights
cannot "infringe upon interests of the state, the public or
legitimate rights and interests of other organizations,
individuals and shall not violate other applicable
provisions of relevant law." In addition, the state can
prohibit or limit IP rights "in order to ensure the
objectives of national defense, security, people living
(sic) and other interests of the nation and society ." We
had hoped that regulations would narrow this language, but
instead there are draft copyright implementing regulations
taking this language further, confusing censorship with
copyright protection by denying copyright protection to any
work that might be subject to censorship. We understand
that there is a new draft of the regulations, which we do
not yet have, but which we hope is an improvement.

-- Overly Broad Provisions on Fair Use and Compulsory
Licensing: Articles 25 (use without obtaining permission or
paying royalties) and 26 (use without obtaining permission,
but paying royalties) allow broad exceptions to normal IP
rights. For example under Article 26, "broadcasting
organizations using published works for the purpose of
carrying out broadcasting programs with sponsorship,
advertisements or collection of money in any form" do not
need to get copyright holders' permission to broadcast works
and are to pay royalties "in accordance with the Government
regulations." This provision could exempt all commercial TV
and radio broadcast. The draft implementing regulations do
not clarify this issue.

-- Potential Conflict between Civil Code and IPR Law:
Vietnam's Civil Code also contains some IPR provisions.
Article 5 of the IPR law provides that the Civil Code
applies where the IPR law is silent and that in the case of
conflict between the IPR law and other laws, the IPR law
applies. Government officials say that in the case of a

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conflict with the Civil Code, Article 5 means that the IPR
law would apply. Nevertheless, principles of statutory
interpretation are still undeveloped in Vietnam and it is
hard to predict how courts would rule on such a conflict.

-- Notice and takedown provisions: Neither the IPR law nor
the draft Information Technology law provide adequate notice
and takedown provisions for internet IPR violations.

-- Enforcement provisions: Mission has not seen draft
implementing regulations on enforcement. However, the draft
copyright implementing regulations provide guidance on civil
(Articles 49 - 51) and administrative procedures (Article
52). Article 51 provides that in order to prove copyright
ownership, a plaintiff must provide a certificate of
copyright issued by COV, a certificate showing an
application for copyright, or a written certification by a
"socio-professional" organization. This requirement may
violate BTA Article 3(2) by effectively requiring a
"formality" in order to enforce copyrights. Other concerns
include whether IPR law Articles 202, 214 comply with BTA
requirements for disposal outside the channels of commerce;
Article 214's provision for re-export of goods; and whether
the new law will provide legal penalties severe enough to
deter.

3. (SBU) International obligations: Vietnam has joined all
the international conventions that, in the BTA, it pledged
to join, except for the Union for the Protection of New
Varieties of Plants (UPOV) convention. Post understands
that the Ministry of Justice is evaluating a proposal to
join the UPOV and that the Ministry of Agriculture and Rural
Development expects that Vietnam will join this year. The
new IPR law and previous regulations provide some
protections for plant varieties. However, Vietnam's
enforcement of its IPR obligations under international
conventions is poor, as it is in general.

4. (SBU) Enforcement: The most important IPR issue is not
the new law and regulations, but enforcement. Mission
recommended that Vietnam continue to be on the 301 watch
list primarily because of weak enforcement of the current
laws. Legal DVDs, CDs, and software are virtually
unobtainable in Vietnam. The government and SOE's are among
the worst offenders. A particularly egregious violator is a
digital-terrestrial service operated by the Ministry of
Posts and Telematics, which illegally broadcasts overspill
satellite signals to end-users for a one-time decoder box
purchase fee.

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

5. (SBU) Technical Barriers to Trade(TBT)/Sanitary and Phyto-
sanitary (SPS) Measures: The National Assembly is now
debating a new draft law on standards and technical
regulations, which should be passed in its spring 2006
session (May to June). Under the draft law, technical
regulations are mandatory while standards, which can be set
either by government or non-government (including foreign)
entities, are voluntary. The new draft law contains BTA/WTO
consistent language requiring that technical regulations and
standards be based on science, look to international
standards, and not unreasonably inhibit trade. It
encourages transparency, allowing for public comment before
a new regulation or standard is issued, and provides for
procedures to contest the implementation of regulations and
standards.

6. (SBU) In the past, U.S. businessmen have raised a number
of complaints about TBT/SPS, including insufficient notice
of changes in applicable regulations, lack of transparency,
and uneven application of regulations. Regulations have at
times lacked a sound scientific basis and been inconsistent
with international norms. For example, in November 2005,
the Ministry of Health imposed a blanket ban on all imports

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of chicken, ostensibly to prevent the spread of Avian
Influenza (AI), although international standards do not call
for a blanket ban regardless of whether the exporting
country has an AI problem. On the other hand, Vietnam has
made progress in its SPS regime and recently became the
first country in Asia to open its market to U.S. boneless
beef and offal. An SPS Enquiry Point under the Ministry of
Agriculture and Rural Development (MARD) was set up in
September 2005, but it will not operate until after WTO
accession. MARD sent a letter to USTR requesting technical
assistance in February 2006.

7. (SBU) Trading Rights: Vietnam has still not fully
implemented BTA obligations regarding trading rights for
U.S. firms because it has not yet passed the necessary
implementing regulations. Implementing regulations for the
Common Investment Law (CIL) and Unified Enterprise Law
(UEL), which will come into effect on July 1, 2006, as well
as the Commercial Law (CL), which entered into force on
January 1, 2006, are now being drafted and should provide
the necessary permanent legal basis for trading and
distribution rights. In the meantime, a diplomatic note of
July 2005 provides a temporary legal basis for trading
rights for U.S. companies. The GVN had provided us in
August 2005 with a point of contact for U.S. business to
apply for trading rights (and distribution services rights)
as permitted under the BTA. One company, Colgate Palmolive,
was granted a license to import through this method, though
this license was limited to a single product, and the
company had to reapply to have trading rights for this
product extended into 2006. The GVN appears to be
interpreting its obligation here very narrowly and the
application process for these rights is burdensome; it has
not yet, to our knowledge, given blanket authorization to a
company to directly import goods. Other companies, e.g.
Carrier and American Indochina Management (AIM), which are
American-owned but Singapore and Hong Kong registered,
respectively, have been told they are ineligible for these
rights since they are not registered in the United States.

8. (SBU) Customs: Vietnam has essentially complied with
its obligation to comply with WTO rules to establish a
system of customs valuation based on transaction value and
to ensure that other fees and charges do not exceed the cost
of services rendered. We continue to hear occasional
complaints of "reference pricing." These appear to be
isolated incidents and seem to get resolved through a post
clearance audit process, which is still pretty cumbersome.
It also appears that Customs officials may resort to some
sort of reference price when faced with a good that is
unusual or infrequently imported, e.g. used golf clubs.
Post clearance audits occasionally have the appearance of an
attempt to get more money out of importers.

9. (SBU) Recently, FAS raised a problem regarding the use
of reference prices for dried peas. (Note: The peas were of
Canadian origin, although the supplier was American.) Dried
peas for food or feed use come in under HS 07131090. They
are properly invoiced at less than USD 300/ton. However, in
the Vietnamese Customs reference-price book, all the
commodities under the 0713 subheading, which include all
kinds of beans and lentils as well as peas are given a USD
2/kg or USD 2,000/ton reference price. Based on the
reference price, Customs rejected an invoice for imported
U.S. dry peas for less than USD 300 and valued the shipment
at USD 2000/ton. When the importer appealed, Customs only
lowered the tariff to USD 800, still well above the actual
prices. With a 30 percent tariff on dried peas, this
effectively closes the market. We should question the
Vietnamese about the continued existence of a reference
price book and ask how it is used as well as about the role
of post clearance audits.

10. (SBU) State Trading: According to BTA rules, state
owned enterprises (SOEs) should make sales and purchases in
accordance with commercial considerations. Vietnamese laws

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and regulations have removed most of the overt preferences
for SOE's, but the system is still not transparent. The GVN
is in the process of "equitizing" many SOEs. Generally,
this simply refers to changing the form of the SOE into a
shareholding company. Along with equitization, the state
usually distributes some portion of the shares to workers
and managers. Therefore with equitization, management and
de facto state control are not necessarily changed. The
shares of equitized SOEs rarely end up being offered to the
public or being listed on the stock exchange or sold in arms-
length, commercial transactions. Even the shares not
distributed to enterprise workers or management are often
sold to friends and relatives of current management.
Vietnamese statistics are not consistent in defining SOEs.
Often SOEs that have been equitized are included in the
private sector even though the state continues to hold a
majority share.

11. (SBU) To a certain extent, equitization appears to make
enterprises act in a more commercial, market-oriented
manner. A 2005 study by the GVN's Central Institute for
Economic Management (CIEM) and the World Bank found that 87
percent of equitized firms reported better performance even
when management did not change. In the study, the surveyed
firms reported that productivity went up by 18 percent;
workers' average salaries went up by 11 percent; sales
increased by 13 percent and after tax profits increased by
49 percent. However, a USAID supported study, using data
derived from the Provincial Competitiveness Index, found
that SOEs tend to "crowd out" private companies, having more
favorable access to inputs (such as finance and land) and
customs in provinces where there are more SOEs.

Services
--------

12. (SBU) General issues: In a number of service sectors,
Vietnam made commitments, such as on percentage of U.S.
equity permitted, in terms of joint ventures. However, the
new Unified Law on Enterprises (UEL) no longer provides for
joint ventures as a legal form of enterprise. It is unclear
how Vietnam's commitments will be fulfilled under the new
law. Post has heard conflicting reports on how these
commitments will be treated. Some experts say that the
equity percentages will simply apply to shareholding
companies and other forms of enterprises under the new law.
However, one expert said that proposed regulations would
effectively recreate joint ventures as a form of enterprise
and require U.S. companies to meet the requirements for
being a joint venture before being allowed to avail
themselves of their rights under the BTA. Another issue is
how the rights of U.S. companies that are currently
operating in Vietnam as joint ventures would be affected if
and when they transform themselves into one of the forms of
enterprise recognized under the UEL. Finally, a number of
sectors are considered to be "conditional," e.g., subject to
an approval process under the CIL. It is not clear yet what
the standards for approval will be or how they will impact
U.S. investors.

13. (SBU) Legal Services: Vietnam's National Assembly is
supposed to pass a new law on lawyers in 2006. The law had
its first reading in the current National Assembly session
and should be passed in the fall session. Under the BTA,
U.S. law firms are permitted, as of entry into force of the
agreement, to establish 100 percent owned law firms, as well
as joint ventures, and to consult on Vietnamese laws if the
consulting lawyers have graduated from a Vietnamese law
college and satisfy Vietnamese requirements. A local U.S.
law firm confirmed that it was able to participate actively
in Vietnam's legal market and has been able to hire
Vietnamese lawyers to advise on issues of Vietnamese law.
However, the GVN has split the legal profession between
solicitors and barristers. The effect of this split has
been to make it impossible for the law firm to use its
Vietnamese lawyers to represent clients in court.

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Fortunately, the new law on lawyers is expected to abolish
the distinction between solicitors and barristers.

14. (SBU) Market Research: The new Commercial Law does not
provide regulations and the Ministry of Trade has said that
it does not plan to provide separate regulations on this
issue. It is therefore not clear how the Vietnamese plan to
implement their BTA commitment to allow U.S. companies to
avail themselves of their BTA rights. At the same time,
however, we are not aware of any U.S. business interest in
this sector.

15. (SBU) Telecom: Under the BTA, Vietnam is supposed to
abide by the WTO Telecom reference paper, which requires,
inter alia, an independent regulator, a pro-competitive
legal framework, and cost-based interconnection fees. There
have been regulations or decrees to implement some issues
mentioned in the reference paper:

-- competitive safeguards (Competition Law passed in
December 2004),

-- interconnection (Directive No. 07/2005/CT-BBCVT by
Minister of Post and Telematics dated September 15, 2005 on
network interconnection and public telecommunications
services, Decision No.12/2006/QD-BBCVT dated April 26, 2006
issuing Regulation on interconnection between public
telecommunications networks), and

-- universal service (Decision No. 74/2006/QD-Ttg dated
April 7, 2006 approving a program on provision of public
welfare telecommunications services until 2010).

16. (SBU) However, many problems remain: cross-
subsidization still exists although reduced considerably by
Decision 191/2004/QD-TTg of the Prime Minister on the
establishment of the Public Welfare Telecommunications
Service Fund and Decision 217/2003/QD-TTg on management of
post and telecommunications fees and prices. VNPT Group is
being restructured to separate the management and finances
of the individual subsidiaries and thus, theoretically,
eliminate opportunities for cross-subsidization. However,
even under the new structure there could be still
opportunities for cross-subsidization since the VNPT Board
of Management could "reinvest" profits from a profitable
subsidiary to one which is not making a profit.

17. (SBU) MPT has made a little progress towards becoming
an independent regulator. However, MPT lacks a systematic
mechanism for regulating the telecom sector, which is still
almost entirely state-owned. Although MPT officials do not
sit on the VNPT board, a fundamental conflict of interest
problem remains in that VNPT, which, while technically an
SOE "owned" by the Ministry of Finance, has been
"established" under MPT (other telecom players have been
established by other ministries). This arrangement follows
the practice for the majority of Vietnam's SOEs and presents
a fundamental problem for regulatory systems in other
sectors as well. Detailed regulations on transparency of
interconnection arrangements or public availability of
licensing criteria have not yet been issued. Decree 160 on
Telecommunications discusses licensing criteria, but the
criteria are not clear. Regulations on the public
availability of the terms and conditions of individual
licenses have not yet been issued.

18. (SBU) The only private Vietnamese telecom firms, of
which there are a few, are non-facilities-based Voice over
Internet Protocol (VoIP) providers. Mission is aware of two
telecom service providers that have asked for our assistance
and been in contact with USTR. (Note that a Business
Cooperation Contract (BCC), a type of revenue-sharing
concession that enables restricted market entry for a fixed
period of time, is currently the only form of foreign
investment in Vietnam's telecommunications sector.) VITC is
a U.S. company with a BCC with Vietnam Post and Telecom

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(VNPT) (the telecom monopoly) to provide wholesale and
retail international voice and data communications through
VNPT's various subsidiaries. UTS is a U.S. VoIP provider
with a BCC with Vishipel, a telecom company owned by the
General Corporation for Marine Transport (an SOE). VITC
sought Mission's assistance in selling 25 percent of its
equity to VNPT (the deal fell apaQ over a disagreement over
who owed whom money). UTS asked for help when its VoIP quota
was reduced, but quotas have since been abolished. (See
Septel on Telecom for more details.)

19. (SBU) Distribution: The new Commercial law, which took
effect on January 1, 2006 will implement this right, but
implementing regulations have not yet been issued. In the
meantime, a July 2005 diplomatic note from the Ministry of
Trade confirmed that it was ready to grant licenses to
interested U.S. businesses. As mentioned above under
trading rights, the GVN in August 2005 instituted a POC at
the Ministry of Trade through which U.S. companies could
apply to avail themselves of trading and distribution
rights. This was meant as a stopgap measure until
legislation implementing these rights was passed. Most U.S.
companies we have talked to are not interested in a
distribution JV in which they have only a minority share.
There is only one company which has attempted to pursue a
distribution JV, American Indochina Management (AIM). As
noted above, AIM has been told by the GVN that it does not
qualify for BTA distribution rights since it is not an
American-registered company.

Investment
----------

20. (SBU) The new CIL and UEL appear to have moved towards
creating a level playing field for foreign and domestic
companies. Under these two laws, which come into effect on
July 1, 2006, both domestic and foreign enterprises are
treated essentially the same. However, we have not yet had
the opportunity to evaluate the draft regulations for these
two laws.

21. (SBU) Investment Licensing: CIL Chapter IV, Section I,
sets out the procedures that both foreign and domestic
enterprises must follow to register an investment. Domestic
enterprises do not need to register if they have investment
capital less than VND 15 billion (about USD 1 million). All
foreign investors must register. However, for both foreign
and domestic enterprises that have less than VND 300 billion
(about USD 20 million) in investment capital and do not fall
into the list of conditional investment sectors,
registration is a relatively simple notification process and
does not require evaluation. Domestic and foreign
investments over USD 20 million are subject to an approval
process.

22. (SBU) Entry, Sojourn and Employment of Aliens: It is
unclear if Decree 105/2003/ND-CP is inconsistent with
Article 8 of the BTA, which states that each party shall
permit nationals and companies of the other Party to
transfer or engage executives, managers or those possessing
specialized knowledge, subject to the laws of each party on
entry and sojourn. Decree 93/2005/ND-CP, which amends
Decree 105/2003/ND-CP, provides that in case a foreign
invested enterprise needs to hire a number of foreigners
exceeding three percent of the total laborers of the
enterprise they may file an application to the local
authority for consideration.

23. (SBU) Consensus requirement: BTA Annex H 4.2(b)
allowed Vietnam to maintain until December 2004, a
requirement that a limited number of important joint venture
decisions (appointment or dismissal of key officers,
amendments to the charter, approval of the final financial
statements, and loan for investment) be decided by
consensus. For U.S. companies that have been pushing to
gain the right to hold a 51 percent share of joint ventures,

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dropping the consensus requirement is important to ensure
that majority ownership confers meaningful control of a
joint venture. There are two questions to raise about this
issue. First, how will the Vietnamese implement 4.2(b) now
that joint ventures no longer exist under the UEL?

24. (SBU) Second, how does Vietnam reconcile 4.2(b) with
the supermajority provisions in the new UEL? Under the UEL
all decisions by a shareholders' meeting must be made by a
65 percent majority of participating shareholders. The
following decisions must be approved at a shareholders'
meeting by a supermajority:

-- amending of the corporate charter,
-- reorganizing or dissolving the company,
-- sale or investment of over 50 percent of corporate
assets,
-- approving the development strategy of the company,
-- removing of members of the boards of management and
supervision,
-- deciding on classes of shares and total number of shares
of each class,
-- approving the annual financial statement,
-- electing members of the boards of management and
supervision.

Annex H does not specify what should replace "consensus" and
arguably any provision for less than 100 percent meets that
requirement. However, discussions at the WTO may have made
this issue moot.

25. (SBU) Requirement that the general director or first
deputy general director be Vietnamese citizens: BTA Annex H
4(a) phased out this requirement by December 2004. In a
diplomatic note dated June 8, 2005, the GVN confirmed that
this requirement had been abolished. BTA Annex H 4(a)
applies only to joint ventures, which will no longer exist
under the new CIL and UEL, however, neither of these new
laws appear to require that enterprise officers be
Vietnamese citizens. It would be useful to confirm that
under the new laws and their regulations, foreign invested
enterprises will not face any citizen requirements for
leading enterprise officers.

26. (SBU) Capital Requirements: BTA Annex H 4.1 phased out
minimum capital requirements in December 2004. In a
diplomatic note dated June 8, 2005, the GVN confirmed that
this requirement had been abolished. BTA Annex H 4(a)
applies only to joint ventures, which will no longer exist
under the new CIL and UEL, however, neither of these new
laws appear to require that foreign invested enterprises
have a minimum share of capital. It would be useful to
confirm that under the new laws and their regulations,
foreign invested enterprises will not face any minimum
capital requirements.

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

27. (SBU) One of the great successes of the BTA has been
increasing transparency in Vietnam. All legal normative
documents (LND) must be published in Vietnam's Official
Gazette and the Prime Minister issued Decree 161/2005/ND-CP
which forbids agencies from issuing any legal norms except
by means of an LND. The decree also requires agencies to
send LND drafts that affect business to the VCCI for
publication on its website (in Vietnamese) and to allow 20
days for comments. Previously drafts had been published,
but often with little or no time for interested parties to
read and comment.

28. (SBU) The USAID funded STAR program is working with the
GVN to create an electronic version of the official gazette,
which would have the same legal authority as the printed
gazette. English language versions of some important laws
and decrees, as well as economic information, are available

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on websites, such as the Vietnam Economic Portal
(www.vnep.org.vn). A number of Vietnamese government
agencies, including the Ministries of Trade and Justice,
have websites with legal and economic information. The open
debate over the draft CIL in fall of 2005 was an example of
how much the legal process in Vietnam has changed. Foreign
businesses vigorously objected to certain provisions of the
law and many of their comments were taken into account,
resulting in a much better law. Nevertheless, it is often
difficult to obtain up-to-date information on new drafts of
laws and regulations, especially in English, even those
which the GVN must provide to the WTO working party. It can
also be difficult to obtain economic data from the
Government Statistical Office (GSO); the process is
cumbersome and non-transparent and GSO charges significant
fees.

BOARDMAN

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