US embassy cable - 03HANOI2778

UNCLAS SECTION 01 OF 04 HANOI 002778 
 
SIPDIS 
 
STATE FOR DRL/IL AND EAP/BCLTV 
STATE PASS USDOL ILAB DUS LEVINE, LI ZHAO, BBUI 
STATE ALSO PASS USTR FOR EBRYAN, BCLATANOFF 
STATE ALSO PASS USAID FOR ANTOINETTE FERRARA 
 
BANGKOK FOR USAID 
 
E.O. 12958: N/A 
TAGS: ELAB, EAID, ECON, ETRD, VM, LABOR 
SUBJECT: VIETNAM'S IMPROVING LABOR CONDITIONS 
 
REF: A) HANOI 125 B) 02 STATE 53127 
 
1.  SUMMARY: In the past year and a half since the inaugural 
labor dialogue (see ref A), Vietnam has seen significant 
changes in labor conditions.  Improved employment 
opportunities due to a significant increase in trade with 
the United States, amendments to the Labor Code, the growing 
role of the ILO in Vietnam, and the commencement of six U.S. 
Department of Labor projects and one U.S. Department of 
State project have led to improved work conditions in 
Vietnam.  At the same time, an expansion in the number of 
enterprises appears to be causing an increase in strikes. 
Fully committed to continuing down the road to improved work 
conditions, the Vietnamese government will be a welcoming 
host of this year's labor dialogue.  END SUMMARY. 
 
2.  Vietnam is a nation of 80 million people undergoing a 
long-term transition from a traditional Communist system and 
state-run economy to a more open society and market-driven 
economy.  It remains firmly under the political control of 
the Communist Party of Vietnam (CPV), which is intent upon 
the monopoly of power while nonetheless gradually permitting 
the expansion of many personal liberties and free markets. 
Vietnam has embarked upon a course of greater integration 
into and cooperation with regional and international 
groupings, both political and economic.  Greater adherence 
to international norms and standards will continue to 
require some sensitive choices for the leadership about 
implications for domestic stability, for party control over 
major institutions, and for enhanced scrutiny by outside 
influences, some of which many senior officials believe may 
not be well-intentioned or benign toward Vietnam. 
 
3.  Vietnam's relatively young population _ more than half 
of which was born after national unification in 1975 _ faces 
challenges in seeking employment, obtaining access to 
adequate education and health care, and maintaining adequate 
levels of economic development.  This population remains 
largely rural, engaged in farming.  Of Vietnam's 
approximately 40 million workers, only 10 to 12 million are 
industrial workers.  The Vietnam General Confederation of 
Labor (VGCL), Vietnam's trade union, boasts 5 million 
members.  Although this percentage remains small, VGCL's 
membership has increased in the past 5 years from 3 million. 
 
EXPORT LED GROWTH 
----------------- 
 
4.  In 2002, Vietnam continued to grow at a consistent pace, 
registering a very respectable 5.8 percent growth rate in 
2002 (the official government estimate of the growth rate is 
7 percent).  The outlook is slightly more positive for 2003 
despite the economic impact of SARS, with the IMF projecting 
GDP growth of 5.94 percent (pre-SARS, the IMF had projected 
2003 GDP growth of 6.2 percent).  This continued expansion 
of the economy is largely due to a sharp increase in exports 
to the United States, thanks to the entry into force of the 
U.S.-Vietnam Bilateral Trade Agreement (BTA) on December 10, 
2001. 
 
5.  After just 18 months of BTA implementation, the U.S. has 
become the largest market for Vietnam's exports, accounting 
for around 21 percent of its total exports.  In 2002, 
Vietnamese exports to the U.S grew 128 percent compared to 
2001.  This trend has continued into this year.  In the 
first eight months of 2003, Vietnam's exports to the U.S. 
reached USD 3.2 billion, up 142 percent over the same period 
in 2002.  Most of this increase in exports has resulted from 
the rapid expansion of labor-intensive manufactured exports, 
particularly garments and footwear. 
 
6.  This brisk growth of the labor-intensive manufacturing 
sector has translated into more and better jobs for 
Vietnam's workers.  In 2002, 1.4 million new jobs were 
created in Vietnam.  Although difficult to estimate due to 
inadequate labor market information, experts estimate that 
exports to the U.S. have directly created employment in at 
least the tens of thousands.  Faced with more employment 
opportunities, many workers now feel like they can demand 
and receive better working conditions and compensation.  In 
addition, in many export sectors, such as garment 
production, American buyers demand socially responsible 
suppliers.  As a result, Vietnam has witnessed an 
improvement in labor conditions and an increase in the 
number of factories certified in corporate codes of conduct 
such as SA8000, WRAP, and FLA.  In addition, a significant 
number of buyers, including Adidas, Nike, Gap, and the 
Limited, are bringing their own codes into Vietnam. (See ref 
A for further discussion on the expansion of corporate 
social responsibility in Vietnam). 
 
LABOR CODE REVISIONS 
-------------------- 
 
7.  In March 2002, the U.S. Department of Labor (USDOL) and 
the Vietnamese Ministry of Labor, Invalids, and Social 
Affairs (MOLISA) held the first labor dialogue since the 
signing of a Memorandum of Understanding between the two 
agencies in November 2000 (see ref B).  Among other issues, 
the two sides discussed revisions to Vietnam's Labor Code 
then being reviewed by the National Assembly.  Since that 
exchange eighteen months ago, the National Assembly has 
passed these amendments, and MOLISA has issued a significant 
number of the required implementing regulations. 
 
8.  These 2002 amendments to Vietnam's Labor Code and 
subsequent implementing regulations attempt to improve 
working conditions through a number of methods.  In the 
past, employers sometimes attempted to avoid providing 
benefits by continually renewing short-term labor contracts. 
Under the new amendments, a definite term labor contract may 
only be renewed once.  Thereafter, an indefinite term labor 
contract must be entered into if employment continues.  A 
new labor contract must now be signed within 30 days of the 
expiry date; otherwise, the existing labor contract will 
remain, becoming an indefinite term labor contract.  In 
order to ensure that almost all employees are covered by 
social insurance, regulations also now require all 
enterprises to contribute to the social insurance fund for 
employees on both indefinite labor contracts and labor 
contracts of more than three months. 
 
9.  Previously, compensation for work-related injuries and 
diseases where an employee's ability to work was reduced by 
less than 81 percent was unclear.  Decree 110 has now 
clarified payment amounts for those whose ability to work 
has been reduced by between 5 percent and 81 percent, 
through no fault of their own. (Note. For those employees 
who were at fault for the reduction in working capacity, 
they shall be paid only 40 percent of the amount specified. 
End note.) Changes to the labor code also improve the 
compensation for employees unlawfully terminated, now 
requiring reinstatement and payment for lost wages as well 
as additional compensation, equivalent to at least two 
months' salary.  Additionally, the amendments remove the 
previous discrimination in social insurance payments for 
those women having their third or more child. 
 
10.  The GVN has also changed regulations regarding 
collective labor agreements and trade union establishment. 
The law now permits any enterprise to register a collective 
labor agreement, removing previous requirement that a 
company have ten or more employees. (Note. There is still no 
obligation to have such an agreement.  End note.) 
Additionally, the law previously required that labor 
authorities have a 15-day time limit within which to approve 
or reject the registration of a collective labor agreement. 
Decree 93 removed this power from the labor authorities, 
making agreements effective from the date agreed by the 
parties, or if no date is agreed, from the date of 
execution.  Regarding trade unions, the onus of creating a 
union no longer rests with the enterprise but is now with 
the union itself, and MOLISA is now considering a decree on 
tripartism. 
 
ILO IN VIETNAM 
-------------- 
 
11.  On February 17, the International Labor Organization 
(ILO) officially opened its office in Vietnam.  A member of 
the ILO since 1992, Vietnam has now ratified four core ILO 
labor conventions (Conventions 100 and 111 on discrimination 
and Conventions 138 and 182 on child labor).  The most 
recent ratification was in June of Convention 138 on minimum 
age.  In addition, Vietnam is now seriously considering 
Conventions 29 and 105 on forced labor.  Vietnam has also 
begun an active dialogue with the ILO on all core labor 
standards, holding a Declaration on Fundamental Principles 
and Rights at Work seminar on non-discrimination this year. 
It has further indicated its willingness to host a 
Declaration meeting next year when the topic is freedom of 
association and collective bargaining. 
 
12.  The ILO office has not only been active in assisting 
Vietnam with its efforts to ratify conventions, it has also 
undertaken a large number of projects.  Ranging from work 
with the labor inspectorate to efforts to combat trafficking 
in women in children to support for small enterprises (e.g. 
business planning, microfinance, association building, 
etc.), these programs are highly successful and span the 
country.  Always looking for new areas to operate, the ILO 
is currently considering projects on social insurance, human 
resource development, and corporate social responsibility. 
 
U.S. TECHNICAL ASSISTANCE 
------------------------- 
 
13.  Under the U.S.-Vietnam MOU on Labor, USDOL and MOLISA 
agreed to establish a U.S. program of technical assistance 
in a number of specific areas of cooperation, including 
social insurance, employment services, disability, 
industrial relations, child labor, and HIV/AIDS.  Starting 
in November 2001, projects in these six fields have been 
successfully launched, with strong GVN support of their 
successful implementation. 
 
14.  The social insurance project has and will continue to 
work on cost projections, social marketing, unemployment 
insurance, legislative drafting, and general principles of 
social insurance.  The employment service center project has 
been helping to strengthen staff capacity effectively to 
provide employment services, establish a strategic 
management system to monitor each center's performance, and 
implement technology to allow the exchange of Labor Market 
Information.  The program on employment of persons with 
disabilities has reviewed Vietnam's legislation, made 
recommendations for future changes to the Labor Code, 
remodeled a number of employment service centers, trained 
staff at these centers, and is now raising public awareness 
on employing persons with disabilities.  The most 
controversial of the projects -- the industrial relations 
program -- has started by undertaking tripartite, 
conciliation, and arbitration training.  The child labor 
project has raised awareness on the role of education in 
preventing child labor, discussed problems associated with 
returning children working in cities to their homes, and 
identified the needs of working children in project sites. 
The HIV/AIDS workplace prevention program, SMARTWork, has 
conducted national and provincial level workshops and 
presentations, completed a comprehensive needs assessment, 
and begun the process of developing policies and individual 
programs at the enterprise level. 
 
15.  Given that several of these projects have hit their 
halfway point, the labor dialogue provides USDOL with an 
important opportunity to discuss the GVN's plans to sustain 
their work into the future.  Although some efforts, such as 
capacity building, will not need continued financial 
support, parts of most projects will need a financial 
commitment from MOLISA.  In addition, USDOL may wish to 
ensure that the policy recommendations being made by the 
programs are incorporated into the GVN's long-term strategy. 
 
16.  The GVN will be looking to discuss future projects.  In 
addition to these six areas of cooperation, the MOU laid out 
a number of other potential areas for cooperation, including 
labor market information systems and labor statistics, 
promotion of employment for women, occupational health and 
safety, labor inspection, and migrant labor issues.  Given 
Vietnam's extremely low-level of capacity, MOLISA may ask 
for much-needed assistance with labor market information 
systems. (Note. The EU may currently be considering a 
project in this field.  End note.)  Such help in this field 
could build on the training provided to two Vietnamese 
participants in a two-week Bureau of Labor Statistics 
course.  Another potential area for future cooperation could 
be on migrant labor issues, an area that the ILO office in 
Hanoi believes is especially in need of assistance. 
 
17.  In addition to these six USDOL-funded projects, U.S. 
Department of State is funding a program with Social 
Accountability International (SAI) to ensure a transparent, 
comprehensive program for promoting the implementation of 
SA8000 corporate code of conduct.  In order to achieve this 
goal, SAI is working with the private sector, civil society, 
trade unions and government actors in an attempt to identify 
and address potential challenges to implementing its 
standard according to its original intent.  More 
specifically, it is conducting research, evaluation, public 
education, training, and business development.  One of the 
most interesting outcomes of this project is a cost-benefit 
analysis on undertaking the SA8000 accreditation process. 
 
STRIKES 
------- 
 
18.  According to the Vietnamese Ministry of Labor, 72 
strikes have taken place, primarily in the southern part of 
the Vietnam, in the first six months of the year.  Of these, 
51 were against foreign-invested enterprises, 18 involved 
domestic private enterprises, and 3 affected state-owned 
firms.  In 2002, 88 strikes occurred, an increase of fifteen 
over the previous year. Foreign-invested enterprises 
experienced 54 incidences, domestic private enterprises were 
affected by 29 strikes, and state-owned firms had 5 strikes. 
 
19.  Experts in Vietnam attribute this continuous increase 
in the number of strikes to a number of factors.  First, 
between 2000 and 2002, the number of enterprises in Vietnam 
rose from 14,000 to almost 50,000.  Although most of these 
are small operations, the ever-growing number of businesses 
means that there are more places of work and, therefore, 
more places to strike.  Second, the increasing size of the 
economy also means that both employers and employees are 
feeling the stress of competitive pressures.  This situation 
has both positive and negative effects on labor conditions, 
with workers feeling freer to leave a job or go on strike if 
another employer offers better conditions and companies 
feeling the need to produce better goods at cheaper prices. 
Third, workers are becoming increasingly aware as to their 
rights and are striking when those rights are violated. 
 
20.  Overall, labor conditions in Vietnam continue to 
improve every year.  A combination of government, 
international, and private sector efforts are reaping real 
rewards for Vietnam's workers.  Still, the GVN acknowledges 
that real problems exist in this field and that gains are 
not uniform.  It has, therefore, actively engaged the 
international community in assistance and dialogue.  Fully 
committed to continuing down the road to improved work 
conditions, the Vietnamese government will be a welcoming 
host of this year's labor dialogue. 
BURGHARDT