US embassy cable - 03HANOI2795

UNCLAS SECTION 01 OF 05 HANOI 002795 
 
SIPDIS 
 
SENSITIVE 
 
STATE PLEASE PASS TO USTR EBRYAN 
STATE ALSO FOR E, EB AND EAP/BCLTV 
STATE ALSO PASS USAID FOR ANE/DEL MCCLUSKEY AND AFERRARA 
USDOC FOR 6500 AND 4431/MAC/AP/OPB/VLC/HPPHO 
USDA FOR FAS/ITP/SHEIKH AND HUYNH 
GENEVA FOR USTR 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, ECON, EAID, PREL, VM, IPROP, BTA, WTO 
SUBJECT: Vietnam:  Review of BTA Implementation 
 
Sensitive but Unclassified -- Please protect accordingly. 
 
REF:  HANOI 199 
 
-------- 
OVERVIEW 
-------- 
 
1. (U) December 10 will mark the second anniversary of the 
entry-into-force of the U.S.-Vietnam Bilateral Trade 
Agreement (BTA).  Ensuring timely and effective 
implementation of the BTA remains a critical component of 
our economic relations with Vietnam.  We continue to provide 
significant technical assistance to the GVN in support of 
their efforts to implement the BTA through the USAID-funded 
Support for Trade AcceleRation (STAR) Project, the U.S.- 
Vietnam Trade Council (USVTC) and other USG sponsored 
technical assistance programs provided by individual 
agencies.  The impact of the BTA on bilateral trade remains 
impressive.  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.  U.S. exports to Vietnam 
through August were USD 409 million (excluding USD 535 
million in aircraft sales), up 29 percent (196 percent, 
including aircraft sales) from the same period in 2003. 
 
2. (U) This cable provides an overview of GVN efforts to 
implement key aspects of the BTA and highlights obligations 
that will come due on December 10 this year. 
 
Chapter 1: Trade in Goods 
------------------------- 
 
3. (SBU) The trade in goods chapter of the BTA includes 
provisions on MFN and national treatment for goods, the 
granting of trading rights, elimination on non-tariff 
barriers, customs valuation, import licensing, and tariff 
reductions.  This year, Vietnam is obligated to begin 
applying WTO-level standards for customs valuation for U.S. 
imports.  In December 2004, Vietnam must reduce tariff rates 
on a number of agricultural and industrial products on 
average by one-third to one-half their current rates. 
 
-- Customs:  Vietnam's current customs valuation procedures 
are generally based on reference prices.  In June 2002, the 
Government issued Decree 60 establishing rules for customs 
valuation based on transaction value, in accordance with WTO 
principles.  Decree 60 applies to goods imported from 
countries to which Vietnam has made a commitment on customs 
valuation. Under the BTA, Vietnam is obligated to begin 
applying transaction value for U.S. imports in December. 
The General Department of Customs expects to finalize 
implementing legislation for Decree 60 in time to meet this 
obligation.  Despite the fact that no exceptions are 
included in the BTA, Decree 60 reserves Vietnam the right to 
apply minimum tax calculation prices on a number of items 
"in order to protect the State's interests and domestic 
production."  The Ministry of Finance, in coordination with 
concerned ministries and agencies, is working on a list of 
the exempted items. 
 
-- It is highly likely that implementation of the new 
customs rules will be extremely problematic.  The technical 
capacity of the customs department is extremely low and 
corruption is a serious problem.  Inspections are 
essentially manual, equipment is outdated, record keeping is 
poor, and a significant portion of trade is still conducted 
through bartering.  The majority of customs officials have 
not yet been trained in applying the new regulations. 
 
-- Tariff Nomenclature:  In July, the Ministry of Finance 
promulgated a new harmonized tariff system, which took 
effect on September 1.  The tariff system is based on the 
eight digit Harmonized System of Tariffs and conforms to 
ASEAN's Harmonized Tariff Nomenclature (AHTN).  It is the 
most comprehensive change Vietnam has made in terms of 
coding and tariff rates. 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. (Note:  identical to the HS2K of the 
World Customs Organization.  End note.) It also has 5,400 
lines at 8 digits.  There are now 15 tariff rates (down from 
20) and, according to the Ministry of Finance, the simple 
average tariff rate increased from 16.8 to 18.2 percent. 
The GVN raised tariff rates on 195 items and reduced them on 
106 items.  Protection on 72 items was converted from 
special consumption taxes and supplemental taxes to tariffs. 
-- Technical Barriers to Trade (TBT):  On March 25, the GVN 
established Vietnam's WTO/TBT Office within the Directorate 
for Standards and Quality at the Ministry of Science and 
Technology (MOST).  This office is the notification 
authority and enquiry point for all technical regulations, 
standards and conformity assessment procedures concerning 
TBT in accordance with WTO provisions.  However, as Vietnam 
is not yet a WTO member, the office currently focuses on 
providing information and consultation services on Vietnam's 
TBT regime, including inquiries regarding Vietnam's draft 
TBT legislation. 
-- National Treatment for imports:  Vietnam currently 
maintains differential VAT rates on several products in 
contradiction to its BTA obligation on national treatment. 
The VAT rate on domestic cultivation products (including 
planted forest products), husbandry, and unprocessed 
aquaculture products is zero percent, while the VAT rate for 
imported products in these categories is five percent. 
Additionally the VAT rate for processed cotton made 
primarily from home-grown cotton is five percent while 
processed cotton made from imported cotton is ten percent. 
Chapter 2:  Intellectual Property Rights 
---------------------------------------- 
 
4. (SBU) The Chapter on IPR is modeled on the WTO Agreement 
on Trade-Related Aspects of IPR (TRIPs) and provides for 
protection and enforcement of patents, trademarks, 
copyrights, and other types of IP.  Vietnam's commitments 
related to trademarks and patents were due 12 months after 
entry into force (December 2002); commitments on copyright 
and trade secrets were due in May 2003.  The GVN continues 
its efforts to revise its IPR legislative framework and to 
accede to various international IPR conventions.  However, 
lack of IPR enforcement, particularly with respect to 
copyright and trademarks, remains a serious problem. 
Vietnam committed in the BTA, upon entry-into-force, to 
enforce existing laws, the U.S.-Vietnam Copyright Agreement, 
and the Paris Convention.  No such routine and reliable 
enforcement exists; pirated and counterfeit goods are 
readily available in all Vietnam's major cities. 
 
-- Border measures:  In October, the Ministry of Culture and 
Information (MOCI) and the Ministry of Finance jointly 
issued an inter-ministerial circular on the protection of 
copyright at the border.  The circular allows rights holders 
to request that customs seize shipments, if the petitioner 
can show evidence of copyright infringement.  The MOF and 
the Ministry of Science and Technology (MOST) are currently 
finalizing a similar circular that deals with shipments of 
counterfeit goods. 
 
-- Accession to international IP conventions:  The GVN has 
been preparing to accede to several international IP 
conventions.  The formal applications to the Berne 
Convention for the Protection of Literary and Artistic 
Works, the Geneva Convention for the Protection of Producers 
of Phonograms Against Unauthorized Duplication of their 
Phonograms, the Convention Relating to the Distribution of 
Program-Carrying Signals Transmitted by Satellite (Brussels 
Convention), and the Rome Convention for the Protection of 
Performers, Producers of Phonograms and Broadcasting 
Organizations are awaiting signature by the President. 
(Note:  The Rome Convention is not required under the BTA. 
End note.)  National Assembly approval is not required.  The 
GVN is not yet ready to submit an application to the 
International Convention for the Protection of New Varieties 
of Plants (UPOV).  The Ministry of Agriculture and Rural 
Development (MARD) is currently restructuring authority for 
UPOV.  MARD will meet with a delegation from the UPOV 
Secretariat later this year to make final edits to their 
 
SIPDIS 
application. 
 
Chapter 3:  Trade in Services 
----------------------------- 
 
5. (U) Vietnam's commitments to provide increased market 
access, MFN and National treatment to US service providers 
are phased in over 9 years after entry-into-force of the 
agreement (depending on the sector).  The Ministry of 
Justice has submitted a draft Decree on Developing Trade in 
Service to the Government for approval.  This decree is 
intended to address changes necessary for the concerned 
ministries to implement Vietnam's upcoming BTA services 
commitments. MOJ anticipates the decree will be approved by 
the end of the year.  In December, Vietnam must implement 
market access liberalization in accounting, auditing and 
bookkeeping services, architectural services and value-added 
telecom services (except Internet). 
 
-- Dong Deposits:  Until recently, foreign bank branches 
operating in Vietnam were prohibited from receiving deposits 
in Vietnamese Dong (VND) above a level of 25 percent of the 
branch's legal capital.  Under the terms of the BTA, this 
ratio increases annually for U.S. banks until full national 
treatment is applied in year eight.  In April, an official 
letter from the State Bank of Vietnam (SBV) confirmed the 
annual increases in the ration of legal capital for U.S. 
banks.  As stipulated in the BTA, U.S. banks are currently 
allowed to accept Dong deposits at a level of 100 percent of 
their legal capital. This ratio will rise to 250 percent in 
December.  (Note:  In response to significant lobbying from 
non-U.S. foreign banks, the SBV issued Decision 1084 in 
September increasing their ratio to fifty percent of their 
legal capital.  End note.) 
 
-- Legal Services:  In September, the Government issued 
Decree 87 significantly reforming the regulatory framework 
for the operations of foreign law practices and foreign 
lawyers in Vietnam and expanding the scope of operation for 
foreign law firms.  The decree substantially broadened the 
scope of practice of foreign law firms in Vietnam. 
Previously restricted to advising on foreign and 
international law in the fields of business, investment and 
commerce, foreign law practices are now permitted to 
"provide legal consultancy services and other legal 
services", including consultancy on Vietnamese law when the 
foreign law firm employs a Vietnamese lawyer or a foreign 
lawyer with a Vietnamese law degree.  The Decree provides 
for offshore foreign law firms to operate in three forms: 
branches; foreign law firms; partnership with Vietnamese 
firms.  Previously, only branches were permitted. 
Additionally, branch licenses are no longer limited to five- 
year (extendable) periods.  Participation by foreign lawyers 
in Vietnamese court proceedings are still prohibited and 
this exclusion was extended to Vietnamese lawyers and 
trainee Vietnamese lawyers employed by foreign law 
practices. 
 
Chapter 4:  Investment 
---------------------- 
 
6. (SBU) Chapter 4 of the BTA is in many ways "WTO plus." 
Obligations in this chapter include MFN and national 
treatment for investment, a prohibition against 
expropriation without payment of prompt, adequate and 
effective compensation, repatriation of capital, freedom 
from arbitrary and discriminatory measures, prohibitions on 
technology transfer requirements and phasing out of trade- 
related investment measures.  The chapter also provides for 
arbitration of disputes. 
 
-- TRIMs:  Vietnam committed to eliminate WTO-inconsistent 
trade-related investment measures (TRIMs), including trade 
balancing requirements and foreign exchange controls.  In 
March, the Government issued Decree 27 amending the 1996 Law 
on Foreign Investment, including removing foreign exchange 
controls.  Subsequently, in April, the GVN abolished its 
requirement for foreign currency surrender.  Vietnam still 
retains restrictions on foreign shareholding in Vietnamese 
companies, although in March Government Decision 36 
increased the ratio from twenty to thirty percent. 
 
-- Export requirements:  Vietnam took a seven-year National 
Treatment exception in Annex H of the BTA to permit it to 
require foreign investors operating in specified sectors to 
export 80% of their production.  On December 7, 2001, the 
Ministry of Planning and Investment (MPI) issued Decree 718, 
which eliminated export requirements in a majority of the 
sectors to which this National Treatment exception applied. 
However, at the same time, Decree 718 applied this export 
requirement to eleven new sectors for which Vietnam did not 
have an exception.  U.S. delegations at the BTA joint 
committees meetings in 2002 and 2003 emphasized that the GVN 
must revoke this measure.  MPI assured the U.S. side that 
these export requirements would not be applied to U.S. 
investments, but the GVN could not provide these assurances 
in writing.  In March, however, Decree 27 eliminated all 
mention of export performance requirements. 
 
-- Investment licensing:  In the BTA, Vietnam committed to 
gradually shift to an investment registration regime for 
most sectors.  Issuance of Decree 27 made significant steps 
toward meeting Vietnam's obligation to remove investment- 
licensing requirements from specified sectors by December 
2003.   The following types of investments are no longer 
subject to investment licensing:  investment projects that 
export 80 percent of their products (as opposed to the 
earlier 100 percent requirement); investments in an 
"encouraged" or "specially encouraged" project located in 
industrial zones (with the exception of certain types of 
projects listed in Government Decree 24 (2000)); and 
investment in the manufacturing sector with a value of up to 
USD 5 million in investment capital. 
 
-- Commercial Arbitration:  Vietnam acceded to the New York 
Convention on the Recognition and Enforcement of Foreign 
Arbitral Awards in 1995, but limited its enforcement to 
"commercial" disputes.  However, the definition of 
commercial acts in the Commercial Code is very narrow, 
primarily relating to sale and purchase transactions.  This 
led to contradicting judgments by different Vietnamese 
courts with regard to a foreign arbitral award in a case 
between a subsidiary of a U.S. firm (Tyco) and an Australian- 
Vietnamese joint venture (Leighton).  As further elaborated 
in reftel, the Supreme Court overturned the decision of the 
municipal Economic Court, ruling that, as a construction 
contract did not fit the narrow definition of commercial 
contract found in the Commercial Code, a foreign arbitral 
award relating to it could not be enforced in Vietnam. 
 
-- In February, the GVN made an effort to address these 
problems by issuing an Ordinance on Commercial Arbitration. 
The ordinance defines "commercial activities" more broadly 
than the Commercial Code to include, inter alia, 
construction, consultancy, licensing, investment, financing, 
banking, and insurance.  The Ordinance grants Vietnamese 
courts a number of grounds for non-enforcement that are 
essentially in accordance with the New York Convention, 
including:  an invalid arbitration agreement, the settlement 
does not fall under the jurisdiction of arbitration, the 
arbitrator's award damages national interest, or the foreign 
law applied is inconsistent with the basic principles of 
Vietnamese legislation.  Finally, while the ordinance allows 
parties in a dispute with foreign elements to choose where 
to arbitrate their case, it requires disputes involving only 
Vietnamese companies to arbitrate in Vietnam with Vietnamese 
arbitrators.  It remains to be determined if, foreign 
companies incorporated in Vietnam will be treated as 
Vietnamese or foreign companies in arbitration cases. 
 
Chapter 6: Transparency 
----------------------- 
 
7. (SBU) Last year, the GVN made significant changes to the 
"Law on Legal Normative Documents" (also known as the "Law 
on Laws"), which governs the way laws are drafted and 
published in Vietnam.  These changes brought Vietnam 
significantly closer to meeting the transparency obligations 
that were due upon entry into force of the BTA.  However, 
the Law on Laws still does not require all types of legal 
documents to be published.  In particular, "official 
letters" are excluded from this requirement.  (Note: this is 
because official letters are not included in the definition 
of legal normative document (LND) in the Law on Laws.  End 
note.)  Although official letters often provide the basis 
for policy decisions made at the Ministerial and Government 
level, they are not published and the GVN often responds 
negatively to official Embassy requests for copies. 
Additionally, although the BTA obligates the GVN to provide 
("to the extent possible") the U.S. side an opportunity to 
comment on draft legislation the Law on Laws does not 
provide for such a comment period. 
 
-- Comment period:  Both the Office of the National Assembly 
(ONA) and the Vietnam Chamber of Commerce and Industry 
(VCCI) are looking at the possibility of posting draft laws, 
ordinances, decrees and other sub-law regulations on the 
internet to allow for public comment.  While opportunities 
for commentary on draft laws have increased since entry-into- 
force of the BTA, currently draft laws and regulations are 
made available only on an ad hoc basis. 
 
-- Publication of Laws:  As a result of the revisions to the 
Law on Laws, the workload of the Official Gazette has 
increased dramatically.  To help meet this growing demand, 
beginning July 1, the Official Gazette became a daily 
publication.  (Note:  previously the Official Gazette was 
published six times a month.  End note.)  To ensure timely 
publication of LNDs, in March, the Government (OOG) issued 
an official letter requiring any body promulgating an LND to 
forward a copy to the Office of the Government within two 
days of promulgation.  The OOG must then publish LNDs within 
15 days of promulgation. 
 
8. (SBU) Comment:  It is important to highlight the forward 
momentum the GVN has established in continuing to issue the 
laws and regulations required for BTA implementation. 
However, actual implementation of key obligations still 
falls short of what is required by the BTA.  There are 
numerous reasons for these shortcomings:  lack of capacity, 
lack of political will and corruption are just a few.  For 
example, as noted above, the GVN has been unable to reduce 
the quantity of pirated and counterfeit goods, despite 
ongoing changes in the IPR legal framework.  Among upcoming 
obligations, application of WTO-level customs valuation for 
U.S. imports will also represent a significant challenge for 
the GVN.  We will maintain our efforts to engage the GVN on 
the need to fully meet its obligations according to the 
timeframe laid out in the BTA and to encourage ongoing legal 
reform. 
Burghardt