US embassy cable - 03HANOI3243

UNCLAS SECTION 01 OF 09 HANOI 003243 
 
SIPDIS 
 
STATE PASS USTR 
STATE FOR EB/MTA/MST 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, EFIN, VM, ASEAN, BTA, FINREF, IPROP 
SUBJECT:  VIETNAM:  NATIONAL TRADE ESTIMATES REPORT 
 
REF: STATE 310953 
 
1.  The following is the text of the draft National Trade 
Estimate report for Vietnam. 
 
2.  Begin Text of Report: 
 
TRADE SUMMARY 
 
The landmark U.S.-Vietnam Bilateral Trade Agreement that 
seeks to normalize trade relations between the two 
countries came into effect on December 10, 2001, and 
Vietnam began receiving NTR treatment.  As a result of 
the lowering of tariffs from an average of 40 percent to 
an average of 3 percent, Vietnamese exports to the U.S. 
have increased rapidly in the last two years. 
 
The U.S. trade deficit with Vietnam was $2.4 billion in 
the first nine months of 2003.  U.S. goods exports for 
the first nine months of 2003 were $1.16 billion, up 
219.2 percent from the previous year. (Note:  U.S. 
exports excluding aircraft sales were $449 million, up 
24% from the previous year.)   Corresponding U.S. imports 
from Vietnam were $3.6 billion, up 130.5 percent. 
 
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 U.S.; 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 US-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 US imports over a period of 
three years. 
 
On September 1, 2003, a new harmonized tariff system took 
effect that is based on the eight digit Harmonized System 
of Tariffs 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 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 PVC powder and granules and 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 CMEA to 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. 
Quantitative restrictions and non-automatic licensing: 
Vietnam has been phasing out the use of quantitative 
restrictions on imports.  The following products remain 
subject to quantitative restrictions:  sugar, petroleum 
products, cement and clinker, some common chemicals, 
chemical fertilizer, paint, tubes and tires, paper, silk, 
ceramic (construction), construction glass, construction 
steel, some engines, some types of automobiles, 
motorcycles, bicycles and parts, and ships and vessels. 
Quantitative limitations on exports in most sectors have 
been eliminated as well, 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 on certain agricultural products that were 
not previously under quotas. Cotton, tobacco materials, 
and salt are the three items on "trial" implementation as 
of July 01, 2003. During the "trial" period, import 
licenses for those items are granted upon the demand 
level to set up a volume of quotas for the following 
years. Milk materials, corn, and poultry eggs are the 
remaining targeted items to be implemented sometime in 
2004. 
 
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, and machinery equipment, 
transportation means and materials used in the 
construction and installation of their project in 
accordance with their investment license. 
 
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 
telecommunication), 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:  Vietnam is phasing out minimum import prices in 
its customs valuation system.  The number of commodity 
groups subject to a minimum value was reduced from 34 in 
1997 to seven in 2000.  These include:  beverages of all 
kinds; tires, rubber inner tubes and mud-resistant fronts 
used for cars, motorcycles and bicycles; floor tiles and 
sanitary wares; construction glass and vacuum flasks; 
engines; electric fans; motorcycles; and, unprocessed 
tobacco. 
 
Under the BTA, Vietnam is now 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 will exceed the actual cost of the service provided 
by Customs. Vietnam has also committed to apply 
transaction value to imports from ASEAN countries.  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. 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 other ministries and 
agencies, is drafting the list of exempted items. 
 
Trading rights:  Under the terms of the BTA, three years 
after the entry-into-force of the agreement, 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.  Seven years after entry- 
into-force of the BTA, 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. 
 
STANDARDS, TESTING, LABELING AND CERTIFICATION 
 
Vietnamese law requires all imports to have a label with 
contents and instruction for use in Vietnamese.  The 
labels can be placed on the goods after they have been 
imported. 
 
The Ministry of Science and Technology publishes a list 
of imports and exports requiring state quality control. 
The items are listed with their HS numbers and are 
grouped under functional agencies including the Ministry 
of Public Health, the Ministry of Agriculture and Rural 
Development, the Ministry of Industry, the Ministry of 
Fisheries, and the Ministry of Science and Technology. 
Some items are subject to national standards; some are 
subject to regulations of the functioning agencies; and 
some are subject to both.  Other items are subject to 
GOCT (the standards system that was created by the Soviet 
Union which now applies only to explosives and explosive 
accessories).  Exporters and importers must have permits 
from the functioning agencies or a receipt showing an 
inspection is in process for the controlled items at the 
time they go through customs. 
 
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 
and direct financial support (to first-time exporters, 
for exports to new markets, or for goods subject to major 
price fluctuations).  The Fund also provides export 
rewards and bonuses.  Since 1998, the average annual 
export reward provided to eligible enterprises has ranged 
from USD 2900 to USD 4710.  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. 
 
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. 
While not yet a party to the Berne Convention, Vietnam 
agreed under 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 
that 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.  The President of Vietnam is 
expected to sign the GVN's applications for accession to 
the Berne Convention and the Geneva Convention by the end 
of 2003.  Considerable progress has been made over the 
past few years in establishing the legal framework for 
IPR protection.  New legislation this year included 
regulations on protection of architectural copyright, 
layout of integrated circuits and border measures. 
However, the legal reform process is not yet complete. 
 
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 (MOST), 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.  Yet 
obtaining expeditious adjudication and administrative 
enforcement of patent and trademark violations remains 
difficult.  Although the BTA requires national treatment 
for IPR fees, industrial property fees charged to foreign 
organizations and individuals are significantly higher 
than the fees charged to Vietnamese nationals. 
 
Copyright 
 
The Copyright Office of Vietnam is under the control and 
supervision of the Ministry of Culture and Information. 
Significant progress has been made in putting in place 
the laws 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 99 percent. 
Local police authorities often are slow to act on 
administrative orders fining infringement and enforcing 
court decisions. 
 
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.  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 
to enterprises with foreign directly-invested capital in 
Vietnam.  U.S. companies have to be legally registered in 
the U.S.  Branching is not permitted. 
 
U.S. companies and companies with U.S. directly-invested 
capital are not permitted to carry out topographic, 
construction geological, metrological, geological, 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 are 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 was 
prohibited before. They are now no longer restricted to 
providing "legal consultancy services and other legal 
services", including consultancy on Vietnamese law, as 
long as their firms employ a Vietnamese lawyer or a 
foreign lawyer with a Vietnamese law degree.  The law 
firms are allowed to employ Vietnamese lawyers, with 
unlimited practicing scope of legal consultancy and legal 
services. However, participation by foreign lawyers in 
Vietnamese court proceedings remains prohibited and was 
further extended to Vietnamese lawyers and trainee 
Vietnamese lawyers employed by foreign law practices. 
 
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 contracts with 
Vietnamese gateway operators.  According to the terms of 
the BTA, by December 2003,  (December 2004 in the case of 
Internet services), 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.  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. 
 
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 enterprises with 
foreign directly invested capital in Vietnam.  U.S. 
companies must be legally registered for operation in the 
U.S. 
 
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 may be established as of right, 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. 
 
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. 
 
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 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 250 
percent.  (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 $15 million to establish a branch. 
Establishing a U.S.-Vietnam joint venture bank or a U.S. 
bank subsidiary requires minimum capital of $10 million. 
 
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 
$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. 
 
Non-banking Financial Services:  The BTA allows 100 
percent U.S. equity in financial leasing and in other 
leasing after 3 years. 
 
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. 
 
Health-Related Services:  U.S. operators may provide 
service 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 $20 million for a hospital, $2 
million for a polyclinic, and $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, in conjunction with investment for 
the construction of a hotel, either in the form of 
business cooperation contracts, joint ventures with 
Vietnamese partners, or companies 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 TRIMS or 
performance requirements inconsistent with the WTO TRIMS 
agreement.  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, the Government 
issued a decision to reduce the foreign exchange 
surrender requirement to zero percent 
 
Decree 27 also now allows foreign investors to recruit 
Vietnamese workers directly, without having to go through 
labor recruitment agencies.  However, in September, 
Vietnam issued Decree 105, which provides that all 
enterprises operating in Vietnam may only employ foreign 
nationals at the lesser of 1) a maximum rate of 3 percent 
of their total work force or 2) 50 persons.  In response 
to complaints from the foreign business community, the 
Government has stated that it will issue legislation 
clarifying the decree and providing exemptions for 
certain sectors and types of employment. 
 
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. 
 
ANTICOMPETITIVE PRACTICES 
 
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.  For example, stringent regulatory 
requirements demanded by ministries prevent private firms 
from exporting rice or importing fertilizer.  Also, 
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. 
 
ELECTRONIC COMMERCE 
 
To date, e-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 e-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 Ministry 
of Trade has the lead in drafting a new ordinance on E- 
Commerce, which is expected to come into effect in 
September 2004. 
 
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 
 
Corruption 
 
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. 
 
End text. 
BURGHARDT