US embassy cable - 04HANOI221

UNCLAS SECTION 01 OF 02 HANOI 000221 
 
SIPDIS 
 
STATE PASS USTR FOR EBRYAN 
STATE PASS TREASURY FOR OASIA 
STATE PASS USAID FOR AFERRARA 
BANGKOK FOR USAID 
USDOC FOR 4431/MAC/IFP/OKSA/HPPHO 
 
E.O. 12958: N/A 
TAGS: EINV, ECON, VM, FINREF, WTO 
SUBJECT: VIETNAM: TOWARDS A LEVEL PLAYING FIELD FOR 
INVESTORS 
 
 
1.  SUMMARY: In late December 2003, Vietnam's Ministry of 
Planning and Investment (MPI) held a workshop to gather 
comments and ideas from a wide-range of participants 
regarding the harmonization of the legal systems on 
investment.  MPI plans to submit to the National Assembly a 
proposal for a common legal framework for both domestic and 
foreign investment under its 2004-2005 law-making program. 
The GVN is attempting to create a common legal framework for 
the business activities of all economic sectors in order to 
increase its competitiveness and meet its international 
commitments as well as World Trade Organization (WTO) 
requirements.  END SUMMARY. 
 
2.  During a December workshop at MPI, which Econoff 
attended, representatives from foreign and local businesses, 
foreign consulting agencies, local think tanks, and law- 
making agencies discussed the need for Vietnam to create a 
common legal framework for business activities in all 
economic sectors.  They described how Vietnam currently has 
different legal systems governing the business activities of 
various types of enterprises depending upon their 
investment/ownership. 
 
3.  Participants outlined Vietnam's current complex 
investment system.  With a Law on Foreign Investment (LFI), 
Law on Domestic Investment Promotion (LDIP), and Enterprise 
Law, legal requirements differ in matters such as the form 
of investment, establishment procedure, and organizational 
structure.  For example, the Enterprise Law, which governs 
the establishment of domestic companies, allows domestic 
investors to create a business in numerous forms, including 
a limited liability company, joint stock firm, partnership, 
and holding company.  However, the LFI, which covers both 
the formation of foreign invested enterprises (FIEs) and 
promotion of FDI, only permits a foreign investor to set up 
a limited liability company.  In addition, while local 
companies follow a registration regime for establishing a 
business, a foreign invested enterprise is subject to 
appraisal and licensing procedures. (Note: In order to 
fulfill its commitments in the U.S.-Vietnam Bilateral Trade 
Agreement (BTA), Vietnam is required to move toward an 
investment registration system for U.S. investments.  End 
Note.) 
 
4.  During the discussion at the workshop, several divergent 
ideas regarding the future of Vietnam's investment regime 
emerged.  Several speakers suggested that Vietnam could 
integrate the investment promotion portion of the LFI with 
the LDIP thus creating one investment promotion law while 
retaining one or more separate laws to govern other matters 
(i.e. either adapt the Enterprise Law to cover FIEs or 
separately maintain the Enterprise Law and portions of the 
LFI).  A representative from the MPI-affiliated think tank, 
Central Institute for Economic Management (CIEM), 
recommended the alternative of harmonizing some legal 
requirements and legislation, including those regarding the 
form of permitted investment, establishment and dissolution 
procedures, and permitted (or prohibited) investment 
sectors.  Vietnam's final option, which many participants 
advocated, would be to incorporate all features of the three 
laws into one new "super" law. 
 
5.  Arguing against the idea of a "super" law, a 
representative from MPI, the main Government agency 
responsible for drafting legislation on investment, 
explained that since the LFI is aimed at attracting FDI, the 
legal framework governing FIEs must include certain 
requirements.  For example, although there is no requirement 
regarding domestic capital, the GVN mandates a minimum level 
of foreign capital.  In addition, the GVN has said that it 
may need to maintain lists of economic sectors where foreign 
investment is encouraged, limited, or prohibited.  At the 
same time, MPI recognized that those sectors must be 
logically selected and transparently publicized. 
 
6.  An official from MPI subsequently acknowledged during 
the seminar that both the current legal system and its 
enforcement has tended towards protectionism, inconsistency, 
discrimination, and lacking a strategic view.  He also 
stated that in order to create an equal, non-discriminatory 
business environment in Vietnam and meet its international 
commitments and WTO requirements, the GVN must make the 
legal framework governing investment reasonable, consistent, 
and equivalent to common business standards and practices. 
Towards this end, the MPI representative said that MPI 
intends to submit new investment legislation to the National 
Assembly under the 2004-2005 law-making program. 
 
7.  COMMENT:  In recent months, the GVN, businesses, and 
donors have increasingly discussed the need to harmonize 
Vietnam's investment regimes.  Although it appears that 
significant debate remains regarding the shape of future 
legislation, the consensus on the need for change is a 
welcome development.  The USG, along with many enterprises 
and consultants, will continue to press the GVN to resolve 
its internal debate and undertake the necessary changes as 
soon as possible in order to create a level playing field 
and ensure that Vietnam meets its international commitments, 
including under the BTA. 
 
BURGHARDT