US embassy cable - 04HOCHIMINHCITY226

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000226 
 
SIPDIS 
 
SENSITIVE 
 
State pass to USTR Elena Bryan 
USDOC for LASHLEY and 4431/MAC/AP/OPB/VLC/HPPHO 
 
E.O. 12958: N/A 
TAGS: VM, ECON, EPET, ETRD, KTEX, OREP, BTA 
SUBJECT: AMERICAN BUSINESS REPS IN HO CHI MINH CITY LOVE BTA, HATE 
U.S. ANTIDUMPING AND QUOTAS 
 
 
Summary and Introduction 
------------------------ 
1.  (SBU) During his visit to Ho Chi Minh City on February 17-18, 
Staff Director for the Senate Appropriations Committee James 
Morhard met a group of American businesspeople resident in Ho Chi 
Minh City.  They reviewed their challenges and successes here in 
Vietnam and raised concerns about the future of the U.S.-Vietnam 
trade relationship.  They argued that anti-dumping cases for 
frozen fish fillets and now shrimp, as well as textile quotas, 
were limiting Vietnam's growth.  This growth, they said, is 
crucial to the success of their businesses here.  They also 
expressed concern about potential Vietnamese disenchantment with 
the U.S., if ordinary Vietnamese citizens continue to feel the 
level playing field disappears as soon as they are successful in 
penetrating the U.S. market. 
 
American Businessmen "Quite Concerned" 
-------------------------------------- 
2.  (SBU) An American banker who for the last 5 years has run the 
operations of a large non-American bank in Vietnam stated he was 
"quite concerned" about the U.S. -Vietnam relationship.  He 
characterized the decision of Vietnam's leadership to participate 
in the world economy as "fragile."  This fragility is aggravated 
by U.S. actions that limit Vietnam's economic growth, he said. 
The U.S. is Vietnam's biggest customer, and one of its largest 
trading partners, but GVN leadership has "egg on its face" as it 
has to deal with textile quotas and antidumping cases on frozen 
fish fillets and now shrimp.  This banker stated that many in the 
leadership were "trying to do the right thing" in opening up the 
country and the economy, but that it would not happen without help 
from the U.S.  He also stressed that trade and investment would 
aid Vietnam in its reform process and cultivate a possible, 
valuable U.S. ally for the future. 
 
3.  (SBU) Another American businessman, who has been in Vietnam 
for more than 10 years and has held several leadership roles in 
the expatriate business community here, took the argument further. 
He claimed the U.S. had led Vietnam "down the garden path."  After 
promoting the benefits of opening up the economy and trading with 
the United States, he was disappointed that Vietnam had been 
"ambushed" by U.S. efforts to limit trade in the areas with the 
greatest potential growth in the U.S. market - seafood and 
textiles.  He felt that these disputes helped sour the atmosphere 
when U.S. firms such as his own applied for licenses in Vietnam. 
He and others were also concerned that ordinary Vietnamese would 
become disenchanted with the U.S. if they continue to feel their 
successes in the U.S. marketplace will be countered with unfair 
treatment and an end to the level playing field they were told 
they could expect. 
 
Now the Good News 
----------------- 
4.  (U) Along with the dark clouds, the businessmen spoke of the 
opportunities and progress that they had seen.  One businessman 
described the local economy in glowing terms, stating that 
ordinary Vietnamese were optimistic and happy because they saw the 
dramatic and sustained economic growth over the last few years as 
translating into a bright future for their children.  He added 
that the last six months had seen substantially greater economic 
activity -- primarily in HCMC -- than any period during his entire 
tenure here.  Others agreed.  When asked by Mr. Morhard, the 
businessmen were very complimentary about the support they had 
received from the Ambassador and the Consulate General as a whole. 
 
5.  (U) Much of this growth in the last couple of years was 
attributed to direct trade benefits from the Bilateral Trade 
Agreement (BTA), as well as to the indirect benefits of the 
improving trade and investment climate that the BTA commitments 
foster.  One speaker noted that American firms in Ho Chi Minh City 
were engaged in "real business," unlike some of the businesses in 
neighboring countries, which he characterized as "getting between 
foreign aid dollars and their local recipients." 
 
Nike Likes Vietnam 
------------------ 
6.  (SBU) The two Nike representatives spoke very positively of 
their experience with Vietnam.  Nike has, via its contract 
factories, a major presence here.  The company indirectly employs 
about 75,000 workers in 7 contract footwear factories that produce 
exclusively for Nike.  The company estimates that it is also 
responsible for an additional 20,000 employees -- if outside 
suppliers to the footwear factories are also included.  Nike 
considers Vietnam a "learning country," which means it is devoting 
considerable resources to develop further sourcing here. 
According to Nike, Vietnam has made extraordinary progress 
quickly, and can now manufacture high-end shoes that still cannot 
be produced in other countries in the region where Nike has had a 
longer-term presence.  The company is moving toward lean 
manufacturing and is working to add skills to its workforce, which 
is 80 percent female and sees a turnover of 25-30 percent per 
year. 
 
7.  (SBU) Last year the company also sourced 1.5 million pieces of 
apparel in Vietnam, with 50 percent going to the U.S.  The Nike 
reps noted that U.S. textile quotas were playing havoc on its 
apparel sourcing in Vietnam.  Although Nike plans to continue to 
develop footwear production here, apparel production is in more 
flux depending on whether or not Nike contract factories can get 
the quota they need to guarantee the order.  Next year it will be 
much easier to source from other countries where quota will not be 
an issue.  Nike reps called the possibility of U.S. quota 
reductions, even if small, "a major disruption" to the apparel 
business in Vietnam. 
 
So How Do You Define Corruption? 
-------------------------------- 
8.  (SBU) All executives acknowledged that corruption was a 
problem in Vietnam, although some claimed it was not as bad as in 
other countries in the region.  The group noted corruption in 
Vietnam tends to take the form of many small demands rather than a 
need to pay a few very large "gifts." Corruption manifests itself 
in different ways in different sectors of the economy.  Unocal 
noted, for example, that PetroVietnam was not only their 
regulator, but also their partner and service provider.  This 
created tremendous conflicts of interest that the company had to 
deal with.  On the other hand, the banker stated that his 
regulator, the State Bank of Vietnam, was not corrupt.  All five 
businessmen confirmed it is common practice here for money to 
change hands, but noted that they did not do it.  Ultimately, this 
means everything takes longer to accomplish with the GVN. 
However, they agreed it is better not to pay, since "once you give 
in, it's over" and you would be hounded repeatedly for money.  One 
businessman called it "death by a thousand paper cuts."  At the 
same time, he stated that he had containers stuck in port that 
would be cleared quickly if only he was willing to pay a bribe. 
 
9.  (SBU) Several of the businessmen asserted that corruption was 
not as serious in Vietnam as it was in Indonesia where a few of 
them had also worked.  Compared to Indonesia, said one 
businessman, corruption in Vietnam was "fragmented and petty" and 
not as well organized.  One person stated that we should not 
confuse corruption with bureaucratic sloth and inefficiency, 
although the situation is improving. 
 
Unocal's Success Depends on Vietnam's Economic Growth 
--------------------------------------------- -------- 
10.  (SBU) The director of Unocal's operation in Vietnam described 
their production-sharing contract for exploiting offshore gas in 
Vietnam waters in the Gulf of Thailand as a longterm investment 
still in its early stages.  He described Unocal's dealings as more 
difficult here than with Thailand where they operate under a 
concession arrangement.  The gas from the Unocal project will be 
sold to the Vietnamese domestic market.  For the project to be 
economically viable in the long term, Unocal is counting on strong 
economic growth to drive domestic demand for power.  Lately, he 
said, domestic power consumption has been increasing at 17 percent 
per year.  This exceeds estimates in Unocal's business plan, which 
assumes 10-12 percent growth in energy demand per year over the 
next several years.  The Unocal director stated that this demand 
would of course be driven by economic growth, and said the BTA had 
thus indirectly benefited the project.  It was important for this 
growth to continue. 
 
11.  (SBU) The Unocal executive compared the business environment 
in Vietnam to that of China, where the firm has a small project in 
Shanghai.  In China, strong economic growth is also driving energy 
demand.  He felt that working in China, however, was "almost 
impossible for a Western company" although the country had opened 
-- and eased -- up over the past few years.  In Vietnam, like in 
China, there is a big issue of trust.  He stated that this ties 
into the negotiating mentality of his Vietnamese counterparts who 
still have a "win-lose mentality" as opposed to a "win-win 
mentality."  There is currently zero level of trust, he said. 
 
Educating HCMC Officials 
------------------------ 
12.  (SBU) Morhard and ConGen officers also carried on a free- 
wheeling discussion over lunch with three mid-level political and 
press/cultural officers from the External Relations Office (ERO - 
branch office of the Ministry of Foreign Affairs for southern 
Vietnam).  Morhard challenged his interlocutors to reconcile 
Vietnam's continued reliance on a communist-style political system 
with a growing dependence on capitalism.  Much of the remainder of 
the candid conversation focused on the U.S. electoral system and 
the role of special interest groups in the political process.  The 
exchange gave the ERO participants an excellent opportunity to 
learn about the upcoming presidential election and the workings of 
democracy at the grassroots level. 
 
Comment 
------- 
13.  (SBU) While open and direct with their concerns over host 
country problems of corruption, inefficiency, and difficult local 
partners, the American businesspeople who met with Mr. Morhard 
saved most of their worries for USG policy.  They made clear the 
link between Vietnam's continued opening up to the world, its 
continued economic growth, and the success of their own businesses 
in Vietnam.  Although critical of U.S. trade actions over the past 
few months, which these businessmen see as directly threatening 
Vietnam's economic growth and the development of the bilateral 
relationship, they see the BTA as vital to the dramatic economic 
growth and Vietnam's opening up to the world -- which is key to 
their own success.  In spite of their worries, they are optimistic 
about the future here. 
 
13.  (U) Mr. Morhard did not have the opportunity to clear this 
cable before his departure. 
 
YAMAUCHI