US embassy cable - 04HANOI821

UNCLAS SECTION 01 OF 03 HANOI 000821 
 
SIPDIS 
 
SENSITIVE 
 
STATE PLEASE PASS TO USTR EBRYAN 
STATE ALSO FOR E, EB AND EAP/BCLTV 
USDOC FOR 6500 AND 4431/MAC/AP/OPB/VLC/HPPHO 
USDA FOR FAS/ITP/SHEIKH 
GENEVA FOR USTR 
 
E.O. 12958: N/A 
TAGS: ETRD, EAGR, ECON, VM, BTA, WTO 
SUBJECT: Vietnam: MOT Affirms No MFN for U.S. Wines 
 
Ref:  HANOI 696 
 
Sensitive but Unclassified -- Please protect accordingly. 
 
1. (U) Summary:  In a meeting with the Ambassador on March 
16, Minister of Trade Truong Dinh Tuyen asserted that 
textile agreements are outside the "WTO track" and exempt 
from MFN.  He confirmed that the GVN believes it is not 
obligated to extend tariff reductions given to EU wines in 
the context of a bilateral textile agreement to U.S. wines 
on an MFN basis.  Ambassador highlighted the importance of 
MFN in the WTO context and stressed that neither the WTO nor 
the U.S.-Vietnam Bilateral Trade Agreement (BTA) exempts 
textile agreements from application of MFN duty rates.  End 
summary. 
 
2. (U) On March 16, Ambassador called on Minister of Trade 
Tuyen specifically to discuss the GVN's refusal to reduce 
duties on imports of U.S. wines on an MFN basis with 
reductions already accorded to European wines.  (Reftel) The 
Ambassador noted that the U.S. has supported Vietnam's 
efforts to accede to the WTO because we believe that Vietnam 
supports the fundamental principles of the WTO.  MFN is the 
very first principle of both the GATT and the WTO; it is the 
essence of the international trading system.  Any country 
that wants to accede to the WTO, must accept this.  Using a 
Vietnamese expression, the Ambassador concluded that if a 
country does not respect MFN, then it is not ready for the 
"big game." 
 
Textiles outside the WTO system 
------------------------------- 
 
3. (U) In response to the Ambassador's opening remarks, 
Minister Tuyen launched into a lengthy, disjointed, and 
often contradictory discussion of the GVN's position on MFN. 
Noting more than once that he was not only speaking for the 
MOT but also for the Government, Tuyen repeatedly stated 
that the GVN's official position is that textile agreements 
are "outside the WTO track" and "exempt from MFN."  It is 
the GVN's right to include preferential tariffs on wine in a 
bilateral textile agreement with the EU, he asserted.  These 
tariff concessions were made in order to get additional 
textile quota.  When Vietnam signed this "textile" 
agreement, it believed that as long as Vietnam was not a WTO 
member and textile agreements were exempt from the WTO 
system, Vietnam would not be obligated to extend any of the 
concessions included in it to other countries.  Tuyen also 
said he believed textiles are not part of the BTA, which is 
why the two countries needed to negotiate a separate 
agreement. 
 
4. (U) If textile agreements were subject to MFN, Tuyen 
continued, the U.S. would have to accord the same quotas to 
all countries - which it does not.  In addition, if Vietnam 
were to apply the tariff reductions to U.S. imports, 
countries like China and Russia would press for equal 
treatment.  Vietnam cannot satisfy these requests "for its 
own reasons." 
 
5. (U) Ambassador replied that the fact that tariff 
reductions for EU wines were included in a textile agreement 
is irrelevant.  Wine tariffs are not exempt from MFN under 
the WTO.  The Ambassador also stressed that the only 
exemption for textiles in the BTA is an exemption for 
quotas.  There is nothing in the BTA that says that items 
grouped with textiles are exempt from MFN.  Finally, the 
Ambassador pointed out that the heart of Vietnam's problem 
is its reliance on tariffs for revenue.   Vietnam needs a 
better revenue system so that it does not have to worry so 
much about tariff levels.  In most countries, customs 
revenues represent a very small percentage of revenue, so 
there is less anxiety about lowering them. 
 
U.S. can ask for lower Wine Tariffs Bilaterally 
--------------------------------------------- -- 
 
6. (SBU) At one point in the discussion, Tuyen said that if, 
during bilateral textile agreement negotiations last year, 
the U.S. had asked for a reduction in wine tariffs, the GVN 
would have accepted this request on the basis of 
reciprocity.  The U.S. did not think of doing this, but the 
EU did, he added.  Tuyen then noted that the U.S.-Vietnam 
bilateral textile agreement would expire at the end of 2004. 
When the two countries renegotiate this agreement, the U.S. 
side can propose tariff reductions for wine, he proposed. 
(Note - the two sides have not agreed to renegotiate the 
textile agreement.  End note.)  In response the Ambassador 
noted that if he repeated this "offer" back in Washington, 
people would say Vietnam is not "ready for the big game." 
 
BTA Tariff Reductions for the U.S. Only 
--------------------------------------- 
 
7. (SBU) Tuyen then noted that when the GVN reduces 250 
tariffs at the end of this year in accordance with its BTA 
obligations, it has no intention of extending these tariff 
reductions to other countries.  (Note: Although the BTA is 
not a textile agreement, Tuyen offered no explanation of why 
BTA tariff reductions would not be subject to Vietnam's MFN 
agreements with other countries.  End note.)  The Ambassador 
responded that other countries that have MFN arrangements 
with Vietnam are also entitled to those reductions. 
 
What about customs valuation for wine? 
------------------------------------- 
 
8. (U) The Ambassador then told Minister Tuyen that the 
Embassy has received complaints from importers that the GVN 
is not using transaction value as the basis for assessing 
duties on imports of U.S. wines, despite a BTA obligation to 
do so.  The Minister responded that, as far as he knew, 
Vietnam began using transaction value for all imports from 
the U.S. in December 2003.  "If the Ministry of Finance is 
not implementing transaction value for all U.S. products, I 
will tell them to fix it," he said. 
 
A Small Opening 
--------------- 
 
9. (U) On March 17, Ambassador, USTR Textile Negotiator 
David Spooner and Department of Commerce Deputy Assistant 
Secretary James Leonard called on Minister Tuyen to discuss 
 
SIPDIS 
textile quotas.  (The full discussion on textiles will be 
reported septel.)  Minister Tuyen raised the issue of MFN, 
noting that he had studied the Agreement on Textiles and 
Clothing (ATC) and the Multi-Fiber Arrangement (MFA) and 
found nothing indicating that MFN is applicable to textile 
agreements.  However, he also admitted that, after meeting 
with the Ambassador the day before, he had gone back to his 
staff for more information on Vietnam's MFN obligations but 
did not get a clear answer.  Minister Tuyen then said he 
needed clear information so that he could advise the 
Government accurately. 
 
10. (U) Spooner responded that while the Minister is correct 
that the ATC and MFA allow different treatment for textiles, 
that treatment extends only to quotas, not tariffs.  Even 
then, Spooner added, the ATC will expire at the end of 2004. 
The Ambassador added that the BTA is also very clear on this 
issue:  like the ATC, the BTA only exempts the quotas, not 
the tariffs associated with textiles.  It is up to Vietnam 
whether it wants to make progress to join the WTO, the 
Ambassador said.  This issue is not just important to the 
U.S.  If other countries see that Vietnam does not respect 
MFN, Vietnam will not make progress toward WTO accession. 
 
11. (SBU) Comment:  The GVN continues to believe that making 
special bilateral deals remains appropriate despite MFN 
obligations.  The latest iteration is through the loophole 
of inserting tariff reductions into "textile" agreements. 
This logic is confirmed by Minister Tuyen's assertion that 
BTA tariff reductions will not be applied to other trading 
partners on an MFN basis.  However, Minister Tuyen's 
willingness to revisit the issue gives us some hope that we 
may be able to get the GVN to correct itself on this 
important issue.  We will continue to lobby the GVN. 
Ambassador plans to send a letter to DPM Vu Khoan asking 
that he correct the MFN problem prior to the next meeting of 
the BTA Joint Committee and/or the next WTO Working Party. 
Text of the letter has been sent to the Department for 
clearance. 
Burghardt