US embassy cable - 04HANOI980

UNCLAS SECTION 01 OF 03 HANOI 000980 
 
SIPDIS 
 
SENSITIVE 
 
STATE PLEASE PASS TO USTR EBRYAN 
STATE ALSO FOR E, EB AND EAP/BCLTV 
STATE ALSO PASS USAID FOR ANE/AFERRARA 
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, EINV, ECON, EAID, PREL, VM, BTA 
SUBJECT: Vietnam:  Implementation of BTA Customs Obligation 
 
 
Sensitive but Unclassified -- Please protect accordingly. 
 
REF:  (A) 03 HANOI 2795       (B) Hanoi 821 
 
1. (U) Summary:  The GVN has taken significant steps toward 
implementing the U.S.-Vietnam Bilateral Trade Agreement 
(BTA) obligation to adopt a system of customs valuation 
based on the transaction value of the imported merchandise, 
according to GATT standards.  At this time, the GVN is 
applying the new valuation method only to goods imported 
from the U.S. and ASEAN, (as well as for goods imported by 
foreign invested enterprises.)  GVN steps include adopting 
key implementing regulations, issuing a new (additional) 
declaration form for importers, and training local customs 
officials.   As expected, however, application of the new 
regulations at the ports of entry appears uneven.  Also, in 
a move inconsistent with the terms of the BTA, the GVN is 
continuing to use minimum prices for valuation purposes on 
some products.  End summary. 
 
GVN Adopts Regulations Implementing Transaction Value 
--------------------------------------------- -------- 
 
2. (U) According to the terms of the BTA, the GVN was 
obligated by December 10, 2003 to adopt a system of customs 
valuation based on the transaction value of the imported 
merchandise, rather than arbitrary reference or minimum 
prices.  In June 2002, the GVN issued Decree 60 establishing 
rules for customs valuation based on the transaction value 
of goods imported from countries to which Vietnam has made a 
commitment on customs valuation.  On December 8, 2003 the 
Ministry of Finance (MOF) issued Circular 118, the 
implementing regulations for Decree 60.  In addition, the 
General Department of Customs issued Official Letter 1774 on 
February 29, 2003 providing additional instructions to local 
Customs offices on how to implement Circular 118.  (Note: 
Embassy was unable to obtain a copy of 1774 as official 
letters are not published in the Official Gazette and the 
MOF refused to provide it upon request.  End note.) 
 
3. (U) To assist in the implementation of the Circular, The 
General Department of Customs in Hanoi disseminated copies 
of the new regulations and guidelines to customs offices 
throughout Vietnam and provided training on the new 
regulations in Hanoi for customs officials from provincial 
offices.  Additionally, provincial customs offices carried 
out some in-house training for their staff and, in some 
areas, provided training to Vietnamese importers on how to 
work within the new regulations. 
 
4. (SBU) In real terms, the new regulations have not 
resulted in significant uniform changes in the procedures 
and practices of local customs officials.  To implement the 
changes in valuation, customs issued a new form that 
importers must fill out when bringing in goods of U.S. or 
ASEAN origin.  The new form appears to have been well 
circulated, as most importers Econoffs talked to were 
familiar with the form.  In Ho Chi Minh City, at least one 
customs office created a designated area for processing 
goods imported from the U.S. and ASEAN.  However, in other 
smaller ports, such as Hai Phong and Mong Cai (on the 
Chinese border) customs offices have not have made any 
changes to their internal procedures to address the fact 
that they are using two kinds of valuation systems.  They 
have not divided their officers into teams or even set up 
different lines for companies declaring goods eligible for 
the new valuation method.  Also, the GVN remains committed 
to upgrading, retaining, and relying on its reference price 
list for detecting fraud.  One World Bank official commented 
to Econoff that the GVN appears to be taking an overly 
simplified approach to revamping its customs operations. 
 
Despite BTA, Exceptions Remain 
------------------------------ 
 
5. (U) Despite the fact that the BTA does not provide for 
any exceptions for the application of transaction value, 
Decree 60 reserved the right for the GVN to use minimum 
prices for the purpose of calculating duties on a number of 
items "in order to protect the State's interests and 
domestic production."  On February 4, 2004 the Ministry of 
Finance issued Official Letter 393 providing specific 
instructions on the application of minimum prices.  This 
Official Letter instructed customs officials to continue 
using minimum prices on a specific list of products (whose 
import prices are controlled by the State) - regardless of 
whether or not these goods are subject to Circular 118.  The 
list referred to in Official Letter 393 was originally 
published in MOF Decision 164 in October 2000 and includes 
the following items:  1) assorted beverages; 2) tires, 
pneumatic inner tubes and fenders; 3) wall and floor tiles, 
sanitary ware (toilets, sinks, urinals, wash basins and bath 
tubs); 4) flat glass, white, colored and light-reflecting 
glass, water flasks and vacuum inner flasks; 5) motors, 
generators (not those used for cars, motorbikes or other 
special use vehicles); 6) electric fans; and motorcycles. 
 
6. (SBU) In a meeting with Ha Huy Tuan, Deputy Director of 
the International Relations Department at the MOF in early 
March, Econoff questioned the GVN's decision to maintain the 
use of minimum prices.  Tuan (who did not argue the point 
that the BTA does not provide for any exceptions on customs 
valuation) explained to Econoff that Official Letter 393 is 
a temporary measure until the MOF can finalize a new, 
revised list of goods subject to minimum prices.  The 
purpose of establishing this new list, according to Tuan, is 
to target high fraud-risk goods and companies.  The General 
Department of Customs, in coordination with local customs 
offices is in charge of drafting the list.  Customs has 
submitted several versions to the MOF, all of which have 
been rejected.  The MOF sees the minimum price list as a 
"very serious issue" Tuan added and is working hard to 
identify the priority areas - that is why it is taking so 
long to finalize the list. 
 
7. (SBU) Econoff reiterated that the current list of 
exceptions - and any future list - contradicts Vietnam's 
obligations under the BTA.  Econoff stressed that this is a 
serious issue, particularly given the fact that U.S. 
products are being disadvantaged by the GVN decision not to 
fully meet its BTA obligations.  Econoff cited imports of 
U.S. wines as an example, noting that Vietnamese wine 
importers have complained to U.S. officials about Customs 
decision to maintain minimum prices as the basis for 
calculating import duties on U.S. wines.  Tuan took the 
point and promised to convey the message to the Vice 
Minister of Finance.  (Note:  Although, as reported ref B, 
on March 16 Minister of Trade Tuyen told Ambassador that if 
the MOF is not applying transaction value to all U.S. 
imports in accordance with the BTA, he would tell MOF to 
"fix" the problem, nothing has changed as yet.  End note.) 
 
Survey of Companies' Experiences 
-------------------------------- 
 
8. (SBU) Econoffs met with a number of companies in Ho Chi 
Minh City in February to discuss their experiences with 
implementation of the new customs obligations.  While it was 
quite soon after implementation of the new regulations, 
these companies provided a useful snapshot of the results of 
the GVN's early efforts at implementation. 
 
-- Local companies: Local companies that import significant 
amounts of goods from the U.S. and/or ASEAN appear to have 
had the most success in using the new customs valuation 
procedures, so far.  Representatives of a number of 
Vietnamese companies were well read on the new regulations 
and familiar with the new form.  They told Econoffs that 
duties on their imports are now consistently assessed based 
on the invoice price, even if that price is lower than the 
GVN's reference price.  It should be noted however, that 
most of these companies are very familiar with local customs 
procedures.  They said they are also generally accustomed to 
paying "facilitation fees" at each step of the clearance 
process, which may have directly or indirectly increased 
Custom's willingness to apply transaction value for their 
imports. 
 
-- U.S. companies:  Econoffs talked to representatives from 
a number of large U.S. companies doing business in Vietnam. 
On the whole they did not yet have a strong sense of the 
impact of new customs procedures on their businesses.  Some 
of these companies were only vaguely aware of the new 
regulations and many had not seen the new customs form.  The 
owner of one U.S.-owned company, who has been doing business 
in Vietnam for more than ten years, told Econoffs that in 
terms of customs valuation nothing has changed for him since 
passage of the new regulations.  Customs generally charges 
duties on his shipments based on the higher of the invoice 
or the reference price.  Another U.S. company that imports 
pet food from factories in the ASEAN area was told by HCMC 
customs that pet foods are not eligible for transaction 
value.  Pet foods are not on the minimum price list so it is 
unclear where this "rule" may have come from.  The 
representative of another U.S. company told Econoffs his 
company always get invoice pricing, but noted their invoices 
are always above the GVN's reference prices. 
 
-- Fed Ex:  Fed Ex has customs officers that are assigned to 
work at the Fed Ex warehouse to assess the value of 
packages.  According to the local Fed Ex representative, 
there has been no change in the process since implementation 
of the new regulations.  In practice, the Customs officers 
continue to use the higher of the reference or the invoice 
price to calculate the duty.  Fed Ex has submitted a written 
request to Ho Chi Minh City Customs asking them to begin 
using the transaction value.  About eighty percent of Fed 
Ex's packages are from either the U.S. or ASEAN countries. 
 
-- Wine/Spirits importers:  As noted above, currently wine 
importers are not benefiting from implementation of 
transaction value.  Per Official Letter 393, Vietnamese 
customs is still using minimum prices as the basis for 
calculating import duties on beverages imported from the 
U.S. and ASEAN.  The end result of this is that U.S. wines 
have been disadvantaged significantly in comparison to 
imports of EU wines.  The tariff on imports of EU wines was 
reduced twenty percent in February (see ref B) and European 
wines are also exempt from the use of minimum prices. 
(Note:  As with the tariff reductions, the exemption of 
certain EU imports from the application of minimum prices is 
a by-product of the EU-Vietnam "Textile" agreement.  End 
note.)  U.S. wines, however, are charged the higher duty 
rate on either the minimum price or invoice price (whichever 
is higher). (Note:  U.S. wine imports are supposed to start 
getting the lower duty rate no later than May 1.  End note.) 
Wine importers are not allowed to use the new customs form 
because wine is on the list of state-controlled items. 
 
9. (SBU) Comment:  The GVN should be praised for the efforts 
it has taken to put in place a solid legal framework for 
fulfilling its BTA customs obligations.  We are not 
surprised, however, that application is uneven, given the 
GVN's ongoing concerns about revenues, the pervasive 
corruption at all levels in customs, and a lack of capacity 
in terms of both human resources and infrastructure.  Only 
time will tell if the GVN will be successful at ensuring 
full implementation at all ports of entry.  The GVN's 
decision to maintain dual systems (one for U.S. and ASEAN 
and one for everyone else) is problematic, as it will likely 
hinder efforts to change customs officials' mindset and 
approach to valuation.  Additionally, the GVN decision to 
carve out "exceptions," not identified in the BTA is 
worrisome.  Post recommends including a detailed discussion 
of customs in the agenda of the next U.S.-Vietnam BTA Joint 
Committee meeting this spring. 
BURGHARDT