US embassy cable - 04HANOI2116

UNCLAS SECTION 01 OF 06 HANOI 002116 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/BCLTV AND EB/TPP/BTA/ANA JBELLER 
STATE PASS USTR FOR EBRYAN 
TREASURY FOR IA/Asia Office 
USDA FOR FAS/ITP/SHIEKH 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
GENEVA PASS USTR 
 
E.O. 12958: N/A 
TAGS: ETRD, VM, WTRO, WTO, IPROP 
SUBJECT: VIETNAM:  DUSTR SHINER UNDESCORES USG SUPPORT FOR 
VIETNAM'S WTO ACCESSION 
 
SENSITIVE BUT UNCLASSIFIED PROTECT ACCORDINGLY 
 
1. (SBU) SUMMARY:  In meetings July 25 with DPM Vu Khoan, 
Minister of Trade Truong Dinh Tuyen and other senior GVN 
officials, DUSTR Josette Shiner conveyed strong USG support 
for Vietnam's WTO accession; agreed to begin another round 
of bilateral market access negotiations in October; urged 
the GVN to begin taking steps to build a strong coalition in 
the U.S. that will support a Congressional vote in favor of 
Permanent Normal Trade Relations (PNTR) for Vietnam; pressed 
for GVN attention to important commercial issues including 
issuing licenses to U.S. insurance companies and reviewing 
GVN tax policy in the auto sector; and highlighted the 
importance of IPR in economic development.  GVN officials 
welcomed more visible U.S. engagement on WTO and urged the 
USG to take Vietnam's level of development into 
consideration during negotiations.  GVN officials made no 
specific commitments on insurance licenses or autos.  End 
summary. 
 
2. (SBU) Deputy USTR Ambassador Josette Sheeran Shiner 
traveled to Hanoi July 22-25 accompanied by Elena Bryan, 
USTR Senior Director for Southeast Asia and the Pacific and 
Christopher Moore, Senior Policy Advisor.  DUSTR Shiner, 
accompanied by the Ambassador, Ms. Bryan, Mr. Moore and 
Econoffs from Hanoi and HCMC, met with DPM Vu Khoan, 
Minister of Trade Tuyen, Vice Minister of Trade Luong Van Tu 
(her official counterpart and chairman of the GVN's WTO 
accession negotiation team), Minister of Planning and 
Investment Vo Hong Phuc and Vice Minister of Finance Le Thi 
Bang Tham.  She also met with representatives from the Hanoi 
and Ho Chi Minh City (HCMC) Amcham Board of Governors and 
spoke at an Amcham lunch. 
 
U.S. role in VN's WTO accession 
------------------------------- 
 
3. (SBU) In her meetings with DPM Vu Khoan and other senior 
GVN officials, DUSTR Shiner emphasized that her principal 
purpose in traveling to Vietnam was to demonstrate the USG's 
strong support for Vietnam's WTO accession and to seek out 
ways to accelerate the process.  DUSTR Shiner noted that at 
the 8th Working Party (WP) meeting in Geneva in June, both 
Vietnam and the U.S. demonstrated a higher level of 
commitment to Vietnam's accession.  She pointed out that 
earlier in the week the U.S. had provided written responses 
to the GVN goods and services market access offers and noted 
that the two sides need to work together to move Vietnam's 
accession along at a faster pace.  In response to requests 
from all of her interlocutors to schedule bilateral market 
access negotiations, DUSTR Shiner agreed that another round 
of negotiations could begin in early October, subject to 
Vietnam responding to U.S. comments on goods and services in 
the next few weeks.  (Note:  Dates, place and scope of the 
negotiations were left TBD.  Discussions on different topics 
could be held in different places at different times.  End 
note). 
 
4. (SBU) DUSTR Shiner compared Vietnam's WTO accession 
efforts to those of a marathon runner who has already run 25 
miles, and just needs to go one more mile to reach the 
finish line.  Vietnam has had to make many changes very 
quickly, she said, and the GVN may feel like it needs to 
stop and rest.  However, Vietnam must keep moving because 
other "runners," like China and India, are very close and 
are putting pressure on Vietnam.  During the last mile, 
DUSTR Shiner warned, the GVN must avoid being distracted by 
other issues, and keep its eye focused on the ultimate goal. 
Whatever challenges Vietnam faces - textile quotas or 
attracting investment for example - all of them reinforce 
the need for Vietnam to accede to the WTO so it can compete 
globally on equal footing.  As with other accessions, the 
U.S. will play an absolutely critical role during that final 
mile.  In the WTO, the U.S. is always the engine behind the 
accession process.  Neither Japan nor the EU will pull 
Vietnam through; the U.S. is left with the responsibility to 
make it happen and will do so because the U.S. is committed 
to a strong and prosperous Vietnam that can grow its share 
of global trade and compete with China. 
 
5. (U) DPM Vu Khoan expressed appreciation for USG support 
for Vietnam's accession and the USG's positive response to 
Vietnam's last WTO offer.  He acknowledged that Vietnam 
still has a great deal of work to do, including speeding up 
its legislative agenda to meet the requirements of the WTO. 
The DPM said he looked forward to substantial discussions 
between the U.S. and GVN delegations and promised the GVN 
would respond quickly to USG comments on Vietnam's market 
access offers. He assured DUSTR Shiner that the GVN would 
cooperate with the U.S. to reach its WTO goal.  Vice 
Minister of Trade Tu also highlighted the need to speed up 
the passage of WTO-related legislation.  He pointed out that 
the National Assembly has decided that it will focus two- 
thirds of its working time on this issue, and that the GVN 
will work to shorten the legislative timelines included in 
the last WTO offer. 
 
6. (SBU) Minister of Trade Tuyen urged DUSTR Shiner to 
ensure that the U.S. requests of Vietnam during the WTO 
negotiations are "reasonable" and that they reflect an 
understanding of Vietnam's level of economic development. 
The U.S. should consider the sectors that are sensitive for 
Vietnam, he urged.  Many industries are still in the infant 
stage - having just developed in the last ten years.  I seek 
your sympathy, he said; Vietnam needs to find the 
appropriate pace of development and needs to develop 
domestic support for reform.  DUSTR Shiner reassured the 
Minister that the U.S. is sensitive to Vietnam's development 
concerns, but urged Vietnam to consider the U.S. philosophy 
that the more open an economy is, the better it is for the 
people.  That is why the U.S. has become the most prosperous 
nation in the world, she asserted.  Increased liberalization 
is critical to Vietnam's development. 
 
WTO TECHNICAL ASSISTANCE 
------------------------ 
 
7. (U) In all her meetings, DUSTR Shiner offered USG 
technical assistance for the accession process on specific 
topics.  She offered assistance to help Vietnam prepare the 
agricultural support tables that will form a key part of its 
agricultural obligations in the WTO.  Vietnamese officials 
asked for help to meet the requirements of the Sanitary and 
Phyto-Sanitary (SPS) Agreement.  DUSTR Shiner indicated a 
willingness to be helpful, but asked the GVN to indicate the 
specific kind of assistance Vietnam needs on SPS issues. 
 
PNTR 
---- 
 
8. (SBU) DUSTR Shiner explained that a Congressional vote on 
PNTR for Vietnam is necessary for the U.S. to fully accept 
Vietnam's WTO accession.  At some point after the 
negotiations are complete, but before full accession, the 
U.S. will have to schedule a vote on PNTR.  We know from our 
experience with China, DUSTR Shiner said, that these votes 
tend to bring up every aspect of the relationship including 
human rights, religious freedom, investment climate and 
trade disputes.  A PNTR vote becomes a referendum on the 
relationship.  Very significant improvements in the broader 
bilateral relationship, including cooperation on counter- 
terrorism and other USG priority issues will be key 
underpinnings for that debate.  However, there are a number 
of predictable vulnerabilities the GVN needs to seriously 
consider that will be critical to overcoming the PNTR 
hurdle. 
 
9. (SBU) It is important that the GVN not wait until the end 
of the year to focus on this issue.  DUSTR Shiner urged her 
GVN counterparts to think early about creating the right 
climate for PNTR and noted that it will be important for 
Vietnam to develop a coalition of companies that feel 
positive about their experiences in Vietnam.  A number of 
companies would support Vietnam, but others are frustrated. 
 
10. (U) Vice Minister Tu suggested that a positive and 
effective means to deal with the issue of human rights is to 
have members of Congress and National Assembly members meet 
and discuss the issues face-to-face.  This is the best way 
to increase the understanding of each other's views, the VM 
asserted.  Vietnam has done this with other countries and 
found it to be very effective, he added. 
 
Trade and Investment Climate 
---------------------------- 
 
11. (SBU) DUSTR Shiner noted in her discussions that U.S. 
companies are very interested in trade with Vietnam and the 
U.S.-Vietnam Bilateral Trade Agreement (BTA) has been 
essential in stimulating that interest.  The trade numbers 
since entry-into-force of the BTA in December 2001 are a 
real success story in the history of our two nations.  The 
task of implementing the rules of bilateral and global trade 
is daunting but important, as implementation will provide 
the necessary infrastructure for Vietnam to be successful. 
With the benefits, however, expanded trade always brings 
additional frictions.  In the U.S. the Congress is unhappy 
about the size of the U.S trade deficit.  Additionally, 
while some industries - such as the high tech industry - 
have flourished because of trade liberalization in the U.S., 
other industries  - such as the textile and apparel industry 
- have suffered. It is difficult for workers in shrinking 
industries to understand the benefits of free trade.  The 
USG and GVN have to manage these additional frictions to 
ensure the people of both Vietnam and the U.S. view the 
situation as win-win, DUSTR explained.  For the U.S., 
improving the investment climate in Vietnam and GVN efforts 
to continue to attract U.S. investment is critical to this 
process. 
 
Insurance 
--------- 
 
12. (SBU) DUSTR Shiner highlighted GVN reluctance to issue 
insurance licenses to U.S. companies not only as a likely 
problem during the PNTR debate in Congress, but also as a 
development issue for Vietnam.  She told her interlocutors 
that there is a perception in Washington, including among 
members of Congress, that Vietnam is not a receptive place 
for U.S. investment, particularly in areas such as 
insurance, automobile manufacturing and telecom.  Many 
members of Congress feel that U.S. insurance companies are 
not getting fair treatment - that the GVN is giving European 
companies a lead in establishing themselves in Vietnam's 
market. DUSTR Shiner argued that it is shortsighted of the 
GVN to leave U.S. insurance companies so uncertain about 
when they can invest in Vietnam.  It will be important to 
have these companies on board as part of the coalition 
supporting PNTR for Vietnam in Congress. During the China 
PNTR debate, support from U.S. insurance companies was 
crucial.  The more certainty the GVN can provide on 
insurance the better - the GVN needs to deal with this issue 
quickly so it does not become an obstacle to PNTR. 
 
13. (SBU) DUSTR Shiner noted that it is in the overall 
interest of Vietnam's economy to allow greater investment in 
this sector.  The U.S insurance companies that want to 
invest in Vietnam now will bring tangible benefits, 
including capital and investment in infrastructure.  China 
is facing a real crisis because it does not have enough 
insurance products in the market.  It takes insurance 
companies a long time to train people and set up offices and 
product lines.  In the meantime, it is difficult for 
businesses in other sectors to invest if there is little or 
no insurance coverage.  In Vietnam, less than ten percent of 
the economy is covered by insurance - so it is an open 
market with a lot of potential.  However, if Vietnam 
continues to restrict investment in the insurance sector, it 
could soon face the same problems China is facing now. 
 
14. (SBU) Vietnam should consider itself lucky to have so 
many quality U.S. companies looking to invest, Ambassador 
Shiner repeatedly pointed out.  Many developing countries in 
Africa are doing everything they can to attract U.S. 
investment in key areas such as financial services, 
telecommunications and auto manufacturing with little 
success.  Vietnam, however, seems to be trying to slow down 
the pace of investment. 
15. (SBU) DPM Vu Khoan told DUSTR Shiner that he takes her 
concerns regarding the insurance sector seriously and said 
the GVN would consider the points she raised on the issue. 
Minister of Trade Tuyen noted that choosing between U.S. 
companies has proven quite difficult and said the GVN is not 
prepared to issue more than one license at a time.  He 
reiterated a long-standing GVN request that the U.S. choose 
which company should get a license first.  DUSTR Shiner 
indicated that the USG does not make such choices.  Minister 
Tuyen also noted that Vietnam's insurance market is still 
small.  There are already four foreign companies and only 
one domestic company operating in the country.  MPI Minister 
Phuc said that the GVN is still discussing the insurance 
issue internally.  He noted he has told the Government that 
he believes allowing more companies into the market will 
benefit Vietnamese consumers. 
 
16. (SBU) Vice Minister of Finance Tam told DUSTR Shiner 
that the GVN will issue insurance licenses according to its 
own schedule - but indicated that the schedule had not yet 
been decided.  She asserted that Vietnam has already 
liberalized its insurance market - the GVN has allowed the 
establishment of representative offices, encouraged joint 
ventures with Vietnamese companies and issued two 100 
percent foreign-owned insurance licenses (Note:  to AIG and 
Prudential UK in the life sector.  End note.)  Now the GVN 
is considering additional applications for licenses from New 
York Life, Ace, AIG (for the non-life sector) and Marsh 
(broker services) but will issue the licenses according to 
the GVN's own schedule.  For Ace and NY Life, the problem is 
choosing between two U.S. companies vying for licenses in 
the same sector, at the same time.  For AIG, the GVN is 
hesitating because AIG already has one license to operate in 
Vietnam. 
 
Autos 
----- 
 
17. (SBU) DUSTR Shiner also identified problems in the auto 
sector as another area the GVN needs to address before the 
PNTR debate in Congress.  By significantly raising taxes on 
autos, the GVN is sending the message that Vietnam does not 
want investment in this sector, DUSTR Shiner declared.  In 
addition, when taxes get too high, consumption and revenue 
drop.  This is not the best way to raise revenues for road 
infrastructure, which some GVN officials told Shiner was one 
reason for the tax increase. 
 
18. MPI Phuc admitted that GVN agencies are not united on 
the issue of taxes on the auto sector and are still 
considering how to proceed.  The Government's report on the 
first six months of the year noted that auto production in 
Vietnam had dropped two percent because of the tax policy. 
MPI Phuc promised the GVN would look more closely at the 
issue. 
 
Telecom 
------- 
 
19. (SBU) DUSTR Shiner highlighted U.S. companies' interest 
in investing in the telecommunications sector in Vietnam and 
noted this would be an important sector in bilateral 
services negotiations in Vietnam's WTO accession.  While 
Vietnam's latest services offer is good in a number of 
sectors, it is more restrictive in telecom than under the 
BTA.  DUSTR Shiner encouraged her counterparts to look more 
closely at this sector.  Vietnam needs good 
telecommunications infrastructure to attract FDI in other 
areas.  It is in Vietnam's interest to have a more forward 
leaning offer on telecom, she advised. 
 
20. (SBU) Minster of Trade Tuyen explained that telecom 
liberalization has always been a difficult issue for 
Vietnam.  During the BTA negotiations, it took a year of 
negotiations before the GVN agreed to increase the cap on 
U.S. equity in telecom joint ventures from 49 percent to 50 
percent.  This clearly demonstrates Vietnam's sensitivity on 
this issue, he said.  The GVN fully understands how 
important the telecom sector is to the U.S., but the USG 
should not ask Vietnam to make a stronger commitment than 
China's WTO commitment in this same area.  China is stronger 
than Vietnam economically; it would be quite difficult for 
Vietnam's leadership to accept a commitment equal or 
stronger than China's. 
 
IPR 
--- 
 
21. (SBU) DUSTR Shiner also emphasized the importance of 
intellectual property rights (IPR) as a development issue. 
As Vietnam continues to grow and develop, it should look to 
become an innovative economy with its own unique patents and 
inventions.  To do that, DUSTR Shiner advised, Vietnam will 
need a strong IPR protection regime.  Additionally, if 
Vietnam can develop a more effective IPR regime, it could 
use this as a competitive advantage over China in attracting 
high-end investment.  IPR problems in China are so severe 
they are causing investors to look for alternative places to 
put their money. Jordan experienced very positive results 
from the strict IPR requirements in the Free Trade Agreement 
(FTA) it signed with the U.S.  New IT and pharmaceutical 
industries developed in Jordan almost overnight.  Now 
Jordanian officials around the world promote strong IPR 
protection as the best way to attract more investment. 
 
22. (U) Minister of Trade Tuyen told DUSTR Shiner that the 
GVN planned to hold a special government meeting focused on 
IPR protection in the next quarter of this year.  He said 
that he understands USG views on IPR, but explained that 
development and progress on IPR always follows the pace of 
industrialization.  The USG cannot expect changes in IPR 
protection in Vietnam overnight, he asserted. 
MPI Minister Phuc reiterated the GVN's commitment to 
implementing Vietnam's IPR obligations and noted that the 
GVN wants to attract more investment in key areas. 
 
SHRIMP AND TEXTILES 
------------------- 
 
23. (SBU) DPM Vu Khoan and other interlocutors mentioned the 
ongoing anti-dumping case against shrimp as a GVN "concern." 
DUSTR Shiner promised to convey GVN concerns back to 
Washington.  Vice Minister of Trade Tu reiterated a GVN 
request that the USG agree to renegotiate the bilateral 
textile agreement next year, with an eye to increasing 
textile quotas for Vietnam.  After expiration of the WTO 
Agreement on Textiles and Clothing (ATC), Vietnam will be 
the only country left with quotas, he complained.  (Note: 
Expiration of the ATC at the end of 2004 will lift textile 
and apparel quotas for all WTO members. End note.)  This is 
an issue of mutual concern - both for Vietnamese exporters 
and U.S. retailers.  MPI Minister Phuc urged the USG to give 
Vietnam equal footing with WTO members on textiles. 
 
24. (SBU) DUSTR Shiner noted that only WTO membership will 
give Vietnam certainty on textiles.  With the expiration of 
the ATC approaching, the U.S. domestic textile industry is 
feeling threatened with extinction.  There is no political 
support for any additional U.S. flexibility on quota issues. 
U.S. companies have already started to consolidate their 
sources of textiles.  Previously companies sourced out of 
twenty or thirty countries; after the ATC, most companies 
plan to reduce to two or three countries.  U.S. retailers 
view Vietnam as one of the top textile producing countries, 
but the longer Vietnam is subject to quotas, the harder it 
will be for them to continue to source in Vietnam.  This is 
yet another reason the U.S. and Vietnam need to work 
together to get rid of obstacles and ensure that Vietnam can 
get into the WTO as soon as possible, DUSTR Shiner declared. 
 
25. (SBU) COMMENT:  GVN officials clearly welcomed DUSTR 
Shiner's message of strong support for Vietnam's WTO 
accession.  Their focus and determination to stay on message 
was demonstrated by the relatively minimal amount of time 
they dedicated to complaining about shrimp and textiles. 
Even the normally erratic Minister of Trade stuck close to 
his talking points on WTO.  With USTR agreement to begin the 
next round of bilateral negotiations in October, the 
responsibility for maintaining momentum is squarely back on 
the GVN's shoulders.  End comment. 
 
26. (U) USTR EBryan cleared this cable. 
BURGHARDT