US embassy cable - 04HANOI2857

UNCLAS SECTION 01 OF 03 HANOI 002857 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USTR FOR EBRYAN 
STATE ALSO FOR EAP/BCLTV, EAP/RSP, EAP/CM 
 
E.O. 12958: N/A 
TAGS: PREL, CH, VM, CVR, WTO 
SUBJECT: PRC PM WEN'S VISIT TO HANOI:  TRADE TAKES THE FRONT 
SEAT 
 
REFTELS: A) Hanoi 2745; B) Hanoi 2795; C) Beijing 15482 ; D) 
 
Beijing 17091 
 
1. (SBU) Summary:  Chinese Premier Wen Jiabao's first 
official visit to Vietnam yielded a number of agreements in 
the trade and development areas and a renewed commitment to 
make progress in demarcating the two countries' land border. 
Considerable daylight still remains between the two sides on 
the Spratlys territorial issue, with Vietnam refusing to 
accept China's invitation to join the PRC and the 
Philippines in a joint exploration project.  End Summary. 
 
2. (U) Chinese Premier Wen Jiabao's first official visit to 
Hanoi, which preceded his participation in the October 8-9 
ASEM-5 summit, focused mainly on trade and development 
issues, with territorial and border matters taking a back 
seat, according to our Vietnamese and Chinese contacts.  Wen 
met separately October 7 with State President Tran Duc 
Luong, Prime Minister Phan Van Khai and Communist Party 
General Secretary Nong Duc Manh.  Among the agreements and 
memoranda of understanding signed during Wen's visit were: 
 
     -    an agreement on (unspecified) economic and technical 
       cooperation; 
-    an MOU on the construction of a fertilizer plant and an 
agreement on the improvement of rail lines in northern 
Vietnam; 
-    agreements on food hygiene cooperation and a protocol 
on plant and border quarantine procedures; 
-    an agreement establishing working groups to implement 
new China-Vietnam economic corridors; and 
-    a "note of exchange" on Vietnam's "inapplication (sic) 
of three disadvantageous terms that China accepted for its 
WTO entry." 
 
ECONOMIC ISSUES -- INCLUDING VIETNAM-CHINA WTO TALKS 
--------------------------------------------- ------ 
 
3. (SBU) Dr. Do Tien Sam, Director of the Government-run 
Institute for Chinese Studies, told us that Premier Wen and 
Prime Minister Khai had a long discussion about measures to 
improve the bilateral economic relationship in order to 
bring it up to the level of the political one.  The two 
sides also sought to expand further bilateral relations to 
"balance" them with each country's "other bilateral 
relations."  According to Nguyen Vinh Quang, Director 
General of the Department of Northeast Asia of the Communist 
Party's External Affairs Commission, China has been 
"frustrated" by the unfavorable comparison of Vietnam-China 
economic interaction with that of Vietnam and Taiwan.  For 
its part, Vietnam hopes to "create the conditions" for 
economic relations with China to continue to increase. 
However, Vietnam and China, as two countries attempting to 
"implement market economies," would have to obey the rules 
of the market, Quang said. 
 
4. (SBU) During their meeting, Prime Ministers Wen and Khai 
agreed to aim for "free trade by 2010," the China 
Institute's Dr. Sam told us.  However, in spite of the 
progress both sides have made to expand their economic 
relationship, Vietnam still has problems with China's 
failure to open its market fully, he said.  For example, 
even when China grants flexibility on terms of trade, it 
still requires substantial concessions in response.  China 
also blocks Vietnamese imports using non-tariff barriers 
such as phytosanitary restrictions on produce and local 
tariffs on foreign commodities, Sam said. 
 
5. (SBU) On the question of Vietnam's WTO accession, Dr. Sam 
said that PM Wen relayed China's support for Vietnam's bid. 
However, Chinese support is conditioned on Vietnam's meeting 
arduous conditions.  Vietnam "knows that it will be 
difficult to work with China."  Vietnam's Minister of Trade 
Truong Dinh Tuyen told his Chinese counterpart that China's 
requirements are higher than those of the EU and the United 
States.  Ultimately, Vietnam is counting on its successful 
bilateral negotiations with the United States and EU to 
convince China to compromise, Sam explained. 
 
6. (SBU) PRC Embassy Economic Counselor Zhang Chixin 
confirmed that, in exchange for China's support for 
Vietnam's WTO accession, Vietnam had signed an agreement not 
to use three WTO provisions against China once it had 
entered the WTO.  These provisions are anti-dumping, anti- 
subsidy and safeguards on textile imports from China. 
TERRITORIAL AND BORDER ISSUES 
----------------------------- 
 
7. (SBU) According to Zhou Wenrui, the PRC Embassy's 
Political Counselor, PM Khai reiterated in familiar terms 
Vietnam's "one-China" policy and "opposition" to Taiwan's 
independence.  PM Wen and PM Khai also "briefly discussed" 
territorial and border issues.  Although the land and sea 
border disputes between China and Vietnam have been 
"resolved," both sides exchanged views on implementing the 
June border agreement, which includes demarcation issues 
such as placing border markers.  Zhou expressed confidence 
that this issue would continue to be a "positive area of 
cooperation" between the two sides.  The China Institute's 
Dr. Sam was less sanguine, however.  Local Chinese officials 
and residents close to the frontier continue to cause 
difficulties, such as by cultivating land and moving graves 
in territory Vietnam considers to be on its side of the 
border.  "Vietnam has tried to complete the demarcation 
project, but some Chinese 'acts' continue to frustrate 
progress," Sam said.  According to the Communist Party's 
Quang, only five to ten percent of the border markers have 
been placed, and Vietnam expects the process to take at 
least five more years. 
 
8. (SBU) The dispute surrounding the Spratly Islands remains 
the most contentious territorial issue, both our Vietnamese 
and Chinese interlocutors agreed.  According to the PRC 
Embassy's Zhou, China acknowledges Vietnam's "concerns" 
about the issue, in particular those related to China's 
recent agreement with the Philippines to explore jointly a 
disputed area.  During his Hanoi visit, PM Wen had expressed 
his country's desire to have Vietnam join the two countries 
in this endeavor, but Vietnam had refused, Zhou said. 
 
9. (SBU) Vietnamese Vice Foreign Minister Nguyen Phu Binh 
related to the Ambassador that Prime Minister Khai had told 
PM Wen that China's actions were in violation of the South 
China Sea Declaration of Conduct and ran contrary to a 
separate PRC-Vietnam agreement on the issue.  PM Khai called 
on his counterpart not to implement the deal with the 
Philippines.  PM Wen had responded that China's joint 
exploration agreement with the Philippines did not 
contravene the Declaration of Conduct and "does not affect 
the national interests of Vietnam," Binh said.  China 
invited Vietnam to join the China-Philippines project, but 
PM Khai responded that Vietnam does not share China's view. 
Vietnam believes that any and all agreements related to the 
disputed territory have to involve all the claimants and not 
just a select few, Binh continued.  Were Vietnam to join, it 
would send the message to the region that Vietnam sought to 
cut its own deals.  Ultimately, however, Vietnam wants to 
"maintain good relations" with China and does not want to 
"add to bilateral tensions," Binh concluded. 
 
VISIT EXCEEDS EXPECTATIONS; VIETNAM INVITES HU JINTAO 
--------------------------------------------- -------- 
 
10. (SBU) Apparently, pre-ASEM logistical and administrative 
concerns shared with us by our EU and Japanese colleagues 
knew no ideological bounds.  According to the PRC Embassy's 
Zhou, who was control officer for the Wen visit, the PRC 
Embassy was "very worried" about whether Vietnam would be 
able to pull off a successful visit.  However, although 
there were some "minor" problems, Wen's bilateral visit and 
the overall ASEM summit went off without a hitch, Zhou said. 
As for future high-level visits to Hanoi, Party General 
Secretary Nong Duc Manh extended an invitation to PRC 
 
SIPDIS 
President Hu Jintao to visit Hanoi, but there are no firm 
dates on the horizon, Zhou said. 
 
COMMENT 
------- 
 
11. (SBU) Although Taiwan came up only briefly during Wen's 
visit, the island looms large in China's and Vietnam's 
desire to raise the level of the economic relationship to 
that of the political one.  Vietnam's trade and investment 
ties with Taiwan are booming, and there is the perception 
here that economic relations with Taiwan -- especially 
Taiwanese investment -- are among the most advantageous that 
Vietnam enjoys.  In contrast, there is also increasingly the 
feeling here that, in spite of China's proximity and size, 
it is doing much less for Vietnam than it could.  That 
feeling contrasts uncomfortably with Vietnam's close 
political and ideological ties with Beijing. 
 
12. (SBU) Comment, continued:  The contradiction between the 
robust economic relationship with Taiwan and the political 
rejection of Taipei that are a sine qua non of the 
relationship with Beijing are troubling to Vietnam's 
leadership.  Both Beijing and Hanoi recognize that the best 
way to change this dynamic is to improve bilateral economic 
relations, and this is driving the efforts to break down 
barriers to trade.  In spite of these efforts, however, 
neither China nor Vietnam intends to roll over on the 
sensitive issues related to Vietnam's WTO bid, and we can 
expect continued heated discussions as the deadline 
approaches. 
 
13. (SBU) Comment, continued:  While press accounts of the 
Wen visit refer to an agreement in which Vietnam pledges not 
to use three WTO provisions, our GVN counterparts have 
declined to confirm this or provide a copy of the document. 
We find it surprising that the GVN would have signed a 
binding agreement at this point unless the bilateral 
negotiations between Vietnam and China had closed out, and 
our Chinese and Vietnamese interlocutors confirm that 
negotiations are ongoing.  We should know more after the WTO 
United States-Vietnam market access accession negotiations 
in Washington the week of October 25.  End Comment. 
MARINE