US embassy cable - 05HANOI1172

UNCLAS SECTION 01 OF 03 HANOI 001172 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR THE DEPUTY SECRETARY 
STATE FOR EAP/BCLTV AND EB/TPP/BTA/ANA JBELLER 
STATE PASS USTR FOR EBRYAN AND GHICKS 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, PREL, PGOV, SENV, TBIO, VM, WTRO, AFLU, HIV/AIDS, WTO, BTA, ETMIN, SOE 
SUBJECT: VIETNAM: THE DEPUTY SECRETARY'S CALL ON THE 
MINISTER OF PLANNING AND INVESTMENT 
 
Sensitive but unclassified protect accordingly. 
 
1. (SBU) Summary and Introduction:  On May 5, Deputy 
Secretary Robert Zoellick met with Minister of Planning and 
 
SIPDIS 
Investment Vo Hong Phuc.  The Deputy Secretary advocated in 
favor of broadening the U.S.-Vietnam relationship.  He 
identified HIV/AIDs and education as areas of good 
collaboration, expressed interest in working more closely on 
avian influenza, and noted that progress on adoptions and 
human rights is important to Americans.  The Deputy 
Secretary voiced concern about taxes levied on the auto 
 
SIPDIS 
sector.  He expressed strong support for Vietnam's WTO 
accession and noted the close relationship between accession 
and Vietnam's overall economic reform agenda. 
 
2. (SBU) Minister Phuc stated that advancing bilateral 
relations with the United States is a priority for Vietnam 
and noted that the Government of Vietnam (GVN) believes 
there is great potential to expand trade and investment.  He 
explained that Vietnam is phasing out investment licensing, 
working to create a level playing field for domestic and 
foreign investors and considering changes to its auto tax 
policy.  He said that Vietnam's next five-year plan will 
seek to balance strengthening GDP growth, extending economic 
opportunities to disadvantaged groups and ethnic minorities, 
and attracting more foreign direct investment.  He asked the 
United States to support strongly Vietnam's goal of 
accession to the WTO in 2005 within the framework 
established in the U.S.-Vietnam Bilateral Trade Agreement 
(BTA). 
 
3. (U) The U.S. delegation included Ambassador Marine, D 
Executive Assistant Ross Wilson, EAP DAS Marie Huhtala, 
Deputy Spokesperson Adam Ereli, and D Special Assistant 
Chris Castro.  The Vietnamese delegation included Assistant 
Foreign Minister Nguyen Duc Hung and the Ministry of 
Planning and Investment's Foreign Investment Agency Director 
Phan Huu Thang. End Summary and Introduction. 
 
Broadening the Relationship 
--------------------------- 
 
4. (SBU) The Deputy Secretary explained to Minister Phuc 
that he came to the region at the start of the second Bush 
administration to meet with U.S. partners and assess the 
region's priorities.  The United States has a full agenda 
with Vietnam; the U.S. Government appreciates the GVN's 
efforts to prepare for the Prime Minister's visit to 
Washington this summer and recognizes the importance of 
marking the tenth anniversary of the normalization of 
relations between the two countries.  As Vietnam approaches 
its Tenth Party Congress, the GVN will need to make 
decisions that will set its direction for the future.  The 
United States wants to build the foundation for a broader 
relationship with Vietnam, one that will enable us to deepen 
our dialogue on regional and global political, economic and 
security issues. 
 
5. (SBU) The Deputy Secretary noted that Vietnam has made 
substantial progress in improving its business and 
investment environment.  The more Vietnam emphasizes the 
rule of law and transparency and establishes clear 
regulations, the more comfortable companies will be about 
doing business in Vietnam.  U.S.-Vietnam trade has already 
experienced significant growth under the BTA.  Now the two 
sides need to address some services sectors as part of BTA 
follow-through and Vietnam's WTO accession process.  The 
Deputy Secretary expressed pleasure that Vietnam has made 
progress on the issuance of insurance licenses to U.S. 
companies.  He added, however, that developing countries 
like Vietnam need to move beyond issuing individual licenses 
and look at a larger, more modern framework for development. 
In the United States, investors do not need a license to 
invest because the U.S. Government believes it is better for 
the economy to let in more companies and increase 
competition in the market.  With respect to the auto sector, 
the Deputy Secretary noted that U.S. companies remain 
concerned about increases in taxes and tariffs applied to 
the auto kits that are imported for assembly in Vietnam. 
They see these as a disincentive for doing business in 
Vietnam.  The Deputy Secretary acknowledged the GVN's 
concern about road safety issues and highlighted efforts 
companies like Ford are making to help address the safety 
issue and support the overall development of the auto 
sector. 
 
6. (SBU) The Deputy Secretary also identified HIV/AIDs and 
education as areas of good cooperation between the United 
States and Vietnam.  Vietnam is one of the countries 
benefiting from the President's Emergency Plan for AIDs 
Relief, and the Fulbright program includes more students 
from Vietnam than any other country in the world.  There has 
also been good progress on religious freedom and MIA/POW 
cases.  The Deputy Secretary expressed an interest in 
expanding cooperation in areas such as avian influenza.  He 
also noted that progress on adoptions and human rights are 
important to average Americans and can set the stage for 
further expansion in the relationship. 
 
7. (SBU) Minister Phuc emphasized that improvement of 
bilateral relations with the United States is a GVN 
priority.  The GVN believes there is great potential to 
expand both trade and investment relations with the United 
States.  The Ministry of Planning and Investment (MPI) is 
working closely with other GVN agencies to prepare for the 
Prime Minister's trip to the United States.  Minister Phuc 
expressed appreciation for U.S. assistance to Vietnamese 
NGOs, particularly in the area of HIV/AIDs, and noted that 
Vietnam needs help from the international community to deal 
with the problems posed by avian influenza. 
 
8. (SBU) Minister Phuc noted that the United States is 
Vietnam's eleventh largest investor, adding that it is the 
sixth largest if investment through third countries is 
included.  Vietnam is working to open many areas to foreign 
investment.  The GVN just issued licenses to New York Life 
to provide insurance services and Lemna International to 
build a solid waste treatment complex in Ho Chi Minh City. 
Issuance of these licenses is indicative of Vietnam's 
interest in attracting investment from the United States. 
The Minister stated the GVN's intention to gradually 
eliminate the system of licensing, but noted that Vietnam's 
transition economy needs to use a roadmap for liberalization 
of its market. 
 
9. (SBU) Minister Phuc explained that the GVN is currently 
discussing the auto sector development with firms 
representing three of its major partners:  Germany, Japan 
and the United States.  The GVN will take note of these 
companies' concerns, consider proposals and, if necessary, 
make changes to the regulations governing the special 
consumption tax (SCT).  Vietnam needs to consider developing 
infrastructure to accommodate the growing number of vehicles 
on the road.  The most important issue is to ensure that the 
SCT is applied on an equal basis for all of Vietnam's 
partners.  Minister Phuc promised to consider the importance 
the United States attaches to a more open market when the 
GVN amends its law. 
 
The Next Five-Year Plan 
----------------------- 
 
10. (SBU) Minister Phuc informed the Deputy Secretary that 
Vietnam is in the process of formulating a new five-year 
development plan.  The GVN hopes to increase annual GDP 
growth from its current 7.5 percent to 8 to 8.5 percent for 
the next five years.  To that end, Vietnam must be more 
aggressive in pursuing the reforms of the Doi Moi 
("renovation") reform policy.  The GVN is drafting a new 
investment law and a new enterprise law that will create a 
level playing field for both domestic and foreign 
investment.  However, there are some areas Vietnam will 
continue to protect in conformity with its BTA and WTO 
commitments.  Vietnam also plans to push forward with the 
reform of state-owned enterprises (SOE).  SOE reform has 
created great momentum in the past and Vietnam is on the 
right track, the Minister asserted. 
 
11. (SBU) The new five-year plan will also pay greater 
attention to development of the private sector, which has 
been an engine of growth for Vietnam, Minister Phuc said. 
In the first four months of 2005, the private sector grew 24 
percent, a rate unmatched elsewhere in the economy.  The GVN 
also plans to focus on attracting additional foreign direct 
investment (FDI), particularly from key partners such as the 
United States, the EU and Japan.  To do this, the GVN 
understands it needs to ensure macroeconomic stability and 
build a complete legal system.  Vietnam hopes to join the 
WTO by the end of this year and hopes the United States will 
support its efforts. 
 
12. (SBU) A strong social agenda is as important as economic 
progress, Minister Phuc said.  Vietnam must build on the 
success it has had in reducing poverty during the last five 
years.  The GVN needs to pay special attention to 
disadvantaged groups and ethnic minorities living in rural 
and mountainous areas in the northern highlands, the Central 
Highlands, the central part of Vietnam and Khmer areas in 
the south.  Vietnam wants to have a fair society that 
promotes equal development for all segments of the 
population and all regions.  In the next five-year plan, the 
GVN will prioritize resource development, social welfare, 
security, nationality and religion.  Administrative reform, 
combating corruption, transparency and democracy will also 
be key elements of the plan.  Unlike in the past, the next 
five-year plan will be "open for discussion."  The GVN will 
host conferences and solicit input from enterprises and the 
international community as it develops the plan. 
 
WTO Accession 
------------- 
 
13. (SBU) The Deputy Secretary said that the U.S. Government 
strongly supports Vietnam's WTO accession and wants to work 
with the GVN to bring Vietnam into the WTO as soon as 
possible.  The Deputy Secretary pointed out the connection 
between development of Vietnam's five-year plan and its WTO 
accession.  As Vietnam changes its laws to meet the 
requirements for WTO, it will also create the framework of 
Vietnam's future economy.  The GVN needs to revise 89 legal 
documents to comply with WTO regulations.  Members of the 
WTO Working Party (WP) have made clear that as the GVN moves 
ahead to revise its legislation, WP members want to review 
the draft changes to assess their compliance with WTO 
regulations. 
 
14. (SBU) The Deputy Secretary explained that to join the 
WTO, a country must not only meet multilateral rules but 
also negotiate bilateral agreements with WTO members.  He 
highlighted the services sector.  According to the World 
Bank, services represent more than half the GDP of 
developing countries like Vietnam and about two-thirds the 
GDP of countries like the United States.  The efficiency of 
the services sector also impacts other sectors like 
manufacturing and agriculture.  Financial services are 
important to spurring investment flows in and out of 
Vietnam.  Efficient telecommunications services are 
essential to enable Vietnam to intersect with the global 
economy.  Expanded distribution services will help to plug 
Vietnam into the global sourcing networks and advance firms' 
ability to bring goods in and out of the country.  Other 
important services sectors include energy and audio-visual. 
 
15. (SBU) On the multilateral side, the Deputy Secretary 
said, WP members have highlighted trading rights, subsidies 
and state trading as priority areas that Vietnam will need 
to address as part of its accession.  Trading rights, which 
govern enterprises' ability to move goods in and out of the 
country freely, can impact competition, lower inflation and 
open up the trading system.  The use of prohibited subsidies 
impacts Vietnam's budget and its efforts to increase the 
competitiveness of the economy.  While state-trading 
enterprises are not prohibited by the WTO, they must operate 
on the basis of commercial principles and fair competition. 
 
16. (SBU) Minister Phuc acknowledged the importance of the 
services sector to Vietnam's economic development and agreed 
that Vietnam needs to open the sector more.  He noted that 
Vietnam has committed to do this under the BTA and urged the 
United States to look at Vietnam's WTO accession in the BTA 
framework.  He added that Vietnam also hopes to negotiate 
its accession with other WTO members on this basis. 
 
17. (U) This cable was cleared by D Staff. 
 
BOARDMAN