US embassy cable - 05HOCHIMINHCITY935

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000935 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/BCLTV AND EB/TPP/BTA/ANA 
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, ECON, PREL, VM, WTRO, WTO 
SUBJECT: VIETNAM: WTO LEGISLATION WORRIES US LAWYERS 
 
REF:  A) HCMC 914 
 
1. (SBU) SUMMARY:  In the rush to meet its WTO accession 
deadline, Vietnam is processing a large volume of 
legislation.  HCMC legal experts are concerned that 
principles important to U.S. business may be lost or 
diluted, particularly through implementing decrees.  In 
their view, top GVN leaders are not adequately monitoring 
draft implementing decrees, and mid-level bureaucrats are 
using the decrees to increase their power and roll back 
liberalization in some areas.   ConGen contacts also observe 
that the lack of coordination between ministries on 
legislation could result in a tangle of conflicting rules 
that slow Vietnam's economy.  END SUMMARY. 
 
Decrees - Problem Areas 
----------------------- 
 
2. (SBU) In meetings with EconOff, HCMC legal experts 
expressed concern about implementing decrees and ordinances 
that are being drafted to supplement laws aimed at 
fulfilling obligations for Vietnam's membership in the World 
Trade Organization (WTO).  Potential problems were 
identified in decrees on franchising, multi-level marketing, 
and in an ordinance on standards.  (Problems with 
legislation relating to trading rights and distribution 
services were outlined in reftel.) 
 
3. (SBU) FRANCHISING:  Lawyers at the HCMC branches of the 
law firms Johnson Stokes & Master and Baker & McKenzie 
reported their dissatisfaction with a draft decree and 
possible conflicts between it and new rules on technology 
transfer.  (NOTE: Until now Vietnamese law has not provided 
for franchises, except under rules of technology transfer. 
END NOTE.)  The draft franchising decree currently calls for 
every branch of a franchise to be registered seperately, 
with burdensome and repetitive documentary requirements for 
each.  In addition, lawyers at both firms said they were 
observing a clash on the issue of franchises between the 
Ministry of Trade (MOT) and the Ministry of Science and 
Technology (MOST), which has responsibility for a new 
technology transfer decree.  Both ministries are fighting 
for control of the issue and for revenues resulting from 
registration and licensing fees.  The lawyers noted that 
companies trying to establish franchises may find themselves 
caught in the middle of this bureaucratic struggle or 
stymied by possibly conflicting rules on franchising and 
tech transfer. 
 
4.  (SBU) MULTI-LEVEL MARKETING:  Problems with a draft 
multi-level marketing decree are similar to the problems 
with the draft franchising decree.  (NOTE:  In multi-level 
marketing companies, like Avon or Amway, sell to consumers 
through tiers of independent agents.  Such systems can be 
subject to abuse by fraudulent mid-level agents unless 
properly regulated.  END NOTE.)  Fred Burke, managing 
partner at Baker & McKenzie Vietnam, (protect) reviewed one 
version of the draft decree that would prohibit foreign 
participation in multi-level marketing.  Burke said the 
intention of this provision is to prevent foreigners from 
engaging in multi-level marketing directly while allowing 
foreign companies that to use multi-level marketing to 
operate through Vietnamese agents.  Burke worries, however, 
that this provision may be interpreted to prevent even U.S. 
companies currently in this market from continuing to 
operate in Vietnam.  However, another HCMC lawyer, Sesto 
Vecchi, (protect) noted he had seen a draft of the decree 
that did not include a ban on foreign participation but did 
require each retail outlet, or agent, to register 
individually, another example of burdensome and repetitive 
documentary requirements.  Steve Parker, director of the 
USAID-funded Support for Trade Acceleration (STAR) project, 
noted that while the GVN is right to be concerned about 
multi-level marketing, which has a potential for fraud and 
abuse, it makes little sense to target foreign companies, 
many of which have a track record of legitimate operations, 
while allowing unproven domestic companies to operate 
freely. 
 
5. (SBU) STANDARDS:  Even ordinances relating to standards 
are not without problems.  Burke reported that a draft 
ordinance on standards does not allow for foreign comment on 
standards setting.  In addition, while most countries use 
internationally accepted language on standards that meets 
the requirements of the WTO Agreement on Technical Barriers 
to Trade (TBT), Vietnam has opted to develop its own rules 
that, in Burke's view, do not meet all the requirements of 
TBT.  Burke noted that these rules will have implications 
for such sectors as fertilizers, chemicals, and automobile 
and industrial parts, all sectors in which U.S. firms could 
be strongly competitive in Vietnam, providing standards 
adhere to international norms. 
 
Coordination and Capacity Issues 
-------------------------------- 
6. (SBU) Burke and Dao Nguyen, partner at the HCMC branch of 
law firm Johnson Stokes & Master, (protect) both highlighted 
conflicts among the Unified Enterprise Law, the Common 
Investment Law and other legislation.  In Burke's view, the 
use of the investment law to define tax rules is sensible, 
but he is disturbed by what he sees as a tendency towards 
conflicting jurisdictions and increasing bureaucratic 
control, which could create opportunities for graft and 
corruption.  For example, Burke noted that the Ministry of 
Planning and Investment (MPI) had included new rules on 
tendering in a draft of the investment law, but it was 
unclear how these rules affected existing tendering rules 
laid down by other ministries.  Nguyen noted drafts of the 
investment and enterprise laws were attempting to ensure 
that a set of common rules applies to foreign and domestic 
enterprises, but the result seemed to be an increase in 
required paperwork and a variety of lists of projects types 
and documentary requirements for each.  Nguyen observed that 
while most foreign-invested enterprises were accustomed to 
some of these rules, they may come as a surprise to some 
Vietnamese companies that have not had to worry about such 
rules in the past.  Burke also expressed concern that in 
practice these rules would be applied more strictly to 
foreign firms, a concern he based on experience with uneven 
enforcement of rules in other areas. 
 
7.  Some of the Embassy's economic growth consultants in 
Hanoi were critical of the draft new Investment Law.  In 
their view, a major accomplishment of recent years was 
shifting to a simple system of registration for domestic 
companies to get a business license, which has made it 
relatively easy to start a business.  However, the proposed 
Investment Law, which would apply to both domestic and 
foreign businesses, would require a license for virtually 
every concrete investment decision.  They believe that the 
original intent of government reformers had been to extend a 
simple registration system of licensing to foreign as well 
as domestic firms, at least in non-sensitive areas of 
investment, this intent has been stymied by the desire of 
the MPI to increase its control. (COMMENT: While we want to 
encourage the GVN to treat foreign and domestic companies 
equally, we would prefer that the GVN reduced bureaucratic 
hurdles for foreign companies, rather than extending these 
hurdles to Vietnamese companies.  END COMMENT.) 
 
8. (SBU) All the lawyers to whom EconOff spoke raised doubts 
about the ability of the GVN's executive and judicial 
branches to adequately administer the laws and regulations 
once they are passed.  Burke said GVN officials had 
expressed concern to him regarding their ability to 
implement the Commercial Law, many provisions of which 
require trained economists to evaluate market conditions and 
make determinations about such things as market share and 
unfair trading practices.  The result, according to Burke, 
is that many companies have put mergers on hold while 
waiting to see how implementation of the law is handled.  Le 
Cong Dinh, a partner at YKVN law firm, which is affiliated 
with the U.S. firm White & Case, expressed skepticism at the 
ability and willingness of many judges to incorporate new 
economic laws into their rulings.  Only by improving both 
incentives and training will the judicial system begin fully 
to adopt the new rules, Dinh said. 
 
9. (SBU) COMMENT:  Burke, Nguyen and Dinh all voiced dismay 
over the proliferation of licenses and permits which will be 
required under laws and decrees included in the WTO 
legislative process.  Burke and Nguyen opined that while top 
GVN leaders have the right legislative vision, they need to 
exert control over mid-level bureaucrats scrambling to 
maintain power and opportunities for "rent" collection.  In 
an August 1-5 study mission to the United States organized 
by the U.S.-Vietnam Trade Council (USVTC) drafters of the 
investment and enterprise laws said the proposals for more 
permits and registrations reflected in part Vietnam's 
ignorance of how best to frame the laws.  Lacking 
understanding of other alternatives to organizing economic 
activity, the fallback has been more permits and 
registrations.  The danger is that in addition to creating 
onerous regulatory frameworks and opportunities for 
corruption, the new laws and decrees will conflict with each 
other, which could deter new foreign investment and act as a 
drag on Vietnam's economy. 
 
WINNICK