US embassy cable - 05HANOI2377

UNCLAS SECTION 01 OF 05 HANOI 002377 
 
SIPDIS 
 
STATE FOR EAP/BCLTV AND EB/TPP/BTA/ANA ADILWORTH 
STATE PASS USTR ELENA BRYAN 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
TREASURY FOR OASIA 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD, VM, WTRO, WTO, IPROP, BTA, FINREF 
SUBJECT: Run-Up to WTO Working Party: Summary of Major U.S. 
Business Concerns 
 
SENSITIVE - DO NOT POST ON INTERNET 
 
REF: HCMC 914 
 
1.  (SBU) Summary:  Summarized below for the convenience of 
our WTO negotiators are a variety of concerns expressed by 
U.S. businesses in Vietnam.  Most of the complaints focus on 
trading and distribution issues, including flaws in 
implementing decrees or draft decrees, the need for greater 
rights than provided in the BTA, and grandfathering rights 
under investment licenses.  Businesses are also concerned 
about perceived flaws in pending WTO-related legislation, 
especially the investment and IPR laws.  Finally, there are 
worries about the GVN's very restrictive interpretation of 
legal rights, excessive red tape, and, in one case, alleged 
harassment by GVN authorities. 
 
2.  (SBU) The U.S. Mission has gathered information from 
many U.S. businesses in Vietnam about lagging implementation 
of the U.S.-Vietnam Bilateral Trade Agreement (BTA).  We 
have also heard about concerns that they hope will be 
addressed in WTO negotiations.  While some of these issues 
have already been reported, others are new and we summarize 
them here in an effort to compile a complete list. 
 
Trading and Distribution Rights 
------------------------------- 
 
3.  (SBU) Exercising BTA rights:  The Vietnamese Government 
(GVN) has not yet issued implementing decrees to give U.S. 
companies the trading and distribution rights to which they 
are entitled under the BTA, but in the interim they have 
assured us in a diplomatic note that they would implement 
these commitments and provided a point of contact in the 
Ministry of Trade (MOT).  Although initially several U.S. 
companies reported difficulty in reaching the point of 
contact, the system is now operating.  However, since this 
diplomatic note was sent no U.S. company has obtained a 
general license.  Colgate-Palmolive was granted licenses 
only for specific shipments.  MOT told Colgate that only 
companies with "substantial" production and manufacturing 
activities, which it defines as involving over $40 million 
in investment, are entitled to general trading and 
distribution rights.  (Note: Colgate-Palmolive has $40 
million in investment capital registered; we are checking on 
the GVN criterion.  End note.) Carrier Air Conditioning's 
application was rejected on the grounds that it was 
registered as a Singapore company.   Although the issue is 
unclear, according to one lawyer, foreign registered 
subsidies of U.S. companies ought to be covered.  Cargill 
also inquired, but said that the MOT seemed unclear about 
its rights.  However, Cargill was not interested in trading 
and distributing via a joint venture with only 49 percent 
ownership. 
 
4.  (SBU) Extending BTA rights:  Ford and V-Trac 
(Caterpillar) also applied for trading and distribution 
licenses, but were rejected; reportedly because, under the 
BTA, Vietnam is not yet obligated to provide such rights for 
automobiles and parts.  Ford would like to import some 
completely built cars to maintain a varied product line 
while rationalizing its domestic production and achieving 
economies of scale in Vietnam and other nearby countries. 
Ford is coping with a relatively small market in Vietnam and 
the prospect of cheaper imports, including "grey" market 
Fords (i.e., brought in by Vietnamese traders who have no 
connection with Ford and offer no warranties), from the 
ASEAN free trade area.  Ford will face more pressure if, as 
part of the WTO accession process, auto tariffs fall and 
restrictions on the importation of used cars are lifted. 
Without trading rights (distribution is currently handled 
through Vietnamese partners), Ford may have to pull out of 
Vietnam.  GE has also complained that its lack of 
distribution rights means that it must use a Vietnamese firm 
to distribute its medical equipment, raising the cost of 
operating in Vietnam. 
 
5.  (SBU) Draft decrees unclear:  New draft decrees on 
trading and distribution rights contain unclear language 
that could lead to conflicts between the Ministries of 
Planning and Investment (MPI) and of Trade (MOT) as to 
whether an investor can acquire distribution rights by 
amending its investment license from MPI or whether it needs 
to obtain a separate license from MOT or to do both. 
 
6.  (SBU) Franchising:  Lawyers who have examined drafts of 
the decree on franchising have expressed concern that each 
branch of a franchise would have to register individually, 
with burdensome and repetitive documentary requirements. 
They have also expressed some concern over a potential 
conflict between MOT and the Ministry of Science and 
Technology (MOST) over which ministry would be responsible 
for issuing licenses.  The most recent draft of which we are 
aware appears to give that responsibility to MOT. 
 
7.  (SBU) Multilevel marketing: The decree provides that 
"Foreign individuals or overseas Vietnamese who reside in 
foreign countries and do not have a work permit issued by a 
relevant authority in Vietnam" may not participate in 
multilevel marketing activities.  Reportedly, MOT has 
interpreted this provision to mean that U.S. companies 
cannot hold even a 49 percent share in multilevel marketing 
companies, although the BTA allows U.S. firms to hold a 49 
percent share in distribution companies after December 2004. 
The Head of MOT's legal Department recently told Fred Burke 
privately that no foreign firm would be permitted to engage 
in multilevel marketing.  According to Burke, a lawyer with 
Baker and MacKenzie, the Vietnamese interpret multilevel 
marketing not as a way to distribute a service, but as a 
different service and therefore not covered by the 
provisions of the BTA.  Another concern expressed by 
analysts of the laws is that the procedures and paperwork 
required for obtaining a multilevel marketing license will 
be very burdensome. 
 
Services 
-------- 
 
8.  (SBU) The Vietnamese have found some creative ways to 
limit the rights of service providers under the BTA.  U.S. 
law firms are allowed under the BTA to provide legal 
services although U.S. lawyers are not allowed to appear in 
court and only lawyers trained in Vietnam may advise on 
Vietnamese law.  However, Vietnam has now issued a decree 
distinguishing between lawyers and barristers and forbidding 
barristers from working for foreign law firms.  So now a 
U.S. law firm cannot conduct litigation by hiring Vietnamese 
partners to represent them in court. 
 
9.  (SBU) Financial Services:  On the critical issue of 
branching, it appears that Vietnamese banks are racing to 
set up their branch networks in advance of any WTO deal that 
might allow more foreign branches.  According to one joint 
stock bank president, there was to be an increase in the 
capital requirement for Vietnamese banks in the summer. 
Vietnamese banks would then have a network with no capital 
requirements.  Also illustrative is a comment by a foreign 
banker whose firm recently purchased part of a joint stock 
bank that his firm's strategy was to benefit from being 
inside of the domestic banking sector for such issues as 
branching, ATM access, and easier approvals of new products 
and services. 
 
10.  (SBU) Telecommunications:  In the telecom sector, the 
limitation on U.S. majority ownership continues to make 
Vietnam unattractive to U.S. investors.  A foreign firm 
whose ten-year profitable Business Cooperation Contract has 
just ended in Vietnam expressed frustration with this 
investment vehicle and emphasized the need for majority 
ownership in telecom.  His firm is considering buying equity 
in its former partner once it is equitized.  The same firm 
noted that restrictions on distribution prevent it from 
selling prepaid phone cards, which account for 80 percent of 
Vietnam's mobile telephone market.  On signal piracy, the 
Ministry of Posts and Telematics has taken note of the 
issue.  The Cable Association in Asia has taken up the 
signal piracy issue and plans a visit to Hanoi this fall to 
pursue it.  HBO launched its channels through cable in 
Vietnam this week and remarked that HBO and others in the 
industry were reluctant to put anything into Vietnam because 
of the dominance by pirates. 
 
Investment Law 
-------------- 
 
11.  (SBU) A number of foreign experts have expressed strong 
concern about the proposed new investment law.  Several 
years ago, the GVN eased the requirements for domestic firms 
to start new businesses, changing from a licensing procedure 
involving scrutiny and review by government authorities to a 
simple registration procedure, except in sensitive sectors. 
Foreign firms still have to undergo the more complicated 
licensing procedure.  The new Investment and Enterprise Laws 
would equalize legal conditions for domestic and foreign 
firms by re-imposing strict licensing requirements on 
domestic firms.  One lawyer believes that the Investment Law 
language could be interpreted to require a firm to obtain a 
license for each and every new investment, a major step 
backwards.  In the rush to pass WTO-related legislation, 
some observers fear that there may not be time to fix all 
the problems with the law. 
 
IPR 
--- 
 
12.  (SBU) Both legislation and enforcement continue to be 
inadequate.  A representative of the Business Software 
Alliance told Econoff that the latest draft of the IPR law 
was an improvement, but is still far from meeting 
international norms.  He urged the USG to stress the 
importance of getting the IPR legislation right.  An 
Annheuser-Busch representative was concerned about a 
provision on protection of trademark holder's rights against 
a later filed geographic indication, but indicated that he 
believes that the issue may be resolved in the latest draft. 
 
General Concerns 
---------------- 
 
13.  (SBU) Red tape:  Many of the new laws, including those 
mentioned above, also impose burdensome registration, review 
or licensing provisions.  For example, the GVN now proposes 
to reintroduce a requirement for representative offices to 
reregister every year, instead of every three years.  Under 
the Competition Law, every contract by a company with more 
than 30 percent market share that contains one of a number 
of potentially suspect terms and every merger that might 
result in a company with more than a 30 percent market share 
must be reviewed at the ministerial level.  The MOT has the 
responsibility for many of these new licensing or 
registering requirements, but lacks the institutional 
capacity to review a large number of applications quickly 
and efficiently. 
 
14.  (SBU) Strict interpretation:  A number of American 
companies and lawyers report being told by government 
contacts that, particularly during the current period of WTO 
negotiations, the Government is doing no more than is 
necessary under the narrowest possible interpretation of the 
BTA and other laws. 
 
15.  (SBU) For example, according to Baker and Mackenzie 
lawyer Fred Burke, the MOT takes the position that since 
Annex G of the BTA only refers to "joint ventures and 
enterprises with 100 percent foreign owned capital," which 
are provided for under the Law on Foreign Investment, U.S. 
companies can only operate as those two forms of 
organizations.  However, in 2006, the GVN plans to eliminate 
the Law on Foreign Investments, and the new Unified 
Enterprise Law does not provide for joint ventures or 
enterprises with 100 percent foreign owned capital.  If the 
MOT persists in this interpretation, U.S. companies could be 
left without any legal basis to obtain their rights.  Burke 
suggests that the best way to fix this problem for BTA 
purposes would be amend Annex G to include other forms of 
business enterprises. 
 
16.  (SBU) Harassment: One company, Tahitian Noni, a well- 
connected Utah-based firm that exports $400 million 
annually, has come to us to complain of harassment by GVN 
authorities.  The company distributes its U.S.-manufactured 
products via a Vietnamese partner, Noni Vina, through 
multilevel marketing. In late spring, the firm's products 
were portrayed as unhealthy by a Vietnamese journalist.  For 
the past several months, Noni Vina's offices have been under 
investigation by a multi-agency GVN team that has been 
extremely disruptive of the company's operations.  The team 
has, inter alia, demanded prior approval of all internal 
Noni Vina communications such as newsletters and arbitrarily 
disallowed tax deductions for seemingly legitimate expenses. 
GVN authorities are threatening not to allow Noni Vina to 
deduct the cost of sales commissions and to ban one of 
Tahitian Noni's products because it contains slightly less 
sodium than listed in its registration documentation. 
Either action would put Tahitian Noni out of business in 
Vietnam.  Tahitian Noni reported a 60 percent drop in 
revenues as a result of the situation.  The company and its 
Vietnamese partner employ about 20 full time personnel and 
about 6,000 part time distributors.  According to Fred 
Burke, other U.S. and foreign direct marketing firms (such 
as Forever Living) have also been subjected to similar 
treatment. 
 
17.  (SBU) Grandfathering existing trading and distribution 
rights:  Investment licenses granted to some U.S. companies 
may contain provisions that provide rights beyond those 
guaranteed by the BTA.  However, if companies are compelled 
to apply for new licenses, which they must do every time 
they change their business operations, they may lose 
advantageous provisions of their old licenses.  For example, 
Otis had trading and distribution rights beyond the rights 
provided in the BTA.  Some market research companies and 
insurance companies have investment licenses allowing them 
to have 100 percent foreign ownership, where under the BTA 
they are limited to joint ventures.  Some U.S. businesses 
have argued for "grandfathering" old investment licenses. 
 
18.  (SBU) SPS: The Vietnamese firm that will distribute 
Estee Lauder cosmetics in Vietnam had to postpone its July 
opening as a result of various complications.   The greatest 
hurdle is an apparent requirement from the Ministry of 
Health that each individual product be tested and registered 
separately.  According to the local representative, there 
are 500 products involved so that this would greatly hinder 
operations.  Another foreign firm that produces and sells 
food products in Vietnam has had approval difficulties with 
the MOH for some time, but generally works them out through 
personal connections.  Tahitian Noni (see above) is facing a 
threat to ban one of its products because its sodium content 
is slightly below the amount listed in its registration 
documents. 
 
Tariff Issues 
------------- 
 
19.  (SBU) Our FAS representative has brought to our 
attention the need to win reductions in the tariff on whey. 
This is an important ingredient for both feed and food.  The 
Vietnamese continue to hold out for a 20 percent final bound 
tariff, whereas the United States is asking for a 5 percent 
final tariff.  Vietnam has a growing dairy industry but will 
continue to fall far short of fulfilling its dairy needs 
domestically.  Nonetheless, the Vietnamese industry wants to 
maintain a high tariff to keep domestic prices high.  Given 
the structure of the U.S. industry, whey is an important 
U.S. export. Lower tariffs are also in the interest of 
Vietnam's livestock and food manufacturing sectors, as they 
need cheap access to this important ingredient.  Rapidly 
developing the livestock sector with lower whey tariffs 
would help boost U.S. exports of corn, soybeans and other 
feed ingredients. 
MARINE