US embassy cable - 05HANOI3092

UNCLAS SECTION 01 OF 04 HANOI 003092 
 
SIPDIS 
 
STATE FOR EAP/MLS AND EB/TPP/BTA/ANA GOODMAN AND WICKMAN 
STATE PASS USTR ELENA BRYAN 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
USDOC FOR 4430/DBISBEE/JBENDER 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, VM, WTRO, IPROP, BTA, SOE, WTO 
SUBJECT: DEPUTY SECRETARY OF COMMERCE'S ECONOMIC ROUNDTABLE 
 
SENSITIVE.  Do not post on the Internet. 
 
1. (SBU) Influential Government of Vietnam (GVN) advisors 
offered their views on current economic and reform issues in 
a roundtable discussion with visiting Deputy Secretary of 
Commerce David A. Sampson on November 18.  The roundtable 
focused on Vietnam's investment climate, intellectual 
property rights (IPR), and good governance/transparency. 
Participants stated that the U.S.-Vietnam Bilateral Trade 
Agreement (BTA) had contributed significantly to economic 
growth, and identified implementation problems as a barrier 
to improving the investment climate.  Lack of capacity 
remains the greatest problem in IPR protection 
implementation, though price pressures also contribute to 
demand for pirated goods.  Good governance/transparency are 
central to all reform and continued economic development, 
the participants agreed. 
 
2. (SBU) Deputy Secretary of Commerce David A. Sampson heard 
from influential advisors to the Government of Vietnam (GVN) 
at an economic roundtable moderated by Ambassador Marine on 
November 18.  A full list of participants follows in 
paragraphs 20 and 21.  The DepSec welcomed the attendees and 
said he would like to focus the discussion on three topics: 
the investment climate, intellectual property rights (IPR) 
and good governance/transparency. 
 
Investment Climate and BTA Implementation 
----------------------------------------- 
 
3. (SBU) Noting that Vietnam's record of trade expansion has 
been impressive, the DepSec said that it is important for 
Vietnam to move forward with economic reforms, including 
those under the U.S.-Vietnam Bilateral Trade Agreement (BTA) 
and World Trade Organization (WTO) in order to maintain the 
pace of economic growth.  U.S. companies are eager to do 
business in Vietnam, but are waiting to see how the current 
group of investors fares before making decisions to expand 
or enter the market, he added. 
 
4. (SBU) Senior Advisor to the Prime Minister Ms. Pham Chi 
Lan stated that there has been significant improvement in 
Vietnam's investment climate in the past several years.  The 
GVN has sought to provide a level playing field for the 
private and state-owned sectors, and domestic and foreign- 
invested enterprises by submitting the Common Investment Law 
(CIL) and the Enterprise Law for consideration by the 
National Assembly.  The GVN gave very serious consideration 
to all suggestions for revisions to the CIL submitted in a 
joint letter authored by the American, Australian and 
European Union Chambers of Commerce in Vietnam, and although 
business has criticized the latest draft of the CIL, the 
draft is far better because of their input.  The inclusion 
of guarantees for international dispute settlement 
demonstrates that the GVN listens to business and citizens 
before making a final decision, Lan concluded. 
 
5. (SBU) Senior Advisor to the Minister of Planning and 
Investment Le Dang Doanh said that the BTA has led to a 
number of important reforms.  The main problem now is 
implementation, especially at the provincial level.  There 
is need to train provincial professionals and local 
authorities, as highlighted by the Provincial 
Competitiveness Study done by USAID.  The second problem is 
the high cost to business in both time and money due to 
market dominance by monopolies, though this is starting to 
improve.  Competition is beginning in civil aviation, for 
example.  Doanh cited the need for improving labor force 
training at the university and vocational levels, and asked 
the DOC to provide assistance with vocational training. 
 
6. (SBU) Vu Quoc Huy of the Institute for Economic 
Development Studies (IEDS) at the National Economics 
University (NEU) agreed that the BTA experience has been 
positive for Vietnam.  It provided impetus for reforms, and 
resulted in capacity building and increased participation 
among non-government stakeholders.  Additionally, the GVN 
was able to apply the lessons learned from the catfish and 
shrimp disputes with the United States to the EU shoe 
dumping case. 
 
7. (SBU) Director of the Center for Economic Development 
(CED) at Vietnam National University (VNU) Phung Xuan Nha 
said that since the GVN's policies to improve the business 
environment come from a government perspective, they may 
often be at odds with what the private sector actually 
needs.  Although there have been increased opportunities for 
the private sector to provide input, in practice much 
confusion remains among investors.  For example, while there 
have been extensive discussions about the need to improve 
competition, concrete measures have yet to be implemented. 
Implementing policy at the local level remains a challenge 
for the Central Government. 
 
8. (SBU) Deputy Dean of the Department for Scientific 
Research at the National Economics University Pham Hong 
Chuong said that Vietnam is facing many dilemmas.  The 
government and private sector want different things. The GVN 
is interested in maintaining a strong public sector, even 
though SOEs are one-third as efficient as the private 
sector.  Equitized SOEs in which the government retains 51 
percent of the shares continue to be SOEs, he pointed out. 
The GVN has chosen to develop the hi-tech sector with 
disregard to the fact that Vietnam lacks a number of 
conditions, including marketing experience, human resources 
and investment, that are necessary to the success of IT 
ventures.  The GVN has invested a lot of money into the IT 
sector, with little return thus far.  Noting that provincial 
authorities' limited capacity to evaluate projects makes it 
difficult to identify good investments, he called for 
assistance in this area. 
 
Intellectual Property Rights Protection 
--------------------------------------- 
 
9. (SBU) The DepSec applauded Vietnam's progress in 
strengthening its IPR regime, including the new legislation 
being considered by the National Assembly.  (Note: the IPR 
law passed on November 19. End note.)  The DOC's Patent and 
Trademark Office (PTO) has provided technical training and 
hosting study tours for Vietnam's IPR authorities, and more 
of this type of assistance if possible, he said. 
 
10. (SBU) Doanh noted that the structure of the Vietnamese 
market is a major problem for implementing IPR protection. 
Vietnam's private sector is comprised of SMEs and family 
businesses, many of which do not understand IPR issues.  In 
addition to passing laws, significant resources, including 
trained professionals, are needed to implement them. 
National Economics University's Chuong added that although 
many people realize that IPR protection is necessary, 
immediate implementation would drive computer prices beyond 
the reach of most Vietnamese, making it difficult to develop 
the IT sector. 
 
Good Governance/Transparency 
-------------------------------- 
 
11. (SBU) The SepDec said that the DOC has launched a number 
of programs on good governance and transparency, and has 
worked with local public and private sectors to ensure a 
level playing field for both domestic and foreign business. 
The United States believes that this is fundamental to 
attracting investment.  The DOC is considering establishing 
a program in Southeast Asia, and Vietnam is a good 
candidate. 
 
12. (SBU) Doanh welcomed the suggestion of a good governance 
and transparency program in Vietnam.  He said that SOE 
management does not include good governance concepts. 
Although an SOE may be equitized, it is not a market-economy 
enterprise, as the Party Secretary has full power to appoint 
board members.  (Note:  We believe Doanh is referring to the 
power that Party Secretaries exercise informally at all 
levels.  End note.)  He underlined the urgency for reform by 
pointing out that while the private sector produces 42 
percent of the GDP, it employs 90 percent of the population, 
and generates 95 percent of new jobs. 
 
13. (SBU) IEDS/NEU's Vu Quoc Huy said that good governance 
is central to all the issues brought up by the DepSec. 
Absence of good governance prevents implementation of good 
laws.  Institutional capacity to carry out reform translates 
into employment and investment, he concluded. 
 
14. (SBU) CED/VNU's Nha noted that the quality of government 
in Vietnam depends on public policy, which in turn depends 
on the quality of education. 
 
 
OTHER ISSUES 
------------ 
 
15. (SBU) The Ambassador commented that although the private 
sector is increasingly an engine for economic growth, SOEs 
remain strong, and wondered about the percentage of loans 
that are going to the private sector.  He also asked whether 
SOEs are becoming more competitive in preparation for 
Vietnam's WTO accession.  Finally, noting that China is a 
rising economic power, the Ambassador asked to what extent 
Vietnam is ready to compete with its neighbor. 
 
16. (SBU) Doanh responded that China's rise has had a 
painful economic impact on Vietnam.  The GVN's strategy is 
to both cooperate and compete with China.  It is apparent 
that Vietnam cannot compete in some market segments, such as 
cheap textiles and apparel.  SOEs must reform and integrate 
into the global economy, Doanh continued.  Vietnam's 
experience with the insurance sector demonstrates that SOEs 
can compete in a market economy.  Since the American 
International Group's (AIG) entry, SOEs providing insurance 
have a smaller share of the market, but are stronger.  SOEs 
need to be provided with a roadmap, incentives and pressure 
to reform and become more competitive.  He said that Vietnam 
appreciates the U.S. presence in Southeast Asia for security 
and stability reasons, adding that without it China's rise 
may have been more conflict ridden. 
 
17. (SBU) Lan commented that Vietnam's leadership 
understands that SOEs are a burden on the budget, and this 
is providing impetus for the government to push for further 
reform.  The New Enterprise Law that is being considered by 
the National Assembly would give SOEs a four-year window to 
become more competitive.  Most SOEs know that without 
reforms, they will not be able to compete once Vietnam 
accedes to the WTO.  The issue now is that of political 
will, as many SOEs still rely heavily on government support. 
Lan added that the private sector is growing and good 
governance is improving.  In her opinion, Vietnam's SOEs 
will change significantly in the next five years, or will 
fail. 
 
18. (SBU) Doanh said that WTO accession is a vehicle for 
reform, as it forces the government to take concrete action. 
He asked that the USG help Vietnam's WTO accession, noting 
that a strong Vietnam would contribute to peace and 
stability in the region.  The DepSec replied that the U.S. 
Congress would have to pass Permanent Normal Trade Relations 
(PNTR) status for Vietnam before the WTO agreement can take 
effect, and that U.S. business support is critical. 
Therefore, the WTO accession package must be commercially 
sound.  He also noted that next year is an election year, 
and Congress will be on an abbreviated schedule.  Doanh also 
commented that WTO accession is important for Vietnam as 
APEC chair next year.  Lan added that if Vietnam is to 
compete with China, it is important that Vietnam have a seat 
at the WTO. 
 
"AN ENCOURAGING MEETING" 
------------------------ 
 
19. (SBU) The DepSec commented that the roundtable was one 
of the most encouraging meetings he had had in his nine-day 
visit to China and Vietnam.  He said he was particularly 
impressed with the participants' strategic overview of the 
challenges that lie ahead.  His previous responsibility for 
domestic development made him appreciate that not all 
regions are equally ready to receive investment, and that 
governments must be prepared to support their policy 
decisions.  Noting that education and training are extremely 
important during periods of transition, the DepSec pledged 
to talk to the Department of Labor to see if there are 
assistance programs similar to those offered by the PTO.  He 
added that successful development requires sustaining a 
direction for decades, and to accomplish this there must be 
consensus between government and the private sector.  The 
DepSec concluded that there was strong consensus between the 
roundtable participants that good governance was an area 
needing particular focus and one that offered opportunities 
for collaboration between the Department of Commerce, the 
roundtable participants and Vietnamese Government entities. 
 
20. (SBU) Vietnamese List of participants: 
Pham Chi Lan, Senior Advisor to the Prime Minister 
Le Dan Doanh, Senior Advisor to the Minister of Planning and 
Investment 
Vu Quoc Huy, Institute for Economic and Development Studies, 
National Economics University 
Phung Xuan Nha, Director of the Center for Economic 
Development, Vietnam National University 
Pham Hong Chuong, Deputy Dean of the Department for 
Scientific Research, National Economics University 
 
21. (SBU) U.S. List of participants: 
DepSec David A. Sampson, Department of Commerce 
Ambassador Michael Marine 
Aimee Strudwick, Chief of Staff 
Miguel Pardo de Zela, Commercial Counselor 
John Simmons, Commercial Attache 
Tuyet Trees, U.S. Commercial Service 
Ania Burczynska, Economic Officer (notetaker) 
 
MARINE