US embassy cable - 05HANOI3096

UNCLAS SECTION 01 OF 02 HANOI 003096 
 
SIPDIS 
 
STATE FOR EAP/MLS AND EB/TPP/BTA/ANA GOODMAN AND WICKMAN 
STATE PASS USTR ELENA BRYAN AND GREG HICKS 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, VM, WTRO, ASEAN, WTO, SOE, FINREF 
SUBJECT: SENIOR ADVISOR TO THE PRIME MINISTER SPEAKS ON 
WHETHER VIETNAMESE BUSINESS IS READY FOR WTO 
 
1.  Summary:  In a speech to the AmCham Madame Pham Chi Lan, 
a senior advisor to the Prime Minister, said that despite 
Vietnam's progress in economic reforms it is falling behind 
its international competitors.  Vietnamese businesses are 
mainly small to medium-sized and lack experience and 
resources.  They know little about the WTO, but generally 
support accession although they also fear increased domestic 
competition and expect to face high international standards 
and continuing unfair trade practices and protectionism from 
other countries.  Vietnamese businesses want the government 
to continue and deepen economic reforms.  They hope for more 
efficient and less corrupt government services, better 
infrastructure, and more support for business associations. 
End Summary. 
 
2.  Madame Pham Chi Lan, a senior advisor to the Prime 
Minister, spoke September 16 at the American Chamber of 
Commerce in Hanoi on whether Vietnamese business is ready 
for the WTO and the ASEAN Free Trade Agreement (AFTA).  Lan 
has worked in the Prime Minister's Research Commission since 
2003 and before that had served six years as executive vice 
president of the Vietnamese Chamber of Commerce and Industry 
(VCCI).  Following is a summary of Lan's remarks to the 
AmCham. 
 
International Competition Outstripping Internal Reform 
--------------------------------------------- ---------- 
 
3.  Vietnam, according to Lan, is reforming in the context 
of growing globalization, regional integration, and reform 
and restructuring in other Asian countries.  China's 
accession to the WTO and India's rising economic importance 
also affect the environment in which Vietnam must operate. 
As a result, Vietnam faces increased competition in 
attracting foreign investment and in its exports.  Vietnam, 
as a latecomer to the WTO and lagging behind other regional 
and international developments, must do a lot in a short 
period of time to catch up.  Vietnam has adopted a proactive 
integration policy, accepting AFTA and "ASEAN plus" 
commitment, joining ASEM and APEC, as well as the World 
Bank, IMF, ADB, and other international organizations. 
However, these relationships need further deepening and 
development. 
 
4.  Internally, Vietnam has developed remarkably since 
adopting its "doi moi" reform policy.  It has achieved macro- 
economic stability, reduced poverty, restructured the 
economy, improved its infrastructure, developed a private 
sector and increased exports, FDI, and ODA.  Nevertheless 
Vietnam remains a poor country and has a long way to go to 
complete the transition to a market economy.  Although the 
new private sector is playing an increasingly important role 
in the economy and state-owned enterprises are reforming, 
Vietnam's business sector needs to improve its international 
competitiveness.  In particular, Vietnam needs to improve 
the cost of its inputs (by maintaining political and 
economic stability, making basic infrastructure more 
efficient and lowering regulatory costs) and to move to a 
higher level economy, driven by investment and innovation. 
"Vietnam is moving, but Vietnam's competitors are moving 
quicker," Lan noted. 
 
5.  Vietnam has about 165,000 private enterprises in the 
formal sector, 4,500 state owned enterprises, and 5,000 
foreign enterprises, in addition to about 2.6 million 
households engaged in non-agricultural business and 9 
million in agriculture.  The overwhelming majority (95 
percent) of Vietnamese businesses are small to medium sized 
businesses (SMEs).  They tend to lack experience, have low 
productivity, few resources and high operation costs.  They 
are weak in the six M's: money, machinery, materials, 
manpower, management and marketing and have limited access 
to land, financial infrastructure, public and business 
services. 
 
A Strategy for Vietnam 
---------------------- 
 
6. Lan discussed Vietnam in terms of the three basic 
strategies defined by Harvard business professor Michael 
Porter.  Most Vietnamese businesses focus on "cost 
leadership," i.e., being the low cost producer, she noted. 
Only a few successful private enterprises have succeeded in 
moving to a "differentiation" (creating a unique product 
brand) or a "focus" (focusing on a few, defined markets) 
strategy.  Vietnam needs to move beyond reliance on export 
growth dependent on low wages and develop an independent and 
vibrant domestic private sector by improving privatization 
and governance and developing the financial sector.  In 
Porter's view the key weaknesses in Vietnam's business 
environment are corruption and bureaucracy and bottlenecks 
in physical infrastructure, she noted.  The emerging 
business "clusters" that Vietnam should mobilize are 
tourism, shoes, textiles, fishing products and oil and gas. 
 
Vietnamese Business and the WTO 
------------------------------- 
 
7.  The attitudes of Vietnamese business towards the WTO are 
mixed, according to Lan.  They know little about the WTO, 
but most want Vietnam to join.  The majority of Vietnamese 
businesses believe that WTO accession will have a positive 
effect on Vietnam's economy, but they also see WTO accession 
as bringing many challenges.  They see opportunities such as 
export expansion from market opening, more stable economic 
development, improved business environment, better access to 
technology, credit, information and other services, reduced 
cost of services due to competition, and a fairer method of 
settling business disputes.  On the other hand, they also 
expect sharper competition in the domestic market and higher 
costs due to the removal of government subsidies and special 
privileges.  Abroad they expect to face new international 
standards, new technical barriers to trade, unfair trade and 
protectionism in other countries and more trade disputes. 
 
What Vietnamese Businesses Want from the Government 
--------------------------------------------- ------ 
 
8.  Vietnamese business, according to Lan, wants the 
government to complete institutional reforms and the 
formation of a market.  They want the creation of a 
"friendly and equal" business environment.  They also want 
the government to adopt "bold" reforms in the administrative 
system, fight against corruption, and improve the 
capabilities of government institutions and officials.  They 
want "bold" reforms in banking and the state owned 
enterprise sector.  The government should lower the costs of 
government services and reform the education and training 
system.  Infrastructure and the R&D system need more 
development.  Finally, the government should facilitate the 
development of a business support system and the development 
of business associations and trade promotion organizations. 
 
MARINE