GVN RESPONSE TO DRAFT LOA

UNCLAS SECTION 01 OF 05 HANOI 001615

SIPDIS

SENSITIVE

STATE FOR EAP/BCLTV; INL/AAE; L/LEI (Sandage)

E.O. 12958: N/A
TAGS: SNAR PREL EAID VM CNARC
SUBJECT: GVN RESPONSE TO DRAFT LOA

Ref: Wise/Gatz fax of 6/27/03


1. (U) This is an action request. Please see paragraph

3.


2. (U) Embassy received MFA's long-awaited response to
the draft LOA on counternarcotics on June 26. It appears
that the USG and GVN views still differ in the areas of
taxes, immunities, certification, and Leahy. Full text
of GVN response in para 5.


3. (U) ACTION REQUEST: Post requests that Department
consider the GVN response and provide a formal response.


4. (SBU) COMMENT: While there is still a long way ago,
we find it mildly encouraging that the MFA finally
responded. The detailed and lengthy response may
demonstrate that the GVN, while still holding its ground
on what it views as the key issues, is at least making a
good faith effort to keep the process moving. END
COMMENT.


5. (U) Begin Text --

DRAFT LETTER OF AGREETMENT ON US-VN COUNTERNARCOTICS
COOPERATION

Vietnam has carefully studied the latest draft Letter of
Agreement on Counter-Narcotics Cooperation between the
USG and the GVN (LOA) presented by the US and the
accompanying non-paper.

Actually, a number of consultations on the papers have
been held between the two sides. Vietnam has expressed
and shared the need to enhance cooperation of the two
countries, including in this field.

In the discussions, Vietnam has also explained its points
and made suggestions that it believes to have taken care
of the legitimate concerns and interests of both sides.

Again, Vietnam wishes to share the following comments and
suggestions in the hope that this would further speed up
the concurrence of the two sides.

COMMENTS AND SUGGESTIONS

TITLE OF THE LOA
- The addition of `and Law Enforcement' is newly added
and needs to be clarified as it may expand the scope of
the LOA beyond counternarcotics cooperation.

- The Title should be kept as: `Letter of Agreement on
Counternarcotics Cooperation between the Government of
the United States of America and the Government of the
Socialist Republic of Vietnam,' which would already cover
the law enforcement element of counternarcotics
cooperation.

Part I: General
- It is proposed to place the 2nd and 3rd sentences in
paragraph 2 (`Total US assistance... Law Enforcement
Affairs') as a 3rd paragraph of Part II (`Project
Description'),as they relate directly to the proposed
projects and their possible extension (future funding).


STANDARD PROVISIONS

3. Property and Personnel

3.A. Property:

- Paragraph 1, last sentence: The `sale of property'
in this paragraph should be read together with the
`import and disposition of property' in 7.A.

- While the property imported into Vietnam is free of
taxes (7.A.),it is not always true that the funds
derived from the sale of such property could be all
designated as from the project. The price of certain
items of such imported property, if sold on Vietnam's
market, could be much more appreciated because of the
taxes. Let's give a technical example to clarify this:

A car imported into Vietnam free of taxes: 10,000 USD
-- Import tax (10,000 x 100%): 10,000 USD
-- Special excise/VAT (2x10,000x100%): 20,000 USD
-- Actual market value at import: 40,000 USD

(30,000 USD different and not from the project, if sold
in Vietnam)

70% Original value after 2 years: 7,000 USD

70% Actual market value after 2 years: 28,000 USD

(21,000 USD different and not from the project, if sold
in Vietnam)
In both cases, the difference is the tax to be paid by
the purchaser, not the seller, and is the tax revenue of
the GVN.

- The last sentence of 3.A.1. should be then revised
to take care of the above distorted price, for example:
`Funds, which are to be derived from the sale of any
property furnished by the USG to a project in accordance
with the provisions of 7.A., shall be used in the
furtherance of the objectives of that project.'

- See also comments and suggestions on 7.A. on the
sale/disposition of the property: the law of Vietnam
provides that such property is to be taxed on the part of
the purchaser if sold in Vietnam and is to be tax exempt
if re-exported. As result, it must be understood that
the property imported tax-free, if sold on Vietnam's
market, can only be bought at a price equivalent to
`actual market price minus eligible tax' and the
purchaser, not the seller, shall be obliged to pay this
tax amount.


3.B. Personnel: Paragraph 1
- See comments and proposals on Annex 1
(Certification).

3.B. Personnel: Paragraph 2
- The last sentence is not what had been previously
consulted and agreed and it is unreasonable to require
written agreement of the USG in this case (of positioning
Vietnamese officials).

- Vietnam proposes to retain the previously agreed
wording: `This requirement may be waived by appropriate
notification to the USG by the GVN.' Vietnam can also
accept the addition of `written' before `notification' if
the US so wishes.


5. Applicable Laws: Paragraph B:
- Vietnam prefers to retain what had been previously
consulted and agreed with regard to the last phrase: `or
otherwise agreed by both parties' (instead of the
currently revised wording: `or otherwise authorized by
the USG').


7. Taxes: Paragraph A:
- The `disposition' of property in this paragraph
should be viewed in the context of the comments made on
the last sentence of 3.A.1. above.

- The law of Vietnam provides that such property is to
be taxed on the part of the purchaser if sold in Vietnam
and is to be tax exempt if re-exported. As a result, the
property imported tax-free, if sold on Vietnam's market,
can only be bought at a price equivalent to `actual
market price minus eligible tax' and the purchaser, not
the seller, shall be obliged to pay this tax amount.

- Paragraph A should be revised as follows: Delete the
two words `disposition' in the paragraph and add the
following to the end of the paragraph: `and the
disposition of any such property shall be made in
accordance with the law of the Socialist Republic of
Vietnam, which provides for the exemption of taxes if re-
exported or the obligation of the purchaser to pay the
required taxes if sold in Vietnam.'


7. Taxes: Paragraph B:
- The provision in this paragraph is not justified and
is beyond the law of Vietnam and usual international
practices.

- Under law, Vietnam can only provide preferential
taxation treatment similar to that applicable to ODA
projects and in the case of double taxation avoidance
agreement, even in the absence of such an agreement
between the two countries. Paragraph B should be revised
accordingly.


8. Status of USG Personnel in Vietnam: Paragraph A:
- It is unreasonable to demand the full privileges and
immunities equivalent to the staff of the US Embassy
(diplomatic mission) to the `persons' mentioned in this
paragraph who are not related to any diplomatic
responsibilities, are only on short-term missions (few
days to one or two weeks) and may include consulting firm
personnel from the US or third countries.

- Vietnam proposes that: these `persons' shall be
accorded with the privileges and immunities similar to
those granted to personnel of other countries working
with an ODA project. This provision, as in the case of
other countries, would adequately ensure the full
discharge of their missions under the LOA.

- (It should be noted that initially there had been a
provision included in the draft which would stipulate:
the USG personnel working in Vietnam under the agreement
shall observe the laws effective in Vietnam).


8. Status of USG Personnel in Vietnam: Paragraph B:
- As explained on 8.A. above, Vietnam proposes that:
such personnel shall be accorded preferential taxation
treatment similar to that granted to personnel of other
countries working with an ODA project.

- In the current draft: The addition of `and not
resold in Vietnam' is welcome but that alone is not yet
adequate. It is not justifiable to request the same
import tax exemption treatment as is accorded to
diplomatic agents of the US Embassy and the exemption of
income tax with respect to `income earned while in
Vietnam' (this may apply only to the income earned from
the project).


9. Annex Two:
- See comments and suggestions on Annex 2.


10. Termination: Paragraph B:
- Paragraph B is totally new and the addition has not
been consulted. Further, this paragraph is just to re-
incorporate the problematic elements of the proposed US
exclusive right to terminate, which would bring the
drafting back to the initial stage of the discussions in
the 1990s. The US had dropped it years ago. Vietnam had
then explained that both sides would equally have `the
right to terminate' their respective obligations under
the agreement and this would be covered by 10.A.

- Vietnam again insists on the deletion of this
Paragraph B.

Annex One (Certification):
- Vietnam holds that the law of Vietnam, not that of
the US, applies here, especially in the case of criminal
prosecution (all acts and activities serving as grounds
for prosecution would be on the territory of Vietnam, not
that of the US, including the training to be provided
under the LOA). The GVN would subject its personnel to
the law of Vietnam only, while it shall ensure the
nomination of `qualified' personnel.

- On the other hand, the US concerns would be already
guaranteed in all stages of consultations on considering,
granting and execution of the training, by rejecting a
nominee or terminating the training of a person
concerned.

- Vietnam therefore proposes: either not to annex such
a provision of certification; or, to revise Annex One as
follows:

(i) Delete the Notice and its two footnotes; and,
(ii) Replace the current paragraph 2 with a new one: `I
understand that the USG and the GVN may terminate my
training if it is determined that I engaged in the above
conduct during the last ten years or during my training
funded under the LOA.'

- Proposed revision (i) is to solve the issue of the
applicability of law especially in the case of criminal
prosecution; proposed revision (ii) is to stipulate the
natural and legitimate right of both Vietnam and the US
to terminate a person's training, especially when the
training is expected to be on the territory of Vietnam
and for personnel from Vietnam.

- Vietnam had earlier proposed to have both GVN and
USG personnel to execute a certification, which is not
included here, but is still seen as relevant as all
involved in one same exercise, either with one role or
the other, would be so required.

Annex Two (Leahy Amendment):
- As consistently explained, Vietnam recognizes the
importance of protecting human rights but rejects the use
of human rights as a condition for aid provision and as a
pretext for inference in the internal affairs of states.

- Vietnam prefers the deletion of this Annex from the
LOA. If the US finds it mandatory to stipulate its
responsibility under its law, this stipulation should
only be a statement of the fact and should be general in
nature to serve the purpose of stipulating that fact.

- Vietnam therefore proposes the Annex to be as
follows:

'Annex Two
The USG and the GVN recognize the importance of
protection of human rights and this Annex is made
pursuant to the provisions of Article 9 of the LOA.

On the US Leahy Amendment Provisions
The USG holds that the protection of human rights is an
important element of any bilateral agreement of this
nature. It is bound by the US Leahy Amendment
Provisions, which stipulate that USG narcotics (and
crime) control assistance is conditioned on the active
protection of human rights on the part of recipient
governments.'

- Vietnam believes that the above has adequately taken
care of the USG responsibility. Vietnam cannot accept the
current paragraph B of the Annex. The following will be
subjected to further consultations: If the US really
needs it and as an accommodation, Vietnam could, at the
most, consider a following addition:

`and that, in certain cases, USG assistance or funds,
including the funds covered by this agreement and its
annexes, may not be provided to a foreign government,
unless the US Secretary of State certifies otherwise.'

- The above proposals are for the purpose of
accommodation. In all cases, Vietnam had wished and had
proposed either to delete the Annex or to add in the
Annex the following: `No governments, agencies or
individuals, including those of the US and Vietnam, are
entitled to interpret this Annex on the US Leahy
Amendment Provisions as to make an assessment or judgment
on human rights of other states, or to use them as a
condition for assistance or as a pretext for interference
in the internal affairs or affairs under the jurisdiction
of other states.'

Annex Three (Projects):
- While the `Standard Provisions' of the LOA are yet
to be discussed and agreed, the projects proposed in the
Annex have not been touched upon. Those projects, both
the content and scope, shall be subject to later
consultations by the two sides.

- The US has also recognized that the US Department of
State does not prepare project documents and that once
the LOA is concluded, the scope, timing, and
implementation of the proposed projects can be determined
by the implementing agencies of the two sides.

***

The discussion of this issue between the USG and the GVN
has been initiated at least since 1997. Understanding has
been reached, progress has been made and concurrence has
been achieved on both the need to enhance cooperation in
this field and on many elements in the drafting.

This should be built upon to expedite the drafting of the
LOA. In particular, at this stage of consultation, the
two sides should devote their focus, on the one hand, on
the main elements directly related to counternarcotics
cooperation, and on the other, on how best ensure and
accommodate the legitimate concerns of both sides, rather
than just to re-institute what is termed as `standards'
but has no relevance in the case.

Vietnam respectfully presents the above comments and
proposals out of the will of accommodation and in the
hope to facilitate the early conclusion of the drafting
of the LOA on counternarcotics cooperation of the two
countries.

Vietnam hopes that they would be accepted or otherwise
commented in the same spirit of understanding and
accommodation.
(Hanoi, June 2003)
End text
PORTER