UNCLAS SECTION 01 OF 09 HANOI 003243

SIPDIS

STATE PASS USTR
STATE FOR EB/MTA/MST

E.O. 12958: N/A
TAGS: ETRD ECON EFIN VM ASEAN BTA FINREF IPROP
SUBJECT: VIETNAM: NATIONAL TRADE ESTIMATES REPORT

REF: STATE 310953


1. The following is the text of the draft National Trade
Estimate report for Vietnam.


2. Begin Text of Report:

TRADE SUMMARY

The landmark U.S.-Vietnam Bilateral Trade Agreement that
seeks to normalize trade relations between the two
countries came into effect on December 10, 2001, and
Vietnam began receiving NTR treatment. As a result of
the lowering of tariffs from an average of 40 percent to
an average of 3 percent, Vietnamese exports to the U.S.
have increased rapidly in the last two years.

The U.S. trade deficit with Vietnam was $2.4 billion in
the first nine months of 2003. U.S. goods exports for
the first nine months of 2003 were $1.16 billion, up
219.2 percent from the previous year. (Note: U.S.
exports excluding aircraft sales were $449 million, up
24% from the previous year.) Corresponding U.S. imports
from Vietnam were $3.6 billion, up 130.5 percent.

IMPORT POLICIES

Tariffs

Vietnam's tariff schedule was rationalized in 1992 and
simplified in 1999, following Vietnam's accession to the
ASEAN Free Trade Area (AFTA). Currently, there are three
sets of tariff rates: most favored nation (MFN) rates
that apply to about 75 percent of total imports from
about eighty countries that have bilateral trade
agreements with Vietnam, including the U.S.; Common
Effective Preferential Tariff (CEPT) rates that apply to
imports from ASEAN countries; and general tariff rates
(50 percent higher than MFN) that apply to all other
countries. Under the terms of the US-Vietnam Bilateral
Trade Agreement (BTA), Vietnam is obligated to reduce
significantly tariffs by an average of about one-third to
one-half on a broad range of US imports over a period of
three years.

On September 1, 2003, a new harmonized tariff system took
effect that is based on the eight digit Harmonized System
of Tariffs and conforms to ASEAN's Harmonized Tariff
Nomenclature (AHTN). The new system consists of 10,689
lines (4200 more than the old one), of which 5,300 lines

are at four and six digits and 5,400 lines are at eight
digits. There are now fifteen tariff rates (down from
twenty) and the simple average tariff rate increased from
16.8 to 18.2 percent. In implementing the new tariff
system, the Government of Vietnam raised tariff rates on
195 items and reduced them on 106. Protection on 72
items, except for PVC powder and granules and welding
steel tubes, was converted from price differential
surcharges to tariffs. Tariff rates on petrol and oils
(heading 2709 and 2710) are not specified in the new
schedule.

The National Assembly retains authority over setting
tariff bands for each product and the government is free
to adjust applied tariffs within the bands. There is no
online published tariff schedule, and it is often
difficult to determine when and how much tariffs have
changed.

Non-tariff barriers

Non-tariff barriers (NTB's) were introduced in Vietnam
when the country shifted from CMEA to market trade in the
late 1980s to early 1990s and quickly became a key
component of Vietnam's trade policy. In the past few
years, Vietnam has made significant progress in reducing
the use of NTBs and, under the terms of the BTA, Vietnam
agreed to eliminate all non-tariff barriers, including
import and export restrictions, quotas, licensing
requirements, and controls for all product and service
categories over a period of three to seven years,
depending on the product.

Import prohibitions: Vietnam currently prohibits the
commercial importation of the following products: arms
and ammunition, explosive materials (not including
industrial explosives), military technical equipment and
facilities, narcotics, toxic chemicals, "depraved and
reactionary" cultural products, firecrackers, some
children's toys, cigarettes, second-hand consumer goods,
right-hand drive motor vehicles, used spare parts for
vehicles, used internal combustion engines of less than
30 horsepower, asbestos materials under the amphibole
group, various encryption devices, and encryption
software.
Quantitative restrictions and non-automatic licensing:
Vietnam has been phasing out the use of quantitative
restrictions on imports. The following products remain
subject to quantitative restrictions: sugar, petroleum
products, cement and clinker, some common chemicals,
chemical fertilizer, paint, tubes and tires, paper, silk,
ceramic (construction), construction glass, construction
steel, some engines, some types of automobiles,
motorcycles, bicycles and parts, and ships and vessels.
Quantitative limitations on exports in most sectors have
been eliminated as well, with the exception of textiles,
garments, and a list of sensitive items. In May 2003,
the Prime Minister issued a decision to implement tariff-
rate quotas on certain agricultural products that were
not previously under quotas. Cotton, tobacco materials,
and salt are the three items on "trial" implementation as
of July 01, 2003. During the "trial" period, import
licenses for those items are granted upon the demand
level to set up a volume of quotas for the following
years. Milk materials, corn, and poultry eggs are the
remaining targeted items to be implemented sometime in

2004.

Foreign invested enterprises are not permitted to import
goods freely in Vietnam. Foreign invested enterprises
are allowed only to import goods used as inputs in the
manufacturing process, and machinery equipment,
transportation means and materials used in the
construction and installation of their project in
accordance with their investment license.

Special authority regulation: Previously, importers
required approval from the relevant ministry(ies) to
import many goods. This system was changed in 2001.
Now, seven ministries and agencies are responsible for
overseeing a system of minimum quality/performance
standards for animal and plant protection, health safety,
local network compatibility (in the case of
telecommunication), money security, and cultural
sensitivity. Goods that meet the minimum standards can
be imported upon demand and in unlimited quantity and
value.

Foreign Exchange system: In 1998, the State Bank of
Vietnam (SBV) issued a foreign exchange surrender
requirement for all exporters, including foreign invested
enterprises. A series of reductions decreased this
requirement from 80 percent of foreign exchange balances
to 30 percent as of May 2002. In April 2003,
Government Decision 46 reduced the foreign exchange
surrender requirement to zero percent.

May 2000 amendments to the Law on Foreign Direct
Investment (FDI) allowed FDI enterprises to purchase
foreign currency at authorized banks to finance current
and capital transactions and other permitted
transactions. Controls on current account transactions
have been liberalized. A 1998 Decree allowed both
residents and non-residents to open and maintain foreign
exchange accounts with authorized banks in Vietnam. A
2001 Circular permitted foreign investors to transfer
abroad profits and other legal income upon presentation
of relevant documents to the authorized banks. A 2003
Decree contains the Government of Vietnam's guarantee to
assist in the balancing of foreign currency for foreign
invested enterprises and foreign business cooperation
parties that invest in the construction of infrastructure
and certain other important projects in the event that
banks permitted to trade foreign currency are unable to
fully satisfy their foreign currency demand.

Customs: Vietnam is phasing out minimum import prices in
its customs valuation system. The number of commodity
groups subject to a minimum value was reduced from 34 in
1997 to seven in 2000. These include: beverages of all
kinds; tires, rubber inner tubes and mud-resistant fronts
used for cars, motorcycles and bicycles; floor tiles and
sanitary wares; construction glass and vacuum flasks;
engines; electric fans; motorcycles; and, unprocessed
tobacco.

Under the BTA, Vietnam is now obligated to apply
transaction value for U.S. imports and to ensure that no
administrative fee or charge imposed by customs
authorities in connection with importing or exporting any
good will exceed the actual cost of the service provided
by Customs. Vietnam has also committed to apply
transaction value to imports from ASEAN countries. In
June 2002, the Government issued Decree 60 establishing
rules for customs valuation based on transaction value,
in accordance with WTO principles. Decree 60 applies to
goods imported from countries to which Vietnam has made a
commitment on customs valuation. Despite the fact that no
exceptions are included in the BTA, Decree 60 reserves
Vietnam the right to apply minimum tax calculation prices
on a number of items "in order to protect the State's
interests and domestic production." The Ministry of
Finance, in coordination with other ministries and
agencies, is drafting the list of exempted items.

Trading rights: Under the terms of the BTA, three years
after the entry-into-force of the agreement, enterprises
with capital directly invested by U.S. nationals and
companies in production and manufacturing will be able to
engage in trading activities in most products and will be
able to enter into joint ventures with Vietnamese
partners to engage in trading activities in all products,
as long as the U.S. partner holds no more than a 49
percent share in the venture. Seven years after entry-
into-force of the BTA, U.S. companies will be able to
establish wholly owned trading companies in Vietnam. The
right to trade in certain goods is subject to a phase in
period.

STANDARDS, TESTING, LABELING AND CERTIFICATION

Vietnamese law requires all imports to have a label with
contents and instruction for use in Vietnamese. The
labels can be placed on the goods after they have been
imported.

The Ministry of Science and Technology publishes a list
of imports and exports requiring state quality control.
The items are listed with their HS numbers and are
grouped under functional agencies including the Ministry
of Public Health, the Ministry of Agriculture and Rural
Development, the Ministry of Industry, the Ministry of
Fisheries, and the Ministry of Science and Technology.
Some items are subject to national standards; some are
subject to regulations of the functioning agencies; and
some are subject to both. Other items are subject to
GOCT (the standards system that was created by the Soviet
Union which now applies only to explosives and explosive
accessories). Exporters and importers must have permits
from the functioning agencies or a receipt showing an
inspection is in process for the controlled items at the
time they go through customs.

GOVERNMENT PROCUREMENT

Government procurement practices can be characterized as
a multi-layered decision-making process, which often
lacks transparency and efficiency. Although the Ministry
of Finance allocates funds, various departments within
the ministry or agency involved determine government
procurement needs. Competition for government
procurements may take any of several forms: sole source
direct negotiation, limited tender, open tender,
appointed tender, or special purchase. Currently,
ministries and agencies have different rules on minimum
values for the purchase of material or equipment, which
must be subject to competitive bidding. High-value or
important contracts such as infrastructure (except World
Bank, Asian Development Bank, UNDP, or bilateral official
development assistance projects) require bid evaluation
and selection and are awarded by the Prime Minister's
office or any other competent body. No consolidated or
regular official listing of government tenders exists;
however, some solicitations are announced in the both
Vietnamese and English language newspapers.

EXPORT SUBSIDIES

Export credit is very limited in Vietnam. The Export
Promotion Fund managed by the Ministry of Finance,
provides subsidies in the form of interest rate support
and direct financial support (to first-time exporters,
for exports to new markets, or for goods subject to major
price fluctuations). The Fund also provides export
rewards and bonuses. Since 1998, the average annual
export reward provided to eligible enterprises has ranged
from USD 2900 to USD 4710. Provision of export bonuses,
originally targeted for exports of agricultural products,
was expanded in 2002 to include non-agricultural products
such as handicrafts, rattan and bamboo ware, plastic
products and mechanical products.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
Vietnam is a member of the World Intellectual Property
Organization (WIPO) and is a signatory to the Paris
Convention for Industrial Property. It has acceded to
the Patent Cooperation Treaty and the Madrid Agreement.
While not yet a party to the Berne Convention, Vietnam
agreed under the 1997 U.S.-Vietnam Bilateral Copyright
Agreement to provide U.S. copyrights protection on a
national treatment basis in accordance with the terms of
that convention. Under the terms of the BTA, Vietnam was
obligated by December 2003 to make its system for
protecting IPR, including enforcement, consistent with
the WTO TRIPS agreement. The President of Vietnam is
expected to sign the GVN's applications for accession to
the Berne Convention and the Geneva Convention by the end
of 2003. Considerable progress has been made over the
past few years in establishing the legal framework for
IPR protection. New legislation this year included
regulations on protection of architectural copyright,
layout of integrated circuits and border measures.
However, the legal reform process is not yet complete.

Enforcement of IPR protection remains extremely weak.
The BTA requires the Government of Vietnam to provide
expeditious remedies to prevent and deter infringement of
IP rights, including particular judicial and
administrative procedures, prompt and effective
provisional measures secured by sufficient evidence, and
criminal procedures and penalties for willful trademark
counterfeiting or infringement of copyrights or
neighboring rights on a commercial scale.

Patent and Trademarks

Trademark registration in Vietnam is relatively
straightforward, although infringement is widespread and
enforcement of administrative orders and court decisions
finding IPR infringement remains problematic. Vietnam's
laws offer some protection for foreign patent holders,
but there are infringements. The National Office of
Intellectual Property (NOIP), under the Ministry of
Science and Technology (MOST), administers Vietnam's
patent and trademark registration systems. NOIP has made
significant progress in recent years to build adequate
capacity to record and adjudicate patent and trademark
claims, and is working with a number of foreign patent
and trademark agencies to enhance its systems. Yet
obtaining expeditious adjudication and administrative
enforcement of patent and trademark violations remains
difficult. Although the BTA requires national treatment
for IPR fees, industrial property fees charged to foreign
organizations and individuals are significantly higher
than the fees charged to Vietnamese nationals.

Copyright

The Copyright Office of Vietnam is under the control and
supervision of the Ministry of Culture and Information.
Significant progress has been made in putting in place
the laws to protect copyrights, including those belonging
to foreigners, but enforcement is almost non-existent.
This is particularly true for certain categories of
products, such as PC software, music and video CDs, VCDs,
and DVDs. Industry estimates of piracy rates for
software, music, and videos run as high as 99 percent.
Local police authorities often are slow to act on
administrative orders fining infringement and enforcing
court decisions.

SERVICES BARRIERS

Under the terms of the BTA, Vietnam agreed for the first
time to liberalize a broad array of services sectors,
including telecommunications, accounting, banking, and
distribution services, and to apply MFN treatment to U.S.
services suppliers in all sectors and for all modes of
supply (with itemized exceptions). The BTA also
incorporated the WTO Agreements on Trade in Services
(GATS) (except Paragraphs 3 and 4), Annex on Movement of
Natural Persons, Annex on Telecommunications (except
Paragraphs 6 and 7), and the Telecommunications Reference
Paper. Vietnam's commitments to liberalize market access
on services are phased in over specified time periods
depending on the sector. The commitments by sector are
as follows:

Accounting, Auditing, and Bookkeeping Services: For the
first three years under the BTA, licenses will be granted
on a case-by-case basis. The company must employ at
least five persons with licenses to be a CPA in Vietnam
who have practiced in Vietnam for more than one year.
For the first two years under the BTA, firms with U.S.
equity will only be allowed to supply services to foreign-
invested enterprises and foreign funded projects in
Vietnam. Branching is not permitted.

Taxation Services: For the first five years under the
BTA, licenses will be granted on a case-by-case basis,
and firms with U.S. equity will only be allowed to supply
services to foreign-invested enterprises and foreign
funded projects in Vietnam. Branching is not permitted.

Architectural, Engineering, and Computer Services: For a
period of two years from the date of establishment and
operation, U.S.-owned companies may only provide services
to enterprises with foreign directly-invested capital in
Vietnam. U.S. companies have to be legally registered in
the U.S. Branching is not permitted.

U.S. companies and companies with U.S. directly-invested
capital are not permitted to carry out topographic,
construction geological, metrological, geological, and
environmental investigations; or technical investigations
for designing rural-urban construction plans, unless
otherwise authorized by the Government of Vietnam.

Legal Services: Under the terms of the BTA, 100 percent
equity ownership in companies, joint ventures, and
branches are permitted. U.S. lawyers may not appear
before Vietnamese courts. However, U.S. firms may advise
on Vietnamese law if they hire persons with Vietnamese
law degrees who satisfy the requirements applied to like
Vietnamese practitioners. Branches of law firms may
receive a five-year renewable license. In July 2003, the
Government promulgated Decree 87 significantly reforming
the regulatory framework for the operations of foreign
law practices and foreign law firms. The decree
substantially broadened the scope of practice of foreign
law firms in Vietnam. Foreign law practices are permitted
to provide advice on foreign and international law in the
areas of business, investment and commerce, which was
prohibited before. They are now no longer restricted to
providing "legal consultancy services and other legal
services", including consultancy on Vietnamese law, as
long as their firms employ a Vietnamese lawyer or a
foreign lawyer with a Vietnamese law degree. The law
firms are allowed to employ Vietnamese lawyers, with
unlimited practicing scope of legal consultancy and legal
services. However, participation by foreign lawyers in
Vietnamese court proceedings remains prohibited and was
further extended to Vietnamese lawyers and trainee
Vietnamese lawyers employed by foreign law practices.

Advertising Services and Market Research: Vietnam has
not agreed to provide market access for advertising
services for wines and cigarettes or for the cross-border
supply of market research services. U.S. companies in
these sectors may initially only establish a commercial
presence through joint ventures or business cooperation
contracts with Vietnamese partners. U.S. investment is
limited to 49 percent of the legal capital for the first
five years under the Bilateral Trade Agreement, 51
percent for years six and seven, and is unlimited after
that. Vietnam has not agreed to ensure national
treatment for the cross-border supply of market research
services.

Management Consulting: U.S. companies may only establish
a commercial presence through joint ventures or business
cooperation contracts. After the BTA has been in effect
for 5 years, enterprises with 100 percent U.S. ownership
will be permitted.

Telecommunication Services: Initially, the provision of
basic telecommunications services, value-added
telecommunications services, and voice telephone services
are only permitted through business contracts with
Vietnamese gateway operators. According to the terms of
the BTA, by December 2003, (December 2004 in the case of
Internet services), U.S. value-added telecommunications
service providers may establish joint ventures with
Vietnamese partners with up to 50 percent equity
ownership. These joint ventures may not, however,
construct their own long-distance and international
circuits. Four years after entry-into-force of the BTA,
U.S. basic telecommunications service suppliers can
establish joint ventures with Vietnamese partners with up
to 49 percent U.S. equity ownership. These joint
ventures may not, however, construct their own long-
distance and international circuits. Six years after
entry-into-force of the Agreement, U.S. voice telephone
service providers may establish joint ventures with
Vietnamese partners with up to 49 percent U.S. equity
ownership.

Audiovisual Services: Vietnam has not agreed to provide
market access or national treatment for cross-border
supply or consumption abroad of audiovisual services.
U.S. service suppliers may establish a commercial
presence only through a business cooperation contract or
joint venture with a Vietnamese partner. For the first
five years after entry-into-force of the BTA, U.S.
ownership may not exceed 49 percent. After five years,
U.S. ownership may not exceed 51 percent.

Construction and Related Engineering Services: Vietnam
has not agreed to provide market access or national
treatment for the cross-border supply of construction and
related engineering services. Branches are not
permitted. For the first three years after their
establishment and operation, 100 percent U.S.-owned
enterprises may only provide services to enterprises with
foreign directly invested capital in Vietnam. U.S.
companies must be legally registered for operation in the
U.S.

Distribution Services: Vietnam does not provide market
access or national treatment for the cross-border supply
of distribution services. Three years after entry-into-
force of the BTA, U.S. service providers may establish
joint ventures with Vietnamese partners with up to 49
percent U.S. equity. After six years, U.S. ownership in
joint ventures will be unlimited. After seven years,
companies with 100 percent equity will be allowed. One
retail outlet may be established as of right, while
additional outlets will be considered on a case-by-case
basis. For some agricultural and industrial products,
market access in this sector is subject to additional
limitations, which will be phased out over a period of
three to five years. There are a limited number of
products for which Vietnam did not commit to allow
distribution services.

Educational Services: Vietnam will not provide market
access or national treatment for the cross-border supply
of educational services. For the first seven years after
entry-into-force of the BTA, U.S. companies may only
establish a commercial presence through a joint venture.
After that, schools with 100 percent U.S.-invested
capital may be established. Foreign teachers employed by
educational units with U.S.-invested capital must have
five years teaching experience and be recognized by the
Ministry of Education.

Insurance Services: Vietnam has agreed to allow market
access for the cross-border supply of insurance services
to enterprises with foreign invested capital or
foreigners working in Vietnam; reinvestment services;
insurance services in international transportation;
insurance brokering and reinsurance brokering services;
and advisory, claim settlement, and risk assessment
services. Three years after entry-into-force of the BTA,
U.S. companies can establish joint ventures with
Vietnamese partners with up to 50 percent U.S. equity
participation. After five years, 100 percent U.S.-
invested companies may be established.

Companies with U.S.-invested capital cannot provide
insurance for motor vehicle third party liability,
insurance in construction and installation, insurance for
oil and gas projects, or insurance for projects and
construction of high danger to public security and
environment. Three years after entry-into-force of the
BTA, this limitation is eliminated for joint ventures.
After six years, this limitation is eliminated for
companies with 100 percent U.S. capital.

For the first 5 years after entry-into-force of the BTA,
any company with U.S. capital must reinsure part of the
accepted liabilities (currently at a minimum rate of
twenty percent) through the Reinsurance Company of
Vietnam.

Banking: Vietnam has not agreed to provide market access
or national treatment for the cross-border provision of
banking services, except for financial information
services and advisory, intermediation, and other
auxiliary services. U.S. banks may establish branches,
joint ventures with Vietnamese banks, wholly owned U.S.
financial leasing companies or joint venture financial
leasing companies with Vietnamese partners.

For the first three years after entry-into-force of the
BTA, the only legal form apart from banks and leasing
companies in which U.S. companies may provide financial
services is through joint ventures with Vietnamese banks.
During the first nine years, U.S. equity in joint venture
banks must be between 30 percent and 49 percent. After
nine years, 100 percent equity participation in
subsidiary banks will be allowed.
The right of U.S. banks to accept Vietnamese currency
deposits on the same basis as domestic banks is phased in
over eight years for business clientele and ten years for
retail depositors. After this, U.S. bank branches will
be entitled to full national treatment. Vietnam is
fulfilling this commitment by gradually allowing U.S.
banks to increase the amount of deposits in Vietnamese
Dong (i.e. the local currency) relative to the branch's
legal paid-in capital with the ratio presently at 250
percent. (Prior to entry-into-force of the BTA, this
ratio was 25 percent.) In addition, financial
institutions with U.S. equity cannot issue credit cards
on a national treatment basis until eight years after
entry-into-force of the BTA. U.S. banks are now allowed
to place automatic teller machines outside their office
on a national treatment basis.

Vietnam reserved the right to limit, on a national
treatment basis, equity investment by U.S. banks in
privatized Vietnamese state-owned banks.

U.S. bank branches, subsidiaries, or U.S.-Vietnam joint
ventures must obtain a license to establish a commercial
presence in Vietnam. A U.S. parent bank must provide
minimum capital of $15 million to establish a branch.
Establishing a U.S.-Vietnam joint venture bank or a U.S.
bank subsidiary requires minimum capital of $10 million.

For the first three years after the entry-into-force of
the Agreement, financial institutions with 100 percent
U.S. equity ownership may not take an initial mortgage
interest in land use rights. After three years, these
institutions will be allowed to take an initial mortgage
interest in land-use rights held by foreign-invested
enterprises, and may use mortgages or land-use rights for
the purpose of liquidation in case of default.

Establishing a wholly owned subsidiary of a U.S.
financial leasing company or a joint venture leasing
company requires three consecutive profitable years, and
$5 million in legal capital.

For the first three years under the BTA, Vietnam is not
obligated to provide national treatment with respect to
access to central bank rediscounting, swap, and forward
facilities. However, in 2003, the State Bank of Vietnam
allowed one U.S. bank with branches in Vietnam (and some
local banks) to provide swap service on a pilot basis.

Non-banking Financial Services: The BTA allows 100
percent U.S. equity in financial leasing and in other
leasing after 3 years.

Securities-Related Services: Vietnam has not agreed to
provide market access or national treatment for the cross-
border supply of securities-related services. Non-bank
U.S. securities service suppliers may only establish a
commercial presence in Vietnam in the form of a
representative office.

Health-Related Services: U.S. operators may provide
service through the establishment of 100 percent U.S.-
owned operations, joint ventures with Vietnamese partners
or through business cooperation contracts. The minimum
investment capital is $20 million for a hospital, $2
million for a polyclinic, and $1 million for a specialty
unit.

Tourism and Travel-Related Services: U.S. companies may
establish a commercial presence to provide hotel and
restaurant services, in conjunction with investment for
the construction of a hotel, either in the form of
business cooperation contracts, joint ventures with
Vietnamese partners, or companies with 100 percent U.S.
equity investment.

There are limitations with respect to travel agencies and
tour operators. U.S. companies supplying these services
may establish a commercial presence only through a joint
venture with Vietnamese partners and can initially only
contribute 49 percent of the capital. Three years after
entry-into-force of the BTA, 51 percent participation
will be allowed, and all limitations will be abolished
after five years. Tourist guides in joint ventures must
be Vietnamese citizens. Service supplying companies with
U.S.-invested capital may only supply inbound service.
INVESTMENT BARRIERS
At present the Government of Vietnam maintains an
extensive investment licensing process, which is
characterized by stringent and time consuming
requirements that are frequently used to protect domestic
interests, limit competition, and allocate foreign
investment rights among various countries. Foreign
businesses are permitted to remit profits, share revenues
from joint ventures, incomes from services and technology
transfers, legally owned capital, and properties in hard
currency. Foreigners are also allowed to remit abroad
royalties and fees paid for the supply of technologies
and services, principal and interest on loans obtained
for business operations, and investment capital and other
money and assets under their legitimate ownership.

The BTA provides a broad range of benefits to U.S.
investors in Vietnam that should significantly enhance
the investment environment for U.S. firms. Vietnamese
investment obligations under the BTA include: providing
national and most-favored-nation treatment, except where
explicit exceptions have been made; ensuring treatment of
expropriation consistent with international standards;
and guaranteeing access to third-party investor-state
dispute settlement. In practice, however, recognition
and enforcement of foreign arbitral awards in Vietnam
currently remains questionable.

In addition, Vietnam is obligated under the BTA
gradually to discontinue application of any TRIMS or
performance requirements inconsistent with the WTO TRIMS
agreement. Vietnam is also obligated to refrain from
imposing requirements to transfer technology as a
condition for the establishment, expansion, acquisition,
management, conduct, or operation of an investment.
Vietnam currently imposes a number of performance
requirements with respect to the establishment of an
investment and/or the receipt of a benefit or incentive.
Vietnam retains restrictions on foreign shareholding in
Vietnamese companies, although the ratio has been raised
from twenty to thirty percent. In March 2003, the
Government issued Decree 27 amending the Law on Foreign
Investment, removing trade balancing requirements and
foreign exchange controls. In April, the Government
issued a decision to reduce the foreign exchange
surrender requirement to zero percent

Decree 27 also now allows foreign investors to recruit
Vietnamese workers directly, without having to go through
labor recruitment agencies. However, in September,
Vietnam issued Decree 105, which provides that all
enterprises operating in Vietnam may only employ foreign
nationals at the lesser of 1) a maximum rate of 3 percent
of their total work force or 2) 50 persons. In response
to complaints from the foreign business community, the
Government has stated that it will issue legislation
clarifying the decree and providing exemptions for
certain sectors and types of employment.

In the BTA, Vietnam committed to gradually shift to an
investment registration regime for most sectors.
According to Decree 27, the following types of investment
are no longer subject to investment licensing:
investment projects that export eighty percent of
products; investments in "encouraged" or "specially
encouraged" projects located in industrial zones (with
some exceptions); and investment in the manufacturing
sector with a value of up to USD 5 million in investment
capital.

ANTICOMPETITIVE PRACTICES

Vietnam maintains a policy of bias in favor of domestic-
market oriented industries, particularly those dominated
by state-owned enterprises. Although all registered
firms, regardless of ownership, can engage legally in
foreign trade, barriers exist that discourage trading by
non-state enterprises. For example, stringent regulatory
requirements demanded by ministries prevent private firms
from exporting rice or importing fertilizer. Also,
monopolies in production result in monopolies in trading,
as in the case of coal. The tariff structure also favors
domestic industries, particularly those dominated by
state-owned enterprises. Most lower tariffs are on items
predominantly used by those enterprises as inputs.

ELECTRONIC COMMERCE

To date, e-commerce has not made much progress in
Vietnam. Obstacles to its development include: the low
number of Internet subscribers in-country, obtrusive
firewalls, limited bandwidth and other problems with the
Internet infrastructure, limitations of the financial
system (including the low number of credit cards in use),
and regulatory barriers. However, recent developments to
facilitate the growth of e-commerce in Vietnam include
legal acceptance of e-signatures and implementation of
the electronic inter-bank transaction system. The number
of online transactions has been increasing. The Ministry
of Trade has the lead in drafting a new ordinance on E-
Commerce, which is expected to come into effect in
September 2004.

The Government of Vietnam continues to attempt to keep
close control on all websites established in Vietnam. In
October 2002, the Government of Vietnam passed a new
regulation on the establishment and modification of
websites. The regulation requires domestic and foreign
agencies, organizations, and enterprises to obtain a
license from the Ministry of Culture and Information
before establishing new websites. The Ministry then has
30 days to make a decision on granting the license. The
regulation also requires diplomatic and other foreign
entities to obtain written approval from the Ministry of
Foreign Affairs (MFA) before requesting a license from
MOCI. Vietnam may also require organizations to request
permission from MOCI before making changes to the content
of their existing websites based on licensing
requirements in the regulation.

OTHER BARRIERS

Corruption

U.S., other foreign, and domestic firms have identified
corruption in Vietnam in all phases of business
operations as an obstacle to their business activities.
Vietnam scored a 2.6 out of a possible high score of 10
points on Transparency International's Corruption
Perception Index. In large part due to a lack of
transparency, accountability, and media freedom,
widespread official corruption and inefficient
bureaucracy remain serious problems that even the
Communist Party of Vietnam and the Government of Vietnam
admit they must address on an urgent basis. Competition
among government agencies for control over business and
investments has created a confusion of overlapping
jurisdictions and bureaucratic procedures and approvals,
which in turn create opportunities for corruption. Low
pay for government officials and woefully inadequate
systems for holding officials accountable for their
actions compound the problems. Implementation of the
Government of Vietnam's public administration reform
program, developed with the assistance of the World Bank,
as well as Vietnam's obligations under the transparency
provisions of the BTA promise some improvement in the
situation in the medium to long term, but it appears
unlikely there will be much improvement in the near term.

End text.
BURGHARDT