VIETNAM: YEAR 2003 SPECIAL 301 REVIEW: EMBASSY

UNCLAS SECTION 01 OF 06 HANOI 000486 SIPDIS SENSITIVE STATE FOR EB/IPC WILSON AND EAP/BCLTV STATE ALSO PASS USTR BURCKY/ALVAREZ AND BRYAN STATE ALSO PASS USPTO FOR URBAN STATE ALSO PASS LIBRARY OF CONGRESS FOR TEPP USDA FOR FAS/FAA/AO HUETE USDOC FOR LASHLEY AND 4430/MAC/AP/OPB/VLC/HPPHO USDOC ALSO FOR ITA/TD/OTEA/JJANICKE AND ITA/TD/SIF/CMUIR E.O. 12958: N/A TAGS: ETRD ECON KIPR VM IPROP BTA SUBJECT: VIETNAM: YEAR 2003 SPECIAL 301 REVIEW: EMBASSY INPUT REF: (A) STATE 43420 (B) HANOI 1496 (C) HANOI 2168 (D) HCMC 1123 (E) HANOI 2893 SENSITIVE BUT UNCLASSIFIED PROTECT ACCORDINGLY -------------- SUMMARY -------------- ¶1. (SBU) Embassy recommends continued placement of Vietnam on USTR's Special 301 Watch List for 2003 as enforcement of IPR in Vietnam remains weak and IPR violations are rampant. We do not believe elevation to the Priority Watch List is warranted, however, as: -- The U.S.-Vietnam Bilateral Trade Agreement (BTA) with its major provisions on IPR, commits Vietnam to make its IPR regime TRIPs-consistent by December 2003; -- Vietnam continued over the past year to make progress in strengthening its IPR legal and enforcement regimes, with new regulations supporting copyright issues for architectural works as well as preparations for Vietnam's accession to UPOV and other IPR-related conventions. -- the Government of Vietnam maintains a strong public commitment to IPR protection; and, -- the size of the market for U.S. intellectual property products in Vietnam remains small, given Vietnam's low GDP per capita, one of the lowest in the world. End Summary. -------------- -------------- Continued Placement on Special 301 Watch List Warranted -------------- -------------- ¶2. (SBU) Embassy recommends that USTR continue placement of Vietnam on its Special 301 "Watch List" for the coming year because IPR piracy in many product categories remains rampant in Vietnam, despite continued progress in the strengthening of Vietnam's IPR legal regime. While Vietnam did conduct some law enforcement actions against IPR violations over the past year, IPR enforcement remains the exception rather than the rule. At the same time, market access barriers, especially with regard to "cultural products" continue to impede the availability of legitimate product, further complicating efforts to combat piracy. -------------- -------------- BTA - Basis for Bilateral and Multilateral IP Cooperation -------------- -------------- ¶3. (U) Chapter two of the U.S.-Vietnam Bilateral Trade Agreement (BTA),which entered into force on December 10, 2001, codifies Vietnam's commitment to bring its IPR legal regime and enforcement practices up to international standards by December 2003, to protect IP consistent with WTO TRIPs standards, and in some cases, such as protection of satellite signals, to extend protection beyond TRIPs. The BTA covers the fields of: copyright and related rights, encrypted satellite signals, trademarks (including well- known marks),patents, layout designs of integrated circuits, trade secrets, industrial designs, and plant varieties. The BTA incorporates by reference the major substantive provisions of the principal international conventions governing IP, as well as the WTO TRIPs Agreement. The BTA also commits Vietnam to join the key IP- related conventions (it is not already a party to) by 2003. Vietnam's leadership has expressed consistent and strong support for implementing fully Vietnam's commitments in the agreement, including the IPR chapter. ¶4. (SBU) The BTA is viewed by many, including Vietnam's leadership, as a roadmap for Vietnam's trade and investment regime reform and WTO accession. As such, Vietnam's BTA commitments, including those on IPR, are widely seen as steps Vietnam must take to integrate into the world economy and get access to world markets and capital necessary for Vietnam's economic growth. In short, the BTA has provided Vietnam for the first time with clear links between IPR protection and Vietnam's ability to access and compete in world markets. ¶5. (SBU) In addition, the BTA increases international pressure on Vietnam in the IPR area. First, by requiring Vietnam to accede to a number of international IPR conventions, the BTA's IPR commitments actually translate into multilateral commitments to protect IPR. In addition, many of Vietnam's partners in WTO accession talks have already indicated that they expect Vietnam to accord their companies and nationals the same treatment in areas such as IPR as that pledged to the U.S. in the BTA. Thus, the BTA has created strong expectations and commitments for Vietnam in the IPR area vis--vis all of Vietnam's trade and investment partners, again, significantly upping the ante for Vietnam as it reforms its IPR regime. -------------- Improvements in IPR Laws Continue -------------- ¶6. (U) Vietnam began extensive legal reforms to bring its IPR laws and regulations into compliance with BTA (and therefore TRIPs) standards even before entry-into-force of the BTA. In 2002, Vietnam continued to make progress on strengthening its legislative IPR regime. The following were developments on legal and regulatory reform in the IPR sector over the past year: -- A May 17, 2002 official letter (Ministry of Trade Official Letter No. 1901/TM-QLCL) regarding protection of Vietnamese trademarks in foreign markets. This official letter seeks to coordinate efforts of ministries and People's Committees to publicize law and regulations related to IP and to research and disseminate legal regulations on the registration of trademarks in other major markets including the U.S., EU, Japan and ASEAN as well as registration of international trademark protection under the Madrid Agreement. -- A June 7, 2002 official letter (Ministry of Trade Official Letter No. 2209/TM-QLTT) regarding establishing guidelines for combating IPR violations. This official letter tasks the Market Management Bureaus (MMB) with increasing the number of inspections related to imported counterfeit goods; requires MMB to consult with the Ministry of Trade before issuing a decision on a case involving foreign goods; and tasks MMB, in coordination with other agencies, to draft an inter-ministerial circular on inspection and settlement of IPR cases. -- A June 11, 2002 decree (Government Decree 61/2002/ND-CP) on copyright royalties. This decree establishes guidelines governing royalties for authors and owners of works. The decree provides specific grades and/or percentages for each genre and scale of work. -- A July 22, 2002 official letter (Government Official Letter No. 4029/VPCP-QHQT) requests the Ministry of Culture and Information, in conjunction with other ministries, provide the Prime Minister a report on Vietnam's accession to the Berne Convention, the Brussels Convention, and the Rome Convention. This official letter also tasks the Ministry of Agriculture and Rural Development, in coordination with other ministries, to submit to the Prime Minister a proposal regarding Vietnam's accession to UPOV. -- A December 18, 2002 circular (Ministry of Finance Circular No. 92/2002/TT-BTC) provides guidelines for the collection of fees related to registration of new plant varieties. New varieties protection charges and a fee scale are listed in the collection levels table issued with this circular. This circular is part of GVN preparations for joining UPOV. -- A December 6, 2002 decision (Ministry of Agriculture and Rural Development Decision No. 143/2002/QD-BNN) details the procedures for conducting tests for distinctness, uniformity and stability of varieties of rice hybrids, potatoes, soybeans, rice, peanuts, corn and tomatoes. -- A January 24, 2003 circular (Ministry of Culture and Information and Ministry of Construction joint circular no. 04/2003/TTLT/BVHTT-BXD) on copyright issues related to architectural works. This circular provides definitions of owners of architectural works and details the scope of owners' rights. Registration procedures for copyright protection are also introduced. This is the first time this issue has been addressed by the GVN. -- A regulation issued by the Ministry of Agriculture and Rural Development on the uniformity and stability tests of new plant varieties. ¶7. (U) In addition, a number of other laws and regulations are in the draft stage including: -- A draft decree on the Protection of Layout Designs of Integrated Circuits was submitted by the National Office of Industrial Property (Ministry of Science and Technology) to the Prime Minister's office in 2002. The Office of the Government is currently revising the draft. The GVN expects to promulgate the decree in early 2003. -- The Ministry of Justice, with the assistance of both USG- funded technical assistance providers and the Japanese International Cooperation Agency (JICA),is in the process of revising the Civil Code provisions related to IPR. The draft revision is likely to be submitted to the National Assembly this year. -- The Supreme People's Court continues to revise a draft Civil Procedure Code which will include procedures necessary for IPR enforcement. -------------- Piracy Still Rampant -------------- ¶8. (U) While significant progress on the legal and regulatory regime continued at a rapid pace over the past year, enforcement has had little obvious impact at the street level, at least with regard to music, motion picture, software and trademark violations. Hanoi, HCMC and most other major cities in Vietnam are rife with music CD, VCD and DVD shops, with 100 percent of the U.S. product on sale pirated. Also rampant are video rental shops in which all the videos rented are pirated. Trademark violations are also prevalent, with all types of clothing and other items carrying unlicensed versions of famous trademarks available at small shops and stands throughout the major cities. None of these areas of piracy appeared to be reduced over the past year. In one exceptional trademark case (reported in June 02 - see ref (B)),the Ministry of Science and Technology (MOST) fined a Hanoi candy shop approximately USD 460 for infringing the Mars candy trademark and ordered and oversaw the removal of the infringing labels from 328 packages. ¶9. (SBU) Although nearly all unlicensed showing of U.S. films on Vietnam's state-owned television stations ended following implementation of the U.S.-Vietnam Copyright Agreement in December 1997, local private and state-owned television stations still violate this from time to time. These exceptions, however, are generally infrequent. Public cinemas as well as private cafes sporadically show pirated films, although this problem is not as widespread as the retail sales of pirated DVD, VCD or videocassette versions of the same films. In one case, however, after a U.S. film distributor's application to distribute the film "The Last Castle" in Vietnam was rejected by the Ministry of Culture and Information's censorship board, the film ended up not only widely available in local DVD shops but was also shown at a state-owned movie theater in HCMC. (Reftel (C)) ¶10. (U) In terms of consumer and business software for PC's, piracy appears to be the norm. Anecdotal evidence and industry sources suggest that Vietnam Government agencies use mostly pirated software on PC's in government offices. U.S. companies engaged in sales here of such software complain that, even if they drop licensing charges to next to nothing, Vietnamese businesses and government agencies refuse to buy legitimate product because they have no budget for software and because of the ready availability of pirated versions. Alternatively, some businesses and government agencies purchase a limited number of legitimate copies, which they then install on numerous machines (far exceeding the limitations set by the licensing agreement). Computer hardware retailers reportedly complain to U.S. software companies that the PC market in Vietnam is so competitive and their margins so slim, that to pay even token licensing fees for software would not only wipe out their profits but basically all their sales. -------------- Enforcement Remains Weak -------------- ¶11. (SBU) Despite the commitment at the highest levels of the Vietnamese Government to creating a body of law on IPR consistent with international norms and meeting Vietnam's international commitments, IPR enforcement remains weak. Vietnam is just beginning to establish institutional experience in enforcing IPR. Thus far, IPR laws are only really known and/or understood well by a few Ministries in Hanoi particularly the Ministry of Science and Technology (MOST),through its National Office of Industrial Property (NOIP) which oversees patents and trademarks and the Ministry of Culture and Information (MOCI),which oversees copyrights. However, these agencies are responsible only for "administrative" enforcement of IPR laws, and are mostly limited to issuing administrative findings and occasionally issuing warnings either by letter or orally to small retailers of pirated material. They have no law enforcement arm and cannot conduct raids or seize goods. At the local level, Vietnam's enforcement personnel seem almost completely uninformed on Vietnam's own laws and how to implement them. From the police to the courts, Vietnam's judicial system is relatively unaware of the rights of IPR holders or how to prosecute, adjudicate and enforce those rights. Currently there are no procedures in place to provide recourse or compensation to rights holders whose rights have been violated. The Market Management Bureau, an enforcement agency within the Ministry of Trade, engages in some IPR enforcement, usually in response to specific complaints from IPR holders. ¶12. (SBU) In October 2002 the HCMC Market Management Board (MMB) conducted a well-publicized illegal software raid in Vietnam. The MMB, in conjunction with Microsoft, raided 6 or 7 (of the probably hundreds) of local computer shops selling pirated software, seizing approximately 7000 disks. The results of this raid demonstrate clearly some of the weaknesses in Vietnam's enforcement regime. The MMB teams seized only disks clearly labeled Microsoft, leaving behind blank CDs and blatantly pirated software of non-Microsoft origin, such as Adobe. There was a lack of consistency among the various MMB teams - particularly with respect to the officials' understanding of what they were authorized to seize. Only nominal fees were levied (12 million Dong per violator, or approximately USD 780),there has apparently been no follow up by local authorities, and the shops quickly re-opened. (Reftel D) ¶13. (U) Vietnam's agencies do from time to time engage in publicized enforcement campaigns that target unlicensed goods, including those involving copyright and trademark violations, but also those with "illicit or pornographic content." MOCI reported that in the first nine months of 2002 its inspectors carried out 12,791 surprise inspections, identified 2,914 businesses in violation of the law and suspended the business licenses of 96 companies as a result. They confiscated 215,799 CDs, VCDs, and DVDs and 33,512 videotapes. -------------- Lack of Availability of Legitimate Product -------------- ¶14. (U) Given the relative poverty of Vietnam, with a per- capita GDP of around 400 dollars, the size of the market for U.S. IP product is still relatively small. While losses to piracy are as high as 100 percent of the market, the dollar value remains a tiny fraction of losses faced by U.S. IPR- related companies in the rest of the region. In addition, some types of products, such as those deemed "cultural products", are still subject to censorship and control regulations that impede market access. That said, Vietnam's economy has much potential and, with a well-educated population of 80 million, it will eventually become one of the major economies in the region. -------------- Growing Domestic Demand -------------- ¶15. (SBU) One striking development over the last year has been evidence of a growing awareness in many sectors of Vietnam's economy of the value of IPR protection for Vietnamese products both in Vietnam and abroad. While this understanding is still only evident among a small percentage of the population, it is growing - among Vietnamese agricultural exporters, apparel companies, software developers, and artists for example. This year there have been multiple news articles and seminars touting the value of brand names. Also, for the first time, a Vietnamese author threatened a lawsuit against a publishing house that had published the author's work without authorization. These groups are a long way from representing a critical mass in Vietnam, but as their numbers increase, they will add to the international pressure on the GVN to develop effective enforcement capabilities in line with its international commitments on IPR. -------------- -------------- Technical Assistance helpful in Building Enforcement Capacity -------------- -------------- ¶16. In 2002 Vietnam received considerable IPR-related technical assistance from a number of foreign donors, NGO's as well as multiple USG agencies including the Departments of State and Agriculture, USAID, Customs, the U.S. Patent and Trademark Office and the U.S. Copyright Office. (For a more complete discussion of IPR-related technical assistance in Vietnam see reftel (E).) This assistance included conferences, seminars, training, study tours and review/comments on draft pieces of legislation. In 2003, Vietnam will continue to receive a significant level of IPR related technical assistance. Of particular note, the Support for Trade AcceleRation (STAR) Project, (the USAID- funded technical assistance program specifically addressing BTA implementation issues) plans to provide the following technical assistance to the GVN: -- Support MOCI's development of regulations on optical disk production and distribution; -- Provide detailed comments on the Ministry of Justice's redrafting of the Civil Code chapter on IPR (Note: The Civil Code establishes the legal basis for IP protection in Vietnam); -- Support GVN efforts to meet the requirements necessary to accede to key IP conventions; -- Support GVN efforts to develop a civil procedure code - particularly with respect to issues related to IPR enforcement (such as provisional measures, injunctive relief, ex-parte hearings, attorneys' fees); and -- Support public education programs to raise awareness with regard to the importance to Vietnam for improving the protection of IP rights. -------------- Conclusion and Recommendation -------------- ¶17. (SBU) Vietnam will remain a market in which IPR violations are of concern for at least the foreseeable future. That said, Vietnam's commitments in the BTA to put into place over a short period of time an IPR regime that meets world standards is impressive and rare for a country at Vietnam's stage of development. U.S. policy should continue to work toward ensuring Vietnam's commitments are translated into good law and regulation in the near term and effective enforcement in the medium term. This can be most effectively achieved in Vietnam with a combination of support for IPR reform and pressure at senior government levels to translate good IPR law and regulation into real IPR protection. Further USG funding for technical assistance in IPR, particularly with respect to building capacity for IPR enforcement in Vietnam's law enforcement and judicial organs, would greatly advance this objective. At the same time, Mission intends to press senior GVN officials at every opportunity to address IPR piracy in Vietnam, highlighting the fact that legal reform is not sufficient for Vietnam to meet its obligations -- it must enforce those laws. ¶18. (SBU) RECOMMENDATION: Embassy believes it important to maintain pressure on Vietnam to enforce IPR, even as we continue to recognize the progress Vietnam has made on legal reform in this area. For that reason, we recommend Vietnam be maintained on USTR's Special 301 Watch List in 2003. Burghardt