Vietnam: Second Annual BTA Joint Committee

UNCLAS SECTION 01 OF 06 HANOI 000688 SIPDIS SENSITIVE STATE FOR E, EB AND EAP/BCLTV STATE ALSO PASS USTR HUNTSMAN/BRYAN STATE ALSO PASS USAID FOR ANE/DEL MCCLUSKY USDOC FOR 4430/MAC/AP/OPB/VLC/HPPHO USDOC PASS USPTO FOR NESS USDA FOR FAS/ITP/SHEIKH AND HUYNH BANGKOK ALSO FOR CUSTOMS ATTACHE E.O. 12958: N/A TAGS: ETRD EINV ECON KIPR KTEX PREL VM SUBJECT: Vietnam: Second Annual BTA Joint Committee ¶1. (U) SENSITIVE BUT UNCLASSIFIED -- PLEASE PROTECT ACCORDINGLY. ¶2. (SBU) Summary and Introduction: DUSTR Jon Huntsman led the U.S. delegation and Vice Minister of Trade Luong Van Tu headed the GVN side at the plenary session of the second annual meeting of the Bilateral Trade Agreement (BTA) Joint Committee in Hanoi March 10. Expert level sessions led by Elena Bryan, USTR Senior Director for Southeast Asia and the Pacific, and Nguyen Thu Do, Deputy Director, Office of the Government for the GVN were held March 4-5. Other USG participants in the Joint Committee meetings included Ambassador, EconCouns, USPTO, DOC, US Customs, and Emboffs. The GVN participants included representatives from the Ministries of Finance, Planning and Investment, Trade, Fisheries, Culture and Information and Justice. The U.S. side emphasized that it had fully implemented all of its BTA obligations upon entry-into-force of the agreement. The GVN, while acknowledging shortcomings in implementing some obligations, pointed out it has made significant progress in implementing its BTA obligations and frequently cited its ongoing cooperation with USG technical assistance providers. The U.S. side focused on issues related to GVN implementation of BTA commitments on transparency, intellectual property rights (IPR),market access for services, investment, and trade in goods. The GVN focused on issues related to business facilitation, trademark applications, anti-dumping, textiles and sanitary and phyto- sanitary (SPS) measures. This cable summarizes the Joint Committee's review of BTA implementation chapter by chapter. END SUMMARY. Chapter I: Trade in Goods -------------- ¶3. (SBU) SPS: The GVN delegation noted the continued interest in working with USG technical assistance providers to learn how to implement the SPS provisions in the BTA. The GVN also expressed an interest in discussing a bilateral protocol on SPS. The U.S. delegation noted that SPS is an important area both in terms of BTA implementation as well as WTO accession. ¶4. (SBU) CUSTOMS VALUATION: The U.S. side emphasized that customs valuation is a key BTA obligation and strongly urged the GVN to begin working now to have all the necessary legislation (including implementing legislation) in place to begin applying transaction value by the end of 2003. The GVN stated it would start to implement this obligation toward the end of 2003, but admitted it did not know how long it would take to implement. The GVN also said it had instructed Vietnam's Customs authority to be prepared to meet this obligation and asserted that the GVN would be ready to begin using transaction value by the end of 2003, as obligated under the BTA. ¶5. (SBU) TARIFFS: The U.S. delegation raised concerns about a lack of transparency regarding tariff rates. The lack of an applied tariff schedule creates uncertainty for U.S. traders and many have complained to the USG that Vietnam's tariff rates change with little or no notice. The GVN responded that it is policy to provide 30 days notice of tariff rate changes (excluding petroleum tariffs),but noted that problems with customs classification and inspections have made it difficult to ensure that 30 days notice is always given. The GVN also advised the best way to determine a specific tariff rate in Vietnam is to check with customs officials at the port of entry. The GVN added that whenever tariff rates are changed, the GVN publishes the new rates in newspapers and an official digest. The U.S. side responded that the GVN needs to be more transparent about tariff rates and advised the GVN to put the applied rates on a website traders could refer to easily. Chapter II: Intellectual Property Rights -------------- ¶6. (SBU) LEGISLATION: The GVN noted it had passed and amended various IP-related legislation in 2002 including legislation related to copyright royalties, plant variety registration, copyright for architectural works, layout designs and integrated circuits. In addition, the GVN described activities it had undertaken to increase public and official awareness of IPR issues including training, seminars, and workshops. ¶7. (SBU) ENFORCEMENT: The U.S. delegation emphasized that IPR is a very important issue to the U.S. and the USG places a lot of emphasis on effective enforcement. IP enforcement is also critical not only to attracting and retaining investment, but also to facilitating development of IT, arts and other sectors. The U.S. side asserted that Vietnam should have the capacity for strong enforcement of IPR given that the GVN is already very effective at keeping "culturally offensive" items out of stores. The U.S. side noted that raids on stores selling pirated Microsoft goods in 2002 were a good start, but these raids also clearly demonstrated weaknesses in Vietnamese enforcement tactics as only a few stores were targeted, not all materials were confiscated, and the stores quickly re-opened and resumed selling pirated goods. The U.S. delegation also highlighted that in other countries IPR crime is often linked to illicit trafficking of drugs and weapons. Thus, as other countries in the region improve their legislation and enforcement activities, Vietnam may find these criminals moving to Vietnam because they believe it is relatively easier to function there. The U.S. delegation also noted that other countries have found it useful to form a committee composed of representatives of the various ministries responsible for IP enforcement to oversee enforcement efforts. ¶8. (SBU) TRADEMARK REGISTRATION IN THE U.S.: The U.S. delegation briefed the GVN on the procedures for registering trademarks in the U.S., including providing information on the procedures for dealing with competing applications for the same trademark. The U.S. side offered to organize a video teleconference for GVN officials with the U.S. Patent and Trademark Office as well as training on how to access and use the USPTO website. The GVN asked questions about "cyber-squatting" and the costs associated with registering a trademark in the U.S. Chapter III: Services -------------- ¶9. (SBU) FINANCIAL SERVICES: The U.S. side noted that the GVN has not fulfilled a BTA obligation (Annex G, Part 6, item E) to allow U.S. bank branches to accept deposits from Vietnamese "natural persons" in a ratio of 100 percent of paid-in-capital. The GVN responded that it would raise the issue with the State Bank. ¶10. (SBU) DECREE ON LAWYERS: The GVN informed the U.S. side that the GVN expects to submit the draft Decree on Lawyers to the National Assembly in June 2003. The U.S. noted our concern that the last draft provided had included a non-BTA compliant provision that would prohibit Vietnamese lawyers hired by a foreign law firms from arguing cases in court, thus in effect disenfranchising Vietnamese lawyers who work for foreigners. The GVN informed the U.S. that, in response to concerns raised by the U.S. and foreign lawyers, this earlier provision had in fact been removed from the final draft. In addition, the GVN, in cooperation with U.S. technical assistance providers, has been providing training and information to legal officers in Hanoi as well as in the provinces. Chapter IV: Investment -------------- ¶11. (SBU) IMPROVEMENTS TO INVESTMENT REGIME: The GVN cited numerous changes it has made to fulfill its obligations under the Investment chapter of the BTA. These included: phasing out regulations on foreign exchange 5 years earlier than required; authorizing land use rights for credit institution joint ventures three years earlier than required; taking steps toward unifying dual pricing for water, electricity and transportation; and allowing 100 percent U.S.-owned insurance companies to operate. (Note: only one U.S. insurance company has been granted a license to operate, three other applications from U.S. firms are pending approval.) The GVN also noted that a new decree allowing foreign joint ventures to be joint stock companies would be promulgated soon. The GVN said that it planned to unify foreign and domestic investment laws. In the interim, the GVN had submitted amendments to Decree 24 (guidelines on permissible foreign investment) to address shortcomings in current foreign investment law, although, the GVN admitted, the changes in Decree 24 are not "fully satisfactory" to meet BTA obligations (e.g. do not address board of directors and exchange of shares issues). ¶12. (SBU) FORD/GM AND AUTO TARIFFS: The U.S. side argued that a draft Ministry of Finance decision to raise import duties on auto parts and increase the special consumption tax on domestically produced autos will make it difficult for the 11 major auto manufacturers currently in Vietnam to remain in the market. The U.S. delegation urged the GVN to continue its dialogue with representatives of the auto sector to find a way forward that works for both sides. It emphasized that the outcome of the auto issue will be an early example of how well the U.S.-Vietnam commercial relationship will progress. The U.S. side also noted that the MOF decision raises questions about the GVN's "preservation of investor rights" and TRIMs obligations under the BTA and could negatively impact Vietnam's WTO accession. The GVN responded that it had consulted with the auto producers and that it would be difficult to find a solution that will satisfy all parties. ¶13. (SBU) MCCULLAGH/KRONG ANA: The U.S. side noted the case where a U.S. company (McCullagh) had the approval of the Ministry of Planning and Investment (MPI) to buy out its local partner but was being obstructed by the provincial government. The U.S. side thanked MPI for its efforts to resolve this case over the past year and urged MPI to submit the case to a higher authority for resolution. The U.S. side noted that although the U.S. investor in this case had lost faith in the provincial government, it had not yet lost confidence in the ability of the central government to resolve the case. The U.S. side also emphasized that the central government bears full responsibility for ensuring the BTA is implemented - even at the provincial level. The GVN noted that the Prime Minister had just sent a dispatch to the Dak Lak provincial authorities asking them to resolve the issue. ¶14. (SBU) ENFORCEMENT OF ARBITRAL AWARDS/TYCO: The U.S. side complemented the landmark decision of the Economic Court in HCMC to enforce an arbitral award for a U.S. company (Tyco) and noted that this action had been viewed widely by the international community as a very important event in Vietnam. However, the Supreme Court's subsequent decision to overturn the Economic Court's decision may lead U.S. investors to question whether or not they will be able seek protection under the BTA and the New York Convention. The U.S. side expressed hope that upon higher review of the case, Tyco will be treated fairly and in a transparent manner. The U.S. side also offered to provide additional training for judicial officials on arbitration procedures. The GVN said it would appoint staff to watch the case but noted that, as in the U.S., judicial decisions are subject to Vietnamese law and the GVN cannot override them. ¶15. (SBU) DECISION 718/TRIMS: The U.S. noted that at the first BTA Joint Committee, we had raised the issue of the December 2001 Decision 718 which increased the number of sectors where foreign investments are subject to export requirements and noted this decision contradicted BTA TRIMs obligations. The U.S expressed its pleasure that no U.S. firm had reported that the GVN had tried to apply this decision, but noted it was still on the books without any clarification that it did not apply to U.S. companies per the BTA. The GVN agreed to provide clarification in writing to the Embassy that the export requirements put in place in December 2001 (under Decision 718) in sectors not explicitly included in Vietnam's national treatment exceptions under the BTA would not apply to U.S. companies. Chapter V: Business Facilitation -------------- ¶16. (SBU) VISAS: The GVN argued that since September 11, 2001 it has become more difficult for Vietnamese in general and Vietnamese enterprises in particular to get visas to do business in the U.S. While acknowledging U.S. security concerns, the GVN emphasized that new visa procedures make it difficult for Vietnamese enterprises to take advantage of opportunities created by the BTA. The GVN specifically cited long waiting periods, last-minute notifications and vague reasons for refusal. The Vietnamese side noted that its embassy in Washington was making efforts to facilitate business travel to Vietnam and usually issued business visas within 24-48 hours. The U.S. side agreed that this was a serious issue, noted that the new rules applied to all countries, not just Vietnam, said the Embassy facilitates visa issuances in accordance with U.S. law and noted that issuance of business visas in Hanoi and HCMC has actually increased 35-40 percent in 2002. The U.S. side also noted that in 2002 only 30 cases in HCMC and 27 cases in Hanoi were seriously delayed because of the clearance process. Chapter VI: Transparency -------------- ¶17. (SBU) REVISED LAW ON LAWS: The U.S. side noted that the revised Law on the Promulgation of Legal Normative Documents ("Law on Laws") does not define official letters, instructions or guidelines as legal normative documents and asked whether the GVN planned to make these kinds of documents public as required under the BTA's transparency obligations. The GVN responded that although the revised Law on Laws was the result of cooperation between the GVN and Vietnamese and international legal experts, both U.S. and Vietnamese experts were not yet satisfied with the law. The GVN is working with the U.S. Support for Trade AcceleRation (STAR) project to identify shortcomings in the revised law and to introduce provincial-level versions of the Law on Laws. The Vietnamese side noted that introducing transparency is a "process" that takes time and needs to be done step by step to ensure Vietnamese law is in compliance with international practices. ¶18. (SBU) The U.S. side welcomed the positive steps taken on transparency but advised the GVN that Vietnam's transparency obligations were due upon entry-into-force of the BTA (December 2001) and the USG expects BTA-level treatment to apply to all U.S. firms and investors. The U.S. delegation also noted that transparency is critical for attracting foreign investment. Investors want to know what the rules and regulations are and be sure that they will be consistently applied. The GVN responded that there had been changes to the way legislation is drafted. Draft legislation is open for comment from the public and enterprises before it is submitted to the National Assembly, which also accepts additional comments on draft legislation. Other Issues -------------- ¶19. (SBU) "CATFISH": The GVN noted the "catfish" situation has "gotten worse" since the first meeting of the BTA Joint Committee in 2002. The Department of Commerce ruling that Vietnam is a non-market economy (NME) is unfair and the preliminary tariff rates (although some had been adjusted down) are too high. The GVN cited several reasons why Vietnamese frozen fish companies are not guilty of dumping their product in the U.S. market: 1) Vietnamese enterprises are too poor to dump their product; 2) Vietnamese fish companies benefit from good technology and low production costs; 3) the price of Vietnamese catfish in the U.S. market is the same or higher than the price of Vietnamese catfish in other markets; and 4) catfish producers do not receive state subsidies. The GVN urged the DOC to take a fairer approach to calculating the costs, particularly with respect to 1) ensuring the DOC takes into account all stages involved in the process of producing frozen fish fillets and 2) using the retail, not wholesale price when calculating costs in the surrogate country. The GVN also raised concerns about a potential dumping case against Vietnamese exports of shrimp. The U.S. delegation noted its willingness to listen to GVN concerns about the catfish case but clarified that 1) this was not a BTA issue and 2) dumping investigations follow an established legal process and the GVN needs to continue to deal directly with ITA on anti-dumping issues. Separately, the U.S. side explained that recent dumping decisions in neighboring countries (e.g. China/honey) could have an adverse impact on Vietnam if it becomes a transshipment location and advised the GVN to report any cases of suspected transshipment of goods (to avoid anti-dumping charges against Vietnam) to Customs via the Embassy in Hanoi. ¶20. (SBU) CHLORAMPHENICOL: The GVN raised concerns that the U.S. (and EU) are using standards on levels of Chloramphenicol in seafood as a "hidden excuse" to protect the U.S. domestic seafood industry. The U.S. delegation responded that this is a health and safety issue and the U.S. does not use SPS procedures to hinder trade. ¶21. TEXTILES: The GVN asked that the USG reconsider including extraneous issues such as labor in a bilateral textile agreement. Bilateral discussion on labor issues should be conducted in the context of the USDOL-Ministry of Labor, Invalids and Social Affairs (MOLISA) bilateral MOU on labor. The GVN also argued that textile quota levels should be based on Vietnamese production capacity. The GVN noted that it had already proposed to have the second round of negotiations take place in the first half of April in Washington and it was currently working on a counter- proposal on quota levels. The U.S. side responded that these textile negotiations are taking place against a backdrop of economic difficulty for the U.S. textile industry. In the last 15 months more than 50 textile factories have closed in the U.S. and Vietnam's textile exports have already surpassed other exporting countries in the region, like Indonesia and the Philippines. The U.S. side urged the GVN to provide a counter proposal to USTR quickly. The U.S. side also noted that the proposed labor language in the draft textile agreement is a positive affirmation of Vietnam's commitment to progress on labor issues and will reassure importers that Vietnamese factories will respect minimum labor standards. ¶22. (SBU) WTO ACCESSION: The U.S. side noted that implementation of the BTA provides a solid foundation for Vietnam's WTO accession. The pace of accession is up to the GVN but the U.S. is willing to help in any way it can. The U.S. side encouraged the GVN to work with WTO members and respond quickly to questions. ¶23. (SBU) DISPUTE SETTLEMENT: The GVN suggested establishing a subcommittee to handle dispute settlement as bilateral issues arise. The U.S. side responded that "dispute settlement" has a very specific legal meaning in the WTO context that is not appropriate for bilateral commercial disputes. In addition, aside from a provision for arbitration of commercial disputes, the BTA does not contain a dispute settlement mechanism. The U.S. side noted, however, that it is always willing to discuss issues of bilateral concern. MINUTES -------------- ¶24. (U) The following is the official text of the minutes of the Joint Committee meeting. Begin Text: Joint Committee on Development of Economic and Trade Relations Between Vietnam and the United States Second Working Session Minutes Hanoi, 4-10 March 2003 From 4-10 March 2003, the second working session of the Joint Committee on Development of Economic and Trade Relations between Vietnam and the United States was co- chaired in Hanoi by Vice Minister of Trade of Vietnam Mr. Luong Van Tu and Deputy United States Trade Representative Mr. Jon Huntsman, Jr. A list of delegates and participants who represent various ministries and agencies relating to the implementation of the agreement is provided in the attached annex. The two sides reviewed the implementation process in the year 2002 and discussed progress and challenges of implementation and ways in which to address issues of mutual concern. The U.S. side acknowledged Vietnam's efforts to comply with BTA provisions and committed to further support Vietnam in this process. The U.S. side urged Vietnam to continue its efforts to meet the timetable for implementation contained in the BTA. The U.S. emphasized the importance of IPR enforcement. The U.S. side was pleased to hear of Vietnam's determination to enforce IPR and to learn of recent enforcement actions by Vietnam to establish order in this area. Vietnam expressed its desire to actively start discussions towards a Sanitary and Phyto-sanitary trade protocol. The two sides recognized the importance of BTA implementation as a contribution to WTO accession. The U.S. side reiterated its support for Vietnam's efforts to join the WTO. The two sides looked forward to the WTO working party meeting in May 2003 and bilateral discussions at that time. The two sides reviewed the status of bilateral textile negotiations and expressed a desire to work together to meet a mutually satisfactory result. The Vietnamese side highlighted its concerns and frustrations with the ongoing anti-dumping investigation against Vietnam's exports of frozen fish fillets (tra and basa) to the U.S. The U.S. side encouraged Vietnam to continue working with the U.S. Department of Commerce's Import Administration on this issue. The two sides discussed a variety of issues of concern to businesses in the two countries and agreed to consult on such matters on a regular basis in order to facilitate and strengthen the bilateral economic relationship. They agreed to use all available channels of communication, including through their embassies in both capitals, to accomplish this. The two sides appreciated the quality discussions of the second working session, and strongly believed the U.S.- Vietnam economic and trade relations will continue to be strengthened on the basis of the BTA. The two sides agreed that the third working session of the U.S. Vietnam Joint Committee will be held in the United States in 2004. The U.S. side appreciated the hospitality and preparation made by Vietnam toward a successful working session. Signed in Hanoi, 10th MArch 2003. For the Government of Vietnam Luong Van Tu Vice Minister of Trade For the Government of the United States of America Jon M. Huntsman, Jr Deputy U.S. Trade Representative End Text. BURGHARDT