EIGHTH WORKING PARTY ON VIETNAM'S WTO ACCESSION

UNCLAS SECTION 01 OF 07 HANOI 001993

SIPDIS

STATE FOR EAP/BCLTV AND EB/TPP/BTA/ANA JBELLER
STATE PASS USTR FOR CKLEIN AND EBRYAN
TREASURY FOR IA/Asia Office
USDA FOR FAS/ITP/SHIEKH
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
GENEVA PASS USTR

E.O. 12958: N/A
TAGS: ETRD VM WTRO WTO
SUBJECT: EIGHTH WORKING PARTY ON VIETNAM'S WTO ACCESSION
JUNE 2004

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1. SUMMARY AND COMMENT: The Eighth Working Party on the
Accession of Vietnam to the World Trade Organization met
June 15 in Geneva to continue its review of Vietnam's trade
regime and plans to bring it into compliance with WTO
standards. Vietnam's presentation reported progress
especially in the intent to eliminate non-tariff barriers
and export subsidies, to implement WTO provisions upon
accession and to reduce the number of planned tariff rate
quotas in its WTO tariff schedule. There is a sense that
Vietnam now is committed to changing its trade regime and
moving ahead. Vietnam's goal is to finish the negotiations
before the end of 2005. While not impossible, considerable
progress is necessary. Key concerns remain, e.g.,
implementing a WTO-based customs system, setting up an SPS
system, meeting TBT obligations, and the commitment to
remove QRs upon accession was nuanced. The need to improve
IPR protection remains, as well as enforcement, though the
GVN announced its intention to join the Berne Convention.
At the meeting, Vietnam claimed it tabled the full range of
BTA commitments to be multilateralized via the accession.
Questions remain as to whether Vietnam can actually
implement such broad reforms in the near term, and if the
pace of work in the National Assembly can even meet
Vietnam's deadline.


2. The Vice Minister of Trade led the GVN delegation of
30 plus members. AUSTR Dorothy Dwoskin gave the opening
statement for the USG and highlighted GVN progress, the USG
commitment to play a constructive role in WP and bilaterals,
but with a note that progress in the WP needs to be
accompanied by progress on the market access negotiations on
goods and services. Key WTO members agree that Vietnam is
on track, but will need to reduce tariffs and improve its
market access offer. In sum, there was a sense that the GVN
is on track, though it is now clear that they will not
arrive by next summer. WP Members agreed to provide any
addition written questions to Vietnam by the end of July.
Vietnam agreed to provide responses by the end of September.
This will allow the Secretariat to produce a draft working
party report by the end of October. If this schedule holds,
the next meeting of the WP has been penciled in for mid-
December. In the meantime, Members have tentatively agreed
to an agricultural plurilateral on October 29 when capital-
based representatives will be in Geneva for an Agriculture
Committee meeting. END SUMMARY AND COMMENT.


3. The Eighth Working Party on the Accession of Vietnam to
the World Trade Organization met June 15 in Geneva to
continue its review of information provided by Vietnam on
status of its trade regime and to review progress on market
access negotiations on goods and services. Mr. Ho of
(previously Korea's Ambassador to the WTO) chaired the
meeting. MOT Vice Minister Luong Van Tu led a delegation of
key experts from GVN ministries. The focus of the meeting
was to continue examination of Vietnam's foreign trade
regime based on a revised factual summary of information
provided to date and on replies to questions raised by
members following the December 2003 session, and to review
progress in WTO implementation and in the market access
negotiations on goods and services negotiations since then.


4. In his opening remarks, GVN Vice Minister of Trade Luong
Van Tu said that the GVN was seeking to continue the quantum
leap it had begun the previous spring after WP 6. He
enumerated a number of areas in the current documents in
which the GVN had made progress since WP 7 in December 2003.
These were in commitments Vietnam was prepared to make to
comply with the WTO Agreements on TRIMs, Customs Valuation,
TBT, Import Licensing Procedures and other agreements upon
accession, commitments to eliminate all quantitative
restrictions in the form of quotas and restrictive licensing
upon accession, to progressively liberalize trading rights
of foreign invested enterprises and to comply with most SPS
obligations upon accession, with only a couple of selected
transitional requirements. Tu also committed to remove all
agricultural export subsidies for coffee upon accession and
phase out the rest within three years.


5. On market access, Tu noted that the GVN has improved its
offer so that, in his view, many of Vietnam's commitments
would go beyond those made by recently acceding members. On
trade in goods, VN offered to bind its entire tariff
schedule except for petroleum products. The average bound
rate would be reduced by 4% to an average of about 18% after
all concessions are phased in. All ODCs except on petroleum
products will be eliminated on a phased schedule and bound
at zero. The number of requested TRQs has also been
substantially reduced. On services, there has been further
revision to meet most requests from trading partners. GVN
has eliminated previous MFN exemptions in financial
services. On the goods side, he claimed that 90% of the
tariff requests of WTO members had been met (Note: A claim
that cannot be verified and is improbable. End note). On
services, he indicated that Vietnam's offer contains some
areas that are already BTA plus (unspecified). Tu said
that the GVN had had bilaterals with 14 members since
December, some of which are close to conclusion. As of June
14, GVN had already met with 10 members since arriving in
Geneva the previous week. It thanked the US, EU, China,
Japan and Latin American countries for their efforts on
bilaterals. In addition, VM Tu pointed to the efforts by
the National Assembly to pass legislation to speed up
international economic integration. Tu said that the above
showed GVN's determination to join WTO as soon as possible.
He acknowledged the technical assistance of various members
(Note: We believe that the National Assembly's pace of
activity will be a major factor in whether Vietnam will be
able to meet its own accelerated timetable. End note).


6. A number of members offered statements in support for
GVN's efforts. They included the EU, the Philippines
(speaking for ASEAN),Chinese Taipei, Morocco, Australia,
Switzerland, the US, Canada, Korea, Argentina, Norway,
Brazil, Japan, Columbia, Uruguay, China, New Zealand, Hong
Kong, and Cuba (which said it had completed its bilateral
negotiations with VN). Assistant USTR for WTO and
Multilateral Affairs Dorothy Dwoskin gave the opening
statement for the USG and highlighted GVN progress, noted
Minister Tuyen's emphasis on transparency during his recent
meetings with USTR Zoellick, confirmed USG commitment to
play a constructive role in WP and bilaterals, but with a
note that progress in WP needs to be accompanied by progress
on the market access negotiations on goods and services.
(Note: Other members in the USG delegation were Cecilia
Klein and Elena Bryan, USTR; Susan Rzemien, Treasury;
William Tagliani, USTR/Geneva; and Sam Watson Econ/C at US
Embassy Hanoi.)


7. The EU rep noted that it has important trade relations
with Vietnam and recognized VN is a developing country with
problems but much economic potential and the potential to be
an active WTO member. For these reasons, the EU wants to
show flexibility to VN with respect to its development
status. The GVN is improving the quality of its submissions
and moving to a more active phase of its accession. The EU
had met twice with the GVN since December, on June 14 in
Geneva and previously in Brussels. Vietnam's offers have
let the EU move to a more active phase. The EU will soon
come to Hanoi to continue its bilaterals with a desire to
conclude bilaterals soon. (NOTE: This took place the week
of July 5. End Note.)


8. The WP proceeded to review Vietnam's trade regime, using
the revised factual summary WT/ACC/SPEC/VNM/4/Rev.1 as a
framework for the discussions and referring to additional
documentation provided by Vietnam in response to questions
from delegations at the last meeting in December 2003. The
factual summary document will evolve into Vietnam's draft
report of the working party, as issues are raised,
discussed, and resolved, and commitments are confirmed, and
will eventually contain both the report of the working party
and protocol of accession approved by WTO members.


19. Investment: The GVN will seek to reduce the
differences between regulations for foreign and domestic
investors through a unified investment law. Vietnam has
already begun to eliminate restrictions on technology
transfer, limits on capital. Vietnam has removed the
requirement for foreign firms to hire workers through agency
so they can now be hired directly. The GVN committed to
implement TRIMS on accession thus eliminating export
requirements and tax distinctions between foreign and
domestic firms. In response to a US question about how it
will implement these changes, the GVN said it would produce
an action plan for implementing TRIMS.


10. State Ownership and Privatization: The GVN committed to
expand the areas of equitization to include transport, oil
and gas, insurance, telecom (including telecom international
gateway services),transportation, and "culture" over the
next two years. Equitization will take place regardless of
whether the enterprises are profitable. It will also not
discriminate among different types of enterprises and will
change regulations to eliminate those protecting "public
interest" enterprises. The GVN will continue to eliminate
subsidies and support for state owned enterprises (SOEs).
Regulations are being drafted and will be provided to
members when complete.


11. Pricing Policy: Dual pricing on electricity will end
and a uniform price will be set by December 31, 2005. This
will mark the end of Vietnam's dual pricing policy vis--vis
foreign firms


12. Competition Policy: The national assembly is
discussing the competition law and the GVN expects it to be
promulgated by the end of the year as scheduled. In the
coming months, the National Assembly will put a draft on the
Internet to solicit public input.


13. Framework for making and enforcing policies: U.S. noted
Vietnam's commitments in response to questions in
WT/ACC/VNM/32 concerning application of national treatment,
MFN, and transparency, right of appeal, and the authority of
central and sub central entities in trade policy issues, and
sought their inclusion in the working party report record.


14. Trading Rights: Vietnam offered to phase in trading
rights for foreign invested enterprises. Upon accession,
Vietnam offered to grant trading rights to foreign invested
enterprises in the production and manufacturing sectors and
to 49% foreign owned joint ventures. No later than January
1, 2008, joint ventures where foreign capital does not
exceed 49% would receive trading rights and 100% foreign
invested enterprises would be given trading rights no later
than January 1, 2009. GVN maintained that as the resale of
imported goods belongs under distribution, it was not
required to provide equal opportunity for the domestic sale
of imported goods and that it will take a reservation for
some items because its enterprises need to become used to
the competitive environment. Vietnam enterprises play an
important role in importing and selling goods. The
transition is only five years. Vietnam appealed to the
Working Party members to show understanding of what the
National Assembly will come up with on the law on laws. The
United States explained that there is a difference between
distribution of goods and the right of imported goods to be
distributed on equal terms with domestic goods, something
that Vietnam did not yet provide for. Granting full rights
for import and export to foreign firms was not the same as
granting rights for domestic distribution. The U.S. and
Australia pushed for a more rapid phase out, and the U.S.
asked that the WP report note that foreign and domestic
firms had the same export rights.


15. Tariff Rate Quotas: Vietnam noted that it had further
reduced the number of product lines subject to TRQs and did
not intend to use import licensing to administer these
quotas, i.e., would use a first come first served regime.
Now there are just 5-6 product lines that comprise several
hundred tariff lines. Both In- and out of- quota rates are
lower in the new offer, making it more transparent and WTO
consistent. GVN is willing to negotiate on TRQs including
the in-quota volume allowed. GVN does not believe that
managing TRQs will be expensive and difficult. It will not
keep quantitative restrictions as a non-tariff barrier. All
these issues can be discussed in the bilaterals. GVN
confirmed that it would only keep ordinary duties and
charges (ODC) on two items (pipes and PVC). GVN said there
are still some TRQs in agricultural sector. The GVN needs
to get current import and export data for these areas in
order to accurately apply TRQs from January 2005. The GVN
noted that although many items remain subject to import
licensing requirements, in Vietnam's view, all could be
justified under WTO exemptions, e.g., Articles XX and XXI of
the GATT. Vietnam will continue to apply these restrictions
after accession but will eliminate all licenses not
consistent with WTO exemptions at that time. The GVN rep
stated that 175 cc motorcycles couldn't be imported because
many young Vietnamese organize racing on the streets and
importing such motorbikes could cause problems. Also, with
large bikes in the country, the police might not catch
people they were pursuing. GVN believes this restriction is
non-discriminatory and is consistent with national
treatment. On the import of used items, there is no way to
detect whether they are used. New Zealand, supported by
Australia, termed the use of TRQs an "obstacle to progress"
in the negotiations. The U.S. and other delegations
cautioned Vietnam that TRQs were difficult to administer and
their use by other WTO members to tariffy agricultural QR's
during the Uruguay Round had a specifically historical
context that did not exist for Vietnam. They urged Vietnam
not to use TRQs, but find tariff-only solutions. Australia
and other Cairns Group countries took sharp exception to
Vietnam's stated intent to use TRQs to "tariffy" previously
existing quantitative restrictions, and also urged that
another way be found to regulate this trade.


16. Quantitative Restrictions and Import Licensing: The US
said that the GVN's offer to eliminate quantitative import
restrictions was an important step and asked whether this
included the restricted items in VNM/32 tables 5 and 5.1,
also whether other quantitative restrictions remained to be
addressed. Australia associated itself with US comments on
the need to phase out QRs. The US noted that there were ways
besides import bans such as that on motorcycles over 175 cc
to deal with safety concerns such as internal mechanisms.
The EU also expressed concern about the motorcycle ban. As
for the 175 cc motorcycle ban, the GVN argued that this was
necessary because many young people race motorbikes in the
streets and the police need to have bikes fast enough to
catch criminals. The GVN intends to bring import licenses
into compliance with WTO rules by accession and to remove
taxes on wine, beer and tobacco. Australia also noted that
GVN needed to be sure that this was adequately reflected in
its action plan. The GVN responded that although many items
were subject to import license requirements, all conformed
with WTO exemption rules. GVN will continue to apply these,
but will remove all that are not consistent with WTO rules.


17. Internal Taxes applied to Imports The EU welcomed GVN
efforts to reduce taxes applied to imported beer, but asked
whether there was discrimination with domestic beer. The
GVN said that there was no discrimination between domestic
and imported beer, rather a tax based on consumption rather
than on the origin of the product. Australia asked about
the phase out of these taxes in December 2006 and the need
to comply with GATT Article III. Korea said that internal
taxes especially the excise taxes on cars and cigarettes
were excessive with no clear rationale. The GVN argued that
automobiles were an infant industry, but they would like to
discuss in the next meeting.


18. Customs Valuation: Upon accession, the GVN committed
to apply the Customs Valuation Agreement and eliminate
"minimum prices," which are currently used to determine
valuation. The US, EU and Australia all praised this offer.


19. Non-tariff barriers: The GVN pledged to eliminate all
non-tariff barriers in the form of quotas and restrictive
licenses upon accession. The GVN also committed to remove
the import prohibition on cigarettes and cigars upon
accession. When asked how this would be accomplished or
whether legislation was in development to implement these
reforms, the Vietnam delegation could give no answer.


20. Preshipment Inspection: The US raised the need for the
GVN to create a preshipment inspection service in compliance
with WTO rules with fees based on the cost of the service
provided and not on the value of the traded good. The USG
also noted that the GVN should commit in writing to take
responsibility for ensuring the Preshipment Inspection
service complied with WTO. The GVN said its regulations on
preshipment inspection would comply with the WTO and GVN
will adjust its portion to reflect USG comments on
preshipment.


21. Antidumping: The USG suggested GVN provide legislation
to members for review soon and commit not to use antidumping
measures until WTO consistent legislation was in place.
Columbia asked whether the May 2002 safeguards ordinance
complied with the WTO. The GVN said it approved an
antidumping ordinance in April 2004 and will convey a copy
of it to members.


22. Rules and Certificate of Origin: USG urged GVN to
comply with WTO rules on requirements for rules and
certificates of origin. EU asked whether the GVN was
prepared to issue a national government document on rules of
origin to be WTO consistent. Chinese Taipei asked whether
there were any requirements to approve or issue a
certificate of origin. Exporters and importers currently
must apply for eligibility for certificates of origin.
Rules of origin create the maximum conditions favorable for
importers and exporters. Certificates of origin cannot be
bought from many agencies.


23. Export Regulations: The USG asked the GVN to review
and rationalize its export restrictions to comply with WTO
provisions. Australia called for a clear statement in
report of GVN commitment to eliminate export ratio
requirement for foreign firms on accession, and elimination
of direct payments contingent on export performance on
accession. Switzerland called for the elimination of export
requirements on accession. GVN confirmed that only five
goods are subject to export tax: crude oil, animal breeds,
wood materials, scrap metal, and perfumed wood. USG asked
why GVN applied duties of 35 to 45% on export of ferrous and
non-ferrous scrap and whether this level of duty permitted
export, but the GVN did not respond.


24. Export Subsidy: Australia called for elimination of
export subsidies on accession, The GVN committed to
eliminate agricultural export subsidies for coffee upon
accession and for other products (i.e. rice, pork,
vegetables, and fruit) within three years of accession.
Regarding a USG question on export subsidy, the GVN said
that they were committed to removing trade-distorting
measures on accession. Nevertheless many countries use
export subsidies and that is why the Uruguay Round created
Annex 7 for countries with a low level of development. The
GVN will eliminate subsidies related to the ratio contingent
upon export performance within five years of the date of
accession. They want to show flexibility until the GNP per
capita reaches $1000. (Note: Vietnam is not an Annex 7
country, a register of low income countries developed at the
time the WTO was established. Nor is it an LDC. As a
consequence it must eliminate industrial subsidies
conditioned on import substitution or export performance.
End note)


26. Rice exports: The GVN said that rice exports harm its
consumers, but GVN is taking into consideration making
1033changes on restrictions. WTO members can maintain
export restriction measures as long as this is consistent
with GATT Article 11. (Note: It is unlikely that Vietnam's
restrictions are Article XI compliant. End note)


27. SPS and TBT: Australia noted that the GVN sought a
transition on the establishment of an SPS system until 2008
and that the GVN action plan needed more detail on
implementation plans. Australia asked the status of SPS
implementation, GVN needs for technical assistance and urged
the GVN to speed up implementation of SPS. Australia also
asked whether ASEAN would abide by international SPS
standards. Canada, New Zealand shared these concerns and
sought an explanation for the reason a transition period was
needed. Noting the complexity of this issue the EU,
suggested an SPS plurilateral, expressed concern with
control procedures and urged the GVN to meet international
standards rather than signing multiple bilateral agreements.
The USG associated itself with the Australian comments and
asked for more details on technical assistance requirements
as well as details of GVN's SPS requirements for import of
meat and poultry, live plants, horticultural products and
grain as well as technical requirements for food product
certification, labeling and packaging.


28. The GVN responded on SPS and TBT as follows. In
Working Parties 6 and 7, the GVN requested a two to three
year transition after accession based on Article 14 for SPS
and TBT. The US and EU have given Technical assistance on
SPS and help in establishing an SPS enquiry point. However,
GVN needs time to adjust its laws and regulations to
implement the requirements of the agreement. Vietnam
commits to establish a National Enquiry and Notification
point by the end of 2004 and to have it fully operational
upon accession. Vietnam commits to implement the SPS
Agreement upon accession, except for a transitional period
up to 2008 for obligations with regard to harmonization,
equivalence and Control, Approval and Inspection Procedures.
In case the GVN can't comply fully they will put 1-2
obligations for enquiry points at end 2004 and operations in

2005. The GVN has assigned MARD as the enquiry point and it
is working with relevant agencies to address their concerns.
The GVN expressed appreciation for technical assistance from
the US, EU and Australia provided in this area and indicated
a desire for such assistance to continue. The GVN will
submit in writing areas where assistance is required. The
GVN is reviewing domestic standards and will bring them into
line with international standards. The GVN intends to
prepare an action plan on these steps. (Note: We would
like to explore what additional assistance could be provided
to accelerate Vietnam's implementation of these two
important WTO Agreements. End note)


29. TRIMS: Canada asked whether the GVN could confirm
that the table of products with an export ratio of 80% was
exhaustive and whether measures in paragraph 30 were
included in those referred to in paragraph 208. Chinese
Taipei asked whether the export requirements would be
eliminated on accession. The GVN acknowledged that measures
inconsistent with TRIMS remain. For example, one measure
compels enterprises to use local materials, but the GVN
intends to remove such measures on accession. The GVN also
wants to maintain investment incentives at the request of
many foreign investors. Export requirements are needed to
make them consistent with the agreement. Table 11 is
comprehensive and includes all products with an export ratio
of 80%.


30. Government Procurement: The USG urged the GVN to
consider joining the WTO Agreement on Government
procurement, initially as an observer and to identify areas
where technical assistance would be helpful. GVN replied
that it is not yet prepared to join the plurilateral and
this is not required of WTO members.


31. Trade in Transit: The US noted that although the GNV
had addressed the issue of transit fees, it had not
addressed the overall issue of transit to trade of other WTO
members as in Article V. The EU noted it also shared this
concern. The GVN will comply fully with the USG comment on
accession.


32. Agricultural Policies: Australia noted that the
agricultural plurilateral had a good discussion of GVN
policy in domestic support, but all questions were not yet
clear and Australia would submit some in writing. The GVN
had made good progress on binding export subsidies at zero.
Called for the GVN to make a binding commitment to remove
subsidies, Australia said a tariff only regime was should be
the GVN's goal. (Note: This is another area where U.S.
technical assistance, probably in the form of training
Vietnamese officials on how to construct and maintain their
agricultural domestic support tables, could be provided to
assist in the WTO accession process. End note


33. Trade in Services: Banking system: The EU asked
whether commercial banks were loaning to rural areas and the
status of loans to private farms. The GVN said that the Bank
for Agricultural and Rural Development that specializes in
loans for rural development and also the Social Policy bank
to serve the needs of rural areas. (Comment: See broader
discussion in report on bilateral meeting. End note.)

34. Core labor Standards: When Malaysia objected to the
inclusion of core labor standards in the report, the GVN
replied that their expert was not on the delegation, but
they would convey the message and it would be better to
discuss with the ILO.


35. TRIPS: Several members (Canada, the US and EU)
expressed concern with the lack of the GVN's progress on
IPR. Canada called for the GVN to adjust its copyright
action plan to comply with TRIPS and the time frame for
accession. The US said it submit written questions and
asked the status of GVN joining the Berne Convention. The
EU asked the status of the action plan, about industrial
property fees and charges, non-disclosure and will submit
written questions. The GVN replied that it needed to
revise regulations on copyright to make them more specific.
For example, the Ministry of Construction on Architecture
had specified many new regulations. The Ministry of Culture
had issued decree 76 which will improve regulations as part
of the action plan. The GVN schedule includes continuous
amendments on these issues. The GVN is considering whether
to issue a separate law on intellectual property. The
National Assembly has passed a new Civil Procedure Code.
The GVN is making its best efforts to prepare for TRIPS
implementation as well as for meeting other commitments in
this area. Recently the President of Vietnam decided that
GVN should join the Berne Convention. GVN is now preparing
for this. A 1996 action plan on TRIPS implementation had
been delayed because of its complexity, but the GVN will
exert best efforts in the future. In addition, GVN will
take note of questions and concerns from various members on
this issue of IPR. Canada asked when the GVN would be TRIPS
compliant and GVN affirmed that it would comply with TRIPS
on accession and be compliant by the end of 2004.


36. Trade Agreements: Australia called on GVN to accept
bracketed text containing a standard commitment on notifying
WTO members of preferential trade agreements and their
conditions (paragraph 369). The GVN did n073 ot reply.


37. MFN: Australia raised the difficulty it and others
(including the US and New Zealand) had had in obtaining MFN
treatment in certain areas (in line with the EU) despite the
GVN's obligation. The GVN replied that it would fully apply
MFN before and upon accession to comply with bilateral and
the WTO agreements and accession commitments (i.e.,
sidestepping the fact that its current practice was a
violation of the MFN clause in our bilateral agreement.


38. Legislative Developments: The Chairman noted that the
GVN needs to speed up the pace of passage of laws and their
implementation to speed up the accession. The GVN gave an
update on laws passed noting that the National Assembly had
taken action on such as the antidumping law and the civil
procedure code.


39. Next Steps: After conferring with Vice Minister Tu, the
Chairman outlined the schedule of next steps. WTO members
should submit written questions by the end of July, the GVN
should respond by mid-September. Optimally, The Secretariat
will distribute revised documents by late October/early
November and there would be another working party meeting in
early December. The Chairman asked that bilaterals
intensify.


40. Note: USTR staff in Geneva and Washington cleared this
cable.
BURGHARDT