VIETNAM: DUSTR SHINER UNDESCORES USG SUPPORT FOR

UNCLAS SECTION 01 OF 06 HANOI 002116

SIPDIS

SENSITIVE

STATE FOR EAP/BCLTV AND EB/TPP/BTA/ANA JBELLER
STATE PASS USTR FOR 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 IPROP
SUBJECT: VIETNAM: DUSTR SHINER UNDESCORES USG SUPPORT FOR
VIETNAM'S WTO ACCESSION

SENSITIVE BUT UNCLASSIFIED PROTECT ACCORDINGLY


1. (SBU) SUMMARY: In meetings July 25 with DPM Vu Khoan,
Minister of Trade Truong Dinh Tuyen and other senior GVN
officials, DUSTR Josette Shiner conveyed strong USG support
for Vietnam's WTO accession; agreed to begin another round
of bilateral market access negotiations in October; urged
the GVN to begin taking steps to build a strong coalition in
the U.S. that will support a Congressional vote in favor of
Permanent Normal Trade Relations (PNTR) for Vietnam; pressed
for GVN attention to important commercial issues including
issuing licenses to U.S. insurance companies and reviewing
GVN tax policy in the auto sector; and highlighted the
importance of IPR in economic development. GVN officials
welcomed more visible U.S. engagement on WTO and urged the
USG to take Vietnam's level of development into
consideration during negotiations. GVN officials made no
specific commitments on insurance licenses or autos. End
summary.


2. (SBU) Deputy USTR Ambassador Josette Sheeran Shiner
traveled to Hanoi July 22-25 accompanied by Elena Bryan,
USTR Senior Director for Southeast Asia and the Pacific and
Christopher Moore, Senior Policy Advisor. DUSTR Shiner,
accompanied by the Ambassador, Ms. Bryan, Mr. Moore and
Econoffs from Hanoi and HCMC, met with DPM Vu Khoan,
Minister of Trade Tuyen, Vice Minister of Trade Luong Van Tu
(her official counterpart and chairman of the GVN's WTO
accession negotiation team),Minister of Planning and
Investment Vo Hong Phuc and Vice Minister of Finance Le Thi
Bang Tham. She also met with representatives from the Hanoi
and Ho Chi Minh City (HCMC) Amcham Board of Governors and
spoke at an Amcham lunch.

U.S. role in VN's WTO accession
--------------


3. (SBU) In her meetings with DPM Vu Khoan and other senior
GVN officials, DUSTR Shiner emphasized that her principal
purpose in traveling to Vietnam was to demonstrate the USG's
strong support for Vietnam's WTO accession and to seek out
ways to accelerate the process. DUSTR Shiner noted that at
the 8th Working Party (WP) meeting in Geneva in June, both
Vietnam and the U.S. demonstrated a higher level of
commitment to Vietnam's accession. She pointed out that
earlier in the week the U.S. had provided written responses
to the GVN goods and services market access offers and noted
that the two sides need to work together to move Vietnam's
accession along at a faster pace. In response to requests
from all of her interlocutors to schedule bilateral market
access negotiations, DUSTR Shiner agreed that another round
of negotiations could begin in early October, subject to
Vietnam responding to U.S. comments on goods and services in
the next few weeks. (Note: Dates, place and scope of the
negotiations were left TBD. Discussions on different topics
could be held in different places at different times. End
note).


4. (SBU) DUSTR Shiner compared Vietnam's WTO accession
efforts to those of a marathon runner who has already run 25
miles, and just needs to go one more mile to reach the
finish line. Vietnam has had to make many changes very
quickly, she said, and the GVN may feel like it needs to
stop and rest. However, Vietnam must keep moving because
other "runners," like China and India, are very close and
are putting pressure on Vietnam. During the last mile,
DUSTR Shiner warned, the GVN must avoid being distracted by
other issues, and keep its eye focused on the ultimate goal.
Whatever challenges Vietnam faces - textile quotas or
attracting investment for example - all of them reinforce
the need for Vietnam to accede to the WTO so it can compete
globally on equal footing. As with other accessions, the
U.S. will play an absolutely critical role during that final
mile. In the WTO, the U.S. is always the engine behind the
accession process. Neither Japan nor the EU will pull
Vietnam through; the U.S. is left with the responsibility to
make it happen and will do so because the U.S. is committed
to a strong and prosperous Vietnam that can grow its share
of global trade and compete with China.


5. (U) DPM Vu Khoan expressed appreciation for USG support
for Vietnam's accession and the USG's positive response to
Vietnam's last WTO offer. He acknowledged that Vietnam
still has a great deal of work to do, including speeding up
its legislative agenda to meet the requirements of the WTO.
The DPM said he looked forward to substantial discussions
between the U.S. and GVN delegations and promised the GVN
would respond quickly to USG comments on Vietnam's market
access offers. He assured DUSTR Shiner that the GVN would
cooperate with the U.S. to reach its WTO goal. Vice
Minister of Trade Tu also highlighted the need to speed up
the passage of WTO-related legislation. He pointed out that
the National Assembly has decided that it will focus two-
thirds of its working time on this issue, and that the GVN
will work to shorten the legislative timelines included in
the last WTO offer.


6. (SBU) Minister of Trade Tuyen urged DUSTR Shiner to
ensure that the U.S. requests of Vietnam during the WTO
negotiations are "reasonable" and that they reflect an
understanding of Vietnam's level of economic development.
The U.S. should consider the sectors that are sensitive for
Vietnam, he urged. Many industries are still in the infant
stage - having just developed in the last ten years. I seek
your sympathy, he said; Vietnam needs to find the
appropriate pace of development and needs to develop
domestic support for reform. DUSTR Shiner reassured the
Minister that the U.S. is sensitive to Vietnam's development
concerns, but urged Vietnam to consider the U.S. philosophy
that the more open an economy is, the better it is for the
people. That is why the U.S. has become the most prosperous
nation in the world, she asserted. Increased liberalization
is critical to Vietnam's development.

WTO TECHNICAL ASSISTANCE
--------------


7. (U) In all her meetings, DUSTR Shiner offered USG
technical assistance for the accession process on specific
topics. She offered assistance to help Vietnam prepare the
agricultural support tables that will form a key part of its
agricultural obligations in the WTO. Vietnamese officials
asked for help to meet the requirements of the Sanitary and
Phyto-Sanitary (SPS) Agreement. DUSTR Shiner indicated a
willingness to be helpful, but asked the GVN to indicate the
specific kind of assistance Vietnam needs on SPS issues.

PNTR
--------------


8. (SBU) DUSTR Shiner explained that a Congressional vote on
PNTR for Vietnam is necessary for the U.S. to fully accept
Vietnam's WTO accession. At some point after the
negotiations are complete, but before full accession, the
U.S. will have to schedule a vote on PNTR. We know from our
experience with China, DUSTR Shiner said, that these votes
tend to bring up every aspect of the relationship including
human rights, religious freedom, investment climate and
trade disputes. A PNTR vote becomes a referendum on the
relationship. Very significant improvements in the broader
bilateral relationship, including cooperation on counter-
terrorism and other USG priority issues will be key
underpinnings for that debate. However, there are a number
of predictable vulnerabilities the GVN needs to seriously
consider that will be critical to overcoming the PNTR
hurdle.


9. (SBU) It is important that the GVN not wait until the end
of the year to focus on this issue. DUSTR Shiner urged her
GVN counterparts to think early about creating the right
climate for PNTR and noted that it will be important for
Vietnam to develop a coalition of companies that feel
positive about their experiences in Vietnam. A number of
companies would support Vietnam, but others are frustrated.


10. (U) Vice Minister Tu suggested that a positive and
effective means to deal with the issue of human rights is to
have members of Congress and National Assembly members meet
and discuss the issues face-to-face. This is the best way
to increase the understanding of each other's views, the VM
asserted. Vietnam has done this with other countries and
found it to be very effective, he added.

Trade and Investment Climate
--------------


11. (SBU) DUSTR Shiner noted in her discussions that U.S.
companies are very interested in trade with Vietnam and the
U.S.-Vietnam Bilateral Trade Agreement (BTA) has been
essential in stimulating that interest. The trade numbers
since entry-into-force of the BTA in December 2001 are a
real success story in the history of our two nations. The
task of implementing the rules of bilateral and global trade
is daunting but important, as implementation will provide
the necessary infrastructure for Vietnam to be successful.
With the benefits, however, expanded trade always brings
additional frictions. In the U.S. the Congress is unhappy
about the size of the U.S trade deficit. Additionally,
while some industries - such as the high tech industry -
have flourished because of trade liberalization in the U.S.,
other industries - such as the textile and apparel industry
- have suffered. It is difficult for workers in shrinking
industries to understand the benefits of free trade. The
USG and GVN have to manage these additional frictions to
ensure the people of both Vietnam and the U.S. view the
situation as win-win, DUSTR explained. For the U.S.,
improving the investment climate in Vietnam and GVN efforts
to continue to attract U.S. investment is critical to this
process.

Insurance
--------------


12. (SBU) DUSTR Shiner highlighted GVN reluctance to issue
insurance licenses to U.S. companies not only as a likely
problem during the PNTR debate in Congress, but also as a
development issue for Vietnam. She told her interlocutors
that there is a perception in Washington, including among
members of Congress, that Vietnam is not a receptive place
for U.S. investment, particularly in areas such as
insurance, automobile manufacturing and telecom. Many
members of Congress feel that U.S. insurance companies are
not getting fair treatment - that the GVN is giving European
companies a lead in establishing themselves in Vietnam's
market. DUSTR Shiner argued that it is shortsighted of the
GVN to leave U.S. insurance companies so uncertain about
when they can invest in Vietnam. It will be important to
have these companies on board as part of the coalition
supporting PNTR for Vietnam in Congress. During the China
PNTR debate, support from U.S. insurance companies was
crucial. The more certainty the GVN can provide on
insurance the better - the GVN needs to deal with this issue
quickly so it does not become an obstacle to PNTR.


13. (SBU) DUSTR Shiner noted that it is in the overall
interest of Vietnam's economy to allow greater investment in
this sector. The U.S insurance companies that want to
invest in Vietnam now will bring tangible benefits,
including capital and investment in infrastructure. China
is facing a real crisis because it does not have enough
insurance products in the market. It takes insurance
companies a long time to train people and set up offices and
product lines. In the meantime, it is difficult for
businesses in other sectors to invest if there is little or
no insurance coverage. In Vietnam, less than ten percent of
the economy is covered by insurance - so it is an open
market with a lot of potential. However, if Vietnam
continues to restrict investment in the insurance sector, it
could soon face the same problems China is facing now.


14. (SBU) Vietnam should consider itself lucky to have so
many quality U.S. companies looking to invest, Ambassador
Shiner repeatedly pointed out. Many developing countries in
Africa are doing everything they can to attract U.S.
investment in key areas such as financial services,
telecommunications and auto manufacturing with little
success. Vietnam, however, seems to be trying to slow down
the pace of investment.

15. (SBU) DPM Vu Khoan told DUSTR Shiner that he takes her
concerns regarding the insurance sector seriously and said
the GVN would consider the points she raised on the issue.
Minister of Trade Tuyen noted that choosing between U.S.
companies has proven quite difficult and said the GVN is not
prepared to issue more than one license at a time. He
reiterated a long-standing GVN request that the U.S. choose
which company should get a license first. DUSTR Shiner
indicated that the USG does not make such choices. Minister
Tuyen also noted that Vietnam's insurance market is still
small. There are already four foreign companies and only
one domestic company operating in the country. MPI Minister
Phuc said that the GVN is still discussing the insurance
issue internally. He noted he has told the Government that
he believes allowing more companies into the market will
benefit Vietnamese consumers.


16. (SBU) Vice Minister of Finance Tam told DUSTR Shiner
that the GVN will issue insurance licenses according to its
own schedule - but indicated that the schedule had not yet
been decided. She asserted that Vietnam has already
liberalized its insurance market - the GVN has allowed the
establishment of representative offices, encouraged joint
ventures with Vietnamese companies and issued two 100
percent foreign-owned insurance licenses (Note: to AIG and
Prudential UK in the life sector. End note.) Now the GVN
is considering additional applications for licenses from New
York Life, Ace, AIG (for the non-life sector) and Marsh
(broker services) but will issue the licenses according to
the GVN's own schedule. For Ace and NY Life, the problem is
choosing between two U.S. companies vying for licenses in
the same sector, at the same time. For AIG, the GVN is
hesitating because AIG already has one license to operate in
Vietnam.

Autos
--------------


17. (SBU) DUSTR Shiner also identified problems in the auto
sector as another area the GVN needs to address before the
PNTR debate in Congress. By significantly raising taxes on
autos, the GVN is sending the message that Vietnam does not
want investment in this sector, DUSTR Shiner declared. In
addition, when taxes get too high, consumption and revenue
drop. This is not the best way to raise revenues for road
infrastructure, which some GVN officials told Shiner was one
reason for the tax increase.


18. MPI Phuc admitted that GVN agencies are not united on
the issue of taxes on the auto sector and are still
considering how to proceed. The Government's report on the
first six months of the year noted that auto production in
Vietnam had dropped two percent because of the tax policy.
MPI Phuc promised the GVN would look more closely at the
issue.

Telecom
--------------


19. (SBU) DUSTR Shiner highlighted U.S. companies' interest
in investing in the telecommunications sector in Vietnam and
noted this would be an important sector in bilateral
services negotiations in Vietnam's WTO accession. While
Vietnam's latest services offer is good in a number of
sectors, it is more restrictive in telecom than under the
BTA. DUSTR Shiner encouraged her counterparts to look more
closely at this sector. Vietnam needs good
telecommunications infrastructure to attract FDI in other
areas. It is in Vietnam's interest to have a more forward
leaning offer on telecom, she advised.


20. (SBU) Minster of Trade Tuyen explained that telecom
liberalization has always been a difficult issue for
Vietnam. During the BTA negotiations, it took a year of
negotiations before the GVN agreed to increase the cap on
U.S. equity in telecom joint ventures from 49 percent to 50
percent. This clearly demonstrates Vietnam's sensitivity on
this issue, he said. The GVN fully understands how
important the telecom sector is to the U.S., but the USG
should not ask Vietnam to make a stronger commitment than
China's WTO commitment in this same area. China is stronger
than Vietnam economically; it would be quite difficult for
Vietnam's leadership to accept a commitment equal or
stronger than China's.

IPR
---


21. (SBU) DUSTR Shiner also emphasized the importance of
intellectual property rights (IPR) as a development issue.
As Vietnam continues to grow and develop, it should look to
become an innovative economy with its own unique patents and
inventions. To do that, DUSTR Shiner advised, Vietnam will
need a strong IPR protection regime. Additionally, if
Vietnam can develop a more effective IPR regime, it could
use this as a competitive advantage over China in attracting
high-end investment. IPR problems in China are so severe
they are causing investors to look for alternative places to
put their money. Jordan experienced very positive results
from the strict IPR requirements in the Free Trade Agreement
(FTA) it signed with the U.S. New IT and pharmaceutical
industries developed in Jordan almost overnight. Now
Jordanian officials around the world promote strong IPR
protection as the best way to attract more investment.


22. (U) Minister of Trade Tuyen told DUSTR Shiner that the
GVN planned to hold a special government meeting focused on
IPR protection in the next quarter of this year. He said
that he understands USG views on IPR, but explained that
development and progress on IPR always follows the pace of
industrialization. The USG cannot expect changes in IPR
protection in Vietnam overnight, he asserted.
MPI Minister Phuc reiterated the GVN's commitment to
implementing Vietnam's IPR obligations and noted that the
GVN wants to attract more investment in key areas.

SHRIMP AND TEXTILES
--------------


23. (SBU) DPM Vu Khoan and other interlocutors mentioned the
ongoing anti-dumping case against shrimp as a GVN "concern."
DUSTR Shiner promised to convey GVN concerns back to
Washington. Vice Minister of Trade Tu reiterated a GVN
request that the USG agree to renegotiate the bilateral
textile agreement next year, with an eye to increasing
textile quotas for Vietnam. After expiration of the WTO
Agreement on Textiles and Clothing (ATC),Vietnam will be
the only country left with quotas, he complained. (Note:
Expiration of the ATC at the end of 2004 will lift textile
and apparel quotas for all WTO members. End note.) This is
an issue of mutual concern - both for Vietnamese exporters
and U.S. retailers. MPI Minister Phuc urged the USG to give
Vietnam equal footing with WTO members on textiles.


24. (SBU) DUSTR Shiner noted that only WTO membership will
give Vietnam certainty on textiles. With the expiration of
the ATC approaching, the U.S. domestic textile industry is
feeling threatened with extinction. There is no political
support for any additional U.S. flexibility on quota issues.
U.S. companies have already started to consolidate their
sources of textiles. Previously companies sourced out of
twenty or thirty countries; after the ATC, most companies
plan to reduce to two or three countries. U.S. retailers
view Vietnam as one of the top textile producing countries,
but the longer Vietnam is subject to quotas, the harder it
will be for them to continue to source in Vietnam. This is
yet another reason the U.S. and Vietnam need to work
together to get rid of obstacles and ensure that Vietnam can
get into the WTO as soon as possible, DUSTR Shiner declared.


25. (SBU) COMMENT: GVN officials clearly welcomed DUSTR
Shiner's message of strong support for Vietnam's WTO
accession. Their focus and determination to stay on message
was demonstrated by the relatively minimal amount of time
they dedicated to complaining about shrimp and textiles.
Even the normally erratic Minister of Trade stuck close to
his talking points on WTO. With USTR agreement to begin the
next round of bilateral negotiations in October, the
responsibility for maintaining momentum is squarely back on
the GVN's shoulders. End comment.


26. (U) USTR EBryan cleared this cable.
BURGHARDT