PRC PM WEN'S VISIT TO HANOI: TRADE TAKES THE FRONT

UNCLAS SECTION 01 OF 03 HANOI 002857

SIPDIS

SENSITIVE

STATE PASS USTR FOR EBRYAN
STATE ALSO FOR EAP/BCLTV, EAP/RSP, EAP/CM

E.O. 12958: N/A
TAGS: PREL CH VM CVR WTO
SUBJECT: PRC PM WEN'S VISIT TO HANOI: TRADE TAKES THE FRONT
SEAT

REFTELS: A) Hanoi 2745; B) Hanoi 2795; C) Beijing 15482 ; D)

Beijing 17091


1. (SBU) Summary: Chinese Premier Wen Jiabao's first
official visit to Vietnam yielded a number of agreements in
the trade and development areas and a renewed commitment to
make progress in demarcating the two countries' land border.
Considerable daylight still remains between the two sides on
the Spratlys territorial issue, with Vietnam refusing to
accept China's invitation to join the PRC and the
Philippines in a joint exploration project. End Summary.


2. (U) Chinese Premier Wen Jiabao's first official visit to
Hanoi, which preceded his participation in the October 8-9
ASEM-5 summit, focused mainly on trade and development
issues, with territorial and border matters taking a back
seat, according to our Vietnamese and Chinese contacts. Wen
met separately October 7 with State President Tran Duc
Luong, Prime Minister Phan Van Khai and Communist Party
General Secretary Nong Duc Manh. Among the agreements and
memoranda of understanding signed during Wen's visit were:

- an agreement on (unspecified) economic and technical
cooperation;
- an MOU on the construction of a fertilizer plant and an
agreement on the improvement of rail lines in northern
Vietnam;
- agreements on food hygiene cooperation and a protocol
on plant and border quarantine procedures;
- an agreement establishing working groups to implement
new China-Vietnam economic corridors; and
- a "note of exchange" on Vietnam's "inapplication (sic)
of three disadvantageous terms that China accepted for its
WTO entry."

ECONOMIC ISSUES -- INCLUDING VIETNAM-CHINA WTO TALKS
-------------- --------------


3. (SBU) Dr. Do Tien Sam, Director of the Government-run
Institute for Chinese Studies, told us that Premier Wen and
Prime Minister Khai had a long discussion about measures to
improve the bilateral economic relationship in order to
bring it up to the level of the political one. The two
sides also sought to expand further bilateral relations to
"balance" them with each country's "other bilateral
relations." According to Nguyen Vinh Quang, Director
General of the Department of Northeast Asia of the Communist
Party's External Affairs Commission, China has been
"frustrated" by the unfavorable comparison of Vietnam-China
economic interaction with that of Vietnam and Taiwan. For
its part, Vietnam hopes to "create the conditions" for
economic relations with China to continue to increase.
However, Vietnam and China, as two countries attempting to
"implement market economies," would have to obey the rules
of the market, Quang said.


4. (SBU) During their meeting, Prime Ministers Wen and Khai
agreed to aim for "free trade by 2010," the China
Institute's Dr. Sam told us. However, in spite of the
progress both sides have made to expand their economic
relationship, Vietnam still has problems with China's
failure to open its market fully, he said. For example,
even when China grants flexibility on terms of trade, it
still requires substantial concessions in response. China
also blocks Vietnamese imports using non-tariff barriers
such as phytosanitary restrictions on produce and local
tariffs on foreign commodities, Sam said.


5. (SBU) On the question of Vietnam's WTO accession, Dr. Sam
said that PM Wen relayed China's support for Vietnam's bid.
However, Chinese support is conditioned on Vietnam's meeting
arduous conditions. Vietnam "knows that it will be
difficult to work with China." Vietnam's Minister of Trade
Truong Dinh Tuyen told his Chinese counterpart that China's
requirements are higher than those of the EU and the United
States. Ultimately, Vietnam is counting on its successful
bilateral negotiations with the United States and EU to
convince China to compromise, Sam explained.


6. (SBU) PRC Embassy Economic Counselor Zhang Chixin
confirmed that, in exchange for China's support for
Vietnam's WTO accession, Vietnam had signed an agreement not
to use three WTO provisions against China once it had
entered the WTO. These provisions are anti-dumping, anti-
subsidy and safeguards on textile imports from China.
TERRITORIAL AND BORDER ISSUES
--------------


7. (SBU) According to Zhou Wenrui, the PRC Embassy's
Political Counselor, PM Khai reiterated in familiar terms
Vietnam's "one-China" policy and "opposition" to Taiwan's
independence. PM Wen and PM Khai also "briefly discussed"
territorial and border issues. Although the land and sea
border disputes between China and Vietnam have been
"resolved," both sides exchanged views on implementing the
June border agreement, which includes demarcation issues
such as placing border markers. Zhou expressed confidence
that this issue would continue to be a "positive area of
cooperation" between the two sides. The China Institute's
Dr. Sam was less sanguine, however. Local Chinese officials
and residents close to the frontier continue to cause
difficulties, such as by cultivating land and moving graves
in territory Vietnam considers to be on its side of the
border. "Vietnam has tried to complete the demarcation
project, but some Chinese 'acts' continue to frustrate
progress," Sam said. According to the Communist Party's
Quang, only five to ten percent of the border markers have
been placed, and Vietnam expects the process to take at
least five more years.


8. (SBU) The dispute surrounding the Spratly Islands remains
the most contentious territorial issue, both our Vietnamese
and Chinese interlocutors agreed. According to the PRC
Embassy's Zhou, China acknowledges Vietnam's "concerns"
about the issue, in particular those related to China's
recent agreement with the Philippines to explore jointly a
disputed area. During his Hanoi visit, PM Wen had expressed
his country's desire to have Vietnam join the two countries
in this endeavor, but Vietnam had refused, Zhou said.


9. (SBU) Vietnamese Vice Foreign Minister Nguyen Phu Binh
related to the Ambassador that Prime Minister Khai had told
PM Wen that China's actions were in violation of the South
China Sea Declaration of Conduct and ran contrary to a
separate PRC-Vietnam agreement on the issue. PM Khai called
on his counterpart not to implement the deal with the
Philippines. PM Wen had responded that China's joint
exploration agreement with the Philippines did not
contravene the Declaration of Conduct and "does not affect
the national interests of Vietnam," Binh said. China
invited Vietnam to join the China-Philippines project, but
PM Khai responded that Vietnam does not share China's view.
Vietnam believes that any and all agreements related to the
disputed territory have to involve all the claimants and not
just a select few, Binh continued. Were Vietnam to join, it
would send the message to the region that Vietnam sought to
cut its own deals. Ultimately, however, Vietnam wants to
"maintain good relations" with China and does not want to
"add to bilateral tensions," Binh concluded.

VISIT EXCEEDS EXPECTATIONS; VIETNAM INVITES HU JINTAO
-------------- --------------


10. (SBU) Apparently, pre-ASEM logistical and administrative
concerns shared with us by our EU and Japanese colleagues
knew no ideological bounds. According to the PRC Embassy's
Zhou, who was control officer for the Wen visit, the PRC
Embassy was "very worried" about whether Vietnam would be
able to pull off a successful visit. However, although
there were some "minor" problems, Wen's bilateral visit and
the overall ASEM summit went off without a hitch, Zhou said.
As for future high-level visits to Hanoi, Party General
Secretary Nong Duc Manh extended an invitation to PRC

SIPDIS
President Hu Jintao to visit Hanoi, but there are no firm
dates on the horizon, Zhou said.

COMMENT
--------------


11. (SBU) Although Taiwan came up only briefly during Wen's
visit, the island looms large in China's and Vietnam's
desire to raise the level of the economic relationship to
that of the political one. Vietnam's trade and investment
ties with Taiwan are booming, and there is the perception
here that economic relations with Taiwan -- especially
Taiwanese investment -- are among the most advantageous that
Vietnam enjoys. In contrast, there is also increasingly the
feeling here that, in spite of China's proximity and size,
it is doing much less for Vietnam than it could. That
feeling contrasts uncomfortably with Vietnam's close
political and ideological ties with Beijing.


12. (SBU) Comment, continued: The contradiction between the
robust economic relationship with Taiwan and the political
rejection of Taipei that are a sine qua non of the
relationship with Beijing are troubling to Vietnam's
leadership. Both Beijing and Hanoi recognize that the best
way to change this dynamic is to improve bilateral economic
relations, and this is driving the efforts to break down
barriers to trade. In spite of these efforts, however,
neither China nor Vietnam intends to roll over on the
sensitive issues related to Vietnam's WTO bid, and we can
expect continued heated discussions as the deadline
approaches.


13. (SBU) Comment, continued: While press accounts of the
Wen visit refer to an agreement in which Vietnam pledges not
to use three WTO provisions, our GVN counterparts have
declined to confirm this or provide a copy of the document.
We find it surprising that the GVN would have signed a
binding agreement at this point unless the bilateral
negotiations between Vietnam and China had closed out, and
our Chinese and Vietnamese interlocutors confirm that
negotiations are ongoing. We should know more after the WTO
United States-Vietnam market access accession negotiations
in Washington the week of October 25. End Comment.
MARINE