UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000226

SIPDIS

SENSITIVE

State pass to USTR Elena Bryan
USDOC for LASHLEY and 4431/MAC/AP/OPB/VLC/HPPHO

E.O. 12958: N/A
TAGS: VM ECON EPET ETRD KTEX OREP BTA
SUBJECT: AMERICAN BUSINESS REPS IN HO CHI MINH CITY LOVE BTA, HATE
U.S. ANTIDUMPING AND QUOTAS


Summary and Introduction
--------------

1. (SBU) During his visit to Ho Chi Minh City on February 17-18,
Staff Director for the Senate Appropriations Committee James
Morhard met a group of American businesspeople resident in Ho Chi
Minh City. They reviewed their challenges and successes here in
Vietnam and raised concerns about the future of the U.S.-Vietnam
trade relationship. They argued that anti-dumping cases for
frozen fish fillets and now shrimp, as well as textile quotas,
were limiting Vietnam's growth. This growth, they said, is
crucial to the success of their businesses here. They also
expressed concern about potential Vietnamese disenchantment with
the U.S., if ordinary Vietnamese citizens continue to feel the
level playing field disappears as soon as they are successful in
penetrating the U.S. market.

American Businessmen "Quite Concerned"
--------------

2. (SBU) An American banker who for the last 5 years has run the
operations of a large non-American bank in Vietnam stated he was
"quite concerned" about the U.S. -Vietnam relationship. He
characterized the decision of Vietnam's leadership to participate
in the world economy as "fragile." This fragility is aggravated
by U.S. actions that limit Vietnam's economic growth, he said.
The U.S. is Vietnam's biggest customer, and one of its largest
trading partners, but GVN leadership has "egg on its face" as it
has to deal with textile quotas and antidumping cases on frozen
fish fillets and now shrimp. This banker stated that many in the
leadership were "trying to do the right thing" in opening up the
country and the economy, but that it would not happen without help
from the U.S. He also stressed that trade and investment would
aid Vietnam in its reform process and cultivate a possible,
valuable U.S. ally for the future.


3. (SBU) Another American businessman, who has been in Vietnam
for more than 10 years and has held several leadership roles in

the expatriate business community here, took the argument further.
He claimed the U.S. had led Vietnam "down the garden path." After
promoting the benefits of opening up the economy and trading with
the United States, he was disappointed that Vietnam had been
"ambushed" by U.S. efforts to limit trade in the areas with the
greatest potential growth in the U.S. market - seafood and
textiles. He felt that these disputes helped sour the atmosphere
when U.S. firms such as his own applied for licenses in Vietnam.
He and others were also concerned that ordinary Vietnamese would
become disenchanted with the U.S. if they continue to feel their
successes in the U.S. marketplace will be countered with unfair
treatment and an end to the level playing field they were told
they could expect.

Now the Good News
--------------

4. (U) Along with the dark clouds, the businessmen spoke of the
opportunities and progress that they had seen. One businessman
described the local economy in glowing terms, stating that
ordinary Vietnamese were optimistic and happy because they saw the
dramatic and sustained economic growth over the last few years as
translating into a bright future for their children. He added
that the last six months had seen substantially greater economic
activity -- primarily in HCMC -- than any period during his entire
tenure here. Others agreed. When asked by Mr. Morhard, the
businessmen were very complimentary about the support they had
received from the Ambassador and the Consulate General as a whole.


5. (U) Much of this growth in the last couple of years was
attributed to direct trade benefits from the Bilateral Trade
Agreement (BTA), as well as to the indirect benefits of the
improving trade and investment climate that the BTA commitments
foster. One speaker noted that American firms in Ho Chi Minh City
were engaged in "real business," unlike some of the businesses in
neighboring countries, which he characterized as "getting between
foreign aid dollars and their local recipients."

Nike Likes Vietnam
--------------

6. (SBU) The two Nike representatives spoke very positively of
their experience with Vietnam. Nike has, via its contract
factories, a major presence here. The company indirectly employs
about 75,000 workers in 7 contract footwear factories that produce
exclusively for Nike. The company estimates that it is also
responsible for an additional 20,000 employees -- if outside
suppliers to the footwear factories are also included. Nike
considers Vietnam a "learning country," which means it is devoting
considerable resources to develop further sourcing here.
According to Nike, Vietnam has made extraordinary progress
quickly, and can now manufacture high-end shoes that still cannot
be produced in other countries in the region where Nike has had a
longer-term presence. The company is moving toward lean
manufacturing and is working to add skills to its workforce, which
is 80 percent female and sees a turnover of 25-30 percent per
year.


7. (SBU) Last year the company also sourced 1.5 million pieces of
apparel in Vietnam, with 50 percent going to the U.S. The Nike
reps noted that U.S. textile quotas were playing havoc on its
apparel sourcing in Vietnam. Although Nike plans to continue to
develop footwear production here, apparel production is in more
flux depending on whether or not Nike contract factories can get
the quota they need to guarantee the order. Next year it will be
much easier to source from other countries where quota will not be
an issue. Nike reps called the possibility of U.S. quota
reductions, even if small, "a major disruption" to the apparel
business in Vietnam.

So How Do You Define Corruption?
--------------

8. (SBU) All executives acknowledged that corruption was a
problem in Vietnam, although some claimed it was not as bad as in
other countries in the region. The group noted corruption in
Vietnam tends to take the form of many small demands rather than a
need to pay a few very large "gifts." Corruption manifests itself
in different ways in different sectors of the economy. Unocal
noted, for example, that PetroVietnam was not only their
regulator, but also their partner and service provider. This
created tremendous conflicts of interest that the company had to
deal with. On the other hand, the banker stated that his
regulator, the State Bank of Vietnam, was not corrupt. All five
businessmen confirmed it is common practice here for money to
change hands, but noted that they did not do it. Ultimately, this
means everything takes longer to accomplish with the GVN.
However, they agreed it is better not to pay, since "once you give
in, it's over" and you would be hounded repeatedly for money. One
businessman called it "death by a thousand paper cuts." At the
same time, he stated that he had containers stuck in port that
would be cleared quickly if only he was willing to pay a bribe.


9. (SBU) Several of the businessmen asserted that corruption was
not as serious in Vietnam as it was in Indonesia where a few of
them had also worked. Compared to Indonesia, said one
businessman, corruption in Vietnam was "fragmented and petty" and
not as well organized. One person stated that we should not
confuse corruption with bureaucratic sloth and inefficiency,
although the situation is improving.

Unocal's Success Depends on Vietnam's Economic Growth
-------------- --------------

10. (SBU) The director of Unocal's operation in Vietnam described
their production-sharing contract for exploiting offshore gas in
Vietnam waters in the Gulf of Thailand as a longterm investment
still in its early stages. He described Unocal's dealings as more
difficult here than with Thailand where they operate under a
concession arrangement. The gas from the Unocal project will be
sold to the Vietnamese domestic market. For the project to be
economically viable in the long term, Unocal is counting on strong
economic growth to drive domestic demand for power. Lately, he
said, domestic power consumption has been increasing at 17 percent
per year. This exceeds estimates in Unocal's business plan, which
assumes 10-12 percent growth in energy demand per year over the
next several years. The Unocal director stated that this demand
would of course be driven by economic growth, and said the BTA had
thus indirectly benefited the project. It was important for this
growth to continue.


11. (SBU) The Unocal executive compared the business environment
in Vietnam to that of China, where the firm has a small project in
Shanghai. In China, strong economic growth is also driving energy
demand. He felt that working in China, however, was "almost
impossible for a Western company" although the country had opened
-- and eased -- up over the past few years. In Vietnam, like in
China, there is a big issue of trust. He stated that this ties
into the negotiating mentality of his Vietnamese counterparts who
still have a "win-lose mentality" as opposed to a "win-win
mentality." There is currently zero level of trust, he said.

Educating HCMC Officials
--------------

12. (SBU) Morhard and ConGen officers also carried on a free-
wheeling discussion over lunch with three mid-level political and
press/cultural officers from the External Relations Office (ERO -
branch office of the Ministry of Foreign Affairs for southern
Vietnam). Morhard challenged his interlocutors to reconcile
Vietnam's continued reliance on a communist-style political system
with a growing dependence on capitalism. Much of the remainder of
the candid conversation focused on the U.S. electoral system and
the role of special interest groups in the political process. The
exchange gave the ERO participants an excellent opportunity to
learn about the upcoming presidential election and the workings of
democracy at the grassroots level.

Comment
--------------

13. (SBU) While open and direct with their concerns over host
country problems of corruption, inefficiency, and difficult local
partners, the American businesspeople who met with Mr. Morhard
saved most of their worries for USG policy. They made clear the
link between Vietnam's continued opening up to the world, its
continued economic growth, and the success of their own businesses
in Vietnam. Although critical of U.S. trade actions over the past
few months, which these businessmen see as directly threatening
Vietnam's economic growth and the development of the bilateral
relationship, they see the BTA as vital to the dramatic economic
growth and Vietnam's opening up to the world -- which is key to
their own success. In spite of their worries, they are optimistic
about the future here.


13. (U) Mr. Morhard did not have the opportunity to clear this
cable before his departure.

YAMAUCHI