VIETNAM: THE DEPUTY SECRETARY'S CALL ON THE

UNCLAS SECTION 01 OF 03 HANOI 001172 SIPDIS SENSITIVE STATE FOR THE DEPUTY SECRETARY STATE FOR EAP/BCLTV AND EB/TPP/BTA/ANA JBELLER STATE PASS USTR FOR EBRYAN AND GHICKS USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO TREASURY FOR OASIA E.O. 12958: N/A TAGS: ETRD EINV PREL PGOV SENV TBIO VM WTRO AFLU HIV AIDS WTO BTA ETMIN SOE SUBJECT: VIETNAM: THE DEPUTY SECRETARY'S CALL ON THE MINISTER OF PLANNING AND INVESTMENT Sensitive but unclassified protect accordingly. ¶1. (SBU) Summary and Introduction: On May 5, Deputy Secretary Robert Zoellick met with Minister of Planning and SIPDIS Investment Vo Hong Phuc. The Deputy Secretary advocated in favor of broadening the U.S.-Vietnam relationship. He identified HIV/AIDs and education as areas of good collaboration, expressed interest in working more closely on avian influenza, and noted that progress on adoptions and human rights is important to Americans. The Deputy Secretary voiced concern about taxes levied on the auto SIPDIS sector. He expressed strong support for Vietnam's WTO accession and noted the close relationship between accession and Vietnam's overall economic reform agenda. ¶2. (SBU) Minister Phuc stated that advancing bilateral relations with the United States is a priority for Vietnam and noted that the Government of Vietnam (GVN) believes there is great potential to expand trade and investment. He explained that Vietnam is phasing out investment licensing, working to create a level playing field for domestic and foreign investors and considering changes to its auto tax policy. He said that Vietnam's next five-year plan will seek to balance strengthening GDP growth, extending economic opportunities to disadvantaged groups and ethnic minorities, and attracting more foreign direct investment. He asked the United States to support strongly Vietnam's goal of accession to the WTO in 2005 within the framework established in the U.S.-Vietnam Bilateral Trade Agreement (BTA). ¶3. (U) The U.S. delegation included Ambassador Marine, D Executive Assistant Ross Wilson, EAP DAS Marie Huhtala, Deputy Spokesperson Adam Ereli, and D Special Assistant Chris Castro. The Vietnamese delegation included Assistant Foreign Minister Nguyen Duc Hung and the Ministry of Planning and Investment's Foreign Investment Agency Director Phan Huu Thang. End Summary and Introduction. Broadening the Relationship -------------- ¶4. (SBU) The Deputy Secretary explained to Minister Phuc that he came to the region at the start of the second Bush administration to meet with U.S. partners and assess the region's priorities. The United States has a full agenda with Vietnam; the U.S. Government appreciates the GVN's efforts to prepare for the Prime Minister's visit to Washington this summer and recognizes the importance of marking the tenth anniversary of the normalization of relations between the two countries. As Vietnam approaches its Tenth Party Congress, the GVN will need to make decisions that will set its direction for the future. The United States wants to build the foundation for a broader relationship with Vietnam, one that will enable us to deepen our dialogue on regional and global political, economic and security issues. ¶5. (SBU) The Deputy Secretary noted that Vietnam has made substantial progress in improving its business and investment environment. The more Vietnam emphasizes the rule of law and transparency and establishes clear regulations, the more comfortable companies will be about doing business in Vietnam. U.S.-Vietnam trade has already experienced significant growth under the BTA. Now the two sides need to address some services sectors as part of BTA follow-through and Vietnam's WTO accession process. The Deputy Secretary expressed pleasure that Vietnam has made progress on the issuance of insurance licenses to U.S. companies. He added, however, that developing countries like Vietnam need to move beyond issuing individual licenses and look at a larger, more modern framework for development. In the United States, investors do not need a license to invest because the U.S. Government believes it is better for the economy to let in more companies and increase competition in the market. With respect to the auto sector, the Deputy Secretary noted that U.S. companies remain concerned about increases in taxes and tariffs applied to the auto kits that are imported for assembly in Vietnam. They see these as a disincentive for doing business in Vietnam. The Deputy Secretary acknowledged the GVN's concern about road safety issues and highlighted efforts companies like Ford are making to help address the safety issue and support the overall development of the auto sector. ¶6. (SBU) The Deputy Secretary also identified HIV/AIDs and education as areas of good cooperation between the United States and Vietnam. Vietnam is one of the countries benefiting from the President's Emergency Plan for AIDs Relief, and the Fulbright program includes more students from Vietnam than any other country in the world. There has also been good progress on religious freedom and MIA/POW cases. The Deputy Secretary expressed an interest in expanding cooperation in areas such as avian influenza. He also noted that progress on adoptions and human rights are important to average Americans and can set the stage for further expansion in the relationship. ¶7. (SBU) Minister Phuc emphasized that improvement of bilateral relations with the United States is a GVN priority. The GVN believes there is great potential to expand both trade and investment relations with the United States. The Ministry of Planning and Investment (MPI) is working closely with other GVN agencies to prepare for the Prime Minister's trip to the United States. Minister Phuc expressed appreciation for U.S. assistance to Vietnamese NGOs, particularly in the area of HIV/AIDs, and noted that Vietnam needs help from the international community to deal with the problems posed by avian influenza. ¶8. (SBU) Minister Phuc noted that the United States is Vietnam's eleventh largest investor, adding that it is the sixth largest if investment through third countries is included. Vietnam is working to open many areas to foreign investment. The GVN just issued licenses to New York Life to provide insurance services and Lemna International to build a solid waste treatment complex in Ho Chi Minh City. Issuance of these licenses is indicative of Vietnam's interest in attracting investment from the United States. The Minister stated the GVN's intention to gradually eliminate the system of licensing, but noted that Vietnam's transition economy needs to use a roadmap for liberalization of its market. ¶9. (SBU) Minister Phuc explained that the GVN is currently discussing the auto sector development with firms representing three of its major partners: Germany, Japan and the United States. The GVN will take note of these companies' concerns, consider proposals and, if necessary, make changes to the regulations governing the special consumption tax (SCT). Vietnam needs to consider developing infrastructure to accommodate the growing number of vehicles on the road. The most important issue is to ensure that the SCT is applied on an equal basis for all of Vietnam's partners. Minister Phuc promised to consider the importance the United States attaches to a more open market when the GVN amends its law. The Next Five-Year Plan -------------- ¶10. (SBU) Minister Phuc informed the Deputy Secretary that Vietnam is in the process of formulating a new five-year development plan. The GVN hopes to increase annual GDP growth from its current 7.5 percent to 8 to 8.5 percent for the next five years. To that end, Vietnam must be more aggressive in pursuing the reforms of the Doi Moi ("renovation") reform policy. The GVN is drafting a new investment law and a new enterprise law that will create a level playing field for both domestic and foreign investment. However, there are some areas Vietnam will continue to protect in conformity with its BTA and WTO commitments. Vietnam also plans to push forward with the reform of state-owned enterprises (SOE). SOE reform has created great momentum in the past and Vietnam is on the right track, the Minister asserted. ¶11. (SBU) The new five-year plan will also pay greater attention to development of the private sector, which has been an engine of growth for Vietnam, Minister Phuc said. In the first four months of 2005, the private sector grew 24 percent, a rate unmatched elsewhere in the economy. The GVN also plans to focus on attracting additional foreign direct investment (FDI),particularly from key partners such as the United States, the EU and Japan. To do this, the GVN understands it needs to ensure macroeconomic stability and build a complete legal system. Vietnam hopes to join the WTO by the end of this year and hopes the United States will support its efforts. ¶12. (SBU) A strong social agenda is as important as economic progress, Minister Phuc said. Vietnam must build on the success it has had in reducing poverty during the last five years. The GVN needs to pay special attention to disadvantaged groups and ethnic minorities living in rural and mountainous areas in the northern highlands, the Central Highlands, the central part of Vietnam and Khmer areas in the south. Vietnam wants to have a fair society that promotes equal development for all segments of the population and all regions. In the next five-year plan, the GVN will prioritize resource development, social welfare, security, nationality and religion. Administrative reform, combating corruption, transparency and democracy will also be key elements of the plan. Unlike in the past, the next five-year plan will be "open for discussion." The GVN will host conferences and solicit input from enterprises and the international community as it develops the plan. WTO Accession -------------- ¶13. (SBU) The Deputy Secretary said that the U.S. Government strongly supports Vietnam's WTO accession and wants to work with the GVN to bring Vietnam into the WTO as soon as possible. The Deputy Secretary pointed out the connection between development of Vietnam's five-year plan and its WTO accession. As Vietnam changes its laws to meet the requirements for WTO, it will also create the framework of Vietnam's future economy. The GVN needs to revise 89 legal documents to comply with WTO regulations. Members of the WTO Working Party (WP) have made clear that as the GVN moves ahead to revise its legislation, WP members want to review the draft changes to assess their compliance with WTO regulations. ¶14. (SBU) The Deputy Secretary explained that to join the WTO, a country must not only meet multilateral rules but also negotiate bilateral agreements with WTO members. He highlighted the services sector. According to the World Bank, services represent more than half the GDP of developing countries like Vietnam and about two-thirds the GDP of countries like the United States. The efficiency of the services sector also impacts other sectors like manufacturing and agriculture. Financial services are important to spurring investment flows in and out of Vietnam. Efficient telecommunications services are essential to enable Vietnam to intersect with the global economy. Expanded distribution services will help to plug Vietnam into the global sourcing networks and advance firms' ability to bring goods in and out of the country. Other important services sectors include energy and audio-visual. ¶15. (SBU) On the multilateral side, the Deputy Secretary said, WP members have highlighted trading rights, subsidies and state trading as priority areas that Vietnam will need to address as part of its accession. Trading rights, which govern enterprises' ability to move goods in and out of the country freely, can impact competition, lower inflation and open up the trading system. The use of prohibited subsidies impacts Vietnam's budget and its efforts to increase the competitiveness of the economy. While state-trading enterprises are not prohibited by the WTO, they must operate on the basis of commercial principles and fair competition. ¶16. (SBU) Minister Phuc acknowledged the importance of the services sector to Vietnam's economic development and agreed that Vietnam needs to open the sector more. He noted that Vietnam has committed to do this under the BTA and urged the United States to look at Vietnam's WTO accession in the BTA framework. He added that Vietnam also hopes to negotiate its accession with other WTO members on this basis. ¶17. (U) This cable was cleared by D Staff. BOARDMAN