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2005-09-12 10:57:00
Embassy Hanoi
Cable title:  

Run-Up to WTO Working Party: Summary of Major U.S.

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						UNCLAS SECTION 01 OF 05 HANOI 002377 




E.O. 12958: N/A
SUBJECT: Run-Up to WTO Working Party: Summary of Major U.S.
Business Concerns







E.O. 12958: N/A
SUBJECT: Run-Up to WTO Working Party: Summary of Major U.S.
Business Concerns



1. (SBU) Summary: Summarized below for the convenience of
our WTO negotiators are a variety of concerns expressed by
U.S. businesses in Vietnam. Most of the complaints focus on
trading and distribution issues, including flaws in
implementing decrees or draft decrees, the need for greater
rights than provided in the BTA, and grandfathering rights
under investment licenses. Businesses are also concerned
about perceived flaws in pending WTO-related legislation,
especially the investment and IPR laws. Finally, there are
worries about the GVN's very restrictive interpretation of
legal rights, excessive red tape, and, in one case, alleged
harassment by GVN authorities.

2. (SBU) The U.S. Mission has gathered information from
many U.S. businesses in Vietnam about lagging implementation
of the U.S.-Vietnam Bilateral Trade Agreement (BTA). We
have also heard about concerns that they hope will be
addressed in WTO negotiations. While some of these issues
have already been reported, others are new and we summarize
them here in an effort to compile a complete list.

Trading and Distribution Rights

3. (SBU) Exercising BTA rights: The Vietnamese Government
(GVN) has not yet issued implementing decrees to give U.S.
companies the trading and distribution rights to which they
are entitled under the BTA, but in the interim they have
assured us in a diplomatic note that they would implement
these commitments and provided a point of contact in the
Ministry of Trade (MOT). Although initially several U.S.
companies reported difficulty in reaching the point of
contact, the system is now operating. However, since this
diplomatic note was sent no U.S. company has obtained a
general license. Colgate-Palmolive was granted licenses
only for specific shipments. MOT told Colgate that only
companies with "substantial" production and manufacturing
activities, which it defines as involving over $40 million

in investment, are entitled to general trading and
distribution rights. (Note: Colgate-Palmolive has $40
million in investment capital registered; we are checking on
the GVN criterion. End note.) Carrier Air Conditioning's
application was rejected on the grounds that it was
registered as a Singapore company. Although the issue is
unclear, according to one lawyer, foreign registered
subsidies of U.S. companies ought to be covered. Cargill
also inquired, but said that the MOT seemed unclear about
its rights. However, Cargill was not interested in trading
and distributing via a joint venture with only 49 percent

4. (SBU) Extending BTA rights: Ford and V-Trac
(Caterpillar) also applied for trading and distribution
licenses, but were rejected; reportedly because, under the
BTA, Vietnam is not yet obligated to provide such rights for
automobiles and parts. Ford would like to import some
completely built cars to maintain a varied product line
while rationalizing its domestic production and achieving
economies of scale in Vietnam and other nearby countries.
Ford is coping with a relatively small market in Vietnam and
the prospect of cheaper imports, including "grey" market
Fords (i.e., brought in by Vietnamese traders who have no
connection with Ford and offer no warranties), from the
ASEAN free trade area. Ford will face more pressure if, as
part of the WTO accession process, auto tariffs fall and
restrictions on the importation of used cars are lifted.
Without trading rights (distribution is currently handled
through Vietnamese partners), Ford may have to pull out of
Vietnam. GE has also complained that its lack of
distribution rights means that it must use a Vietnamese firm
to distribute its medical equipment, raising the cost of
operating in Vietnam.

5. (SBU) Draft decrees unclear: New draft decrees on
trading and distribution rights contain unclear language
that could lead to conflicts between the Ministries of
Planning and Investment (MPI) and of Trade (MOT) as to
whether an investor can acquire distribution rights by
amending its investment license from MPI or whether it needs
to obtain a separate license from MOT or to do both.

6. (SBU) Franchising: Lawyers who have examined drafts of
the decree on franchising have expressed concern that each
branch of a franchise would have to register individually,
with burdensome and repetitive documentary requirements.
They have also expressed some concern over a potential
conflict between MOT and the Ministry of Science and
Technology (MOST) over which ministry would be responsible
for issuing licenses. The most recent draft of which we are
aware appears to give that responsibility to MOT.

7. (SBU) Multilevel marketing: The decree provides that
"Foreign individuals or overseas Vietnamese who reside in
foreign countries and do not have a work permit issued by a
relevant authority in Vietnam" may not participate in
multilevel marketing activities. Reportedly, MOT has
interpreted this provision to mean that U.S. companies
cannot hold even a 49 percent share in multilevel marketing
companies, although the BTA allows U.S. firms to hold a 49
percent share in distribution companies after December 2004.
The Head of MOT's legal Department recently told Fred Burke
privately that no foreign firm would be permitted to engage
in multilevel marketing. According to Burke, a lawyer with
Baker and MacKenzie, the Vietnamese interpret multilevel
marketing not as a way to distribute a service, but as a
different service and therefore not covered by the
provisions of the BTA. Another concern expressed by
analysts of the laws is that the procedures and paperwork
required for obtaining a multilevel marketing license will
be very burdensome.


8. (SBU) The Vietnamese have found some creative ways to
limit the rights of service providers under the BTA. U.S.
law firms are allowed under the BTA to provide legal
services although U.S. lawyers are not allowed to appear in
court and only lawyers trained in Vietnam may advise on
Vietnamese law. However, Vietnam has now issued a decree
distinguishing between lawyers and barristers and forbidding
barristers from working for foreign law firms. So now a
U.S. law firm cannot conduct litigation by hiring Vietnamese
partners to represent them in court.

9. (SBU) Financial Services: On the critical issue of
branching, it appears that Vietnamese banks are racing to
set up their branch networks in advance of any WTO deal that
might allow more foreign branches. According to one joint
stock bank president, there was to be an increase in the
capital requirement for Vietnamese banks in the summer.
Vietnamese banks would then have a network with no capital
requirements. Also illustrative is a comment by a foreign
banker whose firm recently purchased part of a joint stock
bank that his firm's strategy was to benefit from being
inside of the domestic banking sector for such issues as
branching, ATM access, and easier approvals of new products
and services.

10. (SBU) Telecommunications: In the telecom sector, the
limitation on U.S. majority ownership continues to make
Vietnam unattractive to U.S. investors. A foreign firm
whose ten-year profitable Business Cooperation Contract has
just ended in Vietnam expressed frustration with this
investment vehicle and emphasized the need for majority
ownership in telecom. His firm is considering buying equity
in its former partner once it is equitized. The same firm
noted that restrictions on distribution prevent it from
selling prepaid phone cards, which account for 80 percent of
Vietnam's mobile telephone market. On signal piracy, the
Ministry of Posts and Telematics has taken note of the
issue. The Cable Association in Asia has taken up the
signal piracy issue and plans a visit to Hanoi this fall to
pursue it. HBO launched its channels through cable in
Vietnam this week and remarked that HBO and others in the
industry were reluctant to put anything into Vietnam because
of the dominance by pirates.

Investment Law

11. (SBU) A number of foreign experts have expressed strong
concern about the proposed new investment law. Several
years ago, the GVN eased the requirements for domestic firms
to start new businesses, changing from a licensing procedure
involving scrutiny and review by government authorities to a
simple registration procedure, except in sensitive sectors.
Foreign firms still have to undergo the more complicated
licensing procedure. The new Investment and Enterprise Laws
would equalize legal conditions for domestic and foreign
firms by re-imposing strict licensing requirements on
domestic firms. One lawyer believes that the Investment Law
language could be interpreted to require a firm to obtain a
license for each and every new investment, a major step
backwards. In the rush to pass WTO-related legislation,
some observers fear that there may not be time to fix all
the problems with the law.


12. (SBU) Both legislation and enforcement continue to be
inadequate. A representative of the Business Software
Alliance told Econoff that the latest draft of the IPR law
was an improvement, but is still far from meeting
international norms. He urged the USG to stress the
importance of getting the IPR legislation right. An
Annheuser-Busch representative was concerned about a
provision on protection of trademark holder's rights against
a later filed geographic indication, but indicated that he
believes that the issue may be resolved in the latest draft.

General Concerns

13. (SBU) Red tape: Many of the new laws, including those
mentioned above, also impose burdensome registration, review
or licensing provisions. For example, the GVN now proposes
to reintroduce a requirement for representative offices to
reregister every year, instead of every three years. Under
the Competition Law, every contract by a company with more
than 30 percent market share that contains one of a number
of potentially suspect terms and every merger that might
result in a company with more than a 30 percent market share
must be reviewed at the ministerial level. The MOT has the
responsibility for many of these new licensing or
registering requirements, but lacks the institutional
capacity to review a large number of applications quickly
and efficiently.

14. (SBU) Strict interpretation: A number of American
companies and lawyers report being told by government
contacts that, particularly during the current period of WTO
negotiations, the Government is doing no more than is
necessary under the narrowest possible interpretation of the
BTA and other laws.

15. (SBU) For example, according to Baker and Mackenzie
lawyer Fred Burke, the MOT takes the position that since
Annex G of the BTA only refers to "joint ventures and
enterprises with 100 percent foreign owned capital," which
are provided for under the Law on Foreign Investment, U.S.
companies can only operate as those two forms of
organizations. However, in 2006, the GVN plans to eliminate
the Law on Foreign Investments, and the new Unified
Enterprise Law does not provide for joint ventures or
enterprises with 100 percent foreign owned capital. If the
MOT persists in this interpretation, U.S. companies could be
left without any legal basis to obtain their rights. Burke
suggests that the best way to fix this problem for BTA
purposes would be amend Annex G to include other forms of
business enterprises.

16. (SBU) Harassment: One company, Tahitian Noni, a well-
connected Utah-based firm that exports $400 million
annually, has come to us to complain of harassment by GVN
authorities. The company distributes its U.S.-manufactured
products via a Vietnamese partner, Noni Vina, through
multilevel marketing. In late spring, the firm's products
were portrayed as unhealthy by a Vietnamese journalist. For
the past several months, Noni Vina's offices have been under
investigation by a multi-agency GVN team that has been
extremely disruptive of the company's operations. The team
has, inter alia, demanded prior approval of all internal
Noni Vina communications such as newsletters and arbitrarily
disallowed tax deductions for seemingly legitimate expenses.
GVN authorities are threatening not to allow Noni Vina to
deduct the cost of sales commissions and to ban one of
Tahitian Noni's products because it contains slightly less
sodium than listed in its registration documentation.
Either action would put Tahitian Noni out of business in
Vietnam. Tahitian Noni reported a 60 percent drop in
revenues as a result of the situation. The company and its
Vietnamese partner employ about 20 full time personnel and
about 6,000 part time distributors. According to Fred
Burke, other U.S. and foreign direct marketing firms (such
as Forever Living) have also been subjected to similar

17. (SBU) Grandfathering existing trading and distribution
rights: Investment licenses granted to some U.S. companies
may contain provisions that provide rights beyond those
guaranteed by the BTA. However, if companies are compelled
to apply for new licenses, which they must do every time
they change their business operations, they may lose
advantageous provisions of their old licenses. For example,
Otis had trading and distribution rights beyond the rights
provided in the BTA. Some market research companies and
insurance companies have investment licenses allowing them
to have 100 percent foreign ownership, where under the BTA
they are limited to joint ventures. Some U.S. businesses
have argued for "grandfathering" old investment licenses.

18. (SBU) SPS: The Vietnamese firm that will distribute
Estee Lauder cosmetics in Vietnam had to postpone its July
opening as a result of various complications. The greatest
hurdle is an apparent requirement from the Ministry of
Health that each individual product be tested and registered
separately. According to the local representative, there
are 500 products involved so that this would greatly hinder
operations. Another foreign firm that produces and sells
food products in Vietnam has had approval difficulties with
the MOH for some time, but generally works them out through
personal connections. Tahitian Noni (see above) is facing a
threat to ban one of its products because its sodium content
is slightly below the amount listed in its registration

Tariff Issues

19. (SBU) Our FAS representative has brought to our
attention the need to win reductions in the tariff on whey.
This is an important ingredient for both feed and food. The
Vietnamese continue to hold out for a 20 percent final bound
tariff, whereas the United States is asking for a 5 percent
final tariff. Vietnam has a growing dairy industry but will
continue to fall far short of fulfilling its dairy needs
domestically. Nonetheless, the Vietnamese industry wants to
maintain a high tariff to keep domestic prices high. Given
the structure of the U.S. industry, whey is an important
U.S. export. Lower tariffs are also in the interest of
Vietnam's livestock and food manufacturing sectors, as they
need cheap access to this important ingredient. Rapidly
developing the livestock sector with lower whey tariffs
would help boost U.S. exports of corn, soybeans and other
feed ingredients.