UNCLAS SECTION 01 OF 04 HANOI 003092

SIPDIS

STATE FOR EAP/MLS AND EB/TPP/BTA/ANA GOODMAN AND WICKMAN
STATE PASS USTR ELENA BRYAN
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
USDOC FOR 4430/DBISBEE/JBENDER

SENSITIVE

E.O. 12958: N/A
TAGS: ETRD EINV VM WTRO IPROP BTA SOE WTO
SUBJECT: DEPUTY SECRETARY OF COMMERCE'S ECONOMIC ROUNDTABLE

SENSITIVE. Do not post on the Internet.


1. (SBU) Influential Government of Vietnam (GVN) advisors
offered their views on current economic and reform issues in
a roundtable discussion with visiting Deputy Secretary of
Commerce David A. Sampson on November 18. The roundtable
focused on Vietnam's investment climate, intellectual
property rights (IPR), and good governance/transparency.
Participants stated that the U.S.-Vietnam Bilateral Trade
Agreement (BTA) had contributed significantly to economic
growth, and identified implementation problems as a barrier
to improving the investment climate. Lack of capacity
remains the greatest problem in IPR protection
implementation, though price pressures also contribute to
demand for pirated goods. Good governance/transparency are
central to all reform and continued economic development,
the participants agreed.


2. (SBU) Deputy Secretary of Commerce David A. Sampson heard
from influential advisors to the Government of Vietnam (GVN)
at an economic roundtable moderated by Ambassador Marine on
November 18. A full list of participants follows in
paragraphs 20 and 21. The DepSec welcomed the attendees and
said he would like to focus the discussion on three topics:
the investment climate, intellectual property rights (IPR)
and good governance/transparency.

Investment Climate and BTA Implementation
--------------


3. (SBU) Noting that Vietnam's record of trade expansion has
been impressive, the DepSec said that it is important for
Vietnam to move forward with economic reforms, including
those under the U.S.-Vietnam Bilateral Trade Agreement (BTA)
and World Trade Organization (WTO) in order to maintain the
pace of economic growth. U.S. companies are eager to do
business in Vietnam, but are waiting to see how the current
group of investors fares before making decisions to expand
or enter the market, he added.


4. (SBU) Senior Advisor to the Prime Minister Ms. Pham Chi

Lan stated that there has been significant improvement in
Vietnam's investment climate in the past several years. The
GVN has sought to provide a level playing field for the
private and state-owned sectors, and domestic and foreign-
invested enterprises by submitting the Common Investment Law
(CIL) and the Enterprise Law for consideration by the
National Assembly. The GVN gave very serious consideration
to all suggestions for revisions to the CIL submitted in a
joint letter authored by the American, Australian and
European Union Chambers of Commerce in Vietnam, and although
business has criticized the latest draft of the CIL, the
draft is far better because of their input. The inclusion
of guarantees for international dispute settlement
demonstrates that the GVN listens to business and citizens
before making a final decision, Lan concluded.


5. (SBU) Senior Advisor to the Minister of Planning and
Investment Le Dang Doanh said that the BTA has led to a
number of important reforms. The main problem now is
implementation, especially at the provincial level. There
is need to train provincial professionals and local
authorities, as highlighted by the Provincial
Competitiveness Study done by USAID. The second problem is
the high cost to business in both time and money due to
market dominance by monopolies, though this is starting to
improve. Competition is beginning in civil aviation, for
example. Doanh cited the need for improving labor force
training at the university and vocational levels, and asked
the DOC to provide assistance with vocational training.


6. (SBU) Vu Quoc Huy of the Institute for Economic
Development Studies (IEDS) at the National Economics
University (NEU) agreed that the BTA experience has been
positive for Vietnam. It provided impetus for reforms, and
resulted in capacity building and increased participation
among non-government stakeholders. Additionally, the GVN
was able to apply the lessons learned from the catfish and
shrimp disputes with the United States to the EU shoe
dumping case.


7. (SBU) Director of the Center for Economic Development
(CED) at Vietnam National University (VNU) Phung Xuan Nha
said that since the GVN's policies to improve the business
environment come from a government perspective, they may
often be at odds with what the private sector actually
needs. Although there have been increased opportunities for
the private sector to provide input, in practice much
confusion remains among investors. For example, while there
have been extensive discussions about the need to improve
competition, concrete measures have yet to be implemented.
Implementing policy at the local level remains a challenge
for the Central Government.


8. (SBU) Deputy Dean of the Department for Scientific
Research at the National Economics University Pham Hong
Chuong said that Vietnam is facing many dilemmas. The
government and private sector want different things. The GVN
is interested in maintaining a strong public sector, even
though SOEs are one-third as efficient as the private
sector. Equitized SOEs in which the government retains 51
percent of the shares continue to be SOEs, he pointed out.
The GVN has chosen to develop the hi-tech sector with
disregard to the fact that Vietnam lacks a number of
conditions, including marketing experience, human resources
and investment, that are necessary to the success of IT
ventures. The GVN has invested a lot of money into the IT
sector, with little return thus far. Noting that provincial
authorities' limited capacity to evaluate projects makes it
difficult to identify good investments, he called for
assistance in this area.

Intellectual Property Rights Protection
--------------


9. (SBU) The DepSec applauded Vietnam's progress in
strengthening its IPR regime, including the new legislation
being considered by the National Assembly. (Note: the IPR
law passed on November 19. End note.) The DOC's Patent and
Trademark Office (PTO) has provided technical training and
hosting study tours for Vietnam's IPR authorities, and more
of this type of assistance if possible, he said.


10. (SBU) Doanh noted that the structure of the Vietnamese
market is a major problem for implementing IPR protection.
Vietnam's private sector is comprised of SMEs and family
businesses, many of which do not understand IPR issues. In
addition to passing laws, significant resources, including
trained professionals, are needed to implement them.
National Economics University's Chuong added that although
many people realize that IPR protection is necessary,
immediate implementation would drive computer prices beyond
the reach of most Vietnamese, making it difficult to develop
the IT sector.

Good Governance/Transparency
--------------


11. (SBU) The SepDec said that the DOC has launched a number
of programs on good governance and transparency, and has
worked with local public and private sectors to ensure a
level playing field for both domestic and foreign business.
The United States believes that this is fundamental to
attracting investment. The DOC is considering establishing
a program in Southeast Asia, and Vietnam is a good
candidate.


12. (SBU) Doanh welcomed the suggestion of a good governance
and transparency program in Vietnam. He said that SOE
management does not include good governance concepts.
Although an SOE may be equitized, it is not a market-economy
enterprise, as the Party Secretary has full power to appoint
board members. (Note: We believe Doanh is referring to the
power that Party Secretaries exercise informally at all
levels. End note.) He underlined the urgency for reform by
pointing out that while the private sector produces 42
percent of the GDP, it employs 90 percent of the population,
and generates 95 percent of new jobs.


13. (SBU) IEDS/NEU's Vu Quoc Huy said that good governance
is central to all the issues brought up by the DepSec.
Absence of good governance prevents implementation of good
laws. Institutional capacity to carry out reform translates
into employment and investment, he concluded.


14. (SBU) CED/VNU's Nha noted that the quality of government
in Vietnam depends on public policy, which in turn depends
on the quality of education.


OTHER ISSUES
--------------


15. (SBU) The Ambassador commented that although the private
sector is increasingly an engine for economic growth, SOEs
remain strong, and wondered about the percentage of loans
that are going to the private sector. He also asked whether
SOEs are becoming more competitive in preparation for
Vietnam's WTO accession. Finally, noting that China is a
rising economic power, the Ambassador asked to what extent
Vietnam is ready to compete with its neighbor.


16. (SBU) Doanh responded that China's rise has had a
painful economic impact on Vietnam. The GVN's strategy is
to both cooperate and compete with China. It is apparent
that Vietnam cannot compete in some market segments, such as
cheap textiles and apparel. SOEs must reform and integrate
into the global economy, Doanh continued. Vietnam's
experience with the insurance sector demonstrates that SOEs
can compete in a market economy. Since the American
International Group's (AIG) entry, SOEs providing insurance
have a smaller share of the market, but are stronger. SOEs
need to be provided with a roadmap, incentives and pressure
to reform and become more competitive. He said that Vietnam
appreciates the U.S. presence in Southeast Asia for security
and stability reasons, adding that without it China's rise
may have been more conflict ridden.


17. (SBU) Lan commented that Vietnam's leadership
understands that SOEs are a burden on the budget, and this
is providing impetus for the government to push for further
reform. The New Enterprise Law that is being considered by
the National Assembly would give SOEs a four-year window to
become more competitive. Most SOEs know that without
reforms, they will not be able to compete once Vietnam
accedes to the WTO. The issue now is that of political
will, as many SOEs still rely heavily on government support.
Lan added that the private sector is growing and good
governance is improving. In her opinion, Vietnam's SOEs
will change significantly in the next five years, or will
fail.


18. (SBU) Doanh said that WTO accession is a vehicle for
reform, as it forces the government to take concrete action.
He asked that the USG help Vietnam's WTO accession, noting
that a strong Vietnam would contribute to peace and
stability in the region. The DepSec replied that the U.S.
Congress would have to pass Permanent Normal Trade Relations
(PNTR) status for Vietnam before the WTO agreement can take
effect, and that U.S. business support is critical.
Therefore, the WTO accession package must be commercially
sound. He also noted that next year is an election year,
and Congress will be on an abbreviated schedule. Doanh also
commented that WTO accession is important for Vietnam as
APEC chair next year. Lan added that if Vietnam is to
compete with China, it is important that Vietnam have a seat
at the WTO.

"AN ENCOURAGING MEETING"
--------------


19. (SBU) The DepSec commented that the roundtable was one
of the most encouraging meetings he had had in his nine-day
visit to China and Vietnam. He said he was particularly
impressed with the participants' strategic overview of the
challenges that lie ahead. His previous responsibility for
domestic development made him appreciate that not all
regions are equally ready to receive investment, and that
governments must be prepared to support their policy
decisions. Noting that education and training are extremely
important during periods of transition, the DepSec pledged
to talk to the Department of Labor to see if there are
assistance programs similar to those offered by the PTO. He
added that successful development requires sustaining a
direction for decades, and to accomplish this there must be
consensus between government and the private sector. The
DepSec concluded that there was strong consensus between the
roundtable participants that good governance was an area
needing particular focus and one that offered opportunities
for collaboration between the Department of Commerce, the
roundtable participants and Vietnamese Government entities.


20. (SBU) Vietnamese List of participants:
Pham Chi Lan, Senior Advisor to the Prime Minister
Le Dan Doanh, Senior Advisor to the Minister of Planning and
Investment
Vu Quoc Huy, Institute for Economic and Development Studies,
National Economics University
Phung Xuan Nha, Director of the Center for Economic
Development, Vietnam National University
Pham Hong Chuong, Deputy Dean of the Department for
Scientific Research, National Economics University


21. (SBU) U.S. List of participants:
DepSec David A. Sampson, Department of Commerce
Ambassador Michael Marine
Aimee Strudwick, Chief of Staff
Miguel Pardo de Zela, Commercial Counselor
John Simmons, Commercial Attache
Tuyet Trees, U.S. Commercial Service
Ania Burczynska, Economic Officer (notetaker)

MARINE