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E.O. 12958: N/A
TAGS: EAID EFIN ETRD ECON PREL VM AFLU HIV AIDS SOE WTO FINREF
SUBJECT: VIETNAM'S 2005 BUSINESS FORUM AND CONSULTATIVE
GROUP MEETINGS


1. Summary: The 2005 Vietnam Business Forum and Vietnam
Consultative Group Meeting took place December 5-7, 2005 in
Hanoi. Minister of Planning and Investment Vo Hong Phuc and
World Bank Country Director for Vietnam Klaus Rohland co-
chaired the meetings, in which a wide range of donors and
Vietnamese Government officials participated. The
Ambassador and Regional Development Mission/Asia USAID
Mission Director Tim Beans co-chaired the U.S. Delegation.
Donors called on the Government to address the spread of
HIV/AIDS, improve its ability to respond to diseases and
other health issues like Avian Influenza, speed up financial
sector and SOE reforms, improve transparency and
accountability, reduce corruption, and improve social and
health services in rural areas. While donors and business
representatives expressed a number of concerns, there was
also broad recognition at the meetings that Vietnam is
maintaining its impressive economic performance while still
dealing effectively with the issues of equitable growth and
poverty alleviation. As Vietnam continues its development,
it will be challenged by a number of issues, including human
resource problems, the fight against corruption, and the
need for growth in capital markets. Donors observed that
addressing these and other problems is critical to Vietnam's
long-term success, especially to its goal of integrating
with the global economy and joining the World Trade
Organization. All of these changes will bear watching.
Past performance is no guarantee of future performance, but
compared to many other developing economies, Vietnam has
demonstrated the capacity and
political will to carry out an aggressive economic reform
agenda. End Summary.

THE VIETNAM BUSINESS FORUM (VBF) - OVERVIEW
--------------


2. (U) On December 5, the Ministry of Planni

ng and
Investment (MPI) and the World Bank hosted the Vietnam
Business Forum (VBF), an event held annually on the margins
of the donor Consultative Group meeting to allow foreign
investors and business associations the opportunity to
discuss investment and economic issues with Vietnamese
officials and international donors. The 2005 VBF focused on
two major topics: improving the investment climate and
developing infrastructure in the power sector,
telecommunications, and ports. By coincidence, this VBF
took place a few weeks after the Vietnamese National
Assembly passed several major laws affecting the investment
climate in Vietnam, including a new Common Investment Law,
Enterprise Law, and Intellectual Property Law (septel).
This VBF also took place during the month Vietnam had
originally hoped to conclude WTO negotiations, making the
discussions on past and future economic reforms particularly
focused and pointed. Deputy Prime Minister Vu Khoan, WB
Country Director Klaus Rohland, MPI Minister Vo Hong Phuc,
and International Finance Corporation (IFC) Country Manager
Sin Foong Wong each presented brief opening remarks
emphasizing the importance of improving Vietnam's business
environment and praising the GVN's efforts to do so, and
then invited the business community representatives to
comment.

VBF: THE INVESTMENT CLIMATE
--------------


3. (U) The most vocal of the business association
representatives present were from Europe, Australia and the
United States. Though each had their own specific concerns,
they all raised the following two issues: 1) the importance
of human resource development to Vietnam's medium- and long-
term economic transition, including better training and
higher education opportunities, and the business community's
willingness to help contribute to strengthening these
resources; and, 2) the need for a more streamlined, user-
friendly investment process that made foreign investors
equal under the law with domestic investors and helped
encourage new foreign investment. Participants all noted
that recently passed legislation and reforms undertaken by
the Government of Vietnam (GVN) were important, but still
not adequate to support healthy, long-term economic
development.


4. (U) After the business representatives concluded their
remarks, the USAID-funded Vietnam Competitiveness Initiative
(VNCI) presented the results of VNCI's evaluation of the 42
most economically developed of each of Vietnam's 64
provinces. The evaluation uses a careful scoring and survey
system to rank each province and city by a specific set of
economic criteria, the results of which illustrate how much
provincial leadership and good governance can positively
affect the investment climate in an individual province.
According to VCCI, Binh Duong Province is the most
competitive province and Ha Tay the least. Hanoi was ranked
fourteenth out of the 42 regions measured and HCMC
seventeenth. More information on the index can be found at
http://www.vnci.org/Xportal/Upload/File/EN_Su mmary_PCI_Distr
i26May.pdf


5. (U) In response to the presentations made by the business
sector and donors, MPI Minister Phuc stressed how quickly
Vietnam has achieved its socio-economic development. With a
projected 2005 GDP growth of 8.4 percent, 4.4 percent
increase in agriculture and forestry industries, 10.7
percent increase in construction, and 8.4 percent increase
in services, Vietnam has made rapid strides in development,
said Phuc. Phuc recognized the important role that foreign
investors play in these achievements, but added that the
GVN's efforts to respond to issues raised at last year's VBF
had also been critical. Specifically, he cited the GVN's
improvements to the legal system and legal infrastructure,
establishment of new capital, real estate, and labor
markets, public administration reform, and integration of
regional and bilateral policies as examples of how the GVN
had improved the business environment in Vietnam.

VBF: INFRASTRUCTURE - THE POWER SECTOR
--------------


6. (U) Following MPI Minister Phuc's remarks on the GVN's
achievements in creating a better environment for
investment, Industry Minister Hoang Trung Hai began his
presentation on the power sector by noting that demand for
power in Vietnam is growing steadily, and will reach 88-93
billion kWh in 2010 and 201-250 billion kWh by 2020. The
GVN has an ambitious plan for hydroelectric, thermoelectric,
gas-fuel and recycled-fuel plant development, which will
require an investment of USD 19.5 billion by 2010. Minister
Hai said that the Government is discussing the future of
Electricity of Vietnam (EVN), as it is clear that GVN's 35
percent equitization opportunity only provoked a limited
response from investors.


7. (U) Representatives from the private sector said that
while the GVN wants to attract foreign investment in the
power sector by establishing joint ventures, businesses do
not see this as an attractive mechanism. The GVN should
consider allowing build-operate-transfer (BOT) investment,
for which a good model exists internationally, or Individual
Power Plants (IPP). Businesses will also continue to seek
Government guarantees as a risk reduction measure as well as
reasonable tariff rates before investing.

VBF: INFRASTRUCTURE - TELECOMMUNICATIONS
--------------


8. (U) The representative from the Ministry of Posts and
Telematics stated that Vietnam will encourage all forms of
investment in the telecommunications sector, including 100
percent foreign-owned firms in the IT sector. Business
representatives commented that they do not see Business
Cooperation Contracts (BCC) as successful ventures, since
the local partner controls the assets and management of the
company. They also voiced concern about one recently
expired BCC, there has been no extension or conversion to a
joint venture, as was required by the agreement.

VBF: INFRASTRUCTURE - PORTS
--------------


9. (U) Vietnam's rapid economic development has put
tremendous strain on the nation's port infrastructure, the
representative of the Ministry of Transportation said. The
Government plans to attract foreign investment to expand the
port system. The draft decrees related to the Maritime Law
do not set ratios for ownership in joint ventures or wharf
size. The Government will also provide port-related
infrastructure outside the facilities. Business
representatives stated that administrative inefficiencies
drive up the cost of Vietnamese ports compared to others in
the region and encouraged the Government to address these
issues.

OVERVIEW: THE CONSULTATIVE GROUP (CG) MEETING AND THE SEDP
-------------- --------------


10. (U) The 2005 Consultative Group (CG) meeting began on
December 6 with opening remarks from MPI Minister Phuc, WB
Country Director Rohland and Deputy Prime Minister (DPM) Vu
Khoan. All emphasized the unique opportunity before the
2005 CG: the chance to discuss and comment on exactly how
Vietnam's 2006-2010 Socio-Economic Development Plan (SEDP)
could be implemented and on what issues it should focus
first. MPI presented the donor community with a draft of
the SEDP in September and solicited suggested revisions.
MPI incorporated many of those suggestions, and used the CG
as a last opportunity to focus on specific areas of concern
to the donor community before a final draft of the SEDP is
prepared and presented to the Government of Vietnam (GVN) in
March 2006. The 2006-2010 SEDP will be voted on by the
National Assembly in May or June 2006.


11. (U) This SEDP is the first five-year plan ever made
public by the GVN, and it is also the first ever to be
presented for comment and review by the donor community.
This act alone is significant, as noted by MPI Minister Phuc
in his introduction. However, since MPI had not yet shared
its revised draft with the donors, the extent to which donor
review affected the GVN's planning was not yet known at the
time of the conference. The CG discussions, however, were
still able to focus on specific areas which will need
careful GVN attention to implementation, no matter what the
final language of the SEDP: how to encourage good growth
and improve the business climate, how to reduce poverty and
increase social equality, how to reform legal and
institutional foundations, how to plan for the reforms
Vietnam must implement after joining the WTO, and how to
harmonize and disburse donor aid in the most effective
manner. The CG also held a brief session focused on GVN and
donor efforts to combat avian influenza.

ECONOMIC GROWTH AND BUSINESS CLIMATE
--------------


12. (U) DPM Vu Khoan began the first session by putting the
2005 CG in the larger context of the political and economic
challenges that Vietnam will face in 2006. He noted that
the eighth session of the National Assembly had just
concluded and passed several significant pieces of
legislation aimed at furthering Vietnam's economic
integration with the international community. The upcoming
meeting of the tenth National Party Congress, he said, will
determine the path of future development in Vietnam.
Vietnam will also serve as host to the 2006 Asia Pacific
Economic Cooperation meetings, presenting the country, and
Hanoi in particular, with a chance to show the Asia Pacific
community the extent of its potential and achievements.
Finally, Vietnam hopes to join the World Trade Organization
in 2006, an aspiration that will require continued attention
to reform and integration. These are the themes that will
be in the air during the CG and for all of 2006, the DPM
stressed.


13. (U) The SEDP being discussed in this CG is "the plan of
the whole people," meaning that the contributions of local
authorities, donors, NGOs, overseas Vietnamese, diplomats
and the business community made this SEDP the most inclusive
to date. DPM Khoan offered three examples of the growth and
targets this SEDP sets for Vietnam. The target GDP per
capita for 2010 is USD 1,000. (Note: The DPM defined 2005
GDP per capita as USD 640. Most internationally accepted
measurements of GDP put Vietnam's 2004 GDP per capita at USD
544 and its potential 2005 GDP per capita as USD 596. We
continue to research the exact sources for this higher
number. End note.) By 2010, the GVN also wants to have
completed a full transition to a market economy as well as
full integration with the international economy. Vietnam
will also pay more attention to sustainable [emphasis added]
development and the quality [emphasis added] of
development. This kind of development, the DPM underscored,
needs capital, specifically USD 840 billion over the next
five years. He expects this capital to come from six
different sources: domestic capital, private sector capital,
State-owned Enterprise (SOE) equitization, sovereign and
corporate bond sales, foreign capital, including overseas
development assistance (ODA) which the DPM said he hopes
will increase from 30 percent (over the past few years) to
35 percent (for the 2006-2010 period, an amount equivalent
to USD 11 billion), and portfolio investment. ODA should
target four areas: improving the socio-economic
infrastructure, increasing electric power generation
capacity, poverty reduction and ethnic minority rights, and
public administration institutions. Post-WTO accession will
also create some new problems Vietnam must prepare for now,
added Khoan. Specifically, Vietnam will have to improve its
legal framework, human resource capabilities at the local
level, and mechanisms to address new social problems such as
unemployment. DPM Khoan concluded his remarks by noting
that Vietnam will also focus on social issues (poverty,
minority and gender rights), education and health services
(increasing the budget share for these services from 17
percent to a target of 27 percent for 2010), and
environmental protection.

FINANCIAL SECTOR ISSUES
--------------


14. (U) The discussion then turned to the financial sector,
fiscal policy, and monetary policy in Vietnam, with the
International Monetary Fund (IMF), World Bank, and State
Bank of Vietnam (SBV) exchanging pointed remarks about
structural problems Vietnam has not yet addressed in these
areas.


15. (U) The IMF representative named Vietnam's fixed
exchange rate (which operates within a government-set band
known as a crawling peg) as a looming problem, especially
with increases in prices and wages building an instability
into the Vietnamese currency in an economy that permits
significant financial transactions to take place in both
Vietnamese dong and USD. The IMF representative praised
Vietnam's efforts to make the SBV more independent and more
focused on monetary policy rather than bank administration.
However, he noted that private capital is being crowded out
by sovereign lending (lending through sovereign bonds to
SOEs, which increases the deficit) and that the quality of
SOE investments is also problematic. The reforms undertaken
so far for State-owned Commercial Banks (SOCBs), while
significant, are not enough to either remedy the situation
or to address the problems SOCBs will face in the medium
term. More stringent financial standards, better
measurement, improved reporting and auditing, a fairer and
more transparent banking and reform policy, faster and more
comprehensive equitization (for SOCBs and SOEs), and more
autonomy for outside investors and managers are all critical
for Vietnam's financial sector to survive and thrive in the
next few years, he concluded.


16. (U) The WB economist took a more positive approach,
noting that while there are some problems in the medium
term, the GVN had shown that its growth rate could resist
significant stress, including those from supply shocks in
the oil price (which affects items across the price basket)
and natural disasters (including destructive hurricanes and
floods). The WB representative defined the GVN's primary
2006-2010 challenge as meeting growth targets (set around 8%
for the next five years) without sacrificing public
services. He agreed that monetary policy and exchange rate
policy should, indeed, be tightened, especially in light of
the estimated 37 percent credit growth Vietnam experienced
in 2005. He urged the GVN to take measures to avoid a stock
market bubble and to reduce not just the number of SOEs but
the amount of capital the State controls after equitization.
(Note: The GVN rarely lists all, or even the majority, of
the shares of a company for sale when "equitizing" it. End
note.) Moreover, the GVN should do a better job of
mobilizing domestic resources, and improving the quality of
the tax system to raise revenues, which will suffer a
relative drop of five to seven percent from inflation if not
made more efficient. Improving transparency and decreasing
corruption, the WB representative concluded, are also major
issues that will be critical to Vietnam's ability to reach
those growth targets.


17. (U) The SBV Vice Governor countered that SOCBs have been
significantly restructured already and that they are using
new technology and credit manuals to improve their
operations. They are also applying international audit
standards now and have been internationally audited in the
past. (Note: These results have not been made public nor are
the audits regularly scheduled. End Note.) The SBV Vice
Governor added that policy lending is now separate from most
banking institutions and that Joint Stock Banks (JSBs) have
also been given more freedom. The number of non-performing
loans (NPLs) has been reduced and SOE reform has continued
at a rapid pace. He said by 2010 the SBV will establish
itself as a fully independent institution, improve the
rights for foreign banks, create more banking sector
investment incentives, eliminate domestic subsidies and
incentives, equitize all SOCBs and recapitalize them, and
strictly limit intervention in credit institutions. He
emphasized that Vietnam has made tremendous progress in its
reforms, improving autonomy for the banks, removing
Communist Party involvement in the SOE equitization process,
establishing stock exchanges in Ho Chi Minh City and Hanoi,
and rapidly equitizing thousands of SOEs. The SOEs
remaining will be sold, transferred or declared bankrupt by

2010. The SBV will also improve the legal framework in the
banking sector and limit 100 percent State ownership to
public security and national defense sectors.


18. (U) The SBV representative and donors also discussed the
newly passed Common Investment Law (CIL), which was
initially drafted as an effort by the GVN to control
business registration and licensing more carefully. Both
the donor community and the VBF business representative made
clear that their primary "lesson learned" from the CIL
process was that the GVN needs to involve the international
community earlier in the drafting process for these kinds of
laws. (Note: The GVN limited access to initial drafts of
the CIL and the timeline for its submission to the National
Assembly, meaning donors and businessmen were not able to
review the law until the end of the drafting process
(versions 14, 15, and 16) beginning about one month before
it was submitted to the National Assembly. After a sharply
worded intervention from the American, European and
Australian Chambers of Commerce and meetings with foreign
government officials, the Vietnamese interagency drafting
committee added many of the critical changes the
international community had requested. Further review by
Vietnamese businessmen in the National Assembly eliminated
some of the remaining contentious parts of the CIL,
producing a final piece of legislation that greatly improves
the business environment for foreign investors. It does
not, however, do as much for the domestic private sector,
which is playing critical role in the shift away from State-
owned enterprises (SOEs) and towards a healthy market
economy. Donors and officials at the CG also stressed that
while the caps in the registration process (companies
investing in projects with a value less than USD 20 million
must file a notice of their intended project without having
to wait for permission or approval, while companies
investing in projects whose value is greater than USD 20
million must both file notice and petition for approval) are
less onerous than those originally proposed, attempts to
regulate business through administrative processes are
neither efficient nor effective in the long-term. Despite
its contentious drafting process and the hindrance it
presents to the domestic private sector, the new CIL is a
major improvement over the existing system, offering much-
needed incentives and guarantees to foreign investors. The
donors and the private sector representatives present at the
CG and the VBF agreed that how the GVN actually implements
these requirements will be the true test.


19. (U) In response, the CIL drafters highlighted the
benefits of the CIL, which include a reduction in subsidy
requirements, a more level playing field for domestic and
foreign investors, reduced discrimination in access to
credit, guaranteed access to either Vietnamese or
international arbitration in business disputes, more diverse
forms of investment, and a streamlined registration
process.


20. (U) In response to these comments, the French Ambassador
summed up the GVN's attitude towards the (foreign) private
sector as having shifted from considering business "an
outcast" to "a member of the family," albeit only a distant
relative. He stressed the importance of remembering in
these conferences that equitization does not mean
privatization, and that the GVN should not be given credit
for having privatized its SOEs. He concluded by urging the
GVN to float its currency. The Australian Ambassador echoed
these concerns, and added that the way in which the CIL was
drafted and debated, while successful in the end, was a
cause for some dismay. Greater consultation and early
transparency in the drafting process of any future laws will
be critical, he noted, to Vietnam's ability to attract and
maintain foreign investment. MPI Minister Phuc concluded
this session by noting that the National Assembly had set up
a committee for interest groups to express their views on
the 2006-2010 SEDP, which will be given to them for review
and vote in May or June 2006.

POVERTY REDUCATION AND SOCIAL INCLUSION
--------------


21. (U) According to MPI, the Comprehensive Poverty
Reduction Growth Strategy (CPRGS) has been integrated into
the 2006-2010 SEDP, and that the budget reflects this. The
2006-2010 SEDP includes poverty reduction measures, and
calls for improving the living standards of ethnic
minorities, promoting religious freedom and gender equality
and protecting the rights of children. In 2005, the poverty
rate was reduced to 27 percent (using the GVN poverty
standard), and the Government anticipates it will be reduced
by a further four percent by 2010. Malnutrition among
children has been reduced, and maternal health has improved.
While the Government has been working to promote the
awareness of CPRGS goals on a national scale, the capacity
of Ministries and local authorities to implement these has
been inadequate.


22. (U) The Ministry of Education and Training
representative said that although 94 percent of the
population over age 15 is literate, significant challenges
in education remain. The overall quality of education is
low, and regional gaps exist, especially in remote areas.
Government education priorities include promoting secondary
education, especially for underprivileged groups, improving
training to meet the demands of an industrializing economy,
reforming curriculums and increasing connectivity.


23. (U) Donors stressed that poverty reduction must include
minority groups, who are disproportionately represented
among the poor, and whose access to education is inadequate.
Growth alone cannot deliver poverty reduction for ethnic
minorities, so development efforts need to be decentralized
and planned with local input. While the Government plans
for gender and social equality at the broad policy level,
there is little discussion of how to address specific
problems such as domestic violence.


24. (U) The World Bank economist said that the quality of
human resource capital has to be raised for economic
development to continue. While constraints on access to
capital hamper domestic business development, Vietnam's
stability serves to attract investment.


25. (U) In response to concerns raised by the donors, DPM
Khoan stated that in addition to ethnic minorities, many
people in deltas and in the sandy areas between rivers live
in poverty. New government strategies include expanding
infrastructure to villages, and replacing temporary shelters
with permanent structures. A number of education incentives
exist for ethnic minorities, he said. Developing bilingual
education programs for these groups can be difficult, as
several do not have a written language. Boarding schools
have been an efficient way to provide education to children
living in remote areas, he noted.

HIV/AIDS
--------------


26. (U) The Ministry of Health (MOH) representative reported
on the status of HIV/AIDS. The GVN is concerned about
evidence that the disease is spreading to the general
population, particularly among pregnant women and military
recruits. Recent accomplishments have included the drafting
of the Law on HIV/AIDS Prevention and Control (not yet
passed), the establishment of the Vietnam Administration for
HIV/AIDS Control (VAAC), and increased responsibility for
program management at the provincial level. Shortages of
staff and anti-retroviral medicines remain acute challenges.
There is need for increased coordination among donors, as
currently 14 provinces have not received any international
assistance and NGOs are not able to focus their assistance.
He said that Vietnam would need USD 500 million to fund the
programs outlined in the national strategy to fight
HIV/AIDS.


27. (U) Donors agreed that there needed to be more
harmonization, but noted that a lot remains to be done on
the policy level. There continues to be an association
between HIV/AIDS and "social evils," which propagates
stigma. The number of HIV/AIDS cases continues to rise,
with an average of one hundred new infections daily.
Prevention strategies need to target young men who use drugs
and now sexually transmit the majority of infections. While
the VAAC has a new structure, it needs additional support at
the national and local levels. Eighteen months on, the
national strategy remains unfulfilled. The Government needs
to strengthen capacity and management coordination.


28. (U) Ambassador Marine pressed the point that the GVN
was losing the battle for prevention. A successful HIV/AIDS
prevention program will require both a high-degree of inter-
ministerial coordination and the sustained attention of
senior government leadership. He urged the GVN to shift its
prevention programs away from their exclusive focus on drug
users and sex workers and start to also educate young,
heterosexual males, who have one of the fastest growing
infection rates. He added that the stigma associated with
HIV/AIDS in Vietnamese society remains strong, and he
encouraged the GVN to take more aggressive action to reduce
discrimination against people living with HIV/AIDS.

LEGAL AND INSTITUTIONAL FOUNDATIONS
--------------


29. (U) The Ministry of Finance representative reported that
the state budget has been developed to address SEDP targets.
High priority expenditures for the Government include:
investment projects critical to economic growth; poverty
alleviation and job creation, especially in agricultural,
rural, and mountainous areas; education and training; and
health care. Efforts are being made to develop a budget
that reflects available resources, and to expand the scope
of the Public Finance Management Project (funded by the
World Bank and the United Kingdom), which focuses on medium
term budget planning. The MOF hopes to introduce a plan in
2006 to implement a personal income tax system, and will
need technical assistance on tax and customs issues.


30. (U) The Government Inspectorate of Vietnam (GIV)
representative said that corruption at all government levels
remains a problem despite the passage of a new anti-
corruption law and a number of decrees. In order to address
the problem, the GIV is charged with inspecting and
monitoring adherence to the anti-corruption law, maintaining
anti-corruption databases, and serving as a focal point for
international cooperation. Long-term measures include
implementing further transparency in the budgeting process
and increasing public servants' salaries. Donors praised
the GVN for passing the law, but stressed that
implementation will be the real challenge. The United
Nations Development Program (UNDP) representative added that
while the law focuses on the public sector, the private
sector is also vulnerable, and urged the Government to
consider applying the same principles to business.


31. (U) The Ministry of Justice representative reported that
judicial and legal reforms have been crafted along the Party
Politburo's broad policy directives to develop a law-based
socialist nation with a socially oriented market economy.
In sessions held in 2005, the National Assembly passed tens
of laws and many more implementation guidelines. Procedures
for law drafting and approval have been improved, however,
more specific laws are needed, and implementation remains a
challenge. Building an adversarial system and increasing
judges' accountability are primary goals for judicial
reform. Justice Minister Uong Chu Luu said that Vietnam
needs more assistance to continue with the reform agenda.


32. (U) New laws and ordinances have contributed to Public
Administration Reform (PAR) by clarifying the functions of
implementing government agencies, the Ministry of Home
Affairs representative reported. Transparency has improved
with the publication of new laws and procedures in the mass
media and public postings. The Prime Minister established
an interagency group, to resolve administrative obstacles in
five provinces. The implementation of "one-stop" shops at
the local level has resulted in marked administrative
procedure improvements, though much work remains, especially
in the area of employee training.


33. (U) Ambassador Marine said that the legal and judicial
reforms need to be broadened. These reforms are critical,
as the current system constrains economic growth. He also
urged the Government to allow for more participation by
NGOs, the private sector and civil society.

INTEGRATING WITH THE GLOBAL ECONOMY
--------------


34. (U) The Ministry of Trade (MOT) representative
discussed the status of Vietnam's WTO accession
negotiations, and the challenges to implementation and
expected impacts after membership. The balance of trade
will be affected; Vietnam will need to address labor
redundancy; and, SOEs will face outside competition and
fewer subsidies and protections.


35. (U) The Oxfam Country Director, who was serving as the
International Non-governmental Organization representative
to the CG, was the first of the donors to respond. He
launched into an impassioned speech asserting that the
primary goal of WTO accession is that it should lead to
economic development to benefit the poor. He urged the
remaining five Working Party members still negotiating to
use this goal to guide their WTO negotiation processes. The
power of accession lies in their hands, he added. He
stressed that Vietnam is still a very poor country with a
per capita GDP between USD 450 and USD 500. He reminded
donors of the Doha principle, which says that developing
countries should get special and differential treatment. He
appealed to the donors, saying that Vietnam should be
allowed to join the WTO with access to all available
instruments for developing countries, with no greater
commitments required of them in terms of phasing out export
subsidies, and with permission to maintain their export
management controls on rice. Noting that Vietnam should not
suffer non-market economy provisions, he added that the
United States should also abolish its textile and clothing
quotas and that Vietnam should receive large amounts of
technical assistance to implement its WTO agreement,
especially for sanitary and phyto-sanitary matters.


36. (U) In response to these comments, observers, including
many representatives, burst into applause, though whether
this was in response to his emotional appeal for economic
development to assist the poor or to his specific ideas on
WTO negotiations was hard to discern. After the applause
subsided, the Australian Ambassador noted that some of the
Oxfam Country Director's characterizations of the WTO
negotiating process were more familiar to him than others,
but he stressed that Australia was committed to helping
Vietnam implement its agreement.


37. (U) Other donors then chimed in, expressing support for
Vietnam's WTO accession and agreeing on the need to provide
technical capacity building assistance to aid Vietnam with
its implementation and transitions. The Swiss Ambassador
elaborated more than others, noting that although donors
welcome the passage of the new Intellectual Property Rights
(IPR) law and look forward to seeing the final language,
implementation will remain a challenge, and said that
Switzerland would like to develop a program for potential
Vietnamese rights holders.


38. (U) Ambassador Marine began his remarks by emphasizing
that the United States remains deeply committed to Vietnam's
accession. He commended the Government and its negotiating
team on the tremendous amount of work that they have done to
date. He said that the United States will be prepared to
provide assistance after accession, as was the case
following the signing of the U.S.-Vietnam Bilateral Trade
Agreement (BTA). Ambassador Marine added that when the BTA
was signed, some people similarly doubted whether or not it
would have a beneficial impact on Vietnam's development.


39. (U) Following Ambassador Marine's comments, the World
Bank representative agreed, noting that based on Vietnam's
experience with the BTA, WTO accession will bring positive
economic impacts and poverty reduction, as long as Vietnam
has mechanisms through the SEDP to ensure that economic
development includes the poor.


40. (U) DPM Khoan thanked the donors for their support and
said that now is a critical moment for WTO accession for
several reasons. Public consensus for accession is
currently high, while the National Assembly is keeping up
the lawmaking momentum to meet WTO requirements. The GVN
has developed the SEDP with the assumption that Vietnam
would become a WTO member in the very near future. He
called for developing country treatment for Vietnam in the
accession negotiations, as it is important that WTO
membership bring economic development and not prevent the
growth of the private sector. Turning to TRIPS and IPR,
Khoan said the Government is concerned about IPR enforcement
for Vietnamese as well as for foreign rights-holders. He
praised the assistance that Vietnam has received from the
United States for BTA implementation through the Support for
Trade Acceleration (STAR) project, and said this could be
used as a model for post-WTO accession capacity building
efforts.

HARMONZATION, DISBURSEMENT AND AID EFFECTIVENESS
-------------- ---


41. (U) Donors complimented the GVN on its progress in
improving aid effectiveness and endorsed the importance of
the Hanoi Core Statement, which implements the Paris
Declaration on AID Effectiveness. The Government noted that
the core statement is based on government ownership,
alignment of donor support, harmonization and specific
targets. As one step in improving aid effectiveness, the
Government announced that it is now revising the basic
ordinance governing foreign assistance.


42. (U) Despite good progress, especially when compared to
other developing economies, donors noted that a number of
challenges remain. Despite a target of zero project
management units by 2010 for donor-funded projects, some 440
are still in place. Additionally, while 50 percent of
project procurement should be done via government systems,
only 15 percent is presently host country contracted. Donors
pointed out that a number of development problems where
harmonization has already begun, including HIV/AIDS, anti-
corruption and post-WTO accession policy issues, should be
further addressed. Most importantly, they also noted that
for the targets to be met, the Government would have to
concurrently strengthen its own administrative and financial
systems particularly in the areas of corruption, financial
management and procurement. MPI Minister Phuc acknowledged
that fact and noted that the GVN is completing a new
procurement law, recently passed the Anti-Corruption Law and
would be working to implement both. Continued meetings of
the Government/Donor Partnership Group on Aid Efficiency, of
which USAID is a member, would continue and progress would
be reported at the mid-term CG in June.

MARINE