VIETNAM'S NEW COMMON INVESTMENT LAW

UNCLAS SECTION 01 OF 03 HANOI 003342

SIPDIS

STATE FOR EAP/MLS AND EB/TPP/BTA/ANA GOODMAN AND WICKMAN
STATE PASS USTR ELENA BRYAN AND GREG HICKS
STATE PASS USAID FOR ANE/AA KUNDER/KENNEDY/WARD
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
TREASURY FOR OASIA

SENSITIVE

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ECON PREL VM WTO
SUBJECT: VIETNAM'S NEW COMMON INVESTMENT LAW

SENSITIVE - DO NOT POST ON THE INTERNET


1. (SBU) Summary: Vietnam's National Assembly (NA) passed
fourteen pieces of legislation during its final 2005 session
(October 18-November 29). Of the fourteen, none were as
controversial as the Common Investment Law (CIL). Approved
only in the final hours of this session, the official CIL is
a major improvement over the more controversial draft
versions, which had prompted intervention from foreign
chambers of commerce, governments and donors when made
public in early October. While many of these international
lobbying efforts focused on working with the Government of
Vietnam's (GVN) interagency drafting team, the most
significant changes were negotiated by the NA itself,
suggesting that despite their reputation as a mere "rubber
stamp" to official policy, the NA can influence GVN decision-
making under the right circumstances. End Summary.


2. (SBU) Donors and the business community have argued for
some time that Vietnam needs a new "Common Investment Law"
to bring consensus and clarity to an outdated set of decrees
and rules that can make investing in Vietnam a complicated
and unpleasant process. After reviewing its bilateral trade
commitments, its aspirations for World Trade Organization
(WTO) membership, and its GDP growth targets, the GVN agreed
and created an interagency drafting team to do so. A few
years and sixteen drafts later, the drafting team presented
a CIL that seemed to miss the entire point of its creation.
This draft bill created a larger and more complicated
registration and permit system (presumably to allow
officials to regulate and control investment projects
better, while offering more opportunities for graft),did
not alleviate discrimination between domestic and foreign
investors, and maintained or instituted other caps and
criteria that ultimately worked against the original goals
(attracting investment and integrating with the
international economy) for drafting a new CIL.


3. (SBU) English language translation problems and the
drafting team's reticence kept this sixteenth draft out of
investors' hands until early October, and when it did
arrive, it was not just a disappointment, but a major
problem. The American, European and Australian Chambers of
Commerce held numerous meetings with the drafting team.
U.S. and other officials met separately with the GVN to urge
critical changes. The Prime Minister's Research Council, in
response to pressure from local economic experts, also
weighed in. Technical advisors, individual businesses (both
domestic and foreign) and multilateral institutions further
pressed the importance of a better draft. When the Ministry
of Planning and Investment (MPI),which led the drafting
team, finally passed a revised version of the CIL to the NA
on November 23, some of the needed changes had been adopted,
but not all. As MPI had coordinated their final submission
with the Vietnamese Community Party's Politburo and the NA
Standing Committee, however, last minute progress appeared
doubtful.


4. (SBU) Rather than give up, the three Chambers of
Commerce, most prominent among them the American Chamber of
Commerce, shifted their attention to lobbying the NA. In
response to this pressure, MPI Vice Minister Nguyen Bich Dat
held a series of meetings in the final hours before the NA
session closed, to which he invited representatives of the
three Chambers of Commerce, Vietnamese business leaders, GVN
officials and senior NA members with prominent business
experience. After intense discussions with all
participants, almost all of the remaining changes proposed
by organizations and persons outside of MPI and the drafting
team were incorporated into the official version of the CIL.
Local economic experts note that the American Chamber of
Commerce's efforts were absolutely critical to this success,
forging a new and promising level of trust between the GVN
and the international investment community.


5. (SBU) Despite these teething difficulties, this new,
improved CIL is substantively a step forward for Vietnam.
It includes the elimination of TRIMS, export performance
requirements and dual pricing, local content and technology
transfer, capital contribution requirements, consensus
voting and other restrictions on governance. It clarifies
the scope of registration for foreign-invested projects,
provides access to foreign arbitration and courts (foreign
companies can choose during a dispute between Vietnamese
courts or international arbitration),and allows for non-
binding sectoral planning. The law also provides
significant guarantees and incentives to foreign investors,
including non-interference, equal treatment between foreign
and domestic investors (especially important for access to
credit),security and free transfer of property and capital,
and basic intellectual property rights protection.


6. (SBU) Most importantly, the final CIL creates a
reasonable, though not ideal, registration system for both
domestic and foreign invested projects. While foreign
investment projects worth more than USD 20 million must be
both registered and approved by the GVN, investors must only
file notice with the GVN, not wait for approval, for
projects valued at less than USD 20 million. While these
administrative restrictions are not optimal, they are a real
improvement from the existing system and the far more
onerous levels the GVN had originally proposed. Domestic
investors have similar caps. They do not have to register
or file notice for projects under USD 100,000 in value.
Domestic investors must file notice for projects between USD
100,000 and USD 20 million in value, and like foreign
investors, must receive official approval for projects worth
more than USD 20 million.


7. (SBU) Asked to characterize the final CIL, one U.S. legal
expert in Hanoi stated that it rates an "F" for the new
obstacles it creates for domestic investors, but a "B" for
what it does for foreign investors. He noted that these
ratings could change depending on the implementing
regulations, which could further improve the situation for
foreign investors and could offset some of the difficulties
for domestic investors. Clearly, this CIL is a step
backward from the GVN's more liberal attitude towards the
domestic private sector a few years ago, an attitude that
helped launch Vietnam's private sector on its current
expansionary trend. The legal expert observed that this
reining in of the domestic private sector could have
repercussions for the foreign private sector as well, since
the level of domestic private investment will indirectly
affect the success of foreign financial services firms as
well as firms exporting to Vietnam. In the end, the
ultimate test of the success of Vietnam's economic reforms
will be the success of the foreign and domestic private
sectors, he stressed. On the new system of registration and
approval caps, he speculated that only possible explanation
for the GVN's insistence on this system was to create new
opportunities for graft.


8. (SBU) A senior outgoing official at a multilateral
organization called the CIL a "big disappointment" compared
to the new Common Enterprise Law, at least on the domestic
side. He was more positive about what it did for foreign
investors. He laid the blame for these shortcomings on the
Ministry of Planning and Investment, which he said "needs
fixing."


9. (SBU) COMMENT: While the GVN may have missed an
opportunity to improve its reputation as a place to do
business (it is ranked in the bottom quarter of the World
Bank's "Doing Business in 2005" report),its willingness to
work with foreign investors and the NA in producing a final
CIL amenable to all parties involved is quite significant.
Though the investment climate in Vietnam has been somewhat
improved by the new CIL, the expectations for transparency
and consultation have dramatically increased. This is the
first time that GVN drafters, foreign and domestic
investors, foreign governments, international donors and NA
delegates have interacted in the process of making
Vietnamese law. That all parties walked away relatively
satisfied and still speaking to each other suggests that the
Vice Chairman of the Office of the National Assembly (ONA)
Nguyen Sy Dzung's recent remark to an Embassy officer that
this new kind of interaction "will certainly affect
legislative procedures in the future" is true. The real
measure of the GVN's attitude towards investors will, of
course, be determined by the extent to which the GVN
implements the CIL over the next several months. The
ultimate measure of the impact this new foray into
transparency and cooperation will have on future relations
between the GVN and the private sector, and between the GVN
and the NA, will take longer to gauge. End Comment.

MARINE