VIETNAM: EMBASSY INPUT FOR 2005 SPECIAL 301 REVIEW

UNCLAS SECTION 01 OF 07 HANOI 000451

SIPDIS

SENSITIVE

STATE FOR EB/IPE AND EAP/BCLTV
STATE ALSO PASS USTR BURCKY/ALVAREZ AND BRYAN
STATE ALSO PASS USPTO FOR URBAN
STATE ALSO PASS LIBRARY OF CONGRESS FOR TEPP
USDA FOR FAS/FAA/AO HUETE
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO

E.O. 12958: N/A
TAGS: KIPR ETRD ECON VM IPROP BTA WTO
SUBJECT: VIETNAM: EMBASSY INPUT FOR 2005 SPECIAL 301 REVIEW

SENSITIVE BUT UNCLASSIFIED; PROTECT ACCORDINGLY

REF: STATE 23950


1. (SBU) Summary: Embassy recommends continued placement of
Vietnam on USTR's Special 301 Watch List for 2004.
Enforcement of IPR in Vietnam remains weak and IPR
violations are rampant. We do not believe elevation to the
Priority Watch List is warranted, however, as:

-- Vietnam continued to make some progress in strengthening
its IPR legal regime in 2004 and is on track to promulgate a
new comprehensive law on intellectual property in 2005.

-- The Government of Vietnam (GVN) maintains a high-level
public commitment to IPR protection and works closely with
international donors, including the USAID-funded Support for
Trade AcceleRation (STAR) project.

-- The U.S.-Vietnam Bilateral Trade Agreement (BTA) with its
major provisions on IPR, codifies Vietnam's commitment to
make its IPR regime TRIPs-consistent. Vietnam has also
committed to adhere to TRIPs upon accession to the WTO.

-- The size of the market for U.S. intellectual property
products in Vietnam, though growing, remains small, given
Vietnam's low GDP per capita. End Summary.

Continued Placement on Special 301 Watch List Warranted
-------------- --------------


2. (SBU) Embassy recommends that USTR keep Vietnam on its
Special 301 "Watch List" for the coming year because IPR
piracy and counterfeiting in many product categories remains
rampant and enforcement is weak. Additionally, Vietnam has
not met all of the IPR commitments included in Chapter Two
of the BTA, which were due to be implemented no later than
December 10, 2003. Finally, market access barriers,
especially censorship of "cultural products" continue to
impede the availability of legitimate products, further
complicating efforts to combat piracy.

BTA - Strong IPR Commitments, but Lagging Implementation
-------------- --------------


3. (U) Chapter Two of the BTA, which entered into force on
December 10, 2001, codifies Vietnam's commitment to bring
its IPR legal regime and enforcement practices up to
international standards by December 2003, to protect IP
consistent with WTO TRIPs standards, and in some cases, to
provide protection stronger than TRIPs. The BTA covers the
fields of copyright and related rights, encrypted satellite
signals, trademarks (including well-known marks),patents,
layout designs of integrated circuits, trade secrets,
industrial designs and plant varieties.


4. (SBU) The GVN is lagging in implementing its IPR
obligations, particularly those related to enforcement. The
BTA obligates Vietnam to provide expeditious remedies to
prevent and deter infringement, to allow prompt and
effective provisional measures, and to put in place criminal
procedures and penalties for willful trademark
counterfeiting or infringement of copyrights or neighboring
rights on a commercial scale. Vietnam also committed, upon
entry into force of the BTA, to enforce existing laws, the
U.S.-Vietnam Copyright Agreement and the Paris Convention.
No such routine and reliable enforcement exists.
Additionally, Vietnam committed to accede to several
international intellectual property conventions "promptly."
Vietnam acceded to the Berne Convention on October 26, 2004.
However, Vietnam has not yet submitted its applications to
the Geneva Convention (phonograms) or the Brussels
Convention (satellite signals). According to the National
Office of Intellectual Property (NOIP),the GVN plans to
complete application procedures for joining the Geneva
Convention, the Brussels Convention, the Rome Convention for
the Protection of Performers, Producers of Phonograms and
Broadcasting Organizations and the International Union for
the Protection of New Varieties of Plants (UPOV) in 2005.

Improvements in IPR Laws Continue
--------------


5. (U) Vietnam has made significant progress over the past
few years in establishing the legal framework for IPR
protection. The GVN issued the following legal and
regulatory IPR-related reforms in 2004:

-- On April 5, the Standing Committee of the National
Assembly issued Ordinance No. 15/2004/PL-UBTVQH11 on plant
varieties. This Ordinance upgraded provisions on IPR
protection for plant varieties to meet the requirements of
the UPOV Convention.

-- On June 7, the President issued Resolution No.
332/2004/QD-CTN on adhering to the Berne Convention on
Copyright Protection for Literary and Artistic Works.

-- On June 15, the National Assembly passed a Civil
Procedure Code (CPC). The CPC, which went into effect on
January 1, 2005, regulates resolution of civil cases
including IPR-related cases.

-- On July 14, the Ministry of Science and Technology (MOST)
issued Instruction No. 18/2004/CT-BKHCN on strengthening IPR
enforcement and oversight of the quality of domestic, import
and export goods. The Instruction requires inspectors to
monitor and resolve administrative breaches of IP rights.

-- On August 3, 2004 the Office of the Government issued
Official Letter No.3985/VPCP-KG containing the Prime
Minister's approval for MOST to draft new IPR and technology
transfer laws.

-- On October 10, the Government issued Decree
No.175/2004/ND-CP on violations and administrative sanctions
in the trade domain. Articles 18 and 19 of this decree
detail sanctions for trading in fake goods, stamps, labels
and packages and establish procedures for assessing fines
for these acts. These articles also provide for additional
measures such as seizure of equipment used for infringement;
destruction of counterfeit goods; and, confiscation of
illegal profit.

-- On December 3, the National Assembly passed the Law on
Publishing. The law was announced by the President under
Resolution No. 26/2004/L/CTN on December 14 and will come
into effect on July 1, 2005. The law requires the state to
develop policies that both stimulate and develop the
publishing sector. It also requests the State to help in the
purchase of copyrights of valuable domestic and foreign
works.

-- On December 29, MOST and the Ministry of Finance (MOF)
issued Inter-Ministerial circular No.129/2004/TTLT/BTC-BKHCN
on border control measures for industrial property of import
and export goods. This circular authorizes IP rights
holders and their representatives to file petitions for
applying border control measures for IP if they find
evidence of infringement.

-- On December 31, MOF issued Circular 132/2004/TT-BTC
providing guidelines for the collection, payment, control
and utilization of industrial property fees and charges. The
Circular established one set of fees and charges for IP
protection and services for all Vietnamese and foreign
entities and individuals. Circular 132 replaced a May 1997
circular, which applied a two-tier price structure for IP
fees and charges to Vietnamese and foreign applicants.

-- On January 5, 2005 the Ministry of Home Affairs issued
Decision No.12/2005/QD-BNV on establishment of the Vietnam
Anti-Counterfeit and Intellectual Property Protection
Association (VACIP) of foreign-invested enterprises.

New Legislation to be adopted in 2005
--------------


6. (U) The NOIP has the lead on drafting a new comprehensive
IPR law for Vietnam. This new law should help to
consolidate Vietnam's existing IPR regulations. The law
should also address shortcomings of the current legal
framework including: lack of provisions for remedies,
inconsistencies with the Berne Convention, and lack of
reference to new media such as the Internet. NOIP is
working with the Vietnam Office of Literary and Artistic
Copyright and the Ministry of Agriculture and Rural
Development on the draft law. NOIP plans to submit a draft
to the Standing Committee of the National Assembly and to
the public for comment in March. The law is on the National
Assembly legislative calendar for review in May and approval
in November.


7. (U) Two draft regulations have been submitted to the
Minister of Science and Technology for approval:

-- A draft Circular implementing Decree No.42/2003/ND-CP on
Industrial Property Protection for Layout Design of
Integrated Circuits

-- A draft Circular implementing Decree 54/2000/ND-CP on the
Protection of IPR to Business Secrets, Geographical
Indications, Commercial Names and the Protection against
Unfair Competition.


8. (U) MOST and MOF have submitted amendments to a 1999
Decree (No. 12/1999-ND-CP) dealing with administrative
sanctions against industrial property violations to the
office of the Government for approval. The proposed
revisions seek to more clearly define IPR violations,
increase the level of punishment and fines for violators,
and reduce the overlapping functions of IPR enforcement
agencies. The revisions also seek to provide more specific
criteria for use of administrative measures with the goal of
reducing the use of administrative measures as a substitute
for civil proceedings.

Piracy Still Rampant
--------------


9. (U) The GVN has made little, if any, progress on reducing
the amount of counterfeit and pirated goods available in
Vietnam. Hanoi, HCMC and most other major cities in Vietnam
are rife with music CD, VCD and DVD and video shops, with
100 percent of the U.S. product on sale or for rent pirated.
Trademark violations are also prevalent, with all types of
clothing and other items carrying unlicensed versions of
famous trademarks available at shops of all sizes, including
large state-owned stores, throughout the major cities.


10. (SBU) State-owned television and cable stations
occasionally show unlicensed U.S. films on local television
and cable channels. Some of these films are "borrowed" from
legitimately licensed channels (such as HBO and Star Movies,
which do not allow dubbing) and dubbed in Vietnamese for
widespread viewing. Public cinemas as well as private cafes
sporadically show pirated films. On a number of occasions,
films that have been banned from import by censorship
authorities have subsequently appeared for sale in pirated
DVD form in the market.


11. (U) Software industry representatives estimate that
piracy rates in Vietnam are upwards of 92 percent. American
software companies such as Microsoft have had little success
in creating a market for their legitimate product, despite
efforts to cooperate with enforcement authorities and
multiple years of commercial presence in Hanoi. Anecdotal
evidence and industry sources suggest that GVN agencies use
mostly pirated software on PC's in government offices.
However, Microsoft experienced an estimated forty percent
growth in its sales to government agencies and state-owned
enterprises in Vietnam this year.


12. (U) Software piracy is also a strong disincentive for
local software developers. Most companies choose to sell
their products only as packages bundled with hardware
because stand-alone software is easily and quickly copied
and sold on the local market.

--------------
Enforcement Remains Weak
--------------


13. (SBU) The organizational structure of GVN IPR agencies
remains complicated and bureaucratic, a fact acknowledged by
GVN officials at all levels. Multiple agencies are tasked
with overlapping functions or gaps are left in coverage.
Institutional experience on IPR enforcement is extremely
low. Government IPR agencies focus primarily on
"administrative" enforcement of IPR laws, and are mostly
limited to issuing administrative findings and occasionally
issuing warnings either by letter or orally to small
retailers of pirated material. Currently there are no
procedures in place to provide recourse or compensation to
rights holders whose rights have been violated.

14. (SBU) There are efforts underway to enhance the role of
various IPR enforcement agencies. The Economic Police
Department (EP) of the Ministry of Public Security has
proposed establishment of an Anti-IPR Crime Section (also
known as "Section Seven.") The proposal is pending approval
of the Minister. In addition, on July 14, MOST established
a Task Force on IPR Enforcement and Quality Control. The
Task Force is chaired at the vice minister level and is
responsible for overseeing efforts related to IPR
enforcement and quality control, making proposals for
activities on IPR enforcement and quality control and
coordinating efforts with other concerned agencies.


15. (U) Vietnam's agencies do engage in enforcement
campaigns that target unlicensed goods, including those
involving copyright and trademark violations, but also those
with "illicit or pornographic content" and cases involving
food and drug safety. The Ministry of Culture and
Information (MOCI) reported that in the first eleven months
of 2004 its inspectors carried out 31,673 surprise
inspections (an increase of more than 12,000 over 2003).
MOCI inspectors collected fines of ten billion Vietnamese
Dong (VND) (about USD 630,000) in 2004 and forwarded
documents for criminal prosecution in ten cases. MOST fined
20 individuals and organizations, of which, 13 cases were
assessed a monetary penalty of VND 112 million (about USD
7,000). NOIP assisted in addressing 404 industrial property
violations. According to news reports, the EP discovered at
least USD 12.6 million worth of pirated and counterfeit
goods during the first six months of 2004.


16. (SBU) In 2004, the Market Management Bureau (MMB),an
enforcement agency within the Ministry of Trade, executed
raids on 94 businesses (80 retailers and 14 factories)
selling counterfeit Nike products in Hanoi and Ho Chi Minh
City (HCMC). MMB officials seized footwear, apparel and
equipment. Businesses were fined USD 800 on average. Nike
plans to continue to work with the MMB on enforcement
issues.


17. (SBU) In May 2004, joint EP and MMB teams raided three
computer companies in Hanoi. Each company was fined more
than USD 8,000 for using pirated versions of Microsoft's
operating system, Lac Viet dictionary and Norton anti-virus
programs. After the raids, the head of the MMB asserted,
"the raids were the start of a nationwide campaign to
protect the IPR of software companies." In November 2004,
inspectors from Ministry of Culture and Information (MOCI),
MOST and the EP jointly raided two large computer suppliers
in HCMC. Each company was fined USD 2,000. Enforcement
agencies removed illegal software programs installed on 30
computers including Microsoft Windows, Microsoft Office,
Vietkey 2000, Adobe Photoshop, ACD See and CorelDraw, with
an estimated value of USD 10,000. In addition, they
confiscated 40 CD-ROMs containing unlicensed software
programs.

Lack of Availability of Legitimate Products
--------------


18. (U) Given the relative poverty of Vietnam, with an
average per capita GDP of around 552 dollars (2004),the
size of the market for U.S. IP product remains fairly small.
While losses to piracy are as high as 100 percent in some
sectors, the dollar value remains a small fraction of losses
faced by U.S. IPR-related companies in the rest of the
region. In addition, some types of products, such as those
deemed "cultural products," are still subject to censorship
and control regulations that impede market access. That
said, Vietnam's economy has much potential and, with a well-
educated population of over 82 million, it will eventually
become one of the major economies in the region.

Growing Domestic Awareness
--------------

19. (SBU) Public and private awareness of the value of IPR
protection for Vietnamese products both in Vietnam and
abroad continue to grow. In 2004, several new organizations
focused on IPR were established in Vietnam.

-- On August 25, 2004 the Ministry of Home Affairs approved
the establishment of the Vietnam Literature Copyright Centre
(VLCC). VLCC is a non-governmental and non-profit
organization under the management of Vietnam Writers'
Association. VLCC's stated purpose is to execute the
contracts on copyright transfer between the Center and
authors; to help settle disputes among members; and, to
coordinate with relevant international organizations in
protecting literary copyright. VLCC also disseminates
copies of laws, regulations and international conventions on
copyright for literary works to its members, writers and the
general public. At present, about 100 writers have signed
contracts with the Center. The Center has asked the U.S.'s
William Joiner Center to act as an intermediary between the
Vietnam Writers' Association and American writers, whose
books are published by the Association's publishing house in
Vietnam.

-- After more than two years wait, the Ministry of Home
Affairs approved the establishment of the Vietnam Anti-
Counterfeit and Intellectual Property Protection Association
of foreign-invested enterprises (VACIP) on January 05, 2005.
VACIP is the first anti-counterfeit association for foreign
invested enterprises in Vietnam and is modeled on the
Quality Brands Protection Committee (QBPC) in China. It
will function under the supervision of the Ministry of
Planning and Investment. Baker & McKenzie drafted the
charter of this organization and, to date, Nike, Unilever,
Glaxo Smith Kline, Proctor & Gamble and Ajinomoto have
joined. The association will represent member companies in
the effort to fight against counterfeit goods in Vietnam;
protect the rights of members; provide training to
consumers, government officials and enforcement agencies;
and, work with GVN on new IP policies.


20. (U) In September, MOST and the Ministry of Culture and
Information (MOCI) hosted Vietnam's first national
conference on IPR with participation of Deputy Prime
Minister Vu Khoan. Representatives of 28 diplomatic
missions and international organizations and 500
representatives from the GVN and local businesses attended.
In his remarks, DPM Khoan acknowledged GVN failure to
adequately enforce existing IPR regulations; warned lack of
effective IPR protection will stifle creativeness of
Vietnamese creators and inhibit foreign investment; and,
noted the importance of effective IPR enforcement as part of
Vietnam's efforts to join the WTO.


21. (U) In October 2004, HCMC government agencies
responsible for IPR hosted an Exhibition on Anti-Counterfeit
Technologies and Protection of Prestige and Quality
Trademarks. The exhibition featured a dialogue with private
business on counterfeiting and IP challenges faced by
businesses in HCMC. During the dialogue, businesses raised
the most problematic issues seen in IPR enforcement:
inadequate financial and human resources for government
enforcement agencies; weak coordination between IPR holders,
government enforcement agencies and consumers; lack of clear
direction on how businesses can coordinate with, and make
contributions to, HCMC's efforts in combating IPR
infringements; overlapping functions among government
enforcement agencies that delay decisions and actions on
violations; and, low penalties for IPR violators.


22. (U) Businesses participating in the dialogue proposed
creation of an "Anti-Counterfeit Fund." Businesses pointed
out that since IPR enforcement officials do not have
sufficient resources, many companies would be willing to
make contributions to an Anti-Counterfeit Fund to assist IPR
enforcement officials. In return, businesses would
contribute industry knowledge and work directly with
relevant government agencies to strengthen IPR enforcement.
The HCMC government asked three participants representing
Honda, the Recording Association of Vietnam, and Tribeco (a
local soft drink company) to submit a proposal for the Anti-
Counterfeit Fund to the People's Committee. For the first
year, the pilot program would focus on IP violations of
motorcycle spare parts, soft drinks, CDs and DVDs. The
proposal for the Anti-Counterfeit Fund has been submitted to
the HCMC People's Committee and is currently under review.

Technical Assistance helps Build Enforcement Capacity
-------------- --------------


23. (U) In 2004 Vietnam continued receiving considerable IPR-
related technical assistance from a number of foreign donors
and NGO's as well as multiple USG agencies. This
assistance included conferences, seminars, training and
review of draft pieces of legislation. In 2005, the USAID-
funded Support for Trade AcceleRation (STAR) project plans
to provide the following IPR-related technical assistance to
the GVN:

-- STAR will support efforts by the HCMC Department of
Science and Technology develop an anti-counterfeiting
campaign in HCMC aimed at improving coordination among IPR
enforcement agencies and increasing public awareness.

--STAR will support efforts by the Supreme People's Court to
develop implementing regulations for the new Civil Procedure
Code, focusing primarily on provisional measures.

-- STAR will help the Economic Police finalize a new
textbook for IPR enforcement as well as case studies for use
as the police academy.

-- STAR will support Ministry of Justice efforts to develop
a new law on judgment enforcement to replace the current
ordinance governing this issue.

--STAR will support GVN efforts to draft regulations on
optical disk production and distribution.

-- STAR will support a three-week training program for 25
Vietnamese judges on IP law and adjudicating IP cases.

-- STAR will provide training to GVN Customs officials on
implementing new IP border measures.

--------------
Conclusion and Recommendation
--------------


24. (SBU) Vietnam will remain a market in which IPR
violations are of concern for at least the foreseeable
future. The BTA and Vietnam's efforts to accede to the WTO
provide us with strong tools for engaging the GVN on IPR
enforcement. U.S. policy should continue to work toward
ensuring Vietnam's commitments are translated into good law
and regulation in the near term as well as effective
enforcement. The USG should continue to support USG funding
for technical assistance in IPR, particularly with respect
to building capacity for IPR enforcement in Vietnam's law
enforcement and judicial agencies. At the same time,
Mission will continue to press GVN officials at every level
to address IPR piracy and counterfeiting problems throughout
Vietnam.


25. (SBU) RECOMMENDATION: The Mission believes it is
important to maintain consistent pressure on Vietnam to
protect IPR. For that reason, we recommend USTR maintain
Vietnam on the Special 301 Watch List in 2005. We do not
believe elevation to the Priority Watch List is warranted,
however, as:

-- Vietnam continued to make some progress in strengthening
its IPR legal regime in 2004 and is on track to promulgate a
new comprehensive law on intellectual property in 2005.

-- The Government of Vietnam (GVN) maintains a high-level
public commitment to IPR protection and works closely with
international donors, including the USAID-funded Support for
Trade AcceleRation (STAR) project.

-- The U.S.-Vietnam Bilateral Trade Agreement (BTA) with its
major provisions on IPR, codifies Vietnam's commitment to
make its IPR regime TRIPs-consistent. Vietnam has also
committed to adhere to TRIPs upon accession to the WTO.
-- The size of the market for U.S. intellectual property
products in Vietnam, though growing, remains small, given
Vietnam's low GDP per capita.


MARINE