U.S. - Vietnam BTA Review

UNCLAS SECTION 01 OF 06 HANOI 001661 SIPDIS STATE FOR EAP/MLS AND EB/TPP/BTA/ANA STATE PASS USTR DBISBEE, BWEISEL USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO TREASURY FOR OASIA SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ETRD ECON KIPR WTRO VM SUBJECT: U.S. - Vietnam BTA Review HANOI 00001661 001.4 OF 006 SENSITIVE - DO NOT POST ON INTERNET ¶1. (SBU) Summary: On June 19, the Ministry of Trade hosted the annual meeting of the Bilateral Trade Agreement (BTA) Joint Committee. During the meeting, Vietnam clarified the steps it has taken and those underway to implement BTA commitments. The Vietnamese team made a concerted effort to address issues raised by the United States. In large part, Vietnam is in compliance with its BTA commitments, but some U.S. concerns remain, particularly in areas where comprehensive legislation has recently been passed and implementing regulations have not been finalized. END SUMMARY. ¶2. (SBU) After Vice-Minister of Trade Luong Van Tu welcomed the U.S. delegation, Deputy Chief of Mission Boardman emphasized that successful implementation of the BTA will build support for Vietnam's Permanent Normal Trade Relation status in Congress. Barbara Weisel, Assistant USTR for Southeast Asia and the Pacific and Pharmaceutical Policy chaired the day-long meeting for the United States while Office of the Government International Relations Department Director Bui Huy Hung chaired for the Vietnamese side. The U.S. delegation included Victoria Espinel, Assistant USTR for Intellectual Property; David Bisbee, Director, Office of Southeast Asia and the Pacific, USTR; Jennifer Ness, Attorney Advisor, U.S. Patent and Trademark Office; Hong-Phong Pho, Country Desk Officer, U.S. Department of Commerce; John Wade, Agriculture Attache, USDA; and Janet Speck, Deputy Chief of Economic Section. Intellectual Property Rights (IPR) - BTA Chapter 2 -------------- -------------- ¶3. (SBU) Status of 2005 Intellectual Property (IP) Law and Implementing Regulations: Vietnam provided the United States with an update on the 2005 IP Law, which will take effect on July 1, and will have four implementing decrees covering copyright, industrial property, plant varieties, and enforcement as well as circulars from each ministry, regulations on courts from the Supreme Court and three decrees on administrative violations. The four main decrees were originally going to be issued at the time the IP Law entered into force; however, the Vietnamese side explained that they are now scheduled to come out sometime before the end of July. Drafts of the enforcement and industrial property decrees are currently on the National Office of Intellectual Property (NOIP) website for public comment. The Vietnamese also provided the U.S. side the latest version of the copyright decree. When asked for clarification on the legal status of existing decrees pending finalization of the new decrees, Vietnam responded that existing IP-related decrees, if consistent with the new law, will remain in force, unless replaced by a new decree. Even though the new decrees will not be issued before the law comes into effect, Vietnam plans to implement the IP Law immediately. The U.S. side offered to help Vietnam with plans to educate the public on the new law. ¶4. (SBU) Enforcement: The U.S. side expressed concern that provisions in the IP Law that limit criminal liability to violations exceeding a certain monetary amount or to repeated violations did not meet the BTA and WTO requirement that infringement be criminal if it is willful and on a commercial scale. AUSTR Espinel noted that the United States has grave concerns about China's system, which, like Vietnam's, sets monetary thresholds before conduct is considered criminal. In response, the Vietnamese side cited circulars and guidelines that defined the factors making infringement criminal. Article 131 in the Criminal Code defines a crime and Trial Circular No. 2 from the Second People's Court provides greater detail. By Vietnamese law, the IP law's implementing decrees cannot supersede the criminal code; therefore, the decrees cannot be more specific than the code in this area. In response to questions from the United States, the Vietnamese side promised to provide further clarification on the definition of "seriousness" in Vietnam's criminal code and to provide the United States with an English language translation of Circular 2/2001 (12/25/2001),which deals with criteria for criminal thresholds. ¶5. (SBU) Remedies: The U.S. side asked which provisions of the new law provided remedies for civil, criminal and administrative violations that included seizure, forfeiture and destruction. According to Vietnam, Article 202(5) of the IP Law provides these remedies in civil proceedings and Article 214(2) provides them for HANOI 00001661 002.4 OF 006 administrative proceedings. They promised to provide citations to the appropriate provisions in the Criminal Code. The U.S. side, noting that the IP law permits courts to order that infringing goods be used for noncommercial use, asked the Vietnamese to clarify "noncommercial use." The Vietnamese said "noncommercial use" could mean giving the goods to charity or using them in public agencies. The U.S. side responded that donating seized goods to charity is acceptable, but distributing them to public agencies raised concerns. GVN noted that the Common Decree on Enforcement clarified the circumstances under which infringing goods could be used for non-commercial purposes. ¶6. (SBU) Re-exporting: The U.S. asked for an explanation of the rationale for permitting the re-export of pirated and copyright goods once the infringing element has been removed because, unlike for counterfeit goods, pirated and copyright goods, as a whole, are infringements and the infringing element cannot be removed. Vietnam explained that the broad language prevented situations where the law would, in effect, require that valuable goods be destroyed even though it is possible to remove the infringing element or where destruction is environmentally harmful or excessively expensive. The United States suggested clarifying this issue. ¶7. (SBU) Administrative Remedies: The two sides discussed how monetary penalties would be calculated under the new law, with the United States expressing concern that the low fines for counterfeiting under administrative remedies in the IP law might not sufficiently deter criminals or signal Vietnam's seriousness about intellectual property rights. The administrative fines for counterfeiting in the IP law are one to five times the value of the infringing good, which could be lower than the value of the real good. Vietnam noted that many National Assembly members felt the penalty is too high because it might bankrupt counterfeiters and would be difficult to enforce. Furthermore, Vietnam's ability to modify the penalties is restricted because decrees cannot increase the administrative penalties already set out in the IP Law. The U.S. noted that it would be better to have a penalty equal to the value of the genuine good than a penalty equal to five times the value of the infringing good. ¶8. (SBU) Geographical Indications (GI): When asked if Vietnam has a separate system for geographical indications and how trademarks and geographical indications interact, the Vietnamese side said that geographical indications are separate from trademarks. GIs are covered in the decrees on enforcement and industrial property and the Ministry of Science and Technology will also issue a circular. The IP Law only provides for GIs in Vietnam; U.S. companies seeking geographical indication protections must apply directly to the Vietnamese government. ¶9. (SBU) Data Protection: Article 128 of the IP Law has two paragraphs; the first requires the government to protect data from disclosure or unfair commercial use and the second denies a license to a subsequent applicant who uses data without permission. The U.S. side emphasized that draft implementing decrees should apply to both parts of Article 128 and that the U.S. would want to see draft decrees before Vietnam's WTO accession. The WTO working party report should provide clarity on Vietnam's data protection law. The Vietnam side asked the U.S. side to provide written comments and promised to convey U.S. concerns to the committees drafting the implementing decrees. Copyright - BTA Chapter 2 -------------- ¶10. (U) The discussion on IPR enforcement and other IPR issues took up the morning, therefore the Joint Committee split into two sections in the afternoon. One group, led on the U.S. side by AUSTR Victoria Espinel, discussed copyright issues, while the rest of the group moved on to other issues. ¶11. (SBU) Phonograms: In response to questions from the U.S. side, the Vietnamese clarified that Article 30 of the IP Law gives phonogram producers exclusive rights to distribution and that Article 30(2) only means the producer has the right to receive benefits and does not detract from exclusive distribution rights. The Vietnamese also explained that the phrase "provided they do not HANOI 00001661 003.4 OF 006 influence the copyrights exercise" in Article 17(4) is a mistranslation and that the phrase meant "without prejudice to the rights of the copyright holder" as required by the Rome Convention. ¶12. (SBU) Exceptions and Compulsory Licensing: The U.S. side expressed concern that Article 25(1) provisions on the use of copyrighted works without obtaining permission or paying royalties, specifically, 25(1)(a),(d'),(e) and (k),were too broad. (Note: Article 25(1) contains both a (d) and a (d'). End note.) AUSTR Espinel noted that the United States has some exceptions similar to Vietnam's, however, the U.S. exceptions are drafted in very specific language while the Vietnamese exceptions are more general. Vietnam's intentions may be compatible with WTO requirements, but the law's drafting could open a loophole. Regulations could make the exceptions more specific. The Vietnamese side pointed out that 25(1)(k) (importation for personal use) was mistranslated; the exception was limited to one copy. The Vietnamese side said it would welcome suggestions on how to draft language for the implementing decree that would narrow the exceptions. ¶13. (SBU) Importation Rights: The U.S. side asked if copyright holders' rights included the right to control importation, noting that they understood that the Civil Code included this right. The Vietnamese side said that in Vietnamese, Article 20(d) of the IP Law says "to distribute to the public and import". The phrase "and import" had been erroneously omitted from the English version. ¶14. (SBU) Compulsory Licensing: According to the U.S. side, the language in Articles 26 and 33 - allowing for use without obtaining permission, but paying royalties - was far too broad and inclusion of language taken from the Berne Convention on not prejudicing the rights of copyright holders ("three-step test") was not enough to solve the problem. AUSTR Espinel pointed out that Article 26 would cover all commercial broadcasting. The Vietnamese representatives explained that the provision was needed because Vietnam used the public broadcasting system to disseminate information to the public. The National Assembly had been "tough" on this issue because most broadcasting stations use government funds. They confirmed that compulsory licensing would also apply to hotels, bars and restaurants. AUSTR Espinel took note of the political difficulty of the issue, but also noted that the current language in the draft implementing decree compounded the problem. She said that the United States also has some broadcasting and public performance exceptions and offered to send suggestions on narrowing the language in the draft decree. ¶15. (SBU) Term of Copyright Protection: The Vietnamese said that although Articles 27 and 30 provide for only 50 years of protection, instead of the 75 years required by the BTA, U.S. authors would be entitled to 75 years by virtue of Article 5, which states that the provisions of international treaties prevail in the case of a conflict with the IP law. The U.S. side asked for this assurance in writing. AUSTR Espinel said that the WTO provisions on MFN meant that Vietnam would have to extend the term to other countries. The Vietnamese retorted that when negotiating the BTA, the U.S. team had claimed that Article 4(b) would exempt them from the MFN requirement. The U.S. side promised to look into this issue and get back to them. ¶16. (SBU) Copyright Registration and Presumptions: The Vietnamese side confirmed that copyright holders do not need to register or to obtain a certificate in order to enforce their copyrights. A registration/certificate only provides a presumption of authorship and ownership. AUSTR Espinel asked why it did not also provide a presumption that the work was protected by the state, which can be useful. The Vietnamese said that they did not want people to assume that registration was mandatory. The U.S. side also asked whether Vietnam's law provided, as required by the Berne Convention, for a presumption of authorship where the author's name appears on the work in the "usual manner." The Vietnamese pointed to the provision allowing authors to prove ownership through various documents, including copies of the work. The United States asked for clarifying language. Trade in Goods - BTA Chapter 1 -------------- HANOI 00001661 004.4 OF 006 ¶17. (SBU) Sanitary and Phytosanitary Measures (SPS): The Law on Standards is expected to be passed this session of the National Assembly, which ends June 21, and will govern Technical Barriers to Trade and Sanitary and Phyto-sanitary measures (SPS). The draft law contains BTA consistent language. (Note: The Law on Standards has been passed. End note.) The GVN has already set a central SPS inquiry point to meet WTO standards and plans to set up regional inquiry points. The Ministry of Agriculture and Rural Development (MARD) representative declined the U.S. proposal for a general technical assistance plan for SPS, but asked for additional assistance to produce risk assessment reports for several varieties of fruits that Vietnam would like to export to the United States. ¶18. (SBU) The U.S. side confirmed the USG commitment made during the recent U.S.-Vietnamese WTO accession talks to provide assistance in SPS trade capacity building. USDA's Foreign Agricultural Service (FAS) has already arranged for 11 Vietnamese officials to receive short-term training in the United States covering various SPS issues. This will occur over the next several months. FAS will continue working with the International Cooperation Department of MARD to fulfill needs as defined by Vietnam. Certain assistance that requires equipment and facilities such as a recent request for animal quarantine facilities is beyond FAS's ability. The U.S. side suggested that if this type of assistance remained important that Vietnam should reiterate the need and possibly other U.S. agencies might be able to accommodate Vietnam. ¶19. (SBU) Customs Valuation: The U.S. side sought answers to questions previously submitted in writing and mentioned complaints from importers about inappropriate use of reference prices. The GVN noted that it believed all customs evaluations issues were resolved during WTO negotiations in May and that technical issues would be addressed with written exchanges. Vietnam agreed to provide written responses to the U.S. questions at the earliest possible date. Regarding minimum valuations, the GVN said that, contrary to complaints made by U.S. firms, Vietnam does not apply minimum valuations on imports, and uses its customs price database as a reference for verifying declarations from importers, not as a data source for reference pricing. The sources of data for this database are Vietnamese and foreign customs data. For transactions between related parties, Vietnam will use reference data from arms-length relationships. Vietnam stated that Decree 155 and Circular 113 provide guidance and are the sole documents governing customs valuation and reference pricing. Vietnam also added that the Ministry of Finance intends to increase the kinds of payment accepted as guarantees for importing. ¶20. (SBU) Trading Rights: Discussion of trading rights focused on clarifying the process for companies to avail themselves of trading rights and whether the licensing requirements that exist for BTA eligible firms constituted a two-tier system inconsistent with the intent of the BTA. AUSTR Weisel asked if more specific guidance on trading rights would supplement Decree 12 and Circular 4. The GVN commented that trading rights are within the scope of the Commercial Law, and that four of the seven associated decrees have been drafted. Two decrees relate to foreign invested enterprises trading in goods and representative offices trading in goods. The GVN did not describe the contents or timetable for issuing these decrees or the associated circulars, but promised to supply the United States with draft versions for comment. The GVN indicated that it did not know if licensing would still be required seven years after entry into force of the BTA (2008) when full and equal trading rights were to be provided to both Vietnamese and U.S firms. ¶21. (SBU) Currently, U.S. companies may avail themselves of BTA rights by petitioning the contact point put in place after the 2005 annual review and specified in a July 2005 diplomatic note. Vietnam took note of U.S. concerns about the need for greater clarity with respect to its plans to implement trading rights. Vietnam noted that it would provide additional decrees to the United States that are currently only in Vietnamese. Vietnam further explained that Article 7 of the draft decree for foreign companies involved in trading will provide additional guidance. The U.S. side stated that the rights of U.S. companies must be in writing and requested written instructions detailing the process for U.S. companies to gain trading rights. AUSTR Weisel noted that requiring U.S. HANOI 00001661 005.4 OF 006 companies to apply separately for each shipment violated the national treatment principle. Trade in Services - BTA Chapter 3 -------------- ¶22. Unified Enterprise Law (UEL): The two sides also engaged in a detailed discussion of the impact the new unified enterprise law will have on existing joint ventures in general and specifically in the services sector where joint ventures continue to be required in many areas. The new UEL, which no longer provides for joint ventures as a distinct category of entity, must be reconciled with provisions of the BTA that state Vietnam's commitments in terms of joint ventures, previously the only vehicle for U.S. investments in certain sectors. The U.S. side asked what would happen to existing joint ventures, how U.S. companies could use rights given to joint ventures under the BTA and WTO services schedule with new enterprise forms, and whether equity proportion rules specified for joint ventures in the BTA would apply to other enterprise forms. The Vietnamese side explained that the new enterprise law contained the concept of the joint venture in Article 2(2) and that a joint venture would overlap with the forms of enterprises set out in the new law, including limited liability and joint stock companies. Existing joint ventures can choose whether to continue indefinitely as joint ventures or transform themselves into other forms of enterprises. In either case, their rights will be preserved, but if a company chooses to reregister, UEL provisions would apply. Entities choosing not to reregister will be restricted from expanding their business sectors and will expire according to the timetable in their original joint venture agreement. A draft decree expected in early July will provide guidance for the registration of enterprises. A Ministry of Justice (MOJ) representative stated that the requirements for equity contributions are no longer in place. (Note: We would want to see confirmation of her point in the implementing regulations for the UEL, which are not yet drafted. End note.) ¶23. (SBU) Legal Services: Vietnam stated that the National Assembly is expected to pass the Law on Lawyers, which covers domestic and foreign law firms, this session and that its contents exceed the requirements of the BTA. The GVN claimed that Decree 87 currently fulfills its BTA commitments on legal services. ¶24. (SBU) Market Research and Audio Visual Services: The U.S. side asked if, under the Commercial Law, market research and audio visual services are conditional sectors and what conditions would need to be met for U.S. firms to avail themselves of rights under the BTA. The GVN said that market research is not a conditional sector, so domestic and foreign invested companies can participate in this sector and that Vietnam does not exercise its right under the BTA to limit U.S. market research companies. The audio visual sector is a conditional sector under the Commercial Law, but, Vietnam said, the Ministry of Culture and the Ministry of Planning and Investment will issue criteria for foreign investment that are consistent with BTA obligations. The U.S. also requested clarification of the article in the Investment law that stated that certain sectors were considered conditional but were not identified. Vietnam agreed to provide clarification. ¶25. (SBU) Distribution: In response to the U.S. request for an update on Vietnamese implementation of this commitment, Vietnam explained that a decree covering distribution and trading rights is in the legislative plan. The U.S. requested to review this decree. [Note: Implementing decrees cover both trading rights and distribution rights]. Investment - BTA Chapter 4 -------------- ¶25. (SBU) Common Investment Law (CIL): This new legislation eliminates the differential treatment afforded to Vietnamese nationals and U.S. entities that existed when the BTA was negotiated. To meet BTA commitments, the CIL provides equal treatment for domestic and foreign investors. According to Vietnam, seven decrees will implement the CIL: 1) a general decree on the details of the law; 2) a decree on investment abroad; 3) a decree on build-operate-transfer, build-transfer-operate, and build-transfer HANOI 00001661 006.4 OF 006 projects; 4) a decree on business registration; 5) a decree on transforming foreign invested enterprises; 6) a decree on transforming state-owned enterprises; and 7) a decree on state administered business licenses. Vietnam promised to provide drafts of these decrees and also agreed to clarify which sectors are included in the "other" category in Article 19 of the Investment Law. ¶26. (SBU) Entry, Sojourn and Employment of Aliens: AUSTR Weisel asked whether there are decrees covering employment of aliens besides Decree 105. GVN explained that the CIL supersedes Decree 105, which limits foreign personnel to three percent of the workforce, and, under Article 14(3) of that law, an investor can hire management personnel without regard to nationality. Decrees associated with this law should not include any restrictions on hiring foreigners, although a professional certificate will still be required where applicable. Transparency - BTA Chapter 6 -------------- ¶27. (SBU) The U.S. side offered additional assistance to help the GVN implement the transparency requirements of the BTA. According to the GVN, large cities and some provinces now have an official gazette for normative legal documents, but there are too few resources to achieve the objective of providing English versions of all laws, including laws from the local level. In the near future the GVN intends to publish, with the assistance of the USAID-funded STAR Project, four reports on the BTA's impact on: 1) the economy in 2006, 2) the legal system, 3) FDI and 4) transparency in Vietnam. The Future of the BTA -------------- ¶28. (SBU) AUSTR Weisel emphasized that the BTA would not end with Vietnam's WTO accession. Many BTA commitments go beyond the WTO, and the United States intends to continue to use the BTA, along with other vehicles, to build our bilateral relationship. The Vietnamese side responded that the idea of the BTA ending upon WTO accession "never entered our minds" and affirmed that the GVN also desired to maintain and strengthen the bilateral relationship. AUSTR Weisel noted that Vietnam's implementation was generally good and most of the discussion had been simply to clarify issues. Comment -------------- ¶29. The talks were lengthy and detailed and the level of preparedness of the Vietnamese side was impressive. Vietnamese experts were able to respond to virtually all of the detailed and technical questions posed by the U.S. side. Where they could not respond or where the U.S. side pointed out conflicts with BTA requirements, the Vietnamese promised to make every effort to take our concerns into account and often asked the U.S. side to suggest solutions. It was clear that the GVN took the meeting, and BTA implementation, very seriously and was determined to make a good showing. MARINE