U.S.-ASEAN BUSINESS COUNCIL BOTH OPTIMISTIC AND CONCERNED

UNCLAS SECTION 01 OF 05 HANOI 000849 SIPDIS STATE FOR EAP/MLS; EB; EB/ESC/IEC STATE PASS TO USTR DBISBEE USDOC FOR 4430/MAC/ASIA/OPB/VLC/HPPHO USDOE FOR INTERNATIONAL AFFAIRS SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ECON ETRD BTIO EINV WTRO PREL PGOV VM SUBJECT: U.S.-ASEAN BUSINESS COUNCIL BOTH OPTIMISTIC AND CONCERNED ABOUT VIETNAM HANOI 00000849 001.2 OF 005 (U) SENSITIVE BUT UNCLASSIFIED. DO NOT POST ON THE INTERNET. ¶1. (SBU) Summary: Eighteen U.S. business representatives delivered a message of optimism mixed with concern during a mission of the U.S.-ASEAN Business Council (USABC) to Hanoi on May 3 and 4. The highlight of the mission's two-day series of meetings with Government of Vietnam (GVN) officials, mostly at the Vice Minister level, was a 45-minute meeting with Prime Minister Nguyen Tan Dzung, who emphasized the GVN's intention to continue economic reforms along with enthusiastic, though unspecified, encouragement for the development of the U.S.-Vietnam business relationship. He did explicitly state that Vietnam is looking forward to the conclusion of a Trade and Investment Framework Agreement (TIFA). The media provided extensive and positive press coverage of the mission. End Summary. ¶2. (U) Eighteen U.S. business representatives delivered a message of optimism about opportunities in Vietnam in the wake of WTO entry during a mission of the U.S.-ASEAN Business Council (USABC) to Hanoi on May 3-4. Throughout the visit, the representatives expressed concern about the lack of clarity in government regulations, procedures and decision making and expressed frustration with continuing intellectual property rights violations. They noted they were the first U.S. business mission to Vietnam following the country's accession to the World Trade Organization (WTO) and Vietnam's obtaining Permanent Normal Trade Relations (PNTR). The businesses represented were ConocoPhillips, Exxon Mobil, Raytheon International Inc, Ford Motor Company, IBM, Alcoa, The Boeing Company, Vietnam Partners, Chevron Vietnam, Abbott International, Agilent, Hewlett-Packard, Time Warner, APCO Worldwide, GE, JHPIEGO, United Telecom Services and UPS. PRIME MINISTER EXPRESSES SUPPORT -------------- ¶3. (SBU) The highlight of the mission was a 45-minute meeting with Prime Minister Dzung, who presented himself as a cordial and enthusiastic supporter of U.S. investment. Dzung emphasized the GVN's intention to continue economic reform along with enthusiastic, though unspecified, encouragement for the development of the U.S.-Vietnam business relationship. While he noted that he looks forward to the signing of a TIFA as a deliverable for President Nguyen Minh Triet's visit to the United States this year, he did not hint at the conclusion of any other of the large business deals, such as a Boeing sale of 787s to Vietnam Airlines or a Chevron gas supply contract. Frances Zwenig, USABC Counselor, Jim Andrews, Vietnam Business Development Manager for ConocoPhillips and Mike Fleming, Vietnam Sales Manager for Boeing, spoke for the USABC group, congratulating Vietnam for its progress, but speaking of concerns. The Ambassador also attended. ¶4. (SBU) ConocoPhillips's Andrews noted that a constant concern is the lack of clarity in new business decrees, regulations and internal procedures to support these changes. "We would urge a dialogue with the investment community to ensure that there are no unintended consequences for new legislation," he said. Many investors fear that Vietnam's infrastructure development will not keep pace with demand. Two types of infrastructure urgently need investment: 1) hard infrastructure, including railroads, ports, roads, air ports, air planes and electricity; and 2) soft infrastructure, i.e., skilled workers in the legal, business, technology, earth sciences and health professions, Andrew said. ¶5. (SBU) Boeing's Fleming opined that this is Vietnam's time, but the times of opportunity never last quite as long as we would like them to. "As global companies we have to weigh opportunities in one region or another. In the interest of helping Vietnam achieve its goals, we hope to see Vietnam speed the ease of doing business," he said. (Note: This message is related to Boeing's desire for a quicker decision by the GVN on the Boeing sale. Boeing says the GVN must make the purchase decision soon or lose the slots reserved for delivery in 2014 and 2015. End Note.) ¶6. (SBU) Dzung, smiling and attentive throughout, spoke for the next 25 minutes, noting the development of the economic relationship between the United States and Vietnam in the last ten years and outlining Vietnam's major goals. Recent reforms had successfully transformed Vietnam into a "genuine market economy," and the GVN's "democratic" policies and emphasis upon social equity were responsible for its success. "Our policies reflect the will of the HANOI 00000849 002.2 OF 005 people. We believe the trust of the people is the root of sustainable development," he said. The GVN will continue the development of its global economic integration, which required an institutional and legal framework. "We are going to change our legal framework to make ourselves conform to the international rule of the WTO," he said. "You said that you are concerned about the clarity of legal documents. That is our concern too." ¶7. (SBU) Dzung also addressed the concerns mentioned by the USABC members. Tipping his hat to an often raised concern by Time Warner during the mission, Dzung said "We know IPR protection is the foundation for economic development." He also agreed that Vietnam must urgently address both its hard and soft infrastructure needs and specifically asked for United States assistance in developing the skills of Vietnam's workforce. "This is one of our primary intentions," he said. On the TIFA, Dzung stated that he believed the agreement would represent "another step forward for the success of Vietnam." At the end of his presentation, Dzung said that Vietnam is very interested in the many projects represented in the room. "I have asked the ministries to take steps to realize your proposals," he said. ¶8. (SBU) The Ambassador closed the meeting noting that Vietnam has many friends in the United States and the companies participating in this trade mission are among the most influential. He urged the Prime Minister to ensure that his government helps make President Triet's visit to the United States later this year as productive as possible. He expressed his hope that some of the deals represented by the firms present could be announced during the visit and also emphasized the potential benefit of the two governments signing a TIFA. (Note: In a separate meeting, the Ambassador briefed the USABC group in detail about our growing concerns regarding human rights. End Note.) LUNCH FOR VICE MINISTER FOR FOREIGN AFFAIRS -------------- ¶9. (SBU) At a luncheon for Vice Minister of Foreign Affairs Le Van Bang, USABC Counselor Zwenig read a letter signed by U.S. Senators John Kerry and John McCain commending Bang for his work to normalize U.S.-Vietnam relations extending back to his time as Ambassador to the UN and chief of the liaison office to the United States in the early 1990s. Zwenig, Virginia Foote--former President of the U.S.-Vietnam Trade Council and now President of Vietnam Partners LLC, an investment bank--and the Ambassador recalled warmly the critical role Le Van Bang played throughout his years of working on U.S.-Vietnam relations and wished him well in his next assignment. (Note: Le Van Bang is expected to become Vietnam's next Ambassador to China. End Note.) ECONOMIC DEVELOPMENT STRATEGY AND PLANNING -------------- ¶10. (SBU) In a session devoted to economic development and infrastructure investment, Vice Minister of Industry Do Huu Hao and Vice Minister of Planning and Investment Nguyen Bich Dat described the GVN's three development policy pillars: economic growth, social equity and environmental protection. The goal is to turn Vietnam into an industrialized economy by 2020, Dat said. Vice Minister Hao said the rate of industrial growth in Vietnam is expected to be double that of economic growth and he emphasized the numerous opportunities for foreign investors in the energy industry, particularly in power stations, renewable resources and refineries. Vietnam aims to build a nuclear power station by 2015, he added. Ha Khac Hao, Deputy Director General of the Ministry of Transportation, said that additional opportunities exist in the transportation infrastructure, particularly the north-south road axis. He also noted upcoming port projects in Hai Phong and Can Tho, as well as airport projects such as an international air terminal in Danang. ¶11. (SBU) In the question and answer period, Chevron's Andrew Latham asserted that Vietnam is facing "challenges related to legislation that is changed without investor consultation," a lack of transparency in government structures, decision making bottlenecks and a lack of skilled human resources. He said that the GVN is making regulatory reform progress, "but in the energy sector, it is slow." Foreign investors also face a lack of clear boundaries between the roles played by the state-owned energy monopoly, which simultaneously acts as joint-venture partner, regulator, buyer and seller of petroleum products, he said. (Note: Lathan was referring HANOI 00000849 003.2 OF 005 to state oil and gas monopoly PetroVietnam. End Note.) He also urged a resolution of the dispute between China and Vietnam over the Spratly Islands, noting that the gas resources there needed to fuel Vietnam's growth cannot be developed. Michael Fleming of Boeing urged a decision by Vietnam Airlines on its purchase of Boeing aircraft, noting that Vietnam Airlines' fleet would have to nearly triple to 31 airplanes by 2015 to meet its growth needs. MINISTRY OF POST AND TELEMATICS -------------- ¶12. (SBU) Vice Minister Tran Duc Lai of the Ministry of Post and Telematics (MPT) presented at a second session on economic development. The session was dominated by questions put forth by Hugh Stephens, Time Warner's Senior Vice President for International Relations and Public Policy for the Asia Pacific region. Stephen urged GVN officials to fulfill Vietnam's WTO intellectual property rights commitments, noting that one digital satellite television firm, Vietnam Multimedia Corporation (VTC),owned by MPT and operating in "pilot" status for three years, has been pirating Time Warner content such as CNN and HBO for years. Vice Minister Lai did not commit to a change, only saying that "we are working to make the experimental period as short as possible." Subsequent to this meeting, the Vice Minister helped to schedule meetings between Time Warner and representatives from VTC to discuss their business operations and pirating of Time Warner-owned content. MINISTRY OF TRADE AND WTO ACCESSION -------------- ¶13. (SBU) In a session on Vietnam's trade policy after joining the WTO, Vice Minister of Trade Luong Van Tu and President of the Vietnam Chamber of Commerce and Industry (VCCI) Mr. Vu Tien Loc described how the GVN and Vietnamese businesses are responding to new responsibilities, opportunities and challenges now that Vietnam is a WTO member. VM Tu summarized the legal reforms Vietnam has undertaken to comply with its WTO commitments, noting specifically its joining of the Berne Convention and ongoing work to institute a more robust regime to protect and enforce intellectual property rights. Loc discussed the optimism among Vietnamese enterprises and their aspirations to partner with U.S. firms. The GVN is working closely with VCCI's member companies to educate them on Vietnam's WTO commitments and the practical impact that its membership will have on their operations. Additional vocational training and human resources development are needed, Loc added, suggesting this as a possible area for international investment and cooperation. ¶14. (SBU) In the Q&A session with the panel members, U.S. businesses welcomed the prospect of a TIFA as an opportunity to continue dialogue and explore ways to expand bilateral economic cooperation. One firm suggested the creation of an energy sector working group under the TIFA, while another noted its hope that TIFA discussions could eventually lead to additional openings in Vietnam's key service sectors. IPR protection is paramount for U.S. businesses, explained one delegation member, noting the desire to see enhanced enforcement of Vietnam's BTA and WTO obligations on IPR protection, particularly in the prevention of signal and broadcast piracy. The delegation also expressed willingness to assist training Vietnamese businesses to understand international business practices and Vietnam's WTO commitments better. ¶15. (SBU) Vice Minister Tu agreed that the signing of a TIFA, if realized, would be a great step forward. Vietnamese businesses are also optimistic about new cooperative opportunities through a TIFA. Many VCCI member companies will travel to the United States this summer with President Triet, where Mr. Loc hopes they will be able to sign a number of high-value commercial deals. Responding to the proposed development of an energy-sector working group, the VM agreed that investment in the energy field is a legitimate interest for both countries, and he hopes to see further U.S. investment in the energy sector, particularly refineries, as well as other projects to develop Vietnam's core infrastructure. Finally, Tu agreed that a gap remains between the IPR legal regime and the reality in Vietnam's market, but reiterated that Vietnam is fully committed to implement its laws and is working to strengthen inspection and enforcement efforts. MINISTRY OF FINANCE -------------- HANOI 00000849 004.2 OF 005 ¶16. (SBU) Vice Minister of Finance Truong Chi Trung said the GVN plans to continue to develop the country's capital markets and speed up the equitization of State Owned Enterprises (SOEs). About 200 firms currently trade on the official markets in Ho Chi Minh City and Hanoi, and 800 on the informal over-the-counter market. The equitization process is essential for the restructuring of SOEs, he said. These equitizations were creating new opportunities for capital market development as many firms are being listed publicly. The GVN will focus on concluding equitization between now and 2010, with a focus on major SOEs. Colin Low, President of General Electric (GE) for Singapore, the Philippines and Vietnam, commended the GVN for raising the cap on foreign holding of Vietnamese commercial banks and asked for the Vice Minister to clarify the requirements for "strategic partners" who invest in banks. Vice Minister Trung said that the definition in the law is vague and that a new decree on equitization to replace Decree 187 would spell out these requirements more specifically. Virginia Foote said that many laws had been passed for Vietnam to join the WTO, but many questions remain about issues related to corporate governance. Vice Minister Trung acknowledged the problem, adding, however, that new laws on accounting and auditing would require companies to apply international standards. A new law on taxation would also lead to many new business practices at Vietnamese firms, he said. NATIONAL ASSEMBLY -------------- ¶17. (SBU) In a May 4 working lunch session on lawmaking and the fulfillment of WTO commitments, a panel including National Assembly Foreign Affairs Committee Vice Chairperson Madame Ton Nu Thi Ninh and National Assembly Economic and Budget Committee Members Danh Van Thanh and Truong Huu Chi opined that U.S.-Vietnam relations are at a very unique moment of opportunity. This opportunity will not last forever, the legislators cautioned, adding that the National Assembly, the GVN and the United States must take actions to capitalize on the great momentum that has developed between our two countries. Madame Ninh outlined the three main challenges she believes Vietnam is facing in the post-WTO environment: 1) the need for significant infrastructure development in Vietnam; 2) the need to reform Vietnam's education system and develop better human resources; and 3) the challenge of legal enforcement and implementation of Vietnam's new WTO commitments. ¶18. (SBU) Madame Ninh envisions the National Assembly playing a greater role in each of these areas, and encouraged U.S. businesses to keep "an open channel" with NA members to ensure that Vietnam upholds its commitments. Vice Chairperson Ninh also stressed the important role that a strong judiciary should play in strengthening and improving Vietnam's business environment. Finally, she urged U.S. businesses to work with Vietnamese firms to organize delegations such as the current USABC delegation to Vietnam; as such trips can go far in developing stronger ties between our countries. MINISTRY OF HEALTH -------------- ¶19. (SBU) The Ministry of Health's (MOH) Tong Hoai Nam described to USABC members the problems in Vietnam's healthcare system. According to Nam, Vietnam lacks funds to upgrade its healthcare system. Moreover, at present, Vietnam has a serious shortage of preventative medical staff and many healthcare workers have not received sufficient training. About 3.5 million Vietnamese contract diseases such as the flu, malaria and tuberculosis each year, but preventative medicine remains inadequate. Nam said Vietnam's policy makers are working to upgrade Vietnam's healthcare system. The GVN has completed a plan that aims by 2010 to increase significantly the number of preventative medicine specialists. In addition, MOH is trying to develop a new model for the health insurance system. Nam will give more details of Vietnam's "master healthcare plan" to the USABC after it is completed. ¶20. (SBU) Ms. Leslie Mancuso of JHPIEGO, an international health organization affiliated with John Hopkins University, told the group that JHPIEGO can enhance the quality of healthcare services for women and families through training and health education. However, JHPIEGO will not provide funds for MOH plans. GE's Colin Low raised questions about equipment and products from China and India that the GVN does not allow to be used in Vietnam. Nam responded that the GVN does not purchase this equipment because much of Vietnam's HANOI 00000849 005.2 OF 005 healthcare budget comes via aid from the Japanese Government. The GVN can only spend Japanese Government aid money on Japanese equipment, Nam added. PRESS COVERAGE -------------- ¶21. (U) Press coverage of the USABC meetings was extensive and positive, with nearly every major news daily and internet news source covering the events. Separate pieces covered the panel sessions, the lunch with Vice Foreign Minister Le Van Bang and the meeting with Prime Minister Dzung. MARINE