AMBASSADOR'S MESSAGE TO UNDERSECRETARY HORMATS ON OUR

UNCLAS SECTION 01 OF 04 HANOI 001116

SENSITIVE
SIPDIS
SIPDIS
USTR FOR D. BISBEE, R. BAE

E.O. 12958: N/A
TAGS: ETRD VM XD BEXP ECON EAGR EFIN
SUBJECT: AMBASSADOR'S MESSAGE TO UNDERSECRETARY HORMATS ON OUR
ECONOMIC AGENDA WITH VIETNAM

HANOI 00001116 001.2 OF 004



1. (SBU) INTRODUCTION: I strongly believe that we have an
unprecedented window of opportunity today to influence the outcome
of Vietnam's fast transformation through our economic engagement.
Few will dispute that our work here over the last 20 years has had
a profound effect in Vietnam. Politically and socially, Vietnam
lags behind, and we have seen some recent human rights setbacks,
but I am convinced that change is inevitable. The engine behind it
is, for the most part, economic. Vietnam aspires to improve its
business climate and economic competitiveness, and it is our role
to continue to make the connection between these goals and respect
for civil liberties, better governance, labor freedoms, public
accountability and the rule of law, while reminding Hanoi that
human rights issues can create problems for our economic agenda.
In order to shape change, we must stay engaged. This is not the
time to step back, but to push even further. Continued engagement
on the economic front will help ensure that a prosperous, better
governed society, and a better partner for the United States,
emerges in Vietnam.




2. (U) I encourage you to consider including a visit to Vietnam in
your schedule. Your presence here will advance our ability to
influence the pace and outcome of Vietnam's transformation at this
critical time. Mission Vietnam and I sincerely welcome and
encourage your visit, and hope to see you here over the next year.



SUMMARY: BILATERAL TRADE AND INVESTMENT STRONG, BUT CHALLENGES
REMAIN




3. (SBU) The Government of Vietnam (GVN) has managed the global
economic crisis well, emerging as one of the few economies in the
region with positive GDP growth this year. U.S. companies have
continued to show strong interest in Vietnam throughout the crisis
- the U.S. has been the largest foreign investor in Vietnam in

2009. Despite the economic challenges of the past year, Vietnam
has continued to maintain a commendable record on opening its
market and undertaking other economic-related reforms. The GVN is
committed to deepening its trade relations with the United States,
and has been an engaged partner in Bilateral Investment Treaty
(BIT) talks and our bilateral Trade and Investment Framework
Agreement (TIFA) negotiations. At our urging, Vietnam agreed to
join Trans Pacific Partnership (TPP) negotiations as an associate
member.




4. (SBU) Vietnam genuinely yearns to be a 21st century trading
partner in the global economy, especially with the United States,
but is limited in various degrees by its human rights record,
inadequate labor laws, deficient infrastructure, wide-spread
corruption, and clunky vestiges of the former centrally planned
economy. Still, the GVN has shown real commitment on reform in key
areas, such as education and competitiveness, and has welcomed USG
assistance on a range of issues. As expected in a growing trade
relationship, there are unsettled trade issues, for example, GSP,
catfish, and a potentially precedent-setting plastic bags
countervailing duty case for Vietnam; market access for beef,
mandatory biotech labeling, and better IPR enforcement for the U.S.
For now the two sides are working through existing mechanisms to
resolve these issues. In my view, the best way to keep Vietnam on
the path of economic reform and encourage true political reform is
to maintain active, high-level engagement with Vietnam on the full
range of economic issues. End summary.



VIETNAM WEATHERS THE CRISIS, TRADE WITH U.S. CONTINUES TO THRIVE




5. (U) Although Vietnam's GDP grew at only 3.1 percent in the first
quarter of 2009 - the slowest growth in a decade - it accelerated
in the second and third quarters to 4.5 percent and 5.8 percent,
respectively. Full-year projections for 2009 GDP growth are about
five percent, making Vietnam one of the few economies in the region
with positive growth this year. GDP growth projections for 2010
range from 6.5 to 8.5 percent. Annual inflation is expected to
stay below seven percent. Through September 2009, Vietnam's

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exports were down by 14 percent, a much lower drop than had been
expected.




6. (SBU) Analysts credit the GVN's swift policy response to the
economic downturn for easing the effects of the crisis and
promoting a relatively strong recovery. In January 2009, the GVN
announced an economic stimulus plan to promote consumption and
investment, comprised of infrastructure investment, tax cuts and
deferments, and a four percent interest rate subsidy for selected
commercial loans. Most analysts estimate actual stimulus
disbursements between $2 to $3 billion USD. The most important
current risk is that the growth of the money supply and credit
under the stimulus plan will lead to increased inflation. There
are also concerns about how Vietnam will finance its increasing
budget deficit - a consequence of stimulus spending combined with
decreasing revenues due to tax cuts and deferments.




7. (SBU) U.S. companies have continued to show strong interest in
Vietnam throughout the economic crisis, and U.S.-Vietnam bilateral
trade and investment continue to thrive. Since the 2001
U.S.-Vietnam Bilateral Trade Agreement (BTA),bilateral trade has
increased from $2.91 billion in 2002 to $15.7 billion in 2008.
Agriculture trade is particularly strong: U.S. agriculture exports
to Vietnam reached a record $1 billion in 2008. The U.S. has been
the largest foreign investor in Vietnam in 2009, with total new and
additional FDI of $3.95 billion. The U.S. was Vietnam's second
largest trade partner overall, after China, in the first eight
months of 2009.



VIETNAM STAYS THE COURSE IN TRADE POLICY




8. (SBU) Despite the challenges of the global financial crisis,
Vietnam for the most part has stuck to its free-market stance. The
GVN finished free trade deals in the second half of 2008 with
Japan, Australia and New Zealand. Vietnam is pursuing an equally
ambitious agenda with the United States. We will hold our third
round of Bilateral Investment Treaty discussions in mid-November in
Washington. We continue to engage Vietnam on a range of trade
issues under the bilateral Trade and Investment Framework Agreement
(TIFA) meetings. USTR Kirk held a ministerial TIFA with Vietnam's
Minister of Industry and Trade Hoang in Singapore in July. In
February 2009 Vietnam announced it was joining the Trans Pacific
Partnership (TPP) negotiations with Australia, New Zealand,
Singapore, Peru, Chile, Brunei, Singapore and the United States as
an associate member.



CHALLENGES AHEAD AND THE USG RESPONSE




9. (SBU) A number of political and economic challenges could stall
Vietnam's progress on trade and investment liberalization. On the
political side, recent arrests of lawyers, journalists, and
dissidents, pressure on independent organizations, and tightening
restrictions on the media have had an adverse impact on our
relationship as a whole, and make it more difficult to pursue our
trade agenda with Vietnam. Further, the recently enacted Decision
97, legislation that severely restricts the freedoms of independent
research organizations, will discourage research and development
investment here. We must continue to emphasize to the GVN the
degree to which human rights abuses undermine our ability to move
forward on a positive bilateral trade agenda.




10. (SBU) Labor reform is also a challenge, and is critical to
approval of Vietnam's application for the Generalized System of
Preferences (GSP). Labor will also figure prominently at the next
TIFA talks, as well as possible future TPP negotiations and
U.S.-Vietnam Market Economy Status discussions. Vietnam is
currently revising its labor laws, including the Trade Union Law,
which the U.S. supports through our bilateral Labor Dialogue and
technical assistance from USAID and the Department of Labor.

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11. (SBU) U.S. investors and businesses in Vietnam have urged the
GVN to focus on improving the business climate, including opening
industries to foreign competition, improving infrastructure,
reforming state-owned enterprises, reducing red tape, and
strengthening anti-corruption efforts. Mission Vietnam has pressed
the same message, emphasizing the need for administrative reforms,
trade liberalization, and increased transparency. Over the past
nine years, the USG has spent $41 million in the highly-successful
Support for Trade Acceleration (STAR) and Vietnam Competitiveness
Initiative (VNCI) programs.




12. (SBU) Post has also urged Vietnam to move ahead with education
reform, which has become a serious drag on economic development.
Vietnam's response has been encouraging. The GVN has embraced
education reform and is seeking increased investment in this
sector. The U.S.-Vietnam Education Task Force, established in June
2008, has recently completed a bilateral report to be presented to
leaders in both countries recommending concrete steps to improve
university education in Vietnam.



BILATERAL TRADE ISSUES: REAL BUT MANAGEABLE




13. (SBU) As expected in a growing trade relationship, both the
U.S. and Vietnam have several outstanding issues we want to see
resolved positively. For the Vietnamese, current priorities are
GSP review, catfish, and the recent plastic bags countervailing
duty (CVD) case against Vietnam, which is the first of its kind and
may open the door to further CVD cases in the future. Immediate
concerns for the U.S. are improved intellectual property
protection, mandatory biotech labeling, and market access for U.S.
beef. We want to continue to reassure the GVN of our continued
commitment to deepen bilateral economic ties, and note that some
trade disagreements are normal in a maturing bilateral trade
relationship.




14. (SBU) Generalized System of Preferences (GSP): Vietnam
requested designation as a GSP beneficiary in May 2008. We
subsequently informed the GVN it needed to address key elements
related to worker rights issues and continue to make progress on
intellectual property rights (IPR) issues before we could move
forward with this request.




15. (SBU) Catfish: Vietnamese seafood exporters, the GVN, and U.S.
importers of Vietnamese seafood are concerned about the fate of
trade in pangasius (tra and basa) fish. The 2008 Farm Bill shifted
regulatory jurisdiction over "catfish" to USDA but left open the
definition of catfish. A previous Farm Bill mandated that
Vietnamese pangasius fish could not be called catfish in the United
States, which has created ambiguity as to what species of fish the
2008 Farm Bill will eventually cover. A resolution by USDA of the
catfish definition is expected in early 2010. Foreign sales of
these fish were a bright spot for Vietnam in 2008, with both export
value and volume up worldwide, and exports to the United States
totaling $70 million. In turn, Vietnamese seafood exporters are
large consumers of U.S. feed (exports of U.S. grains and feed to
Vietnam commonly used in the seafood industry reached $192.6
million in 2008, a 44 percent increase from 2007).




16. (SBU) Countervailing duty (CVD) case: The Department of
Commerce announced a positive preliminary determination in the CVD
investigation on imports of plastic bags from Vietnam in August

2009. A Commerce team will be in Vietnam October 30-November 21 to
complete its investigation, and will make a final determination in
January 2010.




17. (SBU) Market access for U.S. beef: Vietnam currently restricts

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imports of beef and beef products from the U.S. to animals less
than 30 months old. In June 2009, the GVN made a partial offer
(allowing boneless beef over 30 months),which we have informed
them is not acceptable. We want to continue to urge full opening
of the Vietnamese market to U.S. beef.




18. (SBU) Mandatory biotech labeling: Despite considerable USG
support to assist the GVN in modernizing its food and food safety
regimes, including support for the drafting of new food safety and
biosafety laws, Vietnam's current draft legislation requires
mandatory labeling of all genetically modified food and
agricultural products. We have requested that the government
remove all mandatory labeling provisions in the draft legislation.




19. (SBU) Intellectual property rights (IPR): Vietnam's National
Assembly recently passed an amendment to the criminal code that
fails to include all exclusive rights for copyrights and related
rights, and may fall short of Vietnam's obligations under the WTO
TRIPs agreement and the U.S. Vietnam Bilateral Trade Agreement. We
are working closely with the GVN as it strives to improve both IPR
legislation and enforcement.
Michalak