RED TAPE GRIPES AGAIN DOMINATE VIETNAM'S DISCUSSIONS WITH

UNCLAS SECTION 01 OF 02 HANOI 000569

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TAGS: EINV ETRD ECON KCOR VM

SUBJECT: RED TAPE GRIPES AGAIN DOMINATE VIETNAM'S DISCUSSIONS WITH
THE PRIVATE SECTOR

REF: A) Hanoi 50 (Assistance as Window of Opportunity);
B) 08 Hanoi 1329 ("Private Sector Tells Vietnam")

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1. (U) Summary: At a semi-annual meeting between the Government and
the private sector, local and international businesses criticized
Vietnam's multiple administrative hurdles, inefficient tax regime,
and lack of transparency as they recommended ways to speed up
investment in the banking, mining and tourism sectors. GVN
officials acknowledged most of the criticism, but did not make
specific commitments to address the problems raised. Many other
sectors, including some Vietnamese business associations, are
clamoring to join the VBF, one of the few such fora for frank
exchanges with the GVN. End Summary.

ADMINISTRATIVE REFORM AT THE TOP OF THE AGENDA
-------------- -


2. (U) The need to cut inefficient and unnecessary administrative
procedures was a major theme throughout the June 2 Vietnam Business
Forum (VBF) in Ho Chi Minh City, hosted by the World Bank and
Vietnam's Ministry of Planning and Investment (MPI) in conjunction
with the mid-term Consultative Group meeting (between the donors and
the GVN). "For many foreign companies, the complexity of
administrative procedures and the sometimes uncoordinated and
inconsistent implementation of laws and regulations between
different authorities can present a serious hindrance to running a
successful business in Vietnam," the head of the EU Chamber of
Commerce, told the audience, which included dozens of Government of
Vietnam (GVN) officials, including ministry heads. AmCham once
again raised widespread corruption as one of the biggest taints on
Vietnam's reputation. All of the chambers of commerce,
international and local, requested increased transparency.

ADMINISTRATIVE REFORM EFFORTS
--------------


3. (U) A presentation on Project 30 --a Prime Minister-led
administrative reform effort supported by the USG designed to
improve the business investment climate (REF A)-- listed the most
egregious cases of red tape, such as import and investment
licensing, and notarization of foreign documents, as examples where
immediate remedial action could be taken. One of the most
interesting presentations was by the (all Vietnamese) Young Business
Organization (YBO) of Dong Nai, in southern Vietnam. They called
for:

--clearer bankruptcy procedures (the World Bank reports bankruptcy
proceedings in Vietnam take an average of 5 years, with creditors
recovering only 18% of what they are owed);

--streamlined procedures for setting up new businesses
(environmental and safety requirements are particularly hard on
small and medium sized enterprises, he noted);

--improved "equitization" (partial privatization of state-owned
assets) rules (the YBO asserted that 75% of Vietnamese businesses
will not buy stocks from State Owned Enterprises (SOE)); and

-- the promulgation of a Freedom of Association law to clarify the
rules to set up businesses and trade unions. This last call was
echoed by the (again all Vietnamese) Ho Chi Minh City Union of
Business Associations.

PLEA FOR TAX CERTAINTY
--------------


4. (U) The private sector representatives cited the lack of tax
certainty and the heavy tax burden as two of the biggest
disincentives to doing business in Vietnam. AmCham urged the GVN to
manage its tax policy with more clarity, predictability and
efficiency. The current sliding scale nature of the local tax
regime creates an unstable market for investment, according to many
business leaders. "With many of our members shouldering effective
tax burdens of up to 50% or more, we believe that further
improvement is both possible and necessary in order to further
stimulate economic activity," the EuroCham President stated.
Recommendations included providing tax incentives to promote private
insurance, clarifying real estate taxes, lifting or removing the cap
on advertising and promotional expense deductions, and easing the
tax burden for those living in Vietnam for less than one year and on
income generated outside Vietnam. Minister of Planning and

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Investment Vo Hong Phuc acknowledged that last year's tax law was
"unrealistic in some areas." He added that investment in Vietnam
faced two "bottlenecks:" infrastructure and human resources. To
address this, he said, the GVN is reviewing the financing of
education, and working to improve cooperation with provincial and
local governments.

BANKING
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5. (U) The Banking Working Group (BWG),representing more than 30
international financial companies operating in Vietnam, urged the
GVN to flesh out its long term plans for foreign investment in this
sector. "There is a need for clarity on quantum [of ownership] and
timing of further increase in shareholding," the BWG Chairman, who
is also Standard & Chartered Bank's top official in Vietnam, stated.
Additionally, the BWG recommended that the GVN set up an accredited
rating agency in Vietnam, which would considerably ease capital
raising through corporate bonds and commercial paper. Vice Finance
Minister Tran Xuan Ha responded that his Ministry was reviewing the
Securities Law and would pass proposed revisions to the National
Assembly in 2011. He reaffirmed the GVN's commitment to "equitizing"
Vietnam's SOEs as stated in the Road Map to 2010 approved by the
Prime Minister, but acknowledged that "progress has been slow." He
said the BWG's proposal for a pension fund was "in line with the
development of intermediary institutions" and committed to study the
concept. He also noted that Vietnam's stock market would be open for
an additional 15 minutes in the morning and that a pilot program
would begin soon to test the utility of an afternoon session. The
State Bank of Vietnam publicly endorsed many of the BWG's
recommendations, but then noted that the issues were the purview of
the Ministry of Finance.

MINING INVESTORS DETERRED
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6. (U) The Mining Working Group (MWG) asserted that Vietnam's mining
sector is the most heavily taxed in the world (particularly because
most taxes are production rather than profit based) and blamed lack
of investment in the sector on policy inconsistency. The Ministry
of Finance responded unequivocally that the GVN considered minerals
"non-renewable resources and does not encourage their export." The
Ministry of Natural Resources and Environment's Department of
Geology announced that the terms of exploration would be increased
from 24 to 36 months, and per the recommendations of the MWG would
be extendable (additional information is available on dgmr.gov.vn).

CHANGES IN VISA POLICIES TO ATTRACT MORE VISITORS
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7. (U) The Tourism Working Group (TWG) asked the GVN to dramatically
improve the current "visa on arrival" procedures for nationals from
the United States, Hong Kong, Taiwan, Australia, France, Canada and
other countries that have a "long standing commitment to Vietnam and
can help provide for economic growth." The TWG described current
procedures as "complicated, mysterious and intimidating," and said
that Vietnam finds itself at a disadvantage with neighboring
countries with laxer visa entry policies like Thailand, Indonesia,
and Malaysia. Furthermore, the TWG suggested that the GVN create a
visitor's bureau and undergo a comprehensive sales and marketing
campaign to rebrand Vietnam as a tourism destination.

COMMENT: FOLLOW UP IS KEY
--------------


8. (U) The GVN officials acknowledged most of the criticism leveled
at the Government. Although, as is customary at these meetings, the
GVN did not commit to specific action it did not refute the
criticism either. The semi-annual Business Forum is rapidly
becoming the preeminent venue for airing complaints and making
recommendations to the GVN. Where it can, the GVN does its best to
follow up -- such as suspending the new personal income tax after it
drew sharp criticism at the last VBF. However, some of the most
oft-cited problems, like the lack of transparency and infrastructure
development, have no easy fixes. The private sector is wise to keep
pressing these issues nonetheless and hold the GVN accountable
before this public and, often effective, forum.


9. (U) This telegram was coordinated with ConGen HCMC.

PALMER