ASSESSING IMPACT OF WTO LEADS TO CALLS FOR FURTHER REFORM IN

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000333 SENSITIVE SIPDIS STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO USTR FOR BISBEE TREASURY FOR CHUN E.O. 12958: N/A TAGS: ECON ETRD SOCI PGOV VM SUBJECT: ASSESSING IMPACT OF WTO LEADS TO CALLS FOR FURTHER REFORM IN HCMC HO CHI MIN 00000333 001.2 OF 002 ¶1. (SBU) "Vietnam must reorient its development strategy or forgo many of the opportunities on offer as a member of the WTO," stated Vietnamese trade experts reflecting on two years of World Trade Organization (WTO) membership. By some measures, including increasing foreign direct investment (FDI),trade liberalization has been a success for Vietnam, said former Minister of Trade Truong Dinh Tuyen, but the benefits are overstated because they have done little to bolster Vietnam's productive capacity. Tuyen, along with Vietnam Institute for Economics Director Tran Dinh Thien, urged Vietnam's policy-makers to eliminate preferences for state-owned enterprises (SOEs),trust market mechanisms to regulate the economy and foster real competition in all sectors, especially education. The April 17 Conference hosted by the HCMC WTO Affairs Consultation Center provided a public airing -- by irreproachable experts -- of growing anxiety over the privileged role of SOEs in Vietnam's economy and a perceived slow pace of reform. Still, the central message was encouraging: Vietnam needs more economic reform, and faster. End summary. Grizzled Negotiator Calls it Like He See It - Not Good Enough -------------- -------------- ¶2. (SBU) As former Minister of Trade and key player in the U.S.-Vietnam Bilateral Trade Agreement and Vietnam WTO Accession negotiations, few are better placed than Truong Dinh Tuyen to assess the state of Vietnam's trade and investment environment. Tuyen pointed out that since joining the WTO, Vietnam has indeed become a popular destination for foreign investors -- $22 billion in FDI was licensed in 2007 and $64 billion in 2008. Vietnam has also made considerable progress amending laws and regulations to create a more open business environment. ¶3. (SBU) Just $8 billion and $11 billion of the licensed investment were actually implemented in 2007 and 2008 respectively, Tuyen lamented. More importantly, too much of the FDI has poured into real estate and hospitality instead of improving production capacity, human resources or value-adding facilities. Rapid investment has also led to serious environmental damage in cases, he noted. Tuyen jabbed "this cannot be called success." ¶4. (SBU) Current inadequacies stem from the persistent and unreformed vestiges of Vietnam's old command economy, Tuyen assessed. To overcome this, he said Vietnam must trust market mechanisms to regulate its economy, eliminate "every preference" for SOEs and create a level playing field in all sectors. Vietnam also urgently needs to increase the quality of human resources across all sectors, he said, including government officials, corporate managers, technical and economic experts and workers. All of this is achievable, Tuyen concluded, only if the GVN reduces its interference in the economy, cuts bureaucracy and transaction costs and fosters competition -- in essence, let the market regulate itself. Was Vietnam Ready for Integration? -------------- ¶5. (SBU) Vietnam really did shift a long way from the command economy of the 1980's toward a market economy in the 20-year period leading up to WTO accession in 2007, according to Vietnam Institute for Economics Director Dr. Tran Dinh Thien. Vietnam's growth model was based on exploiting natural resources and low-cost, low-skill human resources, he continued, a natural environment for growing big SOE conglomerates run by weak managers. For two decades, reforms led to high growth, stability and a more mature economy capable of integrating into the world economy, he added. But if the two years since WTO accession have been a test of Vietnam's readiness to integrate into the global economy, instability, high inflation and slowing growth suggest to Thien a rocky road ahead. ¶6. (SBU) Dr. Thien laid out a roadmap to long-term success for Vietnam: remove obstacles to infrastructure development, reform land and property markets, overhaul SOEs to enhance their efficiency, reduce bureaucracy, develop human resources and overhaul the educational system. View from the City -------------- ¶7. (SBU) Head of the southern delegation of the National Assembly Dr. Tran Du Lich noted that city and provincial governments sometimes struggle to understand how they can use WTO membership to their benefit. Dr. Lich said he, along with the HCMC City Council, pushed for a shift in strategy from HO CHI MIN 00000333 002.2 OF 002 trying to attract high quantities of FDI to attracting high-quality FDI. Recognition of U.S. Contributions -------------- ¶8. (SBU) The Deputy Principal Officer attended this April 17, 2009, conference organized by the HCMC's WTO Affairs Consultation Center to review what Vietnam achieved after more than two years of WTO membership. One keynote speaker, Mme. Nguyen Thi Hong, Vice Chairman of the HCMC Peoples Committee, highlighted the positive role played by the U.S. Embassy and USAID, via the Support for Trade Acceleration Program (STAR),in helping the GVN prepare for and accede to the WTO. (Comment: Mme Hong warmly greeted the DPO, who recently assisted an official HCMC delegation led by the former, to visit California on an investment-scouting trip. Mme. Hong introduced DPO to the other head speakers and gushed that the visit to the USG had been "extremely successful". End comment.) Comment: -------------- ¶9. (SBU) For a long time, people around town have said that Vietnam urgently needs to gather the will to enact a new round of economic reform and confront tough issues like reforming the education system. This conference splashed that message across the front pages of the city's newspapers in a big way. The trio of Tuyen, Lich and Thien is outspoken, reform-minded and widely-respected. While they sit outside official government channels, they influence policy players through their roles on various advisory committees; Tuyen on the National Monetary Policy Advisory Council, Thien as head of the Vietnam Institute of Economics and Lich in the National Assembly. The message, the messengers and the public venue all give us reason to hope for progress. ¶10. (SBU) Press commentary on the conference was equally telling. HCMC-based newspapers like the Vietnam Investment Review and Thanh Nien Daily reported the letter and spirit of the keynote speakers' calls for additional reform. National dailies like Vietnam News, in contrast, tended to quote current trade officials as saying that trade continues to develop according to plan. Former Minister Tuyen hit close to this in his parting comment to the conference, "I have to say these things in Ho Chi Minh City because nobody will listen to me when I say them in Hanoi." End comment. ¶11. (U) This cable was coordinated with Embassy Hanoi. FAIRFAX