This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 HANOI 003342 
 
SIPDIS 
 
STATE FOR EAP/MLS AND EB/TPP/BTA/ANA GOODMAN AND WICKMAN 
STATE PASS USTR ELENA BRYAN AND GREG HICKS 
STATE PASS USAID FOR ANE/AA KUNDER/KENNEDY/WARD 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
TREASURY FOR OASIA 
 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: EINV EFIN ETRD ECON PREL VM WTO
SUBJECT: VIETNAM'S NEW COMMON INVESTMENT LAW 
 
SENSITIVE - DO NOT POST ON THE INTERNET 
 
¶1. (SBU) Summary:  Vietnam's National Assembly (NA) passed 
fourteen pieces of legislation during its final 2005 session 
(October 18-November 29).  Of the fourteen, none were as 
controversial as the Common Investment Law (CIL).  Approved 
only in the final hours of this session, the official CIL is 
a major improvement over the more controversial draft 
versions, which had prompted intervention from foreign 
chambers of commerce, governments and donors when made 
public in early October.  While many of these international 
lobbying efforts focused on working with the Government of 
Vietnam's (GVN) interagency drafting team, the most 
significant changes were negotiated by the NA itself, 
suggesting that despite their reputation as a mere "rubber 
stamp" to official policy, the NA can influence GVN decision- 
making under the right circumstances.  End Summary. 
 
¶2. (SBU) Donors and the business community have argued for 
some time that Vietnam needs a new "Common Investment Law" 
to bring consensus and clarity to an outdated set of decrees 
and rules that can make investing in Vietnam a complicated 
and unpleasant process.  After reviewing its bilateral trade 
commitments, its aspirations for World Trade Organization 
(WTO) membership, and its GDP growth targets, the GVN agreed 
and created an interagency drafting team to do so.  A few 
years and sixteen drafts later, the drafting team presented 
a CIL that seemed to miss the entire point of its creation. 
This draft bill created a larger and more complicated 
registration and permit system (presumably to allow 
officials to regulate and control investment projects 
better, while offering more opportunities for graft), did 
not alleviate discrimination between domestic and foreign 
investors, and maintained or instituted other caps and 
criteria that ultimately worked against the original goals 
(attracting investment and integrating with the 
international economy) for drafting a new CIL. 
 
¶3. (SBU) English language translation problems and the 
drafting team's reticence kept this sixteenth draft out of 
investors' hands until early October, and when it did 
arrive, it was not just a disappointment, but a major 
problem.  The American, European and Australian Chambers of 
Commerce held numerous meetings with the drafting team. 
U.S. and other officials met separately with the GVN to urge 
critical changes.  The Prime Minister's Research Council, in 
response to pressure from local economic experts, also 
weighed in.  Technical advisors, individual businesses (both 
domestic and foreign) and multilateral institutions further 
pressed the importance of a better draft.  When the Ministry 
of Planning and Investment (MPI), which led the drafting 
team, finally passed a revised version of the CIL to the NA 
on November 23, some of the needed changes had been adopted, 
but not all.  As MPI had coordinated their final submission 
with the Vietnamese Community Party's Politburo and the NA 
Standing Committee, however, last minute progress appeared 
doubtful. 
 
¶4. (SBU) Rather than give up, the three Chambers of 
Commerce, most prominent among them the American Chamber of 
Commerce, shifted their attention to lobbying the NA.  In 
response to this pressure, MPI Vice Minister Nguyen Bich Dat 
held a series of meetings in the final hours before the NA 
session closed, to which he invited representatives of the 
three Chambers of Commerce, Vietnamese business leaders, GVN 
officials and senior NA members with prominent business 
experience.  After intense discussions with all 
participants, almost all of the remaining changes proposed 
by organizations and persons outside of MPI and the drafting 
team were incorporated into the official version of the CIL. 
Local economic experts note that the American Chamber of 
Commerce's efforts were absolutely critical to this success, 
forging a new and promising level of trust between the GVN 
and the international investment community. 
 
¶5. (SBU) Despite these teething difficulties, this new, 
improved CIL is substantively a step forward for Vietnam. 
It includes the elimination of TRIMS, export performance 
requirements and dual pricing, local content and technology 
transfer, capital contribution requirements, consensus 
voting and other restrictions on governance.  It clarifies 
the scope of registration for foreign-invested projects, 
provides access to foreign arbitration and courts (foreign 
companies can choose during a dispute between Vietnamese 
courts or international arbitration), and allows for non- 
binding sectoral planning.  The law also provides 
significant guarantees and incentives to foreign investors, 
including non-interference, equal treatment between foreign 
and domestic investors (especially important for access to 
credit), security and free transfer of property and capital, 
and basic intellectual property rights protection. 
 
¶6. (SBU) Most importantly, the final CIL creates a 
reasonable, though not ideal, registration system for both 
domestic and foreign invested projects.  While foreign 
investment projects worth more than USD 20 million must be 
both registered and approved by the GVN, investors must only 
file notice with the GVN, not wait for approval, for 
projects valued at less than USD 20 million.  While these 
administrative restrictions are not optimal, they are a real 
improvement from the existing system and the far more 
onerous levels the GVN had originally proposed.  Domestic 
investors have similar caps.  They do not have to register 
or file notice for projects under USD 100,000 in value. 
Domestic investors must file notice for projects between USD 
100,000 and USD 20 million in value, and like foreign 
investors, must receive official approval for projects worth 
more than USD 20 million. 
 
¶7. (SBU) Asked to characterize the final CIL, one U.S. legal 
expert in Hanoi stated that it rates an "F" for the new 
obstacles it creates for domestic investors, but a "B" for 
what it does for foreign investors.  He noted that these 
ratings could change depending on the implementing 
regulations, which could further improve the situation for 
foreign investors and could offset some of the difficulties 
for domestic investors.  Clearly, this CIL is a step 
backward from the GVN's more liberal attitude towards the 
domestic private sector a few years ago, an attitude that 
helped launch Vietnam's private sector on its current 
expansionary trend.  The legal expert observed that this 
reining in of the domestic private sector could have 
repercussions for the foreign private sector as well, since 
the level of domestic private investment will indirectly 
affect the success of foreign financial services firms as 
well as firms exporting to Vietnam.  In the end, the 
ultimate test of the success of Vietnam's economic reforms 
will be the success of the foreign and domestic private 
sectors, he stressed.  On the new system of registration and 
approval caps, he speculated that only possible explanation 
for the GVN's insistence on this system was to create new 
opportunities for graft. 
 
¶8. (SBU) A senior outgoing official at a multilateral 
organization called the CIL a "big disappointment" compared 
to the new Common Enterprise Law, at least on the domestic 
side.  He was more positive about what it did for foreign 
investors.  He laid the blame for these shortcomings on the 
Ministry of Planning and Investment, which he said "needs 
fixing." 
 
¶9. (SBU) COMMENT: While the GVN may have missed an 
opportunity to improve its reputation as a place to do 
business (it is ranked in the bottom quarter of the World 
Bank's "Doing Business in 2005" report), its willingness to 
work with foreign investors and the NA in producing a final 
CIL amenable to all parties involved is quite significant. 
Though the investment climate in Vietnam has been somewhat 
improved by the new CIL, the expectations for transparency 
and consultation have dramatically increased.  This is the 
first time that GVN drafters, foreign and domestic 
investors, foreign governments, international donors and NA 
delegates have interacted in the process of making 
Vietnamese law.  That all parties walked away relatively 
satisfied and still speaking to each other suggests that the 
Vice Chairman of the Office of the National Assembly (ONA) 
Nguyen Sy Dzung's recent remark to an Embassy officer that 
this new kind of interaction "will certainly affect 
legislative procedures in the future" is true.  The real 
measure of the GVN's attitude towards investors will, of 
course, be determined by the extent to which the GVN 
implements the CIL over the next several months.  The 
ultimate measure of the impact this new foray into 
transparency and cooperation will have on future relations 
between the GVN and the private sector, and between the GVN 
and the NA, will take longer to gauge.  End Comment. 
 
MARINE