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

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 001335 
 
SIPDIS 
 
STATE FOR EAP/MLS AND EB/TPP/BTA/ANA 
DEPARTMENT PLEASE PASS USTR ELENA BRYAN AND GREG HICKS 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
 
E.O. 12958: N/A 
TAGS: ETRD ECON BEXP VM WTRO BTA WTO
SUBJECT: VIETNAM: TRADING AND DISTRIBUTION RIGHTS UPDATE 
 
REF: HANOI 2377 
 
¶1. (SBU) SUMMARY: Vietnam's limits on trading and distribution 
are a financial burden to U.S. companies trying to sell their 
goods in Vietnam.  U.S. business representatives estimate that 
having to use Vietnamese trading and distribution companies to 
get U.S. goods into Vietnam's market adds as much as 18 percent 
to the cost of goods brought into Vietnam.  One U.S. company 
that availed itself of trading rights granted under the 
U.S.-Vietnam Bilateral Trade Agreement (BTA) in the last year 
appears to have gotten approval to have those rights extended 
into 2006.  END SUMMARY. 
 
¶2. (U) EconCouns and HCMC EconOff met recently with HCMC-based 
U.S. companies that are adversely affected by Vietnam's 
restrictions on trading and distribution.  U.S. and other 
foreign companies are prohibited from directly importing and 
distributing their goods in Vietnam and must use a Vietnamese 
company, often a state-owned enterprise (SOE), to sell products 
here.  The BTA provides phase-ins for trading and distribution 
rights; currently, U.S. companies involved in substantial 
manufacturing may import other goods directly, though they must 
still use a Vietnamese distributor.  The BTA also currently 
allows U.S. firms to have a 49 percent stake in a joint venture 
distribution company. 
 
¶3. (SBU) A U.S.-owned logistics firm, American Indochina 
Management (AIM), that markets and sells American consumer 
goods, equipment and construction materials provided a breakdown 
of the costs incurred by being unable to import and distribute 
these goods directly.  AIM has an exclusive Vietnamese 
distributor, which has its own infrastructure and overhead. 
This means there are two companies to sell the same products; 
each company has its own expenses, and each must show a profit. 
Each company must pay taxes.  AIM, which is registered offshore, 
is limited in the amount of capital it can access since the 
Vietnamese company holds the firm's assets, i.e. the goods being 
distributed.  AIM's director estimated that this structure adds 
between 18 and 19 percent to the value of the goods being 
distributed.  This additional cost must be recovered by 
increasing the sale price of the goods. 
 
¶4. (SBU) An American pharmaceutical business, Abbott 
Laboratories, that sells medicine and nutritional supplements in 
Vietnam estimated the fact that it cannot import its products 
directly adds as much as 10 percent to the cost of its goods, 
including service charges that must be paid to SOEs that import 
its products.  Pharmaceuticals are one in a list of goods under 
the BTA that are subject to additional phase-ins beyond those 
set for general trading/distribution rights.  Abbott would 
likely still use a local distributor, even were it allowed to 
distribute directly.  For Abbott, the inability to import its 
goods directly is where the additional costs lie. 
 
¶5. (SBU) Another U.S. company, Monsanto, that sells hybrid seeds 
and herbicides in Vietnam estimated that the inability to trade 
and distribute directly adds 10 to 15 percent to its cost 
structure.  Were it able to distribute directly, Monsanto would 
incur the cost of setting up a distribution network, but the 
firm would be able to better control sales and marketing.  Much 
of its seed sales depend on a distributor's knowledge of the 
science behind and benefits of the various hybrids.  Monsanto 
can only provide limited product knowledge and support to 
Vietnamese distributors, in part because of intellectual 
property considerations.  Vietnam's weak protection of 
intellectual property rights has resulted in counterfeit 
versions of the firm's seeds appearing in the local market. 
Monsanto is reluctant to share detailed information with 
Vietnamese distributors due to these problems. 
 
¶6. (SBU) Carrier, an American firm that sells residential and 
commercial air conditioners said trading and distributing 
indirectly added five to ten percent to the sales price of its 
goods.  Carrier's managing director said that though five 
percent may not seem like a large number, some of the company's 
commercial chillers sell for USD 200,000, which means as much as 
USD 10,000 can be added to the price as a result of having to go 
through a local importer/distributor.  Trading and distribution 
restrictions also limit Carrier from selling to large 
construction projects.  Carrier can submit bids to install its 
air conditioners and chillers, but cannot bid to supply the 
equipment itself. 
 
¶7. (SBU) Proctor & Gamble noted that local distributors do not 
always have sufficient capital to supply the market with the 
amount of goods demanded by consumers.  For example, Proctor & 
Gamble has a beauty product that is in high demand, but 
distributors have only a finite amount of capital to purchase 
the good from Proctor & Gamble, which is reluctant to extend a 
large amount of credit to local distributors.  P & G has 
observed significant quantities of smuggled or counterfeit 
versions of this beauty product in the market in response to the 
limited official supply and high demand.  P & G also pointed out 
that the GVN loses import duties as a result of the U.S. company 
having to use local distributors that have limited amounts of 
capital with which to place orders.  If P & G could distribute 
directly, it would import more product and therefore pay more in 
duties. 
¶8. (SBU) At the same time, the GVN continues to follow through 
on implementation of its BTA obligations in this area, albeit 
slowly.  Mission is aware of one U.S. company with manufacturing 
facilities in Vietnam that has been able to import its goods 
directly, as mandated by the BTA.  However, that company, 
Colgate Palmolive, reported experiencing delays in having those 
rights extending into 2006.  Following its initial application 
for trading rights (reftel), Colgate was granted permission 
within two weeks of its application to import directly for the 
rest of 2005.  Colgate's application with the Ministry of Trade 
to extend these rights was met with requests for further 
information and delays in response to Colgate's submission of 
its application and additional information.  Colgate has heard 
informally that permission to import directly in 2006 has been 
granted, but it awaits formal notification. 
 
¶9. (SBU) COMMENT: None of the companies we visited had any 
interest in distributing through a 49 percent joint venture, as 
is currently permitted by the BTA.  All said they would need to 
be able to distribute independently before costs would be cut 
and in order to be able to control distribution fully.  U.S. 
firms will be able to form 100 percent-owned distribution 
companies to distribute certain products beginning in 2008, 
according to the BTA.  All the firms agreed that direct trading 
and distribution rights for a broader range of products should 
be granted more expeditiously. 
WINNICK