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RR RUEHCHI RUEHDT RUEHNH
DE RUEHHM #1083/01 2680925
ZNR UUUUU ZZH
R 250925Z SEP 06
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC 1498
INFO RUEHHI/AMEMBASSY HANOI 1057
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC 0012
RUEHHM/AMCONSUL HO CHI MINH CITY 1574

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 001083 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV ETRD EFIN ECON PREL PGOV VM
SUBJECT: VISIT OF SPECIAL REPRESENTATIVE FOR COMMERCIAL AND BUSINESS 
AFFAIRS TO HCMC 
 
REF: HANOI 2314; HO CHI MIN 411 
 
HO CHI MIN 00001083  001.2 OF 003 
 
 
¶1. (SBU) Summary: During an  August 31 to September 1 visit to 
HCMC, Special Representative for Commercial and Business 
Affairs, Frank Mermoud focused on Vietnam's preparations for WTO 
accession, state owned enterprise (SOE) reform and U.S. business 
advocacy.  U.S. financial, industrial and pharmaceutical sector 
representatives remain optimistic about the Vietnamese 
commercial environment.  However, they expressed concern that 
Vietnam may interpret its WTO commitments conservatively and 
noted confusion within the GVN bureaucracy on how to implement 
new business laws.  This could slow foreign investment and 
economic growth.  Members of the American Chamber of Commerce 
also expressed concern over changes to the U.S. tax code 
governing foreign earned income, noting that it would impact on 
American companies' ability to do business overseas.   HCMC 
Government, Law school, SOE officials and members of the HCMC 
delegation to the National Assembly noted that Vietnam had much 
more work ahead of it to improve the business climate in Vietnam 
for foreign and domestic investors.  They acknowledged that WTO 
accession would create stresses as well as opportunities and 
were looking for assistance in meeting new economic and legal 
challenges.   End Summary. 
 
Discussions with US Business 
---------------------------- 
 
¶2.  (SBU) During a visit to HCMC August 31 and September 1, 
Special Representative for Commercial and Business Affairs, 
Frank Mermoud met with the AmCham Board of Governors, the Intel 
country representative, and U.S. investors in the financial, 
industrial, and pharmaceutical sectors.  The U.S. 
representatives noted that Vietnam is more open to foreign 
investment than ever before.  They fretted, however, that there 
is a lag effect between the passage of new laws and 
implementation.  This delay -- and the lack of technical 
expertise and transparency in implementation -- creates many 
headaches.  They expect this problem to worsen over the near 
term as the GVN bureaucracy strives to digest the many changes 
to the legal code made in the run up to WTO accession. 
 
¶3.  (SBU) The U.S. business reps highlighted teething pains in 
implementation of the Unified Enterprise and Common Investment 
laws that came into effect on July 1, 2006.  Intended to level 
the playing field between domestic, state owned and foreign 
companies, confusion abounds within the bureaucracy -- 
particularly within the Ministry of Planning and Investment -- 
over several key issues including investment registration 
procedures and limits on foreign investment in certain sectors. 
This confusion is slowing down new foreign investment and 
business registration. A representative of KPMG expressed 
concern that the GVN may wait until after WTO accession to 
release key implementing decrees, leaving the foreign and 
domestic private sector in limbo until this happens. 
Representatives of the U.S. pharmaceutical sector noted that WTO 
commitments which will come into effect in 2009 for the sector 
will improve their trading and distribution rights however in 
the meantime they complained that they are not allowed to import 
their products.  The GVN wants to produce locally 60 percent of 
drugs consumed in Vietnam.  In order to engage in trading and 
distribution, the GVN requires U.S. pharmaceutical companies to 
establish manufacturing operations to sell drugs locally, which 
they are not interested in doing (the industry is closing 
factories around the world).  The pharmaceutical representatives 
are also concerned that Vietnam's legal framework does not 
provide them effective legal recourse to protect their interests 
should SOEs copy more popular drugs.  They described the 
pharmaceutical sector as a source of national pride for Vietnam; 
they noted that almost every province has its own SOE 
pharmaceutical factory. 
 
¶4. (SBU) The CitiBank representative said he was concerned about 
the ABN-AMRO case and the decision of the authorities to 
criminalize routine business transactions (see reftel for more 
on the ABN-AMRO dispute.)  He noted that the diffusion of 
responsibility within the GVN between those responsible for 
policy development and those responsible for enforcement could 
help explain why the ABN-AMRO case came about.  He was hopeful 
that the industry's ability to access the Prime Minister's 
Office and the GVN's openness to private sector input may lead 
to a positive resolution of the crises. 
 
¶5. (SBU) Insurance and pharmaceutical sector representatives 
also complained about unfair competition with SOEs.  For example 
regulatory requirements  force U.S. insurance providers to work 
through SOE insurance companies.  Foreign pharmaceutical 
companies must partner with a local Vietnamese company to 
distribute their products. 
 
 
HO CHI MIN 00001083  002.2 OF 003 
 
 
¶6. (SBU) U.S. businesses also complained about their inability 
to compete for large public works-sector projects because of 
tied aid that the Japanese, Koreans and others nations provide 
Vietnam.  Mermoud was sympathetic, but the USG would not play 
that game.  That said, as part of Secretary Rice's 
Transformational Diplomacy initiative, the State Department is 
undertaking a holistic review of how the USG allocates its 
foreign assistance to ensure that the aid support critical 
foreign policy goals.  The business environment is incorporated 
into those benchmarks.  The Special Representative also 
highlighted the Secretary's Award for Corporate Excellence (ACE) 
as a means of showcasing and rewarding U.S. companies that are 
contributing to their host countries Mr. Mermoud also stressed 
the importance of AmCham and U.S. business using avenues of 
advocacy already open to them, including the Vietnam Business 
Forum to express their positions to the GVN.  He also encouraged 
U.S. companies to publicize their best practices and support for 
the local communities in which they operate as a strategy for 
boosting their credibility and image with provincial and central 
government officials. 
 
 
 
Changes to Section 911 of the U.S. Tax Code 
------------------------------------------- 
 
¶7. (SBU) Many U.S. business representatives expressed concern 
over recent changes to the U.S. tax code governing exemptions 
for overseas earnings for U.S. taxpayers.  These changes make it 
economically prohibitive for companies to have U.S. employees 
overseas.  The changes not only hurt U.S. global 
competitiveness, but also reduce the U.S. "presence" overseas. 
In Vietnam, U.S. businesspersons work with all level of society, 
from government officials to factory workers.  They are the face 
of America abroad, the AmCham representatives said.  Mr. Mermoud 
noted that Under Secretary Karen Hughes and other working on 
public diplomacy would be interested in AmCham's views and 
committed to raising the issue back in Washington. 
 
Ho Chi Minh City Law School 
--------------------------- 
 
¶8.  (SBU) Ms. Mai Hong Quy, Acting Rector of the HCMC Law School 
(the alma mater of PM Dung), acknowledged that more needed to be 
done to prepare the nation for WTO accession.  For example, 
while on many issues, such as intellectual property, Vietnam's 
laws code may be compliant with WTO standards, questions remain 
over implementation and clarifying decrees need to be issued. 
Public awareness of the impact of WTO also is limited. 
Preparing her students for a post-WTO environment is her number 
one priority.  At least one third of law students are doing 
their thesis on WTO related topics.  The school also is working 
to reduce lecture and theory-based education and to incorporate 
practice and case study work.  She welcomed the idea of 
partnering with U.S. companies in Vietnam to develop internship 
programs for her students, an initiative Mr. Mermoud shared with 
AmCham.  Madame Quy also welcomed expanded cooperation with the 
USG and U.S. educational institutions to develop and further 
professionalize the law faculty. 
 
Ho Chi Minh City Department of Trade 
------------------------------------ 
 
¶9.  (SBU) Pham Hong Ha, Director of the HCMC Department of Trade 
described to Mr. Mermoud and the Consul General how HCMC is 
working to become the export transshipment point for the entire 
southern region of Vietnam by 2015 or 2020.  Mermoud noted that 
the recent approval of the Cai Mep port project, a joint venture 
between SSA International Holding Ventures of Seattle and 
Saigon Port of Vietnam to build and operate two of six new 
container berths for the Saigon Port Authority, is clearly in 
line with HCMC's development goals.  So too is the pending Cai 
Lan port development project.  He hoped that this project would 
be approved before the President's visit to Vietnam for the APEC 
Summit in November. 
 
¶10.  (SBU) Ha said that in September the Trade Minister will 
publicize Vietnam's WTO "package."  The HCMC Department of Trade 
already has begun to update its website with information on WTO 
for the private sector to utilize in its preparations.  Ha 
acknowledged that Vietnam's small and medium enterprises would 
be challenged by WTO entry, but HCMC plans to support its SMEs 
through land grants and promotion of industrial zones.  He added 
that Vietnam's SOEs are getting better at functioning without 
government subsidies. 
 
¶11. (SBU) Responding to the CG's question about an apparent 
slowdown in new investment registrations, Ha noted that all 
 
HO CHI MIN 00001083  003.2 OF 003 
 
 
leaders are very cautious when implementing new laws.  He said 
that, nonetheless, Vietnam's economy grew rapidly.  Ha conceded 
that the current business registration process is difficult. 
The Department of Trade is focused on ways to improve this 
situation and the commercial environment for U.S. investors 
generally.  The Consul General cautioned that Vietnam should not 
slow investment and business approvals when international 
interest is at a peak. 
 
HCMC National Assembly Members 
------------------------------ 
 
¶12. (SBU) Mermoud and the CG also met with Nguyen Thi Nghia and 
Nguyen Kim Thoa, National Assembly delegates from HCMC.  Both 
are businesswomen serving as General Director of the Saigon 
Co-Op grocery store chain and the Saigon Cosmetics Corporation 
respectively.  The private sector is looking at WTO accession 
with fear and anticipation.  Ms. Nghia said that larger 
companies have a more realistic view of opportunities and 
challenges of WTO accession.  Regarding the new Investment and 
Enterprise laws, both delegates said that the National Assembly 
is in the process of making additional clarifications and 
modifications to the laws. 
 
¶13.  (SBU) Nghia and Thoa said that the process of SOE 
equitization was working well and is a step to making SOEs 
independent.  They noted the importance of the SOEs to the 
national budget, but acknowledged many are weak and 
under-performing.  They attributed this to an excess of state 
control hampering SOE management.  Equitization was would make 
SOEs more efficient, giving management new flexibility in hiring 
and firing and developing incentive programs to reward and 
retain high performing employees.  The government support to 
equitized companies was temporary to assist this restructuring. 
Mr. Mermoud pressed the representatives on whether this process 
actually weeds out good from bad companies, or if equitization 
(and GVN supports) artificially propped up companies that should 
rightly fail in a competitive marketplace.  The delegates said 
that the complaints about unfair advantage of SOEs are outdated. 
 SOEs are now under stricter consideration for tax incentives. 
The loans they receive are at commercial rates and the SOEs must 
put up collateral, just as the private sector does.  The 
National Assembly will shift its attention to SOE monopolies in 
sectors such as aviation and telecom. 
¶14. (U) This cable was cleared by Special Representative