VZCZCXRO9420
RR RUEHHM
DE RUEHHI #1071/01 1590805
ZNR UUUUU ZZH
R 080805Z JUN 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 5582
INFO RUEHHM/AMCONSUL HO CHI MINH 3191
RUEHGP/AMEMBASSY SINGAPORE 2388
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 05 HANOI 001071 
 
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SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON EFIN KTEX VM
SUBJECT: VIETNAM BUSINESS FORUM: ENTERPRISES DIALOGUE WITH GVN ON 
ECONOMIC DEVELOPMENT NEEDS 
 
(U) THIS CABLE IS SENTSITIVE BUT UNCLASSIFIED.  DO NOT POST ON THE 
INTERNET. 
 
¶1. (SBU) Summary: During the May 30 Mid-Term Vietnam Business Forum, 
timed in connection with the June 1 Mid-Term Vietnam Consultative 
Group Meeting, foreign and domestic trade associations held a 
dialogue with the Government of Vietnam (GVN) on ways that Vietnam 
can capitalize on recent economic successes and continue to improve 
its business and investment climates.  Business community 
representatives consistently delivered messages on the need for the 
GVN to:  improve human resource development and training activities; 
accelerate infrastructure development; fully implement its WTO 
commitments on market access; continue banking and financial sector 
reforms; and, improve transparency and good governance practices. 
The GVN responded to these concerns by reaffirming its commitment to 
continue institutional reforms and implementation of its 
international commitments to meet the demands of the international 
and domestic business communities.  End Summary. 
 
¶2. (U) At the May 30 Mid-Term Vietnam Business Forum (VBF) Meeting 
in Hanoi, timed to coincide with the mid-term donor Consultative 
Group meeting, the Government of Vietnam (GVN) exchanged views with 
domestic and foreign trade associations on how Vietnam can 
capitalize on its recent economic success, including its January 
2007 accession to the World Trade Organization (WTO), to increase 
trade and investment opportunities and sustain strong economic 
growth.  In addition to a session for trade associations to present 
their perceptions of the investment climate here, the Forum 
discussed: banking and capital markets; implementation of WTO 
commitments; implementation of the Enterprise and Investment Laws; 
and, heard reports from the Port, Tourism and Mining Working Groups. 
 
 
¶3. (U) The GVN side, led by Minister of Planning and Investment Vo 
Hong Phuc (who also served as VBF Co-Chairman), confirmed Vietnam's 
commitment to continue improving the business environment, including 
expanded market access and financial and banking sector reforms. 
These measures will be critical to helping Vietnam reach its goal of 
becoming a middle income country by 2010, Minister Phuc said. 
 
¶4. (U) Forum Co-Chairs Martin Rama, Acting World Bank Country 
Director, and Mr. Sin Foong Wong, International Finance Corporation 
(IFC) Country Manager, commented in their opening remarks that this 
20th meeting of the VBF provided an opportunity for the GVN and the 
business community to discuss what is needed to bring Vietnam even 
further along its path of economic development.  Acknowledging the 
progress made as Vietnam pursued WTO membership, Rama noted that 
more complex and challenging reforms will be required for Vietnam to 
continue to the next stage of economic development.  Referencing the 
day's discussion agenda, the Co-Chairs said that Vietnam will need 
to follow through on its WTO commitments, continue financial sector 
reforms and upgrade its infrastructure if it is to overcome the next 
set, or "second generation," of challenges and issues as it 
continues the transition to a market economy. 
 
BUSINESSES REVIEW VIETNAM'S INVESTMENT CLIMATE 
--------------------------------------------- - 
 
¶5. (SBU) In the opening session of the forum, foreign and domestic 
trade associations raised concerns and issues on behalf of their 
members.  Throughout the session, speakers noted their appreciation 
for the opportunity to dialogue with the GVN through the VBF, while 
encouraging even closer coordination as Vietnam works through new 
challenges and seeks to capitalize on the opportunities of its WTO 
membership.  Notably, representatives from several Vietnamese trade 
associations, including the Ho Chi Minh City Association of Garment, 
Textile, Embroidery and Knitting (AGTEK), the Can Tho Business 
Association and the Hanoi Young Business Association joined their 
international counterparts in expressing concerns and requesting GVN 
action to improve the business climate.   (Note: AGTEK also used 
part of its five minutes to decry the U.S. Department of Commerce's 
apparel import monitoring mechanism, stating that the program is 
"illogical" in its nature.  End note.) 
 
¶6. (U) HUMAN RESOURCES: Participants consistently raised the 
shortage of adequately trained human resources as a restraint to 
further economic development.  Many firms are struggling to hire and 
retain skilled professionals, particularly at the mid-management 
level, business representatives explained.  The Eurocham 
representative stated that the private sector and the GVN must work 
 
HANOI 00001071  002 OF 005 
 
 
cooperatively to find solutions for this problem.  Participants 
raised several suggestions, including calling on the GVN to lift 
restrictions on the establishment of foreign-invested education and 
training institutions, establishing a public-private committee to 
review the workforce development issue and increased GVN support to 
provide professional education and skills training. 
 
¶7. (U) INFRASTRUCTURE: Vietnamese and foreign trade associations 
consistently raised the need to accelerate infrastructure 
development, particularly seaports and electricity supply. 
Businesses described how the current infrastructure system is 
insufficient to keep up with the growing volume of exports and the 
expected increase in demand as Vietnam's economy continues to open - 
threatening future foreign direct investment (FDI).  The AmCham 
representative encouraged the GVN to open infrastructure development 
to more private sector participation.  A Ministry of Transportation 
official responded that the GVN has set up an inter-ministerial 
committee to examine infrastructure problems, noting also that the 
GVN has made a determination to transfer some development projects 
from state-owned enterprises (SOEs) to the private sector as a way 
to address Vietnam's infrastructure needs. 
 
¶8. (SBU) IMPLEMENTING WTO COMMITMENTS: A number of participants 
urged Vietnam to meet its WTO obligations as soon as possible, 
particularly its commitments on trading and distribution rights. 
The Amcham, Eurocham and AusCham speakers each raised the need for 
the Ministry of Trade (MOT) to issue implementing guidance on 
trading rights for foreign invested enterprises (Decree 23) as soon 
as possible.  Citing the example of how the Ministries of Trade 
(MOT) and Industry (MOI) worked with the U.S. business community to 
develop an apparel export licensing system, the Amcham 
representative, Jocelyn Tran, expressed the hope that the GVN would 
also work with the business community to develop effective, 
WTO-compliant policies in other areas.  (Note: Ms. Tran's 
presentation included an encouragingly positive picture of the state 
of U.S.-Vietnam bilateral apparel trade, stating that MOT's export 
license system has helped to "preserve" apparel trade "despite 
Commerce's Import Monitoring Mechanism," with apparel exports in the 
first four months of 2007 up more than 20 percent over last year. 
The U.S. industry as a whole does not necessarily share Ms. Tran's 
view of the effectiveness, desirability or utility of export 
licenses.  End note.) 
 
¶9. (SBU) TRANSPARENCY AND CORRUPTION: Many speakers raised concerns 
over corruption and weak or opaque legislative reforms.  One 
representative characterized corruption as "one of the greatest 
concerns" among foreign firms looking to do business in Vietnam. 
Domestic trade associations also called on the GVN to improve 
transparency.  In its submitted statement, the Hanoi Young Business 
Association said that "Vietnamese corporate governance is 
inappropriate," for foreign companies, noting that Vietnam still 
lacks transparency and reliability in meeting its international 
commitments. 
 
JAPANESE SURVEY IDENTIFIES HIGH INVESTMENTS COSTS 
--------------------------------------------- ---- 
 
¶10. (U) In a presentation of its findings from a November 2006 
survey of 30 major cities in Asia, the Japan External Trade 
Organization (JETRO) concluded that while in many categories Vietnam 
remains a competitive destination for investment, there are several 
areas where costs here are much higher than other cities in the 
region.  For one, mid-level management wages are higher than the 
regional average, largely due to a shortage in supply.  Vietnam also 
has the second highest costs for office rent of the 30 areas 
surveyed, behind only Singapore, highlighting the need for 
additional office space.  Finally, the JETRO survey stated that 
higher-than-average telecom costs must also be addressed to improve 
Vietnam's competitiveness as an investment destination. 
 
FIRMS ADVOCATE FOR INTERNATIONAL BANKING PRACTICES 
--------------------------------------------- ----- 
 
¶11. (U) The VBF Banking Working Group (BWG) recognized the State 
Bank of Vietnam (SBV) for its progress in passing regulations in the 
banking sector.  Working Group Chair Charly Madan (Citigroup Country 
Officer Vietnam) noted, however, that Vietnam still has more work to 
do to bring banking regulations in line with international practices 
and its WTO commitments, especially in achieving a level playing 
field for foreign and domestic banks.  One area requiring more work 
 
HANOI 00001071  003 OF 005 
 
 
is the foreign exchange system, according to Madan, who urged 
Vietnam to conduct a comprehensive review of regulations governing 
foreign exchange transactions.  The Vietnamese legal system should 
also recognize and apply international law to cross-border 
transactions, said the BWG speaker, commenting that foreign banks 
need access to the court system rather than settling disputes 
through arbitration, which is the current practice.  SBV Deputy 
Governor Phung Khac Ke responded that the SBV will issue further 
implementing documents on foreign exchange transactions soon and 
will continue its work to ensure the banking sector is 
WTO-compliant. 
 
CAPITAL MARKETS: MORE COORDINATION NEEDED FOR STABILITY 
--------------------------------------------- ---------- 
 
¶12. (U) The Capital Markets Working Group called for better GVN 
inter-agency coordination and cooperation to ensure stability and 
guard against possible risks in the face of rapid growth of the 
capital market in Vietnam.  The Working Group was pleased with the 
progress the GVN has made in licensing more than 100 institutions to 
participate in the capital markets here, but cautioned that the GVN 
must regulate these licensed entities appropriately in order to 
protect investors. The Working Group also suggested that the GVN 
consider allowing private firms to raise capital through issuance of 
corporate bonds (SOEs can already issue bonds).  Finally, the GVN 
should provide incentives for long-term mobilization of funds in the 
market, said the Working Group speaker.  One measure to accomplish 
this would be to allow non-state employers to set up retirement or 
provident funds, he continued. 
 
¶13. (U) Vice Minister of Finance Tran Xuan Ha agreed that 
inter-agency coordination will be critical to ensure market 
sustainability.  He also noted that the MOF has issued regulations 
to govern bond issuance by private firms, and advised that it is in 
the process of establishing credit rating agencies so that 
enterprises can evaluate their risk before issuing bonds.  Finally, 
VM Ha noted that given the rapid institutionalization of the capital 
markets, the GVN must be diligent in ensuring that these 
institutions are transparent.  He also suggested that these new 
organizations will need to focus on staff training and development. 
 
ONGOING WTO IMPLEMENTATION CONCERNS 
----------------------------------- 
 
¶14. (SBU) Fred Burke, speaking on behalf of the Manufacturing and 
Distribution Working Group, raised a number of ongoing concerns over 
Vietnam's implementation of its WTO commitments.  Worried about what 
Burke called the proliferation of requirements for "baby permits," 
the Working Group urged Vietnam to issue guidance to implement 
Decree 23 on Trading Rights for Foreign-Invested Enterprises as soon 
as possible.  Foreign companies are not able to receive their 
licenses for trading rights until these regulations are completed, 
causing a significant delay in their ability to avail themselves of 
their rights under the WTO, said Burke.  The Working Group also 
asked the GVN to clarify licensing procedures for foreign trading 
branches, as no licenses have been issued to date. 
 
¶15. (U) The Working Group suggested that the GVN should use the 
criteria in Vietnam's Investment Law to distinguish between foreign 
and local companies, meaning that if a company is 51 percent owned 
by a Vietnamese national, it should be treated as a local company. 
They also encouraged Vietnam to view its WTO commitments as a 
"floor" and not a "ceiling," encouraging market liberalization above 
and beyond commitments made as part of the WTO accession process. 
Finally, the Working Group noted that Vietnam has instituted a 
number of "impediments" to trading activities, including requiring 
an Economic Needs Test and instituting burdensome requirements for 
foreign representative offices to re-register. 
 
¶16. (U) MPI's Legal Department Director General Pham Manh Dzung 
explained that MPI is drafting a decree to implement some of 
Vietnam's WTO commitments, which they have shared with the business 
community through the VBF.  Dzung said that this document would 
recognize the principle that Vietnam's WTO commitments are a "floor" 
and would provide flexibility for sectors to open earlier or provide 
more favorable treatment than provided in the WTO Agreement, if the 
GVN so decides.  On the issue of representative office 
re-registrations, he agreed that MPI experienced some "initial 
problems," but it has instructed local authorities to proceed with 
registrations, and consult with the MPI if they have any questions. 
 
HANOI 00001071  004 OF 005 
 
 
He said that following this guidance, re-registrations are "going 
better" but that MPI may consider extending the window to give 
enterprises sufficient time to complete the process. 
 
¶17. (U) Ministry of Trade's Multilateral Trade Department Director 
General Tran Quoc Khanh welcomed the business community's comments, 
and reaffirmed Vietnam's seriousness to implement fully its WTO 
commitments.  On implementing guidance for Decree 23 on trading 
rights, he explained that its issuance has been delayed due to the 
"complexity" of the commitment, but assured the VBF that it would be 
issued very soon.  Khanh continued by reminding the audience that 
Vietnam distinguishes between import rights and distribution rights, 
and they are working to make this distinction clear in the draft 
regulation.  Responding to concerns over Vietnam's Economic Needs 
Test requirement, Khanh explained that this is intended to protect 
Vietnam's many small retailers from being forced out of business. 
Finally, DG Khanh said that on foreign trading branches, businesses 
should refer to Decree 72, which provides guidance on this issue. 
He continued by stating that Vietnam's WTO commitments do not 
require it to allow trading branches in many areas, including 
distribution services and advertising, for example. 
 
IMPLEMENTING THE INVESTMENT AND ENTERPRISE LAWS 
--------------------------------------------- -- 
 
¶18. (U) Mr. Tran Anh Duc from the Manufacturing and Distribution 
Working Group presented a laundry list of areas where it sought 
further work by the GVN to clarify implementation of the Enterprise 
and Investment Laws.  The Working Group requested additional 
guidance on: 
 
-- Vietnam's Decree 108 providing guidance on activities in 
Vietnam's conditional sectors. 
 
-- Converting Business Cooperation Contracts (BCCs) into Joint 
Ventures. 
 
-- Operational aspects of enterprise activities, including 
qualifications of a company director and managers. 
 
-- Loosening restrictions in Article 84.5 of the Investment Law on 
transferring shares of local firms to foreign investors. 
 
¶19. (U) MPI's Legal Department DG Dzung reported that his ministry 
is drafting additional guidance to address all of these concerns, 
except conversion of BCCs into Joint Ventures.  He explained that 
guidances provided under the Investment and Enterprise Laws already 
address this process, but he agreed to review them one more time to 
ensure that they are complete. 
 
PORTS, TOURISM AND MINING WORKING GROUP PRESENTATIONS 
--------------------------------------------- -------- 
 
¶20. (U) Representatives from the Port, Tourism and Mining Working 
Groups all discussed the progress they have made through 
consultations with the relevant GVN agencies, but pushed for 
continued coordination in the future.  The Ports Working Group 
largely reiterated concerns raised earlier about the need to 
accelerate infrastructure development in Vietnam.  The Tourism 
Working Group noted that Vietnam faces several obstacles to keep 
apace of growing tourism demand, including improving service quality 
and developing more hotels and better transportation systems to 
facilitate the needs of foreign and domestic tourists.  On a less 
positive note, the Mining Working Group lamented that Vietnam's 
mineral potential will remain largely untapped unless the GVN adopts 
a more open and welcome policy for foreign investors in this sector. 
 
 
CLOSING REMARKS 
--------------- 
 
¶21. (U) In his closing remarks, Planning and Investment Minister 
Phuc noted his appreciation for the valuable contributions of the 
business community during the Business Forum.  He committed to 
ensuring the GVN's continued implementation of its market access 
commitments and work on institutional reforms to meet the demands of 
the international business community, but noted that Vietnam "can't 
do everything overnight."  The World Bank's Martin Rama closed by 
summarizing the common themes raised throughout the meeting - market 
access, financial sector reform, human resource development and 
 
HANOI 00001071  005 OF 005 
 
 
infrastructure needs - noting that these were all "challenges driven 
by Vietnam's own success."  He expressed confidence that ongoing 
cooperation through the VBF would contribute significantly to 
meeting those challenges. 
 
MARINE