VZCZCXRO9146
RR RUEHDT RUEHPB
DE RUEHHM #0955/01 2601025
ZNR UUUUU ZZH
R 171025Z SEP 07
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC 3114
INFO RUEHHI/AMEMBASSY HANOI 2178
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 3322

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000955 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS 
STATE PASS TO USTR DBISBEE 
COMMERCE FOR HPPHO 
 
E.O. 12958: N/A 
TAGS: ECON ETRD BEXP VM
SUBJECT: AMCHAM HCMC SAYS PACE OF REFORM SLOWING 
 
REF: HANOI 1616 
 
HO CHI MIN 00000955  001.2 OF 002 
 
 
¶1. (SBU) SUMMARY. Members of the Ho Chi Minh City (HCMC) AmCham 
Board of Governors (BOG) are united in their sense that 
Vietnam's forward progress on economic reform has slowed in 
recent months as the Government of Vietnam (GVN) is in 
"digestion mode" trying to come to grips with the scope of its 
WTO commitments.  Members suggested this noticeable lull is 
caused by lack of GVN institutional capacity and, in a few 
cases, protectionism.  Regulations limiting distribution rights 
and express delivery demonstrate that Vietnam's road to reform 
will mean rough patches for U.S. business.  Broader issues of 
corruption, opaque land use regulations and human resources also 
continue to hinder U.S. trade and investment.  End Summary. 
 
Digesting the Change 
-------------------- 
¶2. (SBU) Vietnam seems to be 'pulling in the reins after WTO 
accession' while the bureaucracy works to implement Vietnam's 
WTO commitments, AmCham HCMC BOG members told the Consul General 
on September 5.  As a result, U.S. businesses perceive that the 
Vietnamese bureaucracy is slowing down.  Banking applications 
that that had been routine are now taking five to six months and 
new service and non-tariff barriers (e.g., State Bank of Vietnam 
and Ministry of Finance measures affecting money supply and 
liquidity) are squeezing the inflow of capital that U.S. 
financial services firms rely on.  One client applying for a 
subsidiary license in banking was told that the FVN would prefer 
that a weaker, less competitive bank enter first.  Some 
companies are finding that their import licenses effectively 
convey only the right "to pay taxes or duties" before handing 
their goods over to a local distributor. 
 
Trouble on Distribution and Express Delivery 
-------------------------------------------- 
¶3. (SBU) The director of a prominent legal firm pointed to 
Ministry of Trade Circular 9 as indicative of a reaction against 
the brisk pace of reform in recent years.  He argued that 
existing regulations effectively carve out a range of in-house 
activities that many importers had previously been allowed to 
conduct (e.g., logistics and marketing) and defines these as 
services that wholly-owned foreign invested enterprises cannot 
perform until the WTO phase-in for those services.  Various 
members offered the observation that the authors of Circular 9 
appear to have considered only the typical consumer products 
distribution chain when drafting the regulations even though 
they apply to all goods, including heavy equipment and 
hi-technology materials. 
 
¶4. (SBU) As a result, some companies are being told to stop 
using their distribution networks, in certain cases potentially 
forcing companies into breaches of contract.  Others are being 
forced to rely on distribution networks where none was required 
before.  For example, one high-tech industrial chemical importer 
had routinely received annual ad hoc approval to sell its 
products directly to the end user in an infrastructure project, 
but now finds itself cut off from the project without a 
distribution mechanism.  In other cases, such as high-tech 
finishing materials, alternative distribution systems do not 
exist.  Vietnam's undeveloped distribution networks mean that 
U.S. chemical companies have resorted to different distribution 
systems (generally based on personal connections) for 
State-owned enterprises and private companies. 
 
¶5. (SBU) Another BOG member referred to the Decree on Delivery 
Services, which restricts pricing of air express delivery and 
gives more power to local postal departments to monitor the 
express delivery industry.  Licenses will still be issued by the 
central government, but provincial postal authorities can now 
require that the foreign delivery services submit "reports." 
When one U.S. company asked for clarification about what reports 
might be required, a provincial official told them "whatever you 
generally report back to headquarters" -- a wide-ranging 
interpretation with the potential for serious personal and 
corporate confidentiality issues. 
 
Contributing Factors 
-------------------- 
¶6. (SBU) To explain the apparent loss of momentum, BOG members 
suggested that bureaucratic capacity is a major constraint in 
the face of booming demand.  In the securities sector, nearly 
one hundred equity funds are applying for securities licenses on 
which the GVN simply does not have the capacity to act quickly. 
The thin pool of talent and rapidly increasing staff turnover 
also act as constraints on virtually every organization in 
Vietnam.  One bank said it needed to increase its expatriate 
staff from three to 10 just to teach new local hires about 
 
HO CHI MIN 00000955  002.2 OF 002 
 
 
business systems and processes.  Another reported bringing in 
more expatriate workers due to an absolute inability to find 
enough highly skilled local staff.  BOG members said that the 
crunch appears to be more acute in HCMC than Hanoi, but the lack 
of skilled labor is a nationwide problem that is only getting 
worse.  Even the use of expats could be coming under pressure. 
While a draft circular from Ministry of Labor, Invalids, and 
Social Affairs proposes increasing the overall number of 
expatriate workers allowed into Vietnam, it also threatens to 
tighten restrictions on their activities while in Vietnam. 
 
¶7. (SBU) BOG members report that last July's cabinet reshuffle 
and government reorganization has paralyzed some offices.  The 
newly formed Ministry of Culture, Sports, and Information has 
put its long-anticipated tourism master-plan on the backburner 
while it sorts itself out, much to the consternation of U.S. 
companies.  Corruption is as big an issue as ever on large 
infrastructure projects. 
 
¶8. (SBU) Turning to the trade side of the GVN, the governors see 
an increasing propensity by some parts of the GVN toward 
stifling competition that borders on protectionism.  While the 
Ministry of Planning and Investment (MPI) has told AmCham that 
WTO commitments are a floor, not a ceiling, the Ministry of 
Industry and Trade (MOIT) takes the opposite approach, using its 
authority to ensure that Vietnam will only do as much it is 
committed to in its trade agreements.  U.S. business assessed 
MOIT as increasingly protectionist in its drafting application 
of new rules, citing Circular 9 as a prime example. 
 
Comment: 
-------- 
¶9. (SBU) The Amcham Ho Chi Minh City Board of Governors (BOG), 
which represents a broad range of industries, is unified in its 
assessment that many GVN offices are losing reform momentum. 
Many problems, most of which are outside Vietnam's immediate 
control, contribute to the slow-down.  The Trade and Investment 
Framework Agreement and Bilateral Trade Agreement annual reviews 
are crucial forums for encouraging further reform.  The Support 
for Trade Acceleration (STAR) project in particular continues to 
provide much-needed support to government drafting offices.  The 
GVN itself is clearly divided, as reflected in the divergent 
paths of MPI and MOIT. It is critical, however, that the USG and 
the American business community here to redouble collaborative 
efforts to emphasize at all levels that Vietnam needs to meet 
the spirit and the letter of Vietnam's WTO commitments.  End 
Comment. 
 
¶10. (U) This cable was coordinated with Embassy Hanoi. 
FAIRFAX