VZCZCXRO2656
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHHI #1858/01 3030816
ZNR UUUUU ZZH
R 300816Z OCT 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 6615
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
INFO RUEHHM/AMCONSUL HO CHI MINH 3876
RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 04 HANOI 001858 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
FOR THE SECRETARY OF COMMERCE FROM THE AMBASSADOR 
 
TAGS: ETRD ECON EINV KCOR PGOV SOCI VM
SUBJECT: VIETNAM SCENESETTER FOR COMMERCE SECRETARY CARLOS 
GUTIERREZ'S NOVEMBER VISIT 
 
 
HANOI 00001858  001.2 OF 004 
 
 
¶1. (U) Your visit, coming almost one year after President Bush's, is 
well timed to press Vietnam to continue its rapid pace of opening to 
the world.  The national leadership remains eager to learn from the 
United States on economic matters, and will be attentive to what you 
have to say.  Your visit will also underscore the high level of 
attention the private sector and the USG are paying to the 
development of Vietnam as an investment destination and as an export 
market for U.S. goods and services.  The media here is signaling a 
warm welcome, and your visit will resonate favorably here. 
 
VIETNAM'S EAGERNESS TO PROVE ITSELF AS THE NEXT TIGER 
--------------------------------------------- -------- 
 
¶2. (U) Mission Vietnam very much looks forward to your visit to 
Hanoi and Ho Chi Minh City from November 4 to 8, as your personal 
engagement will directly support our important, broad-based efforts 
to influence developments in this increasingly important country. 
After decades of isolation and failed economic policies, Vietnam is 
determined to catch up with the Asian tigers.  The government of 
Vietnam (GVN) aims to achieve the ranks of middle-income developing 
countries by 2010 and to be an industrialized country by 2020.  In 
its efforts to modernize the economy, the GVN has focused on pushing 
exports and investment as key drivers in its policy of fast economic 
growth to reach its goals. 
 
¶3. (SBU) When Vietnam started its "doi moi" (renovation) program of 
economic reforms in 1986, the economy was in shambles and the vast 
majority of the population lived in poverty.  Vietnam's economic 
reforms have set the country on a successful market economy path 
demonstrated by average annual economic growth of 7.5% during the 
last decade.  This year the economy is growing at a rate of 8.5%. 
Poverty rates have tumbled from 58% in 1993 to under 14% in 2006, 
according to the GVN's latest figures.  A recent World Bank study 
described this poverty reduction rate as the most significant in 
such a short period of time of any nation in history.  The middle 
class is growing and retail markets are booming. 
 
The U.S. AS A KEY PLAYER 
------------------------ 
 
¶4. (SBU) The IMF reports that, from 1993 to 2006, Vietnam's exports 
as a percentage of world imports quadrupled.  Since 2003, the United 
States has been Vietnam's largest export market with purchases of 
$8.5 billion of Vietnamese goods in 2006, and already $6.9 billion 
in the first eight months of 2007.  According to Vietnam's 
statistics, the United States is the seventh largest investor in 
Vietnam with $2.6 billion in registered FDI since 1988 (South Korea 
is the largest with $11 billion).  According to a 2007 study, 
however, "U.S.-related investment" would be at least $2 billion more 
if one counts investment via overseas U.S. subsidiaries.  For 
example, normal FDI accounting methods credit Intel's recent $1 
billion investment not to the United States but to Hong Kong because 
it was conducted from the chip maker's subsidiary there.  By any 
measure, we are the big player here as both Vietnam's most important 
export market and a substantial source of investment. 
 
¶5. (SBU) What many don't realize is that, over the past decade, the 
United States has also been a key player in helping Vietnam 
implement its policy decision to choose markets over central 
planning.  The Bilateral Trade Agreement (BTA), which entered effect 
at the end of 2001, helped set the stage for Vietnam's successful 
accession to the WTO on January 11, 2007.  The business community 
and the Vietnamese people welcomed these milestones as providing 
further opportunities for developing the economy.  Individual 
elements of Vietnam's implementation of its WTO commitments have had 
some problems, such as on IPR as well as some questions on trading 
rights, but overall it has been proceeding on track. 
 
CHALLENGES: SKEWED GROWTH, INFLATION, BLOATED STATE SECTOR 
--------------------------------------------- ----- 
 
¶6. (SBU) Despite these achievements, Vietnam still faces substantial 
challenges.  For example, while per capita GDP rose to $728 in 2006, 
the benefits of economic growth have been skewed in favor of the 
urban areas.  Income disparity between the haves and have-nots is 
growing.  Over 20% of children under age five still suffer from 
malnutrition.  Corruption continues to be a problem in Vietnam, and 
Transparency International's perception index ranks Vietnam at 123 
of 179 countries, a continuous backsliding since 2002. 
 
¶7. (SBU) Inflation is another problem, and prices have increased 
during the last several months, measuring 8.8% year-on-year in 
September 2007.  The GVN has taken some steps to limit price hikes, 
such as reducing some import tariffs and subsidizing fuel prices by 
as much as 30%, but these have not stemmed the steady rise.  Another 
issue is the size of Vietnam's state sector.  It accounts for about 
37% of GDP and includes state-owned enterprises (SOEs) that dominate 
in key sectors such as banking, energy and airlines.  While the GVN 
 
HANOI 00001858  002.2 OF 004 
 
 
works to attract more FDI and promote the domestic private sector, 
it also intends to maintain a major role for the state sector in the 
economy.  For now, the government is focusing on a process known as 
"equitisation" as way to help improve the competitiveness of the 
state sector.  By allowing private parties to buy shares of an SOE, 
even if less than a controlling share, the government hopes that 
this will force the companies to perform better.  There have been 
delays in equitising more SOEs, as well as state owned commercial 
banks (SOCBs). 
 
RELATIONS WITH THE UNITED STATES - TRADE AND AID 
--------------------------------------------- - 
 
¶8. (U) Despite our fractious history, Vietnam and the United States 
are forging closer ties each day.  Vietnam's motivation to seek 
stronger ties is clear.  As noted above, we are Vietnam's largest 
market, and one of its closest trading partners.  The GVN also sees 
the United States as a critical source of financial and technical 
assistance.  Hanoi also increasingly sees the United States as an 
important force in maintaining a stable regional environment and 
balancing a rising China.  For our part, Vietnam provides for us an 
important opportunity in East Asia for advancing U.S. national 
interests in securing a stable and peaceful Asia-Pacific region.  We 
are also encouraged by the steady liberalization of the government's 
role in the life of its citizens.  Problems remain, as noted below, 
but all agree that basic trends are positive with regard to personal 
freedoms, when viewed over time. 
 
¶9. (U) For these reasons, over the past ten years Washington has 
very effectively invested limited aid dollars to support Vietnam's 
transition to an open market economy by strengthening trade 
liberalization, particularly the reforms needed to implement the 
commitments under the BTA and WTO.  Two of our programs, Support for 
Trade Acceleration ("STAR") and the Vietnam Competitiveness 
Initiative, support Vietnam's efforts to create an 
internationally-driven, open private sector economy and the legal 
framework to govern that.  The STAR team has been involved directly 
the overhaul of Vietnam's civil procedure code, new investment laws 
providing for equal treatment of state-owned and private companies, 
a securities law to help develop Vietnam's capital market, 
protecting intellectual property rights, and numerous other projects 
to shore up greater transparency, rule of law, and civil society. 
 
¶10. (U) Eighty five percent of all U.S. Official Development 
Assistance to Vietnam focuses on health issues, and our cooperative 
efforts to prevent and treat HIV/AIDS and combat Avian Influenza are 
the hallmarks of our bilateral health relationship.  Vietnam will 
receive approximately $88 million in PEPFAR funding in FY2007 aimed 
at preventing new infections, providing care to 40,000 persons, 
including orphans and vulnerable children, and support 
anti-retroviral treatment for 9,000 patients.  Our target is to 
support treatment for 22,000 HIV-infected persons by September 
¶2009. 
 
¶11. (U) U.S. Avian Influenza-related assistance has totaled nearly 
$23 million over the past three years and has focused on 
strengthening emergency preparedness, building veterinary laboratory 
capacity, animal vaccination campaigns, animal surveillance and 
response, and public awareness.  Approximately $4 million of FY2007 
USAID funding will go to continuing vaccination programs, assist 
health surveillance, and farmer and general population education and 
best sanitary practices. 
 
¶12. (U) The Department of Energy's National Nuclear Security 
Administration assisted Vietnam last September to convert its only 
civilian research nuclear from high to low enriched uranium fuel, 
and will assist Vietnam to develop the necessary physical and 
regulatory safeguards to establish a civilian nuclear power sector. 
 
¶13. (U) The current indications from the planning figures in the 
FY2008 and FY2009 budgetary process is that USAID will be in a 
position to expand its assistance, especially in the areas of 
economic growth and reform.  Given the expansion of the program and 
in recognition of the growing development relationship between the 
United States and Vietnam, in 2008 USAID in Hanoi will become a full 
stand-alone USAID presence mission. 
 
LITTLE PROGRESS ON HUMAN RIGHTS 
------------------------------- 
 
¶14. (SBU) As you know, we have repeatedly expressed our strong 
concerns over Vietnamese actions to suppress peaceful political 
dissent.  We also have greatly stepped up our diplomatic efforts by 
pointing out to contacts, and through a variety of media, that 
imprisoning people for merely expressing political views and 
labeling political dissidents "terrorists" is injurious to relations 
with the United States.  This message was most recently reinforced 
during the Ambassador's initial calls on a host of GVN officials, 
 
HANOI 00001858  003.2 OF 004 
 
 
which echoed the message President Bush gave to President Nguyen 
Minh Triet in the White House last June. 
 
¶15. (SBU) Earlier this year, Senator Patrick Leahy wrote to 
President Triet and suggested greater bilateral cooperation in the 
areas of good governance, anti-corruption and rule of law.  Senator 
Leahy's views reflect those of a number of senior lawmakers, many of 
whom have been strong supporters of engagement though programs of 
capacity building, technical assistance and exchanges.  Deputy Prime 
Minister and Foreign Minister Pham Gia Khiem responded positively to 
the Leahy letter.  We believe that your visit could provide a good 
opportunity to extract explicit GVN buy-in towards greater 
cooperation in these areas.  By ensuring that any public remarks 
underscore our shared commitment to further engagement on these 
issues, we can frustrate efforts of those in Vietnam intent on 
torpedoing the deepening U.S.-Vietnam relationship. 
 
PROGRESS ON RELIGIOUS FREEDOM 
----------------------------- 
 
¶16. (SBU) In spite of the arguments of some linking the recent 
crackdown on dissidents to a rollback of progress on religious 
freedom, we can unambiguously state that religious freedoms for 
Vietnam's people continue to improve.  This progress has included: 
registering and recognizing a number of churches, congregations and 
denominations; freeing all the individuals whom we believed were 
imprisoned for religious reasons; and, promulgating and implementing 
a new framework on religion.  Some previously troublesome provincial 
areas, such as the Central and Northwest Highlands, have also showed 
distinct signs of improvement.  For example, Christmas services were 
reported to have gone well in these two areas.  The evidence here 
continues to support Washington's decision last year to lift Country 
of Particular Concern status for Vietnam.  Your visit can serve to 
underscore the importance of Vietnam staying the course, especially 
as the U.S. Senate prepares to put Vietnam's human rights and 
religious freedom practices under the microscope. 
 
VIETNAM'S INTERNATIONAL PROFILE 
------------------------------- 
 
¶17. (SBU) Vietnam will serve as a non-permanent member of the UNSC 
during the 2008-2009 term.  We have made clear that with a stronger 
international role also comes a responsibility to take a stand on 
certain issues of global concern.  To date, Vietnam has not yet 
spoken out about Iran, Burma or North Korea, and we have been 
encouraging the GVN to stake out a more proactive stance on these 
and other matters.  In this regard, the GVN's (relatively) critical 
statement of the DPRK's nuclear test last October was a welcome step 
in the right direction. 
 
FULLEST POSSIBLE ACCOUNTING 
--------------------------- 
 
¶18. (SBU) We continue to enjoy good cooperation with the Vietnamese 
in the fullest possible accounting of our personnel missing from the 
war, but there are a number of issues in which we would like to see 
more progress, including underwater recovery operations and archival 
access.  We would appreciate if you could thank your interlocutors 
for Vietnam's continued cooperation to date and express the USG's 
hope for further assistance in the future. 
 
HANOI: THE SEAT OF POWER 
------------------------ 
 
¶19. (SBU) The Government of Vietnam remains extremely centralized in 
Hanoi.  It has promoted decentralization, but the pace has been 
slow.  For years, Hanoi and the north played second fiddle to the 
booming south, but the gap has closed.  Hanoi has attracted $11 
billion in investment since 1988, compared to $15 billion in Ho Chi 
Minh City, the former Saigon.  So far this year, five of the top ten 
provinces attracting investment are from the north or center of the 
country, including a $5 billion project near Hanoi announced this 
summer by Taiwanese electronics-maker Foxcon. 
 
HO CHI MINH CITY: LABORATORY AND ENGINE OF GROWTH 
--------------------------------------------- ---- 
 
¶20. (U) Demographics, local culture and even official GVN policy 
combine to ensure that Ho Chi Minh City (HCMC) serves as the cradle 
of experimentation and innovation in Vietnam's rapidly opening 
economy.  Whether via new products brought in by joint ventures 
targeting HCMC's emerging middle class or industrial zones 
experimenting with new strategies to leverage capital to grow small- 
to medium-sized enterprises, the city is a bellwether for reform 
trends throughout Vietnam.  While Vietnam's impressive 2006 8.2% 
growth was the second fastest in Asia, HCMC bounded ahead at 12.2%, 
and the city's per capita income ($2,200) was triple the national 
average. 
 
HANOI 00001858  004.2 OF 004 
 
 
 
¶21. (U) Dynamic, outward-looking local business leaders who have 
risen to prominence through business acumen rather than political 
affiliations now dominate most sectors of the HCMC business 
environment.  The positions of this new class of business magnates 
on key issues such as the importance of strict adherence to the rule 
of law, greater transparency in decision making and the proper role 
of the government in economic spheres are generally in sync with 
those of U.S. and other international business persons active in 
Vietnam. 
 
¶22. (U) The government and business leaders that you meet are eager 
to maintain this growth, and will look to your delegation for 
practical approaches to increasing U.S. trade and investment. 
Meeting basic international labor standards, including the right to 
form independent trade unions, would likely improve the function of 
labor markets. The GVN maintains a tight grip on communication 
infrastructure and technology-intensive companies complain that lack 
of internet capacity affects business activities and investment 
plans.  HCMC and the surrounding provinces that make up Vietnam's 
"Southern Economic Focus Zone" also suffer from an opaque decision 
making process. 
 
¶23. (U) The U.S. business community remains concerned over the U.S. 
apparel  monitoring system  (Assistant Secretary Spooner's September 
visit to HCMC drew more than a hundred local companies), our $8.5 
billion trade deficit with Vietnam, market access for U.S. firms, 
and lack of GVN (central and local) support for major U.S. projects 
or sales. 
 
A WORD ON CHINA 
--------------- 
 
¶24. (SBU) The China dynamic is of obvious importance to Vietnam, and 
there is an understandable competitive flavor to Hanoi's ties to 
Beijing and Washington.  Far from trying to manipulate its two huge 
"partners," however, Vietnam -- understanding its relative power -- 
seeks to balance its ties with each.  With recent heightened 
tensions with China over sovereignty issues, and with us over human 
rights, Hanoi's task is at present not an easy one. 
 
CONCLUSION 
---------- 
 
¶25. (U) Again, I warmly welcome your visit.  It will prove critical 
in promoting further economic reforms, signaling our desire to 
invest and expand markets for our exports and thus the future course 
of bilateral relations. 
 
MICHALAK