VZCZCXRO6357
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0306/01 0770253
ZNR UUUUU ZZH
P 170253Z MAR 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 7416
INFO RUEHHM/AMCONSUL HO CHI MINH 4451
RUEHKO/AMEMBASSY TOKYO 5848
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 05 HANOI 000306 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TOKYO FOR MARC DILLARD 
SINGAPORE FOR TREASURY SBAKER 
TREASURY FOR SCHUN 
USTR FOR BISBEE 
 
E.O. 12958: N/A 
TAGS: OTRA ECON ETRD EINV EFIN KIPR PREL PHUM KIRF EAIR
VM 
SUBJECT: VIETNAM SCENESETTER FOR ASSISTANT TO THE PRESIDENT AND 
DEPUTY NSC ADVISOR PRICE 
 
HANOI 00000306  001.2 OF 005 
 
 
(U) This cable is Sensitive But Unclassified.  For official use 
only, not for dissemination outside USG channels or posting on the 
internet. 
 
¶1. (U) Your visit is a good opportunity to encourage Vietnam to 
continue the process of opening to the world and reforming 
internally.  Vietnam's national leadership remains eager to learn 
from the United States on economic and governance reform, and will 
be attentive to what you have to say.  Your visit will also 
underscore the high level of attention the USG is paying to the 
development of Vietnam as a trading partner, investment destination 
and as an export market for U.S. goods and services.  The media here 
is signaling a warm welcome, and I predict that your visit will 
resonate favorably. 
 
VIETNAM'S EAGERNESS TO PROVE ITSELF AS THE NEXT TIGER 
--------------------------------------------- -------- 
 
¶2. (U) Mission Vietnam very much looks forward to your visit to 
Hanoi from March 20 to 22, as your personal engagement will support 
directly 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 percent during 
the last decade.  In 2007, the economy grew at a rate of 8.5 
percent.  Poverty rates have tumbled from 58 percent in 1993 to 
under 15 percent in 2007, 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 PIVOTAL PLAYER 
---------------------------- 
 
¶4. (U) The United States is Vietnam's third largest trade partner, 
after China and Japan, and its largest export market.  Total two-way 
trade in goods with the United States in 2007 was $12.53 billion, up 
29 percent from 2006, according to the U.S. Department of Commerce. 
One of the most positive stories of the 2007 trade figures was the 
surge in U.S. exports to Vietnam, which increased by 73 percent to 
$1.9 billion from $1.1 billion in 2006, as measured by the USG. 
U.S. agricultural exports, in particular, showed remarkable growth. 
Cotton exports, used as inputs for Vietnam's garment industry, grew 
92 percent, soybean exports were up 1,480 percent, and wheat exports 
up 1,120 percent.  A wide range of U.S. commodities including 
hardwood, wheat, hides and skins, soybean meal, tree nuts, fresh 
fruit, poultry and red meats, also posted record gains in 2007. 
 
¶5. (U) The United States is also Vietnam's seventh largest investor, 
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.  The technology 
industry, in particular, has increasingly chosen Vietnam as an 
investment destination, with U.S. companies like V-CAP and Emerson 
recently announcing plans to open facilities here.  By any measure, 
we are a big player here as both Vietnam's most important export 
market and a substantial source of investment. 
 
¶6. (SBU) The influence of the United States is not restricted to 
growth in trade and investment.  Over the past decade, the United 
States has become a key player and partner in helping Vietnam 
implement market reforms and eschew central planning through 
innovative technical assistance programs.  During your visit, the 
 
HANOI 00000306  002.2 OF 005 
 
 
Mission and USTR will hold meetings with the GVN on a broad spectrum 
of trade and investment issues under the 2007 Trade and Investment 
Framework Agreement.  A great deal of the discussions will center on 
implementation of Vietnam's WTO commitments, which have largely been 
proceeding on track.  One area USTR will highlight during this visit 
is concerns over Vietnam's protection of intellectual property 
rights (IPR), including weak enforcement efforts and failure to meet 
its WTO commitment to provide for criminal remedies for commercial 
scale IPR violations.  (Note: Vietnam is currently on USTR's Special 
301 Watch List.  End note.) 
 
U.S. COMMERCIAL SUCCESSES AND OPPORTUNITIES 
------------------------------------------- 
 
¶7. (SBU) Aircraft sales and telecoms have presented some of the most 
rewarding commercial opportunities to date.  In November 2007, 
Boeing, Vietnam Airlines (VNA) and the newly formed Vietnam Aircraft 
Leasing Company (VALC) inked a $1.88 billion deal for the purchase 
of twelve 787 Boeing "Dreamliners."  VNA and VALC have now procured 
31 Boeing aircraft.  Other recent notable commercial successes 
include Motorola securing three contracts to build the mobile phone 
network of a state-owned mobile phone service provider and U.S. firm 
Wilbur Smith Associates' successful bid to provide consultancy 
services for the Danang airport expansion.  On April 12, Vietnam 
will launch Vinasat 1, a $168 million satellite built by 
Lockheed-Martin, which also constructed the associated earth 
station. 
 
¶8. (SBU) In addition to the above successes, a number of significant 
commercial opportunities loom on the horizon.  Boeing hopes to close 
a deal for seven additional 787s in 2008, possibly coinciding with a 
potential state visit to the United States later this year by Prime 
Minister Nguyen Tan Dung.  GE Aviation, meanwhile, is engaged in a 
sales campaign with Rolls Royce to sell jet engines to VNA for its 
787 fleet - a deal valued at around $350 million for GE.  AES, a 
U.S. power company, is negotiating with state-owned power company 
Electricity of Vietnam to build the 1,200-megawatt Mong Duong II 
thermal power generation project in Vietnam's northeastern Quang 
Ninh province.  Chevron is also in negotiations to build an offshore 
pipeline and supply gas to a power plant in southern Vietnam. 
 
GROWING RELIANCE ON U.S. ADVICE 
------------------------------- 
 
¶9. (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 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. 
 
¶10. (U) As noted above, over the past ten years Washington has very 
effectively invested limited aid dollars to support Vietnam's 
transition to a market economy by strengthening trade 
liberalization, particularly the reforms needed to implement 
commitments under the 2001 Bilateral Trade Agreement (BTA) and WTO. 
Two of our programs, Support for Trade Acceleration ("STAR") and the 
Vietnam Competitiveness Initiative, support Vietnam's efforts to 
create a modern market economy and the legal framework that supports 
it.  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 IPR, and 
numerous other projects to shore up greater transparency, rule of 
law and civil society.  As a direct result of these programs, 
Vietnam has expanded its reforms to include areas of good 
governance, including improving accountability, transparency and 
anti-corruption efforts. 
 
¶11. (U) Eighty five percent of all U.S. Official Development 
Assistance to Vietnam focuses on health issues, and our cooperative 
 
HANOI 00000306  003.2 OF 005 
 
 
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 FY07 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. 
 
¶12. (U) U.S. Avian Influenza-related assistance has totaled nearly 
$23 million over the past three years and has focused on preventing 
a pandemic, including strengthening emergency preparedness, building 
veterinary laboratory capacity, animal vaccination campaigns, animal 
surveillance and response, and public awareness.  In FY08 we 
anticipate approximately $8 million in USAID funding for Avian 
Influenza - a doubling of the FY07 level - to continue vaccination 
programs, assist health surveillance, farmer and general population 
education and best sanitary practices. 
 
¶13. (SBU) Last September, pursuant to the U.S. National Nuclear 
Security Administration's (NNSA) Global Threat Reduction Initiative 
(GTRI), the United States worked in cooperation with the Russian 
Federation and the International Atomic Energy Agency (IAEA) to 
assist Vietnam to convert its only civilian nuclear reactor from 
high to low enriched uranium fuel and return spent high enriched 
uranium to Russia.  NNSA continues to assist Vietnam to develop the 
necessary physical and regulatory safeguards to establish a civilian 
nuclear power sector. 
 
¶14. (U) The current indications from the planning figures in the 
FY08 and FY09 budgetary process is that USAID will be in a position 
to expand its assistance, especially in the areas of economic growth 
and reform and good governance.  Given the expansion of the program 
and in recognition of the growing development relationship between 
the United States and Vietnam, USAID in Hanoi will soon become a 
full stand-alone USAID presence mission. 
 
CHALLENGES: INFLATION, OUTDATED ACADEMIC SYSTEM, STATISM 
--------------------------------------------- -------- 
 
¶15. (SBU) Despite these achievements, Vietnam still faces 
substantial challenges.  High inflation worries the national 
leadership, and fighting inflation now competes with economic growth 
as the top economic priority.  Prices have increased during the last 
several months, measuring 15.7 percent year-on-year in February 
¶2008.  The GVN has taken steps to rein in inflation, such as 
reducing import tariffs, raising interest rates and widening the 
trading band on the Dong, but it is not yet clear if these measures 
will be effective. 
 
¶16. (SBU) Another significant challenge is the large size of 
Vietnam's state sector.  It accounts for about 37 percent of GDP and 
includes state-owned enterprises (SOEs) that dominate 
telecommunications, banking, energy, airlines and other key sectors. 
 While the GVN 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 
the process known as "equitization" 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 GVN 
hopes that this will force the companies to perform better.  There 
have been delays in equitizing more SOEs, as well as state owned 
commercial banks.  Complicating the equitization process has been 
Vietnam's troubled stock market, which is currently hovering above 
600, down from over 1000 in 2007.  The GVN has recently attempted to 
rehabilitate the market by loosening foreign ownership laws and 
directing the State Capital Investment Corporation to buy shares. 
 
¶17. (SBU) Other areas of concern include an outdated education 
system that is failing to keep up with the demands of a modern 
economy.  An acute shortage of skilled and semi-skilled labor may 
pose a major roadblock to development.  The Mission is leading 
efforts to deepen U.S. engagement with Vietnam on education issues 
by brokering partnerships between Vietnam's academic institutions 
and the private sector, including U.S. businesses, and through a 
formal "Education Initiative" designed to radically increase the 
number of Vietnamese students choosing the United States for 
overseas training.  Like human resources, infrastructure limitations 
also presents a challenge to Vietnam's continued rapid growth.  As 
 
HANOI 00000306  004.2 OF 005 
 
 
you will doubtlessly notice during your visit, roads, rail and port 
capacity have failed to keep up with Vietnam's rapid economic 
expansion.  Corruption also continues to be a significant problem in 
Vietnam, and Transparency International's perception index ranks 
Vietnam at 123 of 179 countries, a continuous backsliding since 
¶2002. 
 
CHALLENGES ON HUMAN RIGHTS 
-------------------------- 
 
¶18. (SBU) While we share common views with the GVN in many areas, 
differences over human rights remain, and lingering fears that the 
United States supports the overthrow of the current regime continue 
to complicate the relationship.  The existence of groups in the 
United States and elsewhere that explicitly advocate regime change 
helps generate negative charges by conservatives here which stoke a 
lingering paranoia that we are indeed still "the enemy."  Reassuring 
the GVN that the USG does not support separatist groups can assist 
in building a better human rights dialogue based on mutual trust. 
 
¶19. (SBU) Serious deficiencies related to human rights in Vietnam 
include lack of freedom of speech, freedom of assembly and freedom 
of the press.  One of our key objectives is to end the use of 
catch-all "national security" provisions such as Article 88 of the 
GVN criminal code, which prohibits "conducting propaganda against 
the State."  The Mission tracks approximately 50 individual cases of 
prisoners of conscience and activists under various forms of house 
arrest, surveillance, and/or harassment.  We continue to call for 
the release of all prisoners of conscience and freedom of peaceful 
expression of political views, but where we see individuals 
expressing their political opinions, many of our government 
interlocutors see "lawbreakers" trying to destabilize the regime. 
 
¶20. (SBU) In other areas, however, perceptible progress is being 
made.  Key Vietnamese leaders are committed to enhancing governance, 
establishing the rule of law and combating corruption -- all 
critical in building guarantees of individual freedoms.  Vietnam's 
leading newspapers are more aggressive in what they publish and in 
their willingness to push back against censors.  Whereas only a few 
years ago, any protest would meet swift and severe police action, 
this past year various peaceful protests have taken place involving 
issues such as land rights, opposition to Chinese territorial claims 
and demands for the return of Catholic Church property, with one 
stretching out for a month before it finally ended peacefully.  With 
regard to religious freedom, Vietnam has made surprising progress, 
in large part due to the intensive engagement of Ambassador-at-Large 
for International Religious Freedom John Hanford over recent years. 
More needs to be done, but the country no longer qualifies as a 
particularly severe violator of religious freedom under our legal 
definition and we removed the nation from the list of countries of 
particular concern in late 2006. 
 
AGENT ORANGE 
------------ 
 
¶21. (SBU) Over the past few years, we have begun to turn a new leaf 
on the Agent Orange/dioxin issue with regards to 
government-to-government relations and changing Vietnam's tone in 
how they approach this issue, which has been used to demonize the 
United States.  While we do not believe that sound science supports 
certain GVN assertions regarding health impacts, certain "hotspots," 
where Agent Orange was stored and loaded during the war, have soil 
dioxin concentrations exceeding levels recommended by the U.S. 
Environmental Protection Agency (EPA).  Beginning in 2006, the State 
Department and EPA provided $400,000 in technical assistance to the 
GVN for remediation planning and immediate interventions at the 
Danang airport.  Last year, Congress appropriated an additional $3 
million in Economic Support Funds (ESF) for "dioxin mitigation and 
health activities," which we are in the process of implementing. 
The USG is continuing to work together with the GVN, UNDP, Ford 
Foundation and other partners in this increasingly multilateral 
effort to address the affects of dioxin. 
 
VIETNAM'S INTERNATIONAL AND REGIONAL PROFILE 
-------------------------------------------- 
 
¶22. (SBU) Vietnam's UNSC membership creates a window of opportunity 
to encourage Vietnam to speak out in a constructive way on global 
security issues, and to help Hanoi distance today's Vietnam from the 
 
HANOI 00000306  005.2 OF 005 
 
 
Non-Aligned Movement (NAM) and Communist-Bloc focus driving its 
old-style foreign policy.  We have been proactive here and in 
Washington in educating GVN leaders and officials on Burma, North 
Korea and Iran, where in the past it has been unwilling to engage 
constructively with us due to "traditional friendships" and 
non-interference.  Despite repeated demarches so far this year, 
Vietnam lined up against our positions in UNSC debates on Burma and 
Kosovo. 
 
¶23. (U) Regionally, Vietnam has become a more prominent player in 
ASEAN, and successfully hosted the APEC Summit in 2006.  Vietnam is 
slated to be chair of ASEAN in 2009, so this visit is an excellent 
opportunity to underscore the commitment of the United States to 
promote the U.S.-ASEAN Enhanced Partnership, which will provide 
expertise and support for ASEAN integration towards becoming the 
ASEAN Community by 2015.  Your visit also provides a chance to 
highlight our support and interest in cooperating on initiatives 
such as the ASEAN Single Window Program to support the development 
of a customs clearance system. 
 
VIETNAMESE CONCERNS ABOUT CHINA 
------------------------------- 
 
¶24. (SBU) While Vietnam's engagement with the United States will 
continue to broaden, China necessarily constitutes Vietnam's most 
important strategic preoccupation.  This is not to say that Vietnam 
is "choosing" China over the United States; the situation is much 
more complex than that.  For starters, Vietnam's leadership is 
sophisticated enough to realize that relations with China and the 
United States do not represent a zero sum game; it is possible to 
have good relations with both.  Each relationship also creates 
challenges, however.  While China constitutes a vital and necessary 
commercial partner and former ally, it is also perceived as a 
significant and frustrating constraint to Vietnam's freedom on 
action. 
 
¶25. (SBU)  Chinese bullying of foreign companies in an attempt to 
compel them to cease oil and gas exploration efforts in the South 
China Sea serves to remind Vietnamese officials that while the 
Vietnamese may not approve of all U.S. policies, the same is 
certainly true of Chinese actions.  While progress has been made in 
settling the land border, there is no commonality of views on 
sovereignty issues regarding the South China Sea, known as the "East 
Sea" to the Vietnamese.  Hanoi is also "riding the tiger" with 
regard to managing the deep negative views toward China of many 
Vietnamese.  China is widely disliked and distrusted as a former 
colonial master, and Beijing's actions in the Spratlys and Paracels 
threaten to inflame those passions.  Should Hanoi allow 
unconstrained protests against the Chinese, however, it would appear 
weak in the face of calls to action that it could not satisfy, as 
well as risking Beijing's anger. 
 
¶26. (SBU) On security matters, China looms large.  There is an 
understandable GVN caution with regard to China's potential reaction 
to enhancements in Vietnam's cooperation with the United States. 
U.S.-Vietnam cooperation in the security field is also constrained 
by an institutional conservatism born of concern over "peaceful 
evolution" as a real threat to the regime, as well as by an 
ingrained caution on the part of Vietnam's military in the face of 
relative power calculations vis-a-vis China. 
 
CONCLUSION 
---------- 
 
¶27. (U) Again, I warmly welcome your visit.  It will prove critical 
in promoting further economic reforms, signaling our desire to 
invest and expand markets, and encourage Vietnam to take a larger 
role in regional and global affairs. 
 
MICHALAK