VZCZCXRO0830
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1265/01 3190728
ZNR UUUUU ZZH
P 140728Z NOV 08 ZDK
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8732
INFO RUEHHM/AMCONSUL HO CHI MINH 5298
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 02 HANOI 001265 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS MBROWN 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
COMMERCE FOR JBENDER 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EINT KTDB VM
SUBJECT: VIETNAM'S DISTRIBUTION SECTOR READIES FOR FOREIGNERS 
 
REF: A) Hanoi 451 (Door Widens On Distribution); 
B) Hanoi 1139 ("Reviewing The Trade Agenda"); 
C) 07 Hanoi 1918 (Gains in Provincial Competitiveness) 
 
HANOI 00001265  001.4 OF 002 
 
 
¶1. (U) Summary. In less than two months, Vietnam will open its 
distribution and retail sectors to fully foreign-owned firms. 
Preparations for these important changes have not been problem-free, 
and both the GVN and the private sector have at times seemed to talk 
past each other.  There is also a vocal domestic sector that is 
lobbying for less-than-wide opening.  Despite these challenges, 
Vietnam's authorities appear to have readied the most important 
adjustments to welcome foreign firms to the local market. End 
Summary. 
 
READY FOR THE OPENING 
-------------------- 
 
¶2. (SBU) The distribution sector, which includes retailing and 
franchising along with wholesale distribution services, will open on 
January 1, 2009 to fully foreign-owned firms.  Many U.S. businesses 
have expressed interest in this sector, especially because it will 
allow them to organize and control their supply chains.  Although 
the Mission does not know of any U.S. retailer interest yet, dozens 
of other large U.S. firms interested in sales of cars, engines, 
fertilizer and feed, and toiletries and consumer products, are 
poised to enter the market or expand existing operations.  Some of 
these firms already have their licenses ahead of the opening date. 
 
¶3. (U) Officials from the Ministry of Industry and Trade in Hanoi 
and some of the most business-intensive provinces in the south told 
Mission Econoffs that they would be ready "from day one" to allow 
foreign firms to engage in distribution-sector activities.  Ho Chi 
Minh City's licensing officers, who probably issue more new business 
licenses than any other jurisdiction in Vietnam, told us that they 
would be taking applications from mid-November in order to have them 
ready for the January 1, 2009 opening.  The head of the city's 
Planning and Investment Department, which will review and issue the 
applications, said that they could look at applications "even 
sooner" on an advisory basis, in order to ensure that everything 
would be in order and forestall bureaucratic delays. 
 
EARLY OPENING FOR MANY 
--------------------- 
 
¶4. (SBU) Many U.S. firms already have obtained their licenses.  One 
of the three big U.S. automakers got its license in November while a 
large commodities trader has been distributing and selling feed 
directly to end-users since earlier this year.  In fact, since March 
2009, many fully foreign-owned businesses have been allowed to 
import their goods and then look for buyers in-country (although not 
sell them to the end-users), an early opening that was little 
understood and the source of many complaints from those who took it 
as a restriction rather than the concession it really was (REF A). 
 
DISPELLING FEARS ABOUT THE ENT 
------------------------------ 
 
¶5. (U) Another source of misplaced angst has been the "Economic 
Needs Test" (ENT).  In theory, when businesses apply to open a 
second "retail outlet" they need to show that they have adequate 
facilities and surrounding infrastructure to support their intended 
operations.  In many ways, this operates like American-style zoning. 
 Businesses also have to present an economic impact statement 
addressing areas like "market stability" and "project suitability." 
The requirement of an economic impact statement for prospective 
businesses --in essence what the ENT amounts to-- predates Vietnam's 
entry into the WTO.  These statements have been required from 
prospective investors for over a decade, seemingly without much 
controversy. 
 
¶6. (U) Both the zoning-like requirements and the economic impact are 
contained in the "master plans" that all regional governments have 
in place.  These plans are a hybrid of modern zoning laws and 
Communist-era central planning, and combine infrastructure 
capacities with notions of "ideal" or "suitable" business 
development.  Although the term "ENT" appears in Vietnam's WTO 
Schedules (the result of negotiations with the Europeans, who use 
ENT), the Government of Vietnam does not use the ENT term as such. 
Nor, it seems, does it understand it fully. 
 
¶7. (SBU) To date, the economic impact or ENT concept has been used 
sparingly in the distribution sector and, as far as we know, without 
 
HANOI 00001265  002.2 OF 002 
 
 
detriment to either U.S. or foreign firms (REF B).  The Mission also 
is not aware of cases where impact statements have posed significant 
obstacles to investors in other sectors.  An American lawyer, with a 
British law firm in Hanoi, noted that businesses can expect a slight 
uptick in red-tape whenever a new sector opens.  "Some [licensing] 
authorities are less confident whenever a new sector is concerned," 
he said, but added that it is just as often the case that aggressive 
provinces will march ahead and take the most business-friendly 
interpretations possible until a widespread practice establishes 
itself. 
 
LIMITED USE OF IMPACT STATEMENTS AND ENT 
----------------------------------- 
 
¶8. (U) In the distribution sector, the Ministry of Industry and 
Trade in Hanoi has so far limited impact statements to "large retail 
establishments," like shopping centers and hyper-stores.  Provincial 
authorities in both HCMC and Binh Duong, two of Vietnam's most 
business-intensive provinces (REF C), told us that they too were 
applying ENT to this limited range of businesses. 
 
¶9. (SBU) Even in the case of large retail establishments, we were 
told by both public and private sector contacts, impact statements 
or ENTs are hardly ever problematic.  An American lawyer who works 
for a Vietnamese law firm told us that, even among his foreign 
retail sector clients (none American), overcoming an impact 
statement or ENT comes low in the priority list.  Provincial 
authorities in Binh Duong could also not recall instances where 
investors' plans came into conflict with their master plans.  "The 
master plans are revised frequently," they said, explaining that 
these are often more notional than actual guidelines.  The 
proliferation of foreign retail stores in Vietnam's largest 
metropolitan centers further attests to this. 
 
ALL BUT LOCAL RETAILERS ARE MOVING ON 
---------------------------- 
 
¶10. (SBU) Although an American law firm and even the AmChams at 
first lobbied for regulations defining ENT, they seem to have moved 
on.  "It's now academic," the managing partner of the law firm told 
us.  When we asked about the subject, the head of AmCham in HCMC 
replied that he did "not recall what happened to that issue." 
Ironically, one sector that has not moved on is Vietnam's domestic 
retailers.  In September, an association of Vietnamese retailers 
vowed to present the Trade Ministry with draft regulations on ENT to 
slow down foreign penetration of their market.  Trade Ministry 
officials, however, have assured Embassy that nothing will come of 
these efforts and they do not anticipate further regulations for the 
sector's opening. 
 
COMMENT: ELIMINATE NOT REFORM, THE ENT 
--------------------------------- 
 
¶11. (SBU) The important distribution sector appears ready for 
opening in 2009.  It has no doubt benefitted from the partial 
opening of the last year and the many interactions that the GVN has 
had with the private sector to fix and tweak the sector.  Post has 
continued to suggest to the Trade Ministry, most recently on 
November 10, to eschew the economic impact and ENT concepts 
altogether and move to a completely neutral zoning system, a 
proposal to which officials appear to be receptive.  Domestic 
retailers may now pose the biggest threat to foreign penetration of 
this sector.  The Mission will continue to monitor implementation 
and continue to work with the USG interagency community and the 
private sector to overcome obstacles as they arise.  End Comment. 
 
¶12. (U) This telegram was coordinated with ConGen Ho Chi Minh City. 
 
MICHALAK