VZCZCXRO1775
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHHI #1342/01 3441030
ZNR UUUUU ZZH
P 091030Z DEC 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8827
INFO RUEHHM/AMCONSUL HO CHI MINH 5358
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHHMUNA/USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 04 HANOI 001342 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR H AND EAP/MLS 
H PLEASE PASS TO CODEL BAUCUS 
USTR FOR BISBEE 
 
E.O. 12958: N/A 
TAGS: OREP EFIN EAID ECPS ECON ETRD VM
SUBJECT: SCENESETTER FOR CODEL BAUCUS, DEC 16-20, 2008 
 
HANOI 00001342  001.2 OF 004 
 
 
SUMMARY AND INTRODUCTION 
------------------------ 
 
¶1. (SBU) Embassy Hanoi looks forward to welcoming you to Vietnam. 
Prime Minister Nguyen Tan Dung's June visit to Washington 
exemplifies a U.S.-Vietnam relationship that 
continues to broaden and mature, in the process spurring 
economic, social and technological development that has eased the 
path for a limited expansion of personal freedom and expression for 
the people of Vietnam.  A majority of Vietnamese view partnership 
with the United States as key to Vietnam's current development and 
future successful global integration.  High-level visits like yours 
create opportunities for us to influence developments and respond to 
Vietnam's interest in globalization, reform, combating corruption, 
and enhancing educational opportunities for its people.  Your 
particular interest in trade and investment coincides with one of 
the Government of Vietnam's (GVN) greatest challenges and 
priorities, as Vietnam's economy is going through a period of 
adjustment following tremendous growth in 2007.  For these reasons, 
and despite our differences, Vietnam's leaders are committed to 
continued progress in bilateral relations and will speak with you 
optimistically about the future of U.S.-Vietnam ties.  End summary. 
 
ECONOMIC SUCCESSES AND CHALLENGES 
--------------------------------- 
 
¶2. (SBU) After a decade of isolation and failed economic 
policies, Vietnam is determined to catch up with the Asian 
tigers.  Vietnam's "doi moi" (renovation) program of economic 
reform, begun in 1986, has set the country on a successful market 
economy path, with an average growth rate of 7.5 percent over the 
past decade.  A recent World Bank study described Vietnam's poverty 
reduction rate as the most significant in such a short period of any 
nation in history.  The GVN focuses on exports and foreign direct 
investment in its drive to achieve middle-income status by 2010. 
Vietnam is second only to Thailand in rice exports, and second to 
Brazil in coffee.  Other leading exports include crude oil, apparel, 
footwear and aquatic products.  Vietnam is also "moving up the value 
chain" by increasing its exports of furniture, machinery, cameras, 
computers, printers, consumer electronics, and other diverse 
products.  U.S. investors tell us the key challenges they face in 
Vietnam are underdeveloped infrastructure, a shortage of skilled 
workers and managers, the considerable level of state participation 
in the economy, and corruption.  The Japanese government recently 
announced a freeze on low-interest loans to Vietnam until the GVN 
takes "meaningful" steps to eliminate corruption. 
 
¶3. (U) The United States is currently Vietnam's largest export 
market and third largest overall trade partner.  Total two-way trade 
in goods with the United States in 2007 was USD 12.53 billion, up 29 
percent over 2006.  One of the most positive stories from 2007 was 
the surge in U.S. exports to Vietnam, from USD 1.1 billion to USD 
1.9 billion, driven by agricultural exports such as cotton (up 92 
percent), soybeans (up 1,480 percent), and wheat (up 1,120 percent). 
 U.S. commodities including hardwood, hides and skins, tree nuts, 
fresh fruit, and poultry and red meats also posted record gains in 
¶2007.  Driven by the technology industry, the United States is 
Vietnam's seventh largest investor, with USD 2.6 billion in 
registered FDI since 1988, and USD 2 billion more in "U.S.-related 
investment." 
 
¶4. (U) Despite the global economic uncertainty, two-way trade in 
2008 looks likely to once again break new ground and surpass last 
year's mark.  Agricultural products continue to show exceptional 
growth.  Chicken is up 564 percent, red meats up 983 percent, coarse 
grains 304 percent, soybeans 382 percent, wheat flour 675 percent, 
seeds 454 percent, and cotton 115 percent. 
 
¶5. (U) Due to the sharp rise in meat imports, which generated 
complaints from Vietnamese producers, the GVN raised meat tariff 
rates.  Some of the tariff increases were quite large.  Due to WTO 
bindings negotiated during the accession talks, however, the tariff 
increase for the types of meats exported by the United States 
(generally frozen cuts and offal) are actually relatively small. 
The added cost for U.S. poultry meat exports will be about 7 
percent, while the increases for beef and pork will be even 
smaller. 
 
¶6. (U) At the same time that the GVN raised meat tariffs, they 
lowered tariffs on another group of U.S. exports--dry peas and 
lentils.  With this latest reduction, tariffs on dry peas and 
lentils have fallen from 25 percent last year to 13 percent 
currently.  Compared with other ASEAN countries, these tariffs are 
still relatively high, so U.S. volumes shipped here remain small. 
 
HANOI 00001342  002.2 OF 004 
 
 
 
¶7. (SBU) While the great majority of experts consider Vietnam's 
long-term economic prospects to be bright, short-term macroeconomic 
problems, which predate the current global financial crisis, caused 
major difficulties for the government earlier this year.  These 
problems were high inflation (24.2 percent year-on-year November), a 
large current account deficit that put pressure on the currency, and 
inefficient allocation of resources due to the disproportionate 
amount of state assets devoted to powerful State Owned Enterprises 
(SOEs).  In response, the Vietnamese implemented a series of fiscal 
and monetary tightening measures that were effective in stabilizing 
the currency, cutting the trade deficit, and reducing price 
increases. 
 
¶8. (U) As these measures were taking hold, however, global economic 
problems worsened.  Vietnamese banks were not heavily invested in 
sub-prime debt and were therefore not directly impacted by the U.S. 
financial crisis.  Nonetheless, indirect impacts are now being felt 
in decreasing foreign direct investment, exports and capital 
markets.  Vietnam has responded vigorously (too vigorously, some 
economists feel) by dropping interest rates 4 times in recent 
months, trimming reserve requirements, and widening the currency 
trading band.  The GVN has also revised its 2009 GDP growth estimate 
down to 6.5 percent, although that figure is viewed as optimistic. 
Local economists predict that 5 percent will be more achievable. 
 
 
OUR TRADE AGENDA 
---------------- 
 
¶9. (U) We have a broad trade agenda.  Our focus is on maintaining 
momentum for improved market access for our exporters and investors. 
 We have encouraged Vietnam to consider joining the Trans-Pacific 
Partnership regional free trade negotiations.  We expect them to 
indicate soon whether they will participate.  The first round of 
negotiations for a Bilateral Investment Treaty (BIT) will take place 
this month in Washington.  Vietnam has requested GSP and we have 
told them they need to make improvements in labor rights and IPR 
protection.  A Department of Commerce team will soon arrive in Hanoi 
for the first round of discussions on Market Economy Status for 
Vietnam.  Commerce also recently determined in its third and last 
report on textiles and garments that Vietnam was not dumping in the 
U.S.  We signed an Open Skies civil aviation agreement for cargo 
services last September. 
 
¶10. (SBU) Vietnam currently accepts U.S. beef from cattle less than 
30 months of age.  USDA/APHIS has requested that Vietnam expand this 
access to allow all products and all ages of beef.  The Vietnamese 
have drafted a risk assessment to address this issue and, from 
November 17-21, 2008, a delegation led by Vietnam's Director General 
for Animal Health came to review the U.S. BSE control system.  The 
Embassy has indicated to the GVN the value of positively responding 
to this request in time for a formal announcement during your visit 
and the Embassy will continue to press for a response. 
 
BANKING AND FINANCIAL SERVICES 
------------------------------ 
 
¶11. (U) Part of Vietnam's recent inflation problem was due to its 
booming banking sector.  Credit growth was over 50 percent in 2007, 
with some newer joint stock banks growing loans at close to 90 to 
100 percent.  The economic downturn in early 2008 exposed weaknesses 
in the system and there are now a number of small banks receiving 
liquidity support from the State Bank of Vietnam (SBV).  Vietnam is 
entering a stage where similar emerging countries have experienced 
failure of newly formed private banks.  Analysts predict that an 
increase in non-performing loans at the end of the calendar year may 
bring about additional instability if local investors lose 
confidence in the banking system.  State domination is a factor 
here, too, as state-owned commercial banks own 50-60 percent of 
banking assets. 
 
GROWING INTERNATIONAL AND REGIONAL ROLE 
--------------------------------------- 
 
¶12. (SBU) Vietnam's economic successes have translated into 
greater international standing.  Vietnam has taken seriously its 
responsibilities this past year as a non-permanent member of the 
U.N. Security Council, chairing the UNSC in July, and has boosted 
its participation in regional bodies such as ASEAN and APEC.  While 
GVN leaders are not fully sure how to handle all the attention, they 
understand that the United States plays a direct role in fostering 
the conditions and providing strategic technical assistance for 
their nation's success.  Leaders here are thankful, in particular, 
 
HANOI 00001342  003.2 OF 004 
 
 
for the high-value assistance we have provided over the past seven 
years.  USG technical assistance has earned a rare level of 
confidence and effectiveness at the heart of Vietnam's 
policy-making.  Top GVN officials continue to request deeper and 
broader USAID assistance in many transformational areas and make 
clear their preference for U.S. expertise over that of other donors. 
 The magnitude of our impact is limited only by current resource 
constraints. 
 
HUMAN RIGHTS 
------------ 
 
¶13. (SBU) Challenges remain, of course.  GVN leaders assume the 
Communist Party's preeminent political role to be the linchpin of 
stability, and human rights remain a major sticking point in the 
bilateral relationship.  China remains a critical strategic 
preoccupation, a fact that tempers Vietnam's willingness to 
accelerate ties with the United States.  Still, most Vietnamese are 
enthusiastic about improved relations with the United States, 
viewing this as a key indicator of the tremendous progress since the 
dark days of international isolation in the 1970s and 1980s.  For 
these reasons, and despite our differences, Vietnam's leaders are 
committed to continued progress in bilateral relations and will 
speak with you optimistically about the future of U.S.-Vietnam 
ties. 
 
USG ASSISTANCE AND EDUCATION 
---------------------------- 
 
¶14. (U) U.S. assistance in areas other than HIV/AIDS and influenza 
remains very modest in relation to spending in smaller neighboring 
nations, but increased substantially in FY08 to more than USD 10 
million due to earmarks for governance programming and de-mining. 
U.S. programs such as Support for Trade Acceleration (STAR) and the 
Vietnam Competitiveness Index have helped to reshape trade and 
economic regulation, with positive impact on governance throughout 
the country.  Treasury is also starting to engage on economic 
issues, with programs in areas such as anti-money laundering, 
taxation, insurance and bond market development. 
 
¶15. (U) Vietnam's schools and universities employ an antiquated 
teaching methodology (a theory-intensive instructional style), lack 
qualified instructors, and have poor facilities, all of which 
exacerbates the widespread incongruity between skills and 
requirements in the country's job market.  GVN officials recognize 
the structural weaknesses in Vietnam's education system and are 
working to upgrade it.  The United States is involved in education 
in Vietnam in several ways.  The Fulbright Program provides 
scholarships for two-year Master's Degree programs at American 
universities for 25 Vietnamese students each year, and the Vietnam 
Education Foundation sends more than 40 students to the U.S. for 
Ph.D. study in the hard sciences every year.  The Fulbright Economic 
Teaching Program, in Ho Chi Minh City, provides high quality 
training in economics and public policy for mid-level 
administrators.  In addition, the U.S. Mission actively assists 
American universities and colleges wanting to set up programs at 
Vietnamese schools, which helps increase the number of graduates 
with the skills needed by American companies in Vietnam.  In 
addition, EducationUSA Centers in Hanoi and Ho Chi Minh City provide 
information and counseling to students wanting to study in the U.S. 
 
HUMAN RIGHTS CHALLENGES 
----------------------- 
 
¶16. (SBU) Serious deficiencies related to human rights in 
Vietnam include lack of freedom of speech, assembly, and the press. 
One of our key objectives is to end the use of catchall "national 
security" provisions for the prosecution of peaceful dissent.  Since 
September 2008 alone, over a dozen political activists have been 
arrested for their peaceful dissent against Vietnam's policies.  We 
continue to call for the release of all prisoners of conscience, but 
where we see individuals expressing their political opinions, many 
of our government interlocutors see "lawbreakers" trying to 
destabilize the regime. 
 
¶17. (SBU) The recent conviction of two award-wining Vietnamese 
reporters in the wake of their reporting on a high-level corruption 
scandal, and the conviction of a noted blogger on unfounded charges 
of tax evasion reveal the declining state of freedom of the press. 
A new draft Press Law, including a draft circular on measures to 
register and control blogs, further illustrates the suspicion and 
unease the government has for any expansion of expression.  The 
continued existence of groups in the United States that advocate 
regime change complicates human rights engagement by providing 
 
HANOI 00001342  004.2 OF 004 
 
 
ammunition to hard-liners who want to stoke the fading paranoia that 
we are indeed still "the enemy."  Reassuring the GVN that the USG 
does not support separatist groups, while reinforcing the role of 
the media in stemming corruption can assist in building a better 
human rights dialogue based on mutual trust. 
 
¶18. (SBU) Real progress has been made in the area of religious 
freedom.  The government continues to recognize new religions, 
including several new Protestant faiths in the past six months, and 
religious observance in Vietnam is quickly growing.  While problems 
remain, particularly in outlying areas, we removed Vietnam from our 
list of countries of particular concern for religious freedoms in 
late 2006 due to overall continued improvement. 
 
WAR LEGACY ISSUES 
----------------- 
 
¶19. (SBU) While debate continues over the possible human effects of 
exposure to dioxin, a contaminant in the wartime defoliant Agent 
Orange, recent environmental studies show that dioxin contamination 
is concentrated in several "hotspots" within former U.S. airbases 
where Agent Orange was stored, loaded and transferred.   Areas 
subjected to heavy aerial spraying do not have soil concentrations 
considered hazardous.  The United States and Vietnam have not 
reached agreement on the scope of possible health effects, with 
Vietnam continuing to argue that over three million handicapped can 
trace their disabilities to dioxin exposure.  We do not believe that 
this figure can be supported by scientifically sound data and 
analysis.  Statements that describe every child born with a birth 
defect anywhere in Vietnam as a "victim of agent orange" are common 
and remain a favorite propaganda tool for persons opposed to closer 
U.S.-Vietnam relations.  However, our engagement on this issue has 
accomplished much, in both transforming the tone of the dialogue and 
capacity building to address environmental issues and provide 
assistance for the disabled.  USAID has started to implement a USD 3 
million Congressional appropriation for "dioxin mitigation and 
health activities," with the recent announcement of USD 1 million in 
grants to three partner organizations to strengthen services for the 
disabled in Da Nang.  We continue to work with the GVN, UNDP, Ford 
Foundation and other donors to form a multilateral coalition for 
environmental remediation of three priority hotspots in Da Nang, Hoa 
Binh and Phu Cat airfields. 
 
CHINA 
----- 
 
¶20. (SBU) While Vietnam's engagement with the United States will 
continue to broaden, China necessarily constitutes Vietnam's most 
important strategic preoccupation.  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.  Nevertheless, while China 
constitutes a vital and necessary commercial partner -- and shares 
many facets of Vietnam's single-party, market-oriented development 
model -- it is also perceived as a significant constraint on 
Vietnam's freedom of action, affecting, for example, the speed with 
which Vietnam can improve its relations with the United States. 
Territorial disputes in the South China Sea are a perennial source 
of tension with China, as well as a sensitive issue domestically. 
Vietnam is aware of Chinese pressure on U.S. firms with interests in 
the South China Sea, and your interlocutors may ask Congress to take 
a "tougher" stance. 
 
WHAT YOU CAN EXPECT 
------------------- 
 
¶21. (SBU) You can expect your interlocutors to not only be 
articulate and well informed, but also to speak in terms generally 
supportive of growth in the bilateral relationship.  As noted above, 
lingering suspicions still exist among conservatives about the 
development of closer ties with the United States.  Nonetheless, we 
fully expect the overall tenor to be one of support and interest at 
a measured pace that will not upset the GVN's calibrated attempts to 
maintain balance among its other regional partners.  There may be 
media interest among Vietnamese outlets and you should expect 
photographers at some GVN meetings. 
 
¶22. (U) Again, we look forward to your visit and stand ready to do 
everything we can to make your visit to Vietnam as productive as 
possible. 
 
MICHALAK