VZCZCXRO4154
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1403/01 3590422
ZNR UUUUU ZZH
P 240422Z DEC 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8928
INFO RUEHHM/AMCONSUL HO CHI MINH 5426
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 001403 
 
SIPDIS 
 
STATE FOR EAP/MLS MBROWN 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
COMMERCE FOR 
USTR FOR DBISBEE 
 
E.O. 12958: N/A 
TAGS: ECON EINV ELAB KPRV KTEX PGOV VM
SUBJECT: BILATERAL WORKING GROUP DISCUSSES VIETNAM'S PROGRESS TOWARD 
MARKET ECONOMY STATUS 
 
REF: A) U.S. and Vietnam Joint Statement of June 24, 2008; 
B) Hanoi 654 ("SOE Reform Key to Improving Business Climate") 
 
HANOI 00001403  001.2 OF 002 
 
 
¶1. (U) Summary:  At the first meetings of the Market Economy Working 
Group, the United States and Vietnam discussed the latter's progress 
in transitioning to a market economy.  The U.S. delegation, led by 
the Department of Commerce, emphasized that substantial work remains 
to be done to reduce the government's intervention in the economy, 
and to level the playing field between the private sector and 
Vietnam's large state-owned sector.  Vietnam acknowledged these 
shortcomings but pointed to its ongoing efforts to allow market 
economy forces to assert themselves over the economy.  The U.S. side 
also pointed to restrictions on labor freedoms as another factor 
weighing down Vietnam.  The Working Group agreed to hold its next 
meeting in the first quarter of 2009.  End summary. 
 
FIRST MEETING OF THE MARKET ECONOMY WORKING GROUP 
--------------------------------------------- - 
 
¶2. (U) The Market Economy Working Group (MES WG), the creation of 
which had been announced during Prime Minister Nguyen Tan Dung's 
visit to the United States in June 2008 (REF A), held its first 
meetings in Hanoi on December 11 and 12.  The U.S. side was led by 
Department of Commerce Import Administration Assistant Secretary 
David Spooner, while the Vietnamese side was headed by Bach Van 
Mung, Director General of the Ministry of Industry and Trade's 
Competition Department.  Embassy Econoff, three DOC experts and 
Spooner's chief of staff joined, and representatives from several 
ministries of the Government of Vietnam (GVN), such as Labor, 
Foreign Affairs, Finance, and Planning and Investment, also 
attended. 
 
REVIEWING VIETNAM'S PROGRESS 
--------------------------- 
 
¶3. (U) The U.S. side began the first session by recognizing the 
significant efforts that Vietnam has taken to introduce market 
economy practices, particularly since the 2002 U.S. Commerce 
Department determination that Vietnam was not a market economy as 
part of an investigation on Vietnamese catfish exports.  The 
Vietnamese pointed out that production costs are determined by 
market forces, that state owned commercial banks are for-profit 
ventures, and wide access to foreign exchange and profit 
repatriation, as signs that Vietnam had made much progress since 
¶2002. 
 
¶4. (U) The U.S. delegation noted, however, that implementation gaps 
remain even in areas where Vietnam has taken action, such as 
state-owned enterprise (SOE) privatization and the Investment Law. 
"It's important to distinguish between 'de jure' and 'de facto' 
reforms," DOC Senior Economist Albert Hsu, said.  Spooner reassured 
the Vietnamese that the United States did not intend to "pass 
judgment over Vietnam's policy choices," and that it did not expect 
Vietnam to comply with every single criteria in order to 'graduate' 
into market economy status.  The U.S. delegation also reassured the 
Vietnamese that, in reviewing market economy status, the United 
States distinguishes between market economy issues and other issues 
typical of developing economies such as Vietnam's. 
 
STATE INTERVENTION IN THE ECONOMY AND SOES 
----------------------------------------- 
 
¶5. (U) In particular, the U.S. side pointed to many areas where the 
GVN remains heavily involved in the economy. It cited, for example, 
the large size of the SOE sector, especially in banking.  They cited 
the GVN's role as both regulator and owner of state owned commercial 
banks as particularly problematic.  "It would be useful to separate 
those two roles and allow the State Bank of Vietnam true 
independence," Hsu said.  In addition, the U.S. stated that SOEs 
enjoy disproportionate and preferential access to land rights, while 
many investment sectors remain open only to SOE operators. 
 
¶6. (U) In response, the Vietnamese side acknowledged that the SOE 
sector was problematic.  "True, there have been sectors that were 
monopolized by SOEs and [where there has been] no level playing 
field," Director General Mung said.  "Vietnam is still in 
transition, that is why there are still some sectors that are 
controlled by SOEs."  He said he hoped that the GVN's slow-moving 
roadmap for the partial privatization (or 'equitization') of SOEs 
(REF B) would address these shortcomings in the near future. 
 
LABOR HURDLES 
 
HANOI 00001403  002.2 OF 002 
 
 
------------- 
 
¶7. (U) Labor also emerged as one of the factors weighing against 
Vietnam.  The U.S. team stated that wages typical of a market 
economy had to be the result of "a genuine bargain between labor and 
management," and that workers had to be free to negotiate about the 
terms of employment.  "We look at the state of trade unions and 
collective bargaining," the U.S. experts said.  Vietnam claimed that 
its workers had rights to collective bargaining" and could negotiate 
wages freely.  [Note: Vietnam, however, appears unwilling to make 
the necessary reforms to enable freedom of association and 
collective bargaining before 2011. Septel.] 
 
THE ROAD AHEAD 
-------------- 
 
¶8. (U) Although the Vietnamese side recognized that they still did 
not meet the criteria to graduate to market economy status, many 
from the GVN interagency group, including Director General Mung 
himself, expressed hopes that Vietnam could request a review in the 
very near future.  They floated the idea of graduating some sectors 
of the economy separately, but the United States team responded that 
it was hard to envision how an economy could be a true market 
economy when there were sectors that remain non-market. 
 
¶9. (U) The two sides agreed to meet again in late spring of 2009 at 
the experts' level in Vietnam (to save their much larger side the 
cost of travel), and in the summer at the Assistant Secretary's 
level, at alternating sites. 
 
PRIVATE SECTOR ROUNDTABLES 
-------------------------- 
 
¶10. (U) Assistant Secretary Spooner also met with U.S. and 
Vietnamese private sector representatives on the margins of the MES 
WG meetings.  At a meeting hosted by the U.S.-ASEAN Business 
Council, Spooner and U.S. business officials discussed, in addition 
to the MES WG work, the Bilateral Investment Treaty negotiations, 
Vietnam's request for Generalized System of Preferences 
consideration, and the Transpacific Partnership agreement.  Several 
of the companies, including Chevron, thanked the A/S for recent 
Commerce Department advocacy on their behalf by Secretary Gutierrez 
during Deputy Prime Minister Hai's trip to Washington, DC in 
November.  At a discussion with textile and steel members of the 
Vietnam Chamber of Commerce earlier, A/S Spooner discussed steps 
Vietnam and individual industries would have to take to qualify for 
market economy status under U.S. law.  Textile companies expressed 
their appreciation for the results of DOC's third and latest data 
review of Vietnamese textile exports which demonstrated insufficient 
evidence to initiate anti-dumping action. 
 
COMMENT: ANOTHER LEVERAGE FOR REFORM 
------------------------------------ 
 
¶11. (U) Like GSP and TPP, market economy status provides us with 
another avenue to press systemic reforms in Vietnam, and all three 
are Vietnam-driven issues.  After the two-day rounds of the MES WG, 
it looks like graduation is not entirely out of the question, 
especially if Vietnam gets serious about pursuing it.  However, 
reform moves slowly in Vietnam, even when it leads to a desirable 
outcome, as we have see with GSP (Septel).  Continuing to engage on 
Market Economy, and allowing the Vietnamese to understand clearly 
what they need to do, can only help it make the transition to a 
modern economy and polity. End Comment. 
 
¶12. (U) This telegram was coordinated with the Department of 
Commerce. 
 
MICHALAK