VZCZCXRO0788
OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHHI #1116/01 2940341
ZNR UUUUU ZZH
O 210340Z OCT 09
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0342
INFO ASEAN MEMBER COLLECTIVE IMMEDIATE
RUEHHM/AMCONSUL HO CHI MINH CITY IMMEDIATE 0133
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC IMMEDIATE

UNCLAS SECTION 01 OF 04 HANOI 001116 
 
SENSITIVE 
SIPDIS 
SIPDIS 
USTR FOR D. BISBEE, R. BAE 
 
E.O. 12958: N/A 
TAGS: ETRD VM XD BEXP ECON EAGR EFIN
SUBJECT: AMBASSADOR'S MESSAGE TO UNDERSECRETARY HORMATS ON OUR 
ECONOMIC AGENDA WITH VIETNAM 
 
HANOI 00001116  001.2 OF 004 
 
 
¶1. (SBU) INTRODUCTION:  I strongly believe that we have an 
unprecedented window of opportunity today to influence the outcome 
of Vietnam's fast transformation through our economic engagement. 
Few will dispute that our work here over the last 20 years has had 
a profound effect in Vietnam.   Politically and socially, Vietnam 
lags behind, and we have seen some recent human rights setbacks, 
but I am convinced that change is inevitable.  The engine behind it 
is, for the most part, economic.  Vietnam aspires to improve its 
business climate and economic competitiveness, and it is our role 
to continue to make the connection between these goals and respect 
for civil liberties, better governance, labor freedoms, public 
accountability and the rule of law, while reminding Hanoi that 
human rights issues can create problems for our economic agenda. 
In order to shape change, we must stay engaged.  This is not the 
time to step back, but to push even further.  Continued engagement 
on the economic front will help ensure that a prosperous, better 
governed society, and a better partner for the United States, 
emerges in Vietnam. 
 
 
 
¶2. (U) I encourage you to consider including a visit to Vietnam in 
your schedule.  Your presence here will advance our ability to 
influence the pace and outcome of Vietnam's transformation at this 
critical time.  Mission Vietnam and I sincerely welcome and 
encourage your visit, and hope to see you here over the next year. 
 
 
 
SUMMARY:  BILATERAL TRADE AND INVESTMENT STRONG, BUT CHALLENGES 
REMAIN 
 
 
 
¶3. (SBU) The Government of Vietnam (GVN) has managed the global 
economic crisis well, emerging as one of the few economies in the 
region with positive GDP growth this year.  U.S. companies have 
continued to show strong interest in Vietnam throughout the crisis 
- the U.S. has been the largest foreign investor in Vietnam in 
¶2009.  Despite the economic challenges of the past year, Vietnam 
has continued to maintain a commendable record on opening its 
market and undertaking other economic-related reforms.  The GVN is 
committed to deepening its trade relations with the United States, 
and has been an engaged partner in Bilateral Investment Treaty 
(BIT) talks and our bilateral Trade and Investment Framework 
Agreement (TIFA) negotiations.  At our urging, Vietnam agreed to 
join Trans Pacific Partnership (TPP) negotiations as an associate 
member. 
 
 
 
¶4. (SBU) Vietnam genuinely yearns to be a 21st century trading 
partner in the global economy, especially with the United States, 
but is limited in various degrees by its human rights record, 
inadequate labor laws, deficient infrastructure, wide-spread 
corruption, and clunky vestiges of the former centrally planned 
economy.  Still, the GVN has shown real commitment on reform in key 
areas, such as education and competitiveness, and has welcomed USG 
assistance on a range of issues.  As expected in a growing trade 
relationship, there are unsettled trade issues, for example, GSP, 
catfish, and a potentially precedent-setting plastic bags 
countervailing duty case for Vietnam; market access for beef, 
mandatory biotech labeling, and better IPR enforcement for the U.S. 
For now the two sides are working through existing mechanisms to 
resolve these issues.  In my view, the best way to keep Vietnam on 
the path of economic reform and encourage true political reform is 
to maintain active, high-level engagement with Vietnam on the full 
range of economic issues.  End summary. 
 
 
 
VIETNAM WEATHERS THE CRISIS, TRADE WITH U.S. CONTINUES TO THRIVE 
 
 
 
¶5. (U) Although Vietnam's GDP grew at only 3.1 percent in the first 
quarter of 2009 - the slowest growth in a decade - it accelerated 
in the second and third quarters to 4.5 percent and 5.8 percent, 
respectively.  Full-year projections for 2009 GDP growth are about 
five percent, making Vietnam one of the few economies in the region 
with positive growth this year.  GDP growth projections for 2010 
range from 6.5 to 8.5 percent.  Annual inflation is expected to 
stay below seven percent.  Through September 2009, Vietnam's 
 
HANOI 00001116  002.2 OF 004 
 
 
exports were down by 14 percent, a much lower drop than had been 
expected. 
 
 
 
¶6. (SBU) Analysts credit the GVN's swift policy response to the 
economic downturn for easing the effects of the crisis and 
promoting a relatively strong recovery.  In January 2009, the GVN 
announced an economic stimulus plan to promote consumption and 
investment, comprised of infrastructure investment, tax cuts and 
deferments, and a four percent interest rate subsidy for selected 
commercial loans.  Most analysts estimate actual stimulus 
disbursements between $2 to $3 billion USD.  The most important 
current risk is that the growth of the money supply and credit 
under the stimulus plan will lead to increased inflation.  There 
are also concerns about how Vietnam will finance its increasing 
budget deficit - a consequence of stimulus spending combined with 
decreasing revenues due to tax cuts and deferments. 
 
 
 
¶7. (SBU) U.S. companies have continued to show strong interest in 
Vietnam throughout the economic crisis, and U.S.-Vietnam bilateral 
trade and investment continue to thrive.  Since the 2001 
U.S.-Vietnam Bilateral Trade Agreement (BTA), bilateral trade has 
increased from $2.91 billion in 2002 to $15.7 billion in 2008. 
Agriculture trade is particularly strong:  U.S. agriculture exports 
to Vietnam reached a record $1 billion in 2008.  The U.S. has been 
the largest foreign investor in Vietnam in 2009, with total new and 
additional FDI of $3.95 billion.  The U.S. was Vietnam's second 
largest trade partner overall, after China, in the first eight 
months of 2009. 
 
 
 
VIETNAM STAYS THE COURSE IN TRADE POLICY 
 
 
 
¶8. (SBU) Despite the challenges of the global financial crisis, 
Vietnam for the most part has stuck to its free-market stance.  The 
GVN finished free trade deals in the second half of 2008 with 
Japan, Australia and New Zealand.  Vietnam is pursuing an equally 
ambitious agenda with the United States.  We will hold our third 
round of Bilateral Investment Treaty discussions in mid-November in 
Washington.  We continue to engage Vietnam on a range of trade 
issues under the bilateral Trade and Investment Framework Agreement 
(TIFA) meetings.  USTR Kirk held a ministerial TIFA with Vietnam's 
Minister of Industry and Trade Hoang in Singapore in July.  In 
February 2009 Vietnam announced it was joining the Trans Pacific 
Partnership (TPP) negotiations with Australia, New Zealand, 
Singapore, Peru, Chile, Brunei, Singapore and the United States as 
an associate member. 
 
 
 
CHALLENGES AHEAD AND THE USG RESPONSE 
 
 
 
¶9. (SBU) A number of political and economic challenges could stall 
Vietnam's progress on trade and investment liberalization.  On the 
political side, recent arrests of lawyers, journalists, and 
dissidents, pressure on independent organizations, and tightening 
restrictions on the media have had an adverse impact on our 
relationship as a whole, and make it more difficult to pursue our 
trade agenda with Vietnam.  Further, the recently enacted Decision 
97, legislation that severely restricts the freedoms of independent 
research organizations, will discourage research and development 
investment here.  We must continue to emphasize to the GVN the 
degree to which human rights abuses undermine our ability to move 
forward on a positive bilateral trade agenda. 
 
 
 
¶10. (SBU) Labor reform is also a challenge, and is critical to 
approval of Vietnam's application for the Generalized System of 
Preferences (GSP).  Labor will also figure prominently at the next 
TIFA talks, as well as possible future TPP negotiations and 
U.S.-Vietnam Market Economy Status discussions.  Vietnam is 
currently revising its labor laws, including the Trade Union Law, 
which the U.S. supports through our bilateral Labor Dialogue and 
technical assistance from USAID and the Department of Labor. 
 
HANOI 00001116  003.2 OF 004 
 
 
¶11. (SBU) U.S. investors and businesses in Vietnam have urged the 
GVN to focus on improving the business climate, including opening 
industries to foreign competition, improving infrastructure, 
reforming state-owned enterprises, reducing red tape, and 
strengthening anti-corruption efforts.  Mission Vietnam has pressed 
the same message, emphasizing the need for administrative reforms, 
trade liberalization, and increased transparency.  Over the past 
nine years, the USG has spent $41 million in the highly-successful 
Support for Trade Acceleration (STAR) and Vietnam Competitiveness 
Initiative (VNCI) programs. 
 
 
 
¶12. (SBU) Post has also urged Vietnam to move ahead with education 
reform, which has become a serious drag on economic development. 
Vietnam's response has been encouraging.  The GVN has embraced 
education reform and is seeking increased investment in this 
sector.  The U.S.-Vietnam Education Task Force, established in June 
2008, has recently completed a bilateral report to be presented to 
leaders in both countries recommending concrete steps to improve 
university education in Vietnam. 
 
 
 
BILATERAL TRADE ISSUES:  REAL BUT MANAGEABLE 
 
 
 
¶13. (SBU) As expected in a growing trade relationship, both the 
U.S. and Vietnam have several outstanding issues we want to see 
resolved positively.  For the Vietnamese, current priorities are 
GSP review, catfish, and the recent plastic bags countervailing 
duty (CVD) case against Vietnam, which is the first of its kind and 
may open the door to further CVD cases in the future.  Immediate 
concerns for the U.S. are improved intellectual property 
protection, mandatory biotech labeling, and market access for U.S. 
beef.  We want to continue to reassure the GVN of our continued 
commitment to deepen bilateral economic ties, and note that some 
trade disagreements are normal in a maturing bilateral trade 
relationship. 
 
 
 
¶14. (SBU) Generalized System of Preferences (GSP):  Vietnam 
requested designation as a GSP beneficiary in May 2008.  We 
subsequently informed the GVN it needed to address key elements 
related to worker rights issues and continue to make progress on 
intellectual property rights (IPR) issues before we could move 
forward with this request. 
 
 
 
¶15. (SBU) Catfish:  Vietnamese seafood exporters, the GVN, and U.S. 
importers of Vietnamese seafood are concerned about the fate of 
trade in pangasius (tra and basa) fish.  The 2008 Farm Bill shifted 
regulatory jurisdiction over "catfish" to USDA but left open the 
definition of catfish.  A previous Farm Bill mandated that 
Vietnamese pangasius fish could not be called catfish in the United 
States, which has created ambiguity as to what species of fish the 
2008 Farm Bill will eventually cover.  A resolution by USDA of the 
catfish definition is expected in early 2010.  Foreign sales of 
these fish were a bright spot for Vietnam in 2008, with both export 
value and volume up worldwide, and exports to the United States 
totaling $70 million.  In turn, Vietnamese seafood exporters are 
large consumers of U.S. feed (exports of U.S. grains and feed to 
Vietnam commonly used in the seafood industry reached $192.6 
million in 2008, a 44 percent increase from 2007). 
 
 
 
¶16. (SBU) Countervailing duty (CVD) case:  The Department of 
Commerce announced a positive preliminary determination in the CVD 
investigation on imports of plastic bags from Vietnam in August 
¶2009.  A Commerce team will be in Vietnam October 30-November 21 to 
complete its investigation, and will make a final determination in 
January 2010. 
 
 
 
¶17. (SBU) Market access for U.S. beef:  Vietnam currently restricts 
 
HANOI 00001116  004.2 OF 004 
 
 
imports of beef and beef products from the U.S. to animals less 
than 30 months old.  In June 2009, the GVN made a partial offer 
(allowing boneless beef over 30 months), which we have informed 
them is not acceptable.  We want to continue to urge full opening 
of the Vietnamese market to U.S. beef. 
 
 
 
¶18. (SBU) Mandatory biotech labeling:  Despite considerable USG 
support to assist the GVN in modernizing its food and food safety 
regimes, including support for the drafting of new food safety and 
biosafety laws, Vietnam's current draft legislation requires 
mandatory labeling of all genetically modified food and 
agricultural products.  We have requested that the government 
remove all mandatory labeling provisions in the draft legislation. 
 
 
 
¶19. (SBU) Intellectual property rights (IPR):  Vietnam's National 
Assembly recently passed an amendment to the criminal code that 
fails to include all exclusive rights for copyrights and related 
rights, and may fall short of Vietnam's obligations under the WTO 
TRIPs agreement and the U.S. Vietnam Bilateral Trade Agreement.  We 
are working closely with the GVN as it strives to improve both IPR 
legislation and enforcement. 
Michalak