Cablegate: Vietnam: The Deputy Secretary's Call On The

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 HANOI 001172

SIPDIS

SENSITIVE

STATE FOR THE DEPUTY SECRETARY
STATE FOR EAP/BCLTV AND EB/TPP/BTA/ANA JBELLER
STATE PASS USTR FOR EBRYAN AND GHICKS
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
TREASURY FOR OASIA

E.O. 12958: N/A
TAGS: ETRD EINV PREL PGOV SENV TBIO VM WTRO AFLU HIV AIDS WTO BTA ETMIN SOE
SUBJECT: VIETNAM: THE DEPUTY SECRETARY'S CALL ON THE
MINISTER OF PLANNING AND INVESTMENT

Sensitive but unclassified protect accordingly.

1. (SBU) Summary and Introduction: On May 5, Deputy
Secretary Robert Zoellick met with Minister of Planning and

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Investment Vo Hong Phuc. The Deputy Secretary advocated in
favor of broadening the U.S.-Vietnam relationship. He
identified HIV/AIDs and education as areas of good
collaboration, expressed interest in working more closely on
avian influenza, and noted that progress on adoptions and
human rights is important to Americans. The Deputy
Secretary voiced concern about taxes levied on the auto

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sector. He expressed strong support for Vietnam's WTO
accession and noted the close relationship between accession
and Vietnam's overall economic reform agenda.

2. (SBU) Minister Phuc stated that advancing bilateral
relations with the United States is a priority for Vietnam
and noted that the Government of Vietnam (GVN) believes
there is great potential to expand trade and investment. He
explained that Vietnam is phasing out investment licensing,
working to create a level playing field for domestic and
foreign investors and considering changes to its auto tax
policy. He said that Vietnam's next five-year plan will
seek to balance strengthening GDP growth, extending economic
opportunities to disadvantaged groups and ethnic minorities,
and attracting more foreign direct investment. He asked the
United States to support strongly Vietnam's goal of
accession to the WTO in 2005 within the framework
established in the U.S.-Vietnam Bilateral Trade Agreement
(BTA).

3. (U) The U.S. delegation included Ambassador Marine, D
Executive Assistant Ross Wilson, EAP DAS Marie Huhtala,
Deputy Spokesperson Adam Ereli, and D Special Assistant
Chris Castro. The Vietnamese delegation included Assistant
Foreign Minister Nguyen Duc Hung and the Ministry of
Planning and Investment's Foreign Investment Agency Director
Phan Huu Thang. End Summary and Introduction.

Broadening the Relationship
---------------------------

4. (SBU) The Deputy Secretary explained to Minister Phuc
that he came to the region at the start of the second Bush
administration to meet with U.S. partners and assess the
region's priorities. The United States has a full agenda
with Vietnam; the U.S. Government appreciates the GVN's
efforts to prepare for the Prime Minister's visit to
Washington this summer and recognizes the importance of
marking the tenth anniversary of the normalization of
relations between the two countries. As Vietnam approaches
its Tenth Party Congress, the GVN will need to make
decisions that will set its direction for the future. The
United States wants to build the foundation for a broader
relationship with Vietnam, one that will enable us to deepen
our dialogue on regional and global political, economic and
security issues.

5. (SBU) The Deputy Secretary noted that Vietnam has made
substantial progress in improving its business and
investment environment. The more Vietnam emphasizes the
rule of law and transparency and establishes clear
regulations, the more comfortable companies will be about
doing business in Vietnam. U.S.-Vietnam trade has already
experienced significant growth under the BTA. Now the two
sides need to address some services sectors as part of BTA
follow-through and Vietnam's WTO accession process. The
Deputy Secretary expressed pleasure that Vietnam has made
progress on the issuance of insurance licenses to U.S.
companies. He added, however, that developing countries
like Vietnam need to move beyond issuing individual licenses
and look at a larger, more modern framework for development.
In the United States, investors do not need a license to
invest because the U.S. Government believes it is better for
the economy to let in more companies and increase
competition in the market. With respect to the auto sector,
the Deputy Secretary noted that U.S. companies remain
concerned about increases in taxes and tariffs applied to
the auto kits that are imported for assembly in Vietnam.
They see these as a disincentive for doing business in
Vietnam. The Deputy Secretary acknowledged the GVN's
concern about road safety issues and highlighted efforts
companies like Ford are making to help address the safety
issue and support the overall development of the auto
sector.

6. (SBU) The Deputy Secretary also identified HIV/AIDs and
education as areas of good cooperation between the United
States and Vietnam. Vietnam is one of the countries
benefiting from the President's Emergency Plan for AIDs
Relief, and the Fulbright program includes more students
from Vietnam than any other country in the world. There has
also been good progress on religious freedom and MIA/POW
cases. The Deputy Secretary expressed an interest in
expanding cooperation in areas such as avian influenza. He
also noted that progress on adoptions and human rights are
important to average Americans and can set the stage for
further expansion in the relationship.

7. (SBU) Minister Phuc emphasized that improvement of
bilateral relations with the United States is a GVN
priority. The GVN believes there is great potential to
expand both trade and investment relations with the United
States. The Ministry of Planning and Investment (MPI) is
working closely with other GVN agencies to prepare for the
Prime Minister's trip to the United States. Minister Phuc
expressed appreciation for U.S. assistance to Vietnamese
NGOs, particularly in the area of HIV/AIDs, and noted that
Vietnam needs help from the international community to deal
with the problems posed by avian influenza.

8. (SBU) Minister Phuc noted that the United States is
Vietnam's eleventh largest investor, adding that it is the
sixth largest if investment through third countries is
included. Vietnam is working to open many areas to foreign
investment. The GVN just issued licenses to New York Life
to provide insurance services and Lemna International to
build a solid waste treatment complex in Ho Chi Minh City.
Issuance of these licenses is indicative of Vietnam's
interest in attracting investment from the United States.
The Minister stated the GVN's intention to gradually
eliminate the system of licensing, but noted that Vietnam's
transition economy needs to use a roadmap for liberalization
of its market.

9. (SBU) Minister Phuc explained that the GVN is currently
discussing the auto sector development with firms
representing three of its major partners: Germany, Japan
and the United States. The GVN will take note of these
companies' concerns, consider proposals and, if necessary,
make changes to the regulations governing the special
consumption tax (SCT). Vietnam needs to consider developing
infrastructure to accommodate the growing number of vehicles
on the road. The most important issue is to ensure that the
SCT is applied on an equal basis for all of Vietnam's
partners. Minister Phuc promised to consider the importance
the United States attaches to a more open market when the
GVN amends its law.

The Next Five-Year Plan
-----------------------

10. (SBU) Minister Phuc informed the Deputy Secretary that
Vietnam is in the process of formulating a new five-year
development plan. The GVN hopes to increase annual GDP
growth from its current 7.5 percent to 8 to 8.5 percent for
the next five years. To that end, Vietnam must be more
aggressive in pursuing the reforms of the Doi Moi
("renovation") reform policy. The GVN is drafting a new
investment law and a new enterprise law that will create a
level playing field for both domestic and foreign
investment. However, there are some areas Vietnam will
continue to protect in conformity with its BTA and WTO
commitments. Vietnam also plans to push forward with the
reform of state-owned enterprises (SOE). SOE reform has
created great momentum in the past and Vietnam is on the
right track, the Minister asserted.

11. (SBU) The new five-year plan will also pay greater
attention to development of the private sector, which has
been an engine of growth for Vietnam, Minister Phuc said.
In the first four months of 2005, the private sector grew 24
percent, a rate unmatched elsewhere in the economy. The GVN
also plans to focus on attracting additional foreign direct
investment (FDI), particularly from key partners such as the
United States, the EU and Japan. To do this, the GVN
understands it needs to ensure macroeconomic stability and
build a complete legal system. Vietnam hopes to join the
WTO by the end of this year and hopes the United States will
support its efforts.

12. (SBU) A strong social agenda is as important as economic
progress, Minister Phuc said. Vietnam must build on the
success it has had in reducing poverty during the last five
years. The GVN needs to pay special attention to
disadvantaged groups and ethnic minorities living in rural
and mountainous areas in the northern highlands, the Central
Highlands, the central part of Vietnam and Khmer areas in
the south. Vietnam wants to have a fair society that
promotes equal development for all segments of the
population and all regions. In the next five-year plan, the
GVN will prioritize resource development, social welfare,
security, nationality and religion. Administrative reform,
combating corruption, transparency and democracy will also
be key elements of the plan. Unlike in the past, the next
five-year plan will be "open for discussion." The GVN will
host conferences and solicit input from enterprises and the
international community as it develops the plan.

WTO Accession
-------------

13. (SBU) The Deputy Secretary said that the U.S. Government
strongly supports Vietnam's WTO accession and wants to work
with the GVN to bring Vietnam into the WTO as soon as
possible. The Deputy Secretary pointed out the connection
between development of Vietnam's five-year plan and its WTO
accession. As Vietnam changes its laws to meet the
requirements for WTO, it will also create the framework of
Vietnam's future economy. The GVN needs to revise 89 legal
documents to comply with WTO regulations. Members of the
WTO Working Party (WP) have made clear that as the GVN moves
ahead to revise its legislation, WP members want to review
the draft changes to assess their compliance with WTO
regulations.

14. (SBU) The Deputy Secretary explained that to join the
WTO, a country must not only meet multilateral rules but
also negotiate bilateral agreements with WTO members. He
highlighted the services sector. According to the World
Bank, services represent more than half the GDP of
developing countries like Vietnam and about two-thirds the
GDP of countries like the United States. The efficiency of
the services sector also impacts other sectors like
manufacturing and agriculture. Financial services are
important to spurring investment flows in and out of
Vietnam. Efficient telecommunications services are
essential to enable Vietnam to intersect with the global
economy. Expanded distribution services will help to plug
Vietnam into the global sourcing networks and advance firms'
ability to bring goods in and out of the country. Other
important services sectors include energy and audio-visual.

15. (SBU) On the multilateral side, the Deputy Secretary
said, WP members have highlighted trading rights, subsidies
and state trading as priority areas that Vietnam will need
to address as part of its accession. Trading rights, which
govern enterprises' ability to move goods in and out of the
country freely, can impact competition, lower inflation and
open up the trading system. The use of prohibited subsidies
impacts Vietnam's budget and its efforts to increase the
competitiveness of the economy. While state-trading
enterprises are not prohibited by the WTO, they must operate
on the basis of commercial principles and fair competition.

16. (SBU) Minister Phuc acknowledged the importance of the
services sector to Vietnam's economic development and agreed
that Vietnam needs to open the sector more. He noted that
Vietnam has committed to do this under the BTA and urged the
United States to look at Vietnam's WTO accession in the BTA
framework. He added that Vietnam also hopes to negotiate
its accession with other WTO members on this basis.

17. (U) This cable was cleared by D Staff.

BOARDMAN

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