Viewing cable 04HANOI3332

04HANOI33322004-12-17 09:01:00 2011-08-30 01:44:00 UNCLASSIFIED Embassy Hanoi
This record is a partial extract of the original cable. The full text of the original cable is not available.
E.O. 12958: N/A 
REF:  STATE 240980 
¶1.  This cable transmits post's suggested revisions to the 
text of the 2005 National Trade Estimate Report for Vietnam. 
As instructed reftel, text was sent via email attachment 
separately to USTR. 
¶2. Begin text of draft NTE report: 
The U.S. trade deficit with Vietnam was 3.4 billion in the 
first 10 months of 2004, an increase of USD 640.6 million 
from the same period in 2003.  U.S. goods exports in the 
first 10 months of 2004 were 1.02 billion, down 16.2 percent 
from the previous year.  Corresponding U.S. imports from 
Vietnam in the first 10 months of 2004 were USD 4.4 billion, 
up 11.1 percent. 
The stock of U.S. foreign direct investment (FDI) in Vietnam 
in 2003 was USD45 million, down from USD 139 million in 
Vietnam's tariff schedule was rationalized in 1992 and 
simplified in 1999, following Vietnam's accession to the 
ASEAN Free Trade Area (AFTA).  Currently, there are three 
sets of tariff rates:  most favored nation (MFN) rates that 
apply to about 75 percent of total imports from about eighty 
countries that have bilateral trade agreements with Vietnam, 
including the United States; Common Effective Preferential 
Tariff  (CEPT) rates that apply to imports from ASEAN 
countries; and general tariff rates (50 percent higher than 
MFN) that apply to all other countries.   Under the terms of 
the U.S.-Vietnam Bilateral Trade Agreement (BTA), Vietnam is 
obligated to reduce significantly tariffs by an average of 
about one-third to one-half on a broad range of U.S. imports 
(approximately 244 lines) over a period of three years 
beginning in December 2004.  A Ministry of Finance Decision, 
effective December 10, 2004, reduced the MFN tariff rates on 
more than 1100 tariff lines to meet this BTA obligation. 
The tariff reductions apply to imported goods having 
certificates of origin from the United States as well as 
imports from other countries that have an MFN agreement with 
On September 1, 2003, a new tariff system took effect that 
is based on the eight digit Harmonized System and conforms 
to ASEAN's Harmonized Tariff Nomenclature (AHTN).  The new 
system consists of 10,689 lines (4200 more than the old 
one), of which 5,300 lines are at four and six digits and 
5,400 lines are at eight digits.  There are now fifteen 
tariff rates (down from twenty) and the simple average 
tariff rate increased from 16.8 percent to 18.2 percent.  In 
implementing the new tariff system, the Government of 
Vietnam raised tariff rates on 195 items and reduced them on 
¶106.  Protection on 72 items, except for welding steel 
tubes, was converted from price differential surcharges to 
tariffs.  Tariff rates on petrol and oils (heading 2709 and 
2710) are not specified in the new schedule. 
The National Assembly retains authority over setting tariff 
bands for each product and the government is free to adjust 
applied tariffs within the bands.  There is no online 
published tariff schedule, and it is often difficult to 
determine when and how much tariffs have changed. 
Non-tariff barriers 
Non-tariff barriers (NTB's) were introduced in Vietnam when 
the country shifted from a centrally controlled economy 
toward market trade in the late 1980s to early 1990s and 
quickly became a key component of Vietnam's trade policy. 
In the past few years, Vietnam has made significant progress 
in reducing the use of NTBs and, under the terms of the BTA, 
Vietnam agreed to eliminate all non-tariff barriers, 
including import and export restrictions, quotas, licensing 
requirements, and controls for all product and service 
categories over a period of three to seven years, depending 
on the product. 
Import prohibitions:  Vietnam currently prohibits the 
commercial importation of the following products:  arms and 
ammunition, explosive materials (not including industrial 
explosives), military technical equipment and facilities, 
narcotics, toxic chemicals, "depraved and reactionary" 
cultural products, firecrackers, some children's toys, 
cigarettes, second-hand consumer goods, right-hand drive 
motor vehicles, used spare parts for vehicles, used internal 
combustion engines of less than 30 horsepower, asbestos 
materials under the amphibole group, various encryption 
devices, and encryption software.  Vietnam prohibits 
importation and registration of motorcycles with engine 
capacity exceeding 175 cubic centimeters for traffic safety 
purposes.  Importation of such motorcycles is allowed only 
for special purposes such as for the armed forces, security 
personnel, or for competitive sports. 
Quantitative restrictions and non-automatic licensing: 
Vietnam has been phasing out the use of quantitative 
restrictions on imports.  An April 2001 Decision of the 
Prime Minister phased-out quantitative restrictions on 
imports with the exception of sugar (until 2005).  A 
September 2003 Government Decision set up conditions for 
importing and re-exporting petroleum. The trading is subject 
to annual licensing and price regulation. Quantitative 
limitations on exports in most sectors have been eliminated, 
with the exception of textiles, garments, and a list of 
sensitive items. 
In May 2003, the Prime Minister issued a decision to 
implement tariff-rate quotas (TRQs) on certain agricultural 
products that were not previously under quotas. A May 2003 
Government decision applied the TRQs to seven items starting 
January 2004:  cotton, raw tobacco, salt, milk, condensed 
milk, corn, and chicken eggs.  A Ministry of Trade Circular 
issued in December 2003 provided details on management of 
these TRQs, established the in-quota volumes for tobacco and 
salt and set the quota volumes for cotton, milk, condensed 
milk, corn and eggs equal to demand.  In practice, only salt 
and raw tobacco exporters are currently restricted by 
quotas.  The Ministry of Trade has primary responsibility 
for establishing quota volumes and allocation of quota, 
while Ministry of Finance determines the in- and out-of 
quota tariff rates. 
Currently all state companies are required to apply for 
annual quotas in order to import foreign pharmaceutical 
Special authority regulation:  Previously, importers 
required approval from the relevant ministry(ies) to import 
many goods.  This system was changed in 2001.  Now, seven 
ministries and agencies are responsible for overseeing a 
system of minimum quality/performance standards for animal 
and plant protection, health safety, local network 
compatibility (in the case of telecommunications), money 
security, and cultural sensitivity.  Goods that meet the 
minimum standards can be imported upon demand and in 
unlimited quantity and value. 
Foreign Exchange system:  In 1998, the State Bank of Vietnam 
(SBV) issued a foreign exchange surrender requirement for 
all exporters, including foreign invested enterprises.  A 
series of reductions decreased this requirement from 80 
percent of foreign exchange balances to 30 percent as of May 
¶2002.  In April 2003, Government Decision 46 reduced the 
foreign exchange surrender requirement to zero percent. 
May 2000 amendments to the Law on Foreign Direct Investment 
(FDI) allowed FDI enterprises to purchase foreign currency 
at authorized banks to finance current and capital 
transactions and other permitted transactions.  Controls on 
current account transactions have been liberalized.  A 1998 
Decree allowed both residents and non-residents to open and 
maintain foreign exchange accounts with authorized banks in 
Vietnam.  A 2001 Circular permitted foreign investors to 
transfer abroad profits and other legal income upon 
presentation of relevant documents to the authorized banks. 
A 2003 Decree contains the government of Vietnam's guarantee 
to assist in the balancing of foreign currency for foreign 
invested enterprises and foreign business cooperation 
parties that invest in the construction of infrastructure 
and certain other important projects in the event that banks 
permitted to trade foreign currency are unable to fully 
satisfy their foreign currency demand. 
Customs:  Under the terms of the BTA, by December 2003 
Vietnam was obligated to apply transaction value for U.S. 
imports and to ensure that no administrative fee or charge 
imposed by customs authorities in connection with importing 
or exporting any good exceeds the actual cost of the service 
provided by Customs. In June 2002, the Government issued 
Decree 60 establishing rules for customs valuation based on 
transaction value, in accordance with WTO principles. 
Subsequently the Ministry of Finance issued Circular 118 
(December 2003) implementing the provisions of Decree 60 and 
Circular 87 (August 2004) abolishing the use of all minimum 
import prices.   Vietnam has also committed to apply 
transaction value to imports from ASEAN countries as well as 
56 other countries on the basis of reciprocity.  These 
changes have significantly improved customs valuation in 
Vietnam over the last year.  However, application of CVA is 
not entirely uniform and importers complain about the low 
level of automation of Vietnam's customs system.  The 
Government plans to amend the Customs Law of 2000 by May 
2005 in order to address remaining problems and facilitate 
implementation of a USD 70 million World Bank loan-supported 
customs modernization project in Vietnam. 
Trading rights: 
The Government of Vietnam currently maintains different 
regulations on trading rights for domestic and foreign- 
invested enterprises.  Domestic Vietnamese enterprises are 
entitled to import in accordance with the business line(s) 
prescribed in their business registration certificates. 
They are not required to apply for an import license, except 
for goods for which MOT requires a non-automatic import 
license.  Foreign invested enterprises are not permitted to 
import goods freely in Vietnam.  Foreign invested 
enterprises are allowed only to import goods used as inputs 
in the manufacturing process, as well as machinery 
equipment, transportation means and materials used in the 
construction and installation of their project in accordance 
with their investment license. 
Under the terms of the BTA, beginning in December 2004, 
enterprises with capital directly invested by U.S. nationals 
and companies in production and manufacturing will be able 
to engage in trading activities in most products and will be 
able to enter into joint ventures with Vietnamese partners 
to engage in trading activities in all products, as long as 
the U.S. partner holds no more than a 49 percent share in 
the venture.  Beginning in December 2008, U.S. companies 
will be able to establish wholly owned trading companies in 
Vietnam.  The right to trade in certain goods is subject to 
a phase in period. 
In December 2002, the Government issued a strategy for the 
auto sector with a primary goal of significantly increasing 
the local content in domestically produced vehicles.  At the 
same time, the Ministry of Finance issued a decision to 
raise the import duty rates for automobiles produced from 
kits (CKDs).  A joint campaign waged by affected foreign 
auto companies and their representative Embassies resulted 
in postponement of the change.  However, in May 2003, the 
National Assembly passed a Ministry of Finance proposal to 
impose a 10% VAT on all cars and increase the special 
consumption tax (SCT) on cars manufactured from CKDs 
starting in 2004 and going up to 80% on some models by 2007. 
The SCT was increased from 5% to 24% in January 2004 and 
from 24% to 41% in January 2005.  Under a Ministry of 
Finance 2004-2010 roadmap for the harmonization of tariff 
rates applied to CKDs and completely built units (CBUs), MFN 
tariff rates applied to CKDs will rise 5-10% per year until 
¶2008.  The changes to the tax and tariff policy were made 
years after foreign auto manufacturers had committed 
significant resources to Vietnam.  They have driven sales 
down and are endangering the profitability of foreign 
automakers in Vietnam. 
Sanitary and Phytosanitary Measures 
Vietnam is currently working on the establishment of an SPS 
regime based on international standards, guidelines and 
recommendations.  Its current regime is based on CODEX and 
FAO/WHO standards, the standards of regional or developed 
countries, or national standards.  Vietnam has an inter- 
ministerial Working Group that coordinates SPS activities 
and the Ministry of Agriculture and Rural Development (MARD) 
currently serves as a general enquiry point for information 
on sanitary and phytosanitary requirements.   Specific 
responsibility for sanitary and phytosanitary control, plant 
and animal quarantine, health quarantine and fisheries 
inspection is further assigned to other Ministries and 
In December 2003 the Government banned imports of U.S. beef 
because of a fear of BSE (Bovine Spongiform Encephalopathy), 
a degenerative neurological disease affecting the central 
nervous system in cattle.  On October 5, 2004 the Ministry 
of Agriculture and Rural Development issued a notice that it 
would allow imports of U.S.-origin boneless beef, with the 
conditions that the beef not originate from the state of 
Washington and only be consumed in hotels and restaurants. 
One month later, under pressure from USDA, MARD lifted these 
restrictions.  However, issues regarding the language used 
in meat export certificates still need to be resolved. 
Standards and Technical Barriers to Trade 
The main ministry involved in standardization and quality 
requirements is the Ministry of Science and Technology 
(MOST).  The Directorate for Standards and Quality (STAMEQ) 
under the MOST is generally responsible for advising the 
Government on issues related to standards, measurements, and 
quality.  There are currently three levels of standards: 
national standards, sectoral standards, and company 
standards. The system is complicated and not always 
transparent.  Some items are subject to voluntary 
application; some items are subject to regulation by the 
line ministries.  Exporters and importers must obtain a 
permit from the line ministries or a receipt showing an 
inspection is in process for the controlled items to be 
allowed through customs. 
On March 25, 2003 Vietnam's TBT enquiry and notification 
Point was formally established in the offices of STAMEQ. 
However, this enquiry point will not be fully functional 
until the end of 2005 or upon Vietnam's WTO accession. 
Pharmaceutical companies face significant barriers to trade. 
The Ministry of Health now prohibits the registration or re- 
registration for import of 11 pharmaceutical products 
(reduced from 23) that are produced domestically.  In 
addition, pharmaceutical companies complain that the 
registration process for pharmaceuticals lacks transparency. 
Guidelines and regulations are unclear and/or are not 
applied in a consistent manner.  The Ministry of Health 
issues product visas with validity periods as short as one 
year.  The Government requires that all pharmaceutical raw 
materials be imported into Vietnam within six months of the 
date of manufacture.  Additionally, foreign manufacturers of 
vaccines are required to conduct clinical trials in Vietnam 
before being permitted to register their vaccines for sale. 
Government procurement practices can be characterized as a 
multi-layered decision-making process, which often lacks 
transparency and efficiency.  Although the Ministry of 
Finance allocates funds, various departments within the 
ministry or agency involved determine government procurement 
needs.  Competition for government procurements may take any 
of several forms:  sole source direct negotiation, limited 
tender, open tender, appointed tender, or special purchase. 
Currently, ministries and agencies have different rules on 
minimum values for the purchase of material or equipment, 
which must be subject to competitive bidding.  High-value or 
important contracts such as infrastructure (except World 
Bank, Asian Development Bank, UNDP, or bilateral official 
development assistance projects) require bid evaluation and 
selection and are awarded by the Prime Minister's office or 
any other competent body.  No consolidated or regular 
official listing of government tenders exists; however, some 
solicitations are announced in the both Vietnamese and 
English language newspapers. 
Export credit is very limited in Vietnam.  The Export 
Promotion Fund managed by the Ministry of Finance, provides 
subsidies in the form of interest rate support (full or 
partial refund of interest incurred on ordinary bank loans), 
direct financial support (to first-time exporters, for 
exports to new markets, or for goods subject to major price 
fluctuations) and export rewards and bonuses.  Since 1998, 
the average annual export reward provided to eligible 
enterprises has ranged from USD 2,900 to USD 4,710. 
Provision of export bonuses, originally targeted for exports 
of agricultural products, was expanded in 2002 to include 
non-agricultural products such as handicrafts, rattan and 
bamboo ware, plastic products and mechanical products. 
Since 2001, the Export Promotion Fund has also provided 
support to enterprises for expenditures on trade promotion 
Since September 2001, the Development Assistance Fund has 
administered an export credit program that has provided 
short-term loan guarantees, medium and long-term investment 
loans, post-investment interest rate support and investment 
credit guarantees to domestic enterprises. 
Vietnam is a member of the World Intellectual Property 
Organization (WIPO) and is a signatory to the Paris 
Convention for Industrial Property.  It has acceded to the 
Patent Cooperation Treaty and the Madrid Agreement.  On 
October 26 2004, Vietnam officially joined the Berne 
Convention on Copyright Protection for Literary and Artistic 
Works.  Vietnam is also obliged, under the terms of the 1997 
U.S.-Vietnam Bilateral Copyright Agreement, to provide U.S. 
copyrights protection on a national treatment basis in 
accordance with the terms of the Berne Convention.  Under 
the terms of the BTA, Vietnam was obligated by December 2003 
to make its system for protecting IPR, including 
enforcement, consistent with the WTO TRIPS agreement. 
Considerable progress has been made over the past few years 
in establishing the legal framework for IPR protection.  New 
legislation in 2004 included more detailed regulations on 
plant varieties and administrative sanctions against 
counterfeiting.  However, the legal reform process is not 
yet complete.  The Government has instructed the Ministry of 
Science and Technology (MOST) and the Ministry of Culture 
and Information (MOCI) to draft a separate law on 
intellectual property rights.  The GVN plans to submit the 
law to the National Assembly for approval in 2005. 
Enforcement of IPR protection remains extremely weak.   The 
BTA requires the government of Vietnam to provide 
expeditious remedies to prevent and deter infringement of IP 
rights, including particular judicial and administrative 
procedures, prompt and effective provisional measures 
secured by sufficient evidence, and criminal procedures and 
penalties for willful trademark counterfeiting or 
infringement of copyrights or neighboring rights on a 
commercial scale. 
Patent and Trademarks 
Trademark registration in Vietnam is relatively 
straightforward, although infringement is widespread and 
enforcement of administrative orders and court decisions 
finding IPR infringement remains problematic.  Vietnam's 
laws offer some protection for foreign patent holders, but 
there are infringements.  The National Office of 
Intellectual Property (NOIP), under the Ministry of Science 
and Technology, administers Vietnam's patent and trademark 
registration systems.  NOIP has made significant progress in 
recent years to build adequate capacity to record and 
adjudicate patent and trademark claims, and is working with 
a number of foreign patent and trademark agencies to enhance 
its systems.  Obtaining expeditious adjudication and 
administrative enforcement of patent and trademark 
violations remains difficult.  Victims of infringement have 
encountered difficulties implementing NOIP enforcement 
The BTA guarantees national treatment for the acquisition of 
IPR.  However, currently the National Office of Intellectual 
Property (NOIP) charges higher amounts to foreigners than it 
does to Vietnamese nationals for fees associated with 
registering and maintaining industrial property.  Fees 
charged to foreigners range from 417 percent to 471 percent 
higher than fees charged to Vietnamese for the same service. 
In May 2004, the Ministry of Finance and the Ministry of 
Science and Technology drafted a joint circular that will 
harmonize the industrial property fees charged to Vietnamese 
and foreigners, but the circular is still pending approval. 
The Vietnam Office of Literary and Artistic Copyright is 
under the control and supervision of the Ministry of Culture 
and Information.  Significant progress has been made in 
putting in place the legal framework required to protect 
copyrights, including those belonging to foreigners, but 
enforcement is almost non-existent.  This is particularly 
true for certain categories of products, such as PC 
software, music and video CDs, VCDs, and DVDs.  Industry 
estimates of piracy rates for software, music, and videos 
run as high as 92 percent.  Local police authorities often 
are slow to act on administrative orders fining infringement 
and enforcing court decisions. After Vietnam joined the 
Berne Convention, the Ministry of Culture and Information 
made an effort to tighten copyright regulations on foreign 
musical and theatrical works.  All organizers must now 
obtain permission in writing from the copyright holders 
before performing their works. 
Under the terms of the BTA, Vietnam agreed for the first 
time to liberalize a broad array of services sectors, 
including telecommunications, accounting, banking, and 
distribution services, and to apply MFN treatment to U.S. 
services suppliers in all sectors and for all modes of 
supply (with itemized exceptions).  The BTA also 
incorporated the WTO Agreements on Trade in Services (GATS) 
(except Paragraphs 3 and 4), Annex on Movement of Natural 
Persons, Annex on Telecommunications (except Paragraphs 6 
and 7), and the Telecommunications Reference Paper. 
Vietnam's commitments to liberalize market access on 
services are phased in over specified time periods depending 
on the sector.  The commitments by sector are as follows: 
Accounting, Auditing, and Bookkeeping Services:  For the 
first three years under the BTA, licenses will be granted on 
a case-by-case basis.  The company must employ at least five 
persons with licenses to be a CPA in Vietnam who have 
practiced in Vietnam for more than one year.  For the first 
two years under the BTA, firms with U.S. equity will only be 
allowed to supply services to foreign-invested enterprises 
and foreign funded projects in Vietnam.  Two new decrees in 
2004 revised the regulations for the accounting and auditing 
sectors.  Government Decree 105 allows auditing firms to be 
established in the form of partnerships, private enterprises 
or foreign invested enterprises.  Decree 105 allows foreign 
invested auditing firms to set up branches in Vietnam. 
Government Decree 129 allows accounting firms to be 
established in the form of limited liability companies, 
partnerships or private enterprises.  Branching is not 
Taxation Services:  For the first five years under the BTA, 
licenses will be granted on a case-by-case basis, and firms 
with U.S. equity will only be allowed to supply services to 
foreign-invested enterprises and foreign funded projects in 
Vietnam.  Branching is not permitted. 
Architectural, Engineering, and Computer Services:  For a 
period of two years from the date of establishment and 
operation, U.S.-owned companies may only provide services 
with foreign-invested enterprises in Vietnam.  U.S. 
companies have to be legally registered in the United 
States.  Branching is not permitted. 
U.S. companies and companies with U.S. directly-invested 
capital are not permitted to carry out topographic, 
construction, geological, meteorological, and environmental 
investigations; or technical investigations for designing 
rural-urban construction plans, unless otherwise authorized 
by the Government of Vietnam. 
Legal Services:  Under the terms of the BTA, 100 percent 
equity ownership in companies, joint ventures, and branches 
is permitted.  U.S. lawyers may not appear before Vietnamese 
courts.  However, U.S. firms may advise on Vietnamese law if 
they hire persons with Vietnamese law degrees who satisfy 
the requirements applied to like Vietnamese practitioners. 
Branches of law firms may receive a five-year renewable 
license.  In July 2003, the government promulgated Decree 87 
significantly reforming the regulatory framework for the 
operations of foreign law practices and foreign law firms. 
The decree substantially broadened the scope of practice of 
foreign law firms in Vietnam. Foreign law practices are 
permitted to provide advice on foreign and international law 
in the areas of business, investment and commerce, which had 
been prohibited previously.  By virtue of these reforms, 
foreign law firms may now offer a full range of legal 
services and employ Vietnamese lawyers. 
Advertising Services and Market Research:  Vietnam has not 
agreed to provide market access for advertising services for 
wines and cigarettes or for the cross-border supply of 
market research services.  U.S. companies in these sectors 
may initially only establish a commercial presence through 
joint ventures or business cooperation contracts with 
Vietnamese partners.  U.S. investment is limited to 49 
percent of the legal capital for the first five years under 
the Bilateral Trade Agreement, 51 percent for years six and 
seven, and is unlimited after that.  Vietnam has not agreed 
to ensure national treatment for the cross-border supply of 
market research services. 
Management Consulting:  U.S. companies may only establish a 
commercial presence through joint ventures or business 
cooperation contracts.  After the BTA has been in effect for 
5 years, enterprises with 100 percent U.S. ownership will be 
Telecommunication Services:  Initially, the provision of 
basic telecommunications services, value-added 
telecommunications services, and voice telephone services 
are only permitted through business cooperation contracts 
with Vietnamese gateway operators.  According to the terms 
of the BTA, U.S. value-added telecommunications service 
providers may establish joint ventures with Vietnamese 
partners with up to 50 percent equity ownership.  These 
joint ventures may not, however, construct their own long- 
distance and international circuits.  However, Vietnamese 
law does not yet provide for joint ventures in the telecom 
sector, and the Government has not issued any regulations or 
other documents specifically authorizing joint ventures with 
U.S. companies or clarifying the procedures for such 
partnerships in the telecom sector.   Four years after entry- 
into-force of the BTA, U.S. basic telecommunications service 
suppliers can establish joint ventures with Vietnamese 
partners with up to 49 percent U.S. equity ownership.  These 
joint ventures may not, however, construct their own long- 
distance and international circuits.  Six years after entry- 
into-force of the Agreement, U.S. voice telephone service 
providers may establish joint ventures with Vietnamese 
partners with up to 49 percent U.S. equity ownership. 
Audiovisual Services:  Vietnam has not agreed to provide 
market access or national treatment for cross-border supply 
or consumption abroad of audiovisual services.  U.S. service 
suppliers may establish a commercial presence only through a 
business cooperation contract or joint venture with a 
Vietnamese partner.  For the first five years after entry- 
into-force of the BTA, U.S. ownership may not exceed 49 
percent.  After five years, U.S. ownership may not exceed 51 
percent.  The Government strictly limits the importation of 
foreign films, videos, television and books.  Numerous 
licensing, pricing and remittance restrictions exist.  IPR 
protection for audio-visual products is ineffective, 
censorship is restrictive and rules are often applied in an 
ad-hoc manner. 
Construction and Related Engineering Services:  Vietnam has 
not agreed to provide market access or national treatment 
for the cross-border supply of construction and related 
engineering services.  Branches are not permitted.  For the 
first three years after their establishment and operation, 
100 percent U.S.-owned enterprises may only provide services 
to foreign-invested enterprises in Vietnam.  U.S. companies 
must be legally registered for operation in the United 
Distribution Services:  Vietnam does not provide market 
access or national treatment for the cross-border supply of 
distribution services.  Three years after entry-into-force 
of the BTA, U.S. service providers may establish joint 
ventures with Vietnamese partners with up to 49 percent U.S. 
equity.  After six years, U.S. ownership in joint ventures 
will be unlimited.  After seven years, companies with 100 
percent equity will be allowed.  One retail outlet per firm 
may be established upon entry into force of the BTA, while 
additional outlets will be considered on a case-by-case 
basis.  For some agricultural and industrial products, 
market access in this sector is subject to additional 
limitations, which will be phased out over a period of three 
to five years.  There are a limited number of products for 
which Vietnam did not commit to allow distribution services. 
Educational Services:  Vietnam will not provide market 
access or national treatment for the cross-border supply of 
educational services.  For the first seven years after entry- 
into-force of the BTA, U.S. companies may only establish a 
commercial presence through a joint venture.  After that, 
schools with 100 percent U.S.-invested capital may be 
established.  Foreign teachers employed by educational units 
with U.S.-invested capital must have five years teaching 
experience and be recognized by the Ministry of Education. 
Insurance Services:  Vietnam has agreed to allow market 
access for the cross-border supply of insurance services to 
enterprises with foreign invested capital or foreigners 
working in Vietnam; reinvestment services; insurance 
services in international transportation; insurance 
brokering and reinsurance brokering services; and advisory, 
claim settlement, and risk assessment services.  Three years 
after entry-into-force of the BTA, U.S. companies can 
establish joint ventures with Vietnamese partners with up to 
50 percent U.S. equity participation.  After five years, 100 
percent U.S.-invested companies may be established. 
While the Government has allowed foreign investment in both 
the "life" and "non-life" insurance markets, access has been 
extremely limited for U.S. service providers (only one U.S. 
"life" insurer has been issued a 100 percent foreign-owned 
license to operate.)  Some joint ventures with Vietnamese 
companies have been allowed to convert to 100 percent 
foreign ownership, but the terms have been arbitrary and 
subject to the "ad hoc" approval of the Government. 
Companies with U.S.-invested capital cannot provide 
insurance for motor vehicle third party liability, insurance 
in construction and installation, insurance for oil and gas 
projects, or insurance for projects and construction of high 
danger to public security and environment.   Three years 
after entry-into-force of the BTA, this limitation is 
eliminated for joint ventures.  After six years, this 
limitation is eliminated for companies with 100 percent U.S. 
For the first 5 years after entry-into-force of the BTA, any 
company with U.S. capital must reinsure part of the accepted 
liabilities (currently at a minimum rate of twenty percent) 
through the Reinsurance Company of Vietnam. 
Banking:  Vietnam has not agreed to provide market access or 
national treatment for the cross-border provision of banking 
services, except for financial information services and 
advisory, intermediation, and other auxiliary services. 
U.S. banks may establish branches, joint ventures with 
Vietnamese banks, wholly owned U.S. financial leasing 
companies or joint venture financial leasing companies with 
Vietnamese partners.  However, foreign branches cannot be 
opened in both Hanoi and Ho Chi Minh City (with full branch 
status) to operate as one entity. 
For the first three years after entry-into-force of the BTA, 
the only legal form apart from banks and leasing companies 
in which U.S. companies may provide financial services is 
through joint ventures with Vietnamese banks.  During the 
first nine years, U.S. equity in joint venture banks must be 
between 30 percent and 49 percent.  After nine years, 100 
percent equity participation in subsidiary banks will be 
allowed.  The Government recently amended the Law on Credit 
Institutions, laying the groundwork for the establishment of 
100 percent foreign owned banks ahead of Vietnam's BTA 
obligations.  A Decree on Foreign Banks (currently in draft) 
and an implementing circular need to be promulgated before 
this change will come into effect.  It is expected that 
these regulations will be completed late in 2005. 
The right of U.S. banks to accept Vietnamese currency 
deposits on the same basis as domestic banks is phased in 
over eight years for business clientele and ten years for 
retail depositors.  After this, U.S. bank branches will be 
entitled to full national treatment.  Vietnam is fulfilling 
this commitment by gradually allowing U.S. banks to increase 
the amount of deposits in Vietnamese Dong (i.e. the local 
currency) relative to the branch's legal paid-in capital 
with the ratio presently at 400 percent for legal persons 
and 350 percent for natural persons.  (Prior to entry-into- 
force of the BTA, this ratio was 25 percent.)   In addition, 
financial institutions with U.S. equity cannot issue credit 
cards on a national treatment basis until eight years after 
entry-into-force of the BTA.  U.S. banks are now allowed to 
place automatic teller machines outside their office on a 
national treatment basis. 
Vietnam reserved the right to limit, on a national treatment 
basis, equity investment by U.S. banks in privatized 
Vietnamese state-owned banks. 
U.S. bank branches, subsidiaries, or U.S.-Vietnam joint 
ventures must obtain a license to establish a commercial 
presence in Vietnam.  A U.S. parent bank must provide 
minimum capital of USD 15 million to establish a branch. 
Establishing a U.S.-Vietnam joint venture bank or a U.S. 
bank subsidiary requires minimum capital of USD 10 million. 
Authorized capital levels for state-owned commercial banks, 
joint-stock commercial banks, investment banks and joint 
venture banks are set at more advantageous levels 
For the first three years after the entry-into-force of the 
Agreement, financial institutions with 100 percent U.S. 
equity ownership may not take an initial mortgage interest 
in land use rights.  After three years, these institutions 
will be allowed to take an initial mortgage interest in land- 
use rights held by foreign-invested enterprises, and may use 
mortgages or land-use rights for the purpose of liquidation 
in case of default. 
Establishing a wholly owned subsidiary of a U.S. financial 
leasing company or a joint venture leasing company requires 
three consecutive profitable years, and USD 5 million in 
legal capital. 
For the first three years under the BTA, Vietnam is not 
obligated to provide national treatment with respect to 
access to central bank rediscounting, swap, and forward 
facilities.  However, in 2003, the State Bank of Vietnam 
allowed one U.S. bank with branches in Vietnam (and some 
local banks) to provide swap service on a pilot basis.  In 
May 2004, the State Bank of Vietnam issued Decision 648 
allowing commercial banks to provide forward and swap 
facilities to their clients. 
Licenses for foreign banks currently are limited in validity 
to only 20 to 30 years and extensions (if any) are subject 
to the approval of the State Bank of Vietnam. 
Non-banking Financial Services:  The BTA allows 100 percent 
U.S. equity in financial leasing and in other leasing after 
3 years.  Government Decree 79 issued in 2002 permits the 
establishment and operation of finance companies in Vietnam, 
including joint venture and wholly foreign owned finance 
Securities-Related Services:  Vietnam has not agreed to 
provide market access or national treatment for the cross- 
border supply of securities-related services.  Non-bank U.S. 
securities service suppliers may only establish a commercial 
presence in Vietnam in the form of a representative office. 
In 2003 the Government issued Decree 144 on Securities and 
Securities Trading, allowing foreign investment in 
securities investment funds and fund management companies. 
Government Decision 146 issued in July 2003 limited foreign 
capital contribution in joint venture security companies or 
joint venture fund management companies to 49 percent. 
Health-Related Services:  U.S. operators may provide 
services through the establishment of 100 percent U.S.-owned 
operations, joint ventures with Vietnamese partners or 
through business cooperation contracts.  The minimum 
investment capital is USD 20 million for a hospital, USD 2 
million for a polyclinic, and USD 1 million for a specialty 
Tourism and Travel-Related Services:  U.S. companies may 
establish a commercial presence to provide hotel and 
restaurant services, provided that this is done in 
conjunction with investment for the construction of a hotel. 
The commercial presence may take the form of a business 
cooperation contract, a joint venture with Vietnamese 
partners, or a company with 100 percent U.S. equity 
There are limitations with respect to travel agencies and 
tour operators.  U.S. companies supplying these services may 
establish a commercial presence only through a joint venture 
with Vietnamese partners and can initially only contribute 
49 percent of the capital.  Three years after entry-into- 
force of the BTA, 51 percent participation will be allowed, 
and all limitations will be abolished after five years. 
Tourist guides in joint ventures must be Vietnamese 
citizens.  Service supplying companies with U.S.-invested 
capital may only supply inbound service. 
At present, the government of Vietnam maintains an extensive 
investment licensing process, which is characterized by 
stringent and time consuming requirements that are 
frequently used to protect domestic interests, limit 
competition, and allocate foreign investment rights among 
various countries.  Foreign businesses are permitted to 
remit profits, share revenues from joint ventures, incomes 
from services and technology transfers, legally owned 
capital, and properties in hard currency.  Foreigners are 
also allowed to remit abroad royalties and fees paid for the 
supply of technologies and services, principal and interest 
on loans obtained for business operations, and investment 
capital and other money and assets under their legitimate 
The BTA provides a broad range of benefits to U.S. investors 
in Vietnam that should significantly enhance the investment 
environment for U.S. firms.  Vietnamese investment 
obligations under the BTA include:  providing national and 
most-favored-nation treatment, except where explicit 
exceptions have been made; ensuring treatment of 
expropriation consistent with international standards; and 
guaranteeing access to third-party investor-state dispute 
settlement.  In practice, however, recognition and 
enforcement of foreign arbitral awards in Vietnam currently 
remains questionable. 
In addition, Vietnam is obligated under the BTA gradually to 
discontinue application of any Trade-Related Investment 
Measures (TRIMS) or performance requirements inconsistent 
with the WTO TRIMS agreement. 
Under the terms of the BTA, Vietnam retained the right to 
require that an investment project export at least eighty 
percent of its production for seven years in the following 
sectors:  cement; paint; toiletry tiles and ceramics; PVC 
and other plastics; footwear; clothing; construction steel; 
detergent powder; tires and inner tubes for cars and 
motorbikes; NPK fertilizer; alcoholic products; tobacco; and 
paper.  In December 2001 (three days prior to entry-into- 
force of the BTA), Ministry of Planning and Investment 
Decision 718 revised the list of products subject to an 
export requirement.  However, many of the products 
identified in Decision 718 are not in the list agreed upon 
in the BTA.  According to Decision 718, Vietnam currently 
has an eighty percent export requirement for:  motorcycles; 
minibuses and trucks (less than 10 ton); some irrigating 
pumps; medium voltage, low voltage and normal electric 
transmission cables; cargo ships, audio-visual products; 
aluminum profiles products; construction glass; NPK 
fertilizer; PVC; bicycles and bicycle parts; transformers 
under 35 KV; and diesel motors under 15 CV. 
Vietnam is also obligated to refrain from imposing 
requirements to transfer technology as a condition for the 
establishment, expansion, acquisition, management, conduct, 
or operation of an investment.  Vietnam currently imposes a 
number of performance requirements with respect to the 
establishment of an investment and/or the receipt of a 
benefit or incentive.  Vietnam retains restrictions on 
foreign shareholding in Vietnamese companies, although the 
ratio has been raised from twenty to thirty percent.   In 
March 2003, the government issued Decree 27 amending the Law 
on Foreign Investment, removing trade balancing requirements 
and foreign exchange controls.  In April 2003, the 
government issued a decision to reduce the foreign exchange 
surrender requirement to 0 percent. 
Decree 27 also now allows foreign investors to recruit 
Vietnamese workers directly, without having to go through 
labor recruitment agencies.  However, in September 2003, 
Government Decree 105, drafted by the Ministry of Labor, 
Invalids and Social Affairs, established a regulation 
limiting all enterprises operating in Vietnam to employing 
foreign nationals at the lesser of 1) a maximum rate of 3 
percent of their total work force or 2) 50 persons.  Despite 
repeated complaints from the foreign business community, the 
government appears unwilling to lift the cap.  Proposed 
amendments to the Decree may provide exemptions for certain 
sectors and types of employment and eliminate the 50-person 
In the BTA, Vietnam committed to gradually shift to an 
investment registration regime for most sectors. 
According to Decree 27, the following types of investment 
are no longer subject to investment licensing:  investment 
projects that export eighty percent of products; investments 
in "encouraged" or "specially encouraged" projects located 
in industrial zones (with some exceptions); and investment 
in the manufacturing sector with a value of up to USD 5 
million in investment capital. 
Vietnam's technology transfer regime needs to be revised. 
According to Government Decree 45 (from 1998) the royalty 
rate for technology transfer cannot exceed 5 percent of the 
"net selling price" of the products produced with the 
technology.  Decree 45 also narrowly defines the "net sales 
price" to which the royalty is applied resulting in very 
small royalties. 
To date, electronic commerce has not made much progress in 
Vietnam. Obstacles to its development include:  the low 
number of Internet subscribers in-country, obtrusive 
firewalls, limited bandwidth and other problems with the 
Internet infrastructure, limitations of the financial system 
(including the low number of credit cards in use), and 
regulatory barriers.  However, recent developments to 
facilitate the growth of electronic commerce in Vietnam 
include legal acceptance of e-signatures and implementation 
of the electronic inter-bank transaction system.  The number 
of online transactions has been increasing. The National 
Assembly Committee for Science, Technology and Environment 
is will be drafting an e-transaction law, which will include 
electronic commerce issues.  The Committee expects to submit 
the draft to the National Assembly for approval late in 
The government of Vietnam continues to attempt to keep close 
control on all websites established in Vietnam.  In October 
2002, the government of Vietnam passed a new regulation on 
the establishment and modification of websites.  The 
regulation requires domestic and foreign agencies, 
organizations, and enterprises to obtain a license from the 
Ministry of Culture and Information before establishing new 
websites.  The Ministry then has 30 days to make a decision 
on granting the license.  The regulation also requires 
diplomatic and other foreign entities to obtain written 
approval from the Ministry of Foreign Affairs (MFA) before 
requesting a license from MOCI.  Vietnam may also require 
organizations to request permission from MOCI before making 
changes to the content of their existing websites based on 
licensing requirements in the regulation. 
U.S., other foreign, and domestic firms have identified 
corruption in Vietnam in all phases of business operations 
as an obstacle to their business activities.  Vietnam scored 
a 2.6 out of a possible high score of 10 points on 
Transparency International's Corruption Perception Index. 
In large part due to a lack of transparency, accountability, 
and media freedom, widespread official corruption and 
inefficient bureaucracy remain serious problems that even 
the Communist Party of Vietnam and the government of Vietnam 
admit they must address on an urgent basis.  Competition 
among government agencies for control over business and 
investments has created a confusion of overlapping 
jurisdictions and bureaucratic procedures and approvals, 
which in turn create opportunities for corruption.  Low pay 
for government officials and woefully inadequate systems for 
holding officials accountable for their actions compound the 
problems.  Implementation of the government of Vietnam's 
public administration reform program, developed with the 
assistance of the World Bank, as well as Vietnam's 
obligations under the transparency provisions of the BTA 
promise some improvement in the situation in the medium to 
long term, but it appears unlikely there will be much 
improvement in the near term. 
Vietnam maintains a policy of bias in favor of domestic- 
market oriented industries, particularly those dominated by 
state-owned enterprises.  Although all registered firms, 
regardless of ownership, can engage legally in foreign 
trade, barriers exist that discourage trading by non-state 
enterprises.  Monopolies in production result in monopolies 
in trading, as in the case of coal.  The tariff structure 
also favors domestic industries, particularly those 
dominated by state-owned enterprises.  Most lower tariffs 
are on items predominantly used by those enterprises as 
In April 2003, the United States and Vietnam concluded a 
textile trade agreement.  The textile agreement assists U.S. 
domestic manufacturers by including Vietnam within the 
global textile quota regime and helps our importers by 
providing certainty and avoiding the unpredictability of 
frequent, random, unilateral limits.  This agreement also 
contains a labor provision.  Both parties reaffirm their 
commitments as members of the ILO and also indicate their 
support for implementation of codes of corporate social 
responsibility as one way of improving working conditions in 
the textile sector.  The agreement also calls for a review 
of progress on the goal of improving working conditions in 
the textile sector through consultations between the U.S. 
Department of Labor and the Vietnamese Ministry of Labor, 
Invalids, and Social Affairs. 
End draft text.