VIETNAM – THE EU-VIETNAM FREE TRADE AGREEMENT TAKING EFFECT FROM 1 AUGUST 2020

The date has been set for the landmark EU-Vietnam Free Trade Agreement (“EVFTA” or “Agreement”) to take effect on 1 August 2020. The Agreement is anticipated to bring significant advantages for enterprises, employees and consumers in both the European Union (“EU”) and Vietnam. According to analysis carried out by the Government as well as the World Bank, Vietnam expects an increase in the country’s GDP to be 2,18 – 3,25% (years 2020 – 2023); 4,57 – 5,30% (years 2024 – 2028) and 7,07 – 7,72% (years 2029 – 2033). Concurrently, exports from Vietnam to EU are to rise 20% in 2020, the figure is to double in 2025. In addition, with the possibility of skilled laborers’ wage to rise by up to 12%, with salaries of common workers increasing by 13%, the Agreement can help lift around 800,000 people out of poverty by 2030.

The EVFTA is the most comprehensive and ambitious trade and investment agreement that the EU has ever concluded with a developing country in Asia. It is the second free trade agreement in the ASEAN region with EU, after Singapore, and it will intensify bilateral relations between Vietnam and the EU. Coupled with the trend of investors continuously withdrawing capital and production out of China in recent months, the EVFTA is contributing to turn Vietnam into the manufacturing hub of Asia.

Under the EVFTA, Vietnam has not only opened additional sub-sectors for EU service providers, but also made commitments deeper than those outlined in the WTO, offering the EU the best possible access to Vietnam’s market. Sub-sectors that Vietnam commits to under the EVFTA (but not WTO) include: Interdisciplinary Research & Development (R&D) services; nursing services, physiotherapists and para-medical personnel; packaging services; trade fairs and exhibitions services and building-cleaning services.

Some notable provisions of the EVFTA:

Tax

Vietnam commits to eliminate import duties on 48.5% of tariff lines, equivalent to 64.5% of EU exports immediately after the Agreement comes into effect.
After 7 years, import taxes on 91.8% of tariff lines (equivalent to 97.1% of EU exports) will be removed by Vietnam. After 10 years, the elimination rate will be 98.3% of the total tariff lines, equal to 99.8% of the EU’s exports respectively.

Similarly, nearly 100% of Vietnam’s exports to the EU will be eliminated import tax after 10 years. So far, this is the highest level of commitment a partner has given Vietnam in a trade agreement. This is especially meaningful when the EU has been one of the two largest export markets of the country.

Market access

For the sectors listed in each party’s Specific Schedule of Commitments, except where there is a specific reservation, the two parties undertake to not apply restrictions related to: (i) the number of businesses allowed to participate in the market, (ii) the transaction value, (iii) the number of activities, (iv) foreign capital contribution, (v) the form of legal entities, and (vi) the number of natural persons recruitment.

Public procurement packages

Under the EVFTA, Vietnam commits to allow EU contractors to participate in bidding packages that simultaneously meet the three conditions regarding Value of bidding package; Procurement agency; Goods and services require procurement.

Vietnam’s commitments on Government procurement mainly deal with the obligation to treat EU bidders, or domestic bidders with EU investment capital, equally with Vietnamese bidders when the Government purchases goods or requests a service worth over the specified threshold. Vietnam undertakes to follow the general principles of National Treatment and Non-discrimination. The EVFTA also requires its parties to assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation and create an effective regime for complaints and settling disputes. These rules require parties to ensure that their bidding procedures match the commitments and protect their own interests, thus helping Vietnam to solve its problem of bids being won by cheap but low-quality service providers.

It should be noted that Vietnam reserves the right to retain a certain proportion of the value of bidding packages for domestic contractors, goods, services and labor.

Distribution service

Vietnam has agreed to abolish the requirement of economic needs test five years after the date of entry into force of the Agreement, but Vietnam reserves the right to implement the distribution system planning on a non-discriminatory basis. Vietnam also agrees not to discriminate in the production, import and distribution of alcohol, allowing EU businesses to reserve their operating conditions under current licenses and only need one license to carry out import, distribution, wholesale and retail activities.

It should be noted that the EVFTA contains a Memorandum of Understanding concerning Bank Equity, in which Vietnam pleads to favorably consider allowing EU credit institutions to raise foreign ownership to 49% of charter capital in two Vietnamese joint stock commercial banks. This commitment, if enacted, will be valid for 5 years only (after the expiry of 5 years Vietnam will not be bound by this commitment) and is not applicable to 4 banks where the State is holding majority shares (i.e. BIDV, Vietinbank, Vietcombank and Agribank).

Vietnam will benefit more from the EVFTA compared with other such agreements, since Vietnam and the EU are considered to be two supporting and complementary markets. In other words, Vietnam exports goods that the EU cannot or does not produce itself (i.e. fishery products, tropical fruits, etc.) while the products imported from the EU are also those Vietnam does not produce domestically, including machinery, aircraft and high-quality pharmaceutical products.

Vietnam has been making visible efforts and progress to meet the high standards set out in the EVFTA. From 1 August 2020, the Agreement will create sustainable growth, mutual benefits in various sectors and be an effective tool to balance trade relations between the EU and Vietnam.

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Please do not hesitate to contact the author Dr. Oliver Massmann via email under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

Vietnam’s NEW Labor Code – 15 notable changes coming your way effective January 2021

The New Labor Code 2019 will soon come into effect on 1 January 2021 and entirely replace the current labor regime (‘Labor Code 2012’). The below fundamental amendments should be taken into account with a view to best protecting an employers’ legitimate rights and entitlements under Vietnamese labor law.

1.         The definition of ‘employment relationship’ has been broadened

Pursuant to the Labor Code 2019, a legally valid employment relationship is deemed to exist even where two parties agree to a document by a different name rather than ‘a labor contract’, as long as the document includes a description of the job, salary, management, and supervision conditions. In other words, a contractual document with a different name is still considered to be a labor contract assuming the above general terms are included.

The new Labor Code 2019 creates the possibility that where a contract with an “independent contractor”, “service provider”, “freelancer”, or other informal agreement between two or more parties contains employment-like terms may specifically be recognized as a formal Vietnam-law labor contract.

From a practical perspective, this serves to prevent employers from misusing service contracts as an alternative mechanism for hiring individuals (as opposed to traditional labor contracts). The use of service contracts typically enables employers to more easily undertake termination without statutory restrictions, as well as avoid mandatory social insurance contributions, as would otherwise ordinarily be required under a formal employment contract.

It is thus necessary for an employer who genuinely wishes to engage an individual contractor for a specific service to prepare a specific service contract in order to avoid the potential risk that the relationship be characterized as one of employment and not of service.

  1. E-contracts are formally recognized

    Labor contracts made by electronic means in data message form are now formally accepted and recognized under the Labor Code 2019. Specifically, labor contracts concluded via electronic devices in data message form have the same validity as those concluded in written form.

Additionally, a verbal labor contract can be concluded if the contractual term is for less than one (1) month.

  1. Seasonal labor contracts have been removed

    From 1 January 2021, labor contracts can take either one of the following forms: (i) indefinite-term labor contracts, and (ii) definite-term labor contracts of maximum 36 months.

    That is to say, compared to the current regulations of the Labor Code 2012, seasonal or work-specific labor contracts will no longer exist.

 

  1. Labor contract extension is no longer allowable

 Under the Labor Code 2012, an annex to a labor contract serves to elaborate on specific provisions or to amend or supplement the primary labor contract. Specifically, the duration of a labor contract shall be amended only once by annex and type of the signed contract shall not be changed as the result.

Under current law, in practice, the employer is entitled to conduct one extension for each definite-term labor contract via an annex as an integral part of such labor contract. On this basis, by way of two definite-term labor contracts plus two extensions, an employer is potentially eligible to extend three times before the labor contract term is deemed indefinite by law.

Conversely, the employer can no longer do that under the Labor Code 2019. The reason is that, an annex to a labor contract fundamentally serves to elaborate, amend or supplement specific provisions of the labor contract, but must not change the duration of the labor contract.

  1. Multiple definite-term labor contracts are now allowed in certain cases

In principle, in case the two parties enter into a new labor contract with a definite-term, only one additional definite-term labor contract may be executed. After that, if the employee continues working, an indefinite-term contract shall be constituted.

Nevertheless, the Labor Code 2019 has addressed exceptions for this aforesaid principle whereby parties may sign multiple definite-term labor contracts under special circumstances, comprising: (i) elderly employees (i.e. employee working after reaching his/her retirement age); (ii) expat employees; (iii) members of executive boards of organizations representing the labor collective (including trade unions); and (iv) directors of state-owned enterprises.

  1. New regime for probationary periods

 Probationary periods can last up to 180 days for managerial positions (as defined under the Law on Enterprises or Law on Management and use of State Investment in Enterprises, which greatly favor an employer from a recruitment perspective, effectively enabling an extended trial period, though only for a narrow list of personnel that meet the managerial positions definition.

It is also worth noting that probation is not allowed if the employee works under a labor contract with a duration of less than one (1) month.

  1. Unilateral termination by employer 

Since 1 Jan 2021, an employer shall have additional legal grounds to unilaterally terminate a labor contract, once:

 (i)         An employee has reached his/her retirement age, noting that under the Labor Code 2012 an employer CANNOT unilaterally terminate an employee who has not yet contributed to the social insurance regime in full for the purposes of pension entitlement, even though he/she has reached his/her retirement age;

(ii)        An employee is absent from work without a legitimate reason for five (5) consecutive working days or more; or

(iii)       The employee has provided false information that affects the recruitment of the employee.

Additionally, the Labor Code 2019 has granted extra protection for an employer to unilaterally terminate a labor contract without prior notice once:

(i)         An employee fails to return to work after 15 days from the expiry of the suspension period of a labor contract; or

(ii)        An employee is absent from work without a legitimate reason for five (5) consecutive working days or more.

  1. Unilateral termination by employee

 From an employee perspective, under the Labor Code 2019, an employee has the right to unilaterally terminate a labor contract without any reason as long as they provide proper notice in advance (i.e. at least 45 days in case of indefinite-term labor contract; at least 30 days in case of definite-term labor contract of 12 to 36 months or at least 3 working days in case of definite-term labor contract of less than 12 months).

In addition to the above, an employee also has the right to unilaterally terminate the labor contract without prior notice should he/she:

  • be not assigned to the contractual position or workplace;
  • be not provided with the agreed working conditions;
  • be not paid, in full or on time, the salary due as agreed in the labor contract;
  • be mistreated or humiliated by the employer;
  • be sexually harassed in the workplace;
  • be pregnant and the continued employment would adversely affect the fetus;
  • reach retirement age; or
  • be provided with false information by the employer that affects the performance of the labor contract.
  1. New regulations on salary payment

 Employers are now no longer required to register a salary table, salary scale, or salary norms with the labor authorities.

In case of salary paid via bank transfer, employers shall pay the cost of account opening and money transfer. An employer may also pay the salary to the employee’s authorized person.

When taking annual leave, an employee may request the employer to pay advance payments equal to the salary for the entitled days of leave of such month. Should the employer agree, it can deduct the advance payments at the time of salary payment for the employee in question.

  1. Changes applicable to expat employees

 The maximum term of a work permit for a foreign employee is two (2) years and may only be extended once for an additional maximum term of two (2) years. That is to say, new application in full for a new work permit should be prepared every four (4) years for those working in Vietnam for a long way. Under the current law, the maximum duration of a work permit is also two (2) years and can be renewed on an unlimited basis.

Employers and foreign employees may enter into multiple definite-term labor contracts. This regulation is to guarantee that the term of the expat employee’s labor contract shall be consistent with that of his/her obtained work permit and should close a long-standing conflict in the law concerning the mandatory use of indefinite-term contracts after two consecutive definite-term contracts.

In addition, expats married to Vietnamese citizens and living in Vietnam shall be exempt from work permit obligations (noting that work permit exemption certificate is still required though).  This is a major new additional ground for work permit exemption.  It remains to be seen whether there will be any limits to the types or positions that such spouses may hold without work permits.

  1. Labor discipline

 The internal labor regulations may be registered at the district-level labor authority.  We are of the  presumption and view that the provincial labor authority may authorize a district-level labor authority to process an application for the registration of internal labor regulations.

Importantly, employers may impose disciplinary measures for violations stipulated not only in the internal labor regulations but also in the labor contract or labor laws. This is the case for an employer with less than 10 employees where internal labor regulation preparation and registration is not mandatory.

As a separate note, similar to current law, the procedure to impose labor discipline would strictly require the involvement of a representative organization of employees at grass-root level. However, it is also worth noting that, under new Labor Code 2019, representative organization of employees could be other internal employee organizations within the employer, in addition to the current regime of internal trade union which is purely under the sole management of Vietnam Labor Federation.

  1. Retirement ages have been increased

 The age of retirement for employees working in normal conditions will follow a roadmap until the age of 62 years for men and 60 years for women. Specifically, the retirement age will be gradually increased to 62 years by 2028 for men, and 60 years by 2035 for women.

From 2021, the retirement ages of employees in normal working conditions shall be 60 years and 3 months for men, and 55 years and 4 months for women, and shall increase by 3 months for men and 4 months for women for each consecutive year.

  1. The number of public holidays has been increased by one day

National Day public holiday will now consist of two (2) days, namely (i) the second day of September; and (ii) the previous or next day (presumably at employer’s discretion to identify the specific one).

  1. Overtime policy

 The monthly overtime cap has been increased from 30 hours to 40 hours.

Additionally, the Labor Code 2019 has supplemented the circumstances where organizing overtime work of up to 300 hours in a year is permissible, comprising the manufacturing and processing of textiles, garments, footwear as well as electric and electronic products; and the processing of agricultural, forestry, aquaculture, and salt products.

  1. Concept of ‘sexual harassment’ has been introduced for the first time

‘Sexual harassment’ at the work place is expressly defined in the Labor Code 2019.

Procedures and policies on the prevention and handling of sexual harassment at the workplace must be included in the internal labor regulations, whereby ‘sexual harassment’ is now defined as a legal ground for dismissal.

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For more information, please contact Giles at GTCooper@duanemorris.com or Le Nhan at NTLe@duanemorris.com or any of the lawyers in our office listing. Giles is Chairman of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

VIETNAM – EVALUATION OF THE IMPLEMENTATION OF THE EU-VIETNAM FREE TRADE AGREEMENT AND THE COMPREHENSIVE AND PROGRESSIVE AGREEMENT FOR TRANS-PACIFIC PARTNERSHIP

Globalization, global economic integration and trade liberalization have now become prominent in the world economy. Following such trend, Vietnam has been taking better steps to integrate into the world economy. Looking back at the nearly 30-year journey since Vietnam was a closed economy and started to implement the Doi Moi (Renovation) policy from the Party’s sixth national congress when the international economic integration was simply referred to as an open economy, up to now, Vietnam’s international integration policy has become much more detailed and complete. The first significant milestone in when Vietnam officially became the 150th member of the World Trade Organization (WTO) on 11 January 2007, after 11 years of accession negotiations. From then, a new period began: Vietnam’s economy has integrated more deeply and comprehensively into the world economy.

Vietnam has participated in integration at both regional and international levels and has established meaningful relationships with major partners. Especially in recent years, Vietnam has actively participated in negotiations and signed the Free Trade Agreements (FTAs), which is complementary to the goal of multilateral trade and investment liberalization when such cooperation has been facing many hurdles. Among 13 Free Trade Agreements that Vienam has signed, the FTA with the European Union (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) must be highlighted. These two agreements are considered new-generation free trade agreements because they contain unprecedented commitments under the previous FTAs signed by Vietnam. They have encouraged and accelerated institutional reform in order to improve the legal environment in compliance with Vietnam’s commitments. As a result, they help Vietnam to become a competitive economy, attract foreign investment, advanced technology and other important resources for development.

However, in order to take advantage of the incentives under these Agreements to attract foreign investment, in this article, I would like to evaluate the outstanding advantages of EVFTA and CPTPP as well as the implementation of these two Agreements from the perspective of a foreign investor with regard to: (1) market access; (2) government procurement; and (3) dispute resolution.

I. ADVANTAGES
1. Market Access
a. EVFTA
Market Access for Goods
Vietnam commits to eliminate import duties on 48.5% of tariff lines, equivalent to 64.5% of EU exports immediately after the EVFTA comes into effect on 1 August 2020. After 10 years, the elimination rate will be 99% of the total tariff lines, equal to 99.8% of the EU’s exports respectively. For some products such as motorcycles over 1,500cc, automobile parts and about half of EU exported medicine products, the tax reduction mechanism will apply after 7 years from the effective date. For the remaining tariff lines, Vietnam will have a roadmap of over 10 years or give preferential treatment to the EU on the basis of tariff quotas. This is considered an unprecedented commitment to deep tax cuts for a developing country like Vietnam, which has demonstrated the ambition for deep integration and strengthened trade relations with the EU.

Market Access for Services
Although Vietnam’s commitments under the WTO are used as a basis for negotiating its commitments under the EVFTA, Vietnam has not only opened additional sectors/sub-sectors for EU service providers but also made higher commitments than those outlined in the WTO resulting in EU investors being given best access to Vietnam’s market. Sectors/sub-sectors that Vietnam is not committed to under the WTO, but are open for EU investors include, but not limited to: interdisciplinary Research & Development (R&D) services; nursing services, physiotherapists and para-medical personnel; packaging services; trade fairs and exhibitions services and building-cleaning services. It is worth noting that the EVFTA includes the most-favored-nation (MFN) treatment provisions that allow a party to give the other party the highest level of treatment it is negotiating with any third party in other agreement.

b. CPTPP
Market Access for Goods
Vietnam commits to eliminate nearly 100% of tariff lines, in which: (i) 65.8% of tariff lines have 0% tax rate after the CPTPP takes effect from 14 January 2019; (ii) 86.5% of tariff lines have a 0% tax rate in the fourth year after the CPTPP takes effect; (iii) 97.8% of tariff lines have 0% tax rate in the 11th year after the CPTPP takes effect; (iv) import tax on remaining items shall be abolished in the 16th year or in accordance with tariff quotas. The CPTPP also covers issues that have never been addressed in the WTO including import duties, export duties for re-manufactured goods, re-furbished goods, market access for re-furbished goods, monopolies and goods in transit.

Market Access for Services and Investment
All 11 member-states give consent to a liberalized trade in this area. More sectors are opened under the CPTPP compared with the WTO, such as telecommunications, distribution and manufacturing sectors.
In addition, besides incorporating basic WTO principles (national treatment (NT), most-favored nation treatment (MFN), market access, and local presence), the CPTPP takes a negative approach, meaning that their markets are fully open to service suppliers from other CPTPP Parties, except otherwise indicated in their commitments (i.e, non-conforming measures). In order to make such reservations, the member state must prove the necessity of such preservation and negotiate with other member states. If approved, non-conforming measures must only be limited to such list, except for measures in certain sensitive sectors that are included in a separate list. Member states are only allowed to adopt policies that are better than what they commit (ratchet principle). The CPTPP also includes obligations on removal of performance requirements (i.e., no conditions on local content requirements, export conditions, use of certain technology, location of the investment project, etc.) and reasonable requirements on senior management and board of directors. Notably, the CPTPP Chapter on Investment for the first time successfully clarified the MFN principle- countries operating in multi-state regime must give foreign investors the best investment conditions in all states, regardless of the location of the state where the investment takes place. Investors are also allowed to petition against the Government from the investment registration stage.

2. Government Procurement
Vietnam has one of the highest ratios of public investment-to-GDP in the world (39% annually from 1995). However, until now, Vietnam has not agreed to its government procurement being covered by the Government Procurement Agreement (GPA) of the WTO. Now, for the first time, Vietnam has undertaken to do so in the EVFTA and CPTPP. Investors of member states will surely get access to large government procurement market with many incentives and advantages.

a. EVFTA
The Government Procurement Chapter mainly deals with the requirement to treat EU bidders, or domestic bidders with EU investment capital, equally with Vietnamese bidders when a Government purchases goods or requests a service worth over the specified threshold. Vietnam undertakes to publish information on tender in a timely manner, allow sufficient time for bidders to prepare for and submit bids and maintain the confidentiality of tenders. The EVFTA also requires its Parties to assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documents and create an effective regime for complaints and settling disputes, and so on. These rules require Parties to ensure that their bidding procedures match the commitments and protect their own interests, thus helping Vietnam to solve its problem of bids being won by cheap but low-quality service providers.

We also believe that these changes in procedures and laws related to government procurement will allow EU exporters to access previously closed markets and compete more effectively.

b. CPTPP
The CPTPP makes a list of government entities and agencies whose procurement of particular goods and services at a particular amount must be subject to public tender. In other words, a bidding package is only subject to CPTPP if it satisfies all 3 criteria on the subject matter of procurement, type of goods and services, and procurement threshold. Any negotiation to expand coverage of the Government Procurement chapter, particularly in relation to state government and local government contracts, will be delayed. Parties will only initiate talks on this issue at least five years after the date of entry into force of the CPTPP.
This chapter includes NT and MFN principles, removes tender conditions favoring local tenders such as using local goods or local suppliers, conditions on technology transfer or two-way trade and investment, etc. These rules require all parties, to reform their bidding procedures and protect their own interests by disqualifying tenders with poor performance and low capacity.

3. Dispute resolution
a. EVFTA
For any investment-related dispute (i.e. expropriation without compensation, investment discrimination), an investor is allowed to bring such dispute to the Investment Court for settlement (Investor-state dispute settlement mechanism- ISDS). The final arbitration award is binding and enforceable without the local courts’ review of its validity. This is an advantage for European investors as the fact shows that the percentage of applications for enforcement of foreign arbitral awards being rejected by the Vietnamese courts is notably high for various reasons.

b. CPTPP
The CPTPP aims at protecting investors and their investment in the host country by introducing requirements on non-discrimination; fair and equitable treatment; full protection and security; the prohibition of expropriation that is not for public purpose, without due process, or without compensation; the free transfer of funds related to investments; and the freedom to appoint senior management positions regardless of nationality.
For the first time investors of a party may sue the Government of the other party for its violation of investment-related commitments when the investors make investment in that party. However, please note that under the CPTPP, investors will not be able to sue the Government using ISDS clauses if there is any dispute in connection with an investment agreement. An investment agreement is a written agreement that is concluded and takes effect after the date of entry into force of the CPTPP, between an authority at the central level of government of a Party and a covered investment or an investor of another Party, that creates an exchange of rights and obligations, binding on both parties under the applicable law. Investment agreement refers to an agreement in writing, negotiated and executed by both parties, whether in the form of single or multiple instruments. A unilateral act of an administrative or judicial authority, such as a permit, license, authorization, certificate, approval, etc. and an administrative or judicial consent decree or order will not be considered a written agreement.
The CPTPP also includes procedures for arbitration as means of settling disputes between investors and the host state. It covers new provisions compared with existing agreements such as transparency in arbitral proceedings, disclosure of filings and arbitral awards, and participation of interested non-disputing parties to make amicus curiae submissions to a tribunal. Arbitral awards are final, binding and fully enforceable in CPTPP countries.

II. DIFFICULTIES
1. Market Access
a. Market Access for Goods
As mentioned above, both the EVFTA and CPTPP contain commitments to broad tariff cuts. However, how enterprises can make full use of these commitments is somewhat closely related to the rules of origin of goods.
Vietnam’s manufacture sector currently depends on raw materials imported from non-EU member countries as the value-added amount generated from abroad is higher than in the country. If this situation does not improve, it will be difficult for Vietnamese goods to meet strict rules of origin in these two agreements. Therefore, the Government should issue policies to encourage enterprises to participate in the global value chain, reduction of trade costs, simplification of customs procedures, and transparency in non-tariff policies.
Besides, regarding the mechanism of certification of origin, when as the EVFTA and Vietnamese law stipulate that the competent authorities to issue certificates of origin, the CPTPP requires applying a self-certification of origin mechanism- importers, exporters and manufacturers can make self-certification of origin. This creates an obstacle for Vietnam because Vietnam only allows a few pilot cases of self-certification of origin in ASEAN. Furthermore, enterprises themselves are not flexible and proactive in determining the origin of goods, possibly leading to a delay in tariff preferences under the CPTPP. Because there are projects where the cost and time spent working with authorities issuing a certification of origin is in excess of the preferential tariffs granted, some enterprises are hesitant to apply for the certification of origin under the agreements. As a result, tariff preferences for goods originating from member states are not used.
Although the CPTPP does not require Vietnam to immediately implement this self-certification mechanism, some importing countries may have/will apply this mechanism after the CPTPP takes effect. Therefore, the Vietnamese government should issue regulations on self-certification of origin as soon as possible and consult with the business community on how to structure enterprises and maximize the benefits of the CPTPP.

b. Market Access for Services
The CPTPP and EVFTA are considered to have created more services sectors than the WTO. However, in reality, enterprises still meet difficulties when carrying out investment in Vietnam, specifically as follows:
• Enterprise registration: Although the investor has submitted the application for enterprise registration online, the information technology system of the enterprise registration agency is somewhat outdated, leading to disruptions and delays in the process. Post-licensing procedures such as social insurance registration, seal registration, bank account opening, payment of licensing costs, etc. …are cumbersome and time-consuming for enterprises. The Government should consider reducing unnecessary steps, or create conditions for enterprises to carry out post-licensing procedures through a portal.
• Infrastructure for electricity, transport and logistics: Weak infrastructure is a barrier to the development of Vietnam’s economy. The shortage of power occurs frequently in industrial parks. Deep-sea ports currently do not meet the high demand for maritime transportation. The Government should consider development of transportation infrastructure, ensuring that seaports and airports are accessible to people but not too close to residential areas to avoid congestion.
• High cost of legal compliance: Many overlapping and conflicting documents make it difficult for enterprises to implement compliance. In particular, in many areas such as taxation, insurance, enterprises must comply with too many regulations, and many new regulations are regularly introduced which affect the stable and predictable operation of enterprises. Therefore, the Government should ensure the stability of policies, especially tax policies to attract more foreign investments.
• Corruption: Action by the Government has reduced corruption rate in recent years, however, enterprises still face with petty corruption when they carry out administrative procedures. In order to prevent this situation, the Government should apply information technology in carrying out administrative procedures (such as online filing, cameras installation to monitor administrative officers at check-in counters, etc.) as well as conduct unplanned inspections more often to control any negative issues.
• Land registration and management: It is difficult for investors to access Vietnam’s land database. Public and transparent information on real estate is limited. Therefore, investors face with many difficulties when developing projects, especially projects that need to consume large land area. In order not to hinder foreign investment in the development of high quality projects, it is necessary to create favorable conditions for investors to access land information, which can be charged if necessary.

In addition, a preliminary review indicates that although Vietnam has opened more service sectors under the EVFTA and CPTPP, domestic laws still set out restrictions that should be removed soon by the Government to comply with Vietnam’s commitments:
• Accounting, auditing and bookkeeping services (CPC 862): Vietnam economy is fully integrated under the CPTPP and EVFTA, but Vietnam laws do not allow the establishment of wholly foreign-owned enterprises operating in accounting and auditing sectors.
• Architectural services (CPC 8671): Vietnam opens this sector under the CPTPP and EVFTA but Vietnam laws require investment in this area in the form of a joint venture or foreign investors must use Vietnamese subcontractors.
• Basic telecommunications services: Vietnam law complies with the commitments under the CPTPP but it is not compatible with the level of accession required under the EVFTA.
• Regarding the list of goods that foreign investors are not permitted to distribute: CPTPP makes a longer list than that set out in Vietnam laws.
• Higher education services (CPC 923), adult education (CPC 924), and other education services (CPC 929 including foreign language training): Vietnam is committed to fully open these under the CPTPP and EVFTA (except requirements on foreign teachers’ experience and qualifications). However, Vietnam law sets out conditions for foreign investors such as conditions on facilities, number of lecturers, etc.
• Customs clearance/customs brokerage services: Vietnam is committed to fully open these services under the CPTPP and EVFTA, but Vietnam law provides restrictions.
• Container handling services (CPC 741): Vietnam is committed to fully open these sectors under the CPTPP, but domestic laws provide restrictions.

2. Government Procurement
Both the CPTPP and EVFTA require the disclosure of bidding information and transparency in the selection of contractors, however, in fact the bidding period is prolonged, openness and transparency in the bidding information is limited, many bidding packages are invited only for formality, evaluation of bid documents are not based on criteria of tender documents. If this situation continues, foreign investors will hesitate to participate in bidding in Vietnam.
To solve this problem, the Ministry of Planning and Investment has vigorously promoted online bidding. Online bidding has contributed to the end of “blue army, red army” situation (“quân xanh, quân đỏ”), which limited transparency in bidding. In addition, template dossiers used for goods procurement, construction and consultancy are posted on the system, helping investors to fill in information for each step and each stage. After completion, information will be processed by the system to provide bidding price based on the bidding unit price and the quantity of goods/services of the bidding package to make the bidding process take place more quickly and conveniently.
Despite many advantages, the online bidding rate is not high. This is because the bidding network system is weak, is not regularly upgraded and its interface is not friendly with users. Furthermore, the awareness of enterprises about the advantages of online bidding is limited, so they are not willing to participate in electronic bidding packages. In order for online bidding to become popular and further enhance transparency, the Department of Public Procurement should propagate and train enterprises on online bidding so that they are willing to participate in more electronic bidding packages in the system.

3. Dispute Resolution
Under the Civil Procedure Code, any judgment or decision (civil) of a foreign jurisdiction is effective in Vietnam if the competent court of Vietnam recognizes it. The Vietnamese court will recognize any judgments or decisions issued by the courts of the country with which Vietnam has signed a mutual legal assistance agreement. In addition, recognition can also be considered on a reciprocal basis without any mutual legal assistance agreement.
However, under the CPTPP and EVIPA, the arbitral award will be final and binding on the parties and can be enforced directly without recognition and enforcement mechanism of foreign arbitral awards in Vietnam. Although Vietnam has reserved the right to fulfill this commitment for 5 years, the Government should study and revise the domestic laws in this regard right now to ensure they comply with the commitments under CPTPP and EVIPA. Any amendments of domestic regulations made on timely basis will make foreign investors feel safe and secured in their investments in case any dispute occurs.

***
Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – THE NEW LAW ON PUBLIC PRIVATE PARTNERSHIPS – MAIN IMPROVEMENTS OVER THE OLD LEGAL FRAMEWORK:

1. Main improvements of the new PPP law over the old legal framework:

-Investment sector reduction: Article 04.01 of the new law sets out 05 investment sectors. Compared to Article 04.01 of Decree No. 63/2018/ND-CP, the scope of investment sectors in the new law has been narrowed down to 5 sectors: transportation, healthcare, education, transmission grid, water. This list implies the intention of the Government in promoting primary and sustainable economic sectors. If investors engage in projects related to these sectors, they will benefit from investment incentives (Article 79 & 80), especially those set forth in the new Law on Investment 2020 such as preferred enterprise income tax, exemption or reduction of land lease fee, credit support to name a few.
The PPP law also stipulates the total investment capital requirement for a PPP project. For instance, excluding Operation & Maintenance Contracts, power projects must have the minimum total invested capital of VND 200 billions. The figure is lower (VND 100 billions) for projects in areas with difficult socio-economic conditions.
-Open bidding commitment: While Decree No. 63/2018/ND-CP does not prescribe the open bidding process, the new law of PPP treats it as a prerequisite. In specific, Article 37 of the new law requires that all PPP projects must apply the open bidding process for selection of preferred investors, except for cases provided in Article 38; 39; 40 (e.g. there are less than 3 qualified investors, the project applies technologies that are prioritized for development, there’s a need to protect national security…). The open bidding process entitles investors to compete in good faith for the PPP projects. Hence, foreign investors should make use of this process, also with their advantages of substantial investment capital, to win the bids of major projects.

2. Do you think the new law is likely to make PPPs in Vietnam more attractive to foreign investors specifically? Our understanding has been that at least in the water sector, foreign investors have felt reluctant towards PPPs due to the previous lack of guarantees.

Absolutely. The main goal of the new law is to attract investors, especially foreign investors, to execute PPP projects. Types of guarantees under the new PPP law include:
– Guarantee of access to land, exercise of land use right and other public goods.
– Guarantee of provision of civil service.
– Guarantee of right to mortgage of property, right to operate project and infrastructure.
– Guarantee of revenue risk sharing.
-Guarantee of foreign-currency balance-ensuring scheme.
Vietnam commits to provide guarantees for private and foreign investors. The issue, however, lies on the enforcement ability of officials. Thus, in case investors are deprived of above guarantees, investors shall assert claim against authorities before Vietnamese courts or arbitration bodies to be granted award (article 97 of the new law).

3. In your opinion, are there any sectors where the appetite for PPPs will be larger than in other sectors? Does this reflect the current attitudes towards PPPs in different sectors, or is it something that could change with the new law?

The new law reflects market demand: the 5 eligible sectors under PPP law are also the sectors that have been, are and will in the long run require funding from foreign investors. This is due to the increasing demand in those sectors not corresponding with the limited State budget.

4. In the water sector, while we haven’t seen much large-scale activity under the previous PPP decrees, we have seen privately financed projects proceed under the Direct Investment Law – could this have a negative impacts on PPPs under the PPP law in the sense that such projects are ‘competing’ with the PPP law?

A reason why projects may have chosen to follow the route set out in the Law on Investment is because the framework for investment procedures under it is less complex and less time-consuming than the one set out for PPP projects. However, for large-scale projects, it is recommended that investors follow the latter form since PPP projects come with certain guarantees and commitment from the Vietnamese government, which can help investors to avoid substantial risks if risks cannot be managed well.

5. Obstacles which the new law does not address might bother potential investors:

– The difficulty in disbursement of state budget: The overlapping regulations in legal documents such as Law on State Budget and Law on Public Investment deters special purpose entities from receiving investment capital from state budget.
– Legal uncertainty in the judgment of Vietnamese courts: Indeed, for most foreign investors, international arbitration centers are the preferred choice, rather than Vietnamese courts, whose judgments maybe biased. Investors may struggle for dispute settlement if trial clarity does not improve.
– Burden of administrative procedures: In 2018, the Vietnamese government issued Resolution No. 19/2018/NQ-CP on implementation of major duties and measures to improve business environment. The Resolution featured determination of central authorities in reducing and reforming administrative procedures. Investors, however, still have to fulfill lengthy and unclear administrative procedures before operation of business and investment.

6. Opinions on how likely it is that there will be political will in favor of PPPs:

In the 1980s, Vietnam, with a central-planning economy, put an unfriendly attitude towards private sector and foreign investment. The accession to WTO and a variety of FTAs, however, has changed the attitude of Vietnamese authorities as to these economic sectors. Indeed, respectively in 2017 and 2019, the Central Committee and the Politburo of the Communist Party of Vietnam (CPV) issued two resolutions on private sector and foreign investment, particularly the Resolution No. 10/NQ-TW on developing the private economy sector into an important motivation of the socialist-oriented market economy and the Resolution No. 50/NQ-TW on orientations to perfect mechanisms, policies, raise quality and efficiency of foreign investment by 2030. These resolutions significantly emphasized the promotion and variation of PPP projects to which private and foreign investors are parties. Therefore, Vietnamese government and other authorities, in accordance with the CPV’s directions, will certainly assist investors in implementing PPP projects, especially large-scale ones.

Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – BIOMASS POWER PROJECTS – NEW LAWS AND HOW TO GET HIGHEST LEVELS OF LEGAL CERTAINTY AND BANKABILITY UNDER EU-VN INVESTMENT PROTECTION AGREEMENT (“EVIPA”) AND COMPREHENSIVE AND PROGRESSIVE TRANS-PACIFIC PARTNERSHIP (“CPTPP”)

On 07 July 2020, the Ministry of Industry and Trade (“MOIT”) issued Circular No. 16/2020/TT-BCT to amend and supplement certain provisions of Circular No. 44/2-15/TT-BCT dated 09 December 2015 of the MOIT Minister on project development, avoided cost tariff and standardized power purchase agreement for biomass power projects.

In particular, this new Circular provides that investors be only allowed to build on-grid biomass power investment projects, which have been included in the approved Power Development Plan or Provincial Power Development Plan.

In addition, feed-in-tariff for on-grid biomass power projects will follow Decision No. 08/2020/QD-TTg dated 05 march 2020, which increases the feed-in tariff for biomass co-generation heat power to 7.03 US cents per kilowatt hour (up from 5.8 US cents), and for other types of biomass projects to 8.47 US cents per kWh (up from 7.3 to 7.5 US cents depending on location).

Investors whose projects operated before 25 April 2020 will sign a new Power Purchase Agreement (“PPA”) with the buyer in order to be entitled with the abovementioned feed-in-tariff from 25 April 2020 until the expiry of the signed PPA.

How to get highest levels of legal certainty and bankability under the EU-Vietnam Investment Protection Agreement and the CPTPP

The recent EVIPA and CPTPP further open the market to foreign investors. The investors now can bring their technology and know-how, especially those from countries with high level of development in renewable sectors to Vietnam with less market access barriers and being more secured. In particular, the CPTPP and the EVIPA make it possible that foreign investors could sue Vietnam’s Government for its investment related decisions according to the dispute settlement by arbitration rules. The final arbitral award is binding and enforceable without any question from the local courts regarding its validity. This is an advantage for investors considering the fact that the percentage of annulled foreign arbitral awards in Vietnam remains relatively high for different reasons.

Although the transition period for the aforementioned Investor-State Dispute Settlement (ISDS) mechanism is 5 years from the effective date of the EVIPA, Duane Morris Vietnam has the legal and technical tools to make such provisions work in favor of investors from now.

For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – THE NATIONAL ASSEMBLY INCORPORATED DUANE MORRIS’S RECOMMENDATIONS INTO VIETNAM’S FIRST EVER LAW ON INVESTMENT IN THE FORM OF PUBLIC-PRIVATE PARTNERSHIP (PPP)

On 13 May this year, Dr. Oliver Massmann discussed about the Draft PPP Law with key personnel of the National Assembly. On 8 July 2020, Vietnam’s first-ever Law on Investment in the form of Public-Private Partnership was published, incorporating the following recommendations suggested by Duane Morris:

1. Clarify the scope and scale of power projects eligible for PPP investment

Article 4 of the PPP Law envisages that 5 sectors eligible for PPP investment include:
a/ Transportation;
b/ Power grids, power plants, except for hydroelectricity power plants and cases of State monopoly in accordance with Electricity Law;
c/ Irrigation; water supply; drainage, and wastewater treatment; waste treatment;
d/ Healthcare, education, training
dd/ Infrastructure for application of information technology
The PPP law also stipulates the total investment capital requirement for a PPP project. For instance, excluding Operation & Maintenance Contracts, power projects must have the minimum total invested capital of VND 200 billions. The figure is lower (VND 100 billions) for projects in areas with difficult socio-economic conditions.

2. Emphasize the importance of bankable PPP contracts

Duane Morris suggested that the National Assembly should consider providing a bankable PPP contract template in the Law itself or in its guiding decree/circular. In Article 47 of the PPP law, it was supplemented that the Government shall regulate the issuance of standard contracts for BOT, BTO, BOO, O&M, BTL, BLT, BT or mixed contracts projects.
Regarding lenders’ step-in right, PPP Law sets forth that in case of termination of PPP project contract ahead of the deadline and it is required to select a replacement contractor to ensure the progress of the project, the lender must coordinate with the State to select the alternative investor.

3. Determine in details investment incentives that investors can enjoy

Article 80 specifies that investors are provided with security regarding land access rights, right to use land and other public properties, property mortgage right, right to trade the project and its infrastructure system. PPP project enterprises are also given priority to utilize public services for implementation of the project, and competent agencies must assist investors in carrying out necessary procedures in order to optimize this priority.

Other notable provisions in the new PPP Law:

1/ Foreign currency balance-ensuring scheme is applicable to projects subject to the National Assembly or the Prime Minister’s issuance of decision on investment policy. The latter applied for projects with total invested capital of at least VND 5000 billions, suggesting that all power projects eligible for PPP investment are automatically eligible for this foreign currency scheme. In addition, there is a ceiling of 30% to be imposed for all PPP projects.

2/ Revenue risk sharing mechanism
When the actual revenue reaches more than 125% of the revenue in the financial plan of the PPP project contract, investor to share with the State 50% of the increase between actual revenue and committed revenue in the contract.
When the actual revenue reaches less than 75% of the revenue in the financial plan of the PPP project contract, the State to share with investor 50% of the decrease between actual revenue and committed revenue in the contract. This revenue reduction sharing mechanism is applied when the following conditions are met:
1. Type of contract: BOT, BTO or BOO;
2. The cause of loss is change in laws and policies;
3. Measures to adjust product and public service prices and contract terms have been implemented but the total revenue is still less than 75%; and
4. The State Audit has audited the revenue reduction.

3/ Selection of contractors to execute PPP projects
PPP contracts must contain binding content on the contractor’s responsibility if the quality of the project does not meet the agreed requirements.
Usage of domestic contractors is encouraged for works that can be carried out by them.

4/ Governing laws: PPP contract, its annexes and related documents are to be construed and interpreted in accordance with Vietnamese laws.

Conclusion
It is our pleasure that the National Assembly took into consideration Duane Morris’ advice and recommendations. These moves are a step in the right direction.
It remains to be seen whether there will be the political will to fully implement PPP projects regularly and on large scale.

***
Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – PM ANNOUNCES NAME OF WIND POWER PROJECTS TO BE CONSIDERED FOR INCLUSION IN THE ELECTRICITY DEVELOPMENT PLANNING

On 25 June 2020, under Dispatch No.795/TTg-CN, the Prime Minister announced list of wind power projects and grids to be considered for inclusion in the national electricity development planning. The list entails name, location, capacity, connection plans and conditions to release capacity of each project.

The list focuses on 5 regions, of which the Southwest area (including Bac Lieu, Ben Tre, Soc Trang provinces) has the highest number of projects – 3166.8 MW waiting to be included in the power master plan. Follow up is the Central Highlands (Gia Lai, Dak Lak, Dac Nong provinces) with 2432 MW. Next is the North Central region with 941.2 MW of wind projects concentrated mostly in Quang Tri province waiting to be included in the national power development planning.

All wind power projects in the South Central region are located in Ninh Thuan province. The South East region has only 1 project to be considered for inclusion – the Cong Ly Ba Ria Vung Tau project.

Dispatch 795 is expected to serve as a basis for the supervision of investment/construction process of wind power projects, so that these projects can quickly go into operation, supplement the electricity supply for the country and combat electricity shortage. Having a clear, official list of projects to be included in the master plan also helps to combat bribery/corruption among developers and relevant authorities – the latter enables low quality projects to be connected to the national grid thus subsequently damage the infrastructure of the distribution system and create financial loss for the buyer and consumers.

The Ministry of Industry and Trade is responsible for making sure wind power projects and power grids connected to the national electricity system to be appraised in accordance with laws and can contribute to common economic efficiency. The Ministry must also ensure there will be no overload of power grid when putting these projects into operation.

For names and more information of the wind power projects to be considered for inclusion in the electricity development planning, please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com.

Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – The World Bank is asking Duane Morris about Doing Business and Government Contracting 2020 – What you must know:

Section 1: Case Study Assumptions

BidCo
Is one of the companies participating in the call for tender and meets all solvency, technical and administrative requirements to compete;
Is a privately and domestically-owned medium-sized Limited Liability Company (or its most common legal equivalent);
Operates in Ho Chi Minh City;
Is up to date with all regulations and is in good standing with all relevant authorities, including those related to taxes;
Has all licenses and permits needed to operate in this technical area;
Has already responded to a public call for tender and is already registered with the procuring entity defined below.

Contract
Entails resurfacing 20 km of a flat two-lane road (not a highway and not under concession), connecting Ho Chi Minh City to another city within Vietnam (and within the same state, region or province as Ho Chi Minh City, if applicable), with an asphalt overlay of 40 to 59 mm (or its most common equivalent in Vietnam);
Value: USD 2.5 Million (equivalent to VND 56,996,865,534);
Does not include any other work (such as site clearance, subsoil drainage, bridgework or further routine maintenance).

Procuring Entity
Is the agency in charge of procuring construction works for the authority that owns the road described above;
Is the sole funder of the works, has budget for the works and is solvent.

Procurement Process
Is an open, unrestricted, and competitive public call for tender for resurfacing a road like the one described above;
Is completed without complaints/challenges/protests from interested parties;
Ends with the awarding of the contract to BidCo, whose bid satisfied all technical and administrative criteria and offered the best value for money.

1. What is the entity that conducts procurement for the authority that owns the majority of roads comparable to the one described above?
Directorate for Roads of Vietnam within the Transport Ministry (“Procuring Entity”)

2. How many open, unrestricted and competitive public calls for tenders for road work contracts were completed in the last 5 years by the Procuring Entity you selected in Q.1?
11-51

3. Please provide a list of the laws, regulations and other binding materials (including guidelines and manuals) that regulate public procurement in Vietnam.
– Civil Code of Vietnam no. 91/2015/QH13 by the National Assembly of Vietnam dated 24 November 2015
– Construction Law no. 50/2014/QH13 by the National Assembly dated 18 June 2014
– Law on Bidding no. 43/2013/QH13 dated 18 June 2014
– Commercial Law no. 36/2005/QH11 dated 14 June 2005
– Decree no. 63/2014/ND-CP dated 26 June 2014
– Decree no. 37/2015/ND-CP dated 22 April 2015
– Decree no. 46/2015/ND-CP dated 17 March 2015
– Decree no. 25/2020/ND-CP dated 28 February 2020
– Decree no. 63/2018/ND-CP dated 4 May 2018
– Circular no. 04/2017/TT-BKHDT dated 15 November 2017
– Circular no. 26/2016/TT-BXD dated 26 October 2016
– Circular no. 10/2016/TT-BKHDT dated 22 July 2016
– Circular no. 23/2015/TT-BKHDT dated 21 December 2015
– Circular no. 10/2015/TT-BKHDT dated 31 October 2015
– Circular no. 01/2015/TT-BKHDT dated 15 April 2015
– Circular no. 11/2019/TT-BKHDT dated 16 December 2019

4. Please list any mandatory standard tender documents and/or standard contract terms that the Procuring Entity must use for a contract like the one described in Section 1.
Contract terms must specify:
a/ Applied legal bases;
b/ Language used in the contract;
c/ Content and volume of work;
d/ Quality, technical requirements of work; pre-acceptance test and handover;
dd/ Contract performance duration and schedule;
e/ Contract price, advance payment, currency used in payment, and payment for the contract;
g/ Contract performance security, contract advance guarantee;
h/ Adjustment of the construction contract;
i/ Rights and obligations of the parties to the construction contract; k/ Liability for violations of the contract, rewards and fines for violations of the contract; l/ Suspension and termination of the contract;
m/ Settlement of disputes over the contract;
n/ Risks and force majeure events; o/ Settlement and liquidation of the contract;
p/ Other contents.
All standards are listed in Bidding Law and Article 141 Construction Law.

5. Are you aware of any change (in practice or in laws/regulations/procedures) related to public procurement between May 2, 2019 and May 1, 2020?
Yes, the issuance of Circular no. 11/2019/TT-BKHDT dated 16 December 2019 to replace Circular 07/2015/TTLT-BKHDT-BTC dated 8 September 2015

6. If one or several electronic procurement portal(s) (i.e., an official website(s) specifically and exclusively dedicated to public procurement) are in operation, please mark which platform would most commonly be used by the Procuring Entity.
http://muasamcong.mpi.gov.vn

7. Which information about road works contracts procured by the Procuring Entity is made publicly available?
Estimated cost/length/completion time – as calculated by the Procuring Entity at the time of advertising the procurement opportunity.
Contract cost/length/completion time – as agreed upon in the contract signed by the Procuring Entity and the contractor.

8.According to the legal framework, when the Procuring Entity prepares to advertise a new procurement opportunity for a contract like the one described in Section 1, which tools are used to estimate the contract value and projected length of works? .
-Market analysis
-Standardized unit cost
-Project-specific technical drawings, Feasibility study
-Similar projects from previous years
-Price evaluation result by authorized state agency or price evaluation enterprise for assets, goods and services subject to price evaluation under the Law on Price.
Legal basis: Article 11.2 Circular No. 58/2016/TT-BTC

9. In practice, is the estimated contract value/budget published in the tender notice/tender documents?
Yes

10. Is the Procuring Entity required to have already allocated budget to a specific project before tendering?
Yes, there is a specific budget allocator

11. How often does the Procuring Entity award a contract without having all the necessary funds?
Occasionally (between 25-50%)

12. According to the legal framework, would open tendering (i.e. the process in which any business can submit a bid) be the default method of procurement in Vietnam for a contract like the one described in Section 1?
No
Legal basis: Section 1, Chapter 2, Bidding Law

13. According to the legal framework, can the Procuring Entity require bidders to participate in a prequalification process specific to that contract before being able to submit their economic offer?
Yes
Legal basis: Article 22 and 24 of Decree 63/2014/ND-CP
a. If “Yes”, how often would this happen for a contract?
Rarely (between 10-25%)
b. In practice, how many days would be necessary for BidCo to receive a decision on its prequalification from the moment it submitted all the necessary documents?
30 days
c. According to the legal framework, must the contractor be registered with the Procuring Entity in order to bid for a contract like the one described in Section 1? Yes

14. In practice, what is the most common method of procurement for a contract like the one described in Section 1?
Open tendering is not the default but remains the most common in practice.

15. Does the legal framework define the situations in which each procurement method should be used?
Yes
Legal basis: Section 2, Bidding Law

16. Does the legal framework prohibit dividing contracts to circumvent thresholds for open tendering?
Yes
Legal basis: Article 89.6.k Bidding Law
In practice, how often does this happen?
Often (between 50-90%)

17. Which materials need to be made publicly available by the Procuring Entity?
Tender notices, Tender documents and technical specifications, notice of award/bidding results

18. Which aspects of subcontracting is regulated by the applicable legal framework?
Features – the legal framework regulates the administrative process to subcontract, the limits of subcontracting, the authorizations required, etc.
Disclosure – the legal framework regulates when and how companies should inform the Procuring Entity of their intent to subcontract.
Liability – the legal framework regulates liability of the contractor and subcontractor in case of poor performance.
Legal basis: Article 128 of Decree 63/2014/ND-CP

19. According to the legal framework, if the intent to subcontract was not disclosed in the bid, what is the contractor who decides to subcontract after the contract is signed required to do?
Inform the procuring entity and seek its approval

20. According to the legal framework, how clarification requests from potential bidders should be addressed?
The procuring entity will answer, but it is not always required to communicate the answer to all other bidders.
Legal basis: Article 11 Circular 11/2019/TT-BKHDT

21. According to the legal framework, is BidCo required to provide a form of bid guarantee?
Yes
Legal basis: Article 11.1 of Law on Bidding
If bid guarantee is not required by law, would it usually be requested in practice by the Procuring Entity for a contract like the one described in Section 1?
Yes

22. In practice, which instrument would BidCo most commonly used as a bid guarantee?
Certificate of deposit, Bank Guarantee/Letter of Credit, Payment retention until satisfactory completion of the contract

23. Does the legal framework establish a timeframe for the Procuring Entity to proceed to bid opening once the deadline for bid submission has been reached?
Yes
Legal basis: Article 14/3(b) Decree 63/2014/ND-CP
In practice, how many days after the deadline for bid submission does the Procuring Entity proceed to bid opening? – Zero

24. In practice, how many days would pass between bid opening and public notice of award (i.e. the moment in which all tenderers, participants and relevant parties are notified of the award decision), considering that no complaints/challenges/protests have been filed?
Time: 45-60 days
Main reasons: the bidder selection result must be verified or amendments to the bidding dossier/documents are required

25. Selection committee – Which characteristics are regulated by the applicable legal framework?
The professional requirements of members of the committee, according to Article 116 of Decree No. 63/2014/ND-CP of 2014.

26. According to the legal framework, which award criterion would be used for a contract like the one described in Section 1?
This is at the discretion of the Procuring Entity, according to Articles 39.1, 39.2 and 39.3 of Law on Bidding No. 43/2013/QH13 of 2013.

27. According to the legal framework, is BidCo required to provide a performance guarantee deposit that ensures a source of compensation in case of failure to perform its contractual obligations?
Yes, according to Articles 66 and 72 of Law on Bidding No. 43/2013/QH13 of 2013.
If a performance guarantee is not required by law, would it usually be requested in practice by the Procuring Entity for a contract like the one described in Section 1?
Yes

28. In practice, which instrument would BidCo most commonly used as a performance guarantee?
Cash / Certified check IEI Certificate of deposit
Bank Guarantee / Letter of Credit

29. In practice, how long does it usually take for the Procuring Entity to return the performance guarantee in full once the works have been completed and accepted by the Procuring Entity?
Within 20 days

30. In practice, how often are the works delivered within the original deadline?
Occasionally (between 25-50%)

31. In practice, if delays are common, what are the main reasons?
Weather shocks (natural disasters, flooding, etc.)
Capacity of the contractor (technical/financial/managerial/human capital constraints)
Poor planning on the procuring entity’s side (poorly designed project specifications, etc.)
Poor planning on the contractor’s side
Change of project scope

32. In practice, how often are the works delivered within the original budget?
Occasionally (between 25-50%)

33. In practice, if cost overruns are common, what are the main reasons for them?
Market conditions (changes in input prices, fluctuations in exchange rate, etc.)
Political events (elections, lack of security in project areas, national referendums, etc.)
Weather shocks (natural disasters, flooding, etc.)
Capacity of the contractor (technical/financial/managerial/human capital constraints)
Poor planning on the procuring entity’s side (poorly designed project specifications, etc.)
Poor planning on the contractor’s side
Change of project scope

34. How often are the following strategies used by the Procuring Entity to circumvent public procurement rules?

Strategy Frequency
Not advertise procurement opportunities long enough to minimize competition. Very rarely (< 10% of cases)
Prioritize projects without sufficient motivation just to benefit a particular bidder. Very rarely (< 10% of cases)
Use non-competitive procurement methods instead of open tendering to restrict market entry. Very rarely ( 90%)
Hold informal meetings with individual bidders. Very often (> 90%)
Unilaterally change some of the tendering requirements after the bid is opened, but before the contract is signed. Very rarely (< 10% of cases)
Biased interpretation of the selection criteria. Occasionally (between 25-50%)
Change the award criteria after the bids are opened. Very rarely (< 10% of cases)
Add specific obligations in the contract that were not previously incorporated in the tender documents, and by doing so impose unnecessary burdens on the contractor. Very rarely (< 10% of cases)
Delay payments to the contractor to request other works not included in the tender documents. Very rarely (< 10% of cases)
Delay the certification of completion of the contract to obtain other works/goods/services not previously included in the tender documents. Very rarely (< 10% of cases)
Unilaterally and arbitrarily terminate the contract. Very rarely (< 10% of cases)

35. How often are the following strategies used by private sector companies to circumvent public procurement rules?

Strategy Frequency
Collusion between bidders Very rarely (< 10% of cases)
Collusion with the Procuring Entity, to negate market entry to other competitors. Often (between 50-90%)
Submission of recklessly low bids to win the tender. Rarely (between 10-25%)
Falsification of documents or failure to disclose essential information in the bidder’s offer. Rarely (between 10-25%)
Informally paying public officials. Often (between 50-90%)
Abuse the renegotiation process to increase the price or the scope of the project without another competitive process. Often (between 50-90%)
Delay the execution of the contract to coerce the Procuring Entity to award other contracts to the same company. Rarely (between 10-25%)
Execute the contract with less quality or with different technical specifications than were submitted during the tender process. Often (between 50-90%)
Employ subcontractors that were neither properly selected nor disclosed during the tender process. Rarely (between 10-25%)

***
Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – PRIME MINISTER REQUESTS MOIT TO SUPPLEMENT MORE WIND POWER PROJECTS INTO THE ELECTRICITY DEVELOPMENT PLAN AND TO EXTEND THE DEADLINE OF FiT RATE

On 9 June 2020, the Prime Minister issued Document No.693/TTg-CN on the addition of wind power projects to electricity development planning. In this Document, the PM requests the Ministry of Industry and Trade (“MOIT”) to:

1. Accelerate the process of approving the inclusion of more wind energy projects into the Master plan to avoid the inherent possibility of electricity shortage nationwide due to large coal thermoelectricity power plants don’t start COD until 2023.

2. Quicken the process of appraisal and approval for inclusion of wind power plants into the Master plan, especially in localities with potential and advantage for wind power development but are having only a few projects and can implement quickly to supplement the power supply for the country.

3. Prepare the formulation of the National Electricity Development Planning in the 2021-2030 period, with a vision to 2045 (Electricity Planning VIII) to submit to the Prime Minister for approval before 31 October 2020.

4. Consider the matter of extending the fixed price mechanism for wind power projects until 31 December 2023. Under Decision 39/2018/TT-BCT, the current FiT rate is 8,5 UScent/kWh (excluding VAT) for onshore projects and 9,8 UScent/kWh (excluding VAT) for offshore projects. These prices are applicable to wind power projects that have part or the whole of the plant with commercial operation date before 1 November, 2021 and apply for 20 years from the date of commercial operation.

Some comments on Document 693:

This is one of the many attempts of the Vietnamese government to encourage development of wind energy, which opens up more rooms for investors looking to participate in this sector as well as allow current investors ample time to obtain key licenses and start construction and commissioning process required for their projects.

The promotion of wind power source is an effective solution to counter power shortage issue because it can takes advantage of the free, limitless wind natural resource without relying on imported fuels from abroad and is eco-friendly. Vietnam has to take into consideration environmental by-products of its economic activities from now on since this is a duty in the EU-Vietnam Free Trade Agreement, which was approved by the National Assembly on 8 June 2020.

The need to extend the deadline for current FiT rate is essential because the projects waiting to be included in the Revised PDP VIII is unlikely to have commercial operation date before November 2021 (in 16 months), because:
-The construction of wind power projects takes quiet some times. For feasibility study reports, investors must carry out wind measurement for at least 12 months. Moreover, wind turbines are mostly imported from abroad, which costs investor extra time, especially when there is unexpected delay of equipment delivery;

-The wind power projects included in the electricity development planning in the Southwestern provinces are mostly offshore or near the shore projects using technology and techniques different from those implemented for onshore turbines, hence require longer project preparation time (e.g. construction of onshore wind power projects takes around 2 years and 3 – 3.5 years for offshore ones). Not to mention, the regulations on determining sea borders, licensing for usage of the sea area are quite complicated, thus further increase project schedule time and costs associated with offshore projects.

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Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – BREAKING AMAZING NEWS: EU-VIETNAM FREE TRADE AGREEMENT COMES INTO FORCE ON 1 AUGUST 2020

With the EVFTA coming into effect, Vietnam will eliminate import duties on 91.8% of tariff lines, equivalent to 97.1% of EU exports.

Some notable provisions of the EVFTA are as follows:

Tax:
Vietnam commits to eliminate import duties on 48.5% of tariff lines, equivalent to 64.5% of EU exports immediately after the Agreement came into effect.

After 7 years, import taxes on 91.8% of tariff lines (equivalent to 97.1% of EU exports) will be removed from Vietnam. After 10 years, the abolition rate will be 98.3% of the total tariff lines, equal to 99.8% of the EU’s exports respectively.

Banking:
Vietnam pled to favorably consider allowing EU credit institutions to raise foreign ownership to 49% of charter capital in two Vietnamese joint stock commercial banks. This commitment will be valid for 5 years only (after the expiry of 5 years Vietnam will not be bound by this commitment) and is not applicable to 4 banks where the State is holding a large sum of shares (i.e. BIDV, Vietinbank, Vietcombank and Agribank).

Market access:
For the sectors listed in the Specific Schedule of Commitments, except where there is a specific reservation, the two parties undertake to not apply restrictions related to: (i) the number of businesses enterprises are allowed to participate in the market, (ii) the transaction value, (iii) the number of activities, (iv) foreign capital contribution, (v) the form of legal entities, (vi) the number of natural persons recruitment.

Public procurement packages:
Under EVFTA, Vietnam commits to allow EU contractors to participate in bidding packages that simultaneously meet the three conditions regarding Value of bidding package; Shopping agency; Goods and services need shopping.

Distribution service:
Vietnam has agreed to abolish the requirement of economic needs test five years after the date of entry into force of the Agreement, but Vietnam reserves the right to implement the distribution system planning on a non-discriminatory basis. Vietnam also agrees not to discriminate in the production, import and distribution of alcohol, allowing EU businesses to reserve their operating conditions under current licenses and only need one license to carry out import, distribution, wholesale and retail activities.

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Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.