Vietnam’s growth in the digital economy is impressive. According to a Google’s report, Vietnam’s digital economy had an estimated value of USD14 billion in 2020, a growth of 450% since 2015. The growth is forecast to be about 30% between 2020 and 2025, as Vietnam is actively implementing its National Digital Transformation Program until 2025 and with a vision to 2030. In this program, Vietnam aims to enter the top 50 countries in e-government and ensure that the digital economy accounts for 30% of the country’s GDP by 2030. However, Vietnam might fail to meet its targets mentioned therein if it does not timely address recent issues faced by investors in ICT sector below:
Administrative burden for ICT products
ICT products are subject to different licensing and registration procedures under Decree No. 127/2007/ND-CP, Decree 132/2008/ND-CP, Decree 74/2018/ND-CP, etc. Although the products could be proved to be compliant with established international standards, they are not allowed to be cleared customs at Vietnamese border without country-specific testing. In addition, a lack of a full e-government model, as well as an automatic 24/7 one-day electronic approval for product quality status between the Customs National Single Window and the Ministry of Information and Communication (MIC) causes certain delay in the products importation.
Regulatory challenges
Decree No. 71/2022/ND-CP
In addition to the previous requirement on a 30% cap on foreign channels when broadcasting on subscription television in Vietnam in Decree No. 06/2016/ND-CP, Decree No. 71/2022/ND-CP imposes a new local presence condition, requiring cross-border providers of internet-enabled over the-top (OTT) services to establish a local entity in Vietnam. Due to the complicated and lengthy licensing process applicable for the sector, sometimes it ends up in certain types of services not being provided in Vietnam because the benefit of providing them in Vietnam is not as great as having a local presence.
Amended Law on E-Transactions
The amend Law introduces new concepts about digital platforms/intermediary digital platforms, which are originated from Europe’s Digital Markets Act (DMA) and Digital Services Act (DSA). These EU legislations are adopted in a very different political, legal and economic contexts from Vietnam’s. Without proper implementation, it might cause confusion, uncertainty to both domestic and foreign digital service providers, thus have an adverse impact on innovation in Vietnam. The concept of information systems serving electronic transactions, which is vague and broad, needs further clarification.
The Amended Law should clearly define data message authentication services, which should not cover OTT messaging services with end- to-end encryption. Without any further guidance, services of sending and receipt of secured data messages may be broadly interpreted to include all services that are used for sending data messages.
The Amended Law should clarify obligation of administrators of information systems serving electronic transactions to ensure availability for technical connection with the supervising systems of the State.
The provision on the responsibility of administrators of digital platforms serving electronic platforms to report to the MIC regarding past incidents or signs and risks of the information system being abused to conduct acts that violate Vietnamese law is quite broad as it is unclear which kinds of situation shall be reviewed and assessed.
Draft Amended Law on Telecommunication
The Draft Amended Law on Telecommunication has been considerably expanded to include non-telecommunications services. Services such as internet application services in telecommunications (or “telecommunications OTT services”), data centers, differ from telecommunications services and have never been regulated by telecommunication law in other countries. Regulation of these services under the Amended Law on Telecommunication is inappropriate and will create unnecessary administrative burdens and increased costs for these service providers, especially those that do not have a physical presence in Vietnam. To align with international practice and to facilitate development conditions for digital service providers, we recommend removing telecommunications OTT services, cloud computing, and data center services from the scope of the Draft Amended Law on Telecommunication.
Impact of the EU Vietnam Free Trade Agreement (EVFTA), the EU Vietnam Investment Protection Agreement (EVIPA) and the Comprehensive and Progressive Trans Pacific Partnership Agreement (CPTPP)
Vietnam’s telecommunication related laws are in general compatible with its commitments under the EVFTA and the CPTPP.
In case of any investment-related dispute (i.e. expropriation without compensation, investment discrimination), an investor of a party is allowed to bring such dispute against the Government of the other party to the Investment Court for settlement. In case either of the disputing parties disagrees with the decision of the Tribunal, it can appeal it to the Appeal Tribunal. While this is different from the common arbitration proceeding, it is quite similar to the 2-level dispute settlement mechanism in the WTO (Panel and Appellate Body). We believe that this mechanism could save time and cost for the whole proceedings. The final arbitration award is binding and enforceable without the local courts’ review of its validity. The Government of Vietnam has to fully implement this commitment within five years from the entry into force of the EVIPA. For your information, as of February 2023, there have been 11 out of 27 EU members having ratified the EVIPA. It means we need to wait until the remaining 16 EU members have ratified the agreement for it to take effect and trigger the deadline for direct enforcement of arbitral award by the Government of Vietnam.
While the CPTPP allows the same mechanism for an investor of a party to challenge the Government of the other party, it does not include the 5-year transitional period as in the EVIPA. In other words, the enforcement of arbitral award under the CPTPP would follow the NYC rules. However, we believe that the Government of Vietnam will soon revise the current local arbitration regulations to ensure its commitment under the EVIPA. Investors under the CPTPP could then take advantage of such improvement.
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Please do not hesitate to contact Dr. Oliver Massmann at omassmann@duanemorris.com if you have any questions. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.