Dr. Oliver Massmann – Page 41 – Duane Morris Vietnam

June 7, 2016June 7, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann Transfer Pricing in Mergers and Acquisitions

The Issue
In an acquisition, the transfer price is, in principle, negotiable. Unfortunately, if that price is agreed to be less than the face value of the sellers’ capital contribution to the charter capital (equity)]of the target, the licensing authority may not accept the acquisition and refuse to approve the acquisition. The acquisition may subsequently also be examined by the tax authority who may review the transfer price again to ensure that it reflects the ‘market price’ or the above ‘book value’ of equity. If the tax authority concludes that the market price or book value has not been reflected appropriately, it may refer to another transfer price it deems fit for tax management purposes. Exceptions can be made for a local company that has suffered from large losses. In our view, it is important that the law clarifies that the licensing authority cannot ‘review’ the transfer price, which is per se a purely commercial issue; and that only the tax authority may do so for taxation purposes. It should be clear that a transfer price determined not to reflect the market price or book value cannot be a ground for the licensing authority to block the transfer by refusing the issuance of its approval.

Moreover, tax liabilities arising from any M&A transaction also create concerns to the investor. Generally, any assignment of capital is subject to the standard capital gain tax rate (i.e. 22% corporate income tax of the profit derived from such assignment) while the sale of assets is subject to Value-added Tax (VAT) (at a default 10% rate) in most of cases. The personal income tax of the individual seller may be applied with various tax rates of between 5% and 20% for capital investment and capital assignment depending on the types of taxable income and taxpayer. The gain from the shares transfer in a public company may also be subject to tax at 0.1% of the gross sales proceeds.

Vietnamese tax regulations are also not clear on the capital gain tax (if any) applicable to an offshore acquisition (i.e. transfer between offshore seller and buyer of equity interest in an offshore target company which holds capital contribution in a Vietnamese company). The position of Vietnam’s General Tax Department (“GTD”) has once been that no Vietnam’s capital gain tax is applicable if all the following conditions are met: (i) the acquisition is entirely offshore, (ii) the capital of the offshore target in the onshore subsidiary remains intact, (iii) the offshore target and the onshore subsidiary do not receive any income from the acquisition and (iv) the investment certificate of the onshore subsidiary does not change. For example: see Official Letter 2268/TCT-CS of the GTD dated 28 June 2012. However, under a recent development of Vietnam’s tax law (in particular Decree 12/2015/ND-CP effective from 1 January 2015), the GTD has opined in some of its recently guidance (for instanceOfficial Letter 1595/TCT-DNL of the GTD dated 24 April 2015) that offshore acquisitions may also be subject to Vietnam’s capital gain tax. There has not been any specific guidance on how this application of Vietnamese capital gain tax is implemented in practice.

Potential gains/concerns for Vietnam
Capital gain tax is important for planning the structure of an M&A transaction. This lack of clarity regarding whether taxes are applicable, how they are applicable and/or the applicable tax rates creates uncertain financial obligations for investors. In practice, due to these ambiguities, transfer prices are often frozen for long periods of time. This impacts on the planned timescale of transactions and could lead to deals being stopped.
Furthermore, the ambiguous tax regulatory frameworks and the sole discretion of tax authorities on the tax liabilities lead the M&A parties to face difficulties in determining risks levels on this matter or even to the risk of tax arrears or accusations of tax evasion after the conclusion of an M&A.

Recommendations
We would like to make the following recommendations:
• Harmonise the interpretation of transfer price;
• Clarify and improve the regulatory frameworks on tax liabilities arisen from M&A transaction.
Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

May 27, 2016May 27, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann ALERT IMPRISONMENT/JAIL for Labour Law violation – New Penal Code sanctions – Unprecedented !

On 27 November 2015, the National Assembly adopted a new Criminal Code No. 100/2015/QH13, which takes effective from 01 July 2016. This new Criminal Code will replace the old Criminal Code in 1999 and its amending / guiding documents.
Notably, the new Criminal Code provides new sanctions for violations in employment sector. Details of these sanctions are set out below:

Illegal dismissal of employees
In particular, if a person for his/ her own sake conducts one of the following behaviours that make dismissed employees or their families fall into difficult situations or go on strike, he/ she will be subject to monetary fine of VND10 million – VND100 million, non-custodial reform of up to 1 year or IMPRISONMENT/JAIL of 3 months to 1 year:
• Illegal dismissal of employees;
• Illegal issuance of decision on dismissing public servants; or
• Forcing, threatening the employees or public servants to quit their jobs.
The violating person will be subject to VND100 million – VND 200 million monetary fine or 1-3 year IMPRISONMENT/JAIL if he / she commits the crimes in either of the following situations:
• Dismissing 2 employees and more;
• Dismissing pregnant employees;
• Dismissing mothers of less than 12-month old baby; or
• Causing the dismissed employees commit suicide.
At the same time, the violating person may also be prohibited from holding certain professional positions within 1- 5 years.

Employment of employees under 16
Anyone who employs a person under 16 to do hard or dangerous work or work that involves contact with harmful substances in any of the following cases will be subject to a fine of VND 30 million – VND 200 million or up to 03-year non-custodial reform or 06 – 36 month imprisonment:
• The offender previously incurred a civil penalty or has a previous conviction for the same offence which has not been expunged;
• The offence results in bodily harm to 01 people who suffers from 31% – 60% physical disability;
• The offence results in bodily harm to 02 people or more who suffer from a total physical disability of 31% – 60%.
A sanction of 03 – 07 year imprisonment applies in the following cases:
• The offence has been committed more than once;
• The offence involves 02 workers or more under 16;
• The offence results in the death of 01 person or bodily harm to 01 person who suffers from over 61% physical disability;
• The offence results in bodily harm to 02 people, each of whom suffers from 31% – 60% physical disability;
• The offence results in bodily harm to 03 people or more who suffer from a total physical disability of over 61%.
A sanction of 05 – 10 year imprisonment applies in the following cases:
a) The offence results in the death of 02 people or more;
b) The offence results in bodily harm to 02 people or more, each of whom suffers from over 61% physical disability;
c) The offence results in bodily harm to 03 people or more who suffer from a total physical disability of over 122%.
The offender might also be subject to a monetary fine of VND 10 million to VND 50 million.

Evading payment of social insurance, health insurance, unemployment insurance for employees
A corporate legal entity who commits the following crimes is subject to monetary fine of VND 200 million to VND 500 million:
• The amount of insurance contribution evaded is VND 50 million to under VND 300 million;
• The offender fails to pay insurance for 10 – 49 employees.
A corporate legal entity who commits the following crimes is subject to monetary fine of VND 500 million to VND 1 billion:
• The offence has been committed more than once;
• The amount of insurance contribution evaded is VND 300 million to under VND 1 billion;
• The offender fails to pay insurance for 50 – 199 employees;
• The offender collects or deducts insurance contribution from the employees at the amount of VND 50 million to under VND 300 million or from 10 -49 employees but fails to pay insurance [to the authority].
A corporate legal entity who commits the following crimes is subject to monetary fine of VND 1 billion to VND 3 billion:
• The amount of insurance contribution evaded is VND 1 billion or more;
• The offender fails to pay insurance for 200 employees or more;
• The offender collects or deducts insurance contribution from the employees at the amount of VND 300 million to under VND 1 billion or from 50 – 199 employees but fails to pay insurance [to the authority].

Coercive labour
Any person that uses violence or threat of violence or other methods to force a person to work against his/her will, depending on each case, be subject to monetary fine of VND30 million – VND200 million, 06-month to 12-year imprisonment, or prohibited from holding certain positions or doing certain jobs within 01 – 05 years.

Action plan
What we recommend to you now:
• You should update your Internal Labour Rules
• You should inform your managing team about these new rules !
We are fully qualified to assist you with this work. Kindly let us know if you require our assistance.

—o0o—

Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above or should you request our assistance. Mr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

May 20, 2016May 20, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann Trans Pacific Partnership Agreement – Ratification and Key Impact for Vietnam

If the TPP is ratified and goes into effect, what do you see as the key areas of impact on Vietnam and its economic future?
Answer: Vietnam would be the largest beneficiary of this trade pact. Statistics show that by participating in the TPP, Vietnam’s GDP would add an additional increase of 13.6% to the baseline scenario. According to the World Bank and other institutions, Vietnam’s GDP in 2020 will increase by USD 23.5 billion and USD33.5 billion in 2035. Export value will also increase by USD 68 billion in 2025. Vietnam’s real income by 2025 is also forecast to increase by 10.5%, leaving Malaysia’s as the second highest income rising country out of the TPP members far behind at 5.6%.
TTP will help Vietnam balance relationships with key markets, approach larger markets including the U.S, Japan, Canada, boost import-export, reduce import deficit, and attract foreign investment. In addition, TTP will also help Vietnam’s economy allocate its resources more effectively, enabling active supports to the processes of restructuring, innovation and improving regulations, and improve administrative reforms.

What industries do you see within Vietnam would benefit the most, and where do you see major risks to established industries if the TPP is ratified?
Answer: The TPP will have significant positive impact on Vietnam’s exports in textile, footwear, agriculture, forestry and fisheries sectors. This is due to major reduction in import duties for goods from Vietnam, especially in Japan and the United States. Supply chain established after the effectiveness of the TPP will also bring Vietnam a lot of new opportunities. Recently, many big corporations have chosen Vietnam as a part of their production chain of high tech products. The TPP will help to develop this trend.
The livestock industry will suffer from fierce competition as a result of the TPP. In Vietnam, the livestock industry is still small, not modernized, mainly household scale with participation of small and medium enterprises. Products have certain difficulties in meeting high quality and sanitary standards.
Textile industry is also a sector which bears negative impact from the TPP. The yarn-forward rule of origin makes Vietnam’s textile products difficult to be entitled with preferential import duties, as the domestic weaving industry has not well developed. Vietnam still has to import cloth and fabrics from non-TPP countries (for example, China). The textile industry sees this as an opportunity to re-structure the whole industry and improve the supply chain.

In your view, if the US does not ratify the TPP, do you see the RCEP as a replacement for Vietnam? And if so, what do you see as the major impacts (positive or negative) on Vietnam, as a result of implementing the RCEP without having a TPP?
Answer: I take a positive view that the TPP will sooner or later be ratified. However, in the unlikely worst scenario that the TPP will not be materialized, Vietnam will lose a great opportunity to integrate its economy deeper in the Asia- Pacific Region. RCEP has a lower level of trade liberalization and smaller commercial scale. RCEP does also not take a single-package approach, or in other words, it is not a comprehensive trade agreement which covers new issues of the era such as labour and environment standards, competition, SOEs, government procurement, IP rights, etc.) as the TPP. Thus, RCEP’s positive impacts on transforming Vietnam’s economy will not be as large as the TPP’s. Without the TPP, Vietnam will face strong competition from China – which is not a party to the TPP and this is Vietnam’s advantage over China. RCEP will put Vietnam in a disadvantaged situation in its relationship with China as a result of more liberalized and preferential bilateral trade from RCEP. Vietnam will no longer benefit from RCEP due to the similarities in the export structure between Vietnam and China.

If the TPP is ratified and goes into effect, do you see any effect with Vietnam – China trade? Especially given that there is already a trade agreement in place as part of the ACFTA.
Answer: Vietnam’s participation in the TPP will not harm Vietnam – China trade. I note that Vietnam has great trade deficits with China. However, while China is the biggest trading partner of Vietnam in terms of two-way trade, the United States is still Vietnam’s largest market. By being part of the TPP, Vietnam can take advantage of this opportunity to access to other TPP members’ market, improve its competitive capacity, thus reducing its reliance on China. Vietnam – China trade relations will then be improved towards better balance, stability and for mutual benefits.
***
Please contact the author Oliver Massmann under omassmann@duanemorris.com if you have questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

May 12, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann Transportation Business Requirements to apply for the badges: Which way for wholly owned foreign enterprises?

Requirements to apply for the badges
On 10 September 2014, the Government issued Decree No. 86/2014/ND-CP setting out conditions on transportation business (Decree 86) that automotive vehicles with designed capacity of 10 tones and above and from 7-10 tons must bear badges (the Badges). On 7 November 2014, the Ministry of Transportation and Communications (MT) issued Circular No. 63/2014/TT-BGTVT guiding Decree 86 (Circular 63), which requires that only enterprises having the Certificate of doing transport business by automotive vehicles can apply for the Badges.
Conditions to carry out transport business and the dilemma when applying for the Badges
According to Vietnam’s WTO Schedule of Specific Commitments in Services, foreign contribution in a joint venture doing transportation services must not exceed 49% of the total charter capital of that joint venture. Accordingly, enterprises with more than 51% foreign ownership do not have transportation business in their investment certificates, resulting in the impossibility to obtain the Certificate of doing transport business by automotive vehicles. This further leads to the fact that these enterprises will neither be able to apply for the Badges.
Moreover, Decree 86 creates the concept of ‘transport business with indirect money collection’ which is defined as ‘the transport business by automotive vehicles, in which the transport business units perform the transport phase and perform at least another phase in the process from production to consumption of products or services and collect freight through revenues from such products or services’ (Article 3.3). Circular 63 further requires trucks used by companies that carry out the transport business with indirect money collection to affix the Badges thereon when in traffic.
It is noted that some enterprises, considering their business nature, have to invest in specialized means of transportation to transport their own products between their locations and to their customers in Vietnam (for example, industrial gas products). Examples would be road tankers, special trailers and tube trailer, etc. that must be imported because their special designs make them impossible to be produced in Vietnam. Given high technical safety standards of international level, it is nearly impossible for enterprises to rent these special vehicles in Vietnam while relying on the same standards. Meanwhile, enterprises must still maintain their operation and cannot stop delivering their goods to the customers according to the terms of the contracts. However, according to Decree 86, from 01 January 2016, automotive means of goods transport with designed capacity from 10 tones must bear the Badges. Meanwhile, only enterprises having the Certificate of doing transport business by automotive vehicles can apply for the Badges. It is also contrary to the Vietnam’s WTO Schedule of Specific Commitments in Services which does not allow 100% foreign-owned enterprises to provide transport services.
It does also not make any business and legal sense if a manufacturing foreign invested enterprise which is allowed to import means of transport for its operations to serve its production activities is forced to register for professional transportation business or outsource this internal job to a professional business transportation company. In fact, thousands of other foreign invested enterprises have been long granted with the right to import means of transportation without any requirement on transportation business until the adoption of Decree 86. They have long maintained their trained driving staff and management personnel in compliance with their own internal policies. Thus, it is not so simple to switch to a new contractor and hire outside staff.
Which way for wholly-owned foreign enterprises?
Considering the abovementioned difficulties of enterprises with more than 49% foreign ownership doing business in crude oil products with special characteristics, the Ministry of Transport (MOT) has proposed to the Government to consider the issuance of the Badges for vehicles of these enterprises without requiring the Certificate of doing transport business by automotive vehicles, and at the same time consider the amendment of Decree 86.
Consequently on 30 March 2016, the Prime Minister issued Resolution No. 23/NQ-CP which clearly states that in the short term, the Government allows the MOT to issue the Badges to commodity carrying trucks of foreign invested enterprises with 49% foreign ownership or more for the purpose of the main production and business of these companies. For the next step, the MOT is responsible for incorporating the same regulations in the amendments of Decree 86.
This move of the Government has basically solved the abovementioned difficulties for enterprises with more than 49% foreign ownership so that they can keep operating as normal. This also ensures lawful right of doing business of foreign invested enterprises having transport services of goods produced by themselves to their customers, is in conformity with foreign investment encouraging policies of the Government and improves business environment in Vietnam.
Amendments of Decree 86 – What are in the current Draft?
The Government is now seeking public comments on the Draft Decree on doing business and conditions on doing transport business by automotive vehicles. This Draft Decree is essentially amending important points in Decree 86, among which is the requirement to apply the Badges for vehicles of enterprises doing transport business with indirect money collection.
In the current Draft Decree, internal goods transport is the activity of goods transport with indirect money collection and includes the following forms:
(1) Use of transport vehicles to transport dangerous goods according to the Government’s list of dangerous goods, transport of dangerous goods and authority to license such transport;
(2) Use of transport vehicles to transport cargos and overweight goods when in traffic on roads;
(3) Having 5 vehicles and more;
(4) Use of vehicles with permitted transported goods of 10 tons and above to transport goods.
Enterprises doing transport business with indirect money collection must satisfy conditions on means of transport, drivers, parking location and management of the driving staff as well as their vehicles.
Although the above is not yet effective, we can see that the Draft Decree has given much more clarity to the business of internal transport and conditions applied thereto. The Draft Decree is expected to be finally adopted in the upcoming months.
***
Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

THANK YOU !

May 9, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann THE WORLD BANK REPORT ON RETAIL TARIFF INCREASE SOLUTIONS TO RECOVER ELECTRICITY OF VIETNAM

For the past few years, Vietnam has made the transition from a predominantly agricultural to a mixed economy with substantial development of commercial and industrial activities. Rapid growth in population and improvements in living standards together with the Government’s effort to improve access to electricity throughout the country have led to growing increase in the demand for electricity. This now poses a major challenge for Vietnam to maintain sustained growth of the power sector and to achieve energy security. Meanwhile, Vietnam’s electricity demand continues growing at double-digit number. Electricity infrastructure capacity is limited, operation of certain power projects has been delayed, and private investors are reluctant to invest in the sector due to their concern of low rates of return on equity and low feed-in-tariff. These factors, among others, have left the Electricity of Vietnam (EVN) with no option but to increase debts to cover its operation needs. This article studies and proposes some solutions to improve EVN’s operation in the coming years.

Current situation of the Vietnam’s power market
As of December 31, 2015, the total generation capacity in Vietnam’s interconnected power system was 141.34 billion kWh, an increase of 11.6% compared to 2014. During the period of 2011-2015, electricity generation output increases by 11%/ year on average. Meanwhile, according to World Bank’s report in 2014, Vietnam is one of the most energy intensive economies in the world, and more energy intensive than other countries in the Southeast Asia at the same level of development.[1] Electricity demand has grown at a rapid pace averaging 15% per year from 2008 to 2010 before dropping to 9% in 2011 due to the macroeconomic situation.[2] Electricity demand is expected to be twice as much as GDP growth between 2014 and 2020. The Power Development Plan VII (PDP VII) projects a strong increase in power demand to 2030.[3]

Amended PDP VII sets the target of electricity output in 2020 to be 235 -245 billion kWh, 352 – 379 billion kWh in 2025 and 506 – 559 billion kWh in 2030. In this amended PDP VII, in 2020, the targeted total capacity of power plants is 60,000 MW, in which electricity output from renewable energy sources will account for 9.9%. These numbers in 2025 will be 96,500 MW and 12.5% respectively. In 2030, a target of 129,500 MW being the total capacity of power plants and 21% of electricity output generated from renewable energy sources is also set.

Total investment in the power sector was US$2.6 billion in 2012 and slightly increased in 2013. This is relatively small compared to the investment requirements of about US$7.5 billion per year. Meanwhile, the Vietnam Government as well as state-owned enterprises in the sector is unlikely to invest more due to prohibition from investing in non-core businesses by state-owned enterprises. In addition, the total investment cost from 2014-2020 corresponding to the capacity requirements totals US$53 billion. Thus, most of the expected total investment during 2014- 2020, which is of about US$25 billion should come from private sector. EVN will then still need a substantial investment program, which is hard to be financed until 2020.

The role of EVN in the power market and its financial problems

EVN and its subsidiaries play a vital role in the power sector. Key activities of the subsidiaries are generation, transmission and distribution. EVN acts as the only off-taker from the generators. It incurred significant financial losses in both 2010 and 2011.

EVN’s operation results in 2012 were much better, from a loss of 12% of income in 2011 to a profit of 14% of income. The profitable results maintained in 2013, although the result in 2013 was not as good as in 2012 and investment was still far below the level of needs. EVN has also had a high and rising level of borrowing in foreign currency. EVN is in a total debt of VND86 trillion in 2007, increasing to VND284 trillion in 2013. Total debt is expected to increase from US$14.6 billion in 2014 to US$28.2 billion in 2020.

The reasons behind EVN’s unstable, inefficient and risky operation are largely beyond EVN’s control. In particular, we have to name hydrology, substantial devaluation in the Vietnamese dong against EVN’s major borrowing currencies, lack of strong Government’s commitments in adopting tariffs to cover full cost of power provision as main challenges to the power sector in general and EVN in particular.
In contrast, EVN’s subsidiaries in generation, transmission and distribution have a quite strong operational performance and are well managed. However, low tariffs and low level of equity have put them under considerable financial constraints.

These financial and investment challenges could be solved by appropriate actions from EVN, the Ministry of Industry and Trade – the parent ministry and the private sector. In the worst scenario that EVN could not fulfil its financial obligations, the Ministry of Finance – the guarantor of EVN’s loans must bear the payment responsibility for the loans, resulting in possible decrease in investment and increased levels of supply interruption accordingly.

EVN is not under immediate threat of insolvency. However, if the current delay in payment to its fuel suppliers due to a prolonged delay in increasing tariffs and a series of years with low rainfall continue, EVN could be placed under a much more serious financial pressure. Where its liabilities exceed its assets, insolvency is unavoidable.

EVN’s challenges and solutions

Challenges Solutions
Achieving sufficient level of private investment in the power sector to meet investment needs (1) Improving regulations on guarantees on the remittance of funds, licensing procedures, project appraisal mechanisms, negotiation process with EVN and reducing the numbers of required permits as much as possible;
(2) Maintaining dialogue with private sector;
(3) Improving the MOIT’s capacity to manage IPP projects; and
(4) Divesting GENCOs.
Addressing the current low retail tariffs to enable EVN to improve the electricity system, which in turn improves the reliability of power supply (1) Setting PPAs in line with international standards;
(2) Allowing market prices for new generation investment;
(3) Amending current regulations to attract more private investment; and
(4) Carrying out electricity tariff adjustments to the extent necessary. The tariff adjustment path should be phased over the next 3-4 years (about 40% in total) so that EVN could achieve full cost recovery and financial stability by 2018.
Improving operational efficiency at EVN (1) Appointing a senior EVN leader to coordinate among ministries and agencies to move the financial recovery plan forward;
(2) Better technical management by (i) maintaining a reasonable number of working staff to improve labor productivity; (ii) making use of older coal plants during poor rainfall season and efficiently managing capital program; (iii) enhancing service quality;
(3) Fully unbundling EVN into independent companies;
(4) Disposing non-core assets and focusing only on core business;
(5) Rehabilitating assets; and
(6) Improving governance.
Enhancing EVN’s capacity to manage financing risks (1) Increasing revenues arising from the implementation of cost-based tariffs;
(2) Negotiating with lenders to extend the loan terms;
(3) Establishing a stabilization fund to manage the risks that EVN faces; and
(4) Reducing foreign exchange risks.
We note that these above recommendations are not mutually exclusive. In other words, implementation of any single recommendation could facilitate the implementation and effectiveness of the others. Moreover, these recommendations are not exhausted considering the on-going changes in Government policies and power market situation.
—o0o—
Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

THANK YOU !

April 29, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann at Meeting with new Prime Minister Nguyen Xuan Phuc Sustainable Foreign Direct Investment is what Vietnam needs most:

We highly appreciate the Government’s efforts to integrate into the world’s economy, in particular it is worth mentioning the recent conclusion of important trade pacts such as the EU- Vietnam Free Trade Agreement, the Trans-Pacific Partnership, the Vietnam –Korea Free Trade Agreement. Foreign business community is expecting from the Vietnamese Government to stay course on its path of international integration and implementation of its international commitments. Foreign investment is an effective channel to develop the country, thus the Government needs to adopt preferential treatment for foreign investors in terms of policies, land and human resources.

But foreign investment cannot come at the price of unlimited environmental pollution and GDP should not be the only indicator of a fast-growing country. The current serious environment pollution in China as a result of its hot development in the recent years is a big lesson that Vietnam must learn from. The magic term for Vietnam’s future is “Sustainable Foreign Direct Investment”. Vietnamese Government should focus on encouraging sustainable development. One form is renewable energy. However, there has been done too little to move foreign direct investment forward in the renewable energy sector. Lack of sufficient supporting regime, low feed in tariff, project bankability are among hindrances to development in the sector.
But in my view the major hindrance for development in the Renewable Energy sector is the will of the Authorities in charge to really implement commitments of international agreements like the Paris agreement and make things happen in Vietnam. I conclude: Nothing will move without the real will to do it. We need the will and real action to create a sustainable framework for Renewable Energies and sustainable Foreign Direct Investment.

I am confident that the new Government will walk its talk to this regard.

Please contact Oliver Massmann under omassmann@duanemorris.com if you have questions on the above. Oliver Massmann is General Director of Duane Morris Vietnam LLC.

Thank you!

Best
Omassmann

April 21, 2016 by Dr. Oliver Massmann

The TPP: A Win for Vietnam’s Workers

“The Trans-Pacific Partnership (TPP) is the first trade agreement to subject Vietnam to enforceable labor commitments.”
By Oliver Massmann for The Diplomat
April 20, 2016

In the last decade, free trade agreements (FTAs) have expanded to cover more than traditional commercial matters like tariff reductions. Recent FTAs have increasingly included labor requirements to protect workers, especially in countries where companies pursue low-cost production through depressed wages, poor working conditions, and other subpar labor standards. This has dramatic effects on countries like Vietnam, where I have practiced law for 20 years. But even though FTAs regulating labor matters have increased dramatically in recent years, from four agreements in 1995 to 72 by 2015, Vietnam has refused to commit to labor requirements in FTAs — until now.
The Trans-Pacific Partnership (TPP) is the first trade agreement to subject Vietnam to enforceable labor commitments like freedom of association, collective bargaining, and minimum work conditions. Additionally, Vietnam signed a labor implementation plan with the United States that identifies specific actions needed to comply with TPP and which are subject to an additional layer of enforcement. It is clear TPP lives up to its name as a “21st century agreement,” enacting the strongest labor provisions of any trade deal, giving the opportunity to improve living standards and the quality of work for Vietnam’s people. These advances range across a number of different areas:
Freedom of Association
The most far-reaching change to Vietnam’s labor landscape is on freedom of association. Currently, Vietnam only recognizes a limited right to organize. Vietnam’s Trade Union Law states that a trade union is a “socio-political organization of the working class and laborers… part of the political system of the Vietnamese society, placed under the leadership of the Communist Party of Vietnam.” As such, Vietnam does not have a pluralistic union regime. In other words, workers are not allowed to establish more than one trade union focused on protecting their interests regarding their employment. Instead, the only option is to join the one trade union available, Vietnam’s General Confederation of Labor (VGCL), under the direction of the Communist Party.
The VGCL has poorly represented and protected the rights and legitimate interests of its members and workers. In my time here, we have barely seen the presence of VGCL in demonstrations and strikes for social insurance or payment of backwages to hundred of workers when enterprises close down. This inaction is due to the lack of independence and representation in trade union leadership. Essentially, members of VGCL from the district level all the way to the top are government officials instead of workers. This will change with the TPP.
Article 19.3 requires all TPP parties to adopt and maintain regulations that comply with the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work, including freedom of association. This broad requirement is detailed in the U.S.-Vietnam Plan for the Enhancement of Trade and Labor Relations, which lays out the statutes and language for Vietnam to come into compliance with the TPP. Key reforms include provisions that ensure all workers be permitted to “form a grassroots labor union of their own choosing … without prior authorization” and with the right to “autonomously elect its representatives.” This means that workers can finally organize unions independent from the VGCL that are run by workers. This is significant because it empowers employees to protect their own interest — particularly when it comes to collective bargaining.
Collective Bargaining
Collective bargaining is the negotiation between the representatives of the labor collective and the employer to establish working conditions formalized in a collective labor agreement (CLA). As a result, a CLA between employees and employer will define working conditions, labor usage, and obligations of each party in their employment relationship. The CLA serves as the basic document detailing legal requirements in each enterprise and grants workers the chance to negotiate with their employer for labor terms better than statutorily required. As such, a CLA is critical in an employment relationship.
Given their importance, many enterprises in Vietnam have prepared and implemented CLAs. However, many enterprises often use CLAs to temporarily deal with pressure from authorities and include terms contrary to or less favorable than statutorily required. The reason for such low-quality CLAs range from a lack of awareness of procedure to government influence on self-selected union leaders. Given the wide range of issues preventing high-quality CLAs in Vietnam, the TPP makes a number of important reforms.
Article 19.3 requires all TPP parties to adopt and maintain regulations for the “effective recognition of the right to collective bargaining.” Moreover, the TPP supports better negotiating outcomes by ensuring unions can consult “international worker organizations” regarding labor union activities like collective bargaining and securing autonomy of grassroots labor unions from upper-level unions. Combined with the protection for independent association, the TPP gets to the heart of the system plaguing collective bargaining from adequately serving worker’s interests in Vietnam–setting the regulatory framework for improved labor conditions.
Enforcement
Vietnam is held accountable to these labor commitments through TPP’s enforcement mechanism. Like all TPP partners, Vietnam is subject to dispute settlement with the weight of trade sanctions if it systematically fails to uphold its commitments under the Labor Chapter. More significantly, the details in the implementation plan must be completed before any benefits of the trade agreement can flow to Vietnam. Therefore, there are two layers of enforcement specifically for labor obligations: one to facilitate rapid regulatory reform, and another to maintain compliance.
With this comprehensive approach, I am optimistic the TPP will bring positive changes to the labor environment in Vietnam over the next five years. When labor unions finally speak with the voices of workers, there will be improvement in living standards and individual rights. This is exactly what the TPP promises. As such, both the United States and Vietnam must urgently take action to pass the TPP and seize the opportunity for a better civil society in Vietnam.
***
Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

April 13, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann Trans Pacific Partnership Impact on labor environment – Asia Pacific Economic Review Interview:

1. How do you evaluate the impact of TPP on labor environment of Vietnam?

Answer: Being touted as the 21st century trade agreement, the Trans-Pacific Partnership (TPP) also includes the strongest provisions on labour in history. In total 14 FTAs to which Vietnam is a party, the TPP is also its first FTA including labour provisions. If TPP is implemented fully, it will help improve on-the-ground labour conditions in its member countries by adopting binding and fully enforceable obligations to, among other, freely form unions and bargain collectively. The TPP is also the chance for member countries, especially Vietnam, to improve living standards and work quality for its own employees.

2. If TPP is fully implemented, does it help improve the labor conditions in its member in general and in Vietnam in particular?

Answer: Please see my answer also to Question 1 above.

3. According to you, how will TPP transform Vietnam Labour’s practices?

Answer: In the TPP, Vietnam has made a critical commitment, i.e., establishment of organization representing employees at grass-root level being independent of the Vietnam General Confederation of Labour. Differently speaking, TPP has laid a foundation for pluralism in trade union area. If independent TUs are established in Vietnam, employees’ living standards and rights will be much more improved as their TU will be one which can speak their voice.

Notably, in the side agreement mentioned above with the United States, a separate enforcement mechanism independent of the TPP if the United States is dissatisfied with Vietnam’s implementation.

Therefore, Vietnam must amend the current TU regulations towards international labour standards, despite the fear that rights of employees may be made political, resulting in instability of the country. The schedule for Vietnam to amend its legal system to materialize its commitments is already indicated in the side agreement with the United States as follows:

Principle 1: Right of workers to freely form and joint a labour union of their choice

Principle 2: Ability of labour unions to administer their affairs with autonomy

Principle 3: Worker representation in non-unionized workplaces

Principle 4: Representability in Selection of union officials

Principle 5: Non-interference of employers in organizational activity of labour unions.

4. Do you have any advice for Vietnam regarding to law on trade union to make the best use of TPP (export to its members, especially the US)?

Answer:

In addition to my answer in Question 3 above, the Law on Trade Union must be amended:

(i) to allow workers to freely form and joint a labour union of their choice.

(ii) to protect workers from discrimination, especially in the use of trade union’s fee.

(iii) to ensure the right to go on strike of workers (remove cases where workers are not allowed to go on strike or go on strike outside their working place, etc.)

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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

THANK YOU

April 12, 2016April 12, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann Transportation and Logistics businesses Requirements to apply for the badges: Which way for wholly owned foreign enterprises?

On 10 September 2014, the Government issued Decree No. 86/2014/ND-CP setting out conditions on transportation business (Decree 86) that automotive vehicles with designed capacity of 10 tones and above and from 7-10 tones must bear badges (the Badges). On 7 November 2014, the Ministry of Transportation and Communications (MT) issued Circular No. 63/2014/TT-BGTVT guiding Decree 86 (Circular 63), which requires that only enterprises having the Certificate of doing transport business by automotive vehicles can apply for the Badges.
However, according to Vietnam’s WTO Schedule of Specific Commitments in Services, foreign contribution in a joint venture doing transportation services must not exceed 49% of the total charter capital of that joint venture. Accordingly, enterprises with more than 51% foreign ownership do not have transportation business in their investment certificates, resulting in the impossibility to obtain the Certificate of doing transport business by automotive vehicles. This further leads to the fact that these enterprises will neither be able to apply for the Badges.
Moreover, Decree 86 creates the concept of ‘transport business with indirect money collection’ which is defined as ‘the transport business by automotive vehicles, in which the transport business units perform the transport phase and perform at least another phase in the process from production to consumption of products or services and collect freight through revenues from such products or services’ (Article 3.3). Circular 63 further requires trucks used by companies that carry out the transport business with indirect money collection to affix the Badges thereon when in traffic.
It is noted that some enterprises, considering their business nature, have to invest in specialized means of transportation to transport their own products between their locations and to their customers in Vietnam (for example, industrial gas products). Examples would be road tankers, special trailers and tube trailer, etc. that must be imported because their special designs make them impossible to be produced in Vietnam. Given high technical safety standards of international level, it is nearly impossible/very difficult for enterprises to rent these special vehicles in Vietnam while relying on the same standards.
It does also not make any business and legal sense if a manufacturing foreign invested enterprise which is allowed to import means of transport for its operations to serve its production activities is forced to register for professional transportation business or outsource this internal job to a professional business transportation company. In fact, thousands of other foreign invested enterprises have been long granted with the right to import means of transportation without any requirement on transportation business until the adoption of Decree 86.
Considering the abovementioned difficulties of enterprises with more than 49% foreign ownership doing business in crude oil products with special characteristics, the Ministry of Transport has proposed to the Government to consider the issuance of the Badges for vehicles of these enterprises without requiring the Certificate of doing transport business by automotive vehicles, and at the same time consider the amendment of Decree 86.
Consequently on 30 March 2016, the Prime Minister issued Resolution No. 23/NQ-CP which clearly states that in the short term, the Government allows the Ministry of Transport to issue the Badges to commodity carrying trucks of foreign invested enterprises with 49% foreign ownership or more for the purpose of the main production and business of these companies. For the next step, the Ministry of Transportation is responsible for incorporating the same regulations in the amendments of Decree 86. This has basically solved difficulties resulting from Decree 86 for enterprises with 49% foreign ownership or more.
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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

March 24, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann Solar Power Latest Updates on Draft Laws:

We have contacted the Department of Renewable Energy under the MOIT who is in charge of drafting this Decision. The Decision is still in a draft version (although it has been submitted to the Prime Minister for signature), thus can’t be published yet.

The final Decision will be issued this year but the exact timing is still uncertain.

Through our consultation with an official of the Department about the content of the Decision, for on-grid solar projects, the FIT rate will be 11.2 UScents/ kWh.

For on-grid rooftop solar projects, the rate will be 18 UScents/ kWh.

The rate in VND will be indicated in the final Decision based on the USD/VND exchange rate at that time and the MOIT will issue an Official Letter every year to adjust the rate in VND according to the fluctuation in the exchange rate.

Rooftop solar projects of less than 50kW will not have to connect to the grid. For those of more than 50kW, connection to the grid is required and an electricity operating permit must be obtained.

Please do not hesitate to contacts Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam.

Thank you !