Vietnam – General – Page 40 – Duane Morris Vietnam

October 6, 2016 by Dr. Oliver Massmann

Vietnam – Building better Investor Protection Framework – What you must know:

Vietnam stock exchange already gained significant milestones in developments, but why it still does not attract big domestic companies to list so far?

Tightened monetary policies leading to limited capital inflow to the securities market, its low liquidity and significant decrease in stock price partly contribute to the low attractiveness of Vietnam’s stock exchange. In addition, although Decree No. 60 loosens foreign ownership in public companies, detailed foreign ownership applicable for conditional business sectors has not been issued. This makes Decree No. 60, which is said to be rather promising to the market, invalid in whole or in part.

Another reason is Vietnam’s stock exchange lacks good stocks. In other words, the number of listed state owned enterprises seems to outweigh private entities. It is the fact state owned enterprises still do not attract foreign / private investment due to their history of bad performance. Meanwhile, successful private entities have not been listed. It seems like a vicious circle, when not many companies want to be listed due to low attractiveness of the securities market and unlikely increase in price of stocks after being listed.

Finally, investors and owners are held back to list at the Stock Exchange in Vietnam as Vietnam has not adopted international Corporate Governance Standard and effective means of implementation and enforcement of those. But latest in mid-2017 Vietnam is obliged to adopt these rules.

Vietnam is currently working with the IFC/World Bank on establishing Corporate Governance standards for investors interests. Thus we believe the situation will improve within the next year once Vietnam has fulfilled this task.

What benefits for companies if they list on Singapore or Hong Kong? But how high is the cost they would endure to comply with stricter regulations?

Singapore and Hong Kong are large capital markets where companies in Vietnam could find it much easier to call for capital. Investors in these countries already have certain knowledge about investment in Vietnam and the companies themselves, so if successfully listed, these companies will become more attractive to the investors there.

However, the cost to comply with very strict listing requirements is relatively high, especially when the Vietnam’s companies have never implemented similar requirements in Vietnam. The barriers are, among others, international standard audited financial statements, detailed foreign ownership, proven record of corporate management and complex tax rules. Considering that the cost could be as high as up to USD 1 million, it is recommended that only big companies with high financial capacity list their stocks on Singapore or Hong Kong stock exchange.

But at the moment, we don’t see any Vietnam firms listed successfully abroad. May be the procedure is a huge obstacle for them to move abroad? What do Vietnam companies need to do for completing listing on Singapore stock exchange?

Procedure and strict requirements as mentioned in Point 2 are huge obstacles for companies who want to list abroad. The first and foremost condition is Vietnam companies must understand very well structure of Singapore stock exchange. Next, be prepared for complying with requirements on financial capacity, assets, corporate management, number of shareholders, etc. It is highly advisable that Vietnam companies seek advice of international lawyer with good local legal knowledge so that Vietnam companies could implement their plans successfully.

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. THANK YOU !

September 28, 2016 by Dr. Oliver Massmann

Vietnam – Investment opportunities for German firms in high-tech manufacturing fields

Vietnam is on the up and up and will be a magnet for FDI

Vietnam’s economy in 2015 bounced back and exceeded expectations with the GDP growth rate reaching an estimated 6.7%- the highest rate in five years. The number also surpassed the Government’s target GDP growth rate of 6.2%. The average GDP per capita also rose by US$57 from last year, reaching about US$2,109 per person. Inflation this year, on the other hand, stayed far below the red line of 5% as issued by the National Assembly. It merely reached 0.6%, marking it as the lowest inflation rate in a decade.

Together with macroeconomic stability and controlled inflation, the Government of Vietnam is fiercely improving the business and investment environment and making great attempts to achieve key economic indicators of top regional countries, including reforms in administrative procedures; enhancement of governmental offices’ transparency and accountability; substantial reduction of tariff barriers and offering of tax incentives. By end of 2015, the total time for tax compliance by tax payers is reduced by 420 hours, meeting the target set by Resolution No. 19 and bringing Vietnam closer to ASEAN 6’s average tax compliance of 122 hours.

In addition, Vietnam has concluded the Trans-Pacific Partnership (“TPP”) and the EU- Vietnam Free Trade Agreement (“EVFTA”). Meanwhile, the ASEAN Economic Community (“AEC”), which Vietnam became a full member in 1995, has been established since the end of 2015. Vietnam is among the only 4 countries that are both members of the TPP and the AEC, meaning Vietnam will benefit from these amazing markets, bringing it to be a future production hub in the region.

Human resource is another advantage of Vietnam. It has the fastest growing middleclass in Asia according to Boston Consulting Group. Many under-30s have been selected by Forbes in 2016 as those having great influence in their working area. This group of young but talented people provides huge potential for investment, innovation and development.

Considering the above, confidence in Vietnam’s economy has reached high, and predictions for the near future remain positive. The Vietnamese economy is considered to be in a festive mode.

German investors – Come now or it will be too late!

Germany has 1307 out of 2700 of the world’s hidden champions, which are ranked number 1, 2 or 3 in the global market, or number 1 on its continent. They are backbone of the economy and especially strong in the manufacturing sector, like electrical engineering and industrial products. They also enjoy strong positions in foreign markets. These companies should pay particular attention to Vietnam’s market.

The global automotive supplier industry, and especially the after-market industry is one of the options. The reasons are obvious: important trade pacts and the thriving domestic automobile market, which is expected to rise from 300,000 to 1.5 million sold cars by 2025, fortify Vietnam’s investment attractiveness. Young and ambitious generation enjoys the modern lifestyle, and according to a recent report by Euromonitor, young consumers increasingly seek products that express their individuality, including their individual mobility by owning a car. Demand for automobiles is at no other time set to surge like this moment.

These facts are very well-known to the Vietnamese Government. In July, a special Council of the National Assembly for supporting industry demonstrated the importance of its development by inviting around 150 decision-makers of Vietnam’s respective sector to discuss the problems of the past and give their opinion to improve in the future. Frank Schoeninger, founder of SOPEC LLC was invited as the only foreigner to share his expertise and opinion at the event.

Conclusion

The upcoming free trade agreements (EVFTA, TPP, etc.) give Vietnam unique advantages in South East Asia, but also impose high pressure on the economy. In other words, this is a once-in-a-lifetime chance for Vietnam’s political and economic leaders to fix the issues of the supporting industry. Consequently, the Vietnamese Government is highly welcoming foreign investors, who leverage new technology. Foreign SMEs and multinationals that enter Vietnam therefore experience a “red carpet” treatment and receive attractive incentive programs. For example, within a special industrial cluster, investors will receive inducement on Corporate Income Tax (CIT average of 4.3% on a 5-10 year project) and benefits on Personal Income Tax for employees. Together with further development strategies in other important areas such as logistics by building new deep sea harbors or facilitating the cross border road traffic, Vietnam is going to be the new production hub in Asia for the machinery and especially automotive tier two manufacturing industry where several German and European automotive companies already experienced their own success story.

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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.

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

Successful business in Vietnam – What you must know and do :

What are the benefits for foreign enterprises when they buy goods in Vietnam?

Vietnam offers young workforce and the wages that are roughly half those in China. Therefore, it is reasonable for Vietnamese goods to be far cheaper than other nations in the world. Moreover, not only are the prices low, the quality of Vietnamese goods is considerably high. With several Free Trade Agreements signed, including the Trans-Pacific Partnership, Vietnam has been improving its goods’ quality in order to increase its competitiveness in the global market. As a result, Vietnamese goods should be attractive to foreign enterprises.

What is special about Vietnamese companies and what makes them outstanding in comparison to other Asian companies?

In addition to young workforce and low wages as mentioned in the above answer, Vietnam also offers the long coastline from the North to the South of the country, which no other country in Asia has. This does not only provide the nation with excessive resources but also opportunities to promote the tourism industry. Moreover, unlike many developed countries in Asia such as China or Singapore, Vietnam is still at its developing stage. This also contributes to the attractiveness of the market here.

What is special about the Vietnamese market and its structure?

Although Vietnam is an effervescent market, the production of some types of goods still does not meet the demand. If the investors study this market well and focus on investing into these sectors, it is likely that they will succeed.

How can foreign companies get in contact with Vietnamese companies? Do you think it is necessary to use the support of a consultant company for example?

Foreign companies should search for contacts of Vietnamese ones online or via some reliable webpages such as https://dangkykinhdoanh.gov.vn/. Through this website, information regarding the founders, chief executive officers, their business lines and other information regarding companies in Vietnam could be found.

What do Vietnamese companies expect from their foreign cooperation partner?

Vietnamese companies, like the majority, seek for profit. As long as the cooperation follows the contract and results in profit, the Vietnamese companies’ expectations should be fulfilled. In order to do this, foreign investors should be able to fully understand the Vietnamese market as well its culture, strictly follow the law and provide great business plans.

If the right partner is found, the cooperation should be maintained in form of a contract or is a handshake enough?

It depends on the level of cooperation you wish to have. If you want to enter into a serious cooperation, for example, to do a business in Vietnam via an entity, although oral contracts are just as valid as written ones, a cooperation contract should be in writing, or that a contract be evidenced in writing (although the contract itself may be oral). Therefore, it is recommended that all cooperation should be signed under a legally binding contract.

Of what value is a contract in Vietnam in general and what options are available to enforce the content legally?

According to Article 401 of the Civil Code, a contract legally entered into shall take effect from the time when it is entered into, unless otherwise agreed or otherwise provided by law. From the effective date of the contract, contracting parties must mutually exercise rights and perform obligations as agreed. A contract may be amended or terminated as agreed by the parties or prescribed by law.

To enforce your contract in Vietnam, you should start by contacting the other party to see if she intends to perform and fulfill her part of the agreement. If the other party has not substantially performed on the contract after being provided notice, you may institute legal action for breach of contract. Before taking legal action, check the terms of your contract to see if arbitration, mediation or court proceeding is required. Even if not required, you may opt to enter settlement negotiations with the other party or see if the problem can be settled through mediation or arbitration.

Which place of jurisdiction should be included in the contract, should it be Vietnam or another country?

If one signing party is a foreign entity or partly owned by another foreign entity, the parties could opt to use foreign law as the governing law of the contract. In addition, regardless of whether one party is a foreign entity or not, the parties could decide to settle any dispute arising out of the contract by a foreign settling body. Having said that, implementation of the contract must still comply with Vietnam laws.

The legal situation in Vietnam is somewhat obscure for a foreign investor. What do you recommend foreign investors in this matter, so that they can focus on their business content?

It is a must that foreign investors ask all consultants in Vietnam whether they have a professional liability insurance according to international standards. Most of Vietnamese law firms have not. Their professional liability insurance is capped at low levels and subject to Vietnamese courts, that’s useless because Vietnamese courts aren’t reliable.

Before you sign any services agreement with any legal advisor / law firm/ consulting firm in Vietnam, please do the following: COPY PASTE THIS REQUEST IN YOUR EMAIL TO THEM AND WAIT FOR THE REPLY:

“Dear Ms/Mr ….,

Please send us the valid evidence that your company has an international standard and enforceable offshore professional legal liability insurance with dispute resolution offshore Vietnam and not subject to Vietnamese court or Vietnamese arbitration.

We would be happy to cooperate and retain your services if you can prove that your company is professionally insured to provide legal services to international clients according to international standards.

Thank you very much

Best regards”

Do you recommend an intercultural training to foreign entrepreneurs in advance?

Every market has its own distinctive features and the Vietnamese market is not an exception. Moreover, as the Vietnamese and foreign cultures are considerably distant, it can be expected that there may be several differences between the two markets. Therefore, familiarize oneself with the market before investing through intercultural training programs can always be a great solution to foreign entrepreneurs. In this way, not only will these people learn about the Vietnamese culture, but they will also learn about how to do business in this country.

A good friend of you wants to produce in Vietnam and export Vietnamese products into the foreign market. What are your recommendations? Whatshould he consider in order to succeed?

First of all, it should be noted that the Vietnamese market is open to foreign investors. Also, although the free trade agreement between Vietnam and EU has not been signed, the negotiation has already been finalized. Therefore, this could be another advantage to foreign SMEs. However, as mentioned, the Vietnamese law could be considerably ambiguous. Consequently, it is recommended that these SMEs strictly follow the law and consult legal agencies for appropriate advices. Also, cultural features can either be an advantage or a disadvantage. If a company knows how to utilize the cultural differences appropriately, that company is likely to succeed in the Vietnamese market. Otherwise, these differences can become obstacles to them. As a result, intercultural training programs should also be considered.

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

August 31, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann LEGAL ALERT ON EMPLOYMENT ISSUES

This Legal Alert is prepared based on recent official and unofficial discussions with the Ministry of Labor, Invalids and Social Affairs of Vietnam (MOLISA) and its in-charge persons in various meetings/seminars on labor laws of Vietnam.

We highlight below key employment-related issues discussed for your information and specific actions, where necessary.

Proposed Amendments of the Labor Code

The MOLISA is working on a draft that amends a number of articles of the Labor Code to reflect TPP and other international treaties and correct shortcomings of the current Labor Code. New issues including setting up independent trade unions, calculation of minimum salaries, working time. It is anticipated that the new Labor Code will be issued in late 2017.

Recommendations/Notes: We will keep you updated of proposed changes to the Labor Code.

Minimum Salaries

According to the MOLISA, there will be an increased range from VND180,000 to VND250,000 (equivalent to approximately US$8-12) of minimum salaries in 2017.

Recommendations/Notes: Please prepare for this inevitable situation, especially with respect to your business plan for the year of 2017.

Work Permits (WP) for Foreign Employees

Under the Labor Code, only experts; managers, executive directors and technical employees are permitted to work in Vietnam.

One of key considerations is that the concept of managers who are permitted to work in Vietnam are now limited to the narrowly defined ‘managerial positions’ under the Enterprise Law of Vietnam (EL). As such, only few people qualify for managerial positions (e.g. – members of the Members’ Council, general directors or other individuals have authority to enter into transactions on behalf of the relevant enterprises) pursuant to these enterprises’ charter (or the articles of association in other jurisdictions).

According to the MOLISA, a new circular guiding WPs will be issued soon.

Recommendations/Notes: In order to recruit a foreign manager who unfortunately disqualifies the managerial position criteria, the employers often expand managerial position definition in its charter or persuade the DOLISA, the issuing body of WPs, to accept them as ‘expert’ who in turn need only to satisfy general conditions (e.g. – acknowledged by the head quarter as expert; having obtained bachelor degree or equivalent; and having had at least 3 years of experience in relevant industry).

Overtime

In response to request for additional overtime hours, the MOLISA confirms that the amended Labor Code will deal with this issue. The specific overtime hours vary by industry and subject to agreements between employees and employers.

Social Insurance

As of 1 January 2018, all employees having labor contract term from 1 month or more including foreigners working in Vietnam must pay compulsory social insurances. However, according to the MOLISA, Vietnam is negotiating with some countries to relax the above rule given more financial burden to be shouldered by foreign invested enterprises. For example, Vietnam and Germany have basically reached in-principle agreements on possible exceptions to the above rule.

Recommendations/Notes: From a financial perspective, the payment of social insurance of expatriates may increase more burdens for enterprises. Please take into account this type of payment when calculating benefits payable to foreign employees and building up your business plan for the year of 2017.

Payments of Compensations under Training Contracts

As a matter of practice, a number of foreign invested enterprises send their local staff abroad for training. In exchange, the relevant employee agrees to enter into a training contract which requires him/her to work for the employer for a fixed period of time following his/her completion of the training courses.

In this regard, the Labor Code makes it pretty clear that any employees who terminate labor contracts illegally (either not having termination grounds or failing to send termination notice on time). Nevertheless, the law is silent on whether an employee who has terminated his/her labor contract in accordance with the laws will still be subject to reimbursement of training fees.

According to the MOLISA, employees are still required to reimburse training costs under training contracts regardless of whether they terminate labor contracts legally or not.

Recommendations/Notes: It is of utmost importance that the employer must have a well-drafted and detailed training contract at the outset. Actual [and reasonable] costs that the employer may incur for the benefits of the employee during the training period should also be clearly stated in the training contract. If not, the employee will stick to the fixed amount as agreed in the training contract to limit its reimbursement only.

Employment of Local Staff by Offshore Entity

As a matter of practice, many offshore entities including parent companies of FIEs in Vietnam seek to employ local staff to work on either a seasonal or long-term basis. The Labor Code is silent on whether a labor contract governed by Vietnamese law can be entered into between parties. In such absence, a provision of Circular 30 guiding the Labor Code on labor contracts dated 25 October 2013 makes a list of persons who can act on behalf of the employers. Unfortunately, there is no reference to a person who can act on behalf of the offshore entities. According to a senior expert of the MOLISA, such absence would mean a No for a direct labor contract between offshore employers and local employees.

Recommendations/Notes: A number of offshore entities seek to circumvent the above restrictions by entering into:

(i). an individual service/consultancy contract with the local employees;

(ii). a professional service contract with a local partner under which the local employees will work for the offshore entity; or

(iii). a labor outsourcing contract with a labor outsourcing company.

Each of the above options presents its pros and cons and care should be taken in adopting specific plan. For example, direct involvement of local employee may result in a permanent establishment status under tax laws.

Change of Types of Labor Contract

Vietnamese law prohibits employers to enter into more than two fixed term labor contracts with each not exceeding 36 months from the signing date. The third labor contracts in such case must be a non-fixed term.

A number of employers seek to avoid this restriction (i.e. – entering into non-fixed term labor contracts with employees) by first terminating fixed term labor contracts upon their expiry, giving a temporary suspension of works for employees and then signing a new fixed term labor contracts.

In this respect, the MOLISA and the Supreme Court of Vietnam opine that such an arrangement can be challenged because a real termination must result in completion of all related works including return of social insurance books, employees’ books and settlement of all benefits, etc.

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 VERY MUCH!

August 26, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann – Legal Alert TRADING AND DISTRIBUTION BY FOREIGN INVESTED ECONOMIC ORGANIZATIONS WHAT YOU MUST KNOW:

Status

Following the issuance of the Investment Law (2014), the Government of Vietnam is speeding up the drafting of a new decree (the Draft Decree) guiding trading and distribution of foreign invested economic organizations (FIEOs) in Vietnam. The Draft Decree, once issued, will replace Decree 23 on trading and distribution of foreign invested enterprises dated 12 December 2007 (Decree 23).

What is new in the Draft Decree?

Below are some new features introduced by the Draft Decree

[Effective] expansion of business lines to be subject to baby permits;

Demerger of baby permits from the investment registration certificate (IRC);

Delegation of the licensing authority with respect to issuance of the baby permits to provincial department of industry and trade (DOIT);

Setting out circumstances where FIEOs are exempt from baby permits;

Clarification of criteria for establishing retail outlets including economic needs test (ENT);

More detailed licensing process.

Detailed comments on the Draft Decree

General understanding of baby permit requirements

For a general understanding, for some specific business sectors, the Investment Law requires foreign investor and their local companies to satisfy 02 layers of conditions before officially entering the market. The first one is investment conditions (điều kiện đầu tư) and the second being business investment conditions (also know as business condition or baby permit), (điều kiện đầu tư kinh doanh). Their major differences are presented in the below table:

Criteria	Investment Conditions	Business Conditions
*Function*	Market access conditions applicable to foreign investment	Professional conditions in order to actually conduct business or investment activities
*Time of application*	Before investment in Vietnam	After investment in Vietnam
*Applicable Entities*	Foreign investors and FIEOs with 51% or more foreign ownership (if acting as an investor in another entity)	Basically, all FIEOs and local companies.
*Forms*	Investment registration certificates or ‘approval’ of the DPI in case of formation of new entities or acquiring existing local companies respectively	Sub-licenses such as licenses, certificates, etc. In case of trading and distribution by FIEOs, it is the approval for sale and purchase of goods of the DOIT.
*Relevant Authority*	DPI/industrial zone authorities at provincial levels.	State bodies of many levels. In case of trading and distribution, the DOIT

Expanded coverage of baby permit requirements

The Draft Decree makes a specific list of ‘purchase and sale of goods’ and ‘activities directly related to the purchase and sale of goods’ by FIEOs, namely:

Trading (import and export) rights;
Distribution;
Commercial promotion services
Commercial intermediary services
Goods leasing services
E-commerce services
Logistics services;
Commercial assessment services
Goods auction services
Goods and service bidding services
Commodity exchange
Other activities directly related to the purchase and sale of goods’.

For the purpose of this note, the above services/activities are collectively referred to as ‘Conditional Businesses’

Comparing with Decree 23, albeit referring to a variety of trading related activities (e.g. – advertisement, promotion, etc.), mainly subjects trading and distribution by FIEOs to baby permits. Hence, with activities being specified as above, it is more likely that licensing authorities would request all Conditional Businesses to be subject to baby permits. If this is the case, this fact can be seen as a ‘one step back’ in terms of relaxing licensing process for foreign investment. Specifically, licensing authorities will be given discretion in granting baby permits for Conditional Businesses which are in fact fully opened to foreign investment.

Demerger of baby permits from the investment registration certificate (IRC);

Previously, investors applying to setup a trading/distribution FIE need only to obtain an IRC which simultaneously serves as a baby permit. However, with the delegation of the IRC licensing authority from the provincial people’s committees to DPIs under the Investment Law, it is still unclear as to licensing process for issuance of baby permit.

The Draft Decree gives the answer. DPIs and the DOITs are responsible for the IRCs and baby permits respectively. DOITs are required to obtain approvals of the MOIT and, under some circumstances, relevant State bodies. This new licensing process, when implemented, will effectively create a 03-layer approval for FIEs which are (i) IRCs at DPI; (ii) baby permits at DOIT and actually approvals at MOIT. This is even more critical because in order for the DPI to issue IRCs including Conditional Businesses they, as a matter of practice, often seek the DOIT/MOIT’s greenlight. As such, 04 rounds for approvals would be required for some service sectors that Vietnam has been open to foreign investors for years under its respective international treaties.

Issuance of a decree on trading rights and distribution activities of foreign invested economic organizations (FIEOs) in Vietnam.

Delegation of the licensing authority with respect to the baby permits to provincial department of industry and trade (DOIT);

As said, the DOIT will be responsible for issuing baby permits. In doing so, it must first seek greenlights of the MOIT.

Baby Permit Exemption

There are roughly 04 possible scenarios where FIEOs are exempt from baby permits

a.FIEOs import/export/process or dispose products in accordance with its registered businesses or in combination with their registered services;

b.FIEOs already licensed to conduct trading and distribution rights;

c.FIEOs already licensed to provide logistics and commercial assessment services; and

d.FIEOs with foreign owner holding not more than 35% voting shares (in case of joint stock companies) or 35% charter capital or a lower voting ratio stipulated in charter (in case of limited liability companies).

With respect to FIEOs in item (b) and (c) above, it is not clear as to whether such exemption applies to FIEOs established before or after the effective date of the Draft Decree.

Retail Outlet Criteria

Retail outlets by FIEs are still subject to ENT criteria except for:

a.The first retail outlet;

b. A retail outlet other than the first one having area of less than 500m2 in commercial centers; or

c.Retail outlets other than the first one having total area of less than 500m2 in the same commercial centers.

The Draft Decree introduces more specific metrics to measure ENT criteria including geographic size of the relevant area, number of existing retail outlets, possible impacts of retail outlet to be applied on the stability of market, population density and possible contribution of the retail outlets to the socio-economic developments of the area.

Licensing Process

FIEOs send the application file to the licensing authority for issuance of baby permits per post, online or direct submission.

The licensing period varies by nationalities of the investors/FIEOs. For example, investors from jurisdictions which have entered into international treaties with Vietnam on market access, the period for the MOIT and other State bodies to give opinions will be 07 working days only. Other investors (e.g. – investors from BVI or other tax heavens) may suffer a 15-day licensing period. The direct licensing authority (e.g. – the DOIT) will issue baby permits within 05 days from the date of receipt of greenlights of the MOIT and other relevant State bodies, if any. In case of refusal, explanations must be given to the applying entities.

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

August 12, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann WTO Dispute Shrimp Case Agreement reached

On 18^th July 2016, the United States (US) and Vietnam reached an Agreement on the Imposition of Anti-dumping Duty on Certain Frozen Warm-water Shrimp from Vietnam to resolve two long standing WTO disputes brought by Vietnam: United States – Anti-dumping Measures on Certain Shrimp from Vietnam (DS404) and United States – Anti-dumping Measures on Certain Shrimp from Vietnam (DS429).

The history of these disputes could be traced back to 31^st December 2003, after the very first anti-dumping case against Vietnam carried out by the U.S. in June, 2002 when the Vietnamese fishing industry had to confront another anti-dumping petition against certain frozen and canned warm-water shrimp imported into the U.S. by the U.S Shrimp Trade Action Committee, an ad hoc representative of the U.S. Southern Shrimp Alliance.

In this case, Vietnam was not the only respondent but there were five other countries including Brazil, Ecuador, India, Thailand and China. The case was investigated by the US Department of Commerce (DOC) and the US International Trade Commission (ITC). According to the ITC, shrimp imports account for eighty-seven percent of the one billion pounds of shrimp consumed in the U.S. annually.[1] Of that, shrimp imports from the six countries in the petition make up seventy-five percent of the total shrimp imports into the U.S. market. According to the petitioner, the alleged dumped products from these countries caused the price of the U.S. shrimp harvest to decrease by fifty percent from 2000 to 2002, falling from $1.25 billion to $560 million;[2] thus the U.S. shrimpers could not compete, leading to nearly 70,000 job losses in the shrimp industry within the eight states.[3] The DOC then initiated its dumping investigation on 8 January, 2004.

The DOC again upheld its conclusion from the Catfish case that Vietnam is a non-market economy (“NME”) after examining six criteria prescribed in the Tariff Act of 1930 in determining whether a country operates on market economy principles. Upon determining that Vietnam is a NME, in order to determine the normal values and export values of Vietnamese fish, the DOC had to find “an economically comparable ME that is a significant producer of comparable merchandise”[4] that could substitute for Vietnam’s costs of production. In this case, Bangladesh was chosen as a surrogate country.

The US utilized zeroing method to determine dumping margin in the case at hand. As a matter of general understanding, zeroing referred to the practice of some WTO Members in calculating dumping margin by comparing weighted-average normal value to individual export prices. Under this methodology, the difference between normal value and export price was calculated per transaction. Positive margins, i.e., the export price is lower than the normal value, were taken as is. However, negative margins, i.e., the export price is higher than the normal value, were counted as zero. Zeroing drops transactions that have negative margins, thus resulting in higher overall dumping margins and as a matter of fact, higher applied anti-dumping duty.

In contrast with the E.U.’s prospective zeroing system, under the U.S. retrospective system, the anti-dumping duty imposed at the end of the original investigation following the calculation of the dumping margin only serves as a temporary estimation for future liability.[5] The actual payment of anti-dumping duties will be determined during the annual administrative or duty assessment reviews. As mentioned above, zeroing increases the level of dumping margin. When used in the retrospective system, the impact of zeroing is amplified as it adds an element of uncertainty. The importer of goods subject to anti-dumping order only has an estimate of its extra duty. He will be unwilling to import goods from the subject exporter because of the possibility of a higher duty when the U.S. authority conducts the administrative review.[6]

During the process, several companies were investigated. The mandatory defendants were Minh Phu Seafood Corporation, Kim Anh Limited Company, Minh Hai Joint Stock Seafoods Processing Company and Camau Frozen Seafood Processing Import – Export Corporation (Camimex). Some voluntary defendants that could be mentioned are Cai Doi Vam Seafood Import Export Company, Can Tho Agriculture and Animal, Products Import Export Company; Can Tho Animal Fisheries Product Processing Export Enterprise, Cuu Long Seaproducts Company, Danang Seaproducts Import Export Company. However, Kim Anh Limited Company, one of the compulsory defendants, refused to cooperate due to abundant amount of data that needs to be collected, resulting it being subject to the very high country-wide rate.

Eventually, after over a year of investigation, ITC announced that Vietnamese shrimp are sold at dumping prices and the import of this shrimp is detrimental to the shrimp industry of the US. As a result, Vietnamese shrimp were subjected to anti-dumping duties at varying rates depending on the results of the investigation. In the second and third administrative reviews, the DOC decided to impose an insignificant duty rate of 0-0.01 percent on mandatory respondents, but not on voluntary respondents. These voluntary respondents were subject to the initial rate of 4.57 percent. The country-wide rate was the same as in the initial determination, i.e., 25.76 percent.

These results have raised a lot of controversial responses. Beside Vietnamese companies whose rights and benefits were directly affected by this decision, some US parties have also shown disagreements towards this announcement. Mr. Adam Sitkoff, Executive Director of Amcham Vietnam in Hanoi, stated during his interview with VnExpress that the duties applied on Vietnamese shrimp were unreasonable as Vietnam, similar to other shrimp exporters, utilized the most advanced shrimp production methods, something that American shrimp providers did not have. As a result, the Vietnamese shrimp prices became lower, which is not a sign of dumping.

For fear that the DOC would continue using the same calculation methodology used in the second and third administrative reviews, resulting in unfair treatment for Vietnamese enterprises in the fourth administrative review, the Vietnam Association of Seafood Exporters and Producers (“VASEP”) and the Vietnam Chamber of Commerce and Industry (“VCCI”) recommended the Government to initiate the WTO dispute settlement mechanism by first holding consultation with the U.S. on this matter on 01 February 2010. The consultation failed and the Government of Vietnam requested the establishment of a panel on 07 April 2010. Vietnam challenged, inter alia, “(i) the application of zeroing to individually-investigated respondents in the second and third administrative reviews, and its continued application in the subsequent reviews; (ii) the U.S zeroing methodology ‘as such’; and (iii) the use of the zeroing methodology to calculate the “all others” rate in the second and third administrative reviews.”[7] On 11 July 2011, the Panel issued its report of the case.

The Panel ruled in favor of Vietnam that the DOC’s zeroing methodology in determining dumping margin for mandatory respondents in the second and third administrative reviews was inconsistent with Article 2.4 of the Anti-Dumping Agreement (“ADA”). Moreover, the Panel also ruled that the using of zeroing in any administrative review constituted a violation under Article 9.3 of the ADA and Article VI:2 of the GATT 1994.[8]

This ruling of the Panel is considered to be consistent with the decisions of other WTO panels and Appellate Body in previous cases regarding the U.S. zeroing methodology. Although the US never opposed to this decision, they did continue applying zeroing methodology for subsequent administrative reviews and the first sunset review.

The case would not have been a success without the active participation of several associations, including VASEP and the VCCI. From the very beginning, these associations did evaluate the case from Vietnam’s viewpoint and in accordance with international practice. Then, they recommended the government to start the proceedings based on convincing arguments, as well as propaganda to gain support from the public. VASEP and VCCI also contributed a lot to the success of the case by proposing experienced international trade lawyers.

Although the case is among more than 480 WTO disputes since 1995, US – Shrimp marks a significant and critical change in Vietnam’s use of WTO dispute settlement mechanism, leaving a lot of lessons learned by Vietnamese enterprises and associations.

On 20^th May 2016, upon Vietnam’s request, the DOC has implemented procedures to comply with the WTO Panel’s decision. Eventually, on July 18^th, 2016 Vietnam and the US finally signed an agreement, according to which a Vietnamese exporter of frozen warm-water shrimp – Minh Phu Group – will no longer be subject to the antidumping duty order. In addition, certain domestic litigation will be resolved and duty deposits will be refunded to the Minh Phu Group. The antidumping duty order will remain in place for all other exporters of warm-water shrimp from Vietnam.

This move shows negotiation efforts of Vietnam and the US’ goodwill to respect its WTO obligations. It also reflects the US’s goodwill to strengthen its multi-faceted cooperation with Vietnam, especially in the context that the two countries participate in the Trans-Pacific Partnership (TPP) agreement.

THANK YOU !

[1] U.S. Slaps Tariffs on Shrimp from China, ‘Vietnam: Commerce Department Acts after Complaints from American Harvesters’, Chicago Sun Times, 2004, p. 62.

[2] Burnett, Richard, ‘Struggling U.S. Shrimpers File Anti-dumping Petition: An Industry Group Says Six Countries Sold Shrimp at Artificially Low Prices’, 2004, http://articles.orlandosentinel.com/2004-01-01/news/0401010416_1_shrimp-petition-industry).

[3] Southern Shrimp Alliance, Press Release: Shrimpers Hail Finding of Dumped Shrimp from China and Vietnam, 30 November 2004, http://www.shrimpalliance.com/Press%20Releases/ 11-30-04%20DOC%20Final.pdf.

[4] Section 773(c)(4), Tariff Act of 1930.

[5] Chad P. Bown and Thomas J. Prusa, US Anti-dumping – Much Do about Zeroing, 2010, p.30.

[6] Ibid., p.33.

[7] http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds404_e.htm.

[8] Panel Report, US – Shrimp, para. 8.1.

August 11, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann Equitization Quality over Quantity

VIETNAM – Comment on a recent draft from the Ministry of Finance on strategic investors purchasing stakes from equitized state-owned enterprises (SOEs)

Author: Oliver Massmann – Chairman of the Legal Sector Committee – European Chamber of Commerce in Vietnam

On 4th August, the Ministry of Finance announced a Draft Decree on converting 100% state-owned enterprises (SOEs) into joint stock companies, which will replace Decree No. 59/2011/ND-CP, Decree No. 189/2013/ND-CP and Decree No. 116/2015/ND-CP.

Although the currently in force Decrees have brought positive results in the re-structuring of state-owned enterprises since the beginning of the process in 2011, the restructuring quality has proven to be inefficient considering the small percentage of private participation in the company’s charter and management after the privatization. In addition, many big corporations with long financial history will need much more time and have to follow specialized rules to complete the privatization procedure. Many strategic investors have thus found it less attractive to participate in the process.

In order to tackle the above issues and bring substance to the equitization process in the context of new Enterprise Law, Investment Law, etc., there is a need to introduce a new Draft Decree on converting 100% state-owned enterprises into joint stock companies.

In particular, the draft’s Article 6 stipulates that a strategic investor must have the same business sectors as equitized SOEs. In addition, the strategic investor must have at least two years of profits (as of the time for buying stake of SOEs). Moreover, its equity in the latest financial report (which has to be audited by an independent auditing firm) must be sufficient for purchasing the stakes that it registers to buy.

Under the current regulations in Decree 59/2011/ND-CP, the strategic investor is only required to have sound financial capacity, and have a written commitment endorsed by an authorised agency. The commitment must state that after SOEs are equitized, the strategic investor must support SOEs in terms of technology transfer, human resource training, corporate governance, material supply and development of output markets.

This new stricter regulations in the draft will affect foreign firms who wish to buy stakes from SOEs and become strategic partners. In particular, foreign firms must be aware that they are not allowed to freely invest in any SOEs that have business activities not relevant to what they are doing, despite their strong interest in those sectors. This is to prevent cases where inexperienced foreign investors get into the management of the SOEs without having track record ability to manage them, and for example, aim at targeting Vietnam as a trial market for their business expansion.

In addition, we believe that the Government is showing its strong effort to select eligible investors to improve the equitization quality, and to make sure that the investors have proven financial status to efficiently recover the operating at loss status of SOEs. With stricter requirements, the Government will be able to attract investors with serious investment targets and with ability to contribute to the long-term development of SOEs.

Considering these new proposed stricter requirements, it is highly recommended that foreign investors conduct sufficient due diligence on the targeted SOEs, prepare themselves ready in terms of financial capacity and proven management skills, obtaining knowledge about Vietnam’s stock exchange market as well as regulations on bidding to come to a smart investment decision. We expect that with more substantive equitization, foreign investors will have more voice in the SOEs, via which being able to adopt development plans that serve the equitized companies’ future business outcomes, not any individual’s benefits.

THANK YOU !

July 26, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann Impact of WTO Accession – An analysis

Question: How would you generally describe the impact of the Vietnamese WTO accession on the country?

Answer:

Generally speaking, the WTO accession has created more opportunities and advantages than disadvantages to the Vietnamese economy.

However, without appropriate macroeconomic policies and necessary reforms, these opportunities sometimes did become challenges to Vietnam.

Accordingly, appropriate policy measures following the accession, especially in training and education, migrations, regional and social protection policies were of great importance.

– Macroeconomic impacts:

+ When Vietnam joined the WTO, the world was facing the Great Recession. After the accession, impacts from the global market have become greater due to close connections with other markets, creating more risks to the Vietnamese economy. However, the increase in economic growth is also considerable due to great amount of investment.

+ The import of the heavy industry in Vietnam accelerated after the accession.

+ Vietnam switched from exporting primary commodities to exporting goods produced with high technologies.

+ Since the accession, Vietnam has diverted from agriculture-driven economy to focus more on developing industrial sectors. Areas requiring high technologies have become very attractive.

– Impacts on agriculture:

+ Although the share of agriculture in GDP in Vietnam is decreasing, this field remains crucial to the Vietnamese economy. Agriculture is facing several issues after the accession including quality and competitiveness.

– Impacts on the society:

+ The WTO accession has created several working opportunities for unemployed people.

+ It has also lessen the gap between the rich and the poor and eradicated several gender inequlities in Vientnam.

+ The number of juvenile laborers has largely decreased.

Question: How would you describe the impact of the accession on politics and the economy of Vietnam?

Answer:

a) Impact on the Economy:

+ Positive impacts on economic growth:

Trade liberalization was promoted following the accesion.
Market access was also improved for the country’s exports.
After Vietnam joined the WTO, foreign capital flows strongly poured into the economy and improved the economic growth of Vietnam.
Import clearly has a greater growth due to increase in investment as well as higher average income, allowing access to foreign goods.
Approximately 5.7 million jobs were created prior to the accession (2000-2006).
The annual growth rate of the economy of Vietnam gradually increased from 2001 until 2005 and remained stable, reaching over 8% until 2007.
Limiting poverty. For instance, in the Red River Delta area, the figure for poverty decreased from 62.7% in 1993 to 8.8% in 2006.

+ Negative impacts on economic growth: inequalities among the citizens

b) Impact on the Politics:

– Market opening and international economic integration has put Vietnam’s economy right at the door of opportunities and challenges.

– Vietnamese law has become more transparent and uniform.

– There has been a reduction in administrative procedure, creating flexibility in the market.

– WTO accession has laid a good foundation for Vietnam’s deeper integration into the world’s economy.

– The process of economic integration, particularly since Vietnam joined the WTO, however, revealed the immanent weaknesses of the Vietnamese economy.

– The current situation requires an effective import-export strategy to improve efficiency of resource allocation, improve competitiveness of the economy and macroeconomic stability.

– In this context, it is important to focus on macroeconomic stability, growth paradigm shift towards quality and efficiency as outlined in the Strategy of Social – Economic Development in the period from 2011 to 2020.

Question: In which domains was this impact particularly strong?

– One of the crucial terms of the WTO agreement is trade liberalization.

– After the WTO accession, Vietnam has made a commitment to open markets for services sector. Thus, Vietnam are obliged to open the market (allowing foreign investors to participate in the provision of services in Vietnam or to organizations and individuals in Vietnam) at least at the levels of the commitment. This is one of the main reasons leading to the rise in investment in this sector. Particularly high investment growth in the property business was derived from the transfer of capital from investors from risky markets to the emerging markets with higher returns.

– In the first few years of joining the WTO, the sector has the strongest investment growth in the economy was the property and business consulting services (an increase of 263.0% in 2007 and 15, 0% in 2008); market sectors open to foreign investment, such as finance and credit (up 87.4% in 2007 and 5.8% in 2008); transport, storage and communication (29.5% in 2007 and 5.8% in 2008).

– Growths of this sector are mainly due to the contribution of foreign investments and economic sectors outside the state.

Question: How important would you say is compliance to international trade law – represented through the WTO – in policy making in Vietnam?

Answer:

– WTO is a community which allows easier trading terms among countries with fewer barriers and this was reinforced by international trade law set forward by the WTO.

– Therefore, being in compliance with the international trade law is one of the crucial requirements in joining the WTO as it promotes the integration of the Vietnamese economy into the international economy and it also creates similar opportunities for Vietnam in order to further develop its economy.

Question: Would you say that organizations such as the American Chamber of Commerce or the European Chamber of Commerce in Vietnam gained more leverage in representing their interests through the legal WTO commitments?

Yes.

Part 2: Questions about a concrete policy case in Vietnam

Case description:

In February 2014, the Vietnamese Ministry of Finance set up and amendment draft to the Law on Special Consumption to impose a 10% tax on sugar-sweetened, non-alcoholic carbonated beverages. This caused resistance by different parties, such as the Ministry of Trade and in particular, the American Chamber of Commerce, representing foreign producers of soft drinks. One of the main arguments of the opponents to the tax was that Vietnam could violate its commitment to the principle of “national treatment” because 88% of the products that would be affected by the tax are foreign branded. In the monthly resolution of the government in July 2014 (Document Number: No 56//NQ-CP, point 8), the government declared to not include the proposed tax within the Law on Special consumption.

Letter of the American Chamber of Commerce to the Vietnamese Prime Minister:

http://36mfjx1a0yt01ki78v3bb46n15gp.wpengine.netdna-cdn.com/wp-content/uploads/2014/06/140602-Letter-to-PM-Nguyen-Tan-Dung-re-proposed-excise-tax-on-CSD-En.pdf

Questions:

Are you familiar with this case? Did you hear about it when it happened?

– Yes.

How would you generally describe this case? Is rather ordinary or more special?

The main reason that the Ministry of Finance proposed such amendment was its concern about the health impacts of sugar-sweetened, non-alcoholic carbonated beverages, such as causing diabetes, obesity, stomachache, gout or even cancer. Concern about health leading to the authority’s decision to impose higher special consumption tax rate is quite ordinary. Many other countries in the region such as Thailand or Cambodia also impose higher tax rate for certain types of beverages not good for public health. In Vietnam, goods such as beer, cigars or alcoholic beverages are also subject to very high special consumption tax rate.

Would you say that the claim of a violation of the principle of “national treatment” is justified?

I believe you are referring to Article III:2 of the GATT 1994. Generally speaking, this Article prohibits members from treating imported products less favourably than like domestic products once the imported product has entered the domestic market.
As you can see, the objective of this article is imported products vs. domestic products. The discrimination in this article is not a discrimination of nationality of investors. For your information, in the Vietnam’s market, most of sugar-sweetened, non-alcoholic carbonated beverages are produced or imported by foreign invested companies in Vietnam. All locally produced and imported goods are subject to this type of tax. However, I agree with the AmCham position paper that despite this equal application, the overall effect of the measure benefits local producers at the expense of foreign producers. Thus, a violation of the NT principle could be established.

Would you say that compliance to WTO law was one factor that caused the tax proposal to fail? If so, how important was that factor compared to others?

WTO has a dispute resolution regime for any members violating its commitments. If there is any dispute arising and the disputing parties have to go to the Dispute Settlement Body, it will not only harm trade relations but also political relations between the parties. Vietnam always wants to comply with the commitments it made for its own sake.

Would you say that the tax – if applied – could have justified a claim through the WTO dispute settlement mechanism?

Vietnam could use Article XX GATT 1994 to make its claim, but it will be hard for Vietnam to meet strict requirements under this exception, especially when there is no established scientific-based evidence available at that time.

***

Please do contact the author Oliver Massmann under omassmann@duanemorris.com if you have any questions. Oliver Massmann is the General Director of Duane Morris Vietnam.

THANK YOU !

July 22, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann Real Estate for Foreigners – Opportunities From New Policies

Since 1st July 2015 two new laws are in place, the Law on Real Estate Business and the Law on Residential Housing. Those laws allow foreigners to purchase, own and transfer real estate, houses and condos. On 10 September 2015, the Decree implementing the Law on Real Estate Business was adopted, shedding light on provisions of the related law. The law and its guidance have been in effect for one year and the market has witnessed positive improvement.

In general, there are two different possibilities to become owner of property in Vietnam. The first option is to make investment in construction projects of residential housing in Vietnam. The second option is to purchase the house or condo after its completion of construction.

The Law on Residential Housing provides that foreign individuals who are permitted to enter the country are allowed to own property in Vietnam. It grants even more rights to foreign individuals who are married to a Vietnamese citizen. In particular, once married to a Vietnamese, a foreigner is put in the same category with Vietnamese investors in the market and exercises the right to legally purchase and own property on a long-term basis.

Meanwhile, foreigners not married to a Vietnamese can only own houses for a duration of 50 years. After this period, the owner can require an extension of the ownership and the government will decide whether and for how long it will extend the ownership duration. Beside this 50-year limit, there are also other restrictions on the number of properties that can be owned by a foreigner according to the Law on Residential Housing.

As a result of these changes, Vietnam’s property market is heating up. According to the HCMC Real Estate Association, since the new laws were put into effect, more than 1,000 transactions were made by foreign clients to purchase properties in HCMC, while the were only 250 similar transactions made during the period of four years between 2009 and 2013 in the entire nation. Experts have predicted that 2016 would be another prosperous year for the Vietnamese real estate industry. The country is now considered to be one of the prime real estate investment locations in the world. With this development, there has never been a better time to invest in the property developments in Vietnam.

However, some problems still exist in the field. Until now, it has been announced that the Government will issue a detailed guidance on how foreign individuals become eligible to own property in Vietnam. This document is, however, not in place yet, despite the reputation of the new Housing Law and Law on Residential Housing.

Consequently, although the Vietnamese market is considerably attractive, foreigners are still hesitant to tap the opportunities from new laws as transparent guiding documents have not yet been released. In other words, the opportunities are clear but the Government has been quite delayed in materializing them for foreigners. It is reported that in the first half of the year, there are 25 new projects in real estate sector being licensed with total investment capital of more than USD600 million. In contrast with the busy M&A and new foreign investment in the sector, our own experience in dealing with our foreign client’s request to assist in the application for the red book shows that the licensing authority is still hesitant to grant such certificate. There are many reasons for this reaction, among those are lack of clear legal basis, verification of the nationality of foreigners as well as how to calculate the 50-year ownership.

Foreign investors being still cautious in searching for the market cycle, trying to conduct appropriate procedures as Vietnam is a new market for them, especially when information about the new law is limited, also explains limited transactions made by foreigners and foreign entities.

In conclusion, although the law has provided foreigners with opportunities to purchase house in Vietnam, there are still several obstacles that need to be tackled. The responsibilities lie both in the policy-makers, who are urged to create more transparent and detailed legal guidance, and the Vietnamese who are also required to create a convenient and efficient transaction system.

Please do contact the author Oliver Massmann under omassmann@duanemorris.com if you have any questions. Oliver Massmann is the General Director of Duane Morris Vietnam.

THANK YOU !

July 20, 2016 by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann Solutions for Management of State Owned Enterprises

Comments to Vietnam Investment Review on a recent MPI draft decree supporting the establishment of a state-level management Committee to steer SOEs

Vietnam’s Ministry of Planning and Investment has announced a draft decree highlighting the need to establish a committee exclusively in charge of managing state-owned enterprises (SOEs). Currently SOEs are managed by different localities, ministries, and sectors.

It is expected that this Committee will manage up to 30 economic and corporations. It will also separate the state’s role of state management from the role as a trader and a producer.

Do you think that the establishment of this Committee is good for Vietnam’s economic now? Why?

I believe the establishment of a Committee exclusively in charge of managing SOEs, separating SOEs from their managing Ministries is a positive move of the Government.

The Ministries will not be put in a position when they have to adopt policies to regulate all enterprises within their managing authority and at the same time having to care about their interests in their SOEs. With the establishment of the Committee, the Ministries will have no chance or no incentive to be biased towards SOEs. In other words, all enterprises will be treated equally, regardless of whether they are SOEs or private.

The proposal to establish the Committee is extremely important, especially when SOEs are proved to continue operating at loss, investment activities are inefficient, state ownership capital is poorly managed,all leading to loss of state assets. I note that SCIC was established with the expectation to perform the same duties of representing state ownership in SOEs. However, SCIC is only an agency under the Ministry of Finance, which makes it not of equal leverage with and independent of other ministries and unable to regulate big SOEs. Thus, it is necessary to have another independent Committee to take over SCIC’s responsibilities.

In many nations, is this model applied?

This model is very similar to that in Germany when there was reunification between East and West Germany. The current model in China is considered as closely similar to the proposed one in Vietnam. However, instead of only establishing a Committee at a central level, meaning the Committee will not take over SOEs under provincial management, Ministry of Public Security, Ministry of National Defence, public enterprises and state-owned commercial joint stock banks, such Committee in China is established at all levels, from central to provincial one.

It could be a good start to have the Committee at central level. I recommend that after a trial period to supervise the efficiency of the model, it should be implemented at all provincial level under central management as well.

Do you have any recommendations?

According to the Draft Decree, chairman and vice-chairmen of the Committee will be appointed by the Prime Minister. I am concerned that ministers or vice-ministers of other ministries may have to take the chairman or vice- chairmen position of the Committee concurrently with their minister role. This will not be efficient. Instead, the management of the Committee must include both Vietnamese and foreigners. I recommend at least one foreign expert who has worked as manager for private companies and has a success track record should be member of this Committee. I can recommend some people if the Government could approve the budget for this position. I myself am very willing to be a member of the Committee to assist. The foreign expert must not necessarily be the decision-making person, but at least (s)he is there to give advice to the Committee.

Members of the Committee must be independent. They should not comprise of representatives from selected ministries who have certain interest in some SOEs, or else neutrality cannot be ensured. The Committee must act as an investor responsible for all investment activities of state capital before the Government. Only by doing so can SOEs play the same game with same rules as in the private sector.

In addition, it is important to create an operation regime for this Committee towards transparency for public supervision. Transparency is a critical issue, especially for a Committee which holds huge state assets worth around VND5.4 quadrillion.
Please do contact the author Oliver Massmann under omassmann@duanemorris.com if you have any questions. Oliver Massmann is the General Director of Duane Morris Vietnam and the Chairman of the Legal Sector Committee of the European Chamber of Commerce in Vietnam (”Eurocham” Vietnam)