EUVNFTA – Duane Morris Vietnam

April 9, 2020 by Dr. Oliver Massmann

EU-VIETNAM FREE TRADE AGREEMENT AND INVESTMENT PROTECTION AGREEMENT – MOST LIBERALIZED MARKET ACCESS FOR SERVICE SECTORS AND UNMATCHED LEGAL CERTAINTY – LATEST UPDATE – WHAT YOU MUST KNOW:

I. OVERVIEW

On the 2nd of December 2015, after almost three years and 14 rounds of negotiation, President Donald Tusk, President Jean-Claude Juncker and Prime Minister of Vietnam Nguyen Tan Dung announced the conclusion of the negotiations on the EU-Vietnam Free Trade Agreement (EVFTA). The EVFTA is a new-generation free trade agreement between Vietnam and the EU. On the 26th of June 2018, the EVFTA was split into two separate agreements: the Free Trade Agreement (EVFTA) and the Investment Protection Agreement (EVIPA). In August 2018, the EU and Vietnam completed the legal review of the EVFTA and the EVFTA requires ratification by the European Council as well as the consent of the European Parliament, while the EVIPA required additional ratification by parliaments of each individual EU Member State.

On the 30th of June 2019, EU Commissioner for Trade Mrs. Cecilia Malmstrom, together with the Romanian Minister for Business Mr. Stefan-Radu Oprea, representing the EU, signed the EVFTA and EVIPA in Hanoi, together with H.E. Prime Minister Nguyen Xuan Phuc and Vietnamese Government leaders. The Prime Minister expressed his belief that the European Parliament, parliaments of EU Member States, and the Vietnamese National Assembly will soon ratify the EVFTA and EVIPA. Both Trade and Investment agreements were endorsed by the European Parliament on the 12th of February. The EVFTA was approved by the EU Council on 30th of March 2020, thus the implementation of the EVFTA is therefore imminent if the Vietnamese National Assembly gives its approval at its May session, meaning that an entry into force early this summer is possible for the EVFTA. It will take more time for the EVIPA to enter into force because this agreement is subject to the endorsement of the Member States’ parliaments.

Both agreements are expected to bring significant advantages for enterprises, employees, and consumers in both the EU and Vietnam. Vietnam’s GDP is set to increase by 10-15 percent while exports are predicted to rise by 30-40 percent over the next 10 years. Meanwhile, the real wages of skilled labourers could rise by up to 12 percent, with salaries of common workers increasing by 13 percent. Once the EVFTA has entered into force, and once Government policies and institutional reforms begin to take effect, Vietnam’s business activities will boom. However, challenges still remain. In this chapter, EuroCham’s Legal Sector Committee will raise the issues relevant to their particular industries and make specific recommendations in order to address these concerns.

II. MARKET ACCESS FOR GOODS AND SERVICES

1. General market access for goods and services

The EVFTA is the most comprehensive and ambitious trade and investment agreement that the EU has ever concluded with a developing country in Asia. It is the second agreement in the ASEAN region, after Singapore, and it will intensify bilateral relations between Vietnam and the EU. Vietnam will have access to a potential market of approximately 446 million people and a total GDP of US$13,918 billion.

Meanwhile, exporters and investors from the EU will have further opportunities to access to one of the largest and fastest-growing countries in the region. According to a report released in early 2017 covering 134 cities worldwide, Hanoi and Ho Chi Minh City are ranked among the top 10 most dynamic cities due to their low costs, rapid consumer market expansion, strong population growth and transition towards activities attracting significant amounts of FDI. According to the World Bank, Vietnam has one of the fastest-growing economies in the world — 7.1% GDP growth in 2018, and 6.7% at the mid-point of 2019. To put that in perspective: Vietnam’s GDP is growing at almost twice the rate of the USA.

In addition, Vietnam has the fastest-growing middle class in the region. It is predicted to almost double in size between 2014 and 2020 (from 12 million to 33 million people). Vietnam’s super-rich population is also growing faster than anywhere else, and there is no doubt that it will continue to rise over the next ten years.

2. Market access for goods

Nearly all customs duties – over 99 percent of the tariff lines – will be eliminated. The small remaining number will be partially liberalised through duty-free quotas. As Vietnam is a developing country, it will liberalise 65 percent of the value of EU exports to Vietnam, representing around half of the tariff lines, at entry into force. The remaining duties will be eliminated over the next ten years. This is an unprecedented, far-reaching tariff elimination for a country like Vietnam, proving its aspiration for deeper integration and trading relations with the EU.

Meanwhile, the EU agreed to eliminate duties for 84 percent of the tariff lines and 71 percent of its trade value for goods imported from Vietnam immediately at the entry into force of the EVFTA. Within 7 years from the effective date of the EVFTA, more than 99 percent of the tariff lines will have been eliminated for Vietnam. This is a wider reduction compared with the 95 percent of the tariff lines that the former TPP countries offered to Vietnamese imports. In the ASEAN region, Vietnam is the top country exporting goods to the EU. However, the market share of Vietnam’s products in the EU is still small. As a result of the EVFTA, the sectors set to benefit most are main export sectors that used to be subject to high tariffs from the EU including textiles, footwear, and agricultural products. The EU is also a good point for Vietnam to reach other further markets.

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

With better market access for goods from the EU, Vietnamese enterprises could source EU materials, technology, and equipment at a better quality and price. This, in turn, will improve their own product quality and ease Vietnam’s burden of over-reliance on its other main trading partners.

The EVFTA is considered as a template for the EU to further conclude FTAs with other countries in the ASEAN region with the aim of concluding a region-to-region FTA once there is a sufficient critical mass of FTAs with individual ASEAN countries. This process could take about 10-15 years. Thus, Vietnam should take advantage of this window of opportunity before FTAs with others in the region are concluded and take effect to become a regional hub.

3. Market access for EU service providers

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

When these services reach international standards, Vietnam has a chance to export high-quality services, resulting in not only an increase in export value but also export efficiency, thus helping to improve the trade balance.

III. GOVERNMENT PROCUREMENT

Vietnam has one of the highest ratios of public investment to GDP in the world (39 percent annually from 1995). However, until now, Vietnam has not agreed to its Government procurement being covered by the Government Procurement Agreement (GPA) of the WTO. Now, for the first time, Vietnam has undertaken to do so in the EVFTA.

The EVFTA commitments on Government procurement mainly deal with the requirement to treat EU bidders, or domestic bidders with EU investment capital, equally with Vietnamese bidders when the Government purchases goods or requests a service worth over the specified threshold. Vietnam undertakes to follow the general principles of National Treatment and Non-discrimination. It will publish information on intended procurement and post-award information in Bao Dau Thau – Public Procurement Newspaper – and information on the procurement system at muasamcong.mpi.gov.vn and the official gazette in a timely manner. It will also allow sufficient time for suppliers to prepare and submit requests for participation and responsive tenders and maintain the confidentiality of tenders. The EVFTA also requires its Parties to assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation and create an effective regime for complaints and settling disputes. These rules require Parties to ensure that their bidding procedures match the commitments and protect their own interests, thus helping Vietnam to solve its problem of bids being won by cheap but low-quality service providers.

Government procurement of goods or services, or any combination thereof, that satisfy the following criteria falls within the scope of the EVFTA Government Procurement rules:

Criteria – EVFTA

IV. INVESTMENT DISPUTE SETTLEMENT

Investment disputes now could be settled under the EVIPA. In disputes regarding investment (for example, expropriation without compensation or discrimination of investment), an investor is allowed to bring the dispute to the Investment Tribunal for settlement. To ensure the fairness and independence of the dispute settlement, a permanent Tribunal will be comprised of 9 members: 3 nationals each appointed from the EU and Vietnam, together with 3 nationals appointed from third countries. Cases will be heard by a 3-member Tribunal selected by the Chairman of the Tribunal in a random way. This is also to ensure consistent rulings in similar cases, thus making the dispute settlement more predictable. The EVIPA also allows a sole Tribunal member where the claimant is a small or medium-sized enterprise or the compensation of damaged claims is relatively low. This is a flexible approach considering that Vietnam is still a developing country.

In case either of the disputing parties disagrees with the decision of the Tribunal, it can appeal to the Appeal Tribunal. While this is different from the common arbitration proceeding, it is quite similar to the 2-level dispute settlement mechanism in the WTO (Panel and Appellate Body). We believe that this mechanism could save time and cost for the whole proceedings.

The final settlement is binding and enforceable from the local courts regarding its validity, except for a five-year period following the entry into force of the EVIPA (please refer to further comments in the Legal Sector Committee’s chapter on Judicial Recourse).

V. CONCLUSION

The EVFTA and EVIPA, once ratified by Vietnam, will create sustainable growth, mutual benefits in several sectors and be an effective tool to balance trade relations between the EU and Vietnam. Vietnam is making continuous efforts and progress to meet the high standards set out in the two FTAs and is currently offering greater opportunities for foreign businesses in preparation for the FTAs’ finalisation. It is now time for foreign investors to start their business plans and grasp the upcoming clear opportunities.

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Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
Thank you!

August 12, 2019 by Dr. Oliver Massmann

VIETNAM – INFRASTRUCTURE CRITERIA FOR SUSTAINABLE INFRASTRUCTURE DEVELOPMENT AND RAPID GROWTH – HOW THE CPTPP AND THE EUVN FREE TRADE AGREEMENT AND INVESTMENT PROTECTION AGREEMENT CAN CONTRIBUTE

According to the World Bank, Vietnam has one of the fastest growing economies in the world—7.1% GDP growth in 2018, and 6.7% at the mid-point of 2019.[1] To put that in perspective, Vietnam’s GDP is growing at almost twice the rate of the USA. As a developing market, that growth cannot be maintained without sustainable infrastructure. To meet that demand, Vietnam needs to increase its energy capacity alone by 6,000-7,000 MW annually and spend close to US $148 billion on it by 2030.[2] Overall, it is projected that Vietnam will require US $605 billion in infrastructure spending by 2040.[3] The Vietnamese government has expressed that foreign-direct investment (FDI) is the key to meeting this demand as it lacks the fiscal capacity to meet financing requirements for large infrastructure projects on its own. Demand for transportation assets will be high due to a rapidly growing middle class, increasing urbanization, and increased international trade. Rail, road, and seaports will be critical to that sustainment. The recent trade agreements of CPTPP (Comprehensive and Progressive Trans Pacific Partnership) and EVFTA/IPA (European-Union Vietnam Free Trade Agreement / Investment Protection Agreement) are two new vehicles that will help Vietnam achieve a sustainable infrastructure.

CPTPP and EVFTA/IPA Direct, and Indirect, Effects on Infrastructure

CPTPP officially came into force on 30 December 2018 between Vietnam (January 2019) and Australia, Canada, Japan, Mexico, Singapore, and New Zealand when those seven countries ratified the agreement. The most significant impact CPTPP (and EVFTA) has on Vietnam is the elimination of most tariffs on goods, national treatment of goods and services, and relaxed requirements of cross-border trade of services.[4] Before CPTPP came into force, Japan entered into a Public-Private-Partnership (PPP) agreement with Vietnam to help build a light-rail and subway system in Ho Chi Minh City at an estimated US $740 million in 2007 dollars.[5] That project has had its fiscal problems since beginning in 2012; most notably the delay from opening in 2017 to now possibly 2020 (still not determined).[6] The regulatory environment when originally entered into was not the most efficient as the legal system mired-down the contractor in procedural issues and payments to them fell dramatically behind. If that PPP agreement had been negotiated under the CPTPP, costs would have been significantly less as tariffs on materials would have been eliminated or reduced, cross-border engineering services would have national treatment, and the [PPP] and investment protection chapters[7] would have streamlined the project to make it more fiscally manageable. It is likely Ho Chi Minh City would have its first light-rail commuter line operational today if that project had been governed under CPTPP.

Indirectly, Vietnam’s seaport infrastructure is benefitting from both CPTPP and the recently in-force EVFTA/IPA. While not a party to either of those agreements, South Korea [Korea] does have its own free trade agreement with Vietnam. Knowing that the enormous markets of both Oceania (not including USA) and Europe are now—in essence—dramatically opened for Vietnam, Korea is looking to invest heavily into the port system of Haiphong—Lach Huyen in northern Vietnam.[8] By having Lach Huyen as a deep sea port, it will enable direct exports from northern Vietnam to [Canada] and European markets without transit through ports in Singapore and Hong Kong[9]–significantly reducing costs associated with that. Japan initially entered into a PPP with Vietnam for the port in 2013, but since CPTPP coming into force, the project is receiving significant investment from other countries, with Korea eyeing-it extensively to support their economic triangle of Hanoi – Haiphong – Quang Ninh.[10]

How, Specifically, CPTPP and EVFTA/IPA Can Enable Further Infrastructure Development

Since Vietnam’s entry into the WTO in 2007, they have been struggling with practically adapting to the regulatory compliance issues that entailed. More and more, however, Vietnam has been operating in that new global paradigm and they are reaping the benefits. With their emergence as one of the most dominating economic forces in ASEAN comes critical infrastructure needs to support it. The one condition that must be met is the life-cycle sustainability of the project. That includes from the negotiation through development and operation until replacement. Major projects of this nature take time, skill, and experience; however, the regulatory environment supports and underpins the entire system. We have touched on how the recent agreements have had a broad effect (or could have had an effect) on foreign-direct investment into infrastructure, but how can specific provisions of the agreements immediately help attract FDI?

1. Investment Protection

The biggest hindrance to FDI in the past has been the level of investment protection and risk allocation. According to the CPTPP, investments are not only the traditional financial ones, but also an enterprise, intellectual property rights, and licences, authorisations, and permits, as well as other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens and pledges.[11] This is a remarkable concession by Vietnam considering their land-use laws relating to real property. Under Article 9.4, foreign-investors are now treated on the same footing as domestic investors. In addition, CPTPP calls for application of international law standards which can provide a hesitant investor a degree of certainty that their investment is protected.

The EVFTA/IPA is very similar in construction to the CPTPP. Both sides have pledged national treatment and most favoured nation treatment to investors of the other side, as well as fair and satisfactory treatment, safe and full protection. Both sides will allow the free movement of capital and profit abroad, pledging not to expropriate or nationalize investors’ assets without appropriate compensation.[12] Furthermore, they pledge to compensate the losses of the other side’s investors in the same way as domestic investors.

This is a dramatic shift for Vietnam and practical implementation of the recent agreements will take time and a learning-curve. However, once this major hurdle has been overcome and CPTPP and EVFTA/IPA become the new-norm, investors will be significantly more apt to engage in large, long term projects in Vietnam.

2. Tariff Elimination and Cross-Border Trade of Services

Right behind investment protection as a major incentive for investors is the dramatic elimination of tariffs and lessened restrictions on cross-border trade of services by and for Vietnam. The CPTPP’s broad tariff cuts on roughly 90% of items upon entry into force, and nearly all others within 10 years, will have an immediate impact on the relative competition. US exporters will now be disadvantaged in Vietnam to competitors in Canada, Japan, Australia, and other CPTPP member countries. The lessening of restrictions for cross-border services also has an immediate impact with regards to infrastructure as now engineering and construction services no longer have to have to comply with the formerly cumbersome registration process[13], they can freely open branch offices, and they can enter into joint ventures with domestic entities (subject to certain ownership limits in specified industries).[14]

The EVFTA/IPA mirrors the CPTPP in most respects, but now the entire economic engine of the EU has very limited barriers to entry into Vietnam. At entry into force, Vietnam commits to removing 48.5% of import tariffs on goods from the EU[15], or 64.5% of the EU’s export turnover, and that figure will be increased to 91.8% seven years later.[16] Outside of the tariff reductions and general lessening of restrictions on cross-border trade of services, probably one of the more significant aspects of EVFTA is the almost complete elimination of “local content” requirements for services.[17] For EU member countries, now they no longer will have to show that a certain percentage of their business is owned, operated by, or utilizes Vietnamese nationals. This may appear a cursory issue, but it is one that has traditionally been an administrative roadblock to many EU investors in the past.

The EVFTA goes one-step further than CPTPP with regards to infrastructure in that it has specific chapters that address both “trade and sustainable development” and “…investment in renewable energy generation”.[18] In those chapters, the parties “affirm their commitment to pursue sustainable development, which consists of economic development, social development and environmental protection”,[19] as well as to promote, develop and increase the generation of energy from renewable and sustainable sources, particularly through facilitating trade and investment.[20] This is a landmark agreement for Vietnam in that it is the first time they have—from an infrastructure perspective—committed to doing everything possible to eliminate barriers, both technical and non-technical, for sustainable development. Another hurdle has been overcome to attracting the EU’s expertise and hardware in roads, rail, and renewable energy.

All of this provides a regulatory landscape for infrastructure investment to flourish at a greatly reduced cost and administrative burden to both the investor, and to Vietnam. The framework is in place, now Vietnam needs to tailor their laws and regulations to match and support both the CPTPP and EVFTA/IPA.

3. Dispute Resolution, PPP

An often overlooked but critical aspect from the investor’s perspective has been the dispute resolution process before these trade agreements were in-force. Generally speaking, before CPTPP and EVFTA/IPA, most foreign investors only had the Vietnamese courts to address any dispute. This was a detriment to FDI as well as a significant additional expense.

Under the CPTPP, dispute settlement calls for both parties to resolve the matter between themselves first. If that fails, then the parties can choose alternative dispute resolution processes that are at a neutral venue with an impartial third panellist as chair[21]; however, if the parties cannot decide on a neutral forum, the complaining Party may select the forum.[22] Chapter 15 of the EVFTA provides the structure for dispute settlement and also calls for the parties to mutually reconcile before seeking any alternative dispute resolution mechanism. The procedures for an arbitration panel are essentially the same as the CPTPP except that under EVFTA, “If the Parties do not agree on the venue of the hearing, it shall be held in Brussels if the complaining Party is Viet Nam and in Ha Noi if the complaining Party is the Union”.[23] Chapter 3 of the EVIPA (dispute settlement) is a mirror of the EVFTA.
Why is this worth mentioning as one of the keys to successful infrastructure development? Most infrastructure projects are large-scale, cost-intensive, and long-term. Large, developed economies from the CPTPP and EU member nations have significant resources and experience that can benefit Vietnam in that respect; however, they want to protect their investment. The dispute settlement provisions of these new trade agreements are the vehicle that foreign investors have been waiting for—that added guarantee of prudent safety and protection for their millions upon millions of USD investment.

Most infrastructure investment has been through PPP agreements. PPP is the cornerstone for infrastructure development and has been utilized in the past in Vietnam with varying degrees of success. Those agreements were often legally cumbersome and were put together largely on faith that both the government and investor would live up to their end of the agreement. Unless otherwise specified in the contract (and sometimes even if it was) if a dispute arose the investor would have no recourse other than the Vietnamese courts. With the advent of CPTPP and EVFTA/IPA, now the regulatory environment has shifted towards favorable conditions for PPP to become a bedrock of Vietnam’s development if they incorporate those dispute settlement provisions into their PPP laws. Vietnam has recently put forth a new draft law on PPP with input from the private sector, and it is on the legislative docket for 2020. We will have to wait and see what the final product becomes, but with international arbitration now the standard, investors are more likely to consider long-term projects.

Summary

Vietnam is on the cusp of something very special, on the verge of becoming a solidly middle-class nation and regional economic powerhouse for the next generation. They will need quality infrastructure to support that—in the neighborhood of US $605 billion by 2040. Vietnam has set itself up for success, broadly, by entering into two of the most aggressive trade agreements in recent times, the CPTPP and EVFTA/IPA. Many former hiccups to robust infrastructure development have been removed or addressed by those agreements, and Vietnam now needs to capitalize on that by tailoring their current regulations and laws to match. Regardless of the type of infrastructure (road, rail, seaport, energy, etc.), the criteria for investment remain the same—investment protection, risk allocation, elimination of technical and non-technical barriers to trade/investment, and a neutral dispute resolution process. The CPTPP and EVFTA/IPA address all those criteria, now Vietnam needs to embrace and internalize those agreements systemically to solidify the foundation propelling their explosive growth.

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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.
Thank you!
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[1] https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=VN
[2] https://www.vietnam-briefing.com/news/vietnams-push-for-renewable-energy.html/
[3] https://outlook.gihub.org/countries/Vietnam
[4] CPTPP Chapters 2, 10; Annexes I, II. EVFTA Chapters 2, 8.
[5] Japan is a member country of CPTPP. CPTPP is not retro-active to 2012.
[6] https://e.vnexpress.net/news/news/japanese-contractor-may-stop-work-on-saigon-metro-line-3843148.html
[7] CPTPP Chapter 9 (investment); Chapters 21 and 23 (capacity building and development)
[8] http://www.hanoitimes.vn/investment/2019/03/81e0d434/south-korea-eyes-deep-sea-port-project-in-haiphong/
[9] Id. Footnote 8
[10] Id.
[11] CPTPP Chapter 9, Article 9.1
[12] EVIPA Chapter 1, Article 1.2; Chapter 2
[13] CPTPP Chapter 10; allows for recognition of professional certifications from any qualified body to administer such certifications. No longer will engineers, for example, be required to be certified by a Vietnamese body
[14] CPTPP Annex I; specified industries of national significance (which includes most infrastructure-related businesses) are restricted to between 49-51 percent foreign ownership
[15] EVFTA Annex 2, Appendix 2-A-2
[16] http://vietnamlawmagazine.vn/vietnam-eu-sign-free-trade-investment-protection-agreements-16756.html
[17] EVFTA Chapter 7; calls for the limitation of any local-content requirements, with exceptions for certain areas of national security or significance
[18] EVFTA Chapters 13 and 7
[19] EVFTA Chapter 13, Article 13.3.1
[20] EVFTA Chapter 7, Article 7.1
[21] CPTPP Chapter 28
[22] CPTPP Chapter 28, Article 28.4
[23] EVFTA Chapter 15, Article 15.3.8

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June 28, 2019 by Dr. Oliver Massmann

Breaking news: The EU – Vietnam FTA to be signed next Sunday (30th June)

In a notice made by the EU Council on 25 June, EU Commissioner for Trade Mrs. Cecilia Malmstrom, together with Romanian Minister in charge of business, commerce and business Mr. Stefan-Radu Oprea will represent the EU to sign the EU – Vietnam FTA (EVFTA) in Hanoi on 30th June.

On 26 June 2018, the EVFTA was split into two separate agreement, one on trade and one on investment. In August 2018, EU and Vietnam completed the legal review of the EVFTA and the EU – Vietnam Investment Protection Agreement (EVIPA). The EVFTA needs to be ratified by the European Commission and European Parliament while the EVIPA must be additionally ratified by the Parliament of each EU member countries.

The EVFTA and the EVIPA are said to bring the best advantages and benefits ever for enterprises, employees and consumers in both EU and Vietnam. Vietnam’s GDP is expected to increase by 10-15% and exports are predicted to rise by 30-40% in the next 10 years. Meanwhile, the real wages of skilled labourers could rise up to 12%, while the real salaries of common workers could increase 13%.

The EVFTA is the first comprehensive and ambitious trade and investment agreements that the EU has ever concluded with a developing country in Asia. It is the second agreement in the ASEAN region after Singapore and it will intensify the bilateral relations between Vietnam and the EU. Vietnam will have access to a potential market of more than 500 million people and a total GDP of USD15,000 billion (accounting for 22% of global GDP).

Market access for goods

The EU agreed to eliminate duties for 84% of the tariff lines for goods imported from Vietnam immediately at the entry into force of the FTA. Within 7 years from the effective date of the FTA, more than 99% of the tariff lines will have been eliminated for Vietnam.

Vietnam will benefit more from the EVFTA compared with other FTAs since Vietnam and the EU are considered to be two supporting and complementary markets: Vietnam exports goods that the EU cannot or does not produce itself (i.e., fishery products, tropical fruits, etc.) while the products imported from the EU are also those Vietnam cannot produce domestically.

Government procurement

Vietnam has one of the highest ratios of public investment-to-GDP in the world (39% annually from 1995). However, until now, Vietnam has not agreed to its government procurement being covered by the Government Procurement Agreement (GPA) of the WTO. Now, for the first time, Vietnam has undertaken to do so in the EVFTA.
The FTA commitments on Government Procurement mainly deal with the requirement to treat EU bidders, or domestic bidders with EU investment capital, equally with Vietnamese bidders when a Government purchases goods or requests a service worth over the specified threshold. Vietnam undertakes to publish information on tender in a timely manner, allow sufficient time for bidders to prepare for and submit bids and maintain the confidentiality of tenders. The FTA also requires its Parties to assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation and create an effective regime for complaints and settling disputes, and so on. These rules require Parties to ensure that their bidding procedures match the commitments and protect their own interests, thus helping Vietnam to solve its problem of bids being won by cheap but low-quality service providers.

Enforcement of ISDS

This is now covered in the EVIPA. In disputes regarding investment (for example, expropriation without compensation or discrimination of investment), an investor is allowed to bring the dispute to the Investment Tribunal for settlement (Investor-to-State dispute settlement mechanism – ISDS). This means the investors do not need to lobby its Government to file the case on their behalf. To ensure fairness and independence of the arbitration court, a permanent international investment tribunal with 9 members, 3 nationals appointed from each of the EU and Vietnam together with 3 nationals appointed from third countries. Cases will be heard by a 3-member Tribunal selected by the Chairman of the Tribunal in a random and unpredictable way. This is also to ensure consistent rulings in similar cases, thus making the dispute settlement more predictable. The EVIPA also allows a sole Tribunal member where the claimant is a small or medium-sized enterprise or the compensation of damaged claims is relatively low. This is a flexible approach considering that Vietnam is still a developing country.

In case either disputing parties disagree with the decision of the Tribunal, it has another chance to appeal it to the Appeal Tribunal. While this is different from the common arbitration proceeding, it is quite similar to the 2-level dispute settlement mechanism in the WTO (Panel and Appellate Body). We believe that this mechanism could save time and cost for the whole proceedings.

The final settlement is binding and enforceable without question from the local courts regarding its validity, except for a five-year period following the entry into force of the FTA for Vietnam.

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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any other lawyer listed in our office list if you have any questions on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

THANK YOU VERY MUCH!

January 7, 2019 by Dr. Oliver Massmann

VIETNAM AGRICULTURE FARMING 4.0 – Issues and Solutions – Impact of the Major Trade Agreements CPTPP, EUVNFTA and Investment Protection Agreement

A. Introduction

The biggest challenge in the agriculture and farming sector is to actually take the step to invest in new digital technologies. From a short perspective, this is associated with high costs for farmers. In the long term, however, it can increase yields and protect the environment significantly. So far, there have been three key phases in the development of agriculture and farming, namely mechanization, the introduction of mineral fertilizers and industrialization. The fourth phase is the currently evolving digitization. The positive effects of intelligent and digital agriculture can be significant.

When technological agriculture started (with utilization of satellite navigation and remote sensing to farm each square meter as efficiently and sustainably as possible), it seemed to be very unlikely for the ordinary farmer to gain benefits from it since the costs were too high. However, nowadays, it is possible for many farmers to collect a tremendous amount of data and use inexpensive small processors to make use of the information and to control equipment or monitor animals with it. Through digital smartness and connectivity, the agricultural machines can collect weather data, order spare parts or access detailed information about the field from a central, cloud based farm management software.

However, the technology development in the farming sector in Vietnam is still in its infancy. The digitalization has not reached Vietnams farming sector yet. The farmers are still using basic computers, standard internet information and basic information and communications technology in general. Many did not even reach the industrialization yet, using the telephone, light bulb, and the internal combustion engine. Still, a growing number of farmers is starting to adopt digital technology and data-driven innovations.

B. Precision Agriculture

Precision Agriculture (PA) is a key component of the agricultural digitization and means to apply the exact and correct amount of inputs like water, fertilizer, pesticides etc. at the correct time to the crop for increasing its productivity and maximizing its yields. It provides farmers with information to build up a record of their farm, helps to make decisions, promotes traceability and provides better marketing of farm products. Finally, it enhances the quality of the product itself.

Efficient farming must increase and the government should support investors of this sector. For instance, from 1900 to 1930 worldwide, each farmer produced enough food to feed about 26 people. In the 1990s, the so-called Green Revolution lead to new methods of genetic modification, therefore each farmer was able to feed about 155 people. The global population is increasing and by 2050 it is expected that the worldwide population will reach to almost 10 billion, thus food production must effectively double from the current magnitude. With the introduction of new technological improvements of precision farming, each farmer could be able to feed 265 people on the same acreage.

The first steps of PA came in the forms of satellite and aerial imagery, weather prediction, variable rate fertilizer application, and crop health indicators. The second wave collects the machine data for even more precise planting, topographical mapping and soil data. Another example of developed technology is the Geo-Localization. With this, field data can be captured. An analysis of soils, residual nitrogen, soil resistance and past harvests takes place. Further, by now, self-steering tractors do most of the work. The farmer only needs to intervene in emergencies. Through GPS connection, they spread fertilizer or plough land. Another notable innovation is a solar powered machine that identifies weeds and precisely kills them with a dose of herbicide or lasers.

C. Precision Livestock Farming

Precision Livestock Farming (PLF) aims to improve the efficiency of production. It helps the farmer and ensures the well-being of the animal through applying advanced information and communication technologies, targeted resource use and precise control of the production process. Through this technology, the contribution of each animal is streamlined. By this individual approach, the farmer can deliver better results in livestock farming. Those results can be quantitative, qualitative and sustainable.

PLF can significantly improve livestock farming. It can ensure animal welfare because the whole procedure is being documented on farms. Greenhouse gas (GHG) emission can be reduced and environmental performance of farms can improve. Further, PLF can facilitate product segmentation and reduce illegal trading of livestock products.

D. Benefits and obstacles

Utilizing new technology can deliver more yields and greater environmental protection. For instance, farms in Germany using advanced digital technology have reported higher yields per hectare while reducing nitrogen levels considerably, as well as cutting herbicide and diesel use by 10% – 20%. Farmers thus obtain a return on their investment by saving on water, pesticides and fertilizer costs. The second large-scale benefit is to reduce the environmental harm. Applying the right amount of chemicals in the right place and at the right time benefits crops, soils and groundwater, and thus the entire crop cycle.

However, there are rarely any examples of successful commercialization of PLF technologies. There is currently an abundance of information available to livestock managers, but it is not generally structured in a way that can be applied readily.

The farmers and investors hesitation might be due the involving risks. The noted risks include financial failure because of unforeseen environment or market circumstances, damage to the farm infrastructure such as soils and pasture, compromises to animal health and welfare, and increased stress on farmers from managing the allegedly complicated systems. Thus, it is important to develop a management system that ensures only the most essential procedures are carried out, they are all carried out correctly and consistently, and in a way that controls risk.

E. Solutions

For the implementation of digital farming in Vietnam, a good collaboration between the public sector, industry players and the farming community is significantly important. In specific, decision-makers and the national government need to ensure that the basic digital infrastructure for rapidly growing data flows, in terms of network coverage and transmission rates in rural areas, is put in place. Further, the government must set incentives that boost investment in agriculture, especially during low time commodity prices. Lastly, it is important that the farmers accept and are able to handle the upcoming change. Not only is their attitude important, but also to ensure that they have the necessary digital skills.

The international market can only be reached by more transparency and traceability. For consumers and retailers it gets increasingly more important to trace the origin of their food. How was the crop cultivated, under what conditions did the animal grow up and be bred? At the same time, the gathering of this information can simplify the farmer´s documentation on compliance with legislation. Lastly, farmers need the security, that ownership and control of their data are protected. For this, a regulating contract law, that states that the data generated on a farm is the property of the farmer, needs to be settled.

F. Outlook on Major Trade Agreements TPP 11, EUVNFTA and Investment Protection Agreement

In January 2017, US President Donald Trump decided to withdraw from the US’ participation in the TPP. In November 2017, the remaining TPP members met at the APEC meetings and concluded about pushing forward the now called CPTPP (TPP 11) without the USA. The provision of the agreement specified that it enters into effect 60 days after ratification by at least 50% of the signatories (six of the eleven participating countries). The sixth nation to ratify the deal was Australia on 31 October 2018, therefore the agreement will finally come into force on 30 December 2018. Recently, on the 12th November 2018, Vietnam has officially became the seventh member of the CPTPP.

The CPTPP is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. This will make the Vietnamese market more attractive due to technology advances and the reduction of production costs. The effects of the TPP 11 promise great benefits for the agriculture sector in Vietnam and will support Vietnam’s national agriculture to transform into a self-sufficient and competitive sector. Furthermore, sustainable environments are a primary concern of the CPTPP agreement. With the Most-Favored Nation Treatment principle, the TPP 11 is ensuring a fair competition, which will attract new foreign investments as well as support for the agriculture sector in its restructuring process. Moreover, national farmers must adopt high-developed technologies in nutrients and animal healthcare to be competitive. This will lead to more safety and trust of the consumer in the agriculture market in Vietnam.

One another notable major trade agreement is the European Union Vietnam Free Trade Agreement (EUVNFTA). The EUVNFTA offers great opportunity to access new markets for both the EU and Vietnam and to bring more capital into Vietnam due easier access and reduction of almost all tariffs of 99%, as well as obligation to provide better conditions for workers.
Both agreements promise great benefits for the agricultural and farming sector in Vietnam. The food industry is a very hesitating industry in general. Naturally, farmers usually invest part of their gains in technology. However, they buy just the ordinary machinery instead of new technology like software or sensors. The trade agreements could lead to the end of this hesitation and finally demonstrate the economic benefits of the new technologies. Further, the co-ordination between researches, developers and technology suppliers of PLF tools could be streamlined.

To enable at least some parts of the FTA to be ratified more speedily at EU level, the EU and Vietnam agreed to take provisions on investment, for which Member State ratification is required, out of the main agreement and put them in a separate Investment Protection Agreement (IPA). Currently both the FTA and IPA are expected to be formally submitted to the Council in late 2018, possibly enabling the FTA to come into force in the second half of 2019.

Further securities come with the Government Procurement Agreement (GPA), which is going to be part of the TPP 11 and the EUVNFTA. The GPA in both agreements, mainly deals with the requirement to treat bidders or domestic bidders with investment capital and Vietnamese bidders equally when a government buys goods or requests for a service worth over the specified threshold. Vietnam undertakes to timely publish information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain confidentiality of tenders. The GPA in both agreements also requires its Parties assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation, create an effective regime for complaints and settling disputes, etc.

This instrument will ensure a fair competition and projects of quality and efficient developing processes.

If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!

December 17, 2018 by Dr. Oliver Massmann

VIETNAM – BANKING AND FINANCING SUSTAINABLE GROWTH – Issues and Solutions – Impact of the Key Trade Agreements CPTPP, EUVNFTA and Investment Protection Agreement

A. Introduction

Vietnam is one of the countries in Asia with the most impressive economic growth. Inflation remains well controlled and foreign exchange reserves are at their highest levels in years and they continue to rise. The effective and economic state administration has been recognized by the international markets, most recently with the appreciation of the Vietnamese credit rating by Fitch Ratings. In the future, it is expected that Vietnam will continue to show strong economic growth. A particularly strong area is the electronics production. In addition, financing sustainable growth and providing credit and good financial services is essential to all who need it.

The focus of the government and the State Bank of Vietnam (SBV) should be geared to lending in strong sectors. This implies that quotas should be distributed appropriate and that there should be no upper limits in a given sector. Only with this credit can be provided sufficiently in the priority sectors. This will benefit strong and profitable companies while controlling and reducing risk in critical sectors.

In addition, the focus is on recapitalization and consolidation of the financial sector, which leads to fewer but stronger banks. Furthermore, the digitization of the Vietnamese economy continues to increase, with the next step being to create a comprehensive legal framework that further promotes digital development, including the use of the forthcoming national biometric identity system.

In the future, a change in banking regulations should be also considered. The rules are currently issued on the basis of basic laws such as the Civil Code. As a result, opening accounts for companies that are not legal entities is difficult. Addressing the above issues will, in the long term, lead to a strengthening of the banking sector. This will bring more and more FDI´s into the country and Vietnamese people and companies will benefit from it.

B. Decree 116 and related issues

With regard to Decree 116, there are problems in lending that banks have. There are currently challenges related to public information and verification. It is very time-consuming for the banks to obtain the relevant information from the client, there are only limited independent sources of information, and there are different definitions of the criteria used to identify beneficiaries in Vietnam and international common practices.

Banks are facing the difficult situation of being able to verify that a natural person owns 10% or more charter capital in a legal entity. Natural persons who hold 20% or more charter capital to companies whose equity capital is more than 10%; private business owners; and other persons actually controlling the company, in accordance with the provisions for determining beneficial owners referred to in Article 5.1, Decree 116/2013 / ND-CP.

The banks have difficulties in how to verify that an individual holds 10% or more charter capital in a legal entity, individuals holding 20% or more charter capital in entities having more than 10% equity in the legal entity, private business owners and other individuals who actually control the entity, under regulations on identifying beneficial owners referred to in Article 5.1, Decree 116/2013/ ND-CP.

To solve this problem, the State Bank of Vietnam (SBV) could make the following arrangements. Only the ultimate beneficial owner holding directly and indirectly 25% or more of the charter capital must be identified. Further, it is not necessary to identify ultimate beneficial owners in case the customer is rated as low-risk by financial institutions incorporated in Financial Action Task Force member nations, because these institutions have advanced anti-money laundering and financing terrorism control systems, and are monitored by relevant host country regulators.

C. Outlook on Circular 19/2014/TT – NHNN

Circular 19/2014/TT – NHNN contains revisions for foreign exchange control in direct investment and portfolio investment to be consistent with latest rules on foreign investment. One of most frequent issues related to foreign-invested companies is the Investment certificate being used as the only reference to identify a directly investing business for foreign investment capital account opening purposes. However, this does often not reflect properly the nature of the investment activity and existing regulations on investment activities (Investment Law of Nov. 26, 2014, Decree 118/2015/ND-CP, providing details and implementing guidance for specific clauses of the Investment Law).

Furthermore, given the development of derivative markets in Vietnam, the Circular can be revised to cover specifically derivative securities and include relevant reporting indicators for investment in these securities by foreign investors.

D. Outlook on the Major Trade Agreements TPP 11, EUVNFTA and Investment Protection Agreement

In January 2017, US President Donald Trump decided to withdraw from the US participation in the TPP. In November 2017, the remaining TPP members met at the APEC meetings and concluded about pushing forward the now called CPTPP (TPP 11) without the USA. The provision of the agreement specified that it enters into effect 60 days after ratification by at least 50% of the signatories (six of the eleven participating countries). The sixth nation to ratify the deal was Australia on 31 October 2018, therefore the agreement will finally come into force on 30 December 2018. Recently, on the 12th November 2018, Vietnam has officially become the seventh member of the CPTPP.

The CPTPP is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. This will stimulate domestic reforms in many areas, especially the financial sector. As a result, the above mentioned issues could be addressed gradually and therefore more FDI´s will come to Vietnam.

One another notable major trade agreement is the European Union Vietnam Free Trade Agreement (EUVNFTA). The EUVNFTA offers great opportunity to access new markets for both the EU and Vietnam and to bring more capital into Vietnam due easier access and reduction of almost all tariffs of 99%, as well as obligation to provide better conditions for workers. In addition, the EUVNFTA will boost the most economic sectors in Vietnam. Due to easier opportunity on making business, trade and sustainable development will be a good consequence for an even more dynamic economy and even better investment environment in Vietnam in general and especially in the financing sector.

Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability and protection for investors. Every investor should use these standards. It is going to be applied under the TPP 11 and the EUVNFTA. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. In relation to the TPP, the scope of the ISDS was reduced by removing references to “investment agreements” and “investment authorization” as result of the discussion about the TPP’s future on the APEC meetings on 10th and 11th November 2017.

This instrument will ensure a fair competition and projects of quality and efficient developing processes.

If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!

December 14, 2018 by Dr. Oliver Massmann

Vietnam – Mining Action Plan – Issues and Solutions – Impact of the Major Trade Agreements CPTPP, EUVNFTA and Investment Protection Agreement

A. Outlook

Vietnam´s mining industry is still largely undeveloped. Most operations are insufficient and harm the environment. However, there is great potential due to the variety of unexploited mineral resources. The discovery and mining of new minerals can be significantly facilitated with Foreign Direct Investments (FDIs). This provides the opportunity to use international, modern, efficient, sustainable and secure technologies for the procedure. This implementation would have a huge impact on Vietnam’s economic growth and would lead to a reduction of public debt.

For most countries in the world, mining has been the cornerstone of economic growth and infrastructural development. It has been estimated that only about 10 percent of Vietnam’s base metal and precious metal resources have been discovered so far. This is because the country has so far never been methodically researched with modern technologies and the right know-how to find deeper, richer or larger deposits. The focus of the Vietnamese mining industry has been almost exclusively on less expensive, easily findable or near-surface energy materials such as coal and bulk commodities such as iron ore, bauxite, sand and limestone.

Vietnam’s largest state-owned mining company is Vinacomin. According to their estimates, more than 1.500 mining companies are registered in Vietnam, of which about 55% are state-owned, 36% by private Vietnamese companies and only 9% by foreigners.

B. Lack of technology

Vinacomin is the first company to acknowledge the major shortcomings and confirmed the existence of obsolete technologies, lack of mechanization, inadequate infrastructure, large workforce but with low productivity, excessive energy consumption, high safety deficiencies and unacceptable environmental pollution. In Decision No. 2356-TKV of 15 June 2016, Vinacomin has now set its priority on technological innovation.

The challenge, therefore, is to modernize the Vietnamese mining industry and make innovative technologies accessible. To do this, the government must create incentives to encourage investors, otherwise FDI’s hardly ever come to Vietnam.

C. Government´s mining policies and issues

The current mining policy in Vietnam has two major weaknesses. First, the existing laws are unstructured and are therefore applied inconsistently. There is some evidence that there are conflicting interpretations of fees, tariffs, environmental protection fees, product quality and to it related mining taxation issues between local regional authorities and ministries such as the Ministry of Natural Resources and Environment, Ministry of Industry and Trade and the Ministry of Finance.

Second, Vietnam is one of the countries with the highest taxes on mining worldwide. This has a negative impact on investments in modern technologies and technological innovations. All of this leads to further problems such as the continuation of inefficient and wasteful mining practices, the deterioration of well-known mineral deposits and the environment of Vietnam as well as the increase of illegal mining and tax evasion. Vietnam’s royalties, export duties and other charges are far above other comparable countries. As an example, the royalty for nickel is 10%, but other minerals such as tungsten and gold have even higher license rates. Many mining projects therefore fail due to lack of sufficient profitability.

Positively, there is, however one exception. A hitherto highly successful project of modern technologies and international standards on a Vietnamese mining operation is the Nui Phao. This is the largest tungsten production mine in the world to date, contributing significant value to Vietnam’s economy by converting the ore into purified chemical products before exporting. However, as with all mining projects, future development will depend on the continued evolution of global commodity prices, variability of ore grades, mining conditions, etc., and therefore the prohibitively high taxes themselves may jeopardize this project.

The reasons for the high taxation are to some extent comprehensible or the background can be explained. Hereby the aim is, to maximize benefits for the government and Vietnam´s economy. However, this can not be achieved if the taxes are so high that mines are closed because they are not profitable. As a result, this leads to a change to the contrary, namely to the loss of valuable tax revenue, because first, the tax revenue source for the government is lost (mining companies) and secondly, the number of people trying to circumvent the tax rules increases. The former also leads to the loss of legal employment opportunities.

D. Solutions and conclusion

A solution to the above mentioned conflicting legislation could be to create clear and unambiguous legal regulations. Alternatively, there is a possibility to be practice-oriented and to ensure a uniform application of the law through state support in advising the mining industry and coordinating intergovernmental departments. The effectiveness of this coordination and the associated transparency would be a clear incentive for the providers of FDI as well as for strong local investors.

Regarding the high taxes for mining, the problem can be solved by a fair tax system for the government and investors. The taxes should simply be reduced, which means no negative consequences for Vietnam’s economic budget (see above).

The advantages associated with the solutions are obvious. It goes without saying that the richest mineral deposits are located in more remote and mountainous areas. The population in these areas is usually characterized by particular poverty and the infrastructure is in need. A modern mining project would have a positive impact on both. On the one hand, every mining project creates a large number of jobs, local goods are promoted and orders are distributed to service providers. On the other hand, the infrastructure will develop significantly, because modern and efficient mining is hardly possible without a good infrastructure, so that the construction companies are forced to build the infrastructure itself.

To sum it up, there are essentially three solution concepts. First, existing mining legislation could be revised and more transparent, clearer, investor-friendly rules could be created. Second, state co-ordination of law enforcement can be established to ensure a consistent and effective application of the relevant rules. Third, a fair tax system for government and investors likewise should be created.

E. Outlook on Major Trade Agreements TPP 11, EUVNFTA and Investment Protection Agreement

The CPTPP is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. The Agreement could bring the needed FDI to the mining industry in Vietnam. Hence new mining methods and better technologies will be introduced to the mining industry and this will lead to the spare of environment. To be able to benefit from the TPP 11, Vietnam has to amend its mining regulations, particularly, the above mentioned taxes and royalty rates must be reduced.

One another notable major trade agreement is the European Union Vietnam Free Trade Agreement (EUVNFTA). The EUVNFTA offers great opportunity to access new markets for both the EU and Vietnam and to bring more capital into Vietnam due easier access and reduction of almost all tariffs of 99%, as well as obligation to provide better conditions for workers, which is a key aspect in terms of working at mining projects. In addition, the EUVNFTA will boost the most economic sectors in Vietnam. Due to this significant boost, the government might reconsider its mining tax regulations. If that step will be eventually taken, there are good prospects for investors that bring modern technologies and international standards to the country, that their mining project will be successful just as the Nui Phao operation is.

This instrument will ensure a fair competition and projects of quality and efficient developing processes.

If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!

December 10, 2018December 10, 2018 by Dr. Oliver Massmann

Vietnam – Healthcare and Medical Devices – Investment – With Outlook on the Major Trade Agreements CPTPP, EUVNFTA and Investment Protection Agreement

A. Overview of the future of Vietnam´s healthcare sector

There is no denying that Vietnam truly is an attractive investment destination in South East Asia. It has great potential to develop a qualitative, self-sustaining life science sector. Improvements on the healthcare sector will lead to several benefits. With increasing focus on healthcare, manufacturing, service providers, clinical research organizations and others are being stimulated. As a result, small and medium-sized enterprises (SMEs) are boosted and exports could replace the need for foreign aid by attracting sustainable FDIs and PPPs.

Of particular importance for a positive development is the close cooperation between the major stakeholders from the private and public sector. In this process, certain core goals should be set. Significantly, it is important to ensure swift, sustainable access to medical treatment and to urgently improve the quality of the treatment process. High-quality domestic treatments not only improve patient satisfaction but also improve one’s own economy by counteracting outgoing medical tourism.

Furthermore, it should be ensured that the existing investors remain in Vietnam and new ones are pulled ashore. To do this, investors must be shown that the Vietnamese market does not contain undetected risks, but is stable and predictable. Further, integrate opportunities for collaborations and partnerships to develop local capability.

B. Outpatient: Home care and home-treatment

One major issue regarding Vietnams Healthcare sector is the limited capacity in hospitals. There is a gap between bed capacity and demand of inpatient treatment. The Minstry of Health has his hands full to counteract the overloading of hospitals. Even institutions with larger bed capacity have eventually set up a home care service to enhance the follow-up monitoring of chronic and long-term illnesses for patients that have been released from the hospital.

The patients in Vietnam are financially overburdened with the costs of treatment, therefore affordable treatment is needed. This however, has to be reached without the loss of quality. Especially the indirect costs of healthcare, such as travelling, meals during hospitalization and loss of income during treatment put patients and their families under enormous financial pressure. Due to the overload and the fact, that the home care services are not fully developed yet, patients tend to take care for themselves with the help of their family. This causes eventually potential additional health complications due to the lack of professional follow-up. Furthermore, patients will return often back to the hospital and subsequently, in some cases, with more severe conditions.

The healthcare expanses are moreover, as in almost every country, a significant burden for the household.

Overall, professional homecare programs and access to them should be simplified and improved to counteract hospital congestion. This is especially necessary for the chronically ill. Home care and home-treatment can help to reduce public spending on chronic diseases and thus spare the health budget. At the same time, easier access helps the chronically ill.

C. Implementation

There are two major requirements for putting the whole thing into practice. Firstly, the creation of a clear legal framework. It contains incentives for small and large scale investors and creates transparency. This encourages multinational companies to invest and transfer their know-how to Vietnam, eventually ultimately work closely with the local companies. Secondly, to streamline the administrative process to shorten the process of delivering new, high-quality patient care solutions, and to respond to the growing need for a growing Vietnamese population for rapid and sustainable access.

D. Medical Devices Industry Code of Conduct

Background of the Code of Conduct for medical devices are the various risks associated with the industry, in particular unfair competition between industry players. The Code is intended to facilitate ethical interactions among members of society who develop, manufacture, sell, distribute or distribute medical technology in Vietnam and individuals and organizations that apply, recommend, buy or prescribe medical technologies in Vietnam. The content of the Code of Conduct should focus on 1) strict compliance with laws and regulations in the area; 2) prioritization of people and health and safety of patients and 3) promoting scientific and educational activities to best benefit the patient.

For multinational companies, the compliance area is usually very pronounced and strict. It is therefore particularly important to invest in an ethical business environment, especially when investing in high-risk jurisdictions. The commitment to uphold high ethical standards would certainly bring about long-term benefits for the health sector in Vietnam and attract more investors.

E. Outlook on Major Trade Agreements TPP 11, EUVNFTA and Investment Protection Agreement

The CPTPP is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. An increase of trade will have great influence to the health- and medical sector. The agreement is suitable to support Public-Private-Partnerships (PPPs), which could lead to a positive impact in development of innovative technologies of medical devices and facilitate the transfer of necessary know-how. Lower or no trade tariffs can lead to lower import costs for the essential components of medical devices. This, in turn, results in lower acquisition costs for the medical practices and hospitals, thus eventually lowering the treatment costs.

The annexes of the CPTPP (TBT chapter) deal with specific challenges of trading regarding pharmaceuticals, medical devices and technology products. The provisions commit the Members to define what medical products are and when they are subject to the state laws. These information have to be published. Furthermore, the annexes will help to optimize regulatory approvals and make the regulations clearer. Authorization decisions are made based on certain risk-based criteria. Moreover, the regulations help to ensure timely mitigation measures if a product application is not approved or is deemed deficient. Due to this new transparency, and the tariff elimination, the CPTPP will bring great benefits for all traders of medical devices, employees in the medical industry as well as for patients.

A specific example would be, that Canada currently faces tariffs of 7% imposed by Vietnam regarding exports of life sciences products such as medicines in doses for retail sale. With the agreement to become effective, these tariffs will be fully eliminated. As a result, Canada and other countries are exporting more and more products to Vietnam, gradually improving equipment in Vietnam’s medical facilities.

Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability and protection for investors. These standards should be used by every investor. It is going to be applied under the TPP 11 and the EUVNFTA. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. In relation to the TPP, the scope of the ISDS was reduced by removing references to “investment agreements” and “investment authorization” as result of the discussion about the TPP’s future on the APEC meetings on 10th and 11th November 2017.

This instrument will ensure a fair competition and projects of quality and efficient developing processes.

If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!

December 3, 2018 by Dr. Oliver Massmann

Vietnam – Power Energy Action Plan – With Outlook on the Major Trade Agreements CPTPP, EUVNFTA and Investment Protection Agreement

A. Overview of the Power Master Plan 8

Vietnam contains huge potential regarding the production of clean energy. It has best conditions for developing solar power due to being one of the countries with the most sun hours during the year and best conditions for creating wind power due to 3000km coastline. As a result, Vietnam in general, is able to attract many Foreign Direct Investments (FDI) for developing clean energy projects.

Therefore, the aim of the current Power Master Plan 8 (PMP8) is to develop power sources, in which renewable energy (wind, solar, bio) will be prioritized, in order to stepwise increase the proportion of electricity generated from renewable energy sources. Core elements are to establish links between international and domestic companies. Thus, the international finance and technology should be connected to the domestic banks and the expertise of domestic companies. In addition, a market must be developed that attracts large-scale companies and small and medium sized enterprises (SMEs) equally.

Furthermore, there will be improvements to the solar power market and the Solar Power Purchase Agreement (PPA) model, which could apply from 1 July 2019. If the PPA is improved to meet the standards of international and domestic banks, the cost of financing solar power plants can be reduced. Feed-in tariffs could provide 2 billion USD in foreign investment in solar energy by 2020.

The new PPA should focus on the key areas termination payments, curtailment and failure to take or pay by Vietnam Electricity (EVN), dispute resolution / arbitration clauses and the application of the feed-in-tariff for 20 years the PPA for new solar projects, which reach their commercial operation date by 30th June 2021 with a reduced feed in tariff. These improvements should equally apply to the standard PPAs for wind power, biomass and waste to energy.

In addition, a government market-driven electricity price system should be created, which includes a welfare state price system and thus supports low-income citizens. To make this possible, the price for the middle class has to be raised. Furthermore, the need for government guarantees must be reduced. In order to counteract electricity wastefulness, incentives for private sector investment in distributed clean energy generation and energy efficiency with fair and transparent electricity tariffs are necessary.

With regard to the price of electricity, there will be essentially three types of movement. First, the daytime hourly tariff will be redesigned for commercial and industrial consumers. This is intended to reduce the peak load of the transmission system and transmission losses. Second, regional differences in retail tariffs are developed. Third, a market-based electricity tariff is set, which contains flexible regulations and thus allows adjustments and increases in efficiency.

It will be important for the government to upgrade transmission and distribution. A regulator regime is to build, which allows and encourages construction and use of bio-mass, solar, wind and other clean sources of power generation for private and public users – office, residential, manufacturing, communities, and industrial – small scale and large scale, and to speed up decision making and set predicative procedures to encourage development of off shore gas, LNG, efficiencies, and renewables.

B. Future recommendations for VL Direct Power Purchase Agreement

The Application of PPA should be extended and even used for commercial power consumers (offices, hotels, resorts and supermarkets), hence they can reduce their electricity costs. The project aim should be to make a major investment in clean energy generation. Guidelines could be to reach at least 300MW of new clean energy generation in 2018/2019 and to invest about 400 Million USD.

The Electricity Regulatory Authority of Vietnam (ERAV) and EVN must define as soon as possible a so-called “wheeling fee”. Wheeling is the transportation of electric energy (megawatt-hours) from within an electrical grid to an electrical load outside the grid boundaries. At least for the first 5 years of operation the fee should be fixed. Afterwards, an increase is possible in agreed in conjunction with business groups and WE.

C. Outlook on Major Trade Agreements TPP 11, EUVNFTA and Investment Protection Agreement

The CPTPP is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. This will make the Vietnamese market more attractive due to technology advances, reduction of production costs and because of the high demand on renewable energy. Sustainable environments are a primary concern of the CPTPP agreement.

An increase of trade should not mean negative influence to the environment. In contrary, due to the increased focus on the need for energy efficiency and reduced emissions renewable energy could experience a crucial growth. The agreement is suitable to support Public-Private-Partnerships (PPPs), which could lead to a positive impact in development of innovative technologies and alternative energy sources. Lower or no trade tariffs can lead to lower import costs for the essential components of renewable energy production. This, in turn, results in lower investment costs and lower production costs, thus increasing the cost-effectiveness of introducing renewable energy technology.

One another notable major trade agreement is the European Union Vietnam Free Trade Agreement (EUVNFTA). The EUVNFTA offers great opportunity to access new markets for both the EU and Vietnam and to bring more capital into Vietnam due easier access and reduction of almost all tariffs of 99%, as well as obligation to provide better conditions for workers, which is a key aspect in terms of working at power plants. In addition, the EUVNFTA will boost the most economic sectors in Vietnam. Moreover, the EUVNFTA will provide certain tax reductions to 0% for clean technology equipment as well as equal treatment for companies. Due to easier opportunity on making business, trade and sustainable development will be a good consequence for an even more dynamic economy and even better investment environment in Vietnam in general and especially in the power/energy industry.

Both agreements promise great benefits for the energy sector in Vietnam and will help the PMP8 to connect international to domestic companies. The elimination of the tariff lines and custom duties are advantages to major companies and SMEs alike.

Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability and protection for investors. We alert investors to make use of these standards! We can advise how to best do that! It is going to be applied under the TPP 11 and the EUVNFTA. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. In relation to the TPP, the scope of the ISDS was reduced by removing references to “investment agreements” and “investment authorization” as result of the discussion about the TPP’s future on the APEC meetings on 10th and 11th November 2017.

This instrument will ensure a fair competition and projects of quality and efficient developing processes.

If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!

November 20, 2018 by Dr. Oliver Massmann

Rechtsanwalt in Vietnam Dr. Oliver Massmann – Sektor Infrastruktur und Abfallbehandlung – Aktuelle Themen und Lösungen für Investitionen und Ausblick auf die wichtigsten Handelsabkommen CPTPP, EUVNFTA und das Investitionsschutzabkommen

A. Überblick

Die Sektoren der Abfallbehandlung und Infrastruktur in Vietnam sehen sich verschiedenen Schwierigkeiten gegenüber. Die Abfallbehandlung ist in Vietnam ein vorrangiger Sektor, da die städtische Umgebung in den großen Provinzen dringend gereinigt werden muss. Dies führt zu einem dringenden Bedarf an Abfallbehandlungsprojekten. Die Anreize für Sponsoren sind jedoch begrenzt. Insbesondere verhindert eine Verordnung für Projekte zur Behandlung fester Abfälle, dass der von den Sponsoren erzielte Gewinn um mehr als 5% steigen kann, was sich negativ auf die finanzielle Tragfähigkeit der Projekte auswirkt.

In Bezug auf die Infrastruktur gibt es zwei Hauptprobleme. Erstens gibt es nur wenige Möglichkeiten für Sponsoren, Kapital für Infrastrukturprojekte zu beschaffen. Abgesehen von der traditionellen Projektfinanzierung haben Sponsoren von Projekten in Vietnam kaum andere Möglichkeiten, Kapital dafür zu beschaffen. Zweitens steckt die Entwicklung energieeffizienter Gebäude in Vietnam noch in den Kinderschuhen. Gebäude sind und bleiben die größten Stromverbraucher. Nur rund 100 Gebäude sind jedoch nach Green Building (GB) zertifiziert. Eine moderne, effiziente Infrastruktur ist für ein anhaltendes Wirtschaftswachstum von entscheidender Bedeutung und senkt die Geschäftskosten für alle Anleger in Vietnam.

In Bezug auf die Probleme der Abfallbehandlung kann festgestellt werden, dass aufgrund des raschen Wirtschaftswachstums und der Urbanisierung der Bedarf nicht durch die öffentlichen Mittel gedeckt werden kann. Diese Lücke muss durch andere Quellen wie private Investitionen in Form von öffentlich-privaten Partnerschaften (PPP) geschlossen werden. Um private Sponsoren für Abfallbehandlungsprojekte zu finden, kann das Problem gelöst werden, indem eine flexiblere Regelung anstelle eines festgelegten Gewinnlimits festgelegt wird.
Die Infrastrukturprobleme können vom Staat angegangen werden, indem ein staatlicher Rahmen zur Förderung alternativer Möglichkeiten zur Kapitalbeschaffung festgelegt wird. Die Problematik der Energieeffizienz von Gebäuden muss bereits während der Bauphase durch den Einsatz umweltfreundlicher Baumaterialien in Angriff genommen werden, ohne dass dabei höhere Kosten entstehen.

Außerdem bietet sich die Verwendung mehrerer Systeme und Zertifikate von “wirtschaftlichen Gebäuden” an, die den Markt bestimmen lassen, welche Praktiken sinnvoll sind. Diese Systeme könnten für den Betrieb lizenziert werden, basierend auf einer Reihe einfacher Kriterien wie Transparenz, Zuverlässigkeit und Kohärenz nach anerkannten Normen. Diese Zertifikate müssen Anreize enthalten, um Bauherren dazu zu ermutigen, energieeffiziente Gebäude zu bauen.

B. Abfallbehandlungssektor

Die Abfallbehandlung ist ein wichtiger Sektor für PPP’s. Bisher gibt es jedoch keine maßgeschneiderten Leitlinien für die Entwicklung von PPP-Projekten in diesem Sektor. Das Rundschreiben 07/2017/TT-BXD (Rundschreiben 07) regelt insbesondere die Methode zur Bestimmung des Preises für die Behandlung von Siedlungsabfällen, die als Grundlage für die Festlegung, Bewertung und Genehmigung der Preise solcher Dienste gilt. Die Regelung trat am 1. Juli 2017 in Kraft und gilt für Organisationen und Einzelpersonen.

Es ist kein Preismechanismus festgelegt, der für PPP-Projekte geeignet ist. In Rundschreiben 07 wird der Gewinn, den die Sponsoren bei Projekten zur Behandlung fester Abfälle erzielen, auf 5% begrenzt, wodurch die finanzielle Tragfähigkeit der Projekte beeinträchtigt wird.

Anstelle einer Höchstgrenze ist eine flexible Regelung erforderlich. Die zugelassenen staatlichen Stellen müssen in der Lage sein, über angemessene Servicegebühren zu entscheiden, die abhängig von den Markt- und Ausschreibungsergebnissen festgelegt werden, anstatt eine Obergrenze für die Profite festzulegen, die, wenn sie nicht dem Markt entspricht, Projekte für Investoren unattraktiv machen würde.

C. Fehlende Optionen für Sponsoren zur Kapitalbeschaffung für Projekte

Neben der traditionellen Projektfinanzierung haben Sponsoren von Infrastrukturprojekten in Vietnam kaum andere Möglichkeiten, Kapital für Projekte zu beschaffen. Die Vorschriften für Projektanleihen oder Handelskapital entsprechen entweder nicht der Art einer Infrastruktur-Projektgesellschaft (z. B. muss der Anleiheemittent im Vorjahr gewinnbringend sein, um Anleihen emittieren zu können) oder sind überhaupt nicht vorhanden (z.B. strenge Anforderungen an die Übertragung von Projektkapital, die Projektgesellschaften daran hindern, Mittel am Kapitalmarkt zu beschaffen).

Die Möglichkeit, am Kapitalmarkt Mittel zu beschaffen, würde den Sponsoren alternative Finanzierungsmöglichkeiten bieten, insbesondere angesichts der ungelösten Finanzierungsherausforderungen laufender Projekte. Die Regierung sollte einen rechtlichen Rahmen zur Unterstützung solcher Alternativen in Betracht ziehen und einführen.

D. Entwicklung von grünen Gebäuden in Vietnam und Standards

Ein Hauptproblem vor dem Vietnam steht, ist, dass es kaum energieeffiziente Häuser gibt. Derzeit hat Hanoi nur etwa 100 Gebäude, die nach Green Building (GB) zertifiziert sind oder sich einer GB-Zertifizierung unterziehen. Gebäude sind und bleiben jedoch die größten Stromverbraucher. Das rasante Wachstum der Urbanisierung und der damit verbundene Lebens- und Arbeitsstil, der eine intensive Nutzung der Klimaanlagen beinhaltet, macht einen erheblichen Teil des Energieverbrauchswachstums in den großen Städten Vietnams aus. Durch die richtige Gebäudeplanung kann dieses Wachstum für die nächsten 25 Jahre eines Gebäudes reduziert werden.

Andererseits ist eine Entwicklung zu sehen. Organisationen wie der Vietnam Green Building Council (VGBC) berichten, dass das Interesse in den letzten Jahren erheblich gestiegen ist. Viele Bauherren wurden in das Konzept von GB eingeführt. Ziel ist es, Gebäude so energieeffizient wie möglich zu machen. Um eine echte Veränderung herbeizuführen, muss das Problem auf mehreren Ebenen gelöst werden.

Erstens sollten Gebäude in jedem Fall energieeffizienter werden. Dies bedeutet keine höheren Investitionskosten. Das Verfahren kann von der Architekturphase über das passive Design und die Verwendung umweltfreundlicher Baustoffe bis hin zur Implementierung energieeffizienter Geräte während des Baus angewendet werden. Das Ziel sollte sein, dass alle Gebäude die Mindeststandards des VEEBC-Codes (oder einer vereinfachten Version) erfüllen, um die Baugenehmigung in der Basic Design Stage zu erhalten. Darüber hinaus könnte Electricity of Vietnam (EVN) ein Tarifsystem vorsehen, das Gebäude mit niedrigem Energieverbrauch mit niedrigeren Preisen belohnt und Gebäuden mit hohem Verbrauch höhere Preise auferlegt.

Zweitens muss die Regierung die Eigentümer von Gebäuden dazu ermutigen, ihre Gebäude zu zertifizieren. Neben internationalen Green Building-Zertifizierungen, die bereits in Vietnam eingesetzt werden, wie dem United States Green Building Council (USGBC), der Leadership in Energy and Environmental Design (LEED) und der International Finance Corporation (IFC) Edge, hat das VGBC das LOTUS-Zertifikat entwickelt. Zusammenfassend wäre es sinnvoll, mehrere Systeme für den Einsatz in Vietnam anzuerkennen, die den Markt bestimmen lassen, welche praktisch und nützlich sind. Diese Systeme könnten für den Betrieb lizenziert werden, basierend auf einer Reihe einfacher Kriterien wie Transparenz, Zuverlässigkeit und Kohärenz nach anerkannten Normen.

E. Ausblick auf wichtige Handelsabkommen TPP 11, EUVNFTA und das Investitionsschutzabkommen

US-Präsident Donald Trump hat im Januar 2017 beschlossen, sich von der Beteiligung der US am TPP zurückzuziehen. Im November 2017 trafen sich die verbleibenden TPP-Mitglieder auf dem APEC-Treffen und beschlossen, das nun als CPTPP (TPP 11) bezeichnete Abkommen ohne die USA voranzutreiben. Die Bestimmung der Vereinbarung sah vor, dass sie 60 Tage nach der Ratifizierung von mindestens 50% der Unterzeichner (sechs der elf teilnehmenden Länder) in Kraft tritt. Das sechste Land, das das Abkommen ratifiziert hat, war Australien am 31. Oktober 2018. Daher wird das Abkommen schließlich am 30. Dezember 2018 endgültig in Kraft treten.

Das CPTPP zielt darauf ab, Tariflinien und Zölle zwischen den Mitgliedstaaten für bestimmte Waren und Güter zu 100% zu beseitigen. Dies wird den vietnamesischen Markt attraktiver machen und mehr ausländische Direktinvestitionen nach Vietnam bringen.

Die Vereinbarung enthält ein eigenständiges, durchsetzbares Kapitel zur Umwelt. Die Kernpflichten dieses Kapitels verpflichten die Mitgliedsländer, ein hohes Umweltschutzniveau zu verfolgen, die innerstaatlichen Umweltgesetze wirksam durchzusetzen, nicht von diesen Gesetzen abzuweichen, um Handel oder Investitionen zu fördern, und die Transparenz sowie die Beteiligung der Öffentlichkeit zu fördern. Diese wesentlichen Bestimmungen werden dazu beitragen, die Sauberkeit in Vietnam zu verbessern.

Ein weiteres bemerkenswertes wichtiges Handelsabkommen ist das Europäische Union – Vietnam Freihandelsabkommen (EUVNFTA). Das EUVNFTA bietet große Möglichkeiten, neue Märkte für die EU und Vietnam zu erschließen. Es wird helfen, mehr Kapital nach Vietnam zu bringen. Darüber hinaus wird das EUVNFTA die meisten Wirtschaftssektoren in Vietnam stärken.

Beide Abkommen versprechen große Vorteile für den Infrastruktur- und Abfallbehandlungssektor in Vietnam und werden dazu beitragen, auf das schnelle Wirtschafts- und Bevölkerungswachstum zu reagieren. Zum Beispiel wird Vietnam an seine Verpflichtungen des Kapitels über das öffentliche Beschaffungswesen des CPTPP und der EVFTA gebunden, einschließlich der Verfahren zur Durchführung einer Ausschreibung und unter bestimmten Umständen, dass die Regierung eine öffentliche Ausschreibung durchführen muss. Die Investoren haben jetzt die Möglichkeit, sich an der Auftragsvergabe durch vietnamesische Regierungsbehörden zu beteiligen und die Regierung zu verklagen, wenn sie den Investoren nicht die Möglichkeit bietet, dies unter qualifizierten Umständen zu tun.

Das CPTPP und das EVFTA ermöglichen es, dass ausländische Investoren die vietnamesische Regierung für ihre Auftragsentscheidungen gemäß der Streitbeilegung durch Schiedsgerichtsverfahren verklagen können. Die verletzende Partei muss alle erforderlichen Maßnahmen ergreifen, um der Schiedsspruch umgehend nachzukommen. Bei Nichteinhaltung der Vorschriften, wie in der WTO, gestatten CPTPP und EVFTA auf Antrag der beschwerdeführenden Partei vorübergehende Abhilfemaßnahmen (Entschädigung). Der endgültige Schiedsspruch ist verbindlich und vollstreckbar, ohne dass die örtlichen Gerichte diesbezüglich Mitspracherechte haben. Dies ist für die Anleger von Vorteil, da der Prozentsatz annullierter ausländischer Schiedssprüche in Vietnam aus verschiedenen Gründen nach wie vor relativ hoch ist.

Zusammenfassend ist festzuhalten, dass das starke Wirtschaftswachstum in Vietnam und seine Nachfrage nach Infrastrukturentwicklung große Chancen für Investoren darstellen, die in Vietnam investieren möchten. CPTPP und EVFTA sind wirksame Instrumente zur Unterstützung ausländischer Investitionen in den vietnamesischen Infrastruktursektor in Form von PPP. Im Rahmen dieser Vereinbarungen könnten ausländische Investoren auf Schiedsverfahren zurückgreifen und die Schiedssprüche in Vietnam vollständig vollstrecken lassen.

Damit zumindest einige Teile des Freihandelsabkommens auf EU-Ebene schneller ratifiziert werden können, haben die EU und Vietnam vereinbart, Investitionsbestimmungen, für die eine Ratifizierung durch die Mitgliedstaaten erforderlich ist, aus dem Hauptabkommen zu ziehen und diese in eine gesonderte Investitionsschutz-Vereinbarung zu stellen (IPA). Derzeit wird erwartet, dass sowohl das FTA als auch das IPA dem Rat Ende 2018 förmlich vorgelegt werden, was möglicherweise das Inkrafttreten des FTA in der zweiten Hälfte des Jahres 2019 ermöglicht.

Darüber hinaus sorgt das Investor State Dispute Settlement (ISDS) für höchste Standards der Rechtssicherheit sowie der Durchsetzbarkeit und für Schutz der Anleger. Wir machen Investoren darauf aufmerksam, diese Standards zu nutzen! Wir können Sie beraten, wie das am besten geht! Es wird im Rahmen des TPP 11 und des EUVNFTA angewendet. Nach dieser Bestimmung haben die Anleger bei Streitigkeiten im Zusammenhang mit Investitionen das Recht, durch internationale Schiedsverfahren Ansprüche an das Gastland zu erheben. Das Schiedsverfahren wird aus Gründen der Transparenz in Konfliktfällen öffentlich gemacht.

In Bezug auf das TPP wurde der Geltungsbereich des ISDS reduziert, indem Bezugnahmen auf “Investitionsvereinbarungen” und “Investitionsgenehmigungen” als Ergebnis der Diskussion über die Zukunft des TPP auf den APEC-Sitzungen am 10. und 11. November 2017 entfernt wurden.

Weitere Sicherheiten sind im Government Procurement Agreement (GPA) enthalten, das Bestandteil des TPP 11 und des EUVNFTA sein wird. Das GPA beider Verträge regelt hauptsächlich die Anforderungen darüber, Bieter oder inländische Bieter mit Investitionskapital und vietnamesische Bieter gleich zu behandeln, wenn eine Regierung Waren kauft oder eine Dienstleistung in Höhe des festgelegten Schwellenwerts anfordert.

Vietnam verpflichtet sich, Informationen zu Ausschreibungen rechtzeitig zu veröffentlichen, den Bietern ausreichend Zeit zu geben, Angebote vorzubereiten und einzureichen und die Vertraulichkeit der Angebote zu wahren. Das GPA beider Abkommen verlangt auch, dass die Vertragsparteien Angebote auf der Grundlage fairer und objektiver Grundsätze bewerten, Angebote nur anhand der in Bekanntmachungen und Ausschreibungsunterlagen festgelegten Kriterien bewerten und vergeben, ein wirksames System für Beschwerden und Streitbeilegung schaffen usw. Dieses Instrument gewährleistet einen fairen Wettbewerb sowie Projekte von Qualität und einen effizienten Entwicklungsprozess.

Bei Fragen zu diesem Thema wenden Sie sich bitte an Dr. Oliver Massmann unter omassmann@duanemorris.com. Dr. Oliver Massmann ist Generaldirektor von Duane Morris Vietnam LLC.
Vielen Dank!

November 15, 2018 by Dr. Oliver Massmann

Vietnam – Infrastructure and Waste Treatment Sector – Current Issues and Solutions for Investment and Outlook on the Major Trade Deals CPTPP, EUVNFTA and the EU Vietnam Investment Protection Agreement (IPA)

A. Overview
The waste treatment and infrastructure sector in Vietnam faces several issues. The waste treatment is a priority sector in Vietnam due to the urgent need to clean up urban environments in major provinces. This leads to the urgent need of waste treatment projects. However, the incentives for sponsors are limited. In particular, a regulation regarding solid waste treatment projects prevents, that the profit earned by the sponsors can raise up higher than 5%, adversely affecting the financial viability of the projects.
Regarding the infrastructure, there are two main issues. Firstly, there are only a few options for sponsors to raise capital for infrastructure projects. Besides the traditional project financing, sponsors of projects in Vietnam have hardly any other options to raise capital for it. Secondly, the development of energy efficient buildings is still in its infancy in Vietnam. Buildings are, and will remain, the largest consumers of electricity. However, just around 100 buildings have a Green Building (GB) certification. Modern, efficient infrastructure is vital to continued economic growth and lowers the costs of doing business for all investors in Vietnam.
Regarding the problems of the waste treatment, it can be determined, that due to the rapid economic growth and urbanization, public funding is unable to meet these needs. This gap has to be filled by other sources like private investment in the form of Public-Private Partnerships (PPP). In order to find private sponsors for waste treatment projects, the problem can be solved by setting a more flexible regulation instead of a fix profit limit.
The infrastructural issues can be addressed by the state setting a governmental framework to promote alternative options to raise capital. The issue regarding the energy efficiency of buildings
must already be taken up during the construction phase by using environmentally-friendly construction materials without producing higher costs and, in addition, by using multiple systems and certificates of “economic buildings”, letting the market determine which are practical and useful. These systems could be licensed for operation based on a set of simple criteria such as transparency, reliability and coherence according to recognized norms. These certificates must include incentives to encourage builders to build energy efficient buildings.

B. Waste Treatment Sector
Waste treatment is an important sector for PPP’s. However, to date there is no customized guidance on development of PPP projects in this sector. In particular, Circular 07/2017/TT-BXD (Circular 07) regulates the method for determining the price of municipal solid waste (MSW) treatment service, which is used as the basis for setting, evaluating and approving specific prices of MSW treatment services. It came into force on July 01, 2017 and applies to organizations and individuals. It does not set out a pricing mechanism that is workable for PPP projects. Circular 07 limits the profit earned by the sponsors in solid waste treatment projects to 5%, adversely affecting the financial viability of the projects.
Instead of using a maximum limit, a flexible regulation is needed. The authorized State agencies must be able to decide on appropriate service fees which will be finalized subject to the market and tender results instead of setting a cap on the fees, which, if is not in line with the market, would make projects unattractive to investors.

C. Lack of options for sponsors to raise capital for projects
Other than traditional project financing, sponsors of infrastructure projects in Vietnam have hardly any other options to raise capital for projects. The regulations on project bonds or trading
equity are either not accommodating to the nature of an infrastructure project company (e.g. the law requires that the bond issuer must be profitable in the preceding year to be eligible to issue bonds), or not available at all (e.g. strict requirements on transfer of project equity preventing project companies from raising funds on the capital market).
Being able to raise funds on the capital market would provide the sponsors with alternative financing options, especially given the unresolved financing challenges of on-going projects. The government should consider and put into place a legal framework to support such alternatives.

D. Development of green buildings in Vietnam and standards
A major issue that Vietnam faces is that energy-efficient houses hardly exist. Currently Hanoi has only around 100 buildings that are Green Building (GB)-certified or are undergoing GB certification.
However, buildings are and will remain the largest consumers of electricity. The rapid growth of urbanization and its associated life and working style, which includes intensive air-conditioning use, accounts for a considerable proportion of the energy consumption growth in the major cities of Vietnam. Proper building design can reduce this growth for the next 25 years of a building’s lifetime.
On the other hand, a development can be seen. Organizations such as the Vietnam Green Building Council (VGBC) report a significant uptick in interest over the past couple of years. Many building owners have been introduced to the concept of GB. The aim is to make buildings as energy efficient as possible. To bring absolute a real change, the problem needs to be handled on several levels.
Firstly, buildings should become more energy efficient in any case. This does not mean higher investment costs. The process can be applied from the architecture phase, with passive design and the use of environmentally-friendly construction materials, to the implementation of energy-efficient devices during construction. The aim should be that all buildings achieve the minimum standards of the VEEBC code (or a simplified version) in order to receive the Building license at Basic Design Stage. Furthermore, Electricity of Vietnam (EVN) could impose a tariff scheme that rewards low energy consumption buildings with lower prices and impose higher prices to high consumption buildings.
Secondly, the Government must provide effective encouragement for building owners to certify their buildings. In addition to international green building certifications already being used in Vietnam, such as the United States Green Building Council (USGBC) Leadership in Energy and Environmental Design (LEED) and International Finance Corporation (IFC) Edge, VGBC has developed the LOTUS certificate.
In conclusion, it would be useful, to recognize multiple systems for use in Vietnam, letting the market determine which are practical and useful. These systems could be licensed for operation based on a set of simple criteria such as transparency, reliability and coherence according to recognized norms.

E. Outlook on Major Trade Agreements TPP 11, EUVNFTA and IPA
In January 2017, US President Donald Trump decided to withdraw from the US’ participation in the TPP. In November 2017, the remaining TPP members met at the APEC meetings and concluded about pushing forward the now called CPTPP (TPP 11) without the USA. The provision of the agreement specified that it enters into effect 60 days after ratification by at least 50% of the signatories (six of the eleven participating countries). The sixth nation to ratify the deal was Australia on 31 October 2018, therefore the agreement will finally come into force on 30 December 2018. Vietnam has now officially become the 7th member of the CPTPP.
The CPTPP is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. This will make the Vietnamese market more attractive bringing more foreign direct investment to Vietnam. The agreement includes a stand-alone, enforceable chapter on the environment. The chapter’s core obligations commit member countries to pursue high levels of environmental protection, effectively enforce domestic environmental laws, not derogate from these laws to encourage trade or investment and promote transparency and public participation. Those essential regulations will help to improve the cleanliness of Vietnam.
One another notable major trade agreement is the European Union Vietnam Free Trade Agreement (EUVNFTA). The EUVNFTA offers great opportunity to access new markets for both, the EU and Vietnam. It will help to bring more capital into Vietnam. In addition, the EUVNFTA will boost the most economic sectors in Vietnam.
Both agreements promise great benefits for the infrastructure and waste treatment sector in Vietnam and will help to react on the fast economic and population growth. For instance, Vietnam will be bound by its commitments in the Government Procurement chapter in the CPTPP and the EVFTA, including the procedures to conduct a tender and in specific circumstances that the Government must conduct a public tender. The investors now have the opportunity to participate in procurement by Vietnam’s government entities and challenge the Government if it does not grant the investors the opportunity to do so in qualified circumstances.
The CPTPP and the EVFTA make it possible that foreign investors could sue Vietnam Government for its tender decisions according to the dispute settlement by arbitration rules. The violating party must take all necessary measures to promptly comply with the arbitral decision. In case of non-compliance, as in the WTO, the CPTPP and the EVFTA allow temporary remedies (compensation) at the request of the complaining party. The final arbitral award is binding and enforceable without any question from the local courts regarding its validity. This is an advantage for investors considering the fact that the percentage of annulled foreign arbitral awards in Vietnam remains relatively high for different reasons.
In conclusion, Vietnam’s strong economic growth and its demand for infrastructure development are great opportunities for investors planning to invest in Vietnam. The CPTPP and the EVFTA are effective tools to support foreign investment in Vietnam’s infrastructure sector in the form of PPP. Under these agreements, foreign investors could take recourse to arbitration proceedings and have the arbitral awards fully enforced in Vietnam.
To enable at least some parts of the FTA to be ratified more speedily at EU level, the EU and Vietnam agreed to take provisions on investment, for which Member State ratification is required, out of the main agreement and put them in a separate Investment Protection Agreement (IPA). Currently both the FTA and IPA are expected to be formally submitted to the Council in late 2018, possibly enabling the FTA to come into force in the second half of 2019.
Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability and protection for investors. We alert investors to make use of these standards! We can advise how to best do that! It is going to be applied under the TPP 11 and the EUVNFTA. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. In relation to the TPP, the scope of the ISDS was reduced by removing references to “investment agreements” and “investment authorization” as result of the discussion about the TPP’s future on the APEC meetings on 10th and 11th November 2017.
Further securities come with the Government Procurement Agreement (GPA), which is going to be part of the TPP 11 and the EUVNFTA.
The GPA in both agreements, mainly deals with the requirement to treat bidders or domestic bidders with investment capital and Vietnamese bidders equally when a government buys goods or requests for a service worth over the specified threshold. Vietnam undertakes to timely publish information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain confidentiality of tenders. The GPA in both agreements also requires its Parties assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation, create an effective regime for complaints and settling disputes, etc.
This instrument will ensure a fair competition and projects of quality and efficient developing processes.

If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!