Tag Archives: FTA

The Free Trade Agreement and the Investment Protection Agreement between the EU and Vietnam – Sustainable Growth and Legal Certainty for Investors

Overview

On the 2nd of December 2015, after almost three years and 14 rounds of negotiations, President Donald Tusk, President Jean-Claude Juncker and Prime Minister of Vietnam Nguyễn Tấn Dũng announced the conclusion of the negotiations of the EU-Vietnam Free Trade Agreement (EVFTA). The EVFTA is a new-generation Free Trade Agreement between Vietnam and the EU. 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.

On 30th June 2019, EU Commissioner for Trade Mrs. Cecilia Malmstrom, together with Romanian Minister in charge of business, commerce and business Mr. Stefan-Radu Oprea represented the EU to sign the EU – Vietnam FTA (EVFTA) in Hanoi.

Both the EVFTA and EVIPA are said to bring the best advantages and benefits ever for enterprises, employees, and consumers in both the EU and Vietnam. Vietnam’s GDP is expected to increase by 10-15 per cent and exports are predicted to rise by 30-40 per cent in the next 10 years. Meanwhile, the real wages of skilled labourers could rise up to 12 per cent, while the real salaries of common workers could increase 13 per cent. Once the EVFTA is ratified and implemented, and once Government policies and institutional reforms begin to take effect, Vietnam’s business activities will boom. However, issues 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.

Legal environment

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 more than 500 million people and a total GDP of US$15,000 billion (accounting for 22 per cent of global GDP). Meanwhile, exporters and investors from the EU will have further opportunities to access 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 Foreign Direct Investment (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.

Market access for goods

Nearly all customs duties – over 99 per cent 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 per cent 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 per cent 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 per cent of the tariff lines will have been eliminated for Vietnam. This is a wider reduction compared with the 95 per cent of the tariff lines that the former TPP countries offer 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 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 does not produce domestically, including machinery, aircrafts and 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 different 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 between 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.

Market access for EU service providers

Although Vietnam’s World Trade Organisation (WTO) commitments are used as a basis for the services commitments, 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, 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.

Government procurement

Vietnam has one of the highest ratios of public investment-to-GDP in the world (39 per cent 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 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 Báo Đấu Thầu – Public Procurement Newspaper – and on information on procurement system at muasamcong.mpi.gov.vn and the official gazette in a timely manner, allow sufficient time for suppliers to prepare for and submit requests for participation and responsive tenders 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. 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 FTA Government Procurement rules:

Criteria – FTA;

Investment Dispute Settlement

This is now covered in the IPA. 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 and unpredictable way. This is also to ensure consistent rulings in similar cases, thus making the dispute settlement more predictable. The IPA 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 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 from the local courts regarding its validity, except for a five-year period following the entry into force of the FTA for Vietnam (please refer to further comments in the Chapter on Judicial Recourse).

Conclusion

The EVFTA, once ratified, 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 working hard to meet the high standards set out in the FTA, and is currently offering greater opportunities for foreign businesses in preparation for the FTA’s finalisation. It is now time for foreign investors to start their business plans and grasp the upcoming clear opportunities.

***
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!

Lawyer in Vietnam Dr. Oliver Massmann – INTERVIEW WITH ViTV CHANNEL ON MAJOR IMPACT OF INVESTMENT PROTECTION AGREEMENT AND FREE TRADE AGREEMENT EUROPEAN UNION AND VIETNAM

1 – Viet Nam and the EU officially concluded the legal review process of the Vietnam-EU Free Trade Agreement as well as agreed on the contents of the Vietnam-EU Agreement on Investment Protection (IPA). How do you assess the context of this action?

The legal review is concluded in the context where the EU continues to be Vietnam’s 3rd largest trading partner and the 2nd largest export market of Vietnam. Two-way trade has increased by 12 times from USD4.1 billion in 2000 to over USD50.4 billion in 2017.
In addition, Vietnam’s GDP in 2017 reached 6.81%, a record breaking in 10 years. Recent Vietnam’s economic developments and better access to the EU markets have been one of the underlying reasons that both sides wanted to speed up the finalization of the agreement, this is done now.

2- Why does the EU want to split EVFTA and IPA into two separate agreements?

It is due to a change in the EU’s ratification procedures of free trade agreements. Specifically, as a result of the ECJ’s opinion on the EU- Singapore FTA, the Union will have exclusive competence for the common commercial policy, while issues related to non-FDI investment and investor-to-state dispute settlement will be shared competence between the Union and the member states. Thus, in order to reap the benefits of the EVFTA as soon as possible, the commercial part (EVFTA) will be proceeded first pending the finalization of the IPA and its ratification of member states’ parliaments, which takes longer and harder to estimate timing.

3- Could you please give us more detail about the IPA agreement? How will Vietnam businessmen be affected by this agreement? (Advantages and challenges)

In short, the IPA will provide levels of legal certainty for foreign investors that are unmatched in FDI history in Vietnam. The basic content of the IPA will be the ISDS mechanism. In disputes regarding investment (for example, expropriation without compensation, discrimination of investment) between the investor and the host state, an investor is allowed to bring the dispute to the Investment Tribunal for settlement. The final arbitral award is binding and enforceable without any question from the local courts regarding its validity. This is an advantage for European investors considering the fact that the percentage of annulled foreign arbitral awards in Vietnam remains relatively high for different reasons.

4- What is the next step to bring EVFTA into effect?

The EVFTA will be translated into Vietnamese and main languages of the EU. Then it will be submitted to ratification by competent body of each party. For Vietnam, it will be the National Assembly who ratifies the EVFTA. In the EU, the Commission has already submitted a proposal on signing and ratification of the EVFTA to the EU Council and published all texts.

5. For EVFTA, although not formally effective, this agreement has had a positive impact on relations between the EU and Vietnam. How do you rate this?

Nearly all customs duties – over 99% of the tariff lines will be eliminated for Vietnam. Vietnam’s products will have great opportunities to access EU’s market at more competitive price. According to MOIT Minister Tran Tuan Anh, exports from Vietnam into the EU could increase by $16 billion in the first one or two years, and reach $75-76 billion in 2028. The deal would also benefit the EU, increasing the region’s income by $34.4 billion in the long run.

6- The EU said it would help Vietnam to improve its capacity to effectively utilize the FTAs after being signed and put into practice. So what are the weaknesses that Vietnam needs to improve to be ready for EVFTA and IPA?

Vietnam needs to review the whole domestic legal framework to make sure there is no inconsistency with the EVFTA. The legal framework should also be ready to fully implement the EVFTA so as to avoid further disputes or bottlenecks in implementation.
In addition, domestic enterprises are still not familiar with the EVFTA. To take fully advantage of the agreement, Vietnam needs to conduct several trainings and seminars so that they are aware of the EVFTA’s benefits and how to utilize the agreement for their own business. Small and medium enterprises also need to improve management quality, workforce skills, competitiveness, etc. to survive in the domestic market before the wave of EU investment.

7 – How do you expect the official time that the EVFTA will take effect?

The EVFTA has been signed and will be ratified at the beginning of next year and will take effect in the same year 2019. It will contribute to make Vietnam the next manufacturing hub in Asia because China and the EU do not have a Free Trade Agreement. Vietnam will be “the next China” with regard to manufacturing for decades to come.
Please do not hesitate to contact 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.

EU- VIETNAM FREE TRADE AGREEMENT – MARKET ACCESS OPPORTUNITIES

On 02 December 2015, after nearly 3 years with 14 rounds of negotiations, the Minister of Industry and Trade of Vietnam, H.E. Vu Huy Hoang and the European Commissioner for Trade, H.E. Cecilia Malmström have signed the Vietnam-EU Free Trade Agreement (FTA). Both parties will finalize the ratification process as soon as possible for the FTA to take effect from the beginning of 2018.

The FTA is considered one of the most comprehensive and ambitious trade and investment agreements that the EU has ever concluded with a developing country. 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 500 million people and a total GDP of USD15,000 billion (accounting for 22% of the global GDP). The other way around, exporters and investors from EU have further opportunities to access one of the fastest-growing countries of more than 90 million people in the region.

The real wages of skilled laborers may increase by up to 12% while real salary of common workers may rise by 13%. The macro economy will be stable and inflation rate is controlled. Vietnam’s business activities will be booming in the next few years once the EU- Vietnam FTA officially comes into force and Government’s policies as well as institutional reforms start showing their positive effects.

Vietnam’s GDP is expected to increase by 0.5% annually; increase in exports is 4-6% per year. If this trend continues until 2020, Vietnam’s exports to EU will increase by USD 16 billion. Until 2025, the FTA is estimated to generate an additional 7-8% of GDP above the trend growth rate.

Market access for goods

 Nearly all customs duties – over 99% of the tariff lines will be eliminated. The small remaining number is partially liberalized though tariff tare quotas. As Vietnam is a developing country, it will liberalize 65% of import duties on EU exports to Vietnam at entry into force and the remaining duties will be eliminated over the next ten years. For some products, EU duties will be eliminated over a seven-year period such as motorcycles with engines larger than 150 cc, car parts, about half of EU pharmaceutical exports. The market will be opened for most of EU food products, i.e. wine, spirits and frozen pork meat after seven years and for dairy products after a maximum of five years. This is unprecedented far-reaching tariff elimination for a country like Vietnam, proving its targets of deeper integration and trading relations with the EU.

From the EU side, it agrees to eliminate duties for 85% 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, there is more than 99% of the tariff lines being eliminated for Vietnam. The EU will eliminate duties for some sensitive products in the textile and footwear sector over a 5-7-year period, with a fabric-forward rule (instead of a strict yarn-forward rule as in the TPP) and allowing Vietnam to import fabrics from South Korea. The EU also offers access to some Vietnamese sensitive agricultural products via tariff rate quotas (TRQs), in addition to a number of main Vietnamese exports such as mobile phones, computer accessories, and sport shoes. Vietnamese exports of textile, clothing and footwear to the EU are expected to more than double in 2020 as a result of the FTA.

We note that besides Vietnam in the region, Singapore also concluded an FTA with the EU in 2014. However, this does not affect the competitiveness of Vietnam in trading with the EU. This is due to the fact that Vietnam mainly exports textiles, footwear, agricultural products, etc. while Singapore’s main exports are machines, chemical products and transport equipment. Moreover, while the EU is accelerating procedures to negotiate FTAs with different countries in the ASEAN region, Vietnam should take advantage of this golden time before FTAs with others in the region are concluded and become effective.

 Market access for EU service providers

Although Vietnam’s WTO commitments are used as a basis for the Chapter on Trade in Services and Commitments, Vietnam has not only opened additional (sub)sectors for EU service providers but also commits deeper than in the WTO, offering its EU partners best possible access to Vietnam’s market.  (Sub)sectors that are not committed under the WTO but under which Vietnam makes commitments are, for example:  Interdisciplinary R&D services; Nursing services, physiotherapists and para-medical personnel; Packaging services; Trade fairs and exhibitions services; Building-cleaning services. Moreover, it is noteworthy that the FTA contains a provision that allows one party to grant the other party the best treatment that the former is negotiating with other partners under other framework (for example, TPP, Regional Comprehensive Economic Partnership,  Vietnam – European Free Trade Association) on 17 July 2015.

We set out below certain Vietnam’s commitments in key sectors with reference to its commitment in the WTO.

 

Distribution sector

WTO requires an Economic Needs Test (ENT) for establishment of outlets for retail services (beyond the first one). EVFTA requires the same but adds cases for ENT exemption and timeline for ENT abolishment.

 

processed oil and crude oil by foreign investors are still prohibited

WTO EVFTA
The establishment of outlets for retail services (beyond the first one) shall be allowed on the basis of an Economic Needs Test (ENT) In case of establishing an outlet less than 500m2 within the area planned for trading activities and already completed construction of infrastructure, ENT is not required.

5 years from the date of entry into force of the Agreement, the requirement of the ENT will be abolished.

 

Power/ Energy

 

WTO EVFTA
N/A Commitments are made in 3 sub-sectors: (i) Production of electricity; transmission and distribution of electricity on own account; (ii) Manufacture of gas; distribution of gaseous fuels through mains on own account; and (iii) Production of steam and hot water; distribution of steam and hot water on own account.

 

Maritime Transport

 

Sub-sectors WTO EVFTA
Maritime transport services Mode 3 Market Access (MA): joint venture with maximum 49% foreign ownership Mode 3 MA: joint venture with maximum 70% foreign ownership
Internal Waterways transport

+ Passenger transport

+ Freight transport

 

Mode 1: No commitment

Mode 3: joint venture with maximum 49% foreign ownership

Mode 1: No restriction

Mode 3: joint venture with maximum 51% foreign ownership

 

Securities services

 

WTO EVFTA
Commitments on 6 sub-sectors

 

 

Mode 3:

foreign securities service suppliers are permitted to establish representative offices and joint ventures with maximum foreign ownership of 49%.

 

After 5 years from the date of accession, securities service suppliers with 100% foreign-invested capital shall be permitted.

Same commitments in 6 sub-sectors

 

 

Commitments on 2 additional services: Provision and transfer of financial data processing; and credit reference and analysis.

 

Mode 3: Same as the WTO

 

Telecommunication Services

 

  • Non facilities-based services: WTO/ AFAS: maximum 65% foreign ownership forever but in the EVFTA after 5 years, this could be 75%.
  • Other services – Virtual Private Network (VPN): maximum 70% foreign ownership forever but in the EVFTA after 5 years, this could be 75%.

Conclusion

 Vietnam is a country of changes and currently offering increasing opportunities for foreign businesses. The underlying strength of the economy is reflected in, among others, controlled macroeconomic indicators, strong productivity gains and extensive integration into regional and global economy. It is now exactly time for foreign investors to start their business plans and grasp the upcoming clear opportunities.

***

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 !

 

 

 

 

 

 

 

 

Lawyer in Vietnam Oliver Massmann EU-VIETNAM FREE TRADE AGREEMENT OFFICIALLY SIGNED

On 02 December 2015, after nearly 3 years with 14 rounds of negotiations, the Minister of Industry and Trade of Vietnam, H.E. Vu Huy Hoang and the European Commissioner for Trade, H.E. Cecilia Malmström have signed the Vietnam-EU Free Trade Agreement (FTA). Both parties will finalize the ratification process as soon as possible for the FTA to take effect from the beginning of 2018.
The FTA is considered one of the most comprehensive and ambitious trade and investment agreements. It is the second agreement in the ASEAN region after Singapore and it will intensify the bilateral relations between Vietnam and the EU.
The agreement has separate chapters on Trade of Goods, Rules of Origin, Customs and Trade Facilitation, Sanitary and Phytosanitary measures and Technical Barriers to Trade, Trade in Services, Investment, Trade Remedies, competition, State-Owned Enterprises, Government Procurement, Intellectual Property, sustainable Development, Cooperation and Capacity Building, Legal and Institutional Issues.
Nearly all customs duties – over 99% of the tariffs will be eliminated. The small remaining number is mainly due to the transition period. Vietnam will liberalize 65% of import duties on EU exports to Vietnam at entry into force and the remaining duties will be eliminated due to the next ten years; EU duties will be eliminated over a seven year period. The market will be opened for most of EU food products, i.e. wine, spirits and frozen pork meat will be liberalized after seven years and dairy products after a maximum of five years. The EU will eliminate duties for some sensitive products in the textile and footwear sector. The EU has offered access to Vietnamese exports via tariff rate quotas (TRQs), because some sensitive agricultural products will not be fully liberalized. Furthermore, the agreement will contain an annex with provisions to address non-tariff barriers in the automotive sector. Vietnamese exports of textile, clothing and footwear to the EU are expected to more than double in 2020 as a result of the FTA.
The FTA will help to increase quality of investment flows from EU, accelerate the process of sharing expertise and transfer of green technology and the creation of more employment activities.
The real wages of skilled laborers may increase by up to 12% while real salary of common workers may rise by 13%. The macro economy will be stable and inflation rate is controlled. Vietnam’s business activities will be booming in the next few years once the EU- Vietnam FTA officially comes into force and Government’s policies as well as institutional reforms start showing their positive effects.
Vietnam’s GDP is expected to increase by 0.5% annually, increase in exports is 4-6% per year. If this trend continues until 2020, Vietnam’s exports to EU will increase by USD 16 billion. Until 2025, the FTA is estimated to generate an additional 7-8% of GDP above the trend growth rate.
***
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.

Vietnam Foreign Direct Investment

By Oliver Massmann and Manfred Otto – Duane Morris Vietnam LLC

Foreign Direct Investment

A Brief Overview
Vietnam is undergoing fundamental changes to form the basis for its attractiveness and competitiveness in preparation for the ASEAN Economic Community (AEC), the upcoming trade agreements including the EU-Vietnam FTA and the Transpacific Partnership Agreement (TPP).
Since July 2015, a number of new laws and regulations governing foreign investment, enterprises, real estate and foreign ownership limits have come into effect. For example, the new Law on Investment and the new Law on Enterprises:
(i) clarify definitions of foreign-invested enterprises;
(ii) facilitate M&A activities;
(iii) reduce the number of prohibited and conditional business sectors;
(iv) reduce statutory business licensing times;
(v) provide more flexibility with regard to corporate governance (such as multiple legal representatives and lower voting thresholds); and
(vi) create more favourable conditions for shareholder lawsuits.
In addition, new laws and regulations affecting foreign ownership of real estate have come into effect. Foreigners can now own apartments and for the first time buy houses. They are now also permitted to sublease and inherit real estate.
With the coming into effect of several international trade agreements and more particularly, the EVFTA, EuroCham members are looking forward to the positive changes that will be implemented and that will further business incentives as well as contribute to Vietnam’s growth.
Vietnam as an attractive FDI destination
In addition to the numerous legal changes, Vietnam has fundamental elements that participate to its continued growth. For instance, Vietnam is in a demographic golden age, with 25% of its 90 million people population between 10 and 24 years old. GDP per capital is increasing drastically as Vietnam has the fastest-growing middle class in South East Asia – (12.9% per annum over the period 2012-2020). Along with a high literacy rate and education levels, comparatively low wages, connectivity and central location within ASEAN, more and more foreign investors choose Vietnam as their hub to service the Mekong region and beyond.
Vietnam’s attractive profile is reflected in its generally welcoming of foreign direct investment (FDI) in manufacturing activities. The gradual opening of most service sectors under Vietnam’s WTO commitments schedule that began in 2007 has been completed in 2015. Domestic law has expanded market access in some sectors beyond those of Vietnam’s WTO commitments. For example, foreign shareholding in public companies that was previously capped at 49% is now generally open for to up 100% foreign ownership. Vietnam also grants investment incentives including tax breaks in areas, such as high-tech, environmental technology, and agriculture, where European businesses are global leaders.
Furthermore, in 2014, Vietnam recorded $21.92 billion in FDI with a total of 1843 investment licenses for foreign invested projects with a registered capital of $16.5 billion, representing a 14% increase from the previous year. Among the foreign investors, the EU is an increasingly important source of FDI for Vietnam as ‘according to the Foreign Investment Agency of the Vietnamese Ministry of Planning and investment, investors from 23 out of 28 Member States of the EU injected a total committed FDI worth US$19.1 billion into 1566 projects over the course of the past 25 years (by 15 December 2014)’. With this strong activity, in 2014, the EU positioned itself as fifth in the top FDI partners of Vietnam with a combined committed FDI of US$587.1 million.

1
Source: ‘Vietnam’s logistics market: Exploring the opportunities, Hong Kong Trade Development Council (HKTDC)

In addition to FDI, the EU-Vietnam’s strong trade relationship can be seen through programmes like the Multilateral Trade Assistance Project (MUTRAP) which accounts for over €35.12 billion. MUTRAP has been instrumental in supporting Vietnam’s negotiating efforts during the WTO accession process and now continues to assist Vietnam in the implementation of trade commitments. In terms of trade, both the EU and Vietnamese businesses are expected to benefit under the EVFTA. The FTA will gradually eliminate tariffs for over 99% of goods and services besides other mechanisms to support bilateral trade. On 4 August 2015, the EU and Vietnam reached an agreement in principle for the free trade deal, an agreement that will also attract further FDI into the country.
Vietnam’s top trading partners 2013
2
Finally, the EU’s strong commitment to support Vietnam in its modernisation and integration in the world economy is mirrored by the aid programmes. In line with Vietnam’s 2020 socio-economic plan, the EU has increased its aid by 30 % reaching 400 million euros via its multi-annual indicative programme for the period of 2014-2020 focusing on the development of clean energy in Vietnam.

Further improvements necessary
It is clear that Vietnam’s development and its attractiveness to foreign investors are undeniable as Vietnam is constantly improving its business environment.
However, as of this writing, guiding regulations for many new laws have still not been published, and investors are experiencing delays in the processing of applications. We expect processing times to improve once the new implementing regulations come into effect and officials get accustomed to the changes.
Another issue that has been highlighted by our members is that many foreign investors still face significant challenges when dealing with Vietnam’s bureaucracy. Tax filing, customs clearance, business registration and licensing, and other administrative procedures are often delayed, outcomes can be unpredictable, and businesses find themselves spending resources on administration that they would prefer to invest in expanding their core activities.
Despite remaining hurdles, the national government of Vietnam has expressed an understanding of the issues surrounding foreign investment. Providing foreign investors increased access to its market, the stream of FDI is expected to continue. For many foreign investors the positive economic development of the country and its fundamentals substantially outweigh potential risks.
In this light, EuroCham wishes to present the key issues that our members face in their activity in Vietnam along with some key recommendations. EuroCham hopes to engage in a constructive dialogue and increasing cooperation with the relevant authorities on all the issues presented in this edition in order to improve the business environment for all enterprises in Vietnam and contribute to the country’s fast modernisation.

***

1‘Vietnam; from golden age to golden oldies’, UK FOC, 07/01/15. Available at
2‘Report revises 2014 FDI figures’ Viet Nam News, 18/03/15. Available at
3‘Investment -EU-Vietnam economic and trade relations’, Delegation to the European Union to Vietnam, 2015. Available at
4‘Vietnam’s logistics market: Exploring the opportunities, Hong Kong Trade Development Council (HKTDC), 20/01/15. Available at
5‘Trade – EU-Vietnam economic and trade relations’, Delegation to the European Union to Vietnam, 2015. Available at
6‘European Union, Trade in goods with Vietnam’, European Commission DG Trade, 10/04/15, p.9. Available at
7‘Development Cooperation’, Delegation to the European Union to Vietnam, 2015. Available at

Continue reading Vietnam Foreign Direct Investment

BREAKING NEWS – EU – Vietnam Free Trade Agreement: In-principle agreement reached – Vietnam to benefit from greater market access for its goods and services – WHAT YOU MUST KNOW:

The Minister of Industry and Trade of Vietnam, H.E. Vu Huy Hoang and the European Commissioner for Trade, H.E. Cecilia Malmström agreed in principle on the Vietnam-EU Free Trade Agreement (FTA).
After a teleconference on the 4th August 2015 and three years of negotiations with commitments taken by both sides the FTA is considered one of the most comprehensive and ambitious trade and investment agreement. The legal text will be negotiated after the summer break and both sides are aiming to sign and ratify the agreement within this year. It is the second agreement in the ASEAN region after Singapore and it will intensify the bilateral relations between Vietnam and the EU.
The agreement will comprises of Trade of Goods, Rules of Origin, Customs and Trade Facilitation, Sanitary and Phytosanitary measures and Technical Barriers to Trade, Trade in Services, Investment, Trade Remedies, competition, State-Owned Enterprises, Government Procurement, Intellectual Property, sustainable Development, Cooperation and Capacity Building, Legal and Institutional Issues.
The FTA is considered to bring a positive impact for both sides especially for the Trade and Investment Sectors.
Nearly all customs duties – over 99% of the tariffs will be eliminated. The small remaining number is mainly due to the transition period. Vietnam will liberalize 65% of import duties on EU exports to Vietnam at entry into force and the remaining duties will be eliminated due to the next ten years; EU duties will be eliminated over a seven year period. The market will be opened for most of EU food products, i.e. wine, spirits and frozen pork meat will be liberalized after seven years and dairy products after a maximum of five years. The EU will eliminate duties for some sensitive products in the textile and footwear sector. The EU has offered access to Vietnamese exports via tariff rate quotas (TRQs), because some sensitive agricultural products will not be fully liberalized. Furthermore, the agreement will contain an annex with provisions to address non-tariff barriers in the automotive sector.
Regarding the investment sector, the FTA will be able to ensure an open and conductive business and investment environment, particularly will it help to promote the capital flow from the EU and gives Vietnam the opportunity to become a hub whilst connecting the EU’s trade and investments with the region. Both sides have achieved a lot, but the provisions concerning the investment protection and dispute settlements are still being negotiated.
The commitments made concerning investment, trade in service, government procurement, intellectual property rights, etc. will ensure an overall balance between both sides. Even Vietnam has to adapt new regulations. Those adjustments are in content with the Vietnamese attempt of administrative reforms to strengthen the country. Moreover Vietnam will achieve a grade of transparency and procedural fairness.
In the context of Intellectual Property Rights Vietnam has itself committed to standards which go beyond those of the WTO TRIP agreement and is creating a safer environment for EU innovations and brands and a stronger enforcement of those provisions.
Signing the FTA will have a broad impact on Vietnam, i.e. create more jobs and stabilize the welfare for Vietnam. Furthermore, there will be many opportunities to get access to modern technology and sharpen management skills.
There will be a framework within the FTA to resolve any future disagreement which may follow about the understanding and implementation of the agreement.

—o0o—

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

THANK YOU VERY MUCH!