Tag: investment

Posted on by Dr. Oliver Massmann

VIETNAM ECONOMIC TIMES INTERVIEWING DR. OLIVER MASSMANN ON PROSPECT FOR FOREIGN INVESTMENT ATTRACTION IN 2019

1. What do you forecast the prospect for FDI attraction in Vietnam in the last 6 months of 2019?

Vietnam continues to attract record foreign direct investment (FDI) in virtually all sectors. In the first five months of the 2019, Foreign Investment Agency (FIA) shows that FDI in Vietnam has reached a four-year high of US$16.74 billion, which demonstrates a year-on-year increase of 69.1 percent. It is expected that FDI investment will continue to grow robustly. The only barrier is to maintain its growth with appropriate strategy for government reforms. Its government has begun prioritizing ‘high-value’ FDI (advanced technology and manufacturing, tourism etc) as well as adequate training for the working population to raise the standards for specialized areas.

2. Which sectors would be the most attracted to foreign investors in Vietnam? Which countries/territories would be the top FDI ones in Vietnam?

The industry and construction sector grows the fastest at 8 percent, followed by services at 7.44 percent and agriculture, forestry and fishery at 2.90 percent. The industry sector grows at 7.85 percent. Accommodation and catering services grows the fastest at 8.98 percent. Others like the financial, banking etc. peak at 8.14 percent. Real estate business grows by 4.07 percent, its highest since 2011. These would be the most attractive sectors to foreign investors in the upcoming time.

FDI inflow from China into Vietnam has been plummeting. Investors from Singapore, Japan, South Korea will continue as top foreign investors in Vietnam.

3. Many China-based manufacturers have moved to Vietnam due to impacts of the US-China trade intensions. Could the trend influence Vietnam’s FDI performance? Why?

With the US-China trade war showing no signs of abating, Vietnam’s free trade agreements, cheap labor, and young working population provide a powerful concoction for it to thrive.
The growth in FDI inflows from China into Vietnam is expected regarding the impact of the ongoing US-China trade war with many Chinese enterprises grasping opportunities by Vietnam’s participation in many new-generation free trade agreements. Therefore, it is necessary for Vietnam to proactively choose to attract FDI projects with high technology content, ensuring the principle of generating high added-value for the economy in accordance with Vietnam’s FDI attraction policy in the new period.

4. Vietnam will not attract FDI at all cost and expects high-quality FDI inflows after CPTPP ratification. What challenges will Vietnam face when pursuing the strategy?

First, the FDI sector’s linkage with other domestic sectors remains weak and its spillover effect on productivity remains low. Second, the attraction and transfer of technology from the FDI sector has not yet achieved the expected results. Third, the attraction of foreign investment into a number of prioritized sectors of the country and from transnational corporations is still limited. Fourth, a small number of FDI projects have not yet strictly observed the laws on environmental protection, employment of foreign workers and tax. Also, the reduction and removal of import tariffs under the deal will lead to a decrease in the state revenue.

5. From your observations, how should the Vietnamese government select appropriate partners and focus on sectors with potential and advantages?

To maintain and develop bilateral investment and commercial relations, trade must be liberal and equal. In terms of geographical areas, foreign investment attraction will suit the advantages, conditions, development levels and plans of each locality and its regional linkages, ensuring economic-social-environmental effectiveness. For sensitive areas related to national defense and security, the foreign investment attraction will be strictly scrutinized, with national defense and security and sovereignty being primary concerns.
Vietnam will step up the diversification of foreign investment attraction from potential markets and partners. It focuses on top developed nations and transnationals with source and advanced technologies and modern governance expertise.

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!

Posted on by Dr. Oliver Massmann

Vietnam – Power/Energy Sector – Current Issues and Solutions for Investment and Outlook on Major Trade Deals TPP 11 and EUVNFTA

A. OVERVIEW
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 much FDI for developing clean energy projects.
Furthermore, the new Solar PPA was issued this year to solve the lack of regulation on solar power projects. Moreover, the issuance of the Circular 16/2017/TT-BCT on the power distribution of rooftop solar plants and the alleviation of the Operating License for power plants (lmw capacity) are notable developments in the power/energy industry in Vietnam. Moreover, the implementation of the Direct Power Purchase Agreement could step into pilot phase in the next time, thus, it is estimated to create better access to clean energy and increase of investment up to USD 2 billion in clean energy.
Another notable fact is the increase of the wind tariff in early August 2017. Now, Vietnam has implemented a wind power project with a capacity of 160 MW. The new tariff shall attract new and more foreign investments in the wind power industry in Vietnam.
B. ISSUES
1. Environment
The government is implementing more and more measures on protection of the environment. Vietnam plays a proactive role on reduction of emission and CO2 but the penalties for violation are very low. Furthermore, new regulations have to be issued to ensure more environmental protection, especially in terms of fossil power projects known to be a great danger for environment regarding to huge amounts of emissions and pollution. The project developers should be obliged to develop projects using highest environmental standards.
2. Solar PPA Policy
There are issues in the solar power policy necessary to be addressed.
In general, the goals on producing clean energy in large scale and the attraction of FDI cannot be reached sufficiently yet due to issues regarding electricity pricing and the content of the final power purchase agreement. These issues lead to restraining investments and delayed development of the clean energy industry in Vietnam.
Further, there are continuing concerns about lack of transparency regarding to solar power prices and due to lack of a published Roadmap for the retail sector. This leads to uncertainty of foreign investors regarding to stability of prices. Price transparency measures should be included in the Energy Plan and a Roadmap for the retail sector should be published. The issuance of a pricing framework can also lead to more investments in off-grid projects causing relieve of EVN’s pressure on power transmission, thus, the transmission system does not have to run near overstressing at daily peak hours. Moreover, the final template of the Solar PPA contains concerning provisions for investors such as (i) lack of EVN’s payment obligations in cases of transmission problems; (ii) lack of transparent possibilities for international arbitration; (iii) the lack of PPAs’ bankability. The final PPA needs to be amended to grant more security to investors and to attract more FDI. Moreover, the administrative regulations must be simplified for more efficiency in solar power project development as well as for easier market access, especially with regard on major trade agreements like TPP 11 and the EUVNFTA.
3. Power Storage
The Solar Battery is the most common way of storing energy but the technology is not well-developed yet in Vietnam. However, the country has the possibility to become leader in the new storage technologies in the eastern part of the world. This is another reason for the necessity of development of the solar industry and extremely important as power storage solution on remote islands in order with power production in those areas.
4. Project Applications
Currently, there is a very large number of applications for solar plants existing. This leads to concerns regarding to create a ,,bubble effect” which is causing gridlocks in project developing an delays in investment as well as uncertainty among investors.
For investors, to improve the chance on winning tendered biddings, it is important to provide conditions like (i) ensured safety for wildlife, people, environment or households; (ii) maintained grid connection, (iii) enough financial solvency regarding feasibility of the project; (iv) successful projects in energy or infrastructure areas in the past.
On the other hand, the Ministry of Industry and Trade (MOIT) guarantees that all investors of power projects will be able to connect the plants to the national grid. According to the MOIT, the total reserved capacity of all planned projects is only 30% of the whole capacity, so that, there is no reason for concerns regarding to finalized projects not able to start power producing because of missing opportunity on generating turnover.
C. OUTLOOK ON MAJOR TRADE AGREEMENTS TPP 11 AND EUVNFTA
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 agreement shall be signed by all member states by the first quarter of 2018. After that, it has to be ratified in each member state before taking effect.
The effects of the TPP 11 promising great benefits for the energy sector in Vietnam. The TPP 11 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.
One another notable major trade agreement is the EUVNFTA between the European Union and Vietnam. 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.
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!

Posted on by Dr. Oliver Massmann

Vietnam – Agriculture Sector – Current Issues and Solutions for Investment and Outlook on Major Trade Deals TPP 11 and EUVNFTA

A. OVERVIEW AGRICULTURE SECTOR VIETNAM

Since 2016, the exports of many products in the agriculture sector in Vietnam has strongly increased. On the other hand, the agriculture sector is still vulnerable as shown in the past due to its limited development.
The development of the agriculture sector in Vietnam needs to come on track to solve the important issue on shifting from price to quality to ensure sustainable growth as backbone sector of Vietnam’s economy.
However, to ensure high quality products, Vietnam needs to make changes.
Firstly, the use of prohibited chemicals during breeding, preservation, digestion needs to be enforced and controlled by state authorities. The stricter control of raw materials before digestion and the manufacturing standards are further issues that need to be addressed to make the agriculture competitive with international players. Furthermore, the transformation of the domestic Vietnamese agriculture into a self-sufficient sector is another important step that needs to be realized.
In addition, to ensure sustainability, growth and for protection against crisis, farmers need to earn stable income, the farmers’ carbon footprints need to get reduced and the production must be adjusted to the requirements of the consumers and demand in the market.
However, for solving these problems, long term solutions need to be enrolled, those can be (i) increased food safety, (ii) diversification of products, (iii) improvement of regulatory environment, (iv) observing costs and improved finance, (v) the dependence on China in fruits, vegetables and pork meat must be addressed due to caused problems in the past.
On the other hand, Vietnam’s export of dragon fruit to Australia and export of poultry to Japan shows capability of Vietnamese exports meeting high safety requirements.
If the current issues can be addressed in the future, Vietnam’s exports in agriculture sector will show sustainable growth in the future.

B. ISSUES

1. Traceability and safeguarding of products
Vietnamese and international consumers are concerned about quality and safety of the food they are purchasing.
Currently, there are no well-developed traceability systems of the government for agricultural products in force. This is leading to significant consequences for the competitiveness in production. Further, the potential of product improvement is reduced, exports and market access is limited.
In Addition, the safety for consumers is deceased leading to low satisfaction of consumers.
As result of the existing issues, there are almost no financial incentives for improvement of processes.
However, now, it is possible for the Ministry of Agriculture and Rural Development (MARD) to monitor animal movements with the help of the Department of Animal Health for protection against diseases of animals.
Furthermore, the Ministry of Industry and Trade and the Department of Livestock Production improved systems for better protection and regulation of unofficial imports of products from other countries. This monitoring system shall also improve competitiveness and market accessibility in foreign countries.
On the other hand, these issues can only be fully addressed if obtained in regulations. TE Food System is operating a traceability system helping the authorities in HCMC and surrounding provinces on monitoring movements of pigs. This system is embedded in Decision 6079/QD. This year, the system was extended to eggs (Decision 3583/QD), chicken and poultry (Decision 3584/QD). Further extension to fruits, vegetables and beef are planned.
Nevertheless, these systems not only grant possibility on making regulations, it also can lead to reduced corruption due to better possibility to control.
For addressing the issue best, the systems should be improved on including the whole agriculture sector for ensuring sustainable growth, a fair and well-developed competition between national famers and international farmers as well as good market access.

2. Management of Plant Protection Products and its approach to regulation based on science
On 6th August 2015 the Circular No. 21/2015 was released. It is addressing Management of Plant Protection Products.
However, it contains provisions that could turn out as dangerous to the economy, environment and to the farmers as displayed in the following:
The circular contains provision about no registration and the banning of pesticides falling under GHS Category 3 and 4 in area of vegetable, tea and fruit. Further, the banning and no registration of crop protection products for use with vegetables, tea and fruit with having PHI bigger than seven days of use.
There is no scientific approach behind these provisions. As result, they could ban the availability on technologies for farmers in Vietnam operating in vegetable, tea and fruit.
Furthermore, these provisions lead to a significant competitive disadvantage to the agriculture sector. In addition, they contain specific risks to the environment, consumers and domestic economy due to the potential prohibition of the most-developed technologies bringing biggest amount of safety against diseases and climate issues to the consumer and possibility of productivity to farmers.
These provisions should not be adopted due to lack of science-based approach. Vietnam should handle this issue as other countries in southeast-Asia did.

3. Import and Export of Plants and Seeds
The import of plants and seeds can be done online in Vietnam. The purchased seeds have to be registered before the import can be successful. In cases where the online application file does not fit with the registration requirements, the import is delayed until registration is successful.
Enterprises need to be provided with sufficient information or guidelines to accelerate the import processes and for excluding delays in imports. On the other hand, export cannot be done online, thus, exports of plants and seeds need an insufficient amount of time.
The online export should be made possible for more efficiency in Vietnam.

4. Legal environment on banned substances and reduction of Antimicrobial Resistance
The last issue addresses the enforcement of regulations on bans and limitations regarding substances and the reduction of Antimicrobial Resistance. The use of antibiotics in animal nutrition can have various good effects such as prevention of diseases or treatment against them. On the other hand, it has bad impact on the consumer by means of the human body is building resistance against antibiotics leading to significant health risks for consumers.
As result, Vietnamese lawmakers have made big efforts to enforce existing regulations regarding to violations on the use of banned antibiotics and other substances.
Several circulars have been provided containing a list of prohibited chemicals and antibiotics on import, use in livestock and trading. However, the Circular No. 28/2014/TT-BNNPTNT is only addressing a few types of banned antibiotics and substances. After releasing the circular, many farmers concluded about reducing the use of antibiotics in animal nutrition and tried to replace them with alternative substances. Therefore, the government should endeavor research activities on alternative treatments and substances.
Another important measurement for enforcing the regulations were urine test kits for scanning on prohibited substances and uncovering violations against the regulations. Violations can lead to hard penalties up to the obligation on killing all animals on the farm. As result, it was possible to reduce the overuse of prohibited substances.
Moreover, the mass usage of antibiotics is leading to Antimicrobial Resistance (AMR). According to the WTO, AMR is a huge global problem and estimated to be main cause of death by 2050 in Vietnam. Further, the economic costs will be USD 100 trillion!
However, in 2015, the four competent Vietnamese Ministries, Development Partners and a National Steering Committee signed an Aide Memoire as action plan against misuse and control of antibiotics in the livestock production and aquaculture. Vietnam should adopt measurements and strategies from other countries to address these issues in a successful way and to ensure strict enforcement of existing regulations. Further, biosecurity, monitoring, genetics, nutrition and control are other aspects that have to be addressed to grant safe products to the consumer without major health risks and to reduce AMR.

C. OUTLOOK ON MAJOR TRADE AGREEMENTS TPP 11 AND EUVNFTA

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 agreement shall be signed by all member states by the first quarter of 2018. After that, it has to be ratified in each member state before taking effect.
The effects of the TPP 11 promising great benefits for the agriculture sector in Vietnam and will support Vietnam’s national agriculture transforming into a self-sufficient and competitive sector. The TPP 11 is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. As a result, international products will arrive at the Vietnamese market, so that, the Vietnamese livestock should use the given time for restructuring but also for becoming competitive and creating efficient environment for international investments.
With the National and Most-Favored Nation Treatment principle, the TPP 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 EUVNFTA between the European Union and Vietnam. 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. Moreover, the agreement will eliminate 99% of tariffs on agricultural products leading to huge dynamic in the sector and Vietnam will get the chance on adopting technology from the European Union.
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!

Posted on by Dr. Oliver Massmann

Vietnam – Solar Energy – Action plan for getting deals done with the new Power Purchase Agreement

Interview with Dr. Oliver Massmann\

1. Which significant changes does the new PPA contain for the solar energy sector?

Decision 11 introduces the Feed-in-Tariff (FiT) rate of UScents 9.35 per kWh. The FiT rate is only applicable for on-grid solar power project with efficiency of solar cells greater than 16% or with efficiency of the modules greater than 15%. The FiT rate depends on the currency exchange rate of the Vietnamese Dong and the US-Dollar. The rate remains the same throughout the whole year. It is adjusted by the Vietnamese State Bank on the last working day of the year for being used in the following year.

As a result, the financial planning is easier and it grants certain security for investors such as protection against currency fluctuation.

2. Which aspects in the new PPA have changed compared with the draft PPA from April 2017?

Compared with the draft PPA, the FiT rate is now indicated in the final version and there is reference to the adjustment of the FiT in case of USD/VND exchange rate fluctuation.

The MoIT made no big changes regarding the shortcomings of the draft of the PPA from April 2017.

The investor still has to bear the biggest risk.

3. Is the PPA bankable?

No, in general the PPA is not bankable in its final version.

4. Is there a way to make it bankable?

Yes, it is possible to make the PPA bankable. We have 20 years of experience making PPAs bankable for gas and coal fired power plants and wind energy plants in Vietnam. The investor should use all business channels and experienced negotiators to make the PPA bankable.

It is a matter of negotiation and experience. Decision 11 is granting investors the possibility to negotiate the conditions with EVN. The price remains fixed.

Agreements such as the EU – Vietnam Free Trade Agreement (“EVFTA”) or the Trans-Pacific Partnership (“TPP”), which is now called the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (“CPTPP”), lay a big milestone for making the PPA bankable.

The EVFTA was signed in 2015 and is expected to be ratified by all member countries by 2018. It is probably going to take effect in 2019. It is estimated to generate an increasing GDP and to liberalize the economy of Vietnam. Another aspect is the elimination of almost all custom duties (over 99% of all tariff lines). As a result, there will be a huge impact on trade development and the interest of investors.

Another important agreement is the CPTPP. On 4th February 2016 the TPP was signed between 12 countries. The signing nations made up 28% of the global trade and 40% of the global GDP. However, at the beginning of 2017, the US President Trump decided to withdraw from the TPP. The remaining 11 member states discussed the future of the TPP in APEC event in Da Nang, Vietnam and agreed to push ahead with the TPP but now under the name of CPTPP. Furthermore, the states agreed to work out a new framework agreement, which includes changes to the previous TPP agreement. The largest amendment was made in the field of intellectual property, for example, easing the protection of copyright or the special protection of biologics and pharmaceuticals.

However, the level of market access is still the same as in the first TPP. For some countries, further negotiations have to take place and they need time to adapt their laws to the CPTPP rules. The negotiators have set the goal of signing the revised TPP by the first quarter of 2018. After 6 countries have ratified the partnership, it will come into effect.

With the CPTPP, market access to more sectors will be opened than the WTO such as telecommunication, distribution of goods, manufacturing and fabrication. However, there will remain a few restrictions in the power/energy sector as discussed below.

As a result of the EVFTA and the TPP, Vietnam will get access to a huge part of international markets. This gives Vietnam the possibility to increase the amount of imports and exports (estimated up to 37% higher until 2025) and to improve foreign investments.

Another essential instrument is the Investor-State Dispute Settlement (ISDS)[N1] which is going to be applied under the EVFTA and the TPP. 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.

As a conclusion, the bankability of the PPA will get enhanced as a consequence of the EVFTA and TPP in the next few years if the legislative framework is being reformed in the right direction. The economy will become more dynamic because of access to other markets and further foreign investments. With the implementation of the ISDS in the TPP, investors will be more secured in relation to dispute resolution and protection against the risks of international trading. As a result, banks will be more willing to finance PPAs.

Our recommendations: For now, the bankability of the PPA is not as it is expected. But you should be aware of the upcoming agreements which will lead to a big impact on the economy growth and the economy itself. If everything is improving in the right direction as it is now, the PPAs will be more bankable in the future and there will be better investment opportunities.

5. How was the bankability issue handled in the past years?

The TPP and the EVFTA are not the only agreements regarding the bankability of the PPA.

Vietnam and the USA signed the Bilateral Trade Agreement (BTA) in 1999 which was implemented in 2001. It was a huge success and very important agreement for the economy of Vietnam. It was the first opening of the Vietnamese market and important for the creation of more business opportunities and new standards for financing projects.

Another important fact was Vietnam’s accession to the WTO in 2007. This has improved trade relations between Vietnam and other countries by removing trade barriers and the commitment to non-discrimination. It was also a political sign to show Vietnam’s will to get integrated in the international trade by accepting international trading rules.

To be able to fulfill the commitments, it is necessary to make legislative adjustments and adopt laws that ensure the viability and efficiency of the projects. In the last years, many important laws have been introduced. They have helped to enhance the bankability of the PPA, for example, the 2014 Investment Law, 2014 Enterprise Law, 2012 Labor Law, etc.

In addition, in 2011, the legal framework for wind power projects was introduced.

Our recommendation: You should use existing international agreements and local laws as the bases for negotiation. Remember to rely on existing precedents and keep in mind that there are some difficulties for project development. But with a well-structured project development, it is still possible to getting a bankable PPA done.

6. What are the main risks of the PPA for investors?

With many solar projects currently focused on a few central locations, the capacity of existing facilities to absorb power must be a cause of some concerns given the PPA’s transfer of such risk to power producers.

EVN holds a monopoly of distribution, repair, maintenance, inspection and examination of the grid.

There is a big risk because of the lack of the government’s guarantee for EVN’s payment obligation in cases energy is provided from the producer but cannot be transmitted due to interruption of EVN’s grid connection. One solution for bridging that guarantee gap can be the use of the MIGA backup from the Worldbank (Multilateral Investment Guarantee Agency) or backup from the Asean Development Bank.

Reasons for the interruption can be, for example: force majeure or termination of contracts. EVN can refuse transmitting the energy in cases of maintenance or repairing.

Circular 16 does not contain any guarantee or compensation for investors in these cases.

Our recommendations for avoiding potential risks: Be aware of veto rights of EVN and Vietnamese authorities. You have to be patient because the decision making process in Vietnam goes through many levels and takes time.

7. There will be conflicts between the investors and EVN because of the shift of risks to the investors. Which means of conflict resolution does the PPA grant to investors?

In general, the PPA is governed by the Vietnamese law.

The PPA does not provide for international arbitration as a means of dispute resolution.

Conflicts can be submitted to the Department of Electricity and Renewable Energy. If this option fails, investors can seek help at the Electricity Regulatory Authority of Vietnam (ERAV) or with application to a Vietnamese court.

The PPA implicitly allows the involvement of domestic and offshore arbitration. However, whether it can be a prior agreement with EVN in the PPA or only until there is an arising dispute simply lies in the hands of EVN.

Our recommendations for successful negotiations with EVN: You have to understand how EVN is working and what their targets are. Be aware of their monopoly position in the energy sector in Vietnam. Don’t try “to reinvent the wheel”!

Do not overexert them with too ambitious intentions related to the development proposal. They might be afraid of so many new things. Rely on workable precedent strategies and make reference to successful projects.

8. Which view does the MoIT hold regarding the shortcomings of the PPA?

The MoIT knows about the shortcomings of the PPA and is aware about the fact that the PPA will not attract investors to meet the power demand or to solve problems regarding the development of renewable energy.

The MoIT also knows that the solar energy sector in Vietnam has a lot of potentials.

Finally, the MoIT expects to attract smaller investment projects where bankability is not really an issue for the investors.

9. Is the view of the MoIT realistic?

In our opinion, the MoIT’s view is not realistic. It may lead to unfeasible projects because of the existing risks of the final version of PPA and without assurance for supportive services from a bank. Furthermore the success of projects depends on the result of the negotiation with EVN.

10. Which advice can you give to future investors regarding their project development?

Be aware! You have to take care of your project on a step-by-step-base and get well prepared for the negotiations with EVN when you decide to invest in an on-grid power project.

***

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.

 

Thank you!

 

 

 

Posted on by Dr. Oliver Massmann

Investment Registration in Vietnam – Are we ready for the EU – Vietnam Free Trade Agreement?

The EU-Vietnam Free Trade Agreement (EVFTA) is expected to be ratified by all member countries by 2018 and take effect from 2019. It will create more opportunities and have a massive impact on the Vietnamese economy. In order to ensure full compliance with the EVFTA provisions, Vietnam’s legal system faces certain challenges. To shape the future and prepare for the fourth industrial revolution, it is vital for Vietnam to make reforms. This will prepare the way for transformation and to fully grasp the new opportunities that are coming their way.

What has been done?

Regarding the mechanism in dealing with the licensing process for a foreign invested company, different Chambers of Commerce in Vietnam have recognized significant improvement in the implementation of business and investment regulations since the effectiveness of the Enterprise Law No 68/2014/QH13 (Enterprise Law) and the Investment Law No 67/2014/QH13 (Investment law) on 1 July 2015.

In general, the Enterprise Law and Investment Law guarantee the principle of freedom of business. The licensing authority also fully complies with the prescribed time limit for the issuance of an Investment Registration Certificate (IRC) and an Enterprise Registration Certificate (ERC). These improvements have indeed improved the business and investment environment.

New laws applied in an ambiguous way?

Although there have been significant improvement in the implementation of the Investment Law, Enterprise Law and their guiding documents, there remain concerns about inconsistencies between implementation and enforcement of the current laws in certain aspects. The new laws are still holding back potential foreign investment due to many uncertainties. For example the business registration process contains issues as below:

  • Overlapping investment approvals and documents. – The procedures for investment registration are overlapped in terms of formalities and documents which are time consuming. The Investment Law and Enterprise Law set a timeline for the licensing authorities to provide the IRC (15 working days) and the ERC (3 working days). However there are many cases where authorities miss such deadlines. In addition, Decree No. 23 requires a trading license for foreign invested enterprises doing trading activities but it is not certain when such license will be issued from the application date (could be from two to several months).
  • Time limit for capital contribution. – The time limit for capital contribution regulated by law is too short (90 days). This timeline is not feasible especially for projects whose total investment capital is of high value.
  • Procedure for purchase of shares by foreign investors .- According to Article 46.2 of Decree No. 118/2015, a foreign investor is only required to obtain an approval from the Ministry of Planning and Investment under limited circumstances listed by law (e.g., purchasing 51% or more shares in a local company). However, due to the lack of specific guidelines, many foreign investors have been required to obtain an approval whenever they acquire new shares, even in a company not operating in a conditional sector.
  • Payments for transfer of shares/stakes. – According Article 36.3 of the Enterprise Law, payments for transfer of shares and receipt of dividends of foreign investors must be made through their capital accounts opened at banks in Vietnam. Furthermore, the State Bank of Vietnam requires different regulations for foreign direct investment (FDI) and indirect investment (FII). For instance, FDI payments are made to the project company’s direct capital account. Meanwhile, FII payments are made to the investor’s VND account. In fact, local banks have adopted different interpretations to these regulations, thus creating confusion for the investors.
  • Share Swaps. – The Enterprise Law does not provide for share swaps.

Calling to action

As analyzed above, the current system for an investment registration in some cases makes it difficult to enforce current laws. Accordingly, administrative reforms should be conducted to simplify procedures, namely:

Ø To require only 1 or 2 approvals for the investment registration. In doing so, electronic submission should be allowed and overlapping documents must be removed.

Ø To allow shareholders to decide the time limit for capital contribution, except for certain projects.

Ø To ensure that approval of share acquisition complies with the requirements listed by law only.

Ø The State Bank of Vietnam should provide a guidance on transfer of payments among banks.

Ø To adopt provisions relating to share swaps.

Conclusion

The EU-Vietnam economic relationship is a mutual cooperation. The EVFTA is among tools to facilitate investment and trade between the parties. With the EVFTA, each party aims at guaranteeing non-discrimination treatment. However, if the current laws continue being enforced as they are now, it may trigger possible violations of that principle. In order to avoid this, it is vital not only to determine the incompatible regulations and institutions in the local legal framework but also to adopt appropriate solutions. For example, the Government should enhance information exchange among state agencies to prevent overlapping documents and time consuming process, and improve a single window and inter-agency regime. The Government should also ensure that licensing authorities operate more efficiently according to the regulation.

***

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 General Director of Duane Morris Vietnam LLC.

Thank you!

 

 

 

Posted on by Dr. Oliver Massmann

VIETNAM – GUIDE to Anti-Money Laundering

Member of Financial Action Task Force (FATF)?

No, Vietnam is currently not a member of FATF.

On FATF Blacklist?

No.

Member of Egmont?

No.

  • ML background in region
    • Overview of country risks

Vietnam’s deeper integration into regional and world’s economy for the past few years has been a great opportunity for international money laundering crimes. However, money laundering activities only become clearly visible recently though bank accounts opening, securities trading, gambling, illegal transfer of foreign currencies out of the country, use of credit cards, etc. Combating money laundering becomes one of the top concerns not only for the State Bank of Vietnam but also other relevant authorities in Vietnam. According to a report of the State Bank of Vietnam, in 2012, suspicious transactions have a total value of VND51,000 billion, while in 2013 is VND79,000 billion and in 2014, the value goes up to VND119,000 billion. This shows an increasing and alarming number of transactions suspicious of money laundering. We note that the Law on Anti-money Laundering took effect on 01 January 2013. However, it seems that the anti-money laundering legal framework is still not sufficient, guiding implementation remains unclear, awareness of credit institutions of money laundering is low, ability to detect money laundering activities is weak, information technology in anti-money laundering activities is not sufficient, and especially punishment regime for violating acts of the AML is only formalistic. The Government, especially the State Bank of Vietnam is strongly recommended to tighten their regulations in this sector.

  • Key Directives / Legislative framework
  1. Law on Prevention of and Anti Money Laundering No. 07/2012/QH13, issued by the National Assembly on 18 June 2012 (“AML”);
  2. Decree No. 116/2013/ND-CP on detailing the implementation of certain provisions of the AML (“Decree 116”);
  3. Circular No. 35/2013/TT-NHNN on guiding the implementation of certain regulations on anti- money laundering, issued by the State Bank of Vietnam on 31 December 2013 and amended by Circular No. 31/2014/TT-NHNN; and
  4. Penal Code No. 15/1999/QH10 issued by the National Assembly on 21 December 1999, as amended by Law No. 37/2009/QH12.
  • Who are the regulators / monitoring authorities
    • Who are affected / reporting entities?

According to the AML, the following state authorities are responsible for reporting, preventing, and fighting against money laundering activities:

  • SBV is mainly responsible to the Government for state administering the implementation of AML regulations;
  • Ministry of Public Security is responsible for collecting, receiving and investigating information of money laundering related crimes;
  • Ministry of Finance is responsible for implementing AML measures in insurance business, securities sector, prize-winning games and casinos;
  • Ministry of Construction is responsible for implementing AML measures in real estate business sector;
  • Ministry of Justice is responsible for implementing AML measures applicable to lawyers, legal practice organizations, notaries and notary public offices;
  • The People’s Procuracy and the People’s Court coordinate with other agencies in the investigation, prosecution, and resolution of money laundering crimes;
  • People’s Committees at all levels are responsible for conducting legal training on anti-money laundering in the province, co-ordinating with state authorities to implement policies, strategies, and plans to prevent and fight money laundering; and
  • The Anti-Money Laundering Steering Committee is responsible for assisting the Prime Minister in preparing strategy, plans, policies and programs in the process of preventing and fighting against money laundering.
  • Legal requirements for KYC
    • Customer Due diligence

According to the AML, in which cases application of measures to identify clients are required depend on the types of entities and which business activities they are conducting. In particular:

–          For financial institutions:

ü  The clients open accounts or set up transactions with the financial institutions for the first time;

ü  The clients who make infrequent transactions of high value or carry out the transaction of electronic money transfer but lack the information about the name, address, account number of the originator;

ü  There are doubts about transaction or the parties concerned in transactions are related to the money laundering;

ü  There are doubts about the accuracy or completeness of the clients identification information previously collected.

–          For relevant non-financial institutions or individuals:

ü  Doing business in prize-winning games, casinos: clients implementing high value transactions (i.e.¸ over VND60 million per day);

ü  Doing real estate management services, brokerage; real estate transaction floor: when providing these services to the buyer, purchaser and asset owner;

ü  Trading in precious metals and stones: when clients performing the sale and purchase transaction of precious metals and stones with value of over VND300 million per day;

ü  Providing notary and accounting services, the lawyer’s legal service and lawyer practice organizations: when preparing the conditions for conducting the transactions to transfer the land use right, house ownership, management of money and securities or other assets of the clients; managing the clients’ accounts at banks, securities companies; administrating and managing the operation of the clients’ companies, and participating in the activities of purchase and sale of business organizations on behalf of clients;

ü  Providing investment trust services: due diligence for the entrusting party;

ü  Providing services of establishment, management and executive of enterprise; supplying registration office, address or place of business; supplying services of company representative : clients requesting such services;

ü  Providing services of director and secretary provision of the enterprise to a third party: third party and director / secretary to such director;

ü  Providing services of representative supply for shareholders: shareholders and representatives of such shareholder.

The abovementioned services providers/ entities must update the client identification information on a regular basis during the period of having relations with the clients.

In addition, clients must also be classified into different groups, product and services used, their place of residence or headquarter based on different risk exposure levels.

  • Reporting requirements / Obligations
    • Record keeping

Records of clients’ transactions must be kept for at least 5 years from the date of the transaction. Records of customer identification, accounting documents and reports of high value transactions, suspicious transactions and transactions of electronic money transfer exceeding VND500 million or equivalent amount in foreign currency (for domestic transfer) or USD1,000 (for inbound or outbound transfer), must be kept for at least 5 years from the closing date of the transaction or the date of account closure or the reporting date.

    • Tipping off

The reporting entity/ individual is not allowed to inform a person involved in a suspicious transaction that it has reported or will report the transaction to the State Bank of Vietnam.

    • Whistleblowing

The AML only sets out regulations on reporting to the State Bank of Vietnam instead of whistle blowing.

  • Offences
    • Enforcements

If the parties related to the transactions are included in the blacklist or there are grounds to believe that the transaction required to be performed is related to the criminal activities, the reporting entity/ individual must apply measures to delay the transaction within maximum 3 working days and must immediately report in writing and notify via phone to the competent State agencies and the SBV for cooperation. If the reporting entity/ individual does not receive any feedback from the competent State agencies after 3 working days, it can proceed the transaction.

In addition, the reporting entity/ individual must block the accounts or seal or temporarily seize assets of the individuals/ organizations upon having decision of competent state agencies under the law and make report on the implementation to the State Bank of Vietnam.

    • Penalties

Persons violating the AML are subject to administrative sanctions of up to VND250 million, discipline or criminal penalty depending on the nature and seriousness of such violations. The criminal sanctions varies from one year to maximum 15 year imprisonment, together with partly or wholly confiscation of assets, monetary fine of up to 3 times of the violated amount, abandonment of holding certain positions or titles from one to five years.

  • Internal procedures & training

Pursuant to Article 20 of the AML, reporting entities/ individuals must establish internal procedures on prevention and combating money laundering with the following contents:

ü  Client acceptance policy;

ü  Processes and procedures to identify clients, verify and update client information;

ü  Transactions which must be reported;

ü  The process of review, detection, handling and reporting of suspicious transactions; the way to communicate with the clients who make suspicious transaction;

ü  Information keeping and security;

ü  Applying temporary measures and principles of handling the cases of transaction delay;

ü  Reporting and information supply regime to the State Bank of Vietnam and the competent state agencies;

ü  Professional training on the prevention of and combating money laundering;

ü  Internally controlling and auditing the compliance with the policies, regulations, processes and procedures related to the prevention of and combating money laundering, responsibilities of each individual and division in the implementation of internal rules in the prevention of and combating money laundering.

  • Sanctions
    • International conventions

International cooperation in the field of prevention of and combating money laundering includes: (i) exchange of information on prevention of and combating money laundering; (ii) determining and blocking assets of the violating persons; (iii) performing judicial assistance and cooperation in extraditing money laundering offences; and (iv) other aspects. The process, procedures and cooperation methods are in accordance with international agreements to which Vietnam is a party.

  • CTF – Countering terrorist finance

The Ministry of Public Security is tasked with the preparation of a list of organizations and individuals related to terrorism and terrorist finance (“Blacklist”). The reporting entity/ individual must promptly report to the competent anti-terrorism authorities, and at the same time send reports to the State Bank of Vietnam upon detecting organizations and individuals to conduct transactions included in the blacklist or when there is evidence that other organizations and individuals commit acts related to the money laundering crime for terrorism financing.

At the same time, the reporting entity/ individual must apply measures to delay the transaction and block the accounts or seal or temporarily seize assets of the individuals/ organizations.

  • Anti bribery and corruption laws

Corruption is widespread throughout Vietnam. For information, Vietnam ranks 111 out of 168 according to 2015 Corruption Perception Index, a barely budge compared with its rank in 2014 (119th) and in 2013 (116th). Sectors most affected by corruption are Police; Public administration; Health sector, Judiciary; and Land management. Vietnamese government has acknowledged the negative impact of corruption on both Vietnam’s future prosperity and the Party’s own legitimacy, thus has adopted one of the most comprehensive and ambitious anti-corruption laws in Asia. The anti-corruption legal framework has significantly improved after the adoption of the Anti-corruption Law by the National Assembly in 2005 and the National Strategy on Anti-corruption to 2020.

However, in the last ten years of implementation, considering the increasing level of complexity of corruption cases, the current legal framework has been proved to be inadequate to combat corruption in Vietnam. This prompted the Vietnamese Government to refine the current regime to make the policies fully effective and operational in practice.

Draft Law provides a new chapter on Assets and Income Transparency and Control.  Deputies to the National Assembly and People’s Councils, officials holding positions as from deputy head of division in People’s Committee of districts, Secretary, Deputy Secretary, Chairman, Deputy Chairman of People’s Committee, people who work in public companies, credit institutions, etc. must enumerate their assets and incomes. In case their actual assets and incomes are bigger than ones enumerated, the competent authorities shall request tax authority to collect taxes applied on the discrepancy between actual assets and incomes and the ones enumerated; initiate a law suit before courts.

A new section of “Anti-corruption at social organizations” is added.  Chairman, General Secretary, Chief Accountant of a social organization must enumerate their assets and incomes.

Draft Law also provides a new chapter on “Forming a healthy and anti-corruption business culture.” Specifically, enterprises are liable to issue and implement a code of ethics internally in order to form a healthy and anti-corruption business culture.  In its charter and operation policy, the enterprise is responsible to provide its internal control mechanism to prevent conflict of interests, bribery, abuse of powers and other corruption acts. Chairman of Board of Directors, members of Board of Directors, General Director, Directors, Head of Inspection Committee, Chief Accountant of a public company, credit institution, investment fund must enumerate their assets and incomes.  Enterprises are liable to issue their policy on control of their management staff’s assets and incomes control.

There is no definition of “bribery” under Vietnam laws. However, in essence, it could be defined as an act of offering, promising, making or receiving money or anything of value (minimum threshold:  VND 2 million (approx. US$ 100) to induce or influence an act/ omission or decision. The current laws only target people with positions and power (i.e., state officials). Please note the receipt of minimum VND2 billion is subject to death penalty.

  • Forthcoming issues/legislation

o   Money transmitters

Money transfer transactions with nature mentioned under Customer Due Diligence and Record Keeping sections are subjects of the AML. The laws regarding these issue remain in force and there is no information that these rules will be revised in the short term.

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

Thank you very much!

 

 

 

 

 

 

Posted on by Dr. Oliver Massmann

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

***

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

 

 

Posted on by Dr. Oliver Massmann

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

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

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

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

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

  1. What is special about the Vietnamese market and its structure?

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

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

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

  1. What do Vietnamese companies expect from their foreign cooperation partner?

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

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

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

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

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

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

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

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

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

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

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

“Dear Ms/Mr ….,

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

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

Thank you very much

Best regards”

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

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

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

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

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

Posted on by Dr. Oliver Massmann

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

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

Answer:

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

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

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

– Macroeconomic impacts:

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

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

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

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

– Impacts on agriculture:

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

– Impacts on the society:

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

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

+ The number of juvenile laborers has largely decreased.

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

Answer:

  1. a) Impact on the Economy:

+ Positive impacts on economic growth:

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

+ Negative impacts on economic growth: inequalities among the citizens

  1. b) Impact on the Politics:

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

– Vietnamese law has become more transparent and uniform.

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

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

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

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

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

Question: In which domains was this impact particularly strong?

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

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

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

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

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

Answer:

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

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

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

Yes.

Part 2: Questions about a concrete policy case in Vietnam

Case description:

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

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

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

Questions:

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

– Yes.

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

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

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

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

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

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

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

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

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

THANK YOU !

 

 

Posted on by Dr. Oliver Massmann

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

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

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

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

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

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

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

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

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

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

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

THANK YOU !

 

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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