VIETNAM  – Vinamilk’s success story – Oliver Massmann in interview with Channel News Asia  

 

  1. The government is planning to fully sell its 45% stake in Vinamilk, starting with 9% this year. What are foreign and local investors saying; how much interest is there?

As you already know, Vinamilk is one of the most profitable SOEs, so both foreign and local investors are very interested in buying shares in the company. However, 9% of the charter capital of the company is  a small number and may not attract big investors being corporations in the industry as expected.

  1. Vinamilk is a hugely successful Vietnamese SOE-turned private company. Why do you think it has been able to succeed when so many other SOEs have failed?

There are many reasons but they come down to the following:

  • Doing business in the dairy products – which are of great demand in the market and still have much room for growth considering Vietnam’s growing population);
  • Transparency in the business operation (public listing from the very early stage) and efficient management according to best private practice standards, certainly the long term management and CEO deserves credit for this;
  • Early privatization leading to more efficient and timely decision to grasp business opportunities (compared with lengthy approval procedures by the state);
  • Its good development and branding strategy, including activities to show social corporate responsibility.
  1. Vinamilk wants to become the top dairy company in Southeast Asia. Do you think Vinamilk can beat the likes of Malaysia¹s F&N and Indonesia¹s Indofood?

F&N is the current biggest foreign shareholder in Vinamilk and its owner is targeting shares in big companies in the sector like Vinamilk. Vinamilk is also investing in many other countries in the region (Myanmar, Cambodia) to open its distribution network. It is now too early to say anything, as whether Vinamilk becomes the top dairy company in Southeast Asia depends much on who are the strategic shareholders and the leadership capacity of the successor of Ms. Mai Kieu Lien – Vinamilk’s CEO for almost 23 years.

  1. Food safety is a big concern and talking point in Vietnam today. How much trust do you think Vietnamese consumers here have in Vinamilk?

The fact that Vinamilk was registered with FDA to export its products to the US shows its high quality. In addition, Vinamilk has access to other big markets such as Japan, Canada, Australia, … In Vietnam, Vinamilk’s yoghurts and condensed milk account for 85-90% of the market share, while liquid milk and milk powder accounts for 44% and 27% of the market share respectively. These numbers say it all.  In a survey by Q&ME in 2015, Vinamilk is the most favourite and well-known dairy brand in Vietnam.

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

THANK YOU VERY MUCH!

 

 

Lawyer in Vietnam Oliver Massmann REAL ESTATE – FOREIGNERS BUYING PROPERTY – WHAT YOU MUST KNOW: GUIDING NOTES ON ISSUES RELATING TO THE CURRENT LAW ON LAND (2013) AND ITS GUIDING REGULATIONS FOR LAND TRANSACTIONS

 

 

  1. Certification vs. notarization (C&N) of land-related contracts

For the purpose of State management, C&N is compulsorily required for some special types of land related transactions (e.g. – basically, the transfer, donation, mortgage or capital contribution using the land use rights or the rights to use land and assets attached to land). For other land-related transactions, C&N is however optional.

Please also note the key difference between notarization (công chứng) and certification (chứng thực) under Vietnamese law. Simply put, notarization, done by a licensed notary office, covers both legal validity and authenticity (mainly the signatures) of the transactions. Meanwhile, certification, done by the department of justice at district level/commune cpeople’s committee (CPC), limits to the authenticity of signatures, signing time and location. As such, a notary public may be wholly liable for damage caused to his clients if content of the relevant contract is concluded inconsistent with the laws.

Since 2014, the Ministry of Justice of Vietnam (MOJ) has issued a number of official letters requesting local authorities to direct the formalization of land related contracts from the commune people’s committee (CPC) to the notary offices. Though such official letters are not per se legal instruments and it stops at ‘a request for direction’, many CPC has since refused to certify land-related transactions because of the above instructions.

  1. Principles for applying provisions of the Land Law

Unlike the Civil Codes of Vietnam (2005 and 2014) that adopt the negative approach (i.e. – do whatever not expressly restricted or prohibited by the laws), the Land Law builds a ‘positive approach’ which let entities to do what exactly the laws tell them to do. Even more strictly, the restrictions apply to both sides of a transaction. For example, if a seller has a clear right to transfer LURs but the purchaser is not expressly permitted to receive the transfer of such LURs, no deals can be established. Back to FIEs, they can only acquire under specific circumstances set out by the Land Law, mostly listed in its Article 169.

Any ‘ultra vires’ acts may potentially result in a declaration of invalidity of the relevant land related transaction. This principle of applying laws should be taken into full consideration when FIEs are about to make major decisions relating to land-related issues.

  1. Land acquisition by foreign invested enterprises (FIEs)

Compared with their local counterparts, FIEs have more limited access to land. For example, FIEs cannot receive the transfer of land use rights (LURs) with respect to agricultural land or any types of land from households or individuals. Rather FIEs can only receive the transfer of LURs from land users being enterprises. This may cause some difficulties for FIEs who may want to acquire land from, for example, neighboring individual land users to expand their current production or business sites.

To go around this restriction, a number of FIEs seek to employ a local nominee enterprise which will receive the land from the individual land users and transfer back the same to the requesting FIEs. Even so, another question may arise: Can FIEs receive land directly from, among other, enterprises including domestic and foreign invested ones? Item #4 below discusses more.

  1. Receipt of transfer of land use rights by way of purchasing investment capital

As noted in Item #2 above, it appears that FIEs’ options to access land are limited to what exactly the Land Law lists.

As such, without any guidance under the Land Law, FIEs can only receive the transfer of LURs by way of acquiring investment capital from an enterprise land user. Such investment capital is ‘the value of LURs which has been capitalized into the seller’s capital (vốn hóa vào vốn của doanh nghiệp)’. This provision is relatively unclear and fails to correspond to other related legal instruments.  Firstly, while it is possible to carve out value of a specific investment [project] from an accounting perspective, the transfer of such value is not provided elsewhere other than the Land Law 2013 itself. This makes the implementation of the above machenism technically paralyzed. Secondly, questions remains to be seen as to whether the transfer of investment capital could be treated as transfer of ‘investment project’, assets or even equity of the seller(s). Each type of transfer would definitively lead to different legal, business and accounting consequences.

On this, the official of MONRE said the Ministry of Finance will soon issue a detailed guidance. It is also confirmed such ‘investment capital’ transfer has been implemented in some provinces in South Vietnam but we are not provided with more detailed information on how it is arranged in light of the above technical obstacles.

  1. Settlement of land in case of land users’ bankruptcy

The Land Law states that the settlement of LURs of insolvent and dissolved companies will be subject to general provisions of laws. Unfortunately, these ‘laws’ arguably enterprises law and, most critically, the Law on Bankruptcy appear to refer back this issue to provisions of the Land Law (2013) and its guiding regulations. This cross-reference, according to the official of the MONRE, causes difficulties in dealing with land of insolvent companies.

  1. Issuance of LURs for FIEs buying residential houses

Though the Law on Residential Housing (2014) allows FIEs to own some forms of residential houses (e.g. – apartments, villas, etc.), they face problems in acquiring LURs for such houses for many reasons.

RECOMMENDATIONS:

MONRE should actively solve issues and provide detailed guidance on all related aspects to the licensing/acquisition process.

MONRE should work on solutions of some unclear points on land use rights for Foreign Invested Enterprises (“FIEs”) in cooperation with (i) the Ministry of National Defense and (ii) the Ministry of Public Affairs with respect to areas which must be secured in terms of security and national defense in each province and therefore will not allow FIEs or foreign buyers to own house and land there.

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

THANK YOU VERY MUCH!

 

 

 

Position paper on expectation of foreign investors willing to invest in Vietnam and recommendations to improve foreign investment in Vietnam

Considering Vietnam’s recent deep integration into regional and world’s economy, foreign investors are very optimistic about their business development in Vietnam in the upcoming time. Despite having said that, there remain hurdles that discourage foreign investors when deciding to invest in Vietnam or other countries in the region, for example, Thailand, Indonesia and Myanmar. These hurdles are discussed in details below.

Integrity

 It is an area of great concern despite recent Government efforts to combat it. Our recent small-scale surveys shows that ratio of unofficial payment or facilitation payment in a firm’s revenue is increasing over the years. Government officials are still causing a lot of troubles in case of refusal to pay the facilitation fee by enterprises. Most of the cases result in delay in receiving Government’s services or even being refused to be provided the services. Enterprises are deeply concerned about these issues, as they have to suffer from loss of business opportunities, which in turn becomes financial loss. Unfortunately, some enterprises participating in our survey express their losing of confidence that the situation will be improved before the next 10 to 20 years.

Access to information

 It is of utmost importance that foreign investors get to understand the country they are going to invest in and its surrounding factors. However, public available information is limited while it takes a lot of time and money to get such information, for example, shareholders information, corporate structure, financial status, etc. of a company. In addition, the fact that information is not always available in English or other common languages causes discomfort to investors. While the websites of many Government authorities are in both Vietnamese and English, the English interface is very limited in its contents compared with its Vietnamese one. The same applies for legal documents.

Compliance

Compliance is a burden for not only Vietnamese but also foreign-owned enterprises. The bigger the size of an enterprise is, the more likely and frequently that it is subject to examination and supervision procedures from many levels of several Government authorities. One enterprise could receive at least 2-3 delegations per year to check its operation status, for example, tax, labour, firefighting and prevention, police, etc. In some cases, the scope of examination repeats.

Foreign invested enterprises also face a burden of having to comply with many administrative procedures, especially those in real estate, customs, fire prevention and safety, environment protection, labour and tax sectors.

Infrastructure

 Energy production is of key concern, especially renewable energy. There is so much delay by the Prime Minister in issuing guiding documents for foreign investors to develop renewable energy in Vietnam, despite Vietnam’s urgent need of electricity for growth. Feed-in-Tariff rates are not attractive enough to investors. EVN’s monopoly is still a big hurdle.

Intellectual Property (IP)

 Enforcement of IP rights is not assured and remains a concern for foreign investors. Legal sanctions must be much more severe and strengthened.

Enforcement of foreign arbitral awards

 The reality is that the arbitration law is being ignored in Vietnam. The percentage of annulled foreign arbitral awards is high due to the matter of practice that the recognition and enforcement of foreign awards in Vietnam are almost impossible. When arbitration is being used more frequently in disputes, it is disappointing that the arbitrators’ decisions have not yet been duly respected. It must be made clear in terms of fundamental principles based on which arbitration awards could be set aside.

Investment in education sector

 Legal capital for investing to establish high schools and universities are heavenly high (VND50 billion and VND300 billion respectively). This discourages many investors from countries with high educational reputation. This is not good for Vietnam especially when the young now needs better education than ever before.

House ownership and land use right of foreign invested enterprises and foreign individuals

The law is very unclear and inconsistent as to land regime applicable to residential houses sold to foreign invested enterprises. In addition, while the Law on Residential Housing already allows foreign individuals to purchase property in Vietnam, there is no clear procedure to grant the red book to such individuals. We have seen a huge demand from foreigners to buy houses in Vietnam, but their intention is damaged due to lack of procedures to acknowledge their ownership right.

Vietnam’s restrictions on imports of used machinery and equipment

Restrictions on imports of machinery and equipment based on any arbitrary time standard must be removed, administrative procedures to ensure compliance with international standards of safety, energy savings and environmental requirements must be simplified and incorporated into the National Single Window project, and any quality standards must be based on international standards. Otherwise, it would cause delays in customs processing, impact the modernization and industrialization process of supply industries and be not in accordance with the WTO Technical Barriers to Trade Agreement (Article 2.2) or the TPP Chapter on Technical Barriers to Trade.

Privatization of state-owned enterprises – in name only

State-owned enterprises have long played an important role in Vietnam’s economy. These enterprises have operated in an inefficient manner compared with private companies, many enterprises operating at loss for several years. Therefore, the Government has conducted several rounds of state-owned enterprises reform. However, setting aside the ambitious target of 289 state-owned enterprises to be privatized in 2015, the privatization process has been very slow and only by name. Only 5%- 20% of the shares are offered for sale, which is too low to attract foreign investors. They will be reluctant to invest in these enterprises as long as they have no chance to gain decision-making power by purchase of shares. The Government must then show stronger effort and commitment in reforming state-owned enterprises to attract more foreign investment in the process.

 

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.

 

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 !

 

 

 

 

 

 

 

 

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

 

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

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

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

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

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

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

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

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

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

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

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

 

 

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.

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

 Status

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

What is new in the Draft Decree?

Below are some new features introduced by the Draft Decree

  1. [Effective] expansion of business lines to be subject to baby permits;
  1. Demerger of baby permits from the investment registration certificate (IRC);
  1. Delegation of the licensing authority with respect to issuance of the baby permits to provincial department of industry and trade (DOIT);
  1. Setting out circumstances where FIEOs are exempt from baby permits;
  1. Clarification of criteria for establishing retail outlets including economic needs test (ENT);
  1. More detailed licensing process.

Detailed comments on the Draft Decree

  1. General understanding of baby permit requirements

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

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

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

  1. Trading (import and export) rights;
  2. Distribution;
  3. Commercial promotion services
  4. Commercial intermediary services
  5. Goods leasing services
  6. E-commerce services
  7. Logistics services;
  8. Commercial assessment services
  9. Goods auction services
  10. Goods and service bidding services
  11. Commodity exchange
  12. Other activities directly related to the purchase and sale of goods’.

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

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

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

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

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

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

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

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

  1. Baby Permit Exemption

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

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

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

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

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

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

  1. Retail Outlet Criteria 

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

a.The first retail outlet;

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

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

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

  1. Licensing Process 

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

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

***

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.

Lawyer in Vietnam Oliver Massmann Equitization Quality over Quantity

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

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

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

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

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

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

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

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

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

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

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 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 !

 

Lawyer in Vietnam Oliver Massmann Why it is best to start preparing for transactions now in Vietnam ?

 

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. With such deep integration into the multilateral and regional economy, Vietnam is expected to be an attractive investment environment for investors and witness a significant growth in the upcoming years.

Vietnam has made progress over 3 continuous years to reach 56th position in 2015 on the Global Competitiveness Index list, a jump of 12 positions compared to 2014. It is noteworthy that Vietnam is more competitive than 6 European Union countries on this list. Even more notably, 4 out of these 6 countries, namely Slovenia, Cyprus, Slovakia and Greece, are considered as advanced global economies, and have the GDP per capita of at least USD17,700, eight times more than Vietnam.

Samsung Electronics Company has decided to choose Vietnam as the Number 1 country to put their world largest mobile and tablet production and invested more than 6 Billion USD after a researching worldwide. Also major Japanese companies are convinced Vietnam is a top investment destination and become the largest investors in Vietnam.

The Vietnamese Government has made great attempts to develop itself by opening its economy to international trade, investments and free movement of people. The following section provides an overview of these free trade agreements and the AEC to help investors understand what is awaiting them ahead and decide their investment in Vietnam.

TPP

The TPP was originally known as the Trans- Pacific Strategic Economic Partnership concluded in 2006 among Singapore, New Zealand, Chile and Brunei (P-4 agreement) as a means to promote trade liberalization in the Asia- Pacific Region. As its name indicates, the original purpose of the agreement was only to address economic issues. As the number of participating countries in the P-4 agreement increased, starting with the United States in September 2008 and other countries to follow being Australia, Peru, Vietnam, Malaysia, Canada, Mexico and Japan until July 2013, the agreement is agreed to be “a comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new and traditional trade issues and 21st-century challenges” by TPP Trade ministers. In June 2015, the United States approved the trade promotion authority for President Obama. The Agreement finally becomes as it is today through tough negotiation rounds, while the last round in Atlanta in September 2015 was considered the most intensive one. The TPP was already concluded on 06 October 2015.

TPP Market Snapshot
·         GDP: US$28,136.0 billion (2012)

·         GDP per capita: US$35,488 (2012)

·         Population: 792.8 million (2012)

·         TPP % of world GDP: 39.0% (2012)

·         TPP % of world population: 11.3% (2012)

·         TPP % of world trade: 25.8% (2012)

The TPP includes thirty chapters with deep focus on comprehensive market access, a fully regional agreement, cross-cutting issues (regulatory coherence, competiveness and business facilitation, small and medium sized enterprises, and development), and new trade challenges (particularly rules on state owned enterprises and government procurement).

The TPP would expand market access in goods and services among its signatories. The market access issues include liberalization of trade barriers protecting dairy, sugar, and rice; tariffs and origin rules affecting textiles, clothing, and footwear; and services trade reforms, especially financial services, insurance, and labor services.

Vietnam would be the largest beneficiary of this trade pact, resulting from its strong trade ties with the United States, high level of protection against its main exports (i.e., apparel and footwear), and its highly competitive positions in industries such as manufacturing where China is gradually losing its competitive advantage. Statistics shows that by participating in the TPP, Vietnam’s GDP would add an additional increase of 13.6% to the baseline scenario.

TTP will help Vietnam make good use of international cooperation opportunities, balance relationships with key markets, approach larger markets including the U.S, Japan, Canada, boost import-export, reduce import deficit, and attract foreign investment. In addition, TTP will also help Vietnam’s economy allocate its resources more effectively, enabling active supports to the processes of restructuring, innovation and improving regulations, and improve administrative reforms.

Higher income will help Vietnam to invest more and grow more

Vietnam is among the largest income gains in TPP

The TPP is now being submitted for ratification in each country before it officially takes effect. Despite all political concerns, we strongly believe that the TPP will finally be implemented in 2018.

AEC

The AEC originates from the ASEAN Vision 2020, which was adopted in 1997 on the 30th anniversary of the Association of Southeast Asian Nations, made up of Brunei Darussalam, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam (ASEAN). With a population of more than 600 million and a nominal GDP of about $2.31 trillion, ASEAN is a strong economic community in Asia and also a driver of global growth.

The AEC encompass the following characteristics: (i) a single market and production base, (ii) a highly competitive economic region, (iii) a region of equitable economic development, and (iv) a region fully integrated into the global economy.

The AEC is expected to be an area where goods can circulate freely and in which custom duties on goods will be gradually reduced to 0%. It will establish ASEAN as a single market and production base, making ASEAN more dynamic and competitive with new mechanisms and measures to strengthen the implementation of its existing economic initiatives; accelerating regional integration in the prioritized sectors; facilitating movement of business persons, skilled labor and talents; and strengthening the institutional mechanisms of ASEAN.

The free flow of investment will also offer enhanced investment protection to all ASEAN investors and their investments in other ASEAN member countries, including the settlement mechanism of an investor state dispute based on a non-discrimination principle when investing in other ASEAN countries. Those principles play a very important role in providing investor confidence when making cross-border investment.

Once the AEC is completed, it will be a unified market, a common manufacturing area seeking for more dynamic and competitive development and to create new opportunities for tariff reductions as well as other trade incentives.

AEC Market Snapshot
·         GDP: US$2311.3 billion (2012)

·         GDP per capita: US$3748.4 (2012)

·         Population: 620 million, 60% under the age of 35

·         AEC % of world GDP: ~3.3%

·         AEC % of world population: 9%

·         AEC’s merchandise exports: US$1.2 trillion – ~54% of total ASEAN GDP and 7% of global exports

·         If ASEAN were one economy, it would be the 7th largest in the world – 4th largest by 2050 if growth trends continue

EVFTA

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 EVFTA. Both parties will finalize the ratification process as soon as possible for the EVFTA to take effect from the beginning of 2018.

The EVFTA 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 EVFTA.

The EVFTA 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 EVFTA 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 EVFTA is estimated to generate an additional 7-8% of GDP above the trend growth rate.

In 2013, the EU was Vietnam’s second biggest trade partner with a total value of trade in goods of EUR 24.2 billion. In the same the EU was also Vietnam’s biggest export market with EUR 21 billion, representing 19% of Vietnam’s total export. Vietnam’s export to EU increased by 28% from 2012 to 2013. In addition, the EU is among the biggest investors in Vietnam, with 1,810 FDI projects in 2013. The EU committed to continuing to support with the foreseen assistance amount of EUR 400 million in the coming six years. EU exports to Vietnam are dominated by high-tech products including electrical machinery and equipment, aircraft, vehicles, and pharmaceutical products. Vietnam’s key export items to the EU include telephone sets, electronic products, footwear, textiles and clothing, coffee, rice, aqua products, and furniture.

Conclusion: Why investment in Vietnam now?

  • Vietnam ties in first place with Singapore, thus it provides highest possible protection for investment
Country Limitation of market access* Country Limitation of market access*
Malaysia medium Myanmar high
Indonesia medium Cambodia medium
Philippines medium Laos medium
Singapore low India high
Thailand medium China medium
Brunei high Vietnam low

*Typical restrictions: number of opened sectors, JV requirement, limits on foreign-owned shares, permission requirement

  • Vietnam has the fastest growing middle class with a very good demographic situation: about 90 Million people of which about 50 percent are under 30 years old.
  • Expectations of Vietnam parties might get unreasonable, the same as after Vietnam acceded to the WTO in 2007 and no projects could be done.
  • Market opening in certain sectors, for example, media, and there could be more competing companies from the AEC with better market access to Vietnam. Thus, it is vital that investors start working on their projects now to position themselves as early as possible before the coming into effect of the trade pacts.

***

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.

 

© 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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