EU-VIETNAM FREE TRADE AGREEMENT AND INVESTMENT PROTECTION AGREEMENT – UNMATCHED LEVELS OF MARKET ACCESS AND LEGAL CERTAINTY – WHAT YOU MUST KNOW

On 8 June 2020, Vietnam’s National Assembly ratified the EU-Vietnam Free Trade Agreement (EVFTA) and Investment Protection Agreement (EVIPA) following almost 10 years of negotiations. On 12 February 2020, the European Parliament gave it consent to the ratification of the EVFTA and EVIPA. On 30 March 2020, the Council of Europe ratified the EVFTA . Finally, on 1 August 2020, the landmark agreement entered into force. Regarding the EVIPA, the Vietnamese Government has provided the EU Delegation with a diplomatic note providing notification of the National Assembly’s ratification of the EVIPA, pending endorsement of the Member States’ parliaments.

The implementation of the EVFTA has, to date, shown many positive results. This is particularly meaningful for both Vietnam and the EU in this period when world economies are suffering from the consequences ofCOVID-19. For instance, the total value of Vietnam’s exports to the EU market reached US$ 27,65 billion in December 2020, a dramatic increase of 55.3 per cent compared to December 2019.[1] In addition, the Ministry of Industry and Trade announced that it has granted approximately 24,000 sets of Certificate of Origin with a turnover of nearly US$ 1 billion eligible for EU tariff preferences within less than 3 months of the EVFTA coming into force . As of mid-January 2021, exports to the European Union accounts for USD 12.90 billion for the following products: mobile phones and accessories, computers, electronic products and components, textiles, other machinery, equipment, tools and spare parts, footwear of all types, wood and wooden products, and fishery products.

I. LEGAL ENVIRONMENT

1. General market access for goods and services

The EVFTA is the most comprehensive and ambitious trade and investment agreement that the EU has ever concluded with a developing country in Asia. It is the second agreement in the ASEAN region, after Singapore, and it helps to intensify bilateral relations between Vietnam and the EU. Vietnam now has access to a market of around 448 million people and an average GDP of US$13,918 billion (with the exception of 2020 due to Covid-19’s impacts on the economy).[2] Meanwhile, exporters and investors from the EU also have further opportunities to access one of the largest and fastest-growing countries in the region. According to a report released in early 2020 covering 130 cities worldwide,[3] Hanoi and Ho Chi Minh City are ranked among the top-10 most dynamic cities due to their low costs, rapid consumer market expansion, strong population growth, and transition towards activities attracting significant amounts of Foreign Direct Investment (FDI). According to the World Bank, Vietnam has one of the fastest-growing economies in the world — 7.1 per cent GDP growth in 2018, and 7.0 per cent in 2019, 2.91% for 2020.[4] Even though this is the lowest GDP growth level of the country in the last 10 years due to impacts by the novel corona virus, it is still among the world’s highest, especially comparing to neighbouring countries such as Singapore that saw a GDP growth of approximately minus 6.
In addition, Vietnam has the fastest-growing middle class in the region. Vietnam’s middle class accounts for 13 per cent of the total population and this figure is expected to become 26 per cent by 2026.[5] Vietnam’s super-rich population[6] is also growing faster than anywhere else, and there is no doubt that it will continue to rise over the next ten years.

Market access for goods

Nearly all customs duties – over 99 per cent of the tariff lines – will be eliminated in the next 10 years. The small remaining number will be partially liberalised through duty-free quotas. As Vietnam is a developing country, it has liberalised around 65 per cent of the value of EU exports, representing around half of the tariff lines, at entry into force. The remaining duties will be eliminated over the next decade. This is an unprecedented, far-reaching tariff elimination for a country like Vietnam, proving its aspiration for deeper integration and trading relations with the EU.

Meanwhile, the EU agreed to eliminate duties for 84 per cent of the tariff lines and 71 per cent of its trade value for goods imported from Vietnam from 1 August 2020. Within seven years from the effective date of implementation, more than 99 per cent of the tariff lines will have been eliminated for Vietnam. This is a wider reduction compared with the 95 per cent of the tariff lines that the former TPP countries offer to Vietnamese imports. In the ASEAN region, Vietnam is the top country in exporting goods to the EU. However, the market share of Vietnam’s products in the EU is still small. Because of the EVFTA, the sectors that will benefit most are the main export sectors that used to be subject to high tariffs from the EU including textiles, footwear, and agricultural products. The EU is also a good point for Vietnam to reach other further markets.

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

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

The EVFTA is considered as a template for the EU to further conclude FTAs with different countries in ASEAN with the ultimate aim of concluding a region-to-region FTA once there is a sufficient critical mass of agreements with individual ASEAN countries.[7] This process could take about 10-15 years. Thus, Vietnam should take advantage of this window of opportunity, before FTAs with others in the region are concluded and take effect, to become a regional hub.

Market access for EU service providers: Although Vietnam’s WTO commitments are used as a basis for the services commitments in the EVFTA, Vietnam has not only opened additional (sub)sectors for EU service providers, but also made commitments deeper than those outlined in the WTO, offering the EU the best possible access to Vietnam’s market. (Sub)sectors that are not committed under the WTO, but under which Vietnam has made commitments, include Interdisciplinary Research & Development (R&D) services; nursing services, physiotherapists and para-medical personnel; packaging services; trade fairs and exhibitions services and building-cleaning services.
When these reach international standards, Vietnam will have the chance to export high-quality services, resulting in not only an increase in export value but also export efficiency, thus helping to improve the trade balance.

Government procurement

Vietnam has one of the highest ratios of public investment-to-GDP in the world (39 per cent annually from 1995).[8] However, until now, Vietnam has not agreed to its Government procurement being covered by the Government Procurement Agreement (GPA) of the WTO.[9] Now, for the first time, Vietnam has undertaken to do so in the EVFTA.

The FTA commitments on Government Procurement mainly deal with the requirement to treat EU bidders, or domestic bidders with EU investment capital, equally with Vietnamese bidders when the Government purchases goods or requests a service worth over the specified threshold. Vietnam undertakes to follow the general principles of National Treatment and Non-discrimination. It will publish information on intended procurement and post-award information in Bao Dau Thau (Public Procurement Newspaper)[10] and information on the procurement system at muasamcong.mpi.gov.vn and the official gazette in a timely manner. It will also allow sufficient time for suppliers to prepare and submit requests for participation in responsive tenders and maintain the confidentiality of bidders The FTA also requires its parties to assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation, and create an effective regime for complaints and settling disputes.[11] These rules require parties to ensure that their bidding procedures match the commitments and protect their own interests, thus helping Vietnam to solve its problem of bids being won by cheap but low-quality service providers.

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

Table: Government Procurement Rules under the EVFTA

Table – Government Procurement Rules under the EVFTA


Investment Dispute Settlement

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

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

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

Conclusion

The EVFTA has created sustainable growth and mutual benefits in various sectors and is, by all means, an effective tool to balance trade relations between the EU and Vietnam. Vietnam is making continuous efforts and progress to meet the high standards set out in the EVFTA, and is currently offering greater opportunities for foreign businesses entering Vietnam’s market. It is now time for foreign investors to implement their business and investment plans and grasp these amazing opportunities.

For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

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

I. OVERVIEW

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

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

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

II. MARKET ACCESS FOR GOODS AND SERVICES

1. General market access for goods and services

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

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

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

2. Market access for goods

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

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

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

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

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

3. Market access for EU service providers

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

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

III. GOVERNMENT PROCUREMENT

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

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

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

Criteria – EVFTA

IV. INVESTMENT DISPUTE SETTLEMENT

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

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

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

V. CONCLUSION

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

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

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

Overview

On the 2nd of December 2015, after almost three years and 14 rounds of negotiations, President Donald Tusk, President Jean-Claude Juncker and Prime Minister of Vietnam Nguyễn Tấn Dũng announced the conclusion of the negotiations of the EU-Vietnam Free Trade Agreement (EVFTA). The EVFTA is a new-generation Free Trade Agreement between Vietnam and the EU. On 26 June 2018, the EVFTA was split into two separate agreement, one on trade and one on investment. In August 2018, EU and Vietnam completed the legal review of the EVFTA and the EU – Vietnam Investment Protection Agreement (EVIPA). The EVFTA needs to be ratified by the European Commission and European Parliament while the EVIPA must be additionally ratified by the Parliament of each EU member countries.

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

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

Legal environment

General market access for goods and services

The EVFTA is the most comprehensive and ambitious trade and investment agreement that the EU has ever concluded with a developing country in Asia. It is the second agreement in the ASEAN region, after Singapore, and it will intensify bilateral relations between Vietnam and the EU. Vietnam will have access to a potential market of more than 500 million people and a total GDP of US$15,000 billion (accounting for 22 per cent of global GDP). Meanwhile, exporters and investors from the EU will have further opportunities to access one of the largest and fastest-growing countries in the region. According to a report released in early 2017 covering 134 cities worldwide, Hanoi and Ho Chi Minh City are ranked among the top 10 most dynamic cities due to their low costs, rapid consumer market expansion, strong population growth and transition towards activities attracting significant amounts of Foreign Direct Investment (FDI). According to the World Bank, Vietnam has one of the fastest growing economies in the world—7.1% GDP growth in 2018, and 6.7% at the mid-point of 2019. To put that in perspective, Vietnam’s GDP is growing at almost twice the rate of the USA.

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

Market access for goods

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

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

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

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

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

Market access for EU service providers

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

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

Government procurement

Vietnam has one of the highest ratios of public investment-to-GDP in the world (39 per cent annually from 1995). However, until now, Vietnam has not agreed to its Government procurement being covered by the Government Procurement Agreement (GPA) of the WTO. Now, for the first time, Vietnam has undertaken to do so in the EVFTA.
The FTA commitments on Government procurement mainly deal with the requirement to treat EU bidders, or domestic bidders with EU investment capital, equally with Vietnamese bidders when the Government purchases goods or requests a service worth over the specified threshold. Vietnam undertakes to follow the general principles of National Treatment and Non-discrimination. It will publish information on intended procurement and post-award information in Báo Đấu Thầu – Public Procurement Newspaper – and on information on procurement system at muasamcong.mpi.gov.vn and the official gazette in a timely manner, allow sufficient time for suppliers to prepare for and submit requests for participation and responsive tenders and maintain the confidentiality of tenders. The FTA also requires its Parties to assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation and create an effective regime for complaints and settling disputes. These rules require Parties to ensure that their bidding procedures match the commitments and protect their own interests, thus helping Vietnam to solve its problem of bids being won by cheap but low-quality service providers.
Government procurement of goods or services, or any combination thereof, that satisfy the following criteria falls within the scope of the FTA Government Procurement rules:

Criteria – FTA;

Investment Dispute Settlement

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

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

The final settlement is binding and enforceable from the local courts regarding its validity, except for a five-year period following the entry into force of the FTA for Vietnam (please refer to further comments in the Chapter on Judicial Recourse).

Conclusion

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

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

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

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

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

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

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

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

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

1. Investment Protection

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

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

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

2. Tariff Elimination and Cross-Border Trade of Services

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

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

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

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

3. Dispute Resolution, PPP

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

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

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

Summary

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

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

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VIETNAM – PUBLIC-PRIVATE-PARTNERSHIPS (PPP) AND CPTPP AND EVFTA/IPA DISPUTE SETTLEMENT PROVISIONS AND THE DRAFT PPP LAW

Public-Private-Partnerships (PPP) have long been used as a vehicle for both emerging and developed markets to further enhance their public infrastructure to support growing socio-economic needs. Vietnam, however, has experienced an explosive economic growth over the past decade and is poised for even further expansion with their acceding to the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) and European Union—Vietnam Free Trade (EVFTA) agreements. With these two new growth mechanisms in-force, Vietnam’s infrastructure is struggling to accommodate that growth. The statutory cap on public funds utilization of 65 percent is rapidly approaching and the most viable investment form left for Vietnam is a functional PPP program.

Both CPTPP and EVFTA/IPA (Investment Protection Agreement) lay out very broad frameworks for supporting infrastructure development such as preferring renewable energy over environmentally-damaging alternatives and establishing development committees to determine how best to support that effort.[1] With the core of those agreements addressing elimination of almost all duties and tariffs on goods and services between the parties (over time), it makes the cost of acquiring hardware for energy infrastructure less. Additionally, the restrictions on cross-border trade in services required to construct and maintain technologically advanced platforms are lessened; further reducing the cost of an infrastructure project. Vu Tien Loc (president of Vietnamese Chamber of Commerce and Industry) speaking at an event “EVFTA and EVIPA: Opportunities for Business” held on July 1 by the Ministry of Industry and Trade, stated that EVFTA is the best FTA Vietnam has ever signed.[2] Vietnam is heading towards a foreign direct investment (FDI) generation, with higher quality, more advanced technologies, higher added value and a more eco-friendly environment, so the EVFTA will open the door for EU companies to complete these targets, Loc said.[3]

With these opportunities presented for Vietnam’s economic future, a draft law on PPP was drawn to address some of the concerns foreign investors have had regarding the regulatory environment for PPP in Vietnam. Mainly that there is not an appropriate level of risk allocation (too much on the investor), and there is not enough regulatory stability to support a long-term PPP project (generally 25-30 years). Many of the primary concerns have been discussed in other various articles; however, CPTPP and EVFTA/IPA have two restrictions reserved by Vietnam that can hinder the potential for expansive FDI in energy infrastructure (specifically power distribution)—CPTPP Annex IV and EVIPA Annex 2.1. Conversely, they also include dispute settlement provisions between member countries that can attract PPP investment if incorporated into the draft PPP law.

CPTPP Annex IV and EVIPA Annex 2.1

CPTPP Annex IV states, “[Regarding] all state-owned enterprises[4]…Viet Nam may require or direct the Entity [CPTPP member] to: (b) accord preferential treatment to…enterprises that are investments of Vietnamese investors in the territory of Viet Nam…pursuant to a government measure.” EVIPA Annex 2.1 states, “Viet Nam may adopt or maintain any measure with respect to the operation of a covered investment that is not in conformity with Article 2.3 (National Treatment); (h) …power transmission and/or distribution.” Both annexes allow Vietnam to require a potential member-country investor to use only Vietnamese domestic enterprises (majority-owned by Vietnamese nationals) in accomplishing the PPP project, if Vietnam so chooses. The EVIPA Annex is even broader than CPTPP by allowing “any measure” (regarding power transmission/distribution). It is also interesting to note that in EVFTA Appendix 8-B-1[5] (Specific commitments by Vietnam) Vietnam has agreed to virtually no restrictions on any construction companies or engineering services, including having a 100% member-country-owned commercial presence in Vietnam’s territory. In essence, CPTPP and EVFTA/IPA allow freer, fairer access to goods/services and investments; however, Vietnam can require any investor to utilize strictly Vietnamese resources regarding power or energy production and distribution. Most nations want to maintain national sovereignty and control of specific industries and resources they consider critical in supporting that sovereignty—that is not the issue here. This issue raised is one of regulatory uncertainties for investors.

These competing sections can cause consternation for a potential PPP investor. They may be able to complete the project for far less costs using their own member-country resources, but arbitrarily required at some point to utilize Vietnamese-owned companies that perhaps charge far more for the same good or service. The current draft PPP law is silent on this issue. PPP investors could be reassured, through contractual stability, of the guaranteed resources and services to be provided (and by whom) from the outset of the project. At a minimum, the draft PPP law should include a method for an investor to challenge a regulatory ruling or decision through an impartial, third party. While this issue might not derail a project, it could cause a qualified, reliable investor not to even want to bid a project; therefore, possibly driving the cost up or having a lower quality platform that will cost more in repair and maintenance in the long term. What the draft PPP law needs is to adopt the dispute settlement and resolution provisions of the CPTPP and EVFTA/IPA. In its current form, it does not mirror them.

Dispute Resolution Provision

Under Article 112 of the draft PPP law (dispute resolution) parties must use negotiation and conciliation first. This is the same as both CPTPP Chapter 28 and EVFTA Chapter 15/IPA Chapter 3. Continuing, a dispute involving a foreign investor (and between a State Agency) will be resolved through a Vietnamese arbitration organization or court, “unless otherwise agreed in the contract or unless otherwise stipulated in an international treaty of which Vietnam is a member.” If not stipulated in the contract, this means that if the foreign entity is a CPTPP or EUFTA/IPA member country, those agreements’ dispute chapters apply—maybe. Both agreements state that dispute resolution will be accomplished via mediation and arbitration for disputes generated under those agreements. There is no specific PPP language in the agreements; therefore, it will have to be proven that either of the agreements govern the project. This will add time and costs to the project, the government, the investor, and ultimately, the public.

Many PPP projects do not involve one, single foreign investor. There could be any number of various investor combinations to complete a specific project. A purely domestic, Vietnamese, single investor will be required to use Vietnamese arbitration or courts under Article 112—understandable. Any dispute between investors (state agency not involved) in which there is at least one (1) foreign investor will be resolved: “First, in Vietnamese court(s); then second, Vietnamese arbitrator(s); lastly, Foreign arbitrator(s).” Unless the foreign-investor here is a CPTPP/EVFTA member, or they have an international arbitration clause in their contract, there is no real option for the investor except for Vietnamese arbitration/courts.

The current draft PPP law’s Article 112 is more in line with general business transactions and not the magnitude of most PPP investments. They generally include multiple entities and financial vehicles/lenders, both foreign and domestic, ranging in the hundreds of millions to billions of USD. With the level of involvement regarding PPP projects, the draft PPP law should just state plainly that any dispute shall be resolved through international mediation and/or arbitration (unless stipulated otherwise in the contract). In effect, mirror the CPTPP and EVFTA/IPA Dispute Settlement Chapters. This will provide potential investors with the regulatory certainty they have been looking for. It will also alleviate any concerns around objectivity and neutrality for all parties. UNCITRAL stated in their UN guidelines for PPP in 2000, “…procedures should be established for handling disputes… (This is where arbitration should be a risk concession by the government…allowing international standards of the infrastructure sector to have an equal voice) [Emphasis added].”[6] Changing dispute resolution in the draft law to mirror the current trade agreements and UNCITRAL will help attract FDI for PPP infrastructure projects.

Summary

Vietnam needs to rely on the private sector to take their socio-economic growth to the next level. Government cannot satisfy the country’s requirements without it. Regulatory reform has been one of the biggest hurdles to overcome in satisfying the private sector’s concerns. From a statutory perspective, the CPTPP and EVFTA/IPA are able vehicles that give a wide berth for PPP projects to flourish. Within those landmark agreements, some conflicting areas do remain that can cause investor concern. From an operational perspective, government agencies need to streamline their processes to deliver services effectively under the laws and regulations (another major concern of investors). Eric Sidgwick, ADB country director for Vietnam, stated that Vietnam’s average disbursement rate is much lower than that of other recipients of the Asian Development Bank’s official development assistance (ODA) loans, largely due to cumbersome and time-consuming procedures.[7] While there is never a perfect solution for all parties, compromise is usually the most effective way to ensure buy-in from all involved. A way of alleviating investor’s concern over ambiguous and regulatory stability is to change the dispute resolution Article of the draft PPP law to mirror the already successful agreements of CPTPP and EVFTA/IPA.

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. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

THANK YOU!

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

A. Introduction

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

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

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

B. Precision Agriculture

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

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

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

C. Precision Livestock Farming

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

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

D. Benefits and obstacles

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

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

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

E. Solutions

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

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

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

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

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

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

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

Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability and protection for investors. Every investor should use these standards. It is going to be applied under the TPP 11 and the EUVNFTA. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases.

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!

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

A. Introduction

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

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

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

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

B. Decree 116 and related issues

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

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

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

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

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

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

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

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

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

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

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

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

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

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!

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

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

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

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

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

B. Outpatient: Home care and home-treatment

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

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

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

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

C. Implementation

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

D. Medical Devices Industry Code of Conduct

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

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

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

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

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

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

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

One another notable major trade agreement is the European Union Vietnam Free Trade Agreement (EUVNFTA). The EUVNFTA offers great opportunity to access new markets for both the EU and Vietnam and to bring more capital into Vietnam due easier access and reduction of almost all tariffs of 99%, as well as obligation to provide better conditions for workers. In addition, the EUVNFTA will boost the most economic sectors in Vietnam. Both agreements promise great benefits for the health- and medicine sector.

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

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

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!

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

A. Overview of the Power Master Plan 8

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

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

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

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

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

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

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

B. Future recommendations for VL Direct Power Purchase Agreement

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you very much!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The EVFTA has been signed and will be ratified at the beginning of next year and will take effect in the same year 2019. It will contribute to make Vietnam the next manufacturing hub in Asia because China and the EU do not have a Free Trade Agreement. Vietnam will be “the next China” with regard to manufacturing for decades to come.
Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

© 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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