tpp – Page 3 – Duane Morris Vietnam

October 1, 2015October 1, 2015 by Dr. Oliver Massmann

Vietnam Foreign Direct Investment

By Oliver Massmann and Manfred Otto – Duane Morris Vietnam LLC

Foreign Direct Investment

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

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

In addition to FDI, the EU-Vietnam’s strong trade relationship can be seen through programmes like the Multilateral Trade Assistance Project (MUTRAP) which accounts for over €35.12 billion. MUTRAP has been instrumental in supporting Vietnam’s negotiating efforts during the WTO accession process and now continues to assist Vietnam in the implementation of trade commitments. In terms of trade, both the EU and Vietnamese businesses are expected to benefit under the EVFTA. The FTA will gradually eliminate tariffs for over 99% of goods and services besides other mechanisms to support bilateral trade. On 4 August 2015, the EU and Vietnam reached an agreement in principle for the free trade deal, an agreement that will also attract further FDI into the country.
Vietnam’s top trading partners 2013

Finally, the EU’s strong commitment to support Vietnam in its modernisation and integration in the world economy is mirrored by the aid programmes. In line with Vietnam’s 2020 socio-economic plan, the EU has increased its aid by 30 % reaching 400 million euros via its multi-annual indicative programme for the period of 2014-2020 focusing on the development of clean energy in Vietnam.

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

***

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

Continue reading “Vietnam Foreign Direct Investment”

July 23, 2015 by Dr. Oliver Massmann

Vietnam – Latest on Seaports and Shipping – Logistics is Everything

With the adoption of the Trans-Pacific Partnership (“TPP”) and the European Union – Vietnam Free Trade Agreement (“EVFTA”) in the upcoming months, we would expect a significant increase in trade between Vietnam and countries being members of the mentioned agreements. In order to reap the huge benefits that these agreement might bring to Vietnam, it is necessary to create an efficient deep sea container terminal. Cai Mep port would be fit for such purpose, in terms of a potential domestic and international transhipment hub and creating balance for demand and supply container terminal in Southern Vietnam. An operating cooperation contract has been signed between CMIT and Saigon Newport as the first attempt to develop Cai Mep as a hub.
Still, there should be more to do from the Government’s side. A competitive environment for the operation of the container terminal must be created. To achieve this objective, we suggest the following actions:
First, reducing port dues for certain sizes of vessels. As a consequence, a greater number of vessels will no longer have to transit via existing hubs such as Hong Kong or Singapore. An estimate of USD 7 million per year in transport costs would be saved and the overall income of the country will increase.
Second, relaxing regulations on cabotage. The current local services on offer do not comply with the required standards. This should be fixed so it is not blocking the progress of creating a hub in Cai Mep.
Third, reforming customs rules. The Vietnam General Department of Customs with the advisory support of the Vietnam Trade Facilitation Alliance in conjunction with the American Chamber of Commerce is currently making great attempts in improving imports and exports procedures. This is also considered as a step towards a competitive environment compared with other ASEAN countries.
Finally, more interaction between the competent authorities and the transport/ logistics stakeholders. The recent Transport and Logistics Partner Quarterly Meeting held by the Ministry of Transport in conjunction with the World Bank is among the government’s efforts to help create a dialogue to exchange problems and workable solutions in the logistics industry of Vietnam.
If the above suggestions are taken seriously, Cai Mep will become a hub and Vietnam would certainly enjoy lots of benefits, include, among others:
o Less pollution for Ho Chi Minh City as a result of truck flow diversion from Ho Chi Minh City to Cai Mep;
o Less traffic and less risk of port congestion thanks to large capacity in Cai Mep region; and
o Capitalizing on the opportunities from the TPP and the EVFTA.
***

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

INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: www.vietnamlaws.xyz;

THANK YOU VERY MUCH!

April 27, 2015April 27, 2015 by Dr. Oliver Massmann

Why Is It Best To Start Preparing For Transactions Now In Vietnam?

Vietnam is currently at the final stage of negotiating the Trans-Pacific Partnership (“TPP”) and the EU- Vietnam Free Trade Agreement (“EVFTA”). Meanwhile, the ASEAN Economic Community, which Vietnam became a full member in 1995, is to be established by the end of 2015. With such deep integration into the multilateral and regional economy, Vietnam is expected to be an attractive investment environment for investors and witness a significant growth in the upcoming years. Samsung Electronics Company has decided to choose Vietnam as the Number 1 country to put their world largest mobile and tablet production and invested more than 6 Billion USD after a researching worldwide. Also major Japanese companies are convinced Vietnam is a top investment destination and become the largest investors in Vietnam. However, whether foreign investors should wait until the TPP and the EVFTA are concluded and the AEC has been established to enjoy their benefits then is a big question. The following section provides an overview of these free trade agreements and the AEC to help investors understand what is awaiting them ahead and choose the right time for their investment.

TPP

The TPP is one of the largest trade and investment agreements ever to be negotiated, involving some of the largest nations in the world. Countries participating in the negotiations include those throughout the Asia- Pacific region, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. The TPP is touted to be the 21st century trade agreement, set a template for regional and global trade and investment and incorporate next-generation issues.

TPP Market Snapshot
• GDP: US$28,136.0 billion (2012)
• GDP per capita: US$35,488 (2012)
• Population: 792.8 million (2012)
• TPP % of world GDP: 39.0% (2012)
• TPP % of world population: 11.3% (2012)
• TPP % of world trade: 25.8% (2012)

The TPP is being negotiated across thirty chapters with deep focus on comprehensive market access, a fully regional agreement, cross-cutting issues (regulatory coherence, competiveness and business facilitation, small and medium sized enterprises, and development), new trade challenges (particularly rules on state owned enterprises and government procurement); as well as, finally, the notion of a living agreement.

The TPP would expand market access in goods and services among its signatories. The market access issues include liberalization of trade barriers protecting dairy, sugar, and rice; tariffs and origin rules affecting textiles, clothing, and footwear; and services trade reforms, especially financial services, insurance, and labor services. Vietnam would be the largest beneficiary of this trade pact, resulting from its strong trade ties with the United States, high level of protection against its main exports (i.e., apparel and footwear), and its highly competitive positions in industries such as manufacturing where China is gradually losing its competitive advantage. Statistics shows that by participating in the TPP, Vietnam’s GDP would add an additional increase of 13.6% to the baseline scenario.

Higher income will help Vietnam to invest more and grow more

Vietnam is among the largest income gains in TPP

Recently, President Barack Obama has been grated fast-track authority to negotiate the TPP with other 11 nations. This shows a step closer to its conclusion, hopefully by the end of 2015.

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

The AEC encompass the following characteristics: (i) a single market and production base, (ii) a highly competitive economic region, (iii) a region of equitable economic development, and (iv) a region fully integrated into the global economy.
The AEC is expected to be an area where goods can circulate freely and in which custom duties on goods will be gradually reduced to 0%. It will establish ASEAN as a single market and production base, making ASEAN more dynamic and competitive with new mechanisms and measures to strengthen the implementation of its existing economic initiatives; accelerating regional integration in the prioritized sectors; facilitating movement of business persons, skilled labor and talents; and strengthening the institutional mechanisms of ASEAN.
The free flow of investment will also offer enhanced investment protection to all ASEAN investors and their investments in other ASEAN member countries, including the settlement mechanism of an investor state dispute based on a non-discrimination principle when investing in other ASEAN countries. Those principles play a very important role in providing investor confidence when making cross-border investment.

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

AEC Market Snapshot
• GDP: US$2311.3 billion (2012)
• GDP per capita: US$3748.4 (2012)
• Population: 620 million, 60% under the age of 35
• AEC % of world GDP: ~3.3%
• AEC % of world population: 9%
• AEC’s merchandise exports: US$1.2 trillion – ~54% of total ASEAN GDP and 7% of global exports
• If ASEAN were one economy, it would be the 7th largest in the world – 4th largest by 2050 if growth trends continue

EVFTA

It is estimated that Vietnam’s Gross Domestic Products (GDP) could rise by over 15% and that the value of its exports to the European Union could increase by almost 35% as a result of its entry into force.

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

The two parties have already been cooperating on various subject matters since the conclusion of the EU-Vietnam Partnership and Cooperation Agreement in June 2012. This cooperation will be brought to the next level by the conclusion of the FTA, which will tackle issues such as tariff and non-tariff barriers, regulatory issues, services, public procurement, Intellectual Property Rights, sustainable development, etc. 2015 will mark the 25th anniversary of EU-Vietnam cooperation, and it is expected to be the year the EU-VN FTA is concluded.

Conclusion: Why investment in Vietnam now – not after the trade pacts are signed and sealed?

 Vietnam ties in first place with Singapore, thus it provides highest possible protection for investment

Country Limitation of market access* Country Limitation of market access*
Malaysia medium Myanmar high
Indonesia medium Cambodia medium
Philippines medium Laos medium
Singapore low India high
Thailand medium China medium
Brunei high Vietnam low

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

 Vietnam has the fastest growing middle class with a very good demographic situation: about 90 Million people of which about 50 percent are under 30 years old.

 Expectations of Vietnam parties might get unreasonable, the same as after Vietnam acceded to the WTO in 2007 and no projects could be done.

 Market opening in certain sectors, for example, media, and there could be more competing companies from the AEC with better market access to Vietnam. Thus, it is vital that investors start working on their projects now to position themselves as early as possible before the coming into effect of the trade pacts and the AEC.

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

INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: www.vietnamlaws.xyz

THANK YOU VERY MUCH!