Towards More Favourable Business Environment

 

Accompanying Vietnam on this arduous journey over the years are many foreign organisations and associations. Vietnam Business Forum would like to excerpt constructive comments of representatives of foreign associations operating in Vietnam on trade and investment cooperation, as well as on economic institutional reform and business environment.

 

Vietnam has been extremely successful in international economic integration in general and with the United States in particular. In 2015, total trade between the two countries is likely to increase again by more than 20 per cent and reach US$45 billion and could exceed US$80 billion by 2020 if the trends continue, and even more with TPP. Moreover, Vietnam has increased its standing as the leading ASEAN country supplier to the United States. Vietnam’s share was 22 per cent, and could exceed 30 per cent by 2020, if present trends continue.

 

On the other hand, Vietnam is the lowest-ranked of the ASEAN-6 countries for imports from the US, at about US$6.7 billion in 2015. This figure could certainly be increased by improving Vietnam’s business environment for exporters from the US and other countries, and importers in Vietnam and their distributors.

 

At the same time, revenues of AmCham companies and their partners in Vietnam’s domestic market continued to grow, and a number of AmCham companies have increased their FDI in Vietnam.

 

In developing barriers to trade (TBT) rules, the parties of Trans-Pacific Partnership (TPP) have agreed on transparent, non-discriminatory rules for developing technical regulations, standards and conformity assessment procedures while preserving TPP Parties’ ability to fulfil legitimate objectives. They agree to cooperate to ensure that technical regulations and standards do not create unnecessary barriers to trade.

 

TBT specific case: Imports of used equipment (proposed revised Circular 20), many businesses universally opposed the revised circular, which was intended to promote development of manufacturing industries by “encouraging imports of new machinery, equipment and production lines that are manufactured with the latest technology”. The draft is now in its ninth revision, as of August 18, 2015, but the comments and recommendations of businesses have not been taken into account sufficiently.

 

The prohibition of imports of equipment and machinery more than 10 years old involves application of a single arbitrary time standard to numerous classes and categories of machinery and production equipment. This time standard is not based upon available scientific and technical information with respect to the many different kinds of machinery and equipment, whose useful production lives and uses vary widely.

 

Therefore, the Government is requested that the restrictions on imports of machinery and equipment based on an arbitrary time standard be removed, administrative procedures to ensure compliance with international standards of safety, energy savings and environmental requirements be simplified and incorporated into the National Single Window project, and any quality standards be based on international standards.

 

A strong protection of intellectual property rights (IPR) is essential to encourage foreign investment in Vietnam. Even though Vietnam has improved its legal framework and enforcement of IPR in recent years, infringements and the enforcement of IPR laws remain a concern for European and Vietnamese businesses alike. EuroCham therefore calls on the Vietnamese Government to step up its efforts in guaranteeing an effective protection of IPR in order to develop technologically-advanced industries and to promote innovation. The foregoing may result in more foreign investment in manufacturing, research and development, but it will also encourage Vietnamese companies to invest in innovative activities.

 

Enforcing a good protection of IPR can only be achieved by ensuring that trademark and copyright infringers face dissuasive legal sanctions. Infringement of online IPRs is becoming more important with the growth of the number of internet users. Enforcement is particularly difficult here, especially when it comes to illegal trading in copyright-protected work and infringing goods, but also with regard to infringements on websites and abusive domain name registration and maintenance. EuroCham recommends that the administrative fines against individuals committing copyright infringements will be increased and that law enforcement efforts against infringing websites shall be strengthened, in particular that cease and desist decisions be immediately enforceable, to limit/reduce the damage to the IPR legitimate owner. The adoption of a uniform domain name dispute-resolution policy system to resolve disputes around “.vn” domain names as well as a more effective dispute settlement mechanism in general would also be welcome.

 

Further solutions proposed to address IPR-related issues include the creation of shortlists of geographical indications (GI), the protection of regulatory data and trademarks, and a more efficient enforcement of intellectual property laws.

 

According to new regulations of Labour Code 2012 and its guidelines, “wages” is defined as money which the employer pays to the employee in order to undertake the work as agreed and it includes wage rates for the work plus wage allowances and other additional items. As to the new definition of “wages”, employers shall have to pay extra amounts related to social insurance, overtime wages and accordingly labour costs shall extremely increase. Social insurance should be covered by State Treasury, however the way in which enterprises are forced to mostly bear such expenses like in Vietnam seems to be an issue.

 

There is no country where enterprises must bear huge expenses on social insurance which are equivalent to 22 per cent of wages fund payable to employees as Vietnam does. Moreover, the regional minimum wages have been increasing quickly at from 10 per cent to 15 per cent per year. It means that the change of ratio for the payment of social insurance together with the calculation of overtime wages and expenses on meals for employees significantly increases labour costs in Vietnam and the manufacture industry therefore has been losing its attractive competition.

 

Due to the change of world economic situation and change of calculation of overtime wages as well as other factors which may cause significant effects to the burden on expenses borne by enterprises, the Government of Vietnam is recommended to reconsider delaying the time of applying newly regulated social insurance payment to 2016 and taking appropriate steps.

 

By actively and successfully deploying trade agreements such as TPP, the importance of industrial policies will be clearer. Specially, the Japan Business Association in Vietnam together with the Government of Japan, the biggest ODA donor for Vietnam, very much wants to discuss and work with Vietnam to devote to the development of Vietnam.

 

The investment source of “Long-term but at a low interest rate” ODA from Japan may be used in the infrastructure field. Therefore, ODA source shall be utilised in an extremely effective way by the Government of Vietnam by considering the modification in Decree 38 on Management and Utilisation of ODA and Concessional Loans from Donors and the improvements in procedures toward swift deployment of projects will be made.

 

On improving the investment environment for the automobile industry, Vietnam should clearly specify preferences for domestic manufacturers for the ongoing development of supporting industries, GDP growth, and implementation of WTO commitments. Besides, regarding logistics investment, foreign enterprises should be allowed to set up 100 per cent foreign-owned companies in Vietnam in order to fully or partially provide services coded CPC 742 and 748 in goods logistics or transportation.

 

The deterioration of the balance of trade payments will bring macro economy to a vicious cycle when there are exchange rate risks to which economic growth will be negatively affected in the future. Foreign investors will not invest unless they are convinced that macroeconomic stability will continue. Although the garment and textile industry is expected to expand significantly as a result of positive effects of free trade agreements, there are still concerns about negative effects on other industries, such as automobile production.

 

Therefore, the Government needs to estimate changes in the balance of trade payments contributed by businesses or estimate investment value for affected industries.

Vietnam has taken important steps to improve and enhance the market institutions that underpin a successful and sustainable economy. Notable improvements are the Investment Law’s terms with respect to freedom to do business in areas not prohibited by law, prohibitions on ministries and local authorities imposing business conditions “by the back door” and renewed focus on restructuring of the State-owned enterprises sector.

 

Nevertheless, as Vietnam integrates deeper into the global economy, particularly following the conclusion of the Trans-Pacific Partnership and other free trade agreements, it is imperative that Vietnam takes bold steps to continue improving market institutions and economic freedom. For example, while conditional investment sectors are justified, they also create de-facto barriers for entry often well beyond the stated rationale of the conditions in question. The list of conditional sectors is too broad and the consequences are also often unclear. For example, the recent Decree 60 concerning foreign ownership limits in public companies provides that if a business activity is considered as conditional for foreign investment purposes but there is no specific foreign ownership limit with respect to such activity, then the level of foreign investment is capped at 49 per cent. AusCham said that majority foreign ownership does not mean investment conditions cannot be met, but the opposite conclusion would be more appropriate and in keeping with Vietnam’s commitments towards economic freedom.

 

Another area of note is with respect to the role of State-owned enterprises (SOEs). SOEs continue to dominate many areas crowding out private enterprises, particularly SMEs, who are not competing on a level playing field. Such companies, given the space and opportunities they need to flourish, will ultimately deliver more efficient and sustainable growth for Vietnam. In the absence of that there is a risk that the foreign-led manufacturing sector will become the key sector of the economy.