“In light of the difficult economic conditions of 2022 and forecasts that predict continued challenges in 2023, it is imperative that we take decisive action to address the issues affecting the business climate in Vietnam.”, Jean-Jacques Bouflet – Vice-Chairman of EuroCham Vietnam – commented on the launch of the EuroCharm’s Whitebook 14th edition.
Jean-Jacques Bouflet said one of the biggest concerns is the complex and unpredictable process of obtaining work visas for foreign experts. Currently, foreign experts face numerous obstacles and need to get approval from various levels of authority to work in the country. The process is often intimidating, frustrating, and unpredictable. If this process is simplified and made more transparent, foreign experts and investors will find Vietnam a much more attractive destination.
To bring about positive change to attract more businesses from Europe, EuroCham urges Vietnamese government officials to consider correcting not only these but also the numerous other challenges highlighted in the Whitebook.
According to the Whitebook, during the fourth quarter of 2022, European business stakeholders’ perception of Vietnam’s business and investment climate dropped although Vietnam’s economy grew 8.02 per cent.
This comes amid continued global economic volatility resulting from a perfect storm of factors including a slowdown in global growth, interest rate hikes, sustained inflation and bruised consumer confidence.
The BCI’s results also showed a decline in optimism among European business stakeholders. Approximately 27 per cent of participants anticipate that the economy will stabilise or improve in the first quarter of 2023. This is a 15-point decrease from projections for the fourth quarter when 42 per cent held this view. Similarly, the percentage of those anticipating economic deterioration increased by 19 points to 38 per cent.
Nearly all customs duties – over 99 per cent of all tariff lines – will be eliminated in the next ten years due to the implementation of EVFTA. Vietnam has adopted a set of internal taxes, which is intended to compensate for, or even overcompensate for, the progressive reduction of duties.
The Whitebook argues that European exporters are facing a double penalty because the increase in internal taxes is already in place as the reduction of import duties is gradual over 10 years of implementation, thus creating higher overall taxation. The so-called Special Consumption Tax (SCT) was introduced and theoretically applies to up to 12 goods. But for the time being, it mostly impacts imports of wines and spirits as well as cars while being also applicable to domestic products. However, the impact is higher for imports due to the fact that they are generally higher priced than domestic products.
Vietnam has one of the highest ratios of public investment-to-GDP in the world, with 39 per cent annually from 1995. Until now, Vietnam has not agreed to include its government procurement in the Government Procurement Agreement (GPA) of the WTO.
Now, for the first time, Vietnam has undertaken to do so in the EVFTA. However, there have been a number of instances of bidding regulations being violated that have led to serious consequences recently. This does not only result in the loss of state property, but also has no positive effect on the economy and welfare of the country. Dividing customers, bidding low and then rationalising, and data falsification are all bidding arrangements that are commonly used. These are inconsistent with the Vietnamese laws and EVFTA’s.
Whitebook also addresses that Decree 53’s rules for the implementation of the Cybersecurity Law’s data localisation and local office requirements cast a very wide net and, effectively, capture many entities, but it is really important to provide clear guidelines to companies concerned by the new regulation.
The Law on Cybersecurity has recently been supplemented by Decree 532 detailing a number of articles of the Cybersecurity Law which provides strong requirements on data localisation and local office establishment. This legislation requires government agencies and domestic enterprises to store certain types of data in Vietnam while mandating both local storage and physical presence in Vietnam of foreign enterprises.
EurChamr underlines that the data localisation measures will not necessarily boost security much. The physical placement of the data has no bearing on security. Because the Internet is worldwide, every system that is directly or indirectly connected to it is subject to assaults (cross-border attacks and data breaches are the norm).
Security is primarily concerned with the physical infrastructure in which data is stored, and who owns and manages the data (and can, therefore, assist law enforcement). Vietnamese businesses should be allowed to store and process their data in the most secure data centres, which are audited against global security and privacy standards by independent third parties. Only global service providers can give this degree of security in this area.
EuroCharm suggests the establishment of a facilitator to deal with conflicting cases in agreement with the Personal Data Protection Committee – or any relevant institution on the Vietnamese side – the European Data Protection Board, and the European Commission would assist.
This facilitator would handle any issues or difficulties between Vietnamese and European subjects regarding Vietnamese regulations that could conflict with EU General Data Protection Regulation. The compatibility of Vietnamese laws with relevant provisions of different jurisdictions and international best practice is vital to ensure the further development of the local digital economy, promote a favourable business environment for European investors/ enterprises in Vietnam, and bring benefits to local consumers.
For example, it would be disruptive and costly for Vietnamese companies that use global payment, social media, e-payments, smart technologies, cloud computing, and advertising services to store data in Vietnam while the services from international providers are not also hosted here.
Given rampant infringement both on and offline, a stronger deterrent against serious infringement is required. The Criminal Code has been in force since 1 January 2018. However, there has been no official guidance on the criminal prosecution of IP infringement for enforcement authorities such as the Economic Police, the People’s Procuracy, and the Courts.
Meanwhile, several issues remain challenging for both intellectual property owners and authorities alike. For instance, there is no definition of “commercial scale”. In addition, “illegal profit” is one of the thresholds for constituting criminal offenses under the Criminal Code. However, there are inconsistencies in determining “illegal profit”.
The number of criminal cases prosecuted each year remains very low. In 2018, the Economic Police conducted a total of 467 investigations into counterfeiting activities. Sixty-five of these cases were escalated to criminal proceedings. In 2021, there were only seven cases where the Economic Police initiated criminal proceedings, with just five criminal cases proceeding to trial.
IP owners typically rely on administrative remedies to address IP infringement cases in Vietnam. They often have difficulties filing civil or criminal cases because of the overwhelmed capacities of the civil courts and high barriers to entry of the criminal courts. However, sanctions imposed on successful administrative remedies are relatively lenient and do not deter further infringement.
The new Law on Enterprises 2020, Law on Investment 2020, and Law on Securities 2019 continue to cause confusion, EuroCham comments in the Whitebook. This is due to the lack of precedent and specific guidance regarding the new laws and their implementing regulations. any intersections of these realms of legislation with a majority of inbound M&A deals must be dealt with by the legislator and responsible authorities. The arising legal uncertainty about the feasibility and execution timeline of certain M&A deals causes a lot of concern among investors and professional advisors and is a known deterrent for larger sums of foreign capital entering the country.
If Vietnam wishes to continue the positive trajectory in the M&A space of recent years, it will have to further sophisticate its national legislation and close existing gaps or “grey areas” in its legal framework. Uncertainty translates to “risk” in investors’ eyes and, therefore, stifles Vietnam’s potential to become the biggest M&A market in the SEA region.
In the wake of ESG standards becoming increasingly important for developing countries, Vietnam’s financial institutions need to start preparing to report against the latest global ESG standards, which have recently evolved significantly.
In particular, from a governance perspective, more transactions necessitate anti-bribery and anti-money- laundering provisions which are essential to investment portfolios located in more comprehensively developed jurisdictions (e.g., Singapore). There is also an increasing focus on information-technology-related governance, which is closely linked to cyber security and data protection issues. Multinational investors, in particular, are increasing their scrutiny of this dimension of M&A deals and, therefore, require distinct criteria for addressing ESG risks and opportunities in Vietnam.
Despite the rapid development of the Vietnamese M&A market, local ESG regulations are still very sparse and scattered across a variety of different legal sources. These are often nonspecific and do not afford any clear instructions or distribution of liability.
The implementing Decree 35 proposes strict thresholds, which are inadequate to allow small-scale M&A deals to proceed without bureaucratic hurdles. This represents a deterioration of the circumstances under the previous Law on Competition 2004.
Because the Law of Competition 2018 and its implementing Decree 35 do not provide any exemptions for ‘economic concentration’, the system seems too rigid to effectively achieve its justified goals – i.e., protecting the local market from any overpowering offshore competition, driven by offshore funds.
Though there are areas that need improvement, EuroCharm still sees Vietnam as an attractive FDI destination with its stable macro-economic climate, inflation in the single digits, and continuing to increase investor confidence in the country’s trade and investment environment.
Over 1,570 projects were given the green light in the first ten months of 2022, with more than half of the FDI flowing into the manufacturing sector. The second place is real estate, then comes investment in power production and distribution. The government has continued to reform Vietnam’s trade and investment environment to make the country an even more attractive place in which to invest and do business.