Transparency of the Regulatory System
AmCham’s March 2017 report noted that its members face significant challenges with inconsistent regulatory interpretation, irregular enforcement, and unclear laws. The report also noted that a survey of AmCham members in the ASEAN region found that, more than in any other ASEAN country, American companies perceive a lack of fair law enforcement in Vietnam, which heavily affects their ability to do business in the country. The 2017 PCI report found that access to land and security of business premises were the primary concern for foreign companies investing in Vietnam. However, the report also found improvements in the area of post-entry regulations (regulations businesses face after they start operations), and the burden of administrative procedures was declining. In addition, according to that report, corruption has become less prevalent in certain areas for FIEs.
In Vietnam, the National Assembly passes laws, which serve as the highest form of legal direction, but which often lack specifics. The central government, with the Prime Minister’s approval, issues decrees, which provide guidance on a law’s implementation. Individual ministries issue circulars, which provide guidance as to how that ministry will administer a law or a decree. Ministries draft laws and circulate for review among related ministries. Once the law is cleared through the various ministries, the government will post the law for a 60-day comment period. During the comment period or ministry review, if there are major issues with the law, the law will go back to the ministry that drafted the law for further revisions. Once the law is ready, it is submitted to the Office of Government (OOG) for approval, and then submitted to the National Assembly for a series of committee and plenary-level reviews. During this review, the National Assembly can send the law back to the drafting ministry for further changes. Laws are also submitted to the Communist Party’s Politburo for review via a separate process.
Drafting agencies often lack the resources needed to conduct adequate scientific or data-driven assessments. In principle, before being issued, regulations go through an impact assessment. The quality of these assessments varies, however.
Regulatory authority exists in both the central and provincial government, and foreign companies are bound by both central and provincial government regulations. Vietnam has its own accounting standards to which publicly listed companies are required to adhere.
The Ministry of Justice (MOJ) is in charge of ensuring that government ministries and agencies follow administrative processes. The Ministry has a Regulatory Management Department, which oversees and reviews legal documents after they are issued to ensure compliance with the legal system. The Law on the Promulgation of Legal Normative Documents requires all legal documents and agreements to be published online for comments for 60 days, and published in the Official Gazette before implementation. Business associations and various chambers of commerce regularly comment on draft laws and regulations. However, when issuing more detailed implementing guidelines, government entities sometimes issue circulars with little advance warning and without public notification, resulting in little opportunity for comment by affected parties. In several cases, authorities receive comments for the first draft only and make subsequent draft versions unavailable to the public. The centralized location where key regulatory actions are published can be found at http://vbpl.vn/.
While Vietnam’s legal framework might comply with international norms in some areas, the biggest issue continues to be enforcement. For example, while anti-money laundering statues comply with international standards, there has yet to be a prosecution. Therefore, while all state agencies participate in reviewing the regulatory enforcement under their legal mandates, regulatory review and enforcement mechanisms continue to be weak.
International Regulatory Considerations
Vietnam is a member of ASEAN, a 10-member regional organization working to advance economic integration through cooperation in economic, social, cultural, technical, scientific and administrative fields. Within ASEAN, the ASEAN Economic Community (AEC) has the goal of establishing a single market across ASEAN nations (similar to the EU), but that goal appears far off. To date, the greatest success of the AEC has been tariff reductions. As a result, more than 97 percent of intra-ASEAN trade is tariff-free, and less than 5 percent is subject to tariffs above 10 percent.
Vietnam is a party to of WTO’s Trade Facilitation Agreement (TFA) and has been implementing the TFA’s Category A provisions. However, Vietnam missed the February 23, 2018, TFA deadline to submit its Category B and Category C implementation timelines to the WTO due to the government’s slow bureaucratic process.
Legal System and Judicial Independence
The legal system is a mix of customary, French, and Soviet civil legal traditions. Vietnam generally follows an operational understanding of the rule of law that is consistent with its top-down, one-party political structure and traditionally inquisitorial judicial system. Contracts are regulated by various laws and regulations, with each type of contract subject to specific regulations.
If a contract does not contain a dispute-resolution clause, courts will have jurisdiction over a possible dispute. Vietnamese law allows dispute-resolution clauses in commercial contracts explicitly through the Law on Commercial Arbitration. The law follows the United Nations Commission on International Trade Law (UNCITRAL) model law as an international standard for procedural rules, and the lawmakers’ intention is indeed arbitration-friendly.
Under the revised 2015 Civil Code, all contracts are “civil contracts” subject to uniform rules. In foreign civil contracts, parties may choose foreign laws as a reference for their agreement, if the application of the law does not violate the basic principles of Vietnamese law. When the parties to a contract are unable to agree on an arbitration award, the dispute can be brought to court.
The 2005 Commercial Law regulates commercial contracts between businesses. Specific regulations provide specific forms of contracts, depending on the nature of the deals. The hierarchy of the country’s courts is: (1) the Supreme People’s Court; (2) the High People’s Court; (3) Provincial People’s Courts; and (4) District People’s Courts. The People’s Courts operate in five divisions: criminal, civil, administrative, economic, and labor. The People’s Procuracy is responsible for prosecuting criminal activities as well as supervising judicial activities.
Vietnamese courts will only consider recognition of civil judgments issued by courts in countries that have entered into agreements on recognition of judgments with Vietnam or on a reciprocal basis. However, with the exception of France, these treaties only cover non-commercial judgments.
Vietnam lacks an independent judiciary, and there is a lack of separation of powers among Vietnam’s branches of government. For example, Vietnam’s Chief Justice is also a member of the Communist Party’s Central Committee. According to Transparency International, the risk of corruption in judicial rulings is significant, as nearly one-fifth of surveyed Vietnamese households that have been to court declared that they had paid bribes at least once. Many businesses therefore avoid Vietnamese courts.
Along with corruption, the judicial system continues to face additional problems. For example, many judges and arbitrators lack adequate legal training and are appointed through personal or political contacts with party leaders or based on their political views. In addition, extremely low judicial salaries engender corruption.
Regulations or enforcement actions are appealable, and appeals are adjudicated in the national court system. Through a separate legal mechanism, individuals and companies can file complaints against enforcement actions under the Law on Complaints.
Laws and Regulations on Foreign Direct Investment
The 2014 Investment Law aimed to improve the investment environment. Previously, Vietnam used a “positive list” approach, meaning that foreign businesses were only allowed to operate in a list of specific sectors outlined by law. Starting in July 2015, Vietnam implemented a “negative list” approach, meaning that foreign businesses are allowed to operate in all areas except for six prohibited sectors or business lines. In November 2016, the National Assembly amended the Investment Law to reduce the list of 267 provisional business lines down to 243.
The law also requires foreign and domestic investors to be treated the same in cases of nationalization and confiscation. However, foreign investors are subject to different business-licensing processes and restrictions, and Vietnamese companies that have a majority foreign investment are subject to foreign-investor business-license procedures. Since June 2017, foreign investors can choose to apply for ERC and Investment Registration Certificate separately or through a “one-stop-shop” process, which saves time and cost. Investment procedures for the seven major provinces of Binh Dinh, Danang, Hai Phuong, Hanoi, Ho Chi Minh City (HCMC), Phu Yen, and Vinh Phuc can be found at https://vietnam.eregulations.org/.
Competition and Anti-Trust Laws
The Vietnam Competition Administration (VCA) of MOIT reviews transactions subject to complaints for competition-related concerns. In 2016, VCA received 18 complaints on unfair competition, but did not investigate any cases. Instead, it focused its attention on violations in multi-level sale activities, sanctioning 41 enterprises and revoking 15 multi-level sales certificates.
The Government of Vietnam is currently revising the 2004 Law on Competition, which it expects to adopt in 2018. The new draft substantially expands the criteria by which firms will be judged as exercising market power. In addition to the traditional criterion of market shares, the law will also consider other factors such as firm size, ability to erect barriers to entry, and the ability to control consumer markets, distribution channels, or input supplies. An important feature of the new law is that it will introduce leniency to firms and individuals that are first to report on market-power abuse, which is a best international practice and found to be highly effective in the United States and Europe. In addition, this law will ensure that SOEs in Vietnam comply with its international trade treaties.
Expropriation and Compensation
Under Vietnamese law, the government can only expropriate investors’ property in cases of emergency, disaster, defense, or national interest, and the government is required to compensate investors if it expropriates property. Under the U.S.-Vietnam Bilateral Trade Agreement, Vietnam must apply international standards of treatment in any case of expropriation or nationalization of U.S. investor assets, which includes acting in a non-discriminatory manner with due process of law and with prompt, adequate and effective compensation.
ICSID Convention and New York Convention
Vietnam has not yet acceded to the International Center for Settlement of Investment Disputes (ICSID) Convention. MPI has submitted a proposal to the government to join the ICSID, but this is still under consideration.
Vietnam is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning that foreign arbitral awards rendered by a recognized international arbitration institution should be respected by Vietnamese courts without a review of cases’ merits. Only a limited number of foreign awards have been submitted to the MOJ and local courts for enforcement so far, and almost none have successfully made it through the appeals process to full enforcement. As a signatory to the New York Convention, Vietnam is required to recognize and enforce foreign arbitral awards within its jurisdiction, with very few exceptions. However, in practice, this is not always the case.
Investor-State Dispute Settlement
The government is not a signatory to a treaty or investment agreement in which binding international arbitration of investment disputes is recognized, and has yet to sign a BIT or FTA with the United States. Although the law states that the court should recognize and enforce foreign arbitral awards, Vietnamese courts may reject these judgements if the award is contrary to the basic principles of Vietnamese laws.
International Commercial Arbitration and Foreign Courts
Vietnam’s legal system remains underdeveloped and is often ineffective in settling commercial disputes. Negotiation between concerned parties is the most common means of dispute resolution. Since the Law on Arbitration does not allow a foreign investor to refer an investment dispute to a court in a foreign jurisdiction, Vietnamese judges cannot apply foreign laws to a case before them, and foreign lawyers cannot represent plaintiffs in a court of law.
In February 2017, the government issued Decree No. 22/2017/ND-CP (Decree 22) on commercial mediation, which came into effect in April 2017. Decree 22 spells out in detail the principle procedures for commercial mediation. More information on Decree 22 can be found at http://eng.viac.vn/decree-no-.-22/2017/nd-cp-on-commercial-mediation-a487.html.
The Law on Commercial Arbitration took effect in 2011. Currently there are no foreign arbitration centers in Vietnam, although the Arbitration Law permits foreign arbitration centers to establish branches or representative offices. Foreign and domestic arbitral awards are legally enforceable in Vietnam; however, in practice it can be very difficult.
As a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Vietnam is required to recognize and enforce foreign arbitral awards within its jurisdiction, with very few exceptions.
There are no readily available statistics on how often domestic courts rule in favor of SOEs. In general, the court system in Vietnam works slowly. International arbitration awards, when enforced, may take years from original judgment to payment. According to the 2016 PCI report, 19 percent of businesses chose to avoid the Vietnamese court system during disputes in 2016 due to concerns related to potential bribery during the process.
In 2014, Vietnam revised its Bankruptcy Law to make it easier for companies to declare bankruptcy. The new law clarifies the definition of insolvency as an enterprise that is more than three months overdue in meeting its payment obligations. The new law also provided provisions allowing creditors to commence bankruptcy proceedings against an enterprise, and created procedures for credit institutions to file for bankruptcy. Despite these changes, according to the World Bank’s 2018 Ease of Doing Business Report, it still takes on average five years to conclude a bankruptcy case in Vietnam, and the recovery rate on average is only 22 percent.
The Credit Information Center of the State Bank of Vietnam provides credit information services.