Vietnam continues to welcome foreign direct investment (FDI). In 2018, Vietnam attracted USD 19.1 billion of FDI, a 9.1 percent increase from 2017, while global foreign direct investment fell by nearly a fifth, according to the U.N. Conference on Trade and Development’s (UNCTAD) 2018 report. Vietnam’s 2018 GDP grew 7.08 percent, the highest rate since prior to the 2008 global financial crisis, thanks to strong FDI inflows and growth in the services and manufacturing sectors, productivity, private consumption, and exports.
Continued strong FDI inflows are due in part to ongoing economic reforms, a young, and increasingly urbanized, population, political stability, and inexpensive labor. Despite the strong FDI inflows, significant challenges remain in the business climate, including corruption, a weak legal infrastructure and judicial system, poor intellectual property rights (IPR) enforcement, a shortage of skilled labor, restrictive labor practices, and impediments to infrastructure investment.
Examples of large investment projects approved in 2018 include a Hanoi-area “smart” residential township with USD 4.1 billion in Japanese investment; a USD 1.2 billion polypropylene factory, a liquefied natural gas (LNG) storage facility, and two electronics factories worth USD 500 million, all by Korean investors; and an additional USD 1.2 billion investment in an existing Singaporean resort.
Vietnam must continue to reform in order to maintain or boost competitiveness in the face of internal factors such as a sustained budget deficit, high debt levels, a weak domestic sector that has low linkages to the global supply chain, low productivity of state-owned enterprises (SOEs), and a financial sector burdened by non-performing loans.
The recently entered-into-force Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EV FTA), if approved, present significant potential benefits for Vietnam. They are expected to fuel robust economic gains, in the form of more FDI, increased competitiveness of Vietnamese exports, and millions more jobs. These trends may accelerate if foreign companies relocate manufacturing facilities from China to Vietnam due to trade tensions, rising cost of Chinese labor, and China’s shift towards more high-tech industries. Private-sector analysts predict that the electronics, textiles, shoes, and auto-parts sectors in Vietnam would benefit most.
|TI Corruption Perceptions Index||2018||117 of 180||https://www.transparency.org/cpi2018|
|World Bank’s Doing Business Report “Ease of Doing Business”||2019||69 of 190||http://www.doingbusiness.org/en/data/exploreeconomies/vietnam|
|Global Innovation Index||2018||45 of 126||https://www.globalinnovationindex.org/|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$2,010||https://apps.bea.gov/international/factsheet/factsheet.cfm|
|World Bank GNI per capita||2017||$2,160||http://data.worldbank.org/|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Vietnam continues to welcome FDI and foreign companies play an important role in the economy. According to the Government Statistics Office (GSO), FDI exports of USD 175 billion accounted for 72 percent of total exports in 2018 (compared to 47 percent in 2000).
Despite improvements in the business environment, including economic reforms intended to enhance competitiveness and productivity, Vietnam has benefited from global investors’ efforts to diversify their supply chains. Vietnam’s rankings fell in the most recent World Economic Forum Competitiveness Index (from 74/135 in 2017 to 77/140 in 2018) and World Bank Doing Business Index (from 68 in 2018 to 69 in 2019), but its raw scores improved compared to prior years. According to the 2018 Organization for Economic Cooperation and Development (OECD) Investment Policy Review, Vietnam has an “average” level of openness compared to other OECD countries, though it is second to only Singapore within ASEAN. The OECD ranked Vietnam’s openness to FDI as higher than that of South Korea, Australia, and Mexico.
Vietnam seeks to move up the global value chain by attracting FDI in sectors that will facilitate technology transfer, increase skill sets in the labor market, and improve labor productivity, specifically targeting high-tech, high value-added industries with good environmental safeguards. Assisted by the World Bank, the government is drafting a new FDI Attraction Strategy for 2030. This new strategy is intended to facilitate technology transfer and environmental protection, and will supposedly move away from tax reductions to other incentives, such as using accelerated depreciation and more flexible loss carry-forward provisions and focusing on value-added qualities instead of on sectoral categories.
Since the Prime Minister included the Provincial Competitiveness Index (PCI) as a target for improving national business competitiveness in Resolution 19 in 2014, PCI has become a major measurement for provincial economic governance policy reform. In January 2019, a new Resolution 02 also included PCI targets as a means to improve the business and investment environment in Vietnam.
Although there are foreign ownership limits (FOL), the government does not have investment laws discriminating against foreign investors; however, the government continues to favor domestic companies through various incentives. According to the OECD 2018 Investment Policy Review, SOEs account for one third of Vietnam’s gross domestic product and receive preferential treatment, including favorable access to credit and land. Regulations are often written to avoid overt conflicts and violations of bilateral or international agreements, but in reality, U.S. investors feel there is not always a level playing field in all sectors. In the 2018 Perceptions of the Business Environment Report, the American Chamber of Commerce (AmCham) stated: “Foreign investors need a level playing field, not only to attract more investment in the future, but also to maintain the investment that is already here. Frequent and retroactive changes of laws and regulations – including tax rates and policies – are significant risks for foreign investors in Vietnam.”
The Ministry of Planning and Investment (MPI) oversees an Investment Promotion Department to facilitate all foreign investments, and most of provinces and cities have investment promotion agencies. The agencies provide information, explain regulations, and offer support to investors when requested.
The semiannual Vietnam Business Forum allows for a direct dialogue between the foreign business community and government officials. The U.S.-ASEAN Business Council (USABC) also hosts multiple missions for its U.S. company members enabling direct engagement with senior government officials through frequent dialogues to try to resolve issues. In addition, the 2018 PCI noted 68.5 percent of surveyed companies stated that dialogues and business meetings with provincial authorities helped address obstacles and that they were satisfied with the way provincial regulators dealt with their concerns.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private entities can establish and own businesses in Vietnam, except in six prohibited areas (illicit drugs, wildlife trading, prostitution, human trafficking, human cloning, and chemical trading). If a domestic or foreign company wants to operate in 243 provisional sectors, it must satisfy conditions in accordance with the 2014 Investment Law. Future amendments to the law are likely to narrow this list further, allowing firms to engage in more business areas. Foreign investors must negotiate on a case-by-case basis for market access in sectors that are not explicitly open under existing signed trade agreements. The government occasionally issues investment licenses on a pilot basis with time limits, or to specifically targeted investors.
Vietnam allows foreign investors to acquire full ownership of local companies, except when mentioned otherwise in international and bilateral commitments, including equity caps, mandatory domestic joint-venture partner, and investment prohibitions. For example, as specified in the Vietnam’s World Trade Organization (WTO) commitments, highly specialized and sensitive sectors (such as banking, telecommunication, and transportation) still maintain FOL, but the Prime Minister can waive these restrictions on a case-by-case basis. Vietnam also limits foreign ownership of SOEs and prohibits importation of old equipment and technologies more than 10 years old. No mechanisms disadvantage or single out U.S. investors.
Merger and acquisition (M&A) activities can be complicated if the target domestic company is operating in a restricted or prohibited sector. For example, when a foreign investor buys into a local company through an M&A transaction, it is difficult to determine which business lines the acquiring foreign company is allowed to maintain and, in many cases, the targeted company may be forced to reduce its business lines.
The 2017 Law on Technology Transfer came into effect in July 2018, along with its implementing documents Decree 76/2018/ND-CP and Circular 02/2018/TT-BKHCN. These require mandatory registration of technology transfers from a foreign country to Vietnam. This registration is separate from registration of intellectual property rights and licenses.
Vietnam allows for five years of regulatory data protection (RDP) as part of its U.S.-Vietnam bilateral trade agreement obligations. However, Vietnamese law requires companies to apply separately for RDP within the 12 months following receipt of market authorization for any country in the world. Specifically, decree No. 169/2018/ND-CP, effective from February 2018, tightened the regulatory process for the registration of medical devices and no longer accepted foreign classification results in Vietnam, lengthening procedural time and increasing expenses for foreign manufacturers.
Vietnamese authorities screen investment-license applications using a number of criteria, including: 1) the investor’s legal status and financial capabilities; 2) the project’s compatibility with the government’s “Master Plan” for economic and social development and projected revenue; 3) technology and expertise; 4) environmental protection; 5) plans for land-use and land-clearance compensation; 6) project incentives including tax rates, and 7) land, water, and sea surface rental fees. The decentralization of licensing authority to provincial authorities has, in some cases, streamlined the licensing process and reduced processing times. However, it has also caused considerable regional differences in procedures and interpretations of investment laws and regulations. Insufficient guidelines and unclear regulations can prompt local authorities to consult national authorities, resulting in additional delays. Furthermore, the approval process is often much longer than the timeframe mandated by laws. Many U.S. firms have successfully navigated the investment process, though a lack of transparency in the procedure for obtaining a business license can make investing riskier.
Provincial People’s Committees approve all investment projects, except the following:
- The National Assembly must approve investment projects that:
- have a significant environmental impact;
- change land usage in national parks;
- are located in protected forests larger than 50 hectares; or
- require relocating 20,000 people or more in remote areas such as mountainous regions.
- The Prime Minister must approve the following types of investment project proposals:
- building airports, seaports, or casinos;
- exploring, producing and processing oil and gas;
- producing tobacco;
- possessing investment capital of more than VND 5,000 billion (USD 233 million);
- including foreign investors in sea transportation, telecommunication or network infrastructure, forest plantation, publishing, or press; and
- involving fully foreign-owned scientific and technology companies or organizations.
Other Investment Policy Reviews
Vietnam went through an OECD Investment Policy Review in 2018. The WTO reviewed Vietnam’s trade policy and the report is online. (https://www.wto.org/english/tratop_e/tpr_e/tp387_e.htm ).
U.N. Conference on Trade and Development’s (UNCTAD) conducted an investment policy review in 2009. (https://unctad.org/en/pages/PublicationArchive.aspx?publicationid=521 )
Vietnam’s business environment continues to improve due to new laws that have streamlined the business registration processes.
The 2018 PCI report found that 75 percent of companies rated paperwork and procedures as simple, compared to 51 percent in 2015. Vietnam decreased duplicate and overlapping inspections with only 10 percent of companies reporting such cases in 2018, compared to 25 percent in 2015. However, many firms still felt the entry costs remain too high and 16 percent reported waiting over one month to complete all required paperwork (aside from getting a business license) to become fully legal. In addition, a 2018 AmCham position paper cited very frequent and largely unnecessary post-import audits as creating burdens for companies. Multiple U.S. companies report facing recurring and unpredictable tax audits based on assumptions or calculations not in alignment with international standards.
Vietnam’s nationwide business registration site is http://dangkykinhdoanh.gov.vn . In addition, as a member of the UNCTAD international network of transparent investment procedures, information on Vietnam’s investment regulations can be found online (http://vietnam.eregulations.org/ ). The website provides information for foreign and national investors on administrative procedures applicable to investment and income generating operations, including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal and regulatory citations for seven major provinces. The 2019 World Bank’s Doing Business Report stated it took on average 17 days to start a business compared to 22 days in 2018. Vietnam is one of the few countries to receive a 10-star rating from UNCTAD in business registration procedures.
The government does not have a clear mechanism to promote or incentivize outward investments. The majority of companies engaged in overseas investments are large SOEs, which have strong government-backed financial resources. The government does not implicitly restrict domestic investors from investing abroad. Vietnamese companies have increased investments in the oil, gas, and telecommunication sectors in various developing countries and countries with which Vietnam has close political relationships. According to a government’s most recent report, between 2011-2016, SOE PetroVietnam made USD 7 billion in outbound investments out of a total of USD 12.6 billion from all SOEs.
2. Bilateral Investment Agreements and Taxation Treaties
Vietnam maintains trade relations with more than 200 countries, and has 66 bilateral investment treaties (BITs) and 26 treaties with investment provisions. It is a party to five free trade agreements (FTAs) with ASEAN, Chile, the Eurasian Customs Union, Japan, and South Korea. As a member of ASEAN, Vietnam also is party to ASEAN FTAs with Australia, New Zealand, China, India, Japan, South Korea, and Hong Kong.
In addition, CPTPP entered into force January 14, 2019, in Vietnam. Once fully implemented, CPTPP will form a trading bloc representing 495 million consumers and 13.5 percent of global GDP – worth a total of USD 10.6 trillion.
In July 2018, the EU and Vietnam agreed on the final text of the EV FTA and the EU-Vietnam Investment Protection Agreement (EV IPA), which are due to be voted upon by the European Parliament in 2019.
Vietnam is a participant in the Regional Comprehensive Economic Partnership (RCEP) negotiations, which include the 10 ASEAN countries and Australia, China, India, Japan, South Korea, and New Zealand, and it is negotiating FTAs with other countries, including Israel. A full list of signed agreements to which Vietnam is a party is on the UNCTAD website: http://investmentpolicyhub.unctad.org/IIA/CountryBits/229#iiaInnerMenu .
Vietnam has signed double taxation avoidance agreements with 80 countries, listed at http://taxsummaries.pwc.com/ID/Vietnam-Individual-Foreign-tax-relief-and-tax-treaties . The United States and Vietnam concluded and signed a Double Taxation Avoidance Agreement (DTA) in 2016, but it is still awaiting ratification by the U.S. Congress.
There are no systematic tax disputes between the government and foreign investors. However, an increasing number of U.S. companies disputed tax audits, which resulted in retroactive tax assessments. U.S. businesses generally attribute these cases to unclear, conflicting, and amended language in investment and tax laws and the government’s desire for revenue to reduce chronic budget deficits. These retroactive tax cases against U.S. companies can obscure the true risks of operating in Vietnam and give some U.S. investors pause when deciding whether to expand operations.
Decree 20/2017/ND-CP, effective since May 2017, introduced many new transfer-pricing reporting and documentation requirements, as well as new guidance on the tax deductibility of service and interest expenses. The Ministry of Finance (MOF) is drafting revisions to its Law on Tax Administration and expects to submit the draft law to the National Assembly for review and approval in 2019.
3. Legal Regime
Transparency of the Regulatory System
U.S. companies often report that they face significant challenges with inconsistent regulatory interpretation, irregular enforcement, and unclear laws. A 2017 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 2018 PCI report found that access to land, taxes, and social insurance were the most burdensome administrative procedures. 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 foreign-invested enterprises (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. For some special or controversial laws, the Communist Party’s Politburo will review via a separate process.
Drafting agencies often lack the resources needed to conduct adequate scientific or data-driven assessments. In principle, before issuing regulations, agencies are required to conduct policy impact assessments that consider economic, social, gender, administrative, and legal factors. The quality of these assessments varies, however.
Regulatory authority exists in both the central and provincial governments, 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 MOF updates the Vietnam Accounting Standards to match IFRS from time to time. In 2013, it set out a road map for public companies to apply 10 to 20 simple IFRS standards by 2020, 30 standards by 2023, and fully comply with IFRS by 2025. However, some companies already prepare financial statements in line with International Financial Reporting Standards (IFRS) in the interest of reporting to foreign investors.
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 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 (AML) statutes comply with international standards, Vietnam has prosecuted very few AML cases so far. Therefore, while all state agencies participate in reviewing the regulatory enforcement under their legal mandates, regulatory review and enforcement mechanisms remain weak.
While general information is publically available, Vietnam’s public finances and debt obligations (including explicit and contingent liabilities) are not transparent. The National Assembly set a statutory limit for public debt at 65 percent of nominal GDP, and, according to official figures, Vietnam’s public debt to GDP ratio in late 2018 reached 61 percent, down 0.3 percent from 2017. However, the official public-debt figures exclude the debt of certain SOEs. This poses a risk to its public finances, as the state is ultimately liable for the debts of these companies. Vietnam could improve its fiscal transparency by making its executive budget proposal widely and easily accessible to the general public long before the National Assembly enacted the budget; including budgetary and debt expenses in the budget; ensuring greater transparency of off-budget accounts; and publicizing the criteria by which the government awards contracts and licenses for natural resource extraction.
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 to be long term in nature. 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 the WTO’s Trade Facilitation Agreement (TFA) and has been implementing the TFA’s Category A provisions. Vietnam submitted its Category B and Category C implementation timelines on August 2, 2018. According to these timelines, Vietnam will fully implement the Category B and C provisions by the end of 2023 and 2024, respectively.
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. Various laws and regulations regulate contracts, 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, they can bring the dispute 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 to 243; subsequent amendments will likely further narrow this list, allowing firms to engage in more business areas.
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 (IRC) separately or through a “one-stop-shop” process, which saves time and cost. However, large-scale projects still require a high-level approval before receiving an IRC. This is often a lengthy process. 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
In 2018, Vietnam passed a new Law on Competition, which will come into effect on July 1, 2019. While the 2014 Law on Competition only applied to activities, transactions, and agreements originating inside Vietnam, the new law applies to those originating inside and outside Vietnam that negatively affect competitiveness in Vietnam. The revised law included punishments to minimize impediments to competition created by government agencies and introduced leniency towards firms and individuals, as an incentive to align with international practices and improve the effectiveness of the law.
Unlike the 2014 Law on Competition, which specified that a firm was exercising market power if it had 30 percent or more of market share, the revised law contains more criteria to determine market power, including firm size, financial ability, advantages on technology and infrastructure, etc. The new law does not forbid market concentration for firms with combined market share over 50 percent unless the market concentration significantly constrains competition.
The law charges the National Competition Commission under the Ministry of Industry and Trade (MOIT) with competition management. The Commission will support the Trade Minister on competition management, conduct investigations, and review requests for exemptions.
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.
According to UNCTAD, over the last 10 years there were two dispute cases against the Vietnamese government involving U.S. companies. The courts decided in favor of the government in one case, and the parties decided to discontinue the other case. The Vietnam government was a respondent state in seven disputes. More details are available at https://investmentpolicyhub.unctad.org/ISDS/CountryCases/229?partyRole=2
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 2018 PCI report, 20 percent of surveyed foreign companies had a contract dispute. Only 39 percent of private domestic companies and two percent of foreign firms were willing to use the courts to resolve ongoing disputes in 2018, due to concerns related to time, costs, and potential bribery during the process. Companies turned to other methods such as arbitration or using influential individuals trusted by both parties.
In 2014, Vietnam revised its Bankruptcy Law to make it easier for companies to declare bankruptcy. The law clarified the definition of insolvency as an enterprise that is more than three months overdue in meeting its payment obligations. The 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 2019 Ease of Doing Business Report, Vietnam ranked 133 out of 190 for resolving insolvency. The report noted that it still takes on average five years to conclude a bankruptcy case in Vietnam, and the recovery rate on average is only 21 percent. The courts have not improved bankruptcy case processing speed.
The Credit Information Center of the State Bank of Vietnam provides credit information services.
4. Industrial Policies
Foreign investors are exempt from import duties on goods imported for their own use that cannot be procured locally, including machinery, vehicles, components and spare parts for machinery and equipment, raw materials, inputs for manufacturing, and construction materials. Remote and mountainous provinces are allowed to provide additional tax breaks and other incentives to prospective investors.
In addition, projects in the following areas are entitled to investment incentives such as lower corporate income tax, exemption of import tariffs, or favorable land rental rates: high-tech; research and development; new materials; energy; clean energy; renewable energy; energy saving products; automobiles; software; waste treatment and management; primary or vocational education; and those located in remote areas or in industrial zones.
According to the OECD’s 2018 Investment Policy Review, Vietnam has an expansionary tax policy aimed at stimulating investment. Vietnam’s corporate income tax rate is highly competitive regionally at 20 percent.
Vietnam has also offered non-tax incentives, including exemption or reduction of infrastructure-use fees and land-use fees; assistance with recruitment and training of skilled labor; and assistance with immigration and residence procedures.
Vietnam promotes foreign investment in certain priority sectors, and in geographic regions that are remote or underdeveloped. The government encourages investment in the following areas: production of new materials, new energy sources, metallurgy and chemical industries; manufacturing of high-tech products, biotechnology, information technology, mechanical engineering; agricultural, fishery and forestry production; salt production; generation of new plant varieties and animal species; ecology and environmental protection; research and development; knowledge-based services; processing and manufacturing; labor-intensive projects (using 5,000 or more full-time laborers); infrastructure projects; education and training; and health and sports development.
Although Vietnam seeks FDI in infrastructure, including the energy sector, it has been reluctant to give government guarantees that investors often seek, due to its concerns about reaching its public-debt ceiling of 65 percent of GDP. (In 2018, its public debt was 61 percent of GDP.) This has delayed some approvals of large-scale projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
In recent years, Vietnam has prioritized efforts to establish free trade zones (FTZs). Vietnam currently has more than 350 industrial zones (IZs) and export processing zones (EPZs). Many foreign investors report that it is easier to implement projects in industrial zones because they do not have to be involved in site clearance and infrastructure construction. Enterprises pay no duties when importing raw materials if they export the finished products. Customs warehouse keepers in FTZs can provide transportation services and act as distributors for the goods deposited. Additional services relating to customs declaration, appraisal, insurance, reprocessing, or packaging, require the approval of the provincial customs office. In practice, the time involved for clearance and delivery of goods by provincial custom officials can be lengthy and unpredictable.
Performance and Data Localization Requirements
Vietnam does not mandate that businesses hire local workers, including for senior management roles or the board of directors. However, companies must prove their efforts to hire suitable local employees were unsuccessful before recruiting foreigners. This does not apply to board members elected by shareholders or capital contributors. In February 2016, the government issued Decree No.11/2016/ND-CP, guiding a number of articles of the Labor Code on foreigners working in Vietnam, which entered into force in April 2016. Decree 11 included positive changes, including changes to the conditions, paperwork, and timeline for work-permit applications and exemptions, and clarification that the work-permit and exemption-certificate requirements did not apply to foreigners coming to work for less than 30 days with less than 90 days of cumulative working time in one year.
In October 2018, the government issued Decree No. 140/2018/ND-CP (Decree 140), which amends various decrees on investment, business conditions, and administration procedures, and Decree No. 143/2018/ND-CP (Decree 143) on compulsory social insurance for foreigners working in Vietnam. Decree 140 streamlines the work-permit process for foreigners working in Vietnam. Decree 143 requires foreign individuals with a work permit, practicing certificate, or practicing license, and working under a labor contract with an indefinite term or a definite term of one year or more with a company in Vietnam, to participate in a mandatory social insurance scheme, which previously was applicable to Vietnamese workers only.
The government has been increasingly adopting policies to encourage or require foreign investors to use domestic content in goods and technology. For example, Circular 14/2015/TT-BKHDT applied high tariffs to imported automotive parts to protect domestic production and encourage foreign auto manufacturers to source component parts locally. Another example is Decree 54/2017/ND-CP, which stipulates foreign invested entities can import drugs into Vietnam, but are not permitted to transport, store, or distribute drugs.
In June 2018, the National Assembly approved a Law on Cybersecurity, effective January 1 2019, which requires cross-border services to store data of Vietnamese users in Vietnam, despite sustained international and domestic opposition to the regulation. The law’s data-localization provisions are broad and vague, with subsequent draft guidance implying the data-localization requirements will only apply to firms that do not comply with strict online content removal requests from the government. Foreign firms and legal experts await implementing decrees expected in mid-2019 to clarify how the government intends to implement the law. In 2015, the National Assembly issued the Law on Network Information Security, effective July 1, 2016, which included obligations to disclose proprietary information as a condition to enter the market, overly broad definitions of personal information, overly broad provisions requiring “cooperation with the Government” regarding access to data, and requirements to decrypt encrypted information held by third parties. MOF is also proposing draft legislation in 2019 to request cross-border service providers via internet protocols to have a representative office in Vietnam, citing the necessity of local office requirements for taxation purposes.
There are currently no measures preventing or unduly impeding companies from freely transmitting customer or other business-related data outside of Vietnam. The most important regulation is Decree 72/2013/ND-CP, on the management, provision, and use of internet services and online information. While Decree 72 technically requires organizations establishing “general websites,” or social networks and companies providing online gaming services or services across mobile networks to maintain at least one server in Vietnam, in practice the regulation is only applied to domestic firms, and then only sporadically. It also establishes requirements for storing certain types of data (personally identifiable information of users, user activity logs, etc.), but it is unclear if that information must be stored on a local server. In 2016, the Ministry of Information and Communications (MIC) issued Circular 38/2016/TT-BTTT, one of the implementing circulars of Decree 72. The circular does not require localization of servers, though it does require offshore service providers with a large number of users in Vietnam to comply with local content restrictions. Specific requirements under Circular 38 apply to offshore entities that provide cross-border public information into Vietnam (including websites, social networks, online applications, search engines and other similar forms of services) that (a) have more than one million hits from Vietnam per month or (b) lease a data center to store digital information in Vietnam in order to provide its services.
Provisions of the new cybersecurity law require firms to hand over unencrypted user information upon request by law enforcement. However, application of this requirement hinges on issuance of implementing decrees, expected in mid-2019. Vietnam has no international commitments in this area and does not permit cross-border online gaming. Therefore, gaming providers tend to establish a joint venture with a Vietnamese company and locate one server in Vietnam. Regarding financial data localization, Circular 31 requires backup information, but does not impede cross-border data flows.
When Vietnam joined the WTO in 2007, it established minimum commitments on market access for U.S. goods and services, as well as equal treatment for Vietnamese and foreign companies. Vietnam undertook commitments on goods (tariffs, quotas, and ceilings on agricultural subsidies) and services (provisions of access to foreign-service providers and related conditions). It has also committed to implementing agreements on intellectual property (the Trade-Related Aspects of Intellectual Property Rights Agreement), customs valuation, technical barriers to trade, sanitary and phytosanitary measures, import licensing provisions, anti-dumping and countervailing measures, and rules of origin. As part of its WTO accession, Vietnam also committed to remove performance requirements that are inconsistent with the agreement on Trade-Related Investment Measures (TRIMs). The 2014 Investment Law specifically prohibits the following: giving priority to domestic goods or services; compulsory purchases from a specific domestic firm; export of goods or services at a fixed percentage; restricting the quantity, value, or type of goods or services exported or sourced domestically; fixing import goods at the same quantity and value as goods exported; requirements to achieve certain local content ratios in manufacturing goods; stipulated levels or values on research and development activities; supplying goods or services in a particular location; and mandating the establishment of head offices in a particular location.
The government updates, on an ad hoc basis, the list of investment priority high-tech products and companies investing in research and development for items that are entitled to the highest tax incentives and may be eligible for funding from the National High-Tech Development Program. Companies that develop infrastructure for high-tech parks will also receive land incentives.
5. Protection of Property Rights
The State collectively owns and manages all land in Vietnam, and therefore neither foreigners nor Vietnamese nationals can own land. However, the government grants land-use and building rights, often to individuals. According to the Ministry of National Resources and Environment (MONRE), as of September 2018, the government has issued land-use rights certificates for 96.9 percent of land in Vietnam. If land is not used, according to the land-use rights certificate or if it is unoccupied, it reverts to the government. Vietnam is building a national land-registration database, and some localities have already digitized their land records.
The MONRE is drafting amendments to the 2013 Land Law, which would focus on several major issues, including eradicating the farmland acquisition quota, increasing cases of land recovery by the State, assigning district-level administrators rather than provincial-level administrators to accurately set land prices, and allowing foreigners to own homes in Vietnam. MONRE expects to submit the draft law to the National Assembly for review and approval in 2020.
State protection of property rights is still evolving, as the State can expropriate land for socio-economic development. Under the Housing Law and Real Estate Business Law passed by the National Assembly in November 2014, the government can take land if it deems it necessary for socio-economic development in the public or national interest and the Prime Minister, the National Assembly, or the Provincial People’s Council approves such action. However, the law loosely defined “socio-economic” development, and there are many outstanding legal disputes between landowners and local authorities. Disputes over land rights continue to be a significant driver of social protest in Vietnam. Foreign investors also may be exposed to land disputes through merger and acquisition activities when they buy into a local company.
In addition to land, the State’s collective property includes “forests, rivers and lakes, water supplies, wealth lying underground or coming from the sea, the continental shelf and the air, the funds and property invested by the government in enterprises, and works in all branches and fields – the economy, culture, society, science, technology, external relations, national defense, security – and all other property determined by law as belonging to the State.”
The Housing Law and Real Estate Business Law extended “land-use rights” to foreign investors, allowing titleholders to conduct property transactions, including mortgages. Foreign investors can lease land for renewable periods of 50 years, and up to 70 years in some poor areas of the country.
In June 2018, the National Assembly decided to delay indefinitely the debate on and adoption of the controversial draft Law on Special Administrative and Economic Zones. The law aimed to loosen regulations on foreign investors, permitting them to lease land in the Van Don, Bac Van Phong, and Phu Quoc Special Administrative and Economic Zones for up to 99 years. The National Assembly’s decision followed widespread protests against the proposed law.
Some investors have encountered difficulties amending investment licenses to expand operations onto land adjoining existing facilities. Investors also note that local authorities may intend to increase requirements for land-use rights when current rights must be renewed, particularly in instances when the investment in question competes with Vietnamese companies.
Intellectual Property Rights (IPR)
The legal basis for IPR includes the 2005 Civil Code, the 2005 Intellectual Property (IP) Law as amended in 2009, the 2015 Penal Code, and implementing regulations and decrees. Vietnam has joined the Paris Convention on Industrial Property and the Berne Convention on Copyright; the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations; the Patent Cooperation Treaty; the Madrid Protocol; and the International Convention for the Protection of New Varieties of Plants. It has worked to meet its commitments under these international treaties. The Vietnamese government has ratified the revised Trade-Related Aspects of Intellectual Property Rights protocol, which took effect on January 23, 2017. On January 1, 2018, the 2015 Penal Code entered into force with clearer guidelines on the application of criminal penalties for certain acts of IPR infringement or piracy. For the first time, commercial entities can be liable for violations. On June 12, 2018, the National Assembly passed a new Law on Competition, eliminating outdated IP-related unfair competition provisions and bringing guidelines in line with Vietnam’s other IP laws. The government also issued Decree No. 22/2018/ND-CP, which replaced a 2006 regulation and updated copyright guidelines under the Civil Code and Law on IP. However, enforcement agencies still lack clarity and experience in how to impose criminal penalties on IPR violators and continue to wait for further implementing guidelines. On June 19, 2018, the Prime Minister issued Directive No. 17/CT-TTg to strengthen the fight against smuggling, commercial fraud, and the production and trade of low-quality foods and fake goods, pharmaceuticals, and cosmetics.
Circular No. 16/2016/TT-BKHCN, which amends and supplements a number of articles of Circular No. 01/2007/TT-BKHCN, one of the core regulations in the Vietnam IP system, came into force on January 15, 2018. IP attorneys expect the circular will have a significant, positive impact on patent and trademark examination procedures, but also expect further revisions in 2019 and in the IP Law revision. The National Assembly ratified the CPTPP on November 2, 2018, and Vietnam intends to amend laws, including the Law on Intellectual Property, to align with the international treaty by 2021. With technical support from the World Intellectual Property Organization (WIPO), Vietnam in 2017 also completed a National Strategy for Intellectual Property to create a roadmap for promoting innovation and a more effective IP framework by 2030.
Although Vietnam has made progress in establishing a legal framework for IPR protection, significant problems remain and new challenges are emerging. The country remains on the Special 301 Watch List. The rate of unlicensed software in Vietnam is still high, at 74 percent, according to the Software Alliance’s latest data, representing a commercial value of USD 492 million. In 2018, Vietnam had mixed results in its efforts to protect IPR. Vietnam’s continued integration into the global economic community, as well as increasing domestic pressure for IP protections, may stimulate positive change. Nevertheless, infringement and piracy remained commonplace, and the impact of digital piracy and the increasing prevalence of counterfeit goods sold online continued to undermine the IPR environment. The increasingly sophisticated capabilities of domestic counterfeiters, coupled with developing smuggling routes through Vietnam’s porous borders, were also worrisome trends. There are ten ministries sharing some level of responsibility for IPR enforcement and protection, which often leads to duplication or confusion. Additionally, the roles and power of these ministries and agencies varies widely. In October 2018, the MOIT upgraded the Market Surveillance Agency, the country’s leading IP enforcement agency, to the Directorate of Market Surveillance (DMS). The move requires all 63 provincial-level market surveillance departments to report directly to the national agency rather than to local provincial governments, improving coordination and efficiency among enforcement agencies.
In 2018, the Intellectual Property Office of Vietnam (IP Vietnam) reported receiving 108,375 IP applications of all types (an increase of 5.9 percent compared to 2017), of which 63,617 were registered for industrial property rights (up 8.7 percent compared to 2017). IP Vietnam reported granting 2,212 patents in 2018 (up 27 percent from 2017). Industrial designs registrations reached 2,360 in 2018 (up 4.1 percent from 2017). In total, IP Vietnam granted more than 29,040 protection titles for industrial property, out of more than 63,617 applications in 2018 (up 8.1 percent from 2017). The DMS processed 6,149 counterfeit and IP infringement cases and collected USD 5,500 in fines. The most infringed products were agricultural materials, agricultural and pharmaceutical products, and spare automobile parts.
The Copyright Office of Vietnam received and settled seven copyright petitions, and received and settled 12 requests for copyright assessment in 2018. In 2018, the Ministry of Culture, Sports, and Tourism Inspectorate carried out inspections for software licensing compliance and discovered 46 violations that resulted in fines of USD 58,000, a 15 percent decrease in fines from 2017.
For more information, please see the following reports from the U.S. Trade Representative:
Special 301 Report:
Notorious Markets Report: https://ustr.gov/sites/default/files/files/Press/Reports/2017 percent20Notorious percent20Markets percent20List percent201.11.18.pdf
For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .
6. Financial Sector
Capital Markets and Portfolio Investment
While the government has acknowledged the need to strengthen both the capital and debt markets, there has been little progress, leaving the banking sector as the primary capital source for Vietnamese companies. Challenges to raising capital domestically include insufficient transparency in Vietnam’s financial markets and non-compliance with internationally accepted accounting standards.
Vietnam welcomes foreign portfolio investment; however, Morgan Stanley Capital International (MSCI) continues to classify Vietnam as a Frontier Market, which precludes some of the world’s biggest asset managers from investing in its stock markets. Vietnam is improving its legal framework in an effort to reach its goal of meeting the “emerging market” criteria in 2020 and attracting more foreign capital. The UK-based FTSE Russell’s decision to place Vietnam on its watch list for possible reclassification as a “Secondary Emerging Market” in September 2018 could also encourage faster reforms.
The government is drafting amendments to the Securities Law (revised in 2010) along with decrees, circulars, and guiding documents, and is targeting submission to the National Assembly for approval late in 2019. These will likely include comprehensive changes on securities trading, corporate governance, share issuance, and most notably foreign ownership limits (FOL), to help move Vietnam toward emerging market status.
The State Securities Commission (SSC) under the MOF regulates Vietnam’s two stock exchanges, the HCMC Stock Exchange (HOSE), which lists larger companies, and the Hanoi Stock Exchange (HNX), which has smaller companies, bonds, and derivatives. Vietnam also has a market for unlisted public companies (UPCOM) at the Hanoi Securities Center, where many equitized SOEs first list their shares (due to lower transparency requirements) before moving to the HOSE or HNX. In January 2019, the Prime Minister approved a plan to establish the Vietnam Stock Exchange (VSE) as a MOF wholly state-owned company, which would own both the HOSE and HNX.
There is sufficient liquidity in the markets to enter and maintain sizable positions. Stock and fund certificate liquidity increased in 2018, reaching an average trading value per session of around USD 280 million, up 30 percent from 2017. Combined market capitalization at the end of 2018 was approximately USD 169 billion, equal to 80 percent of Vietnam’s GDP, with the HOSE accounting for USD 124 billion, the HNX USD 8 billion, and the UPCOM USD 37 billion. Bond market capitalization reached over USD 50 billion in 2018, the majority of which were government bonds, largely held by domestic commercial banks. Insurance firms also were noticeably more active government bond investors in 2018.
Vietnam complies with International Monetary Fund (IMF) Article VIII. The government notified the IMF that it accepted the obligations of Article VIII, Sections 2, 3, and 4, effective November 8, 2005.
Local banks charge relatively high interest rates for new loans because they must continue to service existing non-performing loans (NPLs). Domestic companies, especially small and medium enterprises (SMEs), often have difficulty accessing credit. Foreign investors are generally able to obtain local financing.
Money and Banking System
Since recovering from the 2008 global downturn, Vietnam’s banking sector has been stable. However, despite various banking reforms, the sector continues to be concentrated at the top and fragmented at the bottom. Based on its 2018 survey, the central bank, the State Bank of Vietnam (SBV), estimated that 50 percent of Vietnam’s population is underbanked or does not have bank accounts, due to an inherent distrust of the banking sector; the ingrained habit of holding assets in cash, foreign currency, and gold; and the limited use of financial technology tools. However, this SBV estimate appears significantly understated, with the likely percentage being closer to 70 percent. The World Bank’s The Global Findex Database 2017 (the most recent available) estimated that only 31 percent of Vietnamese over the age of 15 had an account at a financial institution or through a mobile money provider.
The banking sector’s estimated total assets in 2018 were USD 481 billion, of which USD 207 billion belonged to seven state-owned and majority state-controlled commercial banks, accounting for 44 percent of total assets. Though grouped under joint-stock (private) commercial banks, the Bank of Investment and Development Bank (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) all are majority-controlled by SBV. In addition, the SBV holds 100 percent of Agribank, Global Petro Commercial Bank (GPBank), Construction Bank (CBBank), and Oceanbank.
In addition, there were nine foreign-owned banks (HSBC, Standard Chartered, Shinhan, Hong Leong, Woori Bank, Public Bank, CIMB Bank, ANZ, and United Overseas Bank), 49 branches of foreign banks, 52 representatives of foreign credit institutions, and two joint-venture banks (Vietnam-Russia Bank and Indovina Bank).
Vietnam has made progress in recent years to reduce its NPLs, but most domestic banks remain under-capitalized with high NPL levels that continue to drag on economic growth. Accurate NPL data is not available and the central bank frequently underreports the level of NPLs. In 2018, the NPL ratio on the banks’ balance sheets reportedly went down to 2.4 percent, from 2.5 percent in 2017, while the off-balance sheet NPL ratio remain unpublished. The SBV attributes the declining NPL level to the uptrend of the property markets and its application of the National Assembly’s 2017 Resolution 42 which helps credit institutions and the Vietnam Asset Management Company (VAMC) to repossess collateral and better manage bad loans. Under its Development Strategy of the Vietnam Banking Sector to 2025, the SBV aims to reduce the NPL ratio at the banks and the VAMC to below 3 percent by 2020 (excluding poorly performing banks under a separate structure.)
Other issues in the banking sector include state-directed lending by state-owned commercial banks, cross-ownership, related-party lending under non-commercial criteria, and preferential loans to SOEs that crowd out credit to SMEs. By law, banks must maintain a minimum-chartered capital of VND 3 trillion (roughly USD 134 million); however, Vietnam is moving towards adoption of Basel II standards in 2020.
Currently, the total FOL in a Vietnamese bank is 30 percent, with a 5 percent limit for non-strategic individual investors, a 15 percent limit for non-strategic institutional investors, and a 20 percent limit for strategic institutional partners. Prudential measures and regulations apply the same to domestic and foreign banks. To meet the capital adequacy ratio required by Basel II, many banks are seeking overseas capital, and calling for relaxation of the FOL.
We are unaware of any lost correspondent-banking relationships in the past three years. However, after the SBV took over three failing banks (Ocean Bank, Construction Bank, and GP Bank), and placed Dong A Bank under special supervision in 2015, correspondent-banking relationships with those banks may have been limited.
The government is trying to leverage Vietnam’s high adoption rate of mobile and smart phones to promote financial inclusion, increase use of electronic payments, and shift Vietnam towards a cashless society. Although the SBV announced plans to implement a “regulatory sandbox” for financial technology (fintech) activities to inform its future updates to the legal framework, it has not yet published details and has licensed only 26 organizations to provide cashless services. Fintech is rapidly gaining market acceptance as many banks have implemented QR code payments and others have deployed online payment services. Nearly 100 fintech startups have reportedly launched in Vietnam, operating mainly in the e-payments space. However, these startups must overcome many legal mechanisms and policies, such as obtaining licenses. No foreign e-payments fintech companies have such licenses yet.
Cryptocurrencies remain prohibited as legal tender, preventing the issuance, supply, and use of Bitcoin and other similar virtual currency as a means of payment. Failure to comply can result in criminal prosecution. However, in 2018, the MOJ reportedly submitted to the Prime Minister’s office for approval a crypto-assets proposal, though it has yet to make public any details.
Foreign Exchange and Remittances
Foreign Exchange Policies
There are no restrictions on foreign investors converting and repatriating earnings or investment capital from Vietnam. However, funds associated with any form of investment cannot be freely converted into any world currency.
The SBV has a mechanism to determine the interbank reference exchange rate. In order to provide flexibility in responding to exchange rate volatility, the SBV announces a daily interbank reference exchange rate. The rate is determined based on the previous day’s average interbank exchange rates, taking into account movements in the currencies of Vietnam’s major trading and investment partners.
Vietnam mandates all monetary transactions must be in Vietnamese Dong (VND), and allows foreign businesses to remit lawful profits, capital contributions, and other legal investment activity revenues in foreign currency authorized credit institutions. There are no time constraints on remittances or limitations on outflow; however, outward foreign currency transactions require supporting documents (such as audited financial statements, import/foreign-service procurement contracts and proof of tax obligation fulfillment, and approval of the SBV on loan contracts etc.). Foreign investors are also required to submit notification of profit remittance abroad to tax authorities at least seven working days prior to the remittance.
The inflow of foreign currency to Vietnam is less constrained. There are no recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.
Sovereign Wealth Funds
The State Capital Investment Corporation (SCIC) technically qualifies as a sovereign wealth fund (SWF), as its mandate includes investing dividends and proceeds from privatization. The Ministry of Finance transferred oversight of SCIC and 18 other large SOEs to the Committee for Management of State Capital at Enterprises (CMSC) in November 2018, following the CMSC’s launch in September 2018 and the issuance of the Prime Minister’s Decree 131 defining its functions, tasks, powers, and organizational structure.
As of August 31, 2018, the SCIC had invested in 139 businesses, with nearly USD 866.3 million in state capital (book value). The SCIC does not manage or invest balance-of-payment surpluses, official foreign currency operations, government transfer payments, fiscal surpluses, or surpluses from resource exports. SCIC’s primary mandate is to manage the non-privatized portion of SOEs. The SCIC invests 100 percent of its portfolio in Vietnam, and the SCIC’s investment of dividends and divestment proceeds does not appear to have any ramifications for U.S. investors. The SCIC budget is reasonably transparent, audited, and can be found at http://www.scic.vn/ .
7. State-Owned Enterprises
According to the World Bank, SOEs would benefit from a “modern corporate governance system that separates state ownership rights from regulatory functions and implements an objective and transparent mechanism for the selection of CEOs and board members.” The government framework for wholly owned SOEs is fragmented, incoherent, and the management of SOEs is not in line with sound corporate governance. To improve corporate governance and SOE efficiency, the government established the CMSC in 2018. The government’s aim was to separate state ownership from regulatory oversight of 19 large centrally owned SOEs by moving their supervision away from the line ministries to CMSC.
Vietnam currently has over 500 wholly owned SOEs – including seven groups, 57 corporations, and 441 other enterprises managed by ministries and localities, according to the Ministry of Finance. Vietnam does not publish a full list of SOEs and they operate in nearly every industrial sector. However, in 2016, the government issued Decision 58/2016/QD-TTg (Decision 58) specifying the industries and areas in which the government will have wholly owned and majority-owned enterprises, including electricity distribution, airport management and operation, large-scale mineral mining, production of basic chemicals, and telecommunications services with network infrastructure, among others.
While SOEs have boards of directors, these boards are not independent. After CMSC’s establishment, it took over the oversight of the 19 largest SOEs. Aside from the CMSC’s supervision of the 19 largest SOEs, ministries govern the remaining centrally owned SOEs, while provincial governments run local SOEs. CMSC, ministries, and local governments all can appoint their staff to the boards. For SOEs with majority shares owned by government, the government ministries, and provincial governments still have the right to appoint executive staff of the companies. SOE senior officials do not typically retain their government positions, but they still retain links to the government, and may return to government service once they terminate their employment with the SOE.
SOEs do not operate on a level playing field with domestic companies and continue to benefit from preferential access to resources such as land, capital, and political largesse. However, in the 2018 PCI report, the percentage of surveyed firms that believe provincial authorities favored SOEs declined from 41 percent in 2017 to 32 percent in 2018.
In 2015, the government issued Decree 81/2015/ND-CP to require SOEs to implement strict information disclosure procedures in accordance with listed company requirements. However, because there is no clear punishment for violations, SOEs have little incentive to follow the decree. Although over 40 percent of SOEs disclose the required information, MPI confirmed the quality of reporting was insufficient to assess the SOEs’ transparency. Although there are penalties for insufficient disclosure and non-disclosure, these penalties are not significant enough to improve information disclosure.
Vietnam has been working to reform the SOE sector for over 15 years. Because SOE share sales have historically only transferred a nominal interest (2 to 3 percent) to the private sector, the process of privatization (also known as equitization) has been slow. Inadequate regulations specifying equitization procedures and pressure from vested interests present the biggest obstacles. Decree 58 specified sectors targeted for equitization, including airport management and related services, mineral mining and extraction, financial service and banking, chemical manufacturing, rice wholesale, petro and oil importation, telecommunications, rubber and coffee processors, and electricity distribution. It appears the government plans to sell or partially privatize the best, most efficient SOEs first to quickly raise cash, but has been slow to address inefficiencies in the rest.
Although the government appears more committed to privatization due to fiscal budget pressures and the necessity of expanding the private sector for continued economic growth, it has yet to meet its annual SOE equitization targets. After some notable large deals (Vinamilk in 2016 and Sabeco in 2017), the government released decision 1232/2017/QD-TTg in 2017, which listed 406 additional SOEs it would divest in the period 2017-2020, along with specific target divestment percentages. The decision aimed to reduce the number of wholly owned SOEs to about 150 by 2020. However, only 12 SOEs were equitized in 2018 against a target of 85 and share proceeds totaled less than USD 1 billion and divestments USD 880 million. The MOF expects the process to speed up in 2019 with equitization and divestment proceeds of over USD 2 billion.
Foreign investors can invest in SOEs. SOE share bidding process information can be found at https://www.hsx.vn/Modules/Auction/Web/AucInfoList?fid=271f94f836a14eb0a7d2207c05f7a39e , https://www.hnx.vn/en-gb/dau-gia/lich-dau-gia.html , and http://www.scic.vn/english/index.php/investment.html . SOE financial information is available on http://business.gov.vn/C percentC3 percentB4ngb percentE1 percentBB percent91Th percentC3 percentB4ngtin/Th percentC3 percentB4ngtindoanhnghi percentE1 percentBB percent87p.aspx .
8. Responsible Business Conduct
The government has issued regulations intended to protect the public from adverse business practices in relation to labor rights, consumer protection, and environmental protection. However, the enforcement of these laws is weak. The Enterprise Law allows shareholders to take court action against the management of a company and can nullify fully, or partly, a resolution of a shareholder general meeting through a court order or an arbitration decision. Companies are required to publish their corporate social responsibility activities, corporate governance work, information of related parties and transactions, and compensation of the management. Companies must also announce extraordinary circumstances, such as changes to management, dissolution, or establishment of subsidiaries, within 36 hours of the event.
Most multinational companies implement Corporate Social Responsibility (CSR) programs that contribute to improving the business environment, and awareness of CSR programs is increasing among large domestic companies. The Vietnam Chamber of Commerce and Industry (VCCI) conducts CSR training and highlights corporate engagement on a dedicated website (http://www.csr-vietnam.eu/ ) in partnership with the UN. In addition, AmCham also has a CSR group that organizes events and activities to raise awareness of social issues. Non-governmental organizations collaborate with government bodies, such as the VCCI and the Ministry of Labor, Invalids, and Social Affairs (MOLISA), to promote business practices in Vietnam in line with international norms and standards. Discussions on ethical business standards during negotiations of the Trans-Pacific Partnership (TPP) and the CPTPP – in addition to the gradual introduction of CSR practices by some multinational corporations over the years – have helped to shift social expectations around business responsibilities in Vietnam.
Overall, the government has not defined responsible business conduct (RBC), nor has it established a national plan or agenda for RBC. The government has yet to establish a national contact point or ombudsman for stakeholders to get information or raise concerns about RBC. Vietnam may make additional strides in labor rights and ethical business practices in its revised Labor Code, due for discussion by the National Assembly in 2019.
The 2005 Law on Enterprises in theory regulates corporate governance in line with OECD corporate governance principles. However, corporate governance standards are relatively weak in Vietnam, which ranks lower than Thailand, the Philippines, and Indonesia, according to the most recent Asia Development Bank (ADB) 2017 report on ASEAN listed companies.
The government does not have regulations encouraging companies to adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, but many multinational companies already comply. In 2016, the Prime Minister called on the MOIT to implement the Extractive Industries Transparency Initiative (EITI) in order to improve the efficiency of the minerals extraction industry. However, to date, Vietnam has not agreed to do so. Vietnam remains only an observer in EITI. Decree 158/2016/ND-CP came into effect in January 2017 and provides guidelines for implementing the Mineral Law, which may improve transparency in the mining sector.
For labor rights regulations, see Section 11 on Labor Policies and Practices, and for a detailed description of regulations on worker/labor rights in Vietnam, see the Department of State’s Human Rights Report (https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/vietnam/).
Vietnam’s current legal framework for environmental protection is fragmented and often confusing, while enforcement of environmental crimes and violations is weak and ineffective. The government has issued many legal documents regulating the environment, including the revision of the Environmental Protection Law of 2014, the Constitution of 2013, the Law on Water Resources of 2012, the Law on Fisheries of 2017, as well as hundreds of decrees and circulars that guide the implementation of these laws. While these legal documents specify civil penalties for environmental crimes, the penalties are rarely high enough to have a deterrent effect. There are virtually no criminal penalties in the law. Additionally, some industry sectors have little regulation. For example, government and industry contacts note that inspections of pollution emission testing devices rarely occur. When they do, it is often following advance notice that enables the firm being inspected to show compliance, regardless of how non-compliant its normal operations may be.
Historically, Vietnam has prioritized economic growth over environmental protection. In 2016, after a massive fish kill gained nationwide attention, the Ministry of Environment and Natural Resources embarked on an ambitious plan to update Vietnam’s environmental laws and regulations. This effort is ongoing and will likely result in newer, and moderately stronger, environmental protections.
While Vietnam’s legal framework is marginal, enforcement of environmental laws is weak and ineffective. For example, the Law on Environmental Protection requires that entities, individuals, and households that discharge waste must classify the waste for recycling and reuse. However, violations of this provision are rampant and rarely punished. The 2017 Law on Fisheries stipulates that fishing organizations and individuals must follow set standards when catching fish, specifies significant financial penalties for individuals and organizations engaged in illegal fishing, and prohibits the use of explosives for fishing. However, in practice, violations of these regulations are quite common.
Vietnam is a party to the Convention on International Trade in Endangered Species, and enacted new penalties in its 2015 Penal Code, which took effect on January 1, 2018. However, Vietnam rarely investigates or arrests wildlife traffickers. Although the lack of official statistics makes an official accounting impossible, according to an analysis by members of civil society groups, the number of arrests and prosecutions has actually decreased since the new stricter law went into effect.
Transparency International’s 2017 Corruption Perception Index (CPI) determined Vietnam had taken positive steps to improve some areas of its anti-corruption legal framework and policies. However, Vietnam’s 2018 rank of 117 out of 180 in the CPI global index reflects the country’s continuing challenges. Also according to the 2018 PCI report, corruption declined, with 55 percent of enterprises reporting paying informal charges (bribes), which equaled up to 10 percent of their revenue. The CPI report recommends more sustained effort by government agencies and cooperation from businesses. Firms need to improve management controls, strengthen legal understanding and compliance, and strive to operate with integrity.
Corruption is due, in large part, to low levels of transparency, accountability, and media freedom, as well as poor remuneration for government officials and inadequate systems for holding officials accountable. Competition among agencies for control over business and investments has created overlapping jurisdictions and bureaucratic procedures that, in turn, create opportunities for corruption.
In November 2018, Vietnam’s legislature revised its 2005 anti-corruption law to strengthen asset-reporting requirements for government officials and set strict penalties for corrupt practices. However, many officials lamented the law does not provide sufficient oversight authorities to Vietnam’s legislature or government agencies to ensure its full implementation. Furthermore, the law does not recognize the role of civil society or an independent mechanism to promote government accountability and transparency.
The Government has tasked various agencies to deal with corruption, including the Central Steering Committee for Anti-Corruption (chaired by the Communist Party of Vietnam (CPV) General Secretary Nguyen), the Government Inspectorate, and line ministries and agencies. Formed in 2007, the Central Steering Committee for Anti-Corruption, since February 2013, has been under the CPV Central Commission of Internal Affairs. The National Assembly provides oversight to the operations of government ministries. Civil Society Organizations (CSOs) have encouraged the government to establish a single independent agency with oversight and enforcement authority, and to ensure enforcement.
A new Penal Code came into effect in January 2018, which introduced a number of provisions relating to corporate criminal liability and corruption, increased the risks for businesses in the country. While the previous Vietnamese criminal code only provided for criminal liability for individuals, now corporate entities can face criminal sanctions too. The new Penal Code also criminalizes private-sector corruption—something that was absent from Vietnam’s previous anti-corruption regime.
Vietnam signed the UN Anticorruption Convention in December 2003 and ratified it in August 2009. The law does not cover family members of officials, but does cover ranking members of the Communist Party.
The government increased its scrutiny of conflict-of-interest concerns in public procurement since late 2016. To signal the government’s seriousness about reforming government procurement, the Prime Minister approved in July 2016 a 10-year master plan for procurement, including developing the national e-Government Procurement Application to promote online tendering and increase transparency and reduce corruption opportunities. In January 2019, with help from the ADB and the World Bank, the government implemented an e-bidding public procurement site, which will supplement its existing e-procurement portal.
There are laws prohibiting companies from bribing public officials. While some private companies have internal controls, ethics, and compliance programs to detect and prevent bribery of government officials, the government does not require companies to establish such internal codes of conduct.
Since 2016, the government has embarked on a large anti-corruption initiative. As a result, perceptions of corruption, and the burden of administrative procedures, are both declining. While high-profile arrests have grabbed the focus of the news media, there has been less attention paid to institutional changes meant to prevent corrupt activities, including greater transparency and civil-service reforms to encourage accountability.
According to the 2018 PCI, there were statistically significant declines in three core indicators of corruption: 1) the share of firms believing informal charges are common; 2) the estimated bribe payments by firms as a share of revenue; and 3) whether commissions are necessary to win government procurement contracts. Although the 2018 PCI results indicate signs of declining corruption, surveyed companies reported that it took more than a month to complete necessary paperwork to start their business and obtain certificates for technical regulatory conformity and certificates of qualification for doing conditional business lines. The report concluded that government authorities were more cautious to approve big projects due to fear of being swept up and implicated in the ongoing, widespread anti-corruption campaign.
The 2018 PCI findings are consistent with the results of UN Development Program’s 2018 annual Provincial Administrative Performance Index (PAPI) survey.
Resources to Report Corruption
Contact at government agency responsible for combating corruption:
Mr. Phan Dinh Trac
Chairman, Communist Party Central Committee Internal Affairs
4 Nguyen Canh Chan
Contact at NGO:
Ms. Nguyen Thi Kieu Vien
Executive Director, Towards Transparency
Transparency International National Contact in Vietnam
Floor 4, No 37 Lane 35, Cat Linh street, Dong Da, Hanoi, Vietnam
10. Political and Security Environment
Vietnam is a unitary single-party state, and its political and security environment is largely stable. Protests and civil unrest are rare, though there are occasional demonstrations against perceived social, environmental, and labor injustices. There have been anti-China protests on multiple occasions since 2008. In May 2014, Vietnam experienced large protests against China’s movement of its Haiyang Shiyou Oil Rig 981 into Vietnam’s territorial waters. Anti-China protests resulted in at least one death and dozens of injuries among the plant’s Chinese workers; protesters separately destroyed and looted multiple foreign-owned factories.
In April 2016, after the Formosa Steel plant discharged toxic pollutants into the ocean and caused a massive fish death, the affected fishermen and residents in central Vietnam began a series of regular protests against the company and the government’s lack of response to the disaster. Protests continued into 2017 in multiple cities until security forces largely suppressed the unrest. Many activists who helped organize or document these protests were subsequently arrested and imprisoned, including influential blogger Nguyen Ngoc Nhu Quynh (aka “Mother Mushroom,” who was released in 2018 and now resides in the United States), labor activist Hoang Duc Binh, and videographer Nguyen Van Hoa.
Nationwide protests erupted in June 2018 in response to the proposed Special Administrative Economic Zone Law. The protests, reportedly the largest since 1975, drew tens of thousands of Vietnamese citizens in Ho Chi Minh City and six other provinces who objected to the law’s tax and lease benefits for companies investing in three Economic Zones. Many believed Chinese investors were the primary beneficiaries of this bill, leading to widespread fears of growing Chinese investment and economic influence in Vietnam. Responding to the protests and other pushback against the law, the government ultimately decided to delay its passage indefinitely.
The protests had little effect on the operations of U.S. companies.
The government increased its anti-corruption efforts in 2016, resulting in a number of arrests and convictions of senior officials across the public and private sector. In January 2018, the party stripped former Politburo member and Ho Chi Minh Secretary Dinh La Thang of his party membership and he was sentenced to 20 years in prison for mismanagement of state assets during his tenure as Chairman of state-owned PetroVietnam (PVN) between 2009 and 2011. Thang was tried with 22 other defendants for their alleged roles in corrupt practices at PVN and its subsidiaries.
11. Labor Policies and Practices
According to official government statistics, in 2018 there were 55 million people participating in the formal labor force in Vietnam out of over 72 million people aged 15 and above. The labor force is relatively young, with 15-to-39 year olds currently accounting for about half of the total labor force. This demographic structure represents Vietnam’s best opportunity to make significant economic strides in the coming decades. Despite the strong shift towards urbanization, the majority of workers are still located in rural areas, making up over 68 percent of the total labor force.
The official labor participation rate was over 78 percent of the total population, based on the most recent data available in 2017. The official unemployment and underemployment rates hover around 2 percent; however, this figure is likely underreported by counting people who have multiple, low-paying informal jobs, along with those with one formal job. The official unemployment rate among youth, defined as those between the ages of 15 and 24 years, was 7 percent in 2018. Wages have grown 9 percent since 2017 to an average of USD 2,160 per year.
Despite relatively high literacy rates, enrollment, and graduation rates for primary and secondary education, less than 20 percent of the employed population have ever attended college or received vocational training or mid-term professional training. Those who complete a post-secondary degree are often unprepared with the types of skills necessary to enter a highly skilled workforce. Many Vietnamese companies report a shortage of workers with adequate skills. While there is a shortage of educated and skilled labor, Vietnam is a labor surplus country, with a un- and under-employed labor force that serves as an abundant source of migrant labor regionally as well as globally.
Shortages or Surpluses of Specialized Labor Skills
According to World Economic Forum’s 2017 Global Human Capital Index (the most recent available), Vietnam ranked 64th overall (after fellow ASEAN countries Singapore (11), Malaysia (33), and Thailand (40)). Many businesses reported it is difficult to find skilled labor in Vietnam. The government is aware of the deficiencies in higher education and vocational training, and admits the need for reform in order to increase the skills of its labor force. To this end, the Law on Vocational Education took effect in 2015, which stressed the importance of vocational training in human resource development, as well as the government’s strategy for vocation education through 2020. In addition, the national employment fund, managed by the MOLISA, will sponsor targeted vocational training programs for poor households, youth, members of the military, and entrepreneurs.
Foreign nationals are restricted to employment in high-skilled professions, such as managers, executives, and consultants. The government relatively readily grants work-permits for high-skilled foreign workers, especially those at multinational corporations and NGOs.
Nearly 84,000 foreigners were working in Vietnam in 2017 (the most recent year available) compared to 12,600 in 2004, and the country was developing policies and methods to collect social insurance payments from these workers.
Layoffs and Unemployment Insurance
An employer is permitted to lay off employees because of technological changes or changes in organizational structure (in cases of a merger, consolidation, or cessation of operation of one or several departments), or where the employer faces economic difficulties. If these changes lead to the termination of two or more employees, the employer, in conjunction with the local trade union, is required to form and implement a “labor usage plan.” Companies can terminate two or more employees only after consultation with the local trade union and after a 30-day notice to the provincial labor authority.
The employer must pay a job-loss allowance for a laid-off employee who had regularly worked for the employer for at least 12 full months. The job-loss allowance is equal to one month’s salary for each year of service with the employer. After layoffs, workers will receive unemployment benefits if they contributed to the unemployment fund for at least 12 months.
There are no waivers made to labor requirements to attract foreign investment.
The constitution affords the right of association and the right to demonstrate, but limits the exercise of these rights, including preventing workers from organizing or joining independent unions of their choice. While workers may choose whether to join a union and at which level (local or “grassroots,” provincial, or national), the law requires every union to be under the legal purview and control of the country’s only trade union confederation, the Vietnam General Confederation of Labor (VGCL), an organization run by the CPV.
The law gives the VGCL exclusive authority to recognize unions and confers on VGCL upper-level trade unions the responsibility to establish workplace unions. The law also limits freedom of association by not allowing trade unions full autonomy in administering their affairs. The law confers on the VGCL ownership of all trade-union property and gives it the right to represent lower-level unions. Union members do not elect trade union leaders and officials; the CPV appoints them.
Chapter 5 of the Labor Code provides conditions for collective bargaining. Although collective bargaining is not a new concept in Vietnam, the quality of collective bargaining agreements (CBA) is limited. Vietnam had approximately 27,866 CBAs accounting for 68 percent of unionized enterprises, according to 2017 figures. While CBAs are weakly enforced, VGCL in recent years has collaborated with the International Labor Organization (ILO) to pilot multi-employer CBAs in some industrial zones and sectoral CBAs in the textile sector.
Labor Dispute Resolution Mechanisms
The 2012 revised Labor Code introduced a process of mediation and arbitration for labor disputes. The law allows trade unions and employer organizations to facilitate and support collective bargaining, and requires companies to establish a mechanism to enable management, and the workforce to exchange information, and to consult on subjects that affect working conditions. Regulations require conducting workplace dialogues every three months. The Labor Code stipulates that trade unions have the right and responsibility to organize and lead strikes and establishes certain substantive and procedural restrictions on strikes. Strikes that do not arise from a collective labor dispute, or do not adhere to the process outlined by law, are illegal. The law makes a distinction between “interest-based” disputes (“a dispute arising out of the request of the workers’ collective on the establishment of a new working condition … in the negotiation process between the workers’ collective and the employers”) and “rights-based” disputes (“a dispute between the workers’ collective with the employer arising out of different interpretation and implementation of provisions of labor laws, collective bargaining agreements, internal working regulations, other lawful regulations and agreements.”) In contravention of international standards, the law forbids strikes over “rights-based” disputes. This includes strikes arising out of economic and social policy measures that are not a part of a collective negotiation process, as they are both outside the law’s definition of protected “interest-based” strikes.
The Labor Code prescribes an extensive and cumbersome process of mediation and arbitration before a lawful strike over an interest-based collective dispute can occur. Before workers may hold a strike, they must submit their claims through a process involving a conciliation council (or a district-level labor conciliator where no union is present). If the two parties do not reach a resolution, unions must submit claims to a provincial arbitration council. Unions (or workers’ representatives where no union is present) have the right either to appeal decisions of provincial arbitration councils to provincial people’s courts, or to strike. Individual workers may take cases directly to the people’s court system, but in most cases they may do so only after conciliation has been attempted and failed.
If a workplace trade union does not exist, the law requires that an “immediate upper-level trade union” must perform the tasks of a grassroots union, even where workers have not so requested or have voluntarily elected not to organize. For non-unionized workers to organize a strike, they must request that the strike “be organized and led by the upper-level trade union,” and if non-unionized workers wish to bargain collectively, the upper-level VGCL union must represent them.
The law prohibits strikes by workers in businesses that serve the public or that the government considers essential to the national economy, defense, public health, and public order. “Essential services” include electricity production, post and telecommunications, maritime and air transportation, navigation, public works, and oil and gas production. The law stipulates strikers may not be paid wages while they are not at work. By law, individuals participating in strikes declared illegal by a people’s court and found to have caused damage to their employer are liable for damages. The law also grants the prime minister the right to suspend a strike considered detrimental to the national economy or public safety.
Strikes in Vietnam
According to VGCL, there have been 6,000 strikes in Vietnam since 1990, though most were not VGCL-led. More than 73 percent of the 189 strikes in the first eight months of 2018 occurred at foreign direct-investment companies (mainly Korean, Taiwanese, Japanese, and Chinese companies), and nearly 40 percent occurred in the southern economic zone area in Binh Duong, Dong Nai, and Ba Ria-Vung Tau provinces and HCMC, according to the VGCL. None of the strikes followed the authorized conciliation and arbitration process, and thus authorities considered them illegal “wildcat” strikes. The government, however, took no action against the strikers and, on occasion, actively mediated agreements in the workers’ favor. For example, in 2018 the Prime Minister had dialogues with 1,000 workers in the northern region, and with 3,000 workers in the south, and 2,000 workers in the central region during 2016-2017. In some cases of government mediation, the government imposed heavy fines on employers, especially of foreign-owned companies, that engaged in illegal practices that led to strikes.
Gaps in Compliance in Law or Practice with International Labor Standards
Vietnam has been a member of the ILO since 1992, and has ratified five of the core ILO labor conventions (Conventions 100 and 111 on discrimination, Conventions 138 and 182 on child labor, and Convention 29 on forced labor). While the constitution and law prohibit forced or compulsory labor, Vietnam has not ratified Convention 105 dealing with forced labor as a means of political coercion and discrimination, or Conventions 87 and 98 on freedom of association and collective bargaining, although the government is currently taking steps toward ratification. Under the 1998 Declaration on Fundamental Principles and Rights at Work, however, all ILO members, including Vietnam, have pledged to respect and promote core ILO labor standards, including those regarding association, the right to organize, and collective bargaining.
Vietnam’s legal framework on child labor appears generally in accordance with international standards, however, the Labor Code allows children under age 13 to work in “specific work regulated by the MOLISA.” Since 2012, the U.S. Department of Labor’s List of Goods Produced by Child Labor or Forced Labor has included Vietnamese garments, produced with child labor and forced labor, and bricks, produced with child labor, in violation of international standards. Vietnamese garments are also included in a list of products produced by forced or indentured child labor under Executive Order 13126: Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labor. Based on the results of Vietnam’s National Child Labor Survey, in 2016, the U.S. Department of Labor included 14 additional goods produced by child labor in Vietnam to the List of Goods Produced by Child Labor or Forced Labor: cashews, coffee, fish, footwear, furniture, leather, pepper, rice, rubber, sugarcane, tea, textiles, timber, and tobacco.
The government has increasingly acknowledged the issue of child labor in recent years and is a participant in a five-year, USD 8 million project implemented by the ILO to enhance national capacity to reduce and prevent child labor. The government is also in the process of enhancing its policy and regulatory framework for occupational safety and health (OSH). The OSH law, passed in June 2015, extends OSH protections to all workers, including the informal economy, and includes the establishment of an injury compensation system for workers in the informal economy, which constitutes more than 60 percent of the workforce. The ILO is assisting the government with the drafting of implementing regulations for the law and finalizing a national OSH program for 2016-2020.
In January 2018, Penal Code amendments entered into effect, criminalizing all forms of labor trafficking of adults and prescribing penalties of five to 10 years’ imprisonment and fines of approximately USD 860 to USD 4,300 (VND 20-100 million). The amendments also criminalized labor trafficking of children under the age of 16 and prescribed penalties of seven to 12 years imprisonment and fines of USD 2,150 to USD 8,620 (VND 50-200 million). NGOs continued to report occurrences of forced labor of men, women, and children within the country. Labor recruitment firms, most of which were affiliated with SOEs, and unlicensed brokers reportedly charged workers seeking international employment higher fees than the law allows, doing so with impunity. Those workers incurred high debts and were thus more vulnerable to forced labor, including debt bondage.
As part of the government’s 2016-20 National Plan of Action for Children and National Program for Child Protection, the government continued efforts to prevent child labor and specifically targeted children in rural areas, disadvantaged children, and children at risk of exposure to hazardous work conditions. The Vietnam National Child Labor Survey 2012 report (the most recent data available) categorized 1.75 million working children as “child laborers,” accounting for 9.6 percent of the national child population or 62 percent of children engaged in economic activities. Of child laborers, 40 percent were girls, nearly 85 percent lived in rural areas, and 60 percent belonged to the 15-17 age group. Some children started work as young as age 12 and nearly 55 percent did not attend school (5 percent of whom would never attend school). Agriculture was the most common sector for child laborers, accounting for 67 percent of all child labor, while 15.7 percent worked in construction/manufacturing and 16.7 percent in services. There were reports of children between ages 10 and 18, and some as young as six, producing garments under forced-labor conditions. International and domestic NGOs noted successful partnerships with provincial governments to implement national-level policies combating child labor.
It is illegal to establish independent labor unions and therefore, no government-sanctioned domestic labor NGOs can organize workers. Independent labor activists seeking to form unions separate from the Communist Party-run VGCL or inform workers of their labor rights sometimes suffer government harassment. However, government-sanctioned local labor NGOs have supported VGCL’s efforts to raise awareness of worker rights and occupational safety and health issues and to support internal and external migrant workers. Multiple international labor NGOs collaborated with the VGCL to provide training to VGCL-affiliated union representatives on labor organizing, collective bargaining, and other trade union issues. The ILO-International Finance Corporation (IFC) Better Work project reported that management interference in the activities of the trade union was one of the most significant issues in garment factories in the country.
Credible reports, including from the ILO-IFC Better Work 2017 Annual Report, indicated that factories exceeded legal overtime thresholds and did not meet legal requirements for rest days. The ILO-IFC report stated that, while a majority of factories in the program complied with the daily limit of four hours of overtime, 77 percent exceeded monthly limits (30 hours) and 72 percent exceeded annual limits (300 hours). In addition, and because of the high prevalence of Sunday work, 44 percent of factories failed to provide at least four days of rest per month to all workers.
MOLISA is the principal labor authority, and it oversees the enforcement of the labor law, administers labor relations policy, and promotes job creation. The Labor Inspections Department is responsible for workplace inspections to confirm compliance with labor laws and occupational safety and health standards. Inspectors may use sanctions, fines, withdrawal of operating licenses or registrations, closures of enterprises, and mandatory training. Inspectors may take immediate measures when they have reason to believe there is an imminent and serious danger to the health or safety of workers, including temporarily suspending operations, although such measures were rare. MOLISA acknowledged shortcomings in its labor inspection system and emphasized the number of labor inspectors countrywide, fewer than 1,000 for a country of 96 million people, was insufficient.
New Labor Related Laws or Regulations
Planned amendments to Vietnam’s Labor Code were delayed until 2019. According to current plans, the government will make public the draft Labor Code for public comment in April-May 2019 and will submit the draft to the National Assembly for discussion in October 2019. The National Assembly will likely not pass a labor law until 2020, at the earliest. Lack of consensus about increasing the retirement age (from 60 to 62 to men and from 55 to 60 for women), among other issues, has delayed the process. Although progress has been slow, recent shifts within MOLISA leadership may signal more progress and reforms on labor issues in comparison with previous years, including on challenging issues such as industrial relations.
The CPTPP and EV FTA, if passed, may help advance labor reform in Vietnam. In particular, the EV FTA would require Vietnam to publish a timeline for ratifying the three remaining core ILO conventions: Convention 98 (on the right to collective bargaining) in 2019; Convention 105 (abolition of forced labor) in 2020; and Convention 87 (freedom of association and protection of the right to organize) in 2023. The most important of these are Convention 98 and 87 as they would allow trade unions, currently dominated by the VGCL, to better represent workers’ interests. Even with new momentum on labor issues, enactment of legal and regulatory changes to improve working conditions in Vietnam will still take years to fully develop and implement.
12. OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC) signed a bilateral agreement with Vietnam in 1998, and Vietnam joined the Multilateral Investment Guarantee Agency (MIGA) in 1995.
In October 2018, OPIC became the U.S. International Development Finance Corporation (USIDFC) under the 2018 Build Act. The USIDFC will help support developing countries move through the transitory stage from non-market to market economies with an emphasis toward U.S. assistance and foreign policy objectives. The U.S. Congress authorized the USIDFC to make loans or loan guarantees (including in local currency) and to acquire equity or financial interests as a minority investor. It also will provide insurance or reinsurance to private-sector entities and qualifying sovereign entities. Moreover, the USIDFC will provide technical assistance, administer special projects, establish enterprise funds, issue obligations, and charge and collect service fees.
In October 2016, the then-OPIC President visited Vietnam to develop private-sector investment opportunities. In January 2017, former Secretary of State John Kerry along with OPIC presented a letter of intent to Fulbright University Vietnam (FUV) to support the design and construction of the university’s main campus in HCMC, which will bolster the university’s academic programs as well as expand enrollment up to 7,000 students. In June 2017, FUV recruited students for its 2018 school year. In November 2017, the then-OPIC President presented a letter of intent to Virginia-based energy company AES to support its construction of a LNG terminal and 2,250 megawatt combined cycle power plant in Vietnam which would provide around 5 percent of the country’s power generation capacity, but the project has yet to be approved.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) (USD $M)||2018||$236,500||2017||$223,780||https://data.worldbank.org/country/vietnam|
|Foreign Direct Investment||Host Country Statistical Source||USG or International Statistical Source||USG or international Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country (USD $M, stock positions)||2018||$9,334||2017||$2,010||BEA data available at|
|Host country’s FDI in the United States (USD $M, stock positions)||2018||N/A||2017||$73||BEA data available at|
|Total inbound stock of FDI as percent host GDP||2018||15%||NA||NA||N/A|
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment*||Outward Direct Investment**|
|Total Inward||Amount||100%||Total Outward||Amount||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
*No IMF Data Available; Vietnam’s Foreign Investment Agency under the Ministry of Planning and Investment (fia.mpi.gov.vn)
**No local data available
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total*||Equity Securities**||Total Debt Securities**|
|All Countries||Amount||100%||All Countries||Amount||100%||All Countries||Amount||100%|
|British Virgin Islands||$1,331||13%|
*No IMF Data Available; Vietnam’s Foreign Investment Agency under the Ministry of Planning and Investment (fia.mpi.gov.vn)
**No local data available
14. Contact for More Information
7 Lang Ha, Ba Dinh, Hanoi, Vietnam