Transparency of the Regulatory System
U.S. companies continue to report that they face frequent and significant challenges with inconsistent regulatory interpretation, irregular enforcement, and an unclear legal framework. U.S. companies have consistently voiced concerns that Vietnam lacks a fair legal system for investment, which affects U.S. companies’ ability to do business in Vietnam. The 2021 PCI report documented companies’ difficulties in accessing land and post-registration procedures.
Accounting systems are inconsistent with international norms, and this increases transaction costs for investors. The government had previously said it intended to have most companies transition to International Financial Reporting Standards by 2020. Unable to meet this target, the Ministry of Finance in March 2020 extended the deadline to 2025.
In Vietnam, the National Assembly passes laws, which serve as the highest form of legal direction, but laws often lack specifics. Ministries provide draft laws to the National Assembly. The prime minister issues decrees, which provide guidance on the implementation of laws. Individual ministries issue circulars, which provide guidance on how a ministry will administer aspects of a law or decree within its area of responsibility.
After implementing ministries have cleared a particular law for transmittal to the National Assembly, the government posts the law for a 60-day comment period. However, in practice, the public comment period is sometimes truncated. Foreign governments, NGOs, and private-sector companies can, and do, comment during this period, after which the responsible ministry may redraft the law. Upon completion of the revisions, the ministry submits the legislation to the Office of the Government for approval, including the prime minister’s signature, and the legislation moves to the National Assembly for committee review. During this process, the National Assembly can send the legislation back to the originating ministry for further changes. The Politburo reserves the right to review special or controversial laws.
In practice, drafting ministries often lack the resources needed to conduct adequate data-driven assessments. Ministries are supposed to conduct policy impact assessments that holistically consider all factors before drafting a law, but the quality of these assessments varies.
The Ministry of Justice (MOJ) oversees administrative procedures for government ministries and agencies. The MOJ’s Regulatory Management Department oversees and reviews legal documents after they are issued to ensure compliance with the legal system. The Law on the Promulgation of Legal Normative Documents requires all legal documents and agreements to be published online and open for comments for 60 days, and to be 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 have allowed comments for first drafts only and did not provide subsequent draft versions to the public. The centralized location where key regulatory actions are published can be found here .
The Ministry of Finance has implemented annual disclosure requirements for public companies with respect to their environmental, social, and governance policies. In 2016, the State Securities Commission, in cooperation with the International Finance Corporation, published an Environmental and Social Disclosure Guide that encourages independent external audits. While almost all public companies in Vietnam now perform an environmental and social impact assessment when investing in new projects, many see this exercise as merely procedural.
While general information is publicly available, Vietnam’s public finances and debt obligations (including explicit and contingent liabilities) are not sufficiently transparent. Official public debt figures exclude the debt of certain large SOEs. Vietnam could improve its fiscal transparency by, among other things, making its executive budget proposal, including budgetary and debt expenses, widely and easily accessible to the general public before the National Assembly enacts the budget and ensuring greater transparency of off-budget accounts.
International Regulatory Considerations
Vietnam is a member of ASEAN, a 10-member regional organization that works 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’s single market), but member states have not made significant progress. To date, AEC’s greatest success has been in reducing tariffs on most products traded within the bloc.
Vietnam is also a member of the Asia-Pacific Economic Cooperation (APEC), an inter-governmental forum for 21 member economies in the Pacific Rim that promotes free trade throughout the Asia-Pacific region. APEC aims to facilitate business among member states through trade facilitation programming, senior-level leaders’ meetings, and regular dialogue.
Vietnam is 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 in August 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
Vietnam’s legal system mixes indigenous, French, and Soviet-inspired 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, though in recent years the country has begun gradually introducing elements of an adversarial system.
The hierarchy of Vietnam’s courts is, in descending order of authority: the Supreme People’s Court; High People’s Courts; Provincial People’s Courts; and District People’s Courts. The People’s Courts operate in five divisions: criminal, civil, administrative, economic, and labor. The Supreme People’s Procuracy is responsible for prosecuting criminal activities as well as supervising judicial activities. Military tribunals at various levels also exist.
Vietnam lacks an independent judiciary, and there is no separation of powers in the legal system. For example, Vietnam’s chief justice is also a member of the CPV’s Central Committee. According to Transparency International, there is a significant risk of corruption in judicial rulings. According to one public report, nearly one-fifth of surveyed Vietnamese households that have been to court declared that they had paid bribes at least once. Many businesses try to avoid Vietnamese courts as much as possible.
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. 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.
The Commercial Law regulates commercial contracts between businesses. Specific regulations prescribe distinctive forms of contracts, depending on the nature of particular deals. If a contract does not contain a dispute resolution clause, courts will have jurisdiction over a 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 model law as an international standard for procedural rules.
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, except for a treaty with France, these treaties only cover non-commercial judgments.
Competition and Antitrust Laws
The Vietnam Competition and Consumer Authority (VCCA) within the Ministry of Industry and Trade (MOIT) reviews transactions for competition-related concerns. In 2021, VCCA reported that 125 merger control notifications, most of which were related to real estate, have been submitted since 2019. 30 percent of cases notified involved offshore transactions. VCCA has clarified that the Vietnamese merger control regime seeks to regulate only relevant transactions that may have an anticompetitive impact on Vietnamese markets, especially those that enable enterprises to hold a dominant or monopoly position and heighten the risk of an abuse of dominance.
Expropriation and Compensation
Under the law, the government of Vietnam 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 is not a party to the International Centre for Settlement of Investment Disputes (ICSID) Convention. MPI has submitted a proposal to the government to join the ICSID Convention, but the government has not moved forward on this initiative. Vietnam is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Investor-State Dispute Settlement
Vietnam has signed 67 bilateral investment treaties, is party to 26 treaties with investment provisions, and is a member of 15 free trade agreements in force, some of which include provisions for investor-state dispute settlement (ISDS). Technically, foreign and domestic arbitral awards are legally enforceable in Vietnam; however, foreign investors in Vietnam generally prefer international arbitration for predictability. Vietnamese courts may reject foreign arbitral awards if an award is contrary to the basic principles of domestic law.
According to UNCTAD, since 2013 there have been several ISDS cases brought against Vietnam under the U.S.-Vietnam Bilateral Trade Agreement. An arbitral tribunal decided in favor of Vietnam in one case, and the parties decided to discontinue the other. Vietnam is the respondent in several ongoing ISDS cases involving investors from the United States, the People’s Republic of China, South Korea, and the UK.
International Commercial Arbitration and Foreign Courts
Vietnam’s courts are often ineffective in settling commercial disputes due to Vietnam’s underdeveloped legal system. Negotiation between concerned parties or arbitration are the most common means of dispute resolution. The Law on Commercial 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.
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. Many foreign companies, due to concerns related to time, costs, and bribery-related risks, have reported that they have turned to international arbitration or have asked influential individuals to weigh in.
Under the Bankruptcy Law, bankruptcy is not criminalized unless it relates to another crime. The law defines insolvency as a condition in which an enterprise is more than three months overdue in meeting its payment obligations. The law also contains provisions allowing creditors to commence bankruptcy proceedings against an enterprise and procedures for credit institutions to file for bankruptcy. The Credit Information Center of the State Bank of Vietnam provides credit information services for foreign investors concerned about bankruptcy risks with respect to Vietnamese partners.