Vietnam current investment and trade issues and solutions

1. Vietnam Current Investment and Trade Issues and Solutions
By Oliver Massmann
The Government of Vietnam has made certain success in stabilizing the economy to reach a high
growth rate projection in 2015 by World Bank (i.e., 6%) and maintain import-export balance
over the five years. Nevertheless, there are a lot of outstanding issues which should be further
addressed as analysed below:
1. Enforcement and recognition of arbitral awards – Status, issues and solutions
The major regulatory framework on arbitration proceedings in Vietnam includes the Law on
Commercial Arbitration No. 54/2010/QH12, which took effect on 1 January 2011 (“Arbitration
Law”) and replaced the Ordinance on Commercial Arbitration (“Arbitration Ordinance”) in
2003; Decree No. 63/2011/ND-CP of the Government on detailing the implementation of certain
regulations in the Arbitration Law (“Decree No. 63/2011”) and Resolution No. 01/2014/NQ-
HDTP by the Vietnamese Supreme Court guiding the implementation of a number of regulations
in the Arbitration Law (“Resolution No. 01”).
Vietnam also ratified the New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards of 1958 in September 1995 and the provisions of the New York Convention
have been incorporated into the arbitration laws in Vietnam.
The above shows that Vietnam has made great attempts in building a legal framework for
arbitration which played an important role in attracting foreign investment over the recent years.
However, statistics from Vietnam International Arbitration Centre show that almost 50% (19 out
of 44) of its awards submitted for recognition and enforcement were set aside. This is a disaster
as this number is far below the statistics in other countries (for example, Japan – 100%; China
and Hong Kong – 90% of arbitral awards are recognized and enforced).
The reason behind it lies in the judges’ misunderstanding of fundamental principles of
arbitration, which is based on a contractual agreement between parties to submit their
disagreement to a dispute settlement forum, where they await a simplified and expedited
procedure. However, the judges seem to complicate it and apply very strict standards to
arbitration awards that are simply unnecessary and inappropriate. The judges even re-consider
the merit of the case despite it being heard by arbitrators’ expertise in relevant fields and provide
no chance of challenge. The main reasons for judges to annul arbitral awards could be
summarized in two points as follows: (i) arbitration procedures failing to strictly follow
procedures under the Civil Procedure Code; and (ii) the arbitral awards in certain aspects
violating fundamental principles of Vietnamese law.
Arbitration procedures failing to strictly follow procedures under the Civil Procedure Code
It should be noted that when parties to the dispute agree to submit their case to arbitration by a
contractual agreement, they already opt to select a much more simplified and tailor-made
procedures than court litigation. They stipulate the rules of arbitration to be applied. The
principle that, dispute resolution by arbitration is a contractually agreed process and does not
involve timely and costly procedural rules as litigation does, is widely recognized in every
arbitration organization in the world. Claiming that arbitration procedures do not follow
procedures under the Vietnam’s Civil Procedure Code is a baseless, unreasonable argument and
goes against the main spirit of arbitration process.

2. The arbitral awards in certain aspects violating fundamental principles of Vietnamese law
“Fundamental principles of Vietnamese law” is a very vague and ambiguous concept that is
nowhere defined in Vietnamese law. Further, there is also no consistent standard of
“fundamental principles” so the Vietnamese judges take certain discretion in assessing the
compliance of arbitral awards with Vietnamese fundamental principles. They take the view that
anything that is not compliant with Vietnamese administrative procedures would be considered
violating “fundamental principles”. Due to the inaccessibility to the court’s decisions by the
public, it is nearly impossible to establish a well-founded jurisprudence of what “fundamental
principles” are. It is also create unpredictability in the court decision in recognizing and
enforcing arbitral awards.
All of the above somehow discourages foreign investors from having their disputes resolved in
judicial system of Vietnam. With an attempt to addressing this problems, certain measures are
strongly requested to take by the Government.
How to protect the parties from the request for setting aside an arbitral award
Recently, with the issuance of Resolution No. 01, the Council of Judges gave a signal to support
the enforcement of domestic arbitral awards in Vietnam as well as the development of arbitration
proceedings. Resolution No. 01 provides more criteria and grounds for handling a request for
annulment and especially, the cases when an arbitral award is set aside are more clearly defined.
However, there should also be a special mechanism to appeal to judicial decisions that annul
arbitral awards on an unreasonable and wrongful basis.
In order to do that, the Government should first task a special body to review all the cases that
have been set aside. The content of the case as well as the court’s decision must be made public
for transparency purposes and this could be considered as a supervising tool of the public on the
court and review process.
2. New Investment Law and Enterprise Law – standing issues
Under the old Investment Law, the Investment Registration Certificate (“IRC”) concurrently
serves as the Enterprise Registration Certificate (“ERC”) of a foreign-invested company.
However, under the new Investment Law which takes effect from 01 July 2015, enterprises need
to apply for two separate certificates with different application dossiers. Though the timeline and
procedures seem to be quicker and clearer, investors are still concerned about the reason behind
the separate applications, especially in the context of administrative reforms conducted by the
Government.
The new Investment Law shortens the period for charter capital contribution from 03 (three)
years to (90) ninety days. In connection with the existence of two separate certificates, investors
are concerned about the delay it may cause when applying for an increase in the charter capital.
(Note: Charter capital is an amount contributed by the investor to establish a legal entity). Such
delay could result in slow disbursement of the additional capital, which in turn affect business
operations of enterprises. Thus, the Government needs to take further measures to prevent such
delay.
With regards to conditional sectors, the number has been reduced much compared with the old
laws and from several workshops on this topic, conditional sectors will only be promulgated by
the Government and the National Assembly. However, in terms of conditions applicable to doing
business in conditional sectors and any inconsistency, it is unclear which law will prevail (the
Investment Law itself or its implementing decrees, ordinances, etc.).

3. 3. Draft Circular on import of used equipment – New trade restrictive measures?
Draft Circular No. 20/2014/TT-BKHCN is to take effect on July 01, 2015 to encourage imports
of new machinery, equipment and production lines that are manufactured with the latest
technology. This Draft Circular is aimed to prevent Vietnam from being a “dumping ground” of
old technology and scrap machinery in place of China when this country adopted a regulation
prohibiting imports of used machinery and equipment.
Despite the good intention of the Draft Circular, it somehow introduces new trade restrictive
measures that could be considered as violation of Vietnam’s international treaties and
agreements. In particular, the Draft Circular conditions the imports of used machinery and
equipment on its usage period of 10 years and remaining quality of 80%. While it is hard to
evaluate the quality of technology and production lines due to available information of the
products, it is even harder and impractical to apply these standards across all types of technology
and production lines. Furthermore, the Draft Circular also requires the imported goods be in
conformity with safety, energy saving and environment protection and be inspected before being
imported and customs released. This may significantly delay the customs clearance process and
create more burden for enterprises, which go contrary to the objectives mentioned in Resolution
No. 19 of the Prime Minister in 2015. A question of consistency with the WTO Agreement on
Pre-shipment Inspection and WTO Agreement on Technical Barriers to Trade arises in relation
with the required standards and pre-shipment requirement as well.
4. Tax administration
Vietnam currently ranks 78 out of 189 countries in terms of ease of doing business according to
2015 World Bank Report. This low ranking is mainly due to tax problems such as requiring
importers to pay VAT twice on the same import transaction, delay in tax complaints resolution,
etc.
It is notable that business complaints do not mostly relate to high total tax over net profit of 40%
but the compliance cost and time, lack of predictability, simplicity and transparency in the tax
system.
The Government should take immediate actions to improve the tax administration for a better
growth in Vietnam’s economy.
5. Privatization of state-owned enterprises – the problem for every solution…
State-owned enterprises have long played an important role in Vietnam’s economy. These
enterprises have operated in an inefficient manner compared with private companies, many
enterprises operating at loss for several years. Therefore, the Government has conducted several
rounds of state-owned enterprises reform. However, setting aside the ambitious target of 289
state-owned enterprises to be privatized in 2015, the privatization process has been very slow
and only by name. Only 5%- 20% of the shares are offered for sale, which is too low to attract
foreign investors. They will be reluctant to invest in these enterprises as long as they have no
chance to gain decision-making power by purchase of shares. The Government must then show
stronger effort and commitment in reforming state-owned enterprises to attract more foreign
investment in the process.

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Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if
you have any questions on the above. Oliver Massmann is the General Director of Duane Morris
Vietnam LLC.
IF YOU ARE INTERESTED IN DOING BUSINESS IN VIETNAM PLEASE VISIT:
www.vietnamlaws.xyz
THANK YOU VERY MUCH!