Problems relating to Trade and Investment on Vietnam
1. Restrictions on entry of foreign capitals |
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Issue details |
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| (1) Goods and Services Banned from Business, subject to Business Restriction or to Conditional Business as regards Foreign Investment | - A member firm's subsidiary (MFS) is unable to open a lease business by locating a finance lease partner, because the Government of Vietnam (GOV) has not liberalised the lease business to foreign funded enterprises (FFEs). It is difficult for MFS to market high-class products in Vietnam. - Retail business is open only to domestically funded enterprises in principle. - Investment licence is closed to Foreign Capital for Import of Publications (including CD, DVD). |
- It is requested that GOV liberalises lease business in Vietnam to FFEs. - It is requested that GOV deregulates the requirements for FFEs' entry into retail business. - It is requested that GOV deregulates the restrictions. |
- Law on Investment - Law No.59/2005/HQ11 - Decree No.59/2006/ND-CP |
| (Action) - On 11 January 2007, Vietnam ratified the WTO agreement. Liberalisation schedules in the field of distribution and service are: (1) Entry formations in sales agency, wholesale, retail and franchise: -- Up to end of November 2007: Joint venture, foreign capital ratio (FCR) 49% maximum -- On or after 1 January 2008: FCR of more than 49% OK -- On or after 1 January 2009: 100% foreign capital OK (2) Foreign funded enterprises starting distribution business simultaneously with WTO accession: is authorised to engage in sales agency, wholesale and retail distribution business of both imported and domestically manufactured products. (3) Franchise: is authorised to open a branch office in Vietnam after three-years of Vietnam's accession to WTO. - Vietnam acceded to WTO in January 2007, and in accordance with its commitment under WTO, establishment of 100% foreign invested enterprises in the sales and distribution sector is authorized beginning 2009, provided, however, that, certain retail market continues to be closed to FIEs as regards gasoline, medication drugs, magazines, books, newspapers, DVD's, cigarettes, rice, sugar, rare metal, crude oil and crude oil products. State enterprises continue to monopolize the retail market for gasoline. The distribution market for steel and cement is due for liberalization to FIEs within three years of Vietnam's accession to WTO. - As regards service sectors in retail business, since January 2009, GOV has repealed restrictions on the foreign investors' participation rates. Nevertheless, under Addendum 2 of the Report of the Working Party on the Accession of Viet Nam (WT/ACC/VNM/48), the schedule of specific commitments in services resulting from the negotiations between the Socialist Republic of Viet Nam and WTO Members annexed to the Protocol of Accession of the Socialist Republic of Viet Nam, it is provided: The establishment of outlets for retail services (beyond the first one) shall be allowed on the basis of the "economic needs test" conducted for each case in respect of the number of retail outlets, the geographical scale, market stability, population density in the province or city where the retail outlet(s) is/are to be established, and compatibility of the investment plan., and consistency of the investment project with the master development plan of such province or city. - In October 2010, in its Recommendation "Japan Mekong Industrial Policy Dialogue", GOJ requested GOV to deregulate the restrictions under "Economic Need Test (ENT) for modernisation of distribution services in Vietnam", which GOV requires from the second shop of the FFEs' expansion of business in Vietnam, because precise details of ENT and its process remain undisclosed and nebulous. - In Vietnam, the Law on Credit Institutions governs non-bank business such as finance lease. While the Vietnamese WTO Accession Protocol authorises wholly foreign owned enterprises to operate finance lease business, the issuance of business licence is de facto held in abeyance, due to the absence of the subordinate legislation such as Decree on Organisation and Operation of Finance Lease Company under the 2010 Law on Credit Institutions, provided, however, that The State Bank Vietnam (or the Central Bank of Vietnam), it is commented, will promulgate shortly the subordinate legislation. ("Legal Affairs of Enterprises entering Asia" (April 2013) at page 299) (Edited by Nishimura Institute of Advanced Legal Studies) - Addendum 2 of the WTO Protocol of Vietnam Accession provides that application for FFEs entry into retail outlets (after the first one) will be examined by "economic needs test" conducted for each case in respect of the number of retail outlets, the geographical scale, market stability, population density in the province or city where the retail outlet(s) is/are to be established, compatibility of the investment plan, and consistency of the investment project with the master development plan of such province or city. - On 27 April 2013, Ministry of Industry and Trade promulgated "Circular 08/2013/TT-BCT Detailing the Goods Trading and Directly Related Activities of Foreign-Invested Enterprises in Vietnam" as a guideline for Retail Sales Activities by Foreign Funded Enterprises, among other things, specifying the Basis and the Procedures for Economic Needs Test (ENT) and deregulating restrictions such as Shrinkage of the Areas subject to ENT from those under control of Provinces or Central Government to Ward or County, and obviating the need for ENT, in the case, where opening the 2nd Store of less than 500 sq.m. in the area under the control of Provinces or Central Government, where construction of infrastructure is completed. - Ministry of Planning and Investment (MPI) promulgated Official Letter No. 6983-BKHDT of 12 September 2012, in regard to certain service sectors (such as rental or lease of construction equipment and facilities), deregulating the foreign investment terms as to Japan further than Vietnam's commitment under WTO Protocol, in pursuance of Agreement between Japan and the Socialist Republic of Viet Nam for the Liberalization, Promotion and Protection of Investment of 2003. ("Legal Affairs of Enterprises entering Asia" (April 2013) at page 301) (Edited by Nishimura Institute of Advanced Legal Studies) - On 26 November 2014, New Law on Investment (67/2014/QH13) was promulgated and enforced from 1 July 2015. (1) Banned business lines of 51 under the going law on investment have been reduced by large margin to 6 -business lines from 51-business lines: a) The narcotic substances, b) The chemicals and minerals, c) Specimens of wild flora and fauna, d) Animal specimen, e) Prostitution; human trafficking; human tissues and body parts; f) Business pertaining to human cloning. (2) Conditional business lines of 386 have been reduced to 267 (in which the investment must satisfy certain conditions for reasons of national defense and security, social order and security, social ethics, or public health). [Reference] Conditional business lines are listed in "Vietnam law on investment 2014, Appendix 4, catalogue of managerial investment sectors, business lines" at (JICA: http://www.jica.go.jp/project/vietnam/021/legal/index.html) |
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| (2) Restricted Foreign Capital Contribution Ratio | - Foreign Capital Contribution Ratio is held down to a low level of 15% (or 20%, if specially approved by Prime Minister) for investing into the existing local financial institutions, virtually foreclosing the foreign investors influence upon the corporate management. | ||
| (Action) - In January 2014, GOV raised the maximum shareholding percentage for a foreign investor in a Vietnamese credit institution from 15% to 20% in the case of strategic investors. (Decree No.01/2014/ND-CP) |
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| (Improvement) - On 26 June 2015, GOV promulgated Decree No.60/2015/ND-CP, which repeals, in part, the upper limit of 49% on foreign ownership. |
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