Changes to break e-commerce stride

Changes to break e-commerce stride, illustration photo

The government has enacted Decree No.85/2021/ND-CP ousting Decree No.52/2013/ND-CP dated 2013 on e-commerce. The former stipulated that e-commerce is a conditional business for foreign investors in Vietnam. Decree 85 amends and supplements some significant regulations on e-commerce activities, which may affect not only foreign investors but also domestic ones. The decree will take effect on January 1, 2022.

According to Samuel Son-Tung Vu, partner at law firm Bae, Kim & Lee Vietnam, Decree 85 creates additional barriers for foreign investors in the e-commerce market. Those who wish to control one or more of the leading e-commerce enterprises may face difficulties when applying or amending the respective licence.

Thus, such applications shall not only be reviewed by the Ministry of Industry and Trade (MoIT) but shall also be appraised by the Ministry of Public Security (MoPS). Furthermore, Decree 85 is silent on the duration for the MoPS to provide their appraisal opinion, thus issuance of e-commerce licences for foreign-invested enterprises could be more time-consuming and difficult.

Vu added that the new decree will likely hinder foreign investment activities in Vietnam, especially for those planning to takeover one of the major e-commerce platforms.

In addition to these obstacles, overseas enterprises may also face higher costs due to the requirements to amend and upgrade their respective internal system, regulations (for example, regulations on operation of e-commerce trading floors), employee conduct training, and more.

“Considering the size and the number of processed transactions of major e-commerce platforms, it can be a real challenge to ensure compliance with new regulations in such short amount of time,” Vu stressed.

In one example, Decree 85 requires e-commerce platform providers in Vietnam to verify the identity of foreign traders and organisations selling goods on the platform. Previously, Decree52 only requested foreign sellers to provide such information to e-commerce platforms but the latter was not obliged to verify this. With a large number of foreign traders, it can be challenging for e-commerce platforms to meet the deadline.

However, Filippo Bortoletti, senior manager of International Business Advisory at Dezan Shira & Associates, told VIR that implementation of Decree 85 will not hinder the majority of foreign investment into Vietnam’s e-commerce. “Decree 85 has been under discussion for several years and the main goal of the new prescriptions is to revise the local legal framework related to e-commerce to regulate on-demand TV services and the cross-border provision of such services like Netflix or Spotify.”

Thus, foreign businesses cannot provide cross-border e-commerce services in Vietnam without registering their activities and establishing a representative office or appoint an authorised representative in Vietnam.

“Another goal of Decree 85 is to protect local e-commerce players from new entrants,” Bortoletti said. “Foreign players must comply with market access provisions according to Decree 85, which means that those controlling one or more enterprises in a group of five leading enterprises in Vietnam’s e-commerce shall undergo an appraisal regarding national security matter. This surely brings uncertainty over market entry for big e-commerce players.”

According to a study conducted by Malaysia’s e-commerce company iPrice Group and US-based digital intelligence provider SimilarWeb, the e-commerce game is dominated by foreign e-commerce businesses like Shopee and Lazada, followed by Tiki and Sendo. These players already have local establishments to support their business. In this case, they need to comply with the new obligations on e-commerce trading.

“However, as such provisions are extended to all actors in the market, I think that new regulations are not providing a clear advantage to local players,” Bortoletti added. “Decree 85 is filling a gap in the local legal framework related to cross-border provision of e-commerce services. Now those companies will have to register their e-commerce activities in Vietnam and establish a representative office.”

According to Facebook and Bain & Company’s annual Southeast Asia report, Vietnam’s e-commerce sector is expected to reach $12 billion in 2021. The market ranks second in size in the region after Indonesia, and is estimated to grow 4.5 times to reach $56 billion by 2026.

“For domestic players, with the new barriers on e-commerce license, they may avoid hostile takeovers by foreign investors,” Samuel Son-Tung Vu said.

“In terms of e-commerce in general, new regulations have set forth a clear legal basis on obligations of platforms to ensure a safe market for both sellers and buyers, especially amid an increasing number of cross-border transactions conducted via e-commerce,” he added. “Some newly-added requirements may certainly provide additional protection to consumers and hold e-commerce platforms responsible to supervise foreign traders.”