EuroCham calls for change

EuroCham’s Whitebook 2011 has talked up the challenges facing Vietnam’s business environment

Despite progress in some areas, EuroCham last week asked the Vietnamese government for quick action in the investment regulatory framework, infrastructure, intellectual property rights protection and workforce fields.

The demands follow EuroCham’s release of its “Whitebook 2011 of Trade/Investment Issues and Recommendations” in a press conference in Hanoi last week. At the press conference, EuroCham representatives appreciated Vietnam’s achievements in 2010, but also raised concerns about the unsolved problems and challenges ahead. Since its establishment with only 60 members in 1998, EuroCham has grown to represent more than 750 European businesses, counting among its supporters many of the world’s leading enterprises.

EuroCham said in its Whitebook 2011 that Vietnam had made good progress during 2010. On a

Alain Cany, EuroCham chairman

I am very pleased to present our third edition of EuroCham’s White Book on Trade Issues and Recommendations. We believe that now is the right time for Vietnam to concentrate on strategic key issues to further increase Vietnam’s competitiveness, such as upgrading the quality of Vietnam’s labour force, improving infrastructure and energy supplies, encouraging sustainable PPP programmes and continuing regulatory and administrative reforms. Moreover, structural reforms to increase the efficiency of its economy must remain high on Vietnam’s agenda, in particular with regards to further equitising the state-owned enterprises. We hope that like the prior editions, the Whitebook 2011 will again be well received by the Vietnamese government and contribute to Vietnam’s success story.

Dr. Matthias Duehn, EuroCham executive director

As much as Vietnam needs modern roads, seaports, power plants and other infrastructure to sustain its economic growth over the longer term, we encourage Vietnam to promote a “culture of innovation” which values creativity, new technologies and value-added solutions. Without this, Vietnam risks falling into the “middle income trap”, the inability to arise out of an economy based on cheap labour and low-technology manufacturing methods to value-added knowledge-intensive and innovation-based manufacturing for domestic consumption and exports.

macroeconomic level, Vietnamese policy makers and the State Bank had responded decisively to tackle the aftermaths of the financial and economic crisis in 2009 and 2010. The State Bank has continued to adopt flexible monetary policies to achieve Vietnam’s key macroeconomic objectives with a focus on stimulating economic growth while maintaining single-digit inflation. Furthermore, two important banking laws, the Law on the State Bank of Vietnam and the Law on Credit Institutions, were promulgated by the National Assembly on June 16, 2010, to enable the State Bank and banks to operate businesses in a more robust and structured legal infrastructure, said EuroCham in its Whitebook 2011.

Beyond the banking sector, there are positive improvements in infrastructure and customs procedures, with new rules on pre-clearance and introduction of a “de-minimus” rule for low-value shipments that exempts low-value goods from customs checking. This will have a great impact on customs clearance, as the majority of shipments are in the low-value segment.

With regards to boosting infrastructure projects, EuroCham welcomed the Vietnamese government’s new regulations on Public-Private Partnerships (PPP) pilot projects and contracts. Whilst these rules are for pilot projects only, they are a good first step in creating a comprehensive legal framework for infrastructure projects that are so much in need in Vietnam.

With regards to business and investment licencing, easier business start-up procedures and clarification of licencing provisions for companies with up to 49 per cent foreign ownership are likely to significantly improve the business climate. Vietnam has also made good steps towards implementing a “one-stop-shop” approach for business and investment licencing. The current “one-stop shop” approach will combine the processes for obtaining business and tax licences and further eliminate the need for a seal for company licencing.

EuroCham believes the key to sustainable long-term economic development is to shift from basic low added-value exports to more sophisticated and high added-value exports, in particular in the innovative high-tech sectors. Therefore, Vietnam’s focus for 2011 should again be on the economy’s competitiveness, whilst at the same time creating sustainable long-term solutions for the country. EuroCham believes that Vietnam’s ability to maintain high economic growth rates over the longer term depends on whether the Vietnamese government takes and maintains action now in several key areas. Further improving the regulatory framework for investment, protecting and enforcing intellectual property rights and upgrading skills and productivity for Vietnamese workers top the list. Improving the country’s infrastructure and energy supply, in particular by focusing on viable PPP long-term projects is also key. Last but not least, the Vietnamese government has also reached some major achievements in “Project 30” to reduce administrative procedures by 30 per cent.

Regarding to the regulatory framework for investment, there is consensus in the foreign business community that the approval process for investing and setting up businesses in Vietnam is still difficult and time-consuming.

Another concern is the implementation of the economic needs test (ENT). According to EuroCham, the ENT remains a barrier to investment, despite Vietnam’s official opening of distribution services since January 1, 2009. However, over the last two years foreign investors have complained that the establishment of 100 per cent, foreign-owned capital companies in the distribution sector remains subject to unpredictable and discretionary decisions by the authorities. Currently the MUTRAP team is drafting a decree on retail services. EuroCham has already commented on that draft and is currently gathering more input from the businesses. It remarks in the Whitebook that the definitions of wholesale and retail services as well as the criteria for applying the ENT needs to be further specified.

Regarding to the legal system for protecting intellectual property rights (IPR), EuroCham recognises the Vietnamese government’s improvements in the Intellectual Property Law and Criminal Code that have come into effect in 2010. But despite sanctions available, the enforcement of IPR remains burdensome and time-consuming. In particular, EuroCham executive director Matthias Duehn pointed out at last week’s press conference that “protecting IPR in Vietnamese courts remains an option in theory. Under current laws, a formal court action must be “accepted” by a Vietnamese court before such remedies as seizure of counterfeit goods and evidence of infringement can even be sought from the court. In practice, meeting these onerous formal requirements can often take months, making it virtually impossible for IPR owners to act quickly to protect themselves against counterfeiters who are often capable of “suspending” or “hiding” their illegal activities at the slightest hint of action is being taken against them.

Poor infrastructure and quality of workforce remain a big hindrance for business operations of foreign investors in Vietnam. EuroCham vice chairman Olivier Jacquet said at the press conference that Vietnam needed modern roads, seaports, power plants and other infrastructure to sustain its economic growth over the longer term. Developing its infrastructure will be one of Vietnam’s major tasks to reach regional competitiveness and be further integrated into global supply chains. The government has just introduced legal framework for PPP pilot projects to encourage private investments to infrastructure sector, but EuroCham said foreign investors will only be attracted to invest in PPP if they can secure a reasonable return on their investment. In other words, projects have to be commercially viable and lucrative to prospective investors.

EuroCham also adds that more than 65 per cent of Vietnam’s workforce is still unskilled and 78 per cent of the 20-24 year olds are either unskilled or skill-strapped. Within Southeast Asian nations, Vietnam ranks in the lower half of the human resources development. Therefore, improving and upgrading its workforce is one of Vietnam’s key tasks to meet the needs of rapidly changing labor markets at home and abroad. EuroCham chairman Alain Cany stressed that “productivity of Vietnamese employees would be key to improved competitiveness and to help Vietnam getting away from the image of a cheap-labour destination only.”

The Whitebook 2011 also raises concerns that the Vietnamese government had passed Circular 122/2010/TT-BTC on price stabilisations that went into effect on October 1. EuroCham warns in the Whitebook that Circular 122 was against the spirit and objectives of the Project 30 and will add administrative costs, burdens and uncertainty to the private sector doing business in Vietnam. The circular was also a potential obstacle with regards to Vietnam’s early graduation to market economy status under EU rules.