EVFTA underpinning growth in Vietnamese tech market

As Vietnam steps into the post-pandemic era, experiences and learnings from the pandemic serve as a reminder of the importance of digital transformation and its crucial technology component.

Eunjung Han, consultant at Rouse Legal Vietnam and vice chair of the Digital Sector Committee of the European Chamber of Commerce in Vietnam

Despite COVID-19’s negative economic and social impact, Vietnam remains an attractive destination to European investors. According to the European Chamber of Commerce (EuroCham) 2021 White Book, Vietnam’s stable macro-economic climate, with inflation in the single digits, continues to increase investor confidence in the country’s trade and investment environment. Only adding to that, the EU-Vietnam Free Trade Agreement (EVFTA) is paving the way for continued foreign direct investment (FDI) from the EU and is viewed as a means for shared recovery and economic rebound.

As the first comprehensive FTA between the EU and a developing country in Asia, the EVFTA has positively impacted trade and investment exchange. While COVID-19 may have taken a toll on key export regions in southern Vietnam, the EVFTA has helped see Vietnam rise to become the EU’s largest goods trading partner in the ASEAN and rank as one of the EU market’s top 10 suppliers.

Today, the local technology market forecast is positive with exciting opportunities and changes lying ahead with the government prioritising technology-related FDI. This is consistent with Vietnam’s digital economy and high-tech aspirations ushered in by the EVFTA indicates its potential as a platform to explore technology collaborations and strengthen partnerships between Vietnam and the EU.

That said, the realisation of this potential will come down to effectively utilising the EVFTA in a business environment with enhanced infrastructure, administrative procedures that are easier to navigate and with fewer uncertainties, and more means to facilitate cooperation. As for Vietnamese businesses, measures must be taken to improve operations and efficiency to meet higher EU standards.

Implementing initiatives

Vietnam’s commitments under the EVFTA in the technology space cover a wide range of areas, including but not limited to, public services, trading, e-commerce, intellectual property, data, and climate change. Accordingly, the Vietnamese government has made efforts to reform relevant regulatory frameworks and policies as well as launch new initiatives.

In 2020, Decision No.749/QD-TTg approved the National Digital Transformation Programme to 2025, with an orientation to 2030. The programme serves the dual purpose of developing a digital government, economy, and society, as well as establishing Vietnamese digital businesses with global capacity.

The programme’s launch, which coincided with when the EVFTA took effect, is enabling Vietnam and the EU to identify opportunities for collaboration and mutual development. As part of the program’s agenda, the Law on E-Transactions is currently undergoing updates and amendments to provisions, including but not limited to, digital signature, digital identity, and e-contracts, to support Vietnam’s fast-growing digital economy and provide for adequate regulations.

In August 2021, the Ministry of Industry and Trade issued Decision No.1972/QD-BCT on the establishment of the Vietnam Domestic Advisory Group in accordance with the provisions of Article 13.15 of the EVFTA’s Trade and Sustainable Development Chapter. The group, made up of Vietnamese associations and non-governmental/non-profit organisations legally established and operating in Vietnam that represent legitimate interests relating to trade and sustainable development, is tasked with gathering views, advising, and making recommendations as to implementation, ensuring compliance to commitments under the EVFTA.

Investment regulations are also undergoing reform to enable EU and Vietnamese businesses, especially technology-based investors, to reap benefits from the EVFTA and enjoy further incentives. For example, in October 2021, the government issued Decision No.29/2021/QD-TTg on special investment incentives on investment projects, defined as per high-tech criteria, covering corporate income tax exemptions as well as land and water surface rent reductions. These kinds of incentives are what can further attract FDI, improve the business climate, and ultimately lead to more quality investments.

To deal with changes in tariffs and complete the tax reduction roadmap, the Ministry of Finance is currently compiling a list of Vietnamese imports and exports in line with the ASEAN Harmonised Tariff Nomenclature to update technology, trade, and classify goods meeting market demand. Vietnam applies this and every five years reviews are done to ensure consistency with amendments to the Harmonised System.

A powerful and transparent intellectual property (IP) legal regime is necessary to promote the creation, research and development activities in the science and technology space. The recently approved amended law on IP reflects efforts to comply with the EVFTA. As just one example, the amended law includes provisions on the liability of internet service providers in the context of copyright infringement to ensure sufficient protection of IP rights on the digital network. Providing for greater IP rights protection is one of many efforts that Vietnam can make to attract more value-added investment from the EU.

Data protection and relevant issues such as cross-border data flow play an important role in shaping a digital economy and there are several legal instruments in the pipeline. The draft Decree on Personal Data Protection is being developed so that Vietnam can be more aligned with international standards and will be the country’s first consolidated set of regulations concerning personal data protection. A draft decree amending Decree No.72/2013/ND-CP with respect to the management, provision, and use of internet services and online information, and a draft decree guiding the implementation of the Law on Cybersecurity, are also pending issuance.

Trade deals like the EVFTA cover plenty of ground, Photo: Shutterstock

Investment trends

According to the Business Climate Index for the second quarter of 2022, released by EuroCham and conducted YouGov Vietnam, European business leaders have a positive outlook on Vietnam’s prospects for green growth. Specifically, 79 per cent of surveyed participants said their assessment of Vietnam’s green development potential improved compared to that of the first quarter and 90 per cent said that stronger green sector development would attract increased FDI.

As seen from policies such as the Vietnam National Green Growth Strategy of 2012 and the Development Strategy of Renewable Energy of Vietnam by 2030 with a vision to 2050, ongoing efforts are being made in terms of awareness and capacity building. The EVFTA synergises government efforts by allowing Vietnam access to modern technologies from the EU, which will accelerate developments in green growth and renewable energy as well as help locally manufactured products meet EU technical and environmental standards. In turn, this will contribute to the launching of new industries and products, which could promote future tech transfer.

Ho Chi Minh City has noted the EVFTA’s role in mutually benefitting the EU and Vietnam as it sees projects in urban transport, agriculture, and climate change mitigation implemented with support from the EU. The city is now seeking investment into almost 200 projects in 10 key areas including, among others, infrastructure development, agriculture, industry, and trade and services.

Trade relations between Vietnam and the EU in recent years have seen a significant boost thanks to the EVFTA demonstrating its potential of advancing mutual development and cooperation, especially in the technology landscape. That said, the EVFTA is not without challenges. Noting the EU’s main export is high-tech products, the removal of tariffs will make way for a greater supply of high-quality EU products into the country.

The limited resources of smaller firms and lack of high-tech ability in comparison to EU manufacturers is an indication of the need to work to improve their capacity to better compete in terms of quality, functionality, and reliability. Investment in human capital, vocational training, and IT education will lead to higher productivity, and thus must also be included as part of capacity building to ultimately improve operation and efficiency to meet higher EU standards.

As Southeast Asia’s second fastest growing market with a thriving digital economy, Vietnam holds the promise of becoming a regional digital powerhouse. For Vietnam to see this go from promise to reality, it must continue with its pragmatic and open approach. This includes efforts to enhance infrastructure, arrange for more means to facilitate cooperation, and provide more incentives for the making of a more transparent business environment that is favourable to both local and EU investors.