VIETNAM: TOWARDS A LEVEL PLAYING FIELD FOR

UNCLAS SECTION 01 OF 02 HANOI 000221

SIPDIS

STATE PASS USTR FOR EBRYAN
STATE PASS TREASURY FOR OASIA
STATE PASS USAID FOR AFERRARA
BANGKOK FOR USAID
USDOC FOR 4431/MAC/IFP/OKSA/HPPHO

E.O. 12958: N/A
TAGS: EINV ECON VM FINREF WTO
SUBJECT: VIETNAM: TOWARDS A LEVEL PLAYING FIELD FOR
INVESTORS



1. SUMMARY: In late December 2003, Vietnam's Ministry of
Planning and Investment (MPI) held a workshop to gather
comments and ideas from a wide-range of participants
regarding the harmonization of the legal systems on
investment. MPI plans to submit to the National Assembly a
proposal for a common legal framework for both domestic and
foreign investment under its 2004-2005 law-making program.
The GVN is attempting to create a common legal framework for
the business activities of all economic sectors in order to
increase its competitiveness and meet its international
commitments as well as World Trade Organization (WTO)
requirements. END SUMMARY.


2. During a December workshop at MPI, which Econoff
attended, representatives from foreign and local businesses,
foreign consulting agencies, local think tanks, and law-
making agencies discussed the need for Vietnam to create a
common legal framework for business activities in all
economic sectors. They described how Vietnam currently has
different legal systems governing the business activities of
various types of enterprises depending upon their
investment/ownership.


3. Participants outlined Vietnam's current complex
investment system. With a Law on Foreign Investment (LFI),
Law on Domestic Investment Promotion (LDIP),and Enterprise
Law, legal requirements differ in matters such as the form
of investment, establishment procedure, and organizational
structure. For example, the Enterprise Law, which governs
the establishment of domestic companies, allows domestic
investors to create a business in numerous forms, including
a limited liability company, joint stock firm, partnership,
and holding company. However, the LFI, which covers both
the formation of foreign invested enterprises (FIEs) and
promotion of FDI, only permits a foreign investor to set up
a limited liability company. In addition, while local
companies follow a registration regime for establishing a
business, a foreign invested enterprise is subject to
appraisal and licensing procedures. (Note: In order to
fulfill its commitments in the U.S.-Vietnam Bilateral Trade
Agreement (BTA),Vietnam is required to move toward an
investment registration system for U.S. investments. End
Note.)


4. During the discussion at the workshop, several divergent
ideas regarding the future of Vietnam's investment regime
emerged. Several speakers suggested that Vietnam could
integrate the investment promotion portion of the LFI with
the LDIP thus creating one investment promotion law while
retaining one or more separate laws to govern other matters
(i.e. either adapt the Enterprise Law to cover FIEs or
separately maintain the Enterprise Law and portions of the
LFI). A representative from the MPI-affiliated think tank,
Central Institute for Economic Management (CIEM),
recommended the alternative of harmonizing some legal
requirements and legislation, including those regarding the
form of permitted investment, establishment and dissolution
procedures, and permitted (or prohibited) investment
sectors. Vietnam's final option, which many participants
advocated, would be to incorporate all features of the three
laws into one new "super" law.


5. Arguing against the idea of a "super" law, a
representative from MPI, the main Government agency
responsible for drafting legislation on investment,
explained that since the LFI is aimed at attracting FDI, the
legal framework governing FIEs must include certain
requirements. For example, although there is no requirement
regarding domestic capital, the GVN mandates a minimum level
of foreign capital. In addition, the GVN has said that it
may need to maintain lists of economic sectors where foreign
investment is encouraged, limited, or prohibited. At the
same time, MPI recognized that those sectors must be
logically selected and transparently publicized.


6. An official from MPI subsequently acknowledged during
the seminar that both the current legal system and its
enforcement has tended towards protectionism, inconsistency,
discrimination, and lacking a strategic view. He also
stated that in order to create an equal, non-discriminatory
business environment in Vietnam and meet its international
commitments and WTO requirements, the GVN must make the
legal framework governing investment reasonable, consistent,
and equivalent to common business standards and practices.
Towards this end, the MPI representative said that MPI
intends to submit new investment legislation to the National
Assembly under the 2004-2005 law-making program.


7. COMMENT: In recent months, the GVN, businesses, and
donors have increasingly discussed the need to harmonize
Vietnam's investment regimes. Although it appears that
significant debate remains regarding the shape of future
legislation, the consensus on the need for change is a
welcome development. The USG, along with many enterprises
and consultants, will continue to press the GVN to resolve
its internal debate and undertake the necessary changes as
soon as possible in order to create a level playing field
and ensure that Vietnam meets its international commitments,
including under the BTA.

BURGHARDT