ANNUAL VIETNAM BUSINESSFORUM 2015

Hanoi, December 1, 2015

Annual Vietnam Business Forum 2015

ENHANCING ENTERPRISE COMPETITIVENESS FOR GLOBAL

INTEGRATION

Hanoi, December 1, 2015

DISCLAIMER The Vietnam Business Forum (“VBF”) is a structured and ongoing policy dialogue between the Vietnamese Government and the local and the foreign business community for a favorable business environment that attracts private sector investment and stimulates sustainable economic growth in Vietnam. This publication was created for the Annual Vietnam Business Forum on December 1, 2015 in Hanoi. The conclusions and judgments contained in this publication, as well as presentations made by businesses’ representatives at the Forum, should not be attributed to, and do not necessarily represent the views of, the VBF Consortium Board, or the VBF Secretariat, or its co-chairing institutions including Vietnam’s Ministry of Planning and Investment, the World Bank Group, and IFC - a member of the World Bank Group. These parties do not guarantee the accuracy of the data in this publication and the aforesaid presentations, and accept no responsibility for any consequences of their use. This publication is distributed subject to the condition that it shall not, by way of trade or otherwise, be lent, re-sold, hired out, or otherwise circulated on a commercial basis.

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TABLE OF CONTENTS TENTATIVE AGENDA Section I: REVIEW OF BUSINESS CLIMATE 1.1. Vietnam Chamber of Commerce and Industry - VCCI 1.2. American Chamber of Commerce - AMCHAM 1.3. European Chamber of Commerce - EUROCHAM 1.4. Korea Chamber of Commerce - KOCHAM 1.5. Japanese Business Associations in Vietnam - JBAV 1.6. Australian Chamber of Commerce - AUSCHAM 1.7. Nordic Chamber of Commerce - NORDCHAM Section II: INVESTMENT & TRADE, BANKING AND CAPITAL MARKETS 2.1. INVESTMENT AND TRADE 2.1.1. Position Paper of VBF Investment & Trade Working Group 2.1.1.a. Attachment 1 to the Position Paper – Foreign Arbitral Awards 2.1.1.b. Attachment 2 to the Position Paper – Petition from the Association of Vietnamese

Insurers on Decision 35/2015/QD-TTg 2.1.2. Report of Investment & Trade Working Group on Investment & Enterprise Laws 2.1.3. Investment & Trade Progress Report 2.2. BANKING 2.2.1. Position Paper of VBF Banking Working Group 2.2.2. Banking Progress Report 2.3 CAPITAL MARKETS 2.3.1. Position Paper of VBF Capital Markets Working Group 2.3.2. Talking points with the State Securities Commission on Capital Markets Issues 2.3.3. Meeting Notes with the State Securities Commission on October 27, 2015 Section III: AGRICULTURE, EDUCATION & TRAINING, HR AND GOVERNANCE & INTEGRITY 3.1. AGRIBUSINESS 3.1.1. Position Paper of VBF AgriBusiness Working Group 3.2. EDUCATION & TRAINING 3.2.1. Position Paper of VBF Education & Training Working Group 3.2.2. Education & Training Progress Report 3.2.3. Meeting Notes with Ministry of Education and Training on Decree 73 on Nov 13,

2015 3.3. HUMAN RESOURCE 3.3.1. Position Paper of VBF Human Resource Working Sub-Group

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3.3.2. Human Resource Progress Report 3.3.3. Meeting Notes with Ministry of Labor, Invalids and Social Affairs on Draft Decree

amending Decree 102/2013/ND-CP on August 6, 2015 3.4. GOVERNANCE & INTEGRITY 3.4.1. Position Paper of VBF Governance & Integrity Working Group Section IV: INFRASTRUCTURE, AUTOMOTIVE AND MINING 4.1. INFRASTRUCTE 4.1.1. Position Paper of VBF Infrastructure Working Group 4.1.2. Infrastructure Progress Report 4.2. AUTOMOTIVE 4.2.1. Position Paper of VBF Automotive Working Group 4.2.2. Automotive Progress Report 4.3. MINING 4.3.1. Position Paper of VBF Mining Working Group 4.3.2. Mining Progress Report Section V: REPORTS FROM OTHER WORKING GROUPS 5.1. TAX 5.1.1. Position Paper of VBF Tax Sub- Working Group 5.1.2. Tax Progress Report 5.1.3. Talking points with Ministry of Finance on Some Tax Related Issues 5.1.4. Meeting Notes with Ministry of Finance on Double Taxation Agreement on August

25, 2015 5.2. LAND 5.2.1. Position Paper of VBF Land Sub-Working Group 5.2.2. Land Progress Report 5.3. POWER AND ENERGY 5.3.1. Position Paper of VBF Power & Energy Sub-Working Group 5.3.2. Meeting Notes with Ministry of Industry & Trade and Ministry of Planning &

Investment on Power & Energy Related Issues 5.4. PORT AND SHIPPING 5.4.1. Position Paper of VBF Port & Shipping Sub-Working Group 5.5. TOURISM 5.5.1. Position Paper of VBF Tourism Working Group 5.5.2. Meeting Notes with Vietnam National Administration of Tourism on Related Issues

on October 8, 2015 Section VI: APPENDIXES 6.1. Summary Notes of Mid-term Vietnam Business Forum – June 2015 6.2. Prime Minister’s Speech in Mid-term Vietnam Business Forum – June 2015

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ANNUAL VIETNAM BUSINESS FORUM 2015 [Enhancing Enterprise Competitiveness for Global Integration]

Date and Time: 7:00 – 13:30, Tuesday, December 1, 2015

Venue: JW MARRIOTT HOTEL HANOI, No.08 Do Duc Duc Road, South Tu Liem Distr., Hanoi

TENTATIVE AGENDA 7:00 – 8:00

Registration

8:00 – 8:15

Opening Remarks Ministry of Planning and Investment – H.E. Mr. Bui Quang Vinh, Minister International Finance Corporation – Mr. Kyle F. Kelhofer, Regional

Manager Vietnam Business Forum Consortium – Mrs. Virginia B. Foote, Co-Chair

SESSION 1

8:15 – 8:45

Review of Business Climate Vietnam Chamber of Commerce and Industry – Dr. Vu Tien Loc,

President American Chamber of Commerce – Ms. Sherry Boger, Chairwoman European Chamber of Commerce – Mr.Tomaso Andreatta, Vice

Chairman Korea Chamber of Commerce – Mr. Ryu Hang Ha , Chairman Japanese Business Associations in Vietnam – Mr. Shimon Tokuyama,

Chairman Australian Chamber of Commerce – Mr. David W. Carter, National Board

Member SESSION 2

8:45 – 9:45

Investment & Trade, Banking and Capital Markets Presentation of Investment & Trade Working Group: Mr. Fred Burke and

Mr. Tran Anh Duc– WG Co-Heads Presentation of Banking Working Group: Mr. Nirukt Sapru – WG’s Head Presentation of Capital Markets Working Group: Mr. Dominic Scriven –

WG’s Head and Mr. Terry Mahony, WG’s Representative Responses from the Government Ministry of Planning and Investment Ministry of Justice Ministry of Science and Technology Ministry of Information and Communications Ministry of Finance

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Ministry of Public Security Ministry of Transport State Bank of Vietnam State Securities Commission of Vietnam

9:45 – 10:00 Keynote Address by DEPUTY PRIME MINISTER H.E. Mr. VU VAN NINH

10:00 – 10:15 COFFEE BREAK

SESSION 3

10:15 – 11:15

Agriculture, Education & Training, HR, and Governance & Integrity Presentation of Agri-Business Working Group: Mr. David Whitehead,

WG’s Head Presentation of Education and Training Working Group: Mr. Brian

O'Reilly, WG’s Head Presentation of HR SubGroup: Mr. Colin Blackwell, Sub-WG’s Head Presentation of Governance & Integrity Working Group: Mr. Phil

Newman, WG’s Representative Responses from the Government (40’) Ministry of Agriculture and Rural Development Ministry of Education and Training Ministry of Labor, Invalids and Social Affairs

SESSION 4

11:15 – 12:00

Infrastructure, Automotive and Mining Presentation of Infrastructure Working Group: Mr. Tony Foster, WG’s

Head Presentation of Automotive Working Group: Mr. Wail A Farghaly, WG’s

Head Presentation of Mining Working Group: Mr. Bill Howell, WG’s Head

Responses from the Government (30’) Ministry of Industry and Trade Ministry of Finance Ministry of Natural Resources and Environment

SESSION 5

12:00– 12:15

Closing Remarks World Bank in Vietnam – Mrs. Victoria Kwakwa, Country Director Vietnam Business Forum Consortium – Dr. Vu Tien Loc, Co-Chair Ministry of Planning and Investment – H.E. Mr. Bui Quang Vinh, Minister

12:15 – 13:30 LUNCHEON

VIP Lunch – By Invitation Only Event Room 3 – JW MARRIOTT Hanoi Hotel Networking Lunch JW Café Restaurant Area & Fountain Area

Section I

REVIEW OF BUSINESS CLIMATE

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THE VIETNAM CHAMBER OF COMMERCE AND INDUSTRY (“VCCI”)

RECOMMENDATIONS

Vietnam Business Forum 2015 Ha Noi, December 1,2015

Prepared by

The Vietnam Chamber of Commerce and Industry

I. RECOMMENDATIONS FOR CUSTOMS ADMINISTRATIVE REFORM The 2015 Survey of Business Satisfaction with the Customs Administrative Procedures is a collaborative effort of the Vietnam Chamber of Commerce and Industry (VCCI), the General Department of Vietnam Customs (GDVC), and the Vietnam Governance for Inclusive Growth project (USAID GIG). The survey received 3,123 responses from businesses engaging in regular import – export activities. This paper documents a summary of recommendations by businesses as a result of the mentioned above survey. Summary: In 2015, the Customs Service has continued its reform efforts towards facilitating businesses. Remarkable progress has been recognized by the business community concerning the improvement of the customs legislation system, transparency of access to legal information and customs procedures as well as prompt and effective support of customs authorities. Businesses are expecting stronger and more drastic reforms of the Customs Service in many areas such as improving quality of customs legal normative documents, further simplifying and making public and transparent of administrative procedures, improving tax related processes and procedures, focusing more on specialized inspection, enhancing the effectiveness of cooperation between customs authorities and other agencies involved in the implementation of customs procedures for businesses. In 2015, the Vietnam Customs has made continued efforts for reform and modernization in support of compliance with the international standards, practices and commitments. Many synchronized measures have been actively undertaken by the Sector in term of completing the customs legal system in the direction of simplifying the administrative procedures, implementing the automated customs clearance system VNACCS/VCIS nationwide, strengthening the employment of information technology (IT) through the application of electronic signatures, electronic paymentand receipt of cargo electronic manifestsat seaports; expanding the application of barcodes in port monitoring... and implementing the Declaration of Customer Service revised in 2015, undertaking proactive measures to prevent negative affairs and corruption. These are the specific measures being adopted by the Customs Service to realize the reform goals in the Customs Development Strategy until 2020, the Plan for reform, development and modernization of the Customs Service for the 2011-2015 period, especially at Resolution No. 19/2014/NQ-CP and Resolution No.19/2015/NQ-CP of the Government to reduce Vietnam‟s customs clearance time to the level of the ASEAN-6 countries

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by 2015 and of the ASEAN-4 countries in 2016 and at Directive No.24/CT-TTg dated 08/05/2014 of the Prime Minister on strengthening the tax and customs administrative reform and managementto further promote the customs modernization.

These measures have achieved remarkable results, helping lower the costs and time ofcustoms clearance of goods for export and import businesses. However, the survey also noted the fact that the business community still has high hopes for more drastic and stronger reforms of the customs service acrossvarious aspects. Below is a summary of specific recommendations by businesses for the Customs in the time to come: 1. Improving quality of customs legal normative documents The quick revision and finalization of the provisions of Customs legislation in recent years has created favorable conditions for businesses engaging in import and export activities. However, the issuance of amendments, supplements and replacements takes place so quickly, causing the risk that no sooner had many enterprises got the hang of old circulars, new circulars were already issued, (e.g Circular 22/2014/TT-BTC took place in a very short time was already replaced by Circular 38/2015/TT-BTC). Besides, there exists the fact that those documents are too long and their provisions are unclear and vague, making it easier to be differently interpreted and applied by customs authorities and businesses. Given quality of such documents, it also caused inconsistent implementation of customs procedures by different customs units and officers. Some amongst them stick to such rigid regulations, for example concerningquality check of leatheretete on the seat of mobility disablity chairs. Some do not fully comply with regulations of dossiers & documents as prescribed but require businesses to present additional documents, causing difficulties for businesses. Recommendations: It is necessary to improve the quality of customs legal normative documents which should have explicit contents, creating a unified understanding between customs authorities, other relevant agencies and businesses.

2. Further simplifying some customs procedures Regulations on customs procedures: Some regulations on customs procedures are unclear and unreasonable, say, procedure of cancelling customs declaration, procedure of on spot import and export; the analysis and classification of goods take too long and require too many samples; the regulation on time for temporary import for re-export of vehicles is too cumbersome; the regulation on deadline to submit quality check results is not suitable with the goods of heavy machinery, large shipments; as well as the regulation that does not allow revision of location codes is not reasonable. Actual inspection of goods and customs supervision: The procedure of implementing actual inspection and customs supervision at many local customs agencies remains unclear. It is suggested by businesses that this procedurebe revised in order to avoid inadequacy for businesses Post-clearance checks: This procedure is assessed by businesses as inadequate as this is required even for the declaration that already went through actual inspection. The settlement of difference in terms of inventory data by customs authorities and businesses for the type of

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processing and export production is not reasonable. That the customs authorities collect tax arrears on this difference is not consistent with reality, causing businesses„ dissatisfaction. Reporting on liquidation for processing and export production: This procedure is not provided with specific guidelines. Many businesses said they do not know how to make reports and it takes them lots of time to do it and so they prefer the old liquidation procedure better. Regulations on customs procedures implemented by amongst customs authorities and by other management agencies are not consistent, for instance: it isn„t required by customs authorities to have certification on declaration form while it is required by tax agencies to do so. 3. Improving tax related processes and procedures Tax-related policies have some irrational points: many businesses reported on irrationalities in regulations concerning the tax on goods temporarily imported for re-export and or goods imported via express courier and sold through contract with processing enterprises. The tax reduction and exemption procedure that is stipulated by the Ministry of Planning and Investment in Circular No.04/2012/TT-BKHĐT remains unclear, even for the category of goods that can be locally produced. The regulation of tax payment prior to customs clearance for good compliants is not reasonable either, which is not encouraging for businesses. It is suggested to reconsider the time for tax payment for the input materials for export in the case of production duration over 275 days; the procedures of tax exemption are cumbersome & time consuming for businesses that have to make many trips back & forth to revise and provide additional documents. Circulation of tax payment documents between bank, treasury and customs is not good, causing inconvenience to businesses in proving that they already paid tax for the opened declaration form. The working time of the bank and customs agency regarding the implementation of this procedure is not well coordinated: The declaration is already made but tax can‟t be paid for clearance as the banks close early on weekdays and are not open on weekends, public holidays, or Tet holidays. Identification of HS code and tariff. There still exists the fact that a same goods item is subject to different HS codes at different customs branches, causing troubles for many businesses. Vietnam participates in many trade agreements and there are corresponding import - export tariff that should be timely and comprehensively disseminated to enterprises so that they know and benefit from the signed agreements. Prices for tax and fee calculation. Despite new regulations, price consultations have been done correctly. There remains the cases where price consultation is required for every importation even when the enterprise import the same goods with stable price determination factors. The price Database is not transparent and open to for enterprises to check on their own. Customs fee is not significant but businesses have to take time for such payment procedures. Certificate of origin for imports. Many businesses report that the signatures on preferential C/Os are not timely updated, unlike the sample signature, and take time to verify; Form D C/O is received after the goods ... In such cases, the customs authorities often require businesses to pay taxes at high rates and receive refund later upon having verification results, the procedure for which is very complicated. The procedures for checking the C/O are not

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consistently implemented across different units. For instance, one C/O is accepted as valid at the dossier receiving section, but is not accepted by the sections of reexamination or post-clearance checks and businesses are required to pay tax arrears.

4. Improving the effficiency of methods and means of customs management, professional

skills, attitudes of customs officers VNACCS system has some shortcomings yet: This system is evaluated by businesses to have many advantages, but some shortcomings remain, say, wrong notification of pending customs declaration, tax & fee payment; failure to declare re-export of temporarily imported equipment under the category of G23, S0218-SS1-0000 error (failure to browse/select export license); overlapping of code contents; liquidation errors (data is inaccurate & ineffectively used, which is very time consuming for businesses); import tax and VAT are unclear & duplicated; entry for 3 digits of the declared weight is not allowed & places of figures in USD is not suitable with international standards; declaration only allowed after 24 hours of adjustment of tax enforcement is unreasonable. The declaration form is difficult to see & its layout looks confusing, which makes it very easy to do wrong; the section of code of reference legal documents & digital signatures is complicated for the shipments that have many goods items. There are many problems in using the customs declaration software: When declaration errors happened, businesses asked for help from customs agency that forwarded the question to the Thai Son software company. But when the businesses reached Thai Son, this company said they only provided terminal softwares, not customs management softwares. Businesses were very unhappy with this problem. Customs information technology infrastructure has some limitations yet: The infrastructure of information technology is not synchronized with slow traffic and constantly jammed network and errors; which results in slow updates on tax payment of businesses, sometimes for 2 – 3 days; the 3G internet is not available at remote border gates, which is very difficult for businesses to open or revise declarations...The lookup of tax debt on the Portal of General Department of Customs may cause the risk of disclosing information of businesses. It is recommended to provide a single user and password (not log in using indentity card and tax code). In case of forgetting password, re-registration is required and password will be sent to the email that is registered before. Spirit of service, professional competence of customs officers: Some customs officials still harass and cause troubles for businesses in the process of implementing customs administrative procedures; some customs officers are assessed as “weak at professional competence” and “limited legal knowledge about using HS code of goods in specialized technical areas”,“inconsistent in implementation”,“low technical capability”, “limited knowledge of regulations and documents”, “different explanation by different customs officers”, “provide verbal guidance only”, “refuse to sign on professional form to avoidhaving to take responsibility”; some customs officers are “not polite”,“not enthusiastic or cooperative” in their support for businesses, or sometimes“indifferent, insensitive” to the difficulties and loss of businesses, “undemocratic” and “harrassing” businesses. 5. Problems concerning specialized management of imports and exports Currently, there are too many documents issued by ministries and agencies concerning specialized management of export and import goods. Many provisions are unclear with constant changes; the validity of newly issued documents is too short which makes it difficult for businesses

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to fully update. The contents of some regulations are incomplete and confusing to businesses (e.g. Decision No. 11 039/QD-BCT of the Ministry of Industry and Trade stipulates that the import of relays is subject to examination and energy stamping but does not specify which agencies or organizations are in charge of this, the businesses therefore don‟t know where to go to for following this procedure....).The contents of regulations on categories of goods subject to specialized examination is fragmented, unclear and difficult to find, resulting in different understanding and explainations between customs authorities and businesses, or amongst different State management agencies, for instance the regulation concerning the weight of container trucks, tractors, etc. Regulations of specialized management and examination are overlapping: One item is subject to both product certification and examination of each individual import shipment. The same product item is, all the time, subject to application for permits, quality check. Too many licenses/permits are required and repeated for many times. Scope of specialized examination is too wide and unncessary in many cases: For instance, it is required to do specialized examination for the products imported, packed with other products and exported (e.g. the sauce bags are imported, and then packed with locally produced prozen potato products and later exported); examination, performance and energy stamping are required for specialized equipment and materials of mineral & coal industry which have special high technical and safety requirements and are under management by specialized agencies; quality check is required for materials, equipment....imported in service of processing contract of ship building for export); the same thing happens to the export of fertilizers; forest service procedures are required for the export of cinnamon oil and quality check is even required for the goods that already go through international inspection... Specialized inspection time is too long, for example, quality check of steel as defined in Circular 44 / TTLT BCT-BKHCN dated 31/12/2013 lasts 2-4 weeks; time for quality check of seed corn is 7 – 10 days long; time for examination and certification of food safety by health agencies is too long, which results in failure to ensure the deadline of submission to the customs within 30 days. It takes about 15 days to get the permit from the Telecom Bureau for electronic equipment...Specialized inspection results amongst different agencies and units are not consistent. This agency says yes while another says no to the same results. Documents are not conforming to reality, for example, the list of machinery, equipment, raw materials that can be domestically produced stipulated in Circular 04/2012 /TT-BKH dated 08/13/2012: The list is not concrete, too general and contains many items which either can not be produced domestically or can be produced but o do not meet the quality requirements for high-tech manufacturing sectors (eg in the oil and gas field). Lack of coordination and information sharing amongst agencies: This results in the fact that businesses, for many times, have to provide the same information and documents to many agencies. For instance, many paper works have been reduced and cut thanks to the electronic customs system but this is not synchronized and recognized by other relevant agencies, like banks and tax authorities. Some papers are, therefore, not provided by the customs service but still required by banks or tax authorities.

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Recommendation: The customs authorities should share information and data via the network with specialized management and inspection agencies to reduce the burden of paperwork, time and costs for businesses. It is recommended to remove the requirement of state quality check for those goods that already go through international registration inspection. Before the issuance of any regulations, reality check should be done; application of any new regulations should be announced on the media at least 3 – 6 months before their effective date to avoid damages and losses to businesses. The quarantine certification of imports – exports is currently causing troubles for businesses. For the exports since 1/1/2015, it is required by the phytosanitary agency that the exports including agricultural products, forest products such as cashew nuts, cassava, wood chips, coffee ... must be subject to phytosanitary certification before being exported, even where it is not required by the foreign side. This results in increase in customs clearance time and costs (including quarantine cost, storage cost, cost of ship missing, labor cost,..) for businesses. Time of quarantine check is too long (it was reported by some businesses as 15 days); quarantine check cost is unreasonable (phytosanitary control additionally charged for businesses is 14,000vnd/ton for export starch); duplication check are done by agencies, causing difficulties for businesses; colostrum powder milkis subject to both animal quarantine (implemented by animal health agency) and food safety control (health agency). Many requirements by state agencies are impossible for businesses to comply with, for instance: pressed wood pallets are not subject to quarantine control and fumigation under the international convention (ISPM15), so businssess can not acquire the deed from suppliers but businsses are still required to submit this document to the quarantine agency under the Circular Circular 30/2014/TT-BNN; the quarantine agency also require certification of plant origin for the goods that are stuffed or packed with wooden materials.... Recommendation: It is recommended by many businesses to remove the requirement of export quarantine in the case where it is not required by foreign buyers in the exporting countries. In considering this deregulation, it is proposed to allow businesses to submit the quarantine certificate after the goods have been cleared/ or after the ship has departed in order to avoid ship missing ( especially onSaturdays, Sundays and holidays) Declaration of chemical substances: it was reported by many businesses that many products that are regular exports have to be subject to declaration all the time. One cheminal substance having many different colors is required by the customs agencies to acquire separate certification for each individual color. Currently, only Bureau of Cheminal Substance is allowed to grant certification, which is not convenient to businesses. It takes too long time to receive results (5- 10 days, or even 3 – 4 weeks in case of errors); the requirement of having to acquire certification before customs clearance is troublesome to businesses, especially for import shipments from near markets (E.g import from Thailand, shipment takes 3 days only and businesses, therefore, can‟t acquire certification before customs clearance); certification often has mistakes regarding product name or invoice number...); Recommendation: it is recommended by businesses to annul the procedure of declaration of chemical substances, arguing that the objectives of this procedure is unclear and increases costs (official fees, storage costs, informal charges)for businesses; allow submission of

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certification within 15 days after clearance of goods; apply electronic declarationand certificationto better facilitate the compliance with this procedure. In summary, the survey result of business perception in 2015 revealed that the Customs Service has worked out many solutions to reform administrative procedures in order to facilitate import-export operations - contributing to the economic development. Electronic customs procedures are implemented but because its effectiveness is related to the management responsibility of many ministries and agencies, the declaration system remains complex and unsynchronized. The ministries and the Customs Service should improve coordination efficiency, creating more favorable conditions for businesses in import and export activities. At the same time, the Customs Service also need to strengthen professional training, improve behaving culture for public servants so as for the system to operate more efficiently.

II. RECOMMENDATIONS FOR TAX REFORM The Vietnam Chamber of Commerce and Industry (VCCI) in coordination with the Prime Minister‟s Advisory Council of Administrative Procedures Reform, the World Bank‟s International Finance Corporation and the General Department of Taxation have conducted the survey on “Evaluation of tax administration reform: Businesses‟ satisfaction levels in 2014”. There were 2,542 responses received from businesses for the survey carried out on national scale for the first time on this tax field. This paper documents a summary of recommendations by businesses as a result of the mentioned above survey. Dramatic changes can be seen in tax policy and legislation as to implement the Government‟s Resolution No.19 on improving business environment and enhancing national competitiveness since mid-2014. This has been demonstrated by the issuance of a series of documents including Circular No. 119/2014 / TT-BTC dated 08/25/2014 of the Ministry of Finance amending and supplementing 07 circulars on taxes; Decree No. 91/2014 / ND-CP dated 01 / 10/2014 amending and supplementing 04 decrees on taxes, Circular No. 151/2014 / TT-BTC dated 10/10/2014 guiding the implementation of Decree No. 91/2014 / ND-CP, Law No. 71 / 2014 / QH13 amending and supplementing a number of articles of the Laws on taxes (05 Laws), Decree No. 12/2015 / ND-CP dated 12/02/2015 of the Government detailing the implementation of the Law amending and supplementing some articles of the Laws on tax and amending and supplementing some articles of the decrees on taxes..Etc. These tax reform efforts have promoted the positive impacts to the business community. A series of important changes including the deregulation of control for the cost of advertising and promotion ... of businesses, the deregulation of having to submit a list of invoices of goods and services sold or purchased when filing dossiers of corporate income tax, the extension of subjects eligible for quarterly declaration of VAT, the deregulation of the businesses having to adjust input VAT when they cannot acquire payment documents from bank on the due date, the revision of regulations to allow businesses to pay tax by quarter, and settle by year-end ... are working well in practice and contributing to dealing with difficulties, promoting investment, production and business for businesses. The application of electronic tax declaration and payment has helped reduce time and costs for businesses. However, businesses still have expected the tax service to continue its efforts for further reform. The tax policy and legislation should be developed in a transparent, clear, and easy to

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implement fashion. It is needed to enhance the effectiveness of information dissemination to support businesses to timely update on new tax policies. The tax refund for businesses is to be conducted more quickly. The tax sector should enhance IT applications, but need to ensure stability in the use of declaration software by businesses. Besides, it is necessary to create the interconnection between the tax authority and other state agencies concerned, and enhance transparency in the work of inspection and examination of businesses and improve the quality of tax cadres and civil servants. 1. Developing tax policies and legislation in a transparent, clear and easy for

implementation Many businesses reported on the situation of many tax laws being unlikely to be directly applied in practice. Very often, it requires the issuance of too many circulars, dispatches, guidelines for the tax laws to be implemented. This makes the tax legislation system way too complex, easy to be interpreted in different ways, making it difficult for businesses to comply with as a result. It was said by many businesses that some tax laws are currently unclear, difficult to apply, lacking of consistency between businesses and tax authorities, and between tax authorities and other agencies concerned, or even within the tax service department itself. For example, a number of provisions relating to the determination of the reasonable expenses to be deducted when calculating corporate income tax are not clear, and not suitable with the businesses‟ requirements of being vibrant and competitive. Similarly, provisions concerning the time of issuing invoices is not consistent with the business practices. The regulation on the abbreviated names and addresses on the bill has not yet been clearly defined. This might causes lots of troubles because many businesses or consumers have very long names and addresses, even there is insufficient room to print the bills with the smallest font size words, and the handwriting if used often has errors. It is needed to have a specific list of words to be abbreviated, even truncated and if a tax code or an industry code is available, these codes should be used while other information doesn‟t matter much. Regulations related to the personal income tax are yet less favorable. Personal income tax should only be settled for cases where arising payable tax, there is no need to declare or settle for the cases where no taxes are payable. Recommendation: The tax policies and legislation need to be developed in a transparent, clear and easy to implement fashion as well as to be highly stable and predictable. The guidelines need to be concrete, with examples being provided and easy for businesses to grasp. After a new document is issued to amend, revise, supplement or repeal the old regulations, it should be codified into a system so that businesses just need to simply refer to the final text to comply with and don‟t have to go through a series of previously issued versions. 2. Strengthening communication, information support for businesses concerning new tax

policies and legislation Relatively quick changes in tax policies and procedures are making it difficult for businesses to effectively grasp information and comply with those regulations. Although many changes are needed which tend to facilitate the businesses, but these amendments, if codified and timely updated to businesses, will help businesses to capture new documents and comply with in an easier way.

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Many reported that the tax information was slow and difficult to access. Some modes of information dissemination were yet less effective, for instance, dispatches and documents sent by some tax departments by post to the businesses are often delayed, or not in time. Training courses are still organized by the tax service concerning the new issuance of tax circulars, decrees, and policies new, but some businesses do not receive any notifications and information about those courses. Many businesses update themselves through the sites and notifications from consulting firms, saying that they rarely get updated by the tax authorities.

Recommendation: The tax authorities at all levels need to innovate in their activities of communicating, propagating and updating on new tax policies for businesses. Tax agencies should schedule training sessions to make it convenient for businesses to fully participate without affecting their production and business activities. The local tax departments should be more positive, more proactive to timely update businesses on changes in tax policies and legislation. It is suggested to notify businesses via email on the issuance of new tax policies and legal documents. Before the tax policies and legislation take effect, it is necessary to timely notify tax payers so that they are aware of and find it easier to comply with. 3. Speeding up the tax refund to businesses Many businesses reported on slow receipt of tax refund. The settlement of tax documents can be fast but businesses have to wait for many months before they can actually receive the refund money. According to regulations, the tax refund period is within 12 months and even under the new regulations, the refund can be even made on monthly or quarterly basis for the export businesses whose to be deducted VAT is of up to 300 million dong, the enforcement in fact remains troublesome for businesses due to long waiting time. This does not correspond with the fact that businesses are to be immediately fined if they make late payment of taxes. Recommendation: The tax refund to businesses should be made quickly, to solve problems and create the favorable conditions for businesses. 4. Implementing inter-connection between the tax authorities and relevant state agencies As it was reflected by many businesses, business related administrative procedures implemented by the relevant government agencies are not connected effectively. Data between tax departments, tax branches and department of planning and investment remain unsynchronized and businesses, therefore, have to prepare many declaration forms and provide a same kind of information for many different state agencies while these agencies may share the same database with each other. The relevant authorities (such as investors, State Treasuries at all levels ...) are responsible for issuing payment receipts to the taxpayers and notify directly the tax authorities. The amount paid by businesses at the treasuries are not fully updated to tax authorities but the businesses must provide documents to prove them having paid. There are some cases where businesses already paid taxes but it is still reported on the system of tax authorities as tax debts, affecting the interests and reputation of the businesses. Recommendation: It needs to be inter-connected and timely shared the information amongst tax authorities, and between tax authorities and other relevant agencies in the process of settling procedures for businesses.

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5. Simplifying the tax declaration forms Many businesses rated tax declaration forms as complicated and cumbersome with some duplicate information and unnecessary indicators. The forms use many jargons which are difficult to understand for businesses, while they do not receive timely instructions from the tax authorities. Some forms are constantly changed along with the changes of circulars despite negligible changes in the contents of these forms, which is unnecessary and causes troubles for businesses, making them to spend more time on studying and updating on these changes while more mistakes may occur also. Recommendation: It is recommended that tax authorities develop simpler, easier to understand forms and remove unnecessary indicators, especially should limit constant changes in the forms. It is not necessary to issue a new form if the old form is still usable under the new regulations. Illustration examples and attached forms should be provided available on the website of tax authorities concerning each individual problem. A tax officer with good professional competence should be assigned to work as a telephonist to provide necessary guidance to businesses. Workshops should frequently be organized to update businesses on new tax policies and answer their questions and complaints concerning tax related issues. Additionally, online tax declaration should be employed as a measure to minimize errors and misunderstanding about the forms. The form templates should be provided with consistent guidance for businesses to avoid unnecessary confusion 6. Implementing consistently tax procedures There currently exists inconsistency regarding the sequences and procedures of handling work amongst departments in some local tax authorities, as well as between the tax authorities and other relevant agencies. This is the main reason leading to different guidance provided to businesses, causing difficulties in the process of implementing corporate tax obligations. For example, there is no consistency between the customs authorities and the tax authorities in dealing with the amount of tax payable for the imports or inconsistency between the tax authorities and the banks concerning electronic tax payment, etc. Recommendation: It is necessary to better define the sequences and procedures of handling work between higher and subordinate tax authorities, and between tax authorities and relevant authorities. Also, it is needed to anticipate possible conflicts once applicable and provide redress mechanism. 7. Performing inspection activities in a transparent manner Tax inspections remain a burden for many businesses. According to some businesses, prolonged tax examinations and inspections are troublesome and costly for them. It was reported that before tax inspections were conducted once every two years on average but now tend to be done once a year. It was also said that tax related inspections are carried out so frequently but repeated, which is time consuming for businesses. Currently, too many different state agencies are authorized to carry out tax related inspections. Tax authorities do not timely notify and provide adequate guidance to businesses while they impose rigid administrative sanctions when inspecting businesses. Many businesses said that their objectives are to do business, create jobs and make profit which later is contributed to state budget. Therefore, the State management agencies that perform inspections/examinations should focus on supervising and reminding and creating favorable conditions for businesses.

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Recommendation: It is recommended by businesses to develop a clearer and more transparent inspection process. The selection of sample for inspection should be done scientifically to avoid that some same businesses are inspected for too many times. Also, time for inspection visits should be shortened to avoid affecting business activities

8. Applying a stable tax declaration software The tax declaration software is assessed to have many advantages but the support for using this software have not met the needs of businesses. Despite continuous upgrades, the software still fails to facilitate the data export from the accounting software of businesses to the tax declaration support software (for example, the data of revenue can be well exported from the accounting software to VAT declaration software, but as for the declaration of special consumption tax, the data fail to be exported or it takes lots of time and has to go through many steps as the software does not support automatic export to the declaration form but requires manual inputting…) Many businesses also said that the tax declaration software still incurred errors, the old data is often lost when new version is updated. Barcodes for submitting a tax declaration can‟t be scanned from time to time. In addition, the software has not been updated as much as to keep up with the changes of forms issued along with the guiding circulars of the Ministry of Finance, many forms are yet missing and paper versions are listed instead . This leads to incorrect declarations, and often it is late after it is revised. Some businesses said they were even fined because of this situation. The declaration support program yet lacks many items, so online declaration is impossible, for example, there are items for financial statement, documents for personal income tax withholding, or fee forms... Therefore, besides online declaration, businesses still have to directly submit some reports. It can be said that despite changes, nothing much is done to actually help save time and cost for businesses and tax authorities. There is no delivery confirmation on the software, so businesses are easily prone to violation of time limit whether they submit on time or not. Recommendation: The tax service is recommended to first focus on accounting operations to be really complete and stable before any application of information technology to facilitate businesses. Many businesses suggested that it is needed to improve the software to better support businesses to declare more easily and add to the software the forms that are to be filled regularly by businesses. Whenever one new regulation is issued, relevant support should be updated on the software. And when the software is upgraded, it is necessary to notify businesses so that they know how to declare correctly and avoid having to declare again and again. It is also proposed by most businesses to upgrade transmission lines to ensure quick and smooth declaration. The declaration software should supplement and upgrade forms and mode of online submission of reports instead of businesses having to make submissions directly at the tax offices. In the meanwhile, submission of report should be allowed via email with registered addresses and digital signature. The software also needs to be upgraded to be compatible with different browser types to better enable the declaration. In addition, the deadline for declaration should be extended and fine on late submission can be imposed later accordingly.

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9. Regarding civil servants The quality of tax officers is assessed as the critical factor determining the quality of tax administrative procedures. Therefore, the tax service should prioritize recruitment of competent and virtuous employees. It is necessary to regularly provide training for capacity building for tax officers in order to have a strong and competent staff. This service is easily prone to the abuse of power, strict sanctions against acts of harassment of taxpayers should, therefore, be imposed.

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American Chamber of Commerce in Vietnam

AMCHAM STATEMENT

Annual Vietnam Business Forum Hanoi, December 1, 2015

Presented by

Ms. Sherry Boger Chairwoman, AmCham Vietnam

Prime Minister and Ministers, Business leaders Distinguished Delegates Ladies and Gentlemen 1. This is a key moment for Vietnam, the beginning of a new era with the XII Party

Congress early next year and leaders for 2016-2020. 2. Vietnam has succeeded at attracting FDI and increasing trade. U.S. - Vietnam trade in

2015 will likely reach over $45 billion, another annual increase of over 20%. 3. The TPP is a promise, not yet a reality. It covers many issues we have discussed for

years at VBF. It offers a framework and focus for efforts in 2016. Regulatory Coherence, Transparency and Meaningful Public Comment (TPP Chapter 25) is an essential first step to implement Vietnam’s commitments for public comment on proposed administrative regulations from citizens and businesses that would be affected.1 Education, a key development driver (TPP Chapter 23). We need work-ready graduates, science and technology, research, and innovation. AmCham companies are involved in a number of education projects. We encourage the government to lead a large-scale transformation to scale HEEAP 3.0 nation-wide, supported by both Vietnamese and FDI business associations and companies. Very few Vietnam enterprises are part of global supply chains. Although Vietnam has attracted FDIwith significant export growth,more than two-thirds of Vietnam’s exports are from FDI factories; and imported materials and components account for 90% of the export value. AmCham companies, together with VCCI and other business associations, are cooperating in supplier development so that Vietnam companies will qualify to join global supply chains. Efficient Customs Administration and Trade Facilitation (TPP Chapter 5) is essential for

1This was a key point in the Prime Minister’s New Year Message on Jan 1, 2014"… interaction

between State agencies, between the State apparatus and socio-political organizations … .Dialogues with the people and businesses …to promote closer relationships between the State, cadres, civil servants and the people and better match policy and legislation with reality." From the Prime Minister’s New Year Message, January 1, 2014.

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Vietnam enterprises to join global supply chains. We have established a “Vietnam Trade Facilitation Alliance,” (VTFA), in cooperation with VCCI and leading export industry associations, to provide technical assistance to build capacity for Vietnam Customs to implement TFA commitments. 4. We highlight two “concrete targets” from the many issues covered in our written

statement. Technical Barriers to Trade – a specific example – Vietnam’s restrictions on imports of Used Machinery and Equipment (TPP Chapter 7) Circular 23/2015, issued on Nov 13, 2015, with entry into effect on July 1, 2016(to replace Circular 20/2014) is universally opposed by FDI and domestic business associations. It would cause delays in customs processing, have a negative impact on modernization and industrialization, especially of supplier industries, discriminates against domestic industries, and is not in accordance with Article 2.2 of the WTO Technical Barriers to Trade Agreement or the TPP Chapter on TBT.

We raised this issue in many consultations and at the June VBF. We againrequest that restrictions on imports of machinery and equipment based on any arbitrary time standard be removed, administrative procedures to ensure compliance with international standards of safety, energy savings and environmental requirements be simplified and incorporated into the National Single Window project, and any quality standards be based on international standards. Visas: Temporary Entry for Business Persons (TPP Chapter 12) Vietnam’s revised Immigration Law became effective on January 1, 2015. According to some provisions, U.S. citizens will receive Vietnam visas that have a three-month validity, and a single entry, while Vietnamese citizens receive U.S. visas with multiple-entry, one year validity.

We raised this issue at the June 2015 VBF and heard in July that U.S. citizens would receive one-year validity, multiple-entry visas, but we have not yet seen any. We hope that this issue will be resolved soon. 5. Conclusion We appreciate the guidance in the Prime Minister’s 2014 New Year’s Message, in Resolutions 19/2014 and 19/2015 and this opportunity for "… interaction between State agencies, between the State apparatus and socio-political organizations … .Dialogues with the people and businesses … to promote closer relationships between the State, cadres, civil servants and the people and better match policy and legislation with reality." I wish participants good health, happiness and success. Thank you.

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American Chamber of Commerce in Vietnam (“AmCham”)

AMCHAM STATEMENT

Annual Vietnam Business Forum Hanoi, December 1, 2015

Presented by Ms. Sherry Boger

Chairwoman

Prime Minister and Ministers, Business leaders Distinguished Delegates Ladies and Gentlemen I am pleased to participate in this important VBF Meeting. 2015-2016: A WATERSHED MOMENT IN TIME We are now at the end of a very meaningful year, and the beginning of a new moment for Vietnam. In April this year, Vietnam celebrated the 40th Anniversary of peace. In August, we celebrated the 70th Anniversary of Vietnam’s National Foundation Day. This year also marked the 20th Anniversary of the normalization of relations between Vietnam and the United States, and the 15th Anniversary of the Vietnam-U.S. Bilateral Trade Agreement. We are half way through the Social Economic Development Strategy 2011-2020, where the objective was to move from a low-income, agricultural country to a middle-income, industrialized country by 2020, based on modernization, industrialization, and integration into the international economy. In October, Vietnam joined other TPP countries in reaching agreement on a 21st Century agreement that will help achieve that objective. And early next year, Vietnam will convene its XII Party Congress to elect leadership for the coming five years, and to plan specific programs and activities to achieve the 2020 objective of becoming a middle-income, industrialized country. We share Vietnam’s vision for 2020: a middle-income, industrialized country, a thriving commercial environment with efficient trade and robust local and foreign investment, a coherent regulatory environment that is efficient, transparent, logical, predictable, and consistent; where investors, business persons and tourists can enter Vietnam with minimum cost or inconvenience; where legitimate businesses local and foreign, can quickly establish a business; hire and develop talented staff at a fair and competitive wage; quickly, easily and confidently determine customs and tax liabilities; and where supply chains are speedy, reliable, and cost effective. VIETNAM HAS SUCCEEDED AT INTEGRATION INTO THE INTERNATIONAL ECONOMY First, Vietnam has been extremely successful in international economic integration in general and with the United States in particular. This year, total trade between our two countries is likely to increase again by more than 20% and reach $45 billion, and could exceed $80 billion by 2020 if present trends continue, and even more with TPP. Moreover,

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Vietnam has increased its standing as the leading ASEAN country supplier to the United States: Vietnam’s share was 22%, and could exceed 30% by 2020, if present trends continue. On the other hand, Vietnam is the lowest-ranked of the ASEAN - 6 countries for imports from the U.S., at about $6.7 billion in 2015. This figure could certainly be increased by improving Vietnam’s business environment for exporters from the U.S. and other countries, and importers in Vietnam and their distributors. At the same time, revenues of AmCham companies and their partners in Vietnam’s domestic market continued to grow, and a number of AmCham companies have increased their FDI in Vietnam. Business and Government leaders are increasingly aware of the growing importance of the Asia Pacific Region and the associated benefits of TPP. Global middle-class spending is projected to increase from $21.3 trillion in 2009 to $55.7 trillion in 2030. Asia’s share should increase from 23% in 2009 to 59% in 2030. TRANSPACIFIC PARTNERSHIP A PROMISE, NOT YET A REALITY Vietnam could be the largest beneficiary from the TPP in relative terms. Some experts predict that Vietnam’s exports will increase by 28.4% with TPP. The expected export “baseline” in 2025 without TPP of $239.0 billion could grow to $307 billion. In addition, the expected GDP growth benefits are substantial. Vietnam’s GDP in 2025 could be 10.5% higher than the baseline estimate. After five years of negotiations, and nearly ten days of marathon negotiations in Atlanta, the TPP negotiations were concluded successfully on October 5, 2015. However, the TPP is still a promise, not yet a reality. Each TPP country has its own procedures for ratification, implementing legislation, and administrative actions, which will be difficult. The TPP covers many of the issues that we have discussed for years in the Vietnam Business Forum. It is a framework for action, and should be a focus in 2016. TRANSPARENCY AND MEANINGFUL PUBLIC COMMENT (TPP CHAPTER 25) Local and national Government agencies must improve their competitiveness and robustly implement streamlined procedures as Government service providers to businesses and citizens to help prepare for international economic integration. An essential first step is to implement Vietnam’s domestic and international commitments for public comment on proposed administrative regulations from citizens and businesses that would be affected. This is required by the Law on Promulgation of Legal Documents and Vietnam’s international commitments in the Bilateral Trade Agreement, the WTO Accession Agreement, etc. Laws and regulations must be reviewed by VCCI, the Fatherland Front, and several ministries, including Justice, Internal Affairs, Finance, and Foreign Affairs, which will assess whether the drafts are in accordance with prevailing regulations and international commitments. However, this requirement seems to be followed in very few cases.

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EDUCATION: (TPP CHAPTER 23) Education of work-ready graduates for industry is essential if Vietnam is to become a middle-income industrial country by 2020. And AmCham companies are pleased to be involved in a number of projects either leading or contributing to vocational, practical and curriculum modernization. Notably, the Higher Engineering Education Alliance Program (HEEAP) 2.0 is a public-private partnership over the period 2012-2016 with an estimated target investment from current and future industry, Government, and education partners of $40 million. Vietnamese engineering programs are being brought into compliance with requirements set by leading higher education accrediting organizations, specifically ABET (the Accreditation Board for Engineering Technology) and the CDIO™ INITIATIVE (Conceive, Design Implement, Operate), an innovative educational framework for producing the next generation of engineers. USAID will soon announce a new five-year program to support a strategic collaborative dialogue with industry and Vietnamese Government, by supporting an alliance of U.S. universities and businesses to develop a dynamic innovation ecosystem of students, faculty, industry and Government. The alliance will implement institutional policy change, student learning platforms, maker innovation spaces, faculty instructional innovation, and applied curricula in the areas of science, technology, engineering and math (STEM), providing students the work-ready competencies to invent-build-launch solutions and value for Vietnam’s social and economic viability. We encourage the Government to lead a large scale transformation to scale HEEAP in the period 2017-2021 with HEEAP 3.0 across the country, with support from Vietnam’s business associations and companies as well as FDI companies, to achieve internationally recognized accreditations, support basic and applied research, and develop a foundation for innovation and entrepreneurship. SUPPLY CHAIN AND INTERNATIONAL ECONOMIC INTEGRATION (TPP CHAPTER 22) Vietnam has been extremely successful in attracting FDI and benefitting from significant export growth from FDI factories, but Vietnam’s enterprises have had limited results in participating directly in that success. More than two-thirds of Vietnam’s exports are from FDI factories; and Vietnam’s main contribution to the FDI production/supply chains is low-skilled labor. The cost of imported materials and components is estimated to equal 90% of the value of Vietnam’s exports of manufactured goods. Last November, our Manufacturing Committee organized a supplier development day with the participation of a number of Vietnam companies. This year, our Manufacturing Committee and member companies will organize two days of supplier training and development. In addition, AmCham and VCCI will cooperate in orientation programs for Vietnamese enterprises in the food, apparel, footwear and furniture sectors to prepare them for a “Women Owned Business Supplier Development Conference” on behalf of a major U.S. retailer in HCM City in January. We would like to extend this program, in cooperation with the Ministry of Planning & Investment, VCCI, and other Vietnam business associations. CUSTOMS ADMINISTRATION AND TRADE FACILITATION (TPP CHAPTER 5) Complementing their WTO efforts to facilitate trade, the TPP Parties have agreed on rules to enhance trade facilitation, improve transparency in customs procedures, and ensure integrity in customs administration. We have established a “Vietnam Trade Facilitation Alliance” (“VTFA”) led by VCCI and

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AmCham, with the participation of leading export industry associations to facilitate regular Government-business consultations and help achieve the customs KPI in Resolutions 19/2014 and /2015. Supported by a grant from the USAID Governance for Inclusive Growth Program and contributions from business associations, part of the World Bank Trade Facilitation Support Program of technical assistance provided by the developed countries to the developing countries under Section II of the WTO Trade Facilitation Agreement, the VTFA is working to establish formal consultative relationships between the General Department of Vietnam Customs (“GDVC”), and other Government agencies involved in international trade, and business associations, as provided for by the WTO Trade Facilitation Agreement and by the WCO Revised Kyoto Convention, as well as the TPP and other Free Trade Agreements. The VTFA is intended to serve as a national coalition for business and trade stakeholders to provide regular consultations with GDVC and other ministries or agencies regulating international trade, through regularly scheduled formal monthly and quarterly public meetings. We look forward to close cooperation between business associations and customs agencies, to achieve the efficiencies and benefits expected from robust implementation of the Trade Facilitation Agreement commitments. FOOD SAFETY - SANITARY AND PHYTOSANITARY (SPS) MEASURES (TPP CHAPTER 6) In developing SPS rules, the TPP Parties have advanced their shared interest in ensuring transparent, non-discriminatory rules based on science, and reaffirmed their right to protect human, animal or plant life or health in their countries. The TPP builds on WTO SPS rules for identifying and managing risks in a manner that is no more trade restrictive than necessary. TPP Parties agree to allow the public to comment on proposed SPS measures to inform their decision-making, and to ensure traders understand the rules they will need to follow. In addition, TPP Parties commit to improve information exchange related to equivalency or regionalization requests and to promote systems-based audits to assess the effectiveness of regulatory controls of the exporting Party. In an effort to rapidly resolve SPS matters that emerge between them, they have agreed to establish a mechanism for consultations between Governments. We look forward to developing a public-private partnership to provide technical assistance to build capacity in this chapter, as well. TECHNICAL BARRIERS TO TRADE (“TBT”) (TPP CHAPTER 7) In developing TBT rules, the TPP Parties have agreed on transparent, non-discriminatory rules for developing technical regulations, standards and conformity assessment procedures, while preserving TPP Parties’ ability to fulfill legitimate objectives. They agree to cooperate to ensure that technical regulations and standards do not create unnecessary barriers to trade. TBT Specific Case: Imports of Used Equipment (proposed revised Circular 20) At meetings in both HCMC and Hanoi, businesses universally opposed the revised circular, which was intended to promote development of manufacturing industries by “encouraging imports of new machinery, equipment and production lines that are manufactured with the latest technology”. The draft is now in its ninth revision, as of August 18, 2015, but the comments and recommendations of businesses have not been taken into account

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sufficiently. The restrictions in the draft Circular are likely to have the opposite effect, and discourage manufacturing industries, because of coverage of long-term capital equipment, parts and accessories due to the broad scope of the Harmonized System customs classification codes involved. An extensive global trade in used manufacturing equipment has developed, particularly in capital-intensive industries, because it is often preferable for an investor to obtain high-quality used or remanufactured equipment, often moving equipment from one of their own existing factories in another country to Vietnam, rather than order new equipment with long delivery lead times and much higher cost. The Japanese Business Association of Vietnam has stated that “Japanese used machineries function properly even after having been used for half a century, and it is common to use them in Japan as well. As the used machinery import regulations could prevent the development of upstream/midstream industries, we would like the Government to ease the used machinery import regulations”.1 In addition to its negative impact on Vietnam’s modernization and industrialization, the proposed regulation is not in accordance with Article 2.2 of the WTO Agreement on Technical Barriers to Trade. The prohibition of imports of equipment and machinery older than 10 year-old involves application of a single arbitrary time standard to numerous classes and categories of machinery and production equipment. This time standard is not based upon available scientific and technical information with respect to the many different kinds of machinery and equipment, whose useful production lives and uses vary widely. We respectfully request that the restrictions on imports of machinery and equipment based on an arbitrary time standard be removed, administrative procedures to ensure compliance with international standards of safety, energy savings and environmental requirements be simplified and incorporated into the National Single Window project, and any quality standards be based on international standards. (See attachment 3 for details).

STATE OWNED ENTERPRISES (TPP CHAPTER 17) TPP Parties recognize the benefit of agreeing on a framework of rules on SOEs, where private sector and the state sector compete on a “level playing field” Vietnam’s 1992 Constitution was revised in 2013 and included change in the role of the State Sector. AmCham, along with many others, submitted a viewpoint with recommendations regarding the State Sector. In the revised constitution as approved by the National Assembly, Article 51, paragraph 2 stated, “All components/varieties of the economy are important parts of the nation’s economy. All owners of all components/varieties of the economy are equal, [and] cooperate and compete according to the law.” This is roughly congruent with AmCham’s recommendation to the National Assembly that “The final version of the Constitution would be improved through a provision that clearly states that private enterprises are entitled to treatment no less favorable than that accorded to SOEs under the law”. We hope for the rapid implementation of this principle.

1 International Conference Proceedings: Vietnam to be a New Processing and Manufacturing Center of the World after 2015, Oct 24, 2015.

Organized by the World Bank, the State Bank of Vietnam, and the Central Committee of the Fatherland Front of Vietnam, p 126.

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LABOUR (TPP CHAPTER 19) All TPP Parties are International Labour Organization (ILO) members and recognize the importance of promoting internationally recognized labour rights. TPP Parties have agreed to adopt and maintain in their laws and practices the fundamental labour rights as recognized in the ILO 1998 Declaration. Each of the 12 TPP Parties commits to ensure access to fair, equitable and transparent administrative and judicial proceedings and to provide effective remedies for violations of its labour laws. They also agree to public participation in implementation of the Labour chapter, including establishing mechanisms to obtain public input. The commitments in the chapter are subject to the dispute settlement procedures laid out in the Dispute Settlement chapter. The Labour chapter establishes a mechanism for cooperation on labour issues, including opportunities for stakeholder input in identifying areas of cooperation and participation, as appropriate and jointly agreed, in cooperative activities. AmCham cooperated closely with MOLISA, VCCI, and VGCL, supported by the ILO, in the Tri-partite Partnership to consult on revisions of the Labour Code during the years 2008 – 2012. We look forward to renewing our cooperation and developing a public-private partnership to provide technical assistance to meet the commitments in the TPP Labour Chapter, as well. TECHNICAL ASSISTANCE FOR DEVELOPMENT AND CAPACITY BUILDING (TPP CHAPTER 21) The TPP includes specific commitments on development and trade capacity building to ensure that all Parties are able to meet the commitments in the Agreement and take full advantage of its benefits. AmCham is already cooperating with VCCI and other leading Vietnamese business associations in the Vietnam Trade Facilitation Alliance to provide technical assistance to Vietnam Customs for capacity building under Section II, paragraph 9, to implement the commitments of the WTO Trade Facilitation Agreement, and we are ready to cooperate on TPP commitments as well, including food safety and labour. VISAS: TEMPORARY ENTRY FOR BUSINESS PERSONS (TPP CHAPTER 12) Almost all TPP Parties have made commitments on access for each other’s business persons, which are in country-specific annexes. However, Vietnam’s Immigration Law was revised in June 2014 and became effective on January 1, 2015, without reference to the TPP. We think this change was a major step backwards. According to some provisions of the law, U.S. citizens that plan to visit Vietnam under the equivalent of a U.S. B-1 or B-2 visa will receive visas that have, at most, a three-month period of validity, and a single entry only. This development has already resulted in significant impediments to business and pleasure travel both ways between Vietnam and the U.S., and could reduce the large revenues that tourism generates, not to mention the negative impact on the planned development of tourism as one of the five priority industry clusters in Vietnam. We raised this same issue at the June 2015 Vietnam Business Forum and heard in July that U.S. citizens would receive one-year validity, multiple-entry visas, but we have not yet seen any. If the Government of Vietnam does not align its process with the multiple entry 12-month temporary business/tourism visa provided by the U.S. to Vietnamese citizens, then in the near future, based on reciprocity, U.S. visas for Vietnamese citizens that are temporary visitors could be reduced to match the one entry, 3-month visas currently provided to U.S.

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citizens. The U.S. Mission to Vietnam reports that the issue is currently in active discussion within the Government of Vietnam, and if recent Vietnam media reports are an indication, the hope is this issue will be resolved within the next few months. (See attachment 4). TAX We have raised with both the Ministry of Finance and the Ho Chi Minh City People’s Committee a particular situation where U.S. importers and their distributors are being disadvantaged by a requirement to pay Value Added Tax on imported goods twice. The tax authorities froze distributors’ bank accounts while the case was under appeal. This case has now been resolved satisfactorily, after more than two years of effort. There are a number of other cases involving tax issues that we will raise. INEFFICIENT CURRENCY CONTROLS, NOT IN ACCORDANCE WITH IMF ARTICLE VIII “The Government of Vietnam notified the International Monetary Fund (IMF) that it accepted the obligations of Article VIII, Sections 2, 3 and 4 of the IMF's Articles of Agreement, with effect from November 8, 2005”. “Under Article VIII, Sections 2, 3 and 4, IMF members undertake not to impose restrictions on the making of payments and transfers for current international transactions, and not to engage in, or permit any of their fiscal agencies to engage in, any discriminatory currency arrangement or multiple currency practice, except with IMF approval”. “By accepting the obligations of Article VIII, Sections 2 (Avoidance of restrictions on current payments), 3 (Avoidance of discriminatory currency practices) and 4 (Convertibility of foreign-held balances), Vietnam signals to the international community that it will pursue economic policies which will make restrictions on the making of payments and transfers for current international transactions unnecessary, and will contribute to a multilateral payments system free of restrictions”.2 However, Vietnam does not seem to follow the commitments. We realize there may be concerns about the stability of the financial system, but we do not hear of IMF approval when there are restrictions on making payments and transfers for current international transactions. When the market price of dollars exceeds the “band” of the official rate, there are simply no dollars to be purchased. Also, all fees and charges incurred on a foreign currency denominated transaction need to be detailed in a contract between the parties in order for the Vietnamese based party to secure the foreign currency to settle the transaction, even where these are global standard fees charged against a transaction of this nature.

In addition to the difficulties that importers and exporters face in acquiring dollars because of Vietnam’s inefficient foreign exchange controls, we note that the first factor to consider In making an Non-Market Economy - country determination under section 771(18)(A) of the U.S. Tariff Act of 1930, as amended, Section 771(18)(B) requires that the U.S. Department of Commerce “take into account the extent to which the currency of the foreign country is convertible into the currency of other countries”. INEFFICIENT FINANCIAL REGULATORY CONTROLS Accounting standards for business entities provide a framework for transparency, accountability, and efficiency of financial markets.

2 https://www.imf.org/external/np/sec/pr/2006/pr0602.htm and https://www.imf.org/external/pubs/ft/aa/#art8 Section 2. Avoidance of

restrictions on current payment no member shall, without the approval of the Fund, impose restrictions on the making of payments and transfers for current international transactions.

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In Vietnam, accounting standards are issued by the Ministry of Finance of Vietnam and are known as “Vietnam Accounting Standards” The Department of Accounting and Auditing Policy of the Ministry of Finance has formed the Vietnamese Accounting Standards Board (“VASB“) to develop and approve the standards. To date the Ministry of Finance has issued a number of VAS, plus additional mandatory implementation guidance known as “circulars”. The Ministry of Finance states that it takes International Financial Reporting Standards (“IFRS“) into account in developing VAS. However, the IASB web site states clearly that Vietnam has not yet adopted the IFRS or the IFRS for SMEs (Small and Medium Entities): “Some Vietnamese companies prepare IFRS financial statements for the purpose of reporting to foreign investors. However, those IFRS financial statements are supplementary financial statements published in addition to – not instead of – financial statements prepared using Vietnamese Accounting Standards (“VAS“). The VAS financial statements are the statutory and primary financial statements”.3 As a result, both foreign and domestic businesses are subject to additional record keeping requirements that add complexity, time and cost to their statutory reporting commitments. In addition, domestic Vietnamese businesses may be restricted in their access to foreign capital to support their growth and development. CORRUPTION We know the Government shares with us the concern that corruption has become corrosive and widespread in Vietnam and is dangerous to the economy and society as a whole. While there have been some actions from the Government, it is time to address corruption in a wider fashion by implementing systems well known to reduce the opportunities for illegal payments as well as incorporating a code similar to the U.S. Foreign Corrupt Practices Act (FCPA) or the UK’s Bribery Act. A significant step forward would be to take actions that greatly limit the use of cash payments and face-to-face transactions, and to increase the use of e-Commerce in Vietnam. CONCLUSION Once again, we express our appreciation for the guidance in the Prime Minister’s 2014 New Year’s Message, in Resolutions 19/2014 and /2015 and this opportunity for interaction between State agencies, between the State apparatus and socio-political organizations. Dialogues with the people and businesses to promote closer relationships between the State, cadres, civil servants and the people and better match policy and legislation with reality.4

We look forward to close cooperation and support through regular and meaningful Government - Business consultations at all levels of Government, with concrete targets to be achieved. We remain active in support for the TPP and the preparations in Vietnam needed to bring further success.

On behalf of all AmCham members,

I wish distinguished participants good health, happiness and success.

Thank you very much. 3 http://www.ifrs.org/Use-around-the-world/Documents/Jurisdiction-profiles/Vietnam-IFRS-Profile.pdf

4 “Strengthen interaction between the authorities in the state apparatus, and between the state apparatus and political - social organizations.

Expand the dialogue with citizens and businesses in various forms to help the State, officials and civil servants are more close, which makes guidelines, policies and legislation be more closely with reality”.

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Attachments 1. Vietnam – U.S. Trade, 2000 – 2020e 2. ASEAN – U.S. Trade, 2000 – 2020e 3. Comments re Draft Circular to Revise Circular 20/2014/TT-BKHCN 4. Visa Reciprocity of TPP, ASEAN Countries (Validity, Multiple or Single Entry) Attachment 1 Vietnam – U.S. Trade, 2000 – 2020e

Source: U.S. Department of Commerce, 2000 – 2014 actuals; 2015 – 2020 estimates http://www.census.gov/foreign-trade/balance/c5520.html#2010

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Attachment 2 ASEAN – U.S. Trade

Source: U.S. Department of Commerce, 2000 – 2014 actuals; 2015 – 2020 estimates http://www.census.gov/foreign-trade/balance/c5520.html#2010

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ATTACHMENT 3 TO AMCHAM’S STATEMENT

COMMENT ON DRAFT CIRCULAR REPLACING CIRCULAR 20/2014/TT-BKHCN ON IMPORTATION OF USED MACHINERY, EQUIPMENT AND PRODUCTION LINES

The Circular is expressly intended to encourage imports of new machinery, equipment and production lines that are manufactured with the latest technology, presumably to enhance economic growth and development.

Regrettably, the new restrictions in the draft Circular (v.8, July 9, 2015)1 are likely to have an effect opposite to that intended. A practical example: progressive dies or other specialized new tooling and high-tech controls items are used with multi-ton and multi-year capital equipment such as, stamping presses or machine tools in many industrial applications. While the dies, specialized tooling and computerized controls items may be new, the presses and machine tools in which they are used have useful lives of many years, well exceeding the limits of “10 years” stated in the draft Circular. Rather than restriction, the goal of encouraging imports of manufacturing equipment for high technology industries is better served by providing new duty and tax incentives for investment in such new equipment and technologies. The restrictions in the draft circular will actually discourage such investments and imports because of likely unintended coverage of long-term capital equipment, parts and accessories due to the broad scope of the Harmonized System customs classification codes involved. The consideration of slowing or limiting transfer of useful high-technology manufacturing equipment to Vietnam is particularly applicable to machines and equipment used for semiconductor, automotive, flat panel, optical and solar cell industries. This is because it is faster and more cost-effective for an investor to obtain high-quality used manufacturing machines for this industry, often moving equipment from an existing factory in another country, for example, China, Mexico, Costa Rico, Malaysia, etc., than to order new equipment because of long lead times for such equipment and greater expense. Here is what a company in California that specializes in such equipment reports:

“...Since the demand for used semiconductor fabrication equipment gained traction in the late 1990s, around 2,000 companies emerged worldwide as buyers and sellers.” The reason for the demand for used or remanufactured equipment remains the same as when SEC/N President Gary Alexander stated in 2000: „… that quality remanufactured equipment is often available at a fraction of the cycle time and cost of new equipment.”

“In today‟s world of multi-million dollar capital equipment, the cost savings when buying used can average as much as 50%. While the benefit of lower costs continues to be a primary driver, other considerations have emerged as critical factors such as installation,

1 http://www.dncustoms.gov.vn/web_english/english/btc/20_TT_BKHCN_15_7_2014.htm

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parts availability, maintenance, service, quality, training and safety…”2 The new draft Circular is also intended to ensure that such goods meet requirements of quality, safety, energy saving and environment protection. However, instead of enacting new trade-restricting measures, a better approach that involves modernization and enhancement of existing compliance regulations and their enforcement by regulatory agencies through up- to-date implementation of international standards and electronic processing of administrative procedures is recommended. Such an approach will be in keeping with international trade agreement requirements for implementation of the National Single Window by Vietnam.

As a result, AmCham recommends that the restrictions on imports of machinery and equipment contained in article 6, paragraph 1 a) of “service length of no longer than 10 years,” and elsewhere in the draft Circular be removed, while administrative procedures to ensure compliance with international standards of safety, energy savings and environmental requirements be simplified and incorporated into the National Single Window project. We also recommend that any quality standards included in the Circular be based on international standards. For example, for the semiconductor industry, SEMI (Semiconductor Equipment and Materials International)3 has developed over 800 standards,4 including equipment interface and reliability, Environmental, Health, Safety, and Energy Conservation.

2 http://www.cacci.us/pdfs/CCCi_Important_Considerations.pdf California Code Compliance, Inc. and Gary Alexander, President, SEC/N (acquired in 2008 by SEMI (Semiconductor Equipment and Materials International). He also represented Motorola‟s Semiconductor Products Sector on the SEMATECH Surplus 3 http://en.wikipedia.org/wiki/Semiconductor_Equipment_and_Materials_International and http://www.semi.org/en/About 4 http://www.semi.org/en/Standards/P_000787 and "Overview of the SEMI International Standards Program" http://www.semiconwest.org/sites/semiconwest.org/files/file_attach/SEMI%20Standards%20Overview%202011Jul12%20v8.pdf

) P

T ip

sh art

ne

ci f i c p

an T

s r e b m e M

ATTACHMENT 4 TO AMCHAM’S STATEMENT: VISA RECIPROCITY SCHEDULES BETWEEN U.S., TPP AND OTHER TRADE PARTNERS

Country Max B1/B2 validity (entries/month)s)

Max B1/B2 validity (entries/months)

Treatment for U.S. citizens

TPP

Mem

bers

Vietnam M/12* N/A M/3 (M/6 for “family” visits) Canada

M/120

No visa required for stays of 180 days or less 180 days or less

No visa required for stays of 180 days or less

Mexico M/120 N/A No visa required for stays of 180 days or less Peru M/120 N/A No visa required for stays of 90 days or less

Chile

M/120

Visa Waiver Program (VWP)**

No visa required for stays of 90 days or less

Japan M/120 Visa Waiver Program (VWP)

No visa required for stays of 90 days or less Singapore M/120 Visa Waiver Program

(VWP) No visa required for stays of 90 days or less

Malaysia M/120 N/A No visa required for stays of 90 days or less Brunei M/120 Visa Waiver Program

(VWP) No visa required for stays of 90 days or less

Australia

M/12 (M/60 with $25 fee)

Visa Waiver Program (VWP)

No visa required for stays of 90 days or less. Electronic Travel Authority (ETA) approval required prior to departure (20 AUD/1 year).

New Zealand M/120 Visa Waiver Program (VWP)

No visa required for stays of 90 days or less

O

ther

reg

ion

al t

rade

Myanmar

B1 or B2 1/3 ($32), B1 M/12 ($162)

N/A

Visa required, valid for up to three months from date of issue. Max stay is 28 days for tourists; 70 days for business travelers. e-Visa option

China M/120 N/A Visa required, M/120 Indonesia

M/60

N/A

Visa required, can be obtained upon arrival, valid for 30 days (extendable for additional 30 days)

Thailand M/120 N/A No visa required for stays of 30 days or less Cambodia

2/3

N/A

Visa required, can be obtained upon arrival or online, valid for 30 days

Philippines M/120 N/A No visa required for stays of 30 days or less India M/120 N/A Visa required. Valid M/120 for stays of six months.

* M/12 = multiple entries, 12 months ** Nationals from Visa Waiver Program (VWP) countries can enter the United States for business or pleasure for 90 days or less. All VWP travelers must receive Electronic System for Travel Authorization (ESTA) approval prior to embarking on a plane for the U.S. ($14/2 years)

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European Chamber of Commerce in Vietnam (“EuroCham”)

Annual Vietnam Business Forum Hanoi, December 1st 2015

Presented by Mr. Tomaso Andreatta

Vice Chairman KEY POINTS FROM EUROCHAM

EuroCham is pleased to acknowledge the recent efforts that the Vietnamese Government has made to further improve the business environment and to increase Vietnam‟s competitiveness. 2015 has been a significant year for Vietnam and its relationship with its European counterparts. The agreement in principle on the European Union- Vietnam FTA (“EVFTA”) in the same year as the celebration of the 25thanniversary of their diplomatic relations is a significant step for the future of the EU – Vietnam business relations. We strongly believe that the negotiations, which were launched in 2012, have resulted in a comprehensive, mutually beneficial and balanced agreement. As a result of its entry into force, it is estimated that Vietnam‟s gross domestic product (“GDP”) could rise by over 15% and that the value of its exports to the EU could increase by almost 35%.1In addition this year Vietnam has signed the TPP and Eurasian Economic Union FTA, and is part of the forthcoming ASEAM EC, making it one of best positioned countries to benefit from international trade. If properly implemented, these agreements will facilitate trade through the removal of tariffs but they could also help Vietnam to align its safety and quality standards with those in Europe and other Western countries. Further opening the market to foreign direct investment can lead to an increased transfer of skills and technology, which will help Vietnam to avoid the “middle-income trap”. In the past year, Vietnam has put in place key changes that will affect all of EuroCham‟s business community. Examples include the entry into force of the new Law on Investment, the new Law on Enterprises, the new Law on Real Estate Business and the new Law on Housing. As Vietnam continues its path to further international integration and its promotion of itself as an attractive FDI destination, EuroCham wishes to highlight five key issues that need to be resolved to substantially enhance Vietnam competitiveness in global trade, which will also benefit the European business community in Vietnam. 1. Protection of the environment and energy As Vietnam moves into more capital intensive industries to increase local content, the government can focus its industrial policy of completing the supply chain and increasing local content with processes that are environmentally friendly or have adequate recycling facilities, as Vietnam is one of the countries most exposed to global climate change and where pollution is directly proportional to the economic growth. Furthermore import of fuel

1„Annex on Vietnam to the Position Paper on the Trade Sustainability Impact Assessment of the Free Trade Agreement between the

EU and ASEAN‟, European Commission, 2015. Available at (http://trade.ec.europa.eu/doclib/docs/2013/may/tradoc_151230.pdf)

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from abroad will create major pressure to the logistics as well as the balance of payments of the country. For these reason Eurocham offers to the Vietnamese Government the example and support of the European experience and technology in energy conservation and efficiency, in renewable energy, in clean production. Western governments and consumers are becoming more discriminating in terms of the products they accept to buy, and they choose the ones produced with processes that are environmentally friendly and where labor practices are most comparable to the home standards. Renewable sources of energy may have smaller scale than alternatives but they have much faster implementation time, and they do not constrain the country to a long term commitment to the same source of energy, as for example coal fired plants built in BOT require. 2. Improve logistics in a sustainable manner Rapid economic growth and urbanisation is driving high demands for roads, power, ports, waste and water treatment, hospitals, and other public infrastructure for goods and services. However, the State budget is estimated to be able to meet only about 50% of Vietnam's infrastructure needs (estimated at USD 170 billion from 2011-2020).2The balance would need to come from other sources, including from private investments in the form of Public-Private Partnerships (“PPPs”).On 14 February 2015, the Government promulgated the long-expected PPP Decree, which took effect on 10 April 2015.3 Together with a new Decree on tendering for investors for PPP projects, which became effective on 5 May 2015, the PPP Decree replaced the previous regulatory framework relating to BOT projects and pilot PPPs.4 Although the new PPP Decree constitutes an important legal development, this, of itself, will not translate into a series of successful privately invested infrastructure projects. EuroCham wishes to highlight the need for a further coordination amongst related Government agencies, as well as the need to adopt further detailed implementing regulations, including with respect to the allocation and procedures for utilising viability gap funding (“VGF”) for the emergence of successful and visible projects. Local solutions to the mobilization of funds for growth from the families “mattrasses” come from further enhancing transparency in the capital markets, extending the fields of investment of pension and insurance funds as well as giving them clear and simple rules and implementation (perhaps with the creation of an independent Supervisory body). 3. Improve legal system by opening it to external world and improving the way it now

works, especially IP and Judicial Recourse A strong protection of IPR is essential to encourage foreign investment in Vietnam. Even though Vietnam has improved its legal framework and enforcement of IPR in recent years, infringements and the enforcement of IPR laws remain a concern for European and Vietnamese businesses alike. EuroCham therefore calls on the Vietnamese Government to step up its efforts in guaranteeing an effective protection of IPR in order to develop technologically-advanced industries and to promote innovation. The foregoing may result in

2„Strengthening Public-Private Partnerships‟, VCCI News, 16/04/14.Available at

(http://vccinews.com/news_detail.asp?news_id=30318)

3Decree No. 15/2015/ND-CP dated 14 January 2015.

4Decree No. 30/2015/ND-CP dated 17 March 2015.

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more foreign investment in manufacturing, research and development, but it will also encourage Vietnamese companies to invest in innovative activities. We believe that enforcing a good protection of IPR can only be achieved by ensuring that trademark and copyright infringers face dissuasive legal sanctions. At the same time, we note that infringement of online IPRs is becoming more important with the growth of the number of internet users. Enforcement is particularly difficult here, especially when it comes to illegal trading in copyright-protected work and infringing goods, but also with regard to infringements on websites and abusive domain name registration and maintenance. EuroCham recommends that the administrative fines against individuals committing copyright infringements will be increased and that law enforcement efforts against infringing websites shall be strengthened, in particular that Cease and Desist Decisions be immediately enforceable, to limit/reduce the damage to the IPR legitimate owner. The adoption of a uniform domain name dispute-resolution policy system to resolve disputes around “.vn” domain names as well as a more effective dispute settlement mechanism in general would also be welcome. Further solutions proposed by the European business community to address IPR-related issues include the creation of shortlists of geographical indications, the protection of regulatory data and trademarks, and a more efficient enforcement of IP laws. Once more, EuroCham would like to stress the importance of strong IP protection standards in Vietnam to increase its regional competitiveness in attracting foreign investment and encouraging innovation. Where the value of a contract is substantial, foreign investors in Vietnam generally choose to provide for dispute resolution by international arbitration. Although international arbitration may be costly and time consuming, an international arbitral award is generally enforceable in most jurisdictions around the world under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“NYC 1958”), of which Vietnam is a member. The vast majority of member states properly apply the provisions of the NYC 1958 in practice and duly recognise and enforce foreign arbitral awards within their own jurisdictions. However, our members have found that it is extremely difficult in practice to achieve the recognition and enforcement of foreign arbitral awards through the Vietnamese courts. The main difficulties encountered are the reversal of the burden of proof in respect of objections to applications for recognition and enforcement of foreign arbitral awards, and the rejection of applications by the Vietnamese courts for reasons that are not consistent with the NYC 1958 Convention. 4. Protect Vietnamese consumer and offer more choice food safety and pharmaceuticals Vietnamese citizens and international consumers alike are concerned about the partial effectiveness of food safety measures and the reliance on local testing for which no adequate capacity has been set up yet. On the one hand Vietnam could accept more readily international quality standards and their certification, on the other it has to be even more encompassing in ensuring that all local products are safe and clean and produced without dangerous processes or substances. With adequate disclosure of the product characteristics, consumers around the world can enjoy a variety of choices in both foods and pharmaceutical products, that is partially denied to Vietnamese consumers, through tariff or non-tariff barriers. The Ministry of Health is in the process of reviewing the Government procurement scheme (i.e. new tender circular and tender lists) in line with the regulations of the new Law on Bidding, which entered into force on 1 July 2014. In this process, a number of issues need to

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be effectively addressed. As foreign companies are currently not allowed to directly attend pharmaceutical tenders in Vietnam, some of the newly proposed initiatives, such as price negotiations, would be very difficult to implement in practice. We believe that there is an inherent need to ensure a level playing field in public tenders through the direct participation of foreign companies, instead of relying on local partners – replicating the level playing field offered in other ASEAN countries. Furthermore, a level playing field will provide procurement agencies with more choice in terms of price and quality, contributing to the improvement and efficiency of expenditures on State budgets and health insurance funds. Our Wine & Spirits Sector Committee is concerned about further changes to the Special Consumption Tax (“SCT”) on wine and spirits, as discussed during the 10th Session of the 13th National Assembly of Vietnam. In the current draft, which would be the second amendment to the SCT Law in a very short time, the taxable value will change from import prices to import prices and resale prices. As a result, the SCT will increase, which would nullify and impair the benefits of any tariff cut negotiated under the EVFTA on imported spirits. Witness how, HK has become the biggest market for quality wine in Asia thanks to slashing tariffs that were before at Vietnamese levels and how this has reduced the incentives to contraband and illegal distilling 5. Coordinate with provinces to ensure uniform application of laws and policies Many investors in Vietnam find more problems in opening their facilities from administrative challenges at provincial level than at national level. This is due to non-uniform application of laws and policies even with regard to taxes and customs, which are clearly national responsibilities, and even more in permissions to use the land or other requirement. Provinces are competing for investment and it should be their interest to be as open and transparent as possible, and coordination with the central government is essential when investors are present in different provinces, so that the investor is consistently treated. Within their powers, provinces could be open even more than FTAs require, for example in opening some important procurement to international bidders, thus securing more quality, variety and potentially sources of funds for their projects. Eurocham has signed an MOU with the MOFA to address the international perspective of the Vietnamese provinces and help them in becoming attractive for European and international investment.

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European Chamber of Commerce in Vietnam (“EuroCham”)

EUROCHAM POSITION PAPER

Annual Vietnam Business Forum Hanoi, December 1st 2015

Presented by

Mr. Tomaso Andreatta Vice Chairman

Honourable Ministers, Ambassadors, Your Excellencies, Ladies and Gentlemen, on behalf of EuroCham and its partner European Business Associations, I would like to thank the Ministry of Planning and Investment and all the authorities represented here today for facilitating this on-going constructive dialogue with the private sector though the Vietnam Business Forum. EuroCham is pleased to acknowledge the recent efforts that the Vietnamese Government has made to further improve the business environment and increase Vietnam‟s competitiveness. 2015 has been a significant year for Vietnam and its relationship with its European counterparts. The agreement in principle of the European Union – Vietnam FTA (EVFTA), together with the 25th anniversary of the establishment of EU – Vietnam diplomatic relations, are significant steps for the future of EU-Vietnam business relations and will provide an array of new opportunities. We believe that the negotiations have resulted in a comprehensive, mutually beneficial and balanced agreement. Furthermore, EuroCham would like to congratulate all Ministries on the recent granting of visa exemptions to 5 major European countries and on the very recently announced reduction in visa fees.1 In terms of taxation, we would like to highlight the efforts that have been made such as the removal of the cap on deductibility of advertising and promotional expenses, the reintroduction of incentives for business expansions and for enterprises located in industrial zones, as well as a number of positive personal income tax and VAT (Value Added Tax) changes. In addition several measures were implemented to reduce filing requirements for all taxes. Moreover, since July 2015, a number of new laws and regulations governing foreign investment, enterprises, real estate and foreign ownership limits have come into effect, such as the new Law on Investment and the new Law on Enterprises. These laws are expected to mark a new positive milestone for the legal framework for M&A activities in Vietnam. In addition, new laws and regulations affecting foreign ownership of real estate have come into effect. Foreigners can now own apartments, buy houses and are permitted to sublease and inherit real estate. Although both laws have developed from previous legislation, there are still several shortcomings regarding bank guarantees for off-the-plan real estate, house ownership of foreign individuals as well as conditions for transferring investors‟ real estate projects.

1 „Vietnam slashes visa fees in bid to boost tourism‟, Thanh Nien News, 13/10/2015. Available at (http://www.thanhniennews.com/travel/vietnam-slashes-visa-fees-in-bid-to-boost-tourism-52402.html)

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With the coming into effect of several international trade agreements and more particularly, the EVFTA, the AEC and the TPP, EuroCham members are looking forward to the positive changes that will be implemented and that will further business incentives as well as contribute to Vietnam‟s growth. Nevertheless, some concerns remain among European companies. This paper aims to identify those issues and propose solutions to further improve the business climate in Vietnam. I. INCREASING THE LIVELIHOOD OF THE PEOPLE 1. Safe medical access and pharmaceuticals In terms of access to safe pharmaceuticals, Vietnam and the Ministry of Health (“MOH”) have made significant progress, both in terms of healthcare indicators in a number of areas, generic penetration being one of the highest in the world and prices for medicines being among the lowest in the region, according to an IMS report from this year. One of the key issues for the Government in the coming years will be to find the right balance between ensuring quality and affordability. Below are our views on how to help ensure that Vietnamese patients have fast and sustainable access to high-quality, safe and innovative medicines. These recommendations will not only improve health outcomes in Vietnam, but also bring back some of the USD 2 billion spent on medical tourism every year. a. Patient access to pharmaceuticals – Sustainable and fast access to innovative

medicines for Vietnamese patients in line with other ASEAN countries‟ timelines. A more efficient drug registration process, elimination of local clinical trial requirements, and a timely drug reimbursement process are key to improving patient access.

b. Equal access - Allowing foreign invested enterprises to participate on par with local companies in Public Procurement to meet demands of a modern and innovative universal healthcare system.

c. Legal presence and developing local industry – Clear and practical guidelines for foreign invested enterprises with full trading and distribution rights. Providing establishment incentives to the innovative pharmaceutical industry to invest in local industry, including tech transfer.

Thanks to determined action by the Vietnamese Government and the strategic plan of H.E. Prime Minister Nguyen Tan Dung based on „protecting, caring and improving the people‟s health in 2011-2020, with a vision to 2030‟, remarkable progress has been achieved over the last 10 years with regards to healthcare-indicators. Ensuring that every citizen has access to basic healthcare services, and to expand the access and use of quality healthcare services is a key objective of the Vietnamese Government. However, a number of obstacles still remain in providing Vietnamese patients with a high quality healthcare system at the same level as neighbouring countries. With a population of over 90 million people, a fast growing middle class and a promising economic growth in the upcoming years, the medical devices market in Vietnam will continue to expand. Furthermore, with an increasing openness to international markets mirrored by the several trade agreements signed like the EVFTA and the TPP, there is no doubt that Vietnam will see an increase in health spending. In 2013, more than 30.000 Vietnamese went abroad for treatment, representing USD 1 billion per year. By 2015, the increase estimated reaches 40.000 Vietnamese going abroad for treatment, amounting to a total of USD 2 billion per year. This trend illustrates the need for further improvement to

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respond adequately to people‟s medical needs in Vietnam.2 Vietnam encourages the market of medical devices because the local production cannot meet the demand of the national healthcare system.3 Currently, Vietnam currently imports over 90% of its devices and only has about 50 firms making 600 products that are officially licensed by the MOH.4 However, Vietnam is increasingly building its status as a low cost manufacturing base and in 2013, the US represented 24.3% of Vietnamese medical devices exports.5 Vietnamese authorities are aware that public healthcare is in need of improvement and drastic modernisation. The budget has therefore increased for this sector. However, issues remain as many hospitals do not have enough qualified staff to deal with overcrowded facilities and cannot provide adequate attention to all patients. Moreover, medical equipment is out-dated and needs replacement especially when it comes to surgery and intensive care units.6 2. Energy and electricity With a fast development and a growing middle-class, the Government of Vietnam is aware of the changes occurring in its consumption of energy as well as on the effect it can have on the long term not only in terms of growth but also for the overall climate. With this in mind, the Government of Vietnam has positioned sustainable urban development as an important policy item in the National Strategy on Climate Change and the Green Growth Strategy 2012. Among other things, the Green Growth Strategy and Action Plans (2014) address the advancement of greener urban development master plans as vital targets.7 However, plans and commitments are lagging behind and this remains an issue especially when it comes to the impact in all areas of waste treatment, low carbon development, resource efficiency, urban infrastructure, energy and energy efficiency measures. In the past few years, energy demand has been growing by 15% per year.8

In 2014, it increased again by more than 10% per year.9 To meet such a demand, Vietnam currently still prioritises low-cost sources of power generation, including coal fired power plants and hydropower which are power sources that nearly take a decade to plan, construct and operate. This is in a context where Vietnam has an excellent potential for development for renewable energy generation. With a clear policy framework, the wind power sector in Vietnam will be able to attract substantial private investments, from both foreign as well as domestic capital – investments that the public sector does not have to make. At the same time, if capacities and skills are built up at all levels, there will first be hundreds, and later thousands of jobs created by the renewable energy industry. 2 „Vietnam Market for Medical Devices‟, US Commercial Service, June 2014, p.1. Available at

(http://www.export.gov/vietnam/build/groups/public/@eg_vn/documents/webcontent/eg_vn_076824.pdf) and „Fleeing bad hospitals, Vietnamese patients spend $2 billion abroad‟, Thanh Nien News, 27/01/13. Available at (http://www.thanhniennews.com/health/fleeing-bad-hospitals-vietnamese-patients-spend-2-billion-abroad-3636.html) 3 „Vietnam Market for Medical Devices‟, US Commercial Service, June 2014, p.2. Available at

(http://www.export.gov/vietnam/build/groups/public/@eg_vn/documents/webcontent/eg_vn_076824.pdf) 4 Ibid.

5 „Vietnam Medical Devices Market‟, Espicom Business Intelligence, 11/06/14. Available at (http://www.espicom.com/vietnam-

medical-device-market.html) 6 Ibid.

7 „Vietnam National Green Growth Strategy‟, Approved on September 25th 2012 by the Prime Minister, decision 1393/QD-TTG.

Available at (http://www.greengrowth-elearning.org/pdf/VietNam-GreenGrowth-Strategy.pdf) 8 „Vietnam Hydro Project to Help Meet Growing Energy Demand While Avoiding 1 Million Tonnes of CO2 Emissions‟, The World Bank,

26/04/11. Available at (http://www.worldbank.org/en/news/press-release/2011/04/26/vietnam-hydro-project-help-meet-growing-energy-demand-avoiding-1-million-tonnes-co2-emissions) 9 „Nuclear power plants delayed as electricity demand lower than predicted‟, VietNamNet, 02/03/15. Available at

(http://english.vietnamnet.vn/fms/science-it/124198/nuclear-power-plans-delayed-as-electricity-demand-lower-than-predicted.html)

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3. Food safety and toddlers’ nutrition For a large number of products, Vietnam still ranks in the top five of exporting countries. Nevertheless, compared to products from other exporting countries, Vietnamese products are still perceived as of lower quality and value. In our view, this perception needs to be changed as it does not do justice to the Vietnamese products and limits export opportunities.10

With this year‟s major changes in terms of Free Trade Agreements (“FTA”) and the entry into force of the ASEAN Economic Community, Vietnam has new possibilities to export its agricultural products. With these new structural changes in mind, it becomes even more important that the following issues are addressed: food safety,11 export of high-end manufactured products (not only commodities), diversification of products, commercialise by-products and correct use of pesticides, antibiotics and fertilisers.12 Further attention also needs to be paid to label requirements13 and to mechanisation, modernisation and restructuring of the agriculture.14 With regard to infant and child nutrition, while the National Nutrition Strategy considers that milk products are important and encourages their use to improve the nutrition status of Vietnamese children, the observed 11% decline in milk volume sales since last year when price controls were imposed indicate that Vietnamese children are drinking less milk and thus, getting fewer nutrients. The negative psychological impact of the price ceilings on consumers‟ behaviour and the actual modest rise in prices of economy-tier products suggest that the policy may have failed in its stated humanitarian objective of lowering prices for low-income consumers. We are concerned that this will in the future impact directly and negatively the National Nutrition goals on improving Vietnamese children‟s health status. II. INCREASING CONSUMER’S CHOICE

1. Wine and Spirits The industry is concerned by the recent Ministry of Finance‟s (“MOF”) proposal to revise the Law on Special Consumption Tax (SCT Special Consumption Tax (the 2nd Amended SCT Law) during the 10th session of the 13th National Assembly. In the current draft format the 2nd Amended SCT Law changes, inter alia, the tax base and the method for SCT calculation on imported spirits which leads the increase of SCT payment. The increase will nullify and impair the benefits of any tariff cut negotiated under the EU – Vietnam Free Trade Agreement in relation to imported spirits. The 2nd Amended SCT Law will amend the 1st Amended SCT Law which was passed only in late 2014 and is not due to come into effect until 1 January 2016. Any legislation, including the 2nd Amended SCT Law, if hastily passed can be negatively viewed by foreign investors as being indicative of an unpredictable legal system, which will negatively impact the image of Vietnam as a premium investment and

10

See footnote 1 and „Expanding export markets for Vietnamese farm produce‟, Vovworld, 27/08/2014. Available at (vovworld.vn/en-US/Economy/Expanding-exports-markets-for-Vietnamese-farm-produce/266152.vov; vccinews.com/news_detail.asp?news_id=32038 and www.vir.com.vn/bright-prospects-for-agriculture.html) 11

See „Food safety vital to win EU Market‟,Vietnam Plus, 10/06/2015. Available at (http://en.vietnamplus.vn/food-safety-vital-to-win-eu-market/78465.vnp) and „Producers, traders blamed for substandard food safety‟, Viet Nam News, 25/11/2014. Available at (vietnamnews.vn/society/263169/producers-traders-blamed-for-substandard-food-safety.html) and „Asian importers apply EU standards to seafood imports from VN, The Saigon Times,08/07/2015. Available at (english.thesaigontimes.vn/41839/Asian-importers-apply-EU-standards-to-seafood-imports-from-Vietnam.html) 12

See chapter 3.2 Agribusiness and Food Safety of EuroCham Whitebook 2015. Available at (http://www.eurochamvn.org/Whitebook) and „Annual report spotlights enterprise role in agriculture‟, Vietnam Plus, 15./04/2015. Available at (en.vietnamplus.vn/Home/Annual-report-spotlights-enterprise-role-in-agriculture/20154/64259.vnplus) 13

See chapter 3.4 Fast Moving Consumer Goods of EuroCham Whitebook 2015. Available at (http://www.eurochamvn.org/Whitebook) 14

„Industrialising agriculture: The only solution for Vietnam‟, VietnamNet, 05/05/2015. Available at (english.vietnamnet.vn/fms/special-reports/129352/industrializing-agriculture--the-only-solution-for-vietnam.html)

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business destination for multinationals. This will lead to decrease in government revenue and an increase in illicit trade. The sudden and significant increase of SCT on imported spirits will inevitably lead to sharp increases in resale prices followed by a decrease in demand and a subsequent negative impact on government revenue. Furthermore, it will only serve to foment fraud and illicit trade which reduce government revenues, weaken the rule of law, undermine confidence in safe international trade imperative for continued economic growth and development, impact government policies and put at risk public health. The industry strongly believes that keeping the current system fully consistent with international practices will be in the interest of all parties. 2. Motorcycle Motorcycles have consistently been serving, on average, over 60% of travel needs in Vietnam and there are now over 39 million motorcycles in the country.15 Vietnam is also currently the 4th largest market for motorbikes, still growing strongly and steadily, both in terms of size and quality. However, amongst other issues the industry faces, the Law on Special Consumption Tax (“SCT”) No. 27/2008/QH12 is one of them. Passed by the National Assembly on 14th November 2008 and effective from 1 April 2009, a SCT of 20% was introduced for motorcycles with a capacity of over 125cc.16 In addition, pursuant to the new Law No. 70/2014/QH13 amending some articles of Law No. 27 and effective from 1 January 2016, the SCT rate for motorcycles with a capacity of over 125cc is still 20%. This has had a significant negative impact on manufacturers, which offer over-125cc motorcycles and limits consumers‟ choice. Since 2008 until now, the economic and social conditions of Vietnam have developed; under current economic and social conditions, a motorcycle, especially 150cc motorcycle, is not considered a luxury good, but just a popular private means of transportation. 3. Automotive Tax impediments are also a concern in the automotive industry. While the Ministry of Industry and Trade (“MOIT”) has been making efforts to develop the automotive industry, the Ministry of Transport (“MOT”) and the Ministry of Finance (“MOF”) have been concerned about road congestion and have therefore imposed high taxes and fees on cars. Despite an increase in the numbers of cars in the country, the automotive market crashed by 50% due to the increase of the registration tax. In 2014, the Vietnamese market for new vehicles reached 157,810 Complete Knock Down (“CKD”) and Complete Built Up (“CBU”) imported passenger cars and commercial vehicles. Under the ASEAN Trade in Goods Agreement,17 Vietnam has committed itself to reducing its import duties to zero for all vehicles manufactured within ASEAN as from 2018, which is extended to ASEAN+3 (China, Japan and Korea). In turn, it will benefit Vietnamese customers in terms of choice and access to a diverse range of products. III. LEGAL FRAMEWORK Corporate governance practices in Vietnam are not at the foreground of decision-making. Assistance from the regulators in introducing a more detailed and robust corporate governance framework for Vietnam will facilitate the transition towards a more compliant corporate governance culture as a standard part of business practice.

15

Hansen, A, „Hanoi‟s Looming Traffic Nightmare‟, The Diplomat, 08/09/14/ Available at (http://thediplomat.com/2014/09/hanois-looming-traffic-nightmare/) 16

Cubic centimetres refers to engine capacity 17

„ASEAN Trade in Goods Agreement, ASEAN, 2015. Available at (http://www.asean.org/images/2013/economic/afta/atiga%20interactive%20rev4.pdf)

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Among other things, Vietnam needs to prioritise the protection of IPR to encourage foreign investment in Vietnam. Even though Vietnam has improved its legal framework and enforcement of IPR in recent years, infringements and the enforcement of IPR laws remain a concern for European and Vietnamese businesses alike. EuroCham therefore calls on the Vietnamese Government to step up its efforts in guaranteeing an effective protection of IPR in order to develop technologically advanced industries and to promote innovation. The foregoing may result in more foreign investment in manufacturing, research and development, but it will also encourage Vietnamese companies to invest in innovative activities. Needless to say, counterfeit products in sectors such as agriculture and pharmaceuticals may even pose risks to consumers‟ health. Moreover, our Members have increasingly expressed their concerns about the lack of a well-developed and transparent system of judicial recourse in Vietnam. As an example, in many countries around the world, a popular way to settle investment disputes is to start proceedings before a civil or commercial court. In theory, this option is also available in Vietnam, but foreign investors generally opt for arbitration, partly due to a lack of transparency of the Vietnamese court system. However, our Members have found that it is very difficult in practice to achieve the recognition and enforcement of foreign arbitral awards through the Vietnamese courts. The main difficulties encountered are the reversal of the burden of proof in respect of objections to applications for recognition and enforcement of foreign arbitral awards, and the rejection of applications by the Vietnamese courts for reasons that are not consistent with the NYC (1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards). IV. INCREASING VIETNAM’S COMPETITIVENESS 1. Taxation While there have been many positive developments in the tax laws as well as in reducing the time it takes taxpayers to comply with their tax obligations, we have observed that the practical implementation of the laws in general appears to have become more challenging. As an example, while Vietnam has an extensive tax treaty network with over 60 active treaties and new treaties continuing to be signed, the practical implementation of the benefits under tax treaties has recently become even more difficult. In addition, it seems like non-compliance with non-tax rules and regulations, even where these may not be clear is often used by tax authorities as a basis to either increase taxable income, impose withholding tax, deny a tax deduction, deny a VAT input credit or reject a VAT refund, while in our view, the most appropriate consequence should be an administrative penalty. This focus on form rather than substance also extends to documentation requirements, which are not always known in advance. They can differ between tax auditors, and can be so onerous that they are extremely difficult to comply with in practice. 2. Information Technology When asked how the internet reliability has affected their business this year, EuroCham members answered in the following way: the largest group of participants at 47% replied that their business has been “notably affected”, with the second largest group of participants at 31% stating that it has “somewhat affected” their business. Only 2% of users said they noticed “no interruption” at all. 13% said the interruptions were “hardly noticeable” and 8% said their business was “severely affected”. The more the IT industry and Internet usage advance in Vietnam, the more crucial it becomes to have a stable and

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uninterrupted access to the Internet. The stability of worldwide connections is key, not only for all business sectors but also because it affects people's lives. We believe that the frequent lack of a stable connection to the outside world will drastically affect investments from foreign enterprises not only into Vietnam's IT sector but in Vietnam's market in general as all business sectors today rely and demand stable uninterrupted internet connections to connect with their clients all over the world. Outage of Vietnam's internet mainline decreases the trust and confidence for foreign business in being able to conduct business sustainably in Vietnam – especially in the wake of the implementation of international free trade agreements such as the EVFTA and the TPP. 3. Human Resources Although the training of the Vietnamese workforce is increasing annually and improvements are made, Vietnam still lacks the skilled workforce in primary industries and sectors that are keys to achieve rapid growth and a higher comprehensive workforce. The Vietnam‟s Socio-Economic Development Strategy (SEDS) 2011-202018 defines promoting human resources/skills development as one of the three breakthrough areas. Moreover, the formation of the ASEAN Economic Community by the end of 2015 and the other economic linkages Vietnam is participating in the period 2011-2020 require further reform. Improving training, education and legal systems on managing labours will help meet the demand for skilled workforce, promote a competitive and healthy investment environment for the progress of transfer of knowledge and more generally for the development of Vietnam‟s economy. 4. Tourism The objectives targeted in the Government‟s National Strategy (for 2020, vision 2030) regarding the development of the tourism industry are to: attract 10-10.5 million international visitors by 2020, serve 48 million domestic tourists and increase tourism revenue to US$ 18-19 billion by 2020. However, it seems that the sector of travel and tourism is often neglected even though it is a major contributor to Vietnam‟s employment and GDP. The total contribution of travel & tourism to GDP (including wider effects from investment, the supply chain and induced income impacts) in 2013 was 9.6% of GDP and 9.3% of GDP in 2014. In 2014, total contribution of travel & tourism to employment, including jobs indirectly supported by the industry was 7.7% of total employment.19 Moreover, direct contribution of travel & tourism to GDP is expected to grow by 6.6% per annum to 4.8% of GDP by 2025. On the employment front, in 2014, travel & tourism directly supported 3.7% of total employment. It is expected to be roughly the same for 2015. Taking these key figures into consideration, attractive entry visa policy should be a major policy for the Government as it has the biggest impact on international tourism flow. At the moment, the strict visa policy for most countries requiring a visa prior to travel or a visa on arrival together with the relatively high cost is deterring higher spending tourists. We recommend the Ministry of Tourism, amongst other measures, to extend the number of countries with visa exemption, extend the exemption period and allow a return into Vietnam within 30 days if the passenger can show a departing flight within that period. These new measures will increase Vietnam‟s competitiveness, attract direct investment and

18

Socio-Economic Development Strategy (SEDS) 2011-2020), Ministry of Foreign Affairs, 2015. Available at (http://www.mofahcm.gov.vn/vi/mofa/nr091019080134/nr091019083649/ns111003074416) 19

„Travel & Tourism Economic Report 2014 World‟, World Travel and Tourism Council, p.1. Available at (http://www.wttc.org/-/media/files/reports/economic%20impact%20research/regional%20reports/world2014.pdf)

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international tourist flows in order to increase foreign currency income and create jobs that could contribute to 6.5-7% of GDP by 2020. 5. Infrastructure Modern, efficient infrastructure is vital for continued economic growth. It also lowers the costs of doing business for all investors in Vietnam. Rapid economic growth and urbanisation is driving high demands for roads, power, ports, waste and water treatment, hospitals, and other public infrastructure for goods and services. However, the State budget is estimated to be able to meet only about 50% of Vietnam's infrastructure needs which are estimated at USD170 billion from 2011-2020.20 The balance would need to come from other sources, including from private investments in the form of Public-Private Partnerships (PPPs). The success of the PPP Decree and the robust legal reform process of Vietnam in the last 5 years will largely depend on the government's ability to bring about and promote viable projects. In order to boost the credibility of Vietnam as a potential destination for PPP investment, in particular due to the absence of implementation of any PPP project under the previously existing pilot PPP regime under Decision 71, it is, in our view, essential that a small number of PPP projects be identified and prioritised for tendering to the market rapidly. Further implementing regulations are required to provide detailed guidance for the interpretation and application of the PPP Decree. In terms of transport and logistics, with the advent of the European Union Vietnam Free Trade Agreement (EVFTA), the need to create a Regional Transport Hub in Cai Mep has never been as great as now. The resultant increase in trade (and therefore container traffic in and out of Vietnam) is now expected to far exceed the previously expected growth of 7% to 8% from now until 2020. Trade between the EU and Vietnam has on average increased by 23.1% between 2010 and 201421 and in order to maximise the further increase in trade volumes that the EVFTA will undoubtedly bring to Vietnam, it is essential that an efficient deep sea container terminal exists to cater for such a demand. The current reliance on the HCMC City Terminals is not sustainable both from an operational and a commercial point of view. CONCLUDING REMARKS 2015 has seen major changes in terms of trade and competitiveness for businesses in Vietnam. Once again, we would like to thank the Government for the efforts made and for the successful trade agreement between the EU and Vietnam, which paints a positive picture for the upcoming years. Nevertheless, some challenges remain to improve Vietnam‟s competitiveness, especially at a time where neighbouring countries will also challenge Vietnam‟s competitive advantages in the region. We therefore invite and encourage the Vietnamese government to address the issues outlined in this Position Paper and to comfort the expectations of the European business community in Vietnam. Please note that our suggestions in this Position Paper are made on behalf, and in the interest of our Members, the European business community in Vietnam. However, it is clear that in the vast majority of cases these suggestions are clearly in the long-term interest of the Vietnamese Government and the Vietnamese people.

20 „Strengthening Public-Private Partnerships‟, VCCI News, 16/04/14. Available at (http://vccinews.com/news_detail.asp?news_id=30318)

21 Eurostat COMEXT, 10 April 2014.

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We sincerely hope that our suggestions in this Position Paper will help the Vietnamese Government to reach its goals and EuroCham will continue to assist wherever possible. We are therefore looking forward to working with the Government of Vietnam and all our Members and partners, both Vietnamese and European, to enhance Vietnam‟s competitiveness.

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Korea Chamber of Commerce in Vietnam (“KoCham”)

POSITION PAPER

Annual Vietnam Business Forum 2015 Hanoi, December 1, 2015

Presented by Mr. Ryu Hang Ha

Chairman INTRODUCTION Honourable H.E Deputy Prime Minister, Ministers, Ambassadors, Co-Chairs of the Vietnam Business Forum (“VBF”), Ladies and Gentlemen: On behalf of the Korea Chamber of Commerce in Vietnam (“Kocham”), we would like to first thank the Vietnamese Government for facilitating this ongoing dialogue at the VBF. We sincerely appreciate the opportunity to contribute at this forum. Please find below a summary of five (4) key issues that are of concern to Korean enterprises in Vietnam. We hope the legislators will consider it and address them in a prompt manner. I. LOAN TERMS OF FOREIGN INDIVIDUALS

Comments As stipulated in Article 10 of the Regulations on lending by credit institutions to clients issued with Decision 1627/2001/QD-NHNN of the Governor of State Bank of Vietnam dated 31st December 2001 (“the Regulation”), the loan term applicable to foreign individuals by the credit institution shall not exceed the permitted period of residence and having activities of the foreigner in Vietnam. This would be interpreted that the loan term applicable to foreign individuals is limited during temporary residency card or visa period. This regulation or restriction may be out of date in comparison with other laws of Vietnam. In accordance with Law on Residential Housing 2014, foreign individuals permitted to enter Vietnam are eligible to own residential houses in Vietnam with the term of not more than fifty (50) years which can be extendable. Such foreign individuals have same rights of residential house owners as Vietnamese citizens of which they are entitled to mortgage residential houses to banks or credit institutions for loans. Therefore, loan term applicable to foreign individuals should not be restricted within the temporary residency card or visa period as mentioned above. Recommendation We highly recommend that the loan term applicable to foreign individuals should be based on their repayment capacity rather than upon their permitted period of residence as stated in the aforesaid Regulation. Accordingly, the loan term can be extended until the expiry of remaining term of residential houses (for instance, 50 years) if they are provided as a security. This regulation would support the development of financial industry of Vietnam.

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II. EXTENSION OF THE PROBATION PERIOD

Comments Pursuant to Article 27 of the Labour Code 2012, the duration of a probationary period shall depend on the nature and complexity of the work, but there may only be probation on one occasion for one job, and probation must ensure the following conditions: 1. The probationary period must not exceed sixty (60) days for working in a position

requiring high-level specialized or technical expertise. 2. The probationary period must not exceed thirty (30) days for working in a position

requiring intermediate level specialized or technical expertise or for technical workers and professional staff.

3. The probationary period must not exceed six (6) days for other work. As to a heavy equipment operator, in practice, many enterprises must apply Article 27.2 of the Labor Code 2012 as above. However, one month probationary period applicable to the heavy equipment operator is not sufficient to thoroughly examine the relevant employee's character and ability. It would be difficult to determine whether the enterprise should employ him/her as a full-time employee within one month probation period. Furthermore, the employee usually seems to work hard during the probationary period, but start slowing down after becoming a full-time employee. Hence, it's necessary for the enterprise to have sufficient time to review the employee’s character and ability by way of extending the probationary period up to 2 or 3 months. Recommendation In Korea, the probation period usually takes from 3 – 6months in practice and there is no limit on probationary period under the laws of Korea. Therefore, we would like to propose to extend the probation period as per suggestions above. III. OVERTIME RESTRICTION OF 30 HOURS PER MONTH

Comments In respect of overtime work limits, Article 106 of the Labor Code 2012 stipulates that the employer must ensure the number of overtime hours of the employee does not exceed 50% of the normal working hours in one day, and if the employer stipulates work on a weekly basis then the total of normal working hours plus overtime hours must not exceed twelve (12) hours in one day, and does not exceed 30 hours in one month, and the total overtime hours must not exceed two hundred (200) hours in one year, except in a number of special cases regulated by the Government where the number of overtime hours worked must not exceed three hundred (300) hours in one year. The Labor Code 2012 limits the overtime hours to 30 hours per month as maximum regardless of peak-season and off-season of each enterprise. Accordingly, it is extremely difficult for manufacture enterprises to meet production orders or due date requested by buyers if fully complying with this restriction. It may seriously affect the business operation and will force enterprises to increase the number of shifts during peak-season, which will result in a substantial increase in labour costs. Air transport costs for delivering the products would be incurred and sometimes enterprises have to provide discount on product price in favor of buyers according to the conditions set by such buyers.

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Recommendation The above-said overtime restrictions are often pointed out by foreign invested enterprises, particularly in manufacturing and other labour intensive industries that take advantage of the cheap labour costs when investing into Vietnam. This limitation may greatly impact on foreign investors’ decisions on investing into Vietnam. Therefore, we would highly appreciate if Vietnamese Government would consider removing the overtime restriction of thirty (30) hours per month, adjust and apply the overtime work regulations more flexibly in the following measures:

1. During peak-season, the enterprise may flexibly extend the overtime of the employees to satisfy the due date set by a client/customer;

2. During off-season, the enterprise may flexibly reduce the working hours/ the overtime of the employees.

IV. BURDEN ON EXPENSES DUE TO THE CHANGE OF DEFINITION OF WAGES Comments According to new regulations of the Labor Code 2012 and its guidelines, “wages” is defined as money which the employer pays to the employee in order to undertake the work as agreed and it includes wage rates for the work plus wage allowances and other additional items. As to the new definition of “wages”, employers shall have to pay extra amounts relating to social insurance, overtime wages and accordingly labor costs shall extremely increase. It is known that social insurance should be covered by State Treasure however the way in which enterprises are forced to mostly bear such expenses like in Vietnam seems to be an issue. We see no country where enterprises must bear huge expenses on social insurance which are equivalent to 22% of wages fund payable to employees as Vietnam does. Moreover, the regional minimum wages have been increasing quickly at from 10% to 15% per year. It means that the change of ratio for the payment of social insurance together with the calculation of overtime wages and expenses on meals for employees makes the labor costs in Vietnam significantly increased and the manufacture industry therefore has been losing its attractive competition. Recommendation Due to the change of world economic situation and change of calculation of overtime wages as well as other factors which may cause significant effects to the burden on expenses borne by enterprises, we would like to recommend Government of Vietnam to re-consider to not include the “additional items ”to the wages which are based for calculation of payment of social insurance .

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The Japan Business Association in Vietnam (“JBAV”)

KEY ISSUES FROM JAPAN BUSINESS ASSOCIATION IN VIETNAM (JBAV)

Annual Vietnam Business Forum 2015 Hanoi, December 1, 2015

H.E. Mr. Nguyen Tan Dung, Prime Minister of the Socialist Republic of Vietnam, H.E. Mr. Bui QuangVinh, Minister of Planning and Investment, Ladies and gentlemen,

With the progress of trading policies such as TPP, importance of industrial policies will be

more significant. In particular, to contribute to the development of Vietnam, we Japanese

Business Association, together with the government of Japan the largest ODA provider, see

the need to share discussion and take joint actions with you.

1. Improvement in infrastructure for a long-term and sustainable development

For improvements in infrastructure, the investment source of “Long-term but at a low

interest rate” ODA from Japan is effective, and we hope Vietnamese Government utilizes

Japanese ODA through the modification in the Decree No. 38.

2. Improvements in the investment environment

Our proposal includes the regulation on foreign-invested enterprises, ENT inspection, and

logistics foreign investment, and policies on automobiles and housing industries as below:

(1) Automobile industries: clarifying incentives for domestic production which leads to

continuous development of supportive industry, further GDP growth, and also WTO’s

commitment.

(2) Logistic foreign investment: permitting establishing 100% of foreign –owned company of

CPC 742 and 748.

3. Improvements in business and production environment:

Our proposal includes the regulations on minimum salary, over time work, work permit, pay

roll table, also especially the restriction of importing used machine and unofficial customs

expense as below;

(1) The restriction of importing used machine:non-restrictions in foreign investment in

importing used machines and equipment.

(2) Unofficial customs expense: continue activities to grasp on unofficial expenses.

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4. Improvement on related decrees of Law on Investment and Law on Enterprise:

(1) Protection of the incentives once given to investors (Law on Investment)

(2) Protection from change in law (Law on Investment)

(3) Smooth registration of Charter Capital Increase in case of huge Infrastructure Project

(Law on Enterprise)

5. Relaxation of the conditions for re-entry under a Visa exemption, requesting as below;

We suggestthat the conditions for Japanese citizen’s immigration be changed in immigration

rules of “the Law on Entry, Exit, Transit and Residence of Foreigners in Vietnam”,to allow

them to enjoy the visa-exemption, regardless of the time restriction of their last departure

from Vietnam, as stated in the law prior to the amendment.

6. Challenges and difficulties

We positively welcome the general statements of free trade agreement; however, we are

afraid that the deterioration of trading balance of payments would lead the macro economy

to the circumference of a circle of exchange risk occurrence; therefore it would badly affect

the future economic growth. Foreign investors will not aggressively invest unless they are

persuaded that the macro economy would continue to grow steadily. Although the textile

industry is expected to dramatically expand thanks to the free trade agreement, there are

concerning voices of the negative influence on other fields such as automobile. It is required

for government to have an explanation on estimation of how much change in trading balance

of payment brought by regional enterprises, otherwise, how much investment should be

gathered/ called for these effected fields and how to materialize. As the Chamber of

commerce, we are willing to discuss on this issue.

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The Japan Business Association in Vietnam (“JBAV”)

Statement by JBAV Annual Vietnam Business Forum 2015, Hanoi

Hanoi, December 1, 2015

Presented by

Mr. Shimon Tokuyama

Chairman

Respectfully addressed to:

His Excellency Nguyen Tan Dung, Prime Minister of Socialist Republic of Vietnam,

His Excellency Bui Quang Vinh, Minister of Planning & Investment,

Ladies and Gentlemen from the Government Bodies and business community present at the

Forum today.

On behalf of Japanese enterprises, I would like to express my sincere appreciation to

Ministry of Planning and Investment and representatives to Business Associations in

Vietnam to permit me to present here today. Vietnam – Japan relationship has been closely

and deeply nurtured, especially after the official visits to Japan in July by the Prime Minister,

His Excellency Nguyen Tan Dung and the General Secretary, His Excellency Nguyen Phu

Trong in September. In such context, the JBAV members in November 2015 stand at 1,510,

although doubles compared with that in 2008, it tends to increase annually with a higher

interest of Japanese enterprises’ investment in Vietnam. On the occasion of the Forum today,

I would like to make some comments on policies by the Vietnamese Government and their

influences on Japanese enterprises’ activities. In addition, I also would like to make a

presentation on pending issues for improving the investment environment.

1. POLICIES ON COMMERCE AND INDUSTRIAL DEVELOPMENT INCLUDING TPP

By 2015, the Vietnamese Government has actively and successfully deployed commercial

policies such as Vietnam – EU Free Trade Agreement and Trans-Pacific Partnership

Agreement (TPP). Nevertheless, there should be some concern that lifted import tax will

bring Vietnam facing competition with other nations in the region. Vietnamese Government

needs to clarify his industrial policies. Otherwise, Vietnam shall only become attractive to

enterprises as a potential market where many products can be sold. It shall be difficult to

assure for employment for the swift increasing of young generation and improvement of the

living standards. It is extremely crucial for Vietnamese Government to put forward policies to

nurture the industry for the long-term.

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2. IMPROVEMENT IN INFRASTRUCTURE FOR A LONG-TERM AND SUSTAINABLE

DEVELOPMENT

We know that public debt-related issue was ebulliently discussed last year. We suppose that

it is extremely crucial for the financial solutions to be assured for gradual and solid

improvements in such infrastructure as electricity, communications, and transportation

works. The investment source of “Long-term but at a low interest rate” ODA from Japan may

be used in the infrastructure field. We believe that ODA source shall be utilized in an

extremely effective way. We also know that the Vietnamese Government considers the

modification in the Decree No. 38 on Management and Utilization of Official Development

Assistance (ODA) and Concessional Loans from Donors and hope the improvements in

procedures toward swift deployment of projects will be made.

3. IMPROVEMENTS IN THE INVESTMENT ENVIRONMENT

a. Improvements in environment for foreign-invested enterprises

Many Japanese strategic investors choose to participate in management in destinations of

investment and gain back their capitals by creating new values at those investment

destinations. We wish the Government to positively consider loosening the regulation related

to restrictions in capital share rates to listed companies, and State-owned enterprises.

Furthermore, from a viewpoint of diversifying investment modes, we hope that conditions to

set up foreign holding companies will be clarified and procedures will be simplified.

b. Automobile industry-related tax laws

After tax barrier applied to the automobile industry in ASEAN region is lifted in 2018 for

automobile enterprises’ further production in Vietnam, we wish incentives, mainly financial

supports offered to domestic production, to be clarified.

We know that at present, the Government considers a remarkable reduction on special

consumption tax (SCT)/luxury tax imposed on automobiles with small engine capacities and

abrogating import tax on automobile components. This policy, however, might not lead to the

promotion of domestic production because the remarkable decline in SCT relates to both

domestic automobile production and imported automobiles. In addition, the lift of import tax

on automobile components, which shall shorten the cost gap between import automobile

and domestic production (around 20%), is not realized yet. Some calculations show:

Compared with simply selling imported automobiles, domestic automobile production is

triple-fold effective and positive for GDP and tenfold for employees. In addition, we also

would like Vietnamese Government to thoroughly understand that: With the industry’s

natures, if automobile enterprises do not make production continuously, the supportive

industry – including the manufacturing sector of automobile components – shall not develop.

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Year 2018 is approaching in the context of compliance with WTO’s commitments, we expect

the Government to early make studies on how to effectively apply policies such as “some

schemes on subsidiary for domestic manufacturers”.

c. Development in the housing industry

The development in the housing industry can effectively expand the supportive industry of

steel and chemical products. Furthermore, this is the industry that can be expected with

spreading effects on businesses such as electrical home appliances. We expect Vietnamese

Government to make studies on policies for housing development for the middle class,

especially supports from the Government’s financial source in order to provide loans at fixed

interest rates for long-terms – the risk that commercial banks cannot shoulder.

d. Popularization of the up-to-date retailing sector

In order to engage retailing enterprises in the market, we make three following proposals:

firstly, Clarifying a list, standards, and procedures for ENT inspection; secondly, clarifying

the list and standards for inspection by Department of Police, Department of Health and

lastly, master planning of the sector; publicizing information on applications for licenses to

open stores, approved rates, and inspection time, etc.,

e. Restrictions in logistics foreign investment

After 1st November 2014, Japanese enterprises is allowed to set up 100% foreign-owned

companies in Vietnam in order to fully or partially provide services coded CPC 742 and 748 in

goods logistics or transportation. However, Ho Chi Minh Municipal Department of Planning

and Investment replied that upon the guidance by Ho Chi Minh Municipal People’s

Committee and due to incomplete but essential legal system, 100% foreign-owned

companies’ establishment had not been permitted. The same answer was also made in case

Japanese enterprises wish to buy-back shares owned by Vietnamese ones that are partners

in the above-mentioned service joint-venture suppliers in order to set up 100% Japan-owned

subsidiaries after 1st November 2014. In line with the commitment after joining WTO,

however, the establishment of 100% foreign-owned enterprises must be permitted at least

for the above-mentioned CPC business lines after 1st November 2014. Therefore, we suppose

that the refuse by Ho Chi Minh Municipal Department of Planning and Investment may

infringe the commitment to WTO. We hope concerned Bodies will make decisions that

respect commitments to WTO.

4. IMPROVEMENTS IN BUSINESS AND PRODUCTION ENVIRONMENT AND MAINTAINING

INTERNATIONAL COMPETITIVENESS

a. Thoughts on minimum salary

The minimum salary increased by 15.1% in 2015, a much higher ratio than the inflation rate.

We understand that the Government makes an objective to increase it by 4,000,000 dongs by

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2018, therefore, the Government works out a guideline of gradually annual increase. We do

not intend to reject a better life for the Vietnamese because it is also one of necessary factors

to boost up domestic needs. However, in order to encourage enterprises to develop and

contribute to the development of industries in Vietnam, we hope that the minimum salary is

calculated based on the accurate consideration of the inflation rate, unemployment rate and

the anticipated GDP rate. . In addition, employees at those enterprises that pay higher

salaries than the minimum one compare the rises with the minimum salary or those at

neighboring enterprises. In case their rises of salary are lower than others, labor disputes

may rise. It is essential to work out a consistent definition on salaries in Labor Code so that

laborers can explain the minimum salary more easily and popularize it widely.

b. Restrictions on Overtime Work

According to Article 106.2(b), the amount of overtime work is restricted not to exceed 4 hours

per day, 30 hours per week and 200 hours per year. However, meeting production orders

while fully complying with this restriction on the amount of overtime work will force

employers to increase the number of shifts, which will result in a substantial increase in

labor costs. We are, from the view of both employers and employees, think that it is

reasonable to allow employers to extend the least overtime hours to a reasonable level.

Besides, for works which achievements do not correspond with working hours such as

research and development, engineering work, it is hoped that flexible timing can be applied

so that each individual can decide starting and finishing time of their work for work and life

balance.

c. Proposals related to the Draft of the Modulated Decree No. 102

Firstly, we wish the seniority of 5 years formulated in Point c) Item 3, Article 3 to be

shortened down to 3 years. Also, to keep excellent staffs, skilled engineers in Vietnam, we

hope that the submission of qualifications can be replaced by submission of affidavit on

recruitment for professional positions by the enterprises. Secondly, because the Vietnamese

Government agrees with “Foreign laborers do not need granting with Work Permits” as

pledged when joining WTO. This, nevertheless, is not formulated in Article 172 in the Labor

Code and Article 7 in the Decree No. 102. We wish this content to be supplemented. Besides,

Point i) newly supplemented in this Draft makes regulations on those foreigners who work in

Vietnam continuously for 30 days. We expect it to be modulated into 90 days depending on

titles and work types. Thirdly, criminal records granted within the latest 6 months are

requested in the Work Permit-related file. However, in case the temporary residence period

is short, it is very time consuming to deal with related procedures. Cases in which it is

difficult to apply for a Criminal Record may occur. We wish the Government to consider the

division of temporary residence in Vietnam into less than 6 months and over 6 months

upward to modulate papers of submission.

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d. Review on 5% and 7% gaps in Pay rolls

Articles 7.2 and 7.3 in the Decree No. 49/2013/NĐ-CP formulate that: the gap between the

two successive pay rates must be at least 5% different, and the lowest pay rate for works or

titles that request for trained employees must stand at 7% at least higher than that of the

regional minimum salary. Pay rates and professional skills vary depending on different

sectors and enterprises. The request to build up either consistent 5% or 7% gaps in pay rolls

without considering this diversification shall badly affect flexible and proper assessments by

enterprises on employee work performance. We expect the regulation on gaps in pay rolls to

be reviewed and abrogated.

e. Application of industrialization at high schools

It is necessary to apply technology education, skills for industrialization in high schools and

implement policies to increase human resources as foundation of the industry. For example,

it is seen in Japan that, in high schools, academic subjects account for about 56%, industrial

subjects account for about 5%, commercial subjects account for about 10% and agricultural

subjects account for about 5%, professional training starts very early. Currently, Vietnam is

establishing more universities, building capacity of vocational colleges to work towards

industrialization process. Besides, it is hoped that the Government will soon study the

education system which includes specialized training, in order to gain more of skilled

manpower for the future.

f. Regulations on restriction of used machine and equipment import

We continue to raise expectations of no-restrictions in foreign investment in importing used

machines and equipment stipulated in the Circular 20 to Ministry of Science and Technology.

After the meeting with Ministry of Science and Technology on 22nd September, we, once again,

presented our expectations in writing in the proposal dated 01st October to the 9th Draft of the

above Circular. We make proposals based on the two following theoretical points. ① Item 2,

Article 6: Restrictions in imports are not applied to new investment and expansion

investment as well; ② Item 2, Article 1: Clarity of the List of machines and equipment (Group

2).

g. Proposed activities on unofficial customs expenses

After VNACCS was put into use in April 2014 and related to some local customs officers’

requests for unofficial customs expenses. In January 2015, we discussed with the General

Director of Customs on this issue, nevertheless, members in JBAV’s Logistics Group have

applied their own separate settlements so far. We wish, in the context of stabilized VNACCS,

concerned Bodies to further continue activities to grasp if there are unofficial expenses or

not.

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5. IMPROVEMENT ON RELATED DECREES OF THE LAW ON INVESTMENT AND LAW ON

ENTERPRISE

a. Protection of the incentives given to investors (Law on Investment)

A draft decree to implement the Law on Investment 2014 provides that the investors should

return the incentives to the State in a case where the investors have lost their eligibility to

enjoy the incentives. This is less favorable than the decree to implement the Law on

Investment 2005, particularly in a case where the investors are not at fault and the investors

met the condition of eligibility in some parts of the investment project’s duration. This

provision in the draft decree should be deleted and instead, it should be provided that the

investors shall not enjoy the incentives any further in such a case. Also, the grace period to

continue to enjoy the incentives in order for investors to adjust their projects should be

granted in a case where the investors are not at fault in having lost its eligibility to enjoy the

incentives.

b. Protection from change in law (Law on Investment)

The new Law on Investment 2014 provides protection of the incentives from change in law

only. However, it should also provide protection on lawful interests which do not amount to

incentives from change in law, as the Law on Investment 2005 provides for. We believe that

the Law on Investment 2014 should not exclude protection of lawful interests from change in

law, as it has been granted to large scale BOT project contracts in the past.

c. 90-day deadline for charter capital contribution in an LLC (Law on Enterprise)

The Law on Enterprise 2014 changed the 3-year grace period for charter capital contribution

in an LLC which is provided in the Law on Enterprise 2005, and sets the 90-day deadline for

charter capital contribution. We are concerned that if the registration of increase of the

charter capital is delayed, it will cause a delay in the disbursement of the additional capital

which is necessary for the business operation, such as continuous construction of the

facilities for the projects. We would like to request the Vietnamese government to take

necessary measures not to cause delay in the registration of the charter capital increase

under the Law on Investment 2014 and Law on Enterprises 2014.

Also, Article 48.3(b) of the Law on Enterprises 2014 provides that if a member of an LLC fails

to contribute the capital within 90 days from the day on which the Enterprise Registration

Certificate is issued, each member has the rights and obligations proportional to their

capital contribution already paid. However, since the decision of each member to reduce the

agreed and registered capital contribution amount is required to obtain the amended (or

new) Enterprise Registration Certificate and the Investment Registration Certificate, if the

member who fails to contribute its capital contribution does not issue the decision, this

article does not work. So, the decree to implement the Law on Enterprise should provide that

in a case where a member of an LLC fails to contribute the capital within the statutory capital

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contribution period or the agreed period, the capital contribution ratio is automatically

changed in accordance with the amounts of the disbursed capital contributions of the

members in the LLC. This automatic reduction of the registered capital contribution amount

and the rights of the member should also be applied to failure to contribute capital in an LLC

which was established before July 1, 2015.

d. Concerns of procedure complicatedness

Under the former Investment Law, the sole License of Investment, the Investment Certificate,

was needed for foreign enterprises. In line with the new Investment Law and Enterprise Law,

this License is divided into the Investment Registration Certificate and Enterprise

Registration Certificate. Accordingly, foreign enterprises located in Industrial Zones which

enjoyed the one-door services under the former Investment Law have to deal with not only

the Industrial Zone Authority but also Department of Planning and Investment in charge of

the business area when they change the contents of the Investment License, such as

increasing the charter capital or the total project investments. Therefore, we are worried that

the one-door services provision shall fail. We wish for the concerned authorities to take

necessary measures not to cause delay in changing the contents of the Investment License

due to the division of the Investment License.

6. RELAXATION OF THE CONDITIONS FOR ENTRY UNDER A VISA EXEMPTION

Due to the amendment of the immigration rules of “the Law on Entry, Exit, Transit and

Residence of Foreigners in Vietnam”, Japanese citizens are denied re-entry into Vietnam

within 30 days if they do not have the Visa. This change of Visa exemptions limits the

opportunities for Japanese citizens who wish to visit Vietnam more frequently for business or

tourism. We request that the conditions for Japanese citizen’s immigration be changed to

allow them to enjoy the visa-exemption, regardless of the time restriction of their last

departure from Vietnam, as stated in the law prior to the amendment.

7. CONCLUSION

Accompanying together with the Government of Japan, we pledge ourselves to make further

proposals and actions for the development of Vietnam’s economy and industry. We hope the

above-presented aspirations by JBAV will be reflected in Vietnamese Government’s policies

so as to help Japanese enterprises further contribute to Vietnam’s economy and industry. We

wish to gain more opportunities to exchange constructive opinions with the distinguished

concerned Bodies. I would like to put an end to my presentation here. I am grateful for your

attention!

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Australian Chamber of Commerce, Vietnam (“AusCham”)

AUSCHAM STATEMENT Annual Vietnam Business Forum

Hanoi, December 1, 2015 Presented by

Mr. David W. Carter We take the opportunity to comment on [three] specific areas of note and interest to our members and other Associate Member chambers of commerce. 1. Lack of implementing regulations This year has seen several important new law or law changes come into effect, notably the new Investment Law and new Enterprise Law, both of which took effect on 1 July 2015. It was encouraging to note that drafters of those laws incorporated comments from the investment community. For practical purposes however such laws are all but ineffective without implementing legislation in the form of Decrees and Circulars to provide both clarity for investors and guidance for the regulators to give effect to the government‟s intent. It was widely expected that implementing Decrees for the Investment Law in particular would be issued, following opportunities for consultation, before 1 July 2015. Unfortunately, to date, no such Decree has been issued. The consequence has been uncertainty, development of differing practices among provincial authorities and thus a lost opportunity to capitalize on the many positive changes introduced in the law itself. Clear and detailed guidelines are required for the full impact of the new law to be realised and we hope the government will address this as a matter of urgency. 2. Visa waiver issues The Government‟s recent decision to increase the number of countries on the list of visa exempt countries was very welcome. Currently Vietnam has visa waiver or exemptions for citizens of 21 countries which is far lower than neighboring competitors such as Malaysia (with 164), The Philippines (with 157), and Thailand (with 52). Despite this positive move, AusCham still has several concerns in this area. First, we strongly recommend promptly extending the list of visa waiver countries to include Australia and New Zealand as a means of further facilitating trade, investment and tourism between the nations. Secondly, we recommend the exemptions be for 30 days not the current 15 days with returns allowed within 30 days as a means of encouraging people to use Vietnam as a hub. 3. Strengthening market institutions Vietnam has taken important steps recently to improve and enhance the market institutions that underpin a successful and sustainable economy. Notable improvements are the

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Investment Law‟s terms with respect to freedom to do business in areas not prohibited by law, prohibitions on ministries and local authorities imposing business conditions „by the back door‟ and renewed focus on restructuring of the State-owned enterprises sector. Nevertheless, as Vietnam integrates deeper into the global economy, particularly following the conclusion of the Trans-Pacific Partnership and other free trade agreements, it is imperative that Vietnam takes bold steps to continue improving market institutions and economic freedom. For example, while conditional investment sectors are justified, they also create de-facto barriers for entry often well beyond the stated rationale of the conditions in question. The list of conditional sectors is too broad and the consequences are also often unclear. We note for example that the recent Decree 60 concerning foreign ownership limits in public companies provides that if a business activity is considered as conditional for foreign investment purposes but there is no specific foreign ownership limit with respect to such activity, then the level of foreign investment is capped at 49%. We would propose that the opposite conclusion would be more appropriate and in keeping with Vietnam‟s commitments towards economic freedom. Majority foreign ownership does not mean investment conditions cannot be met. Another area of note is with respect to the role of State-owned enterprises. SOEs continue to dominate many areas, „crowding out‟ private enterprises, particularly SMEs, who are not competing on a level playing field. Such companies, given the space and opportunities they need to flourish, will ultimately deliver more efficient and sustainable growth for Vietnam. In absence of that there is a risk that the foreign-led manufacturing sector will become the key sector of the economy, adding less value to the economy with little of the manufactured product consumed in Vietnam. 4. Restrictions affecting foreign real estate developers We note that the new Law on Real Estate Business continues to provide for unnecessary differences between foreign and domestic real estate developers. For example, foreign developers are not permitted to transfer land use rights in the form of division of land into plots for sale whereas domestic developers enjoy such rights. Further, enterprises with foreign owned capital are permitted to collect up to only 50% of the value of the contract for sale and purchase or hire-purchase of real estate to be formed in the future whereas the applicable percentage to local developers is 70%. It is not clear why this difference in treatment is necessary and this inconsistent treatment creates inefficiencies and impairs the competitiveness of the industry in general. We would recommend that differences in treatment between foreign invested and Vietnamese developers be removed to ensure a fair and level playing field for all in the real estate sector in Vietnam.

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INVESTORS FEEDBACK Prepared by

Nordic Chamber of Commerce Vietnam Business Forum (“VBF”)

Government leaders, business representatives, ladies and gentlemen, The Nordic Chamber of Commerce – Nordcham, appreciates this opportunity to share its views on the business climate in Viet Nam. As a small Nordic business community with a long history in Viet Nam we would like to share our view on s few specific areas which Nordic investors focus on. POWER AND ENERGY The Nordic business sector in Southern Vietnam has concern that the Power Development Plan VII, confirmed by Deputy Minister of Industry and Trade Mr. Hoang Quoc Vuong, forecasts delays in sources of new energy which will lead to power shortages in 2017/2018, and will require power transferred from Northern Vietnam for sufficient supply. Other concerns are the long timeframe to mobilize financing for the transmission lines. Additionally, private investor’s move to invest in new power sources is being postponed in long and complex negotiations. The Government’s regulatory frame work is still a barrier, and licensed projects are failing to attract financing. According to Decision No. 8266/QD-BTC, the timing of full implementation has been determined to be 2019. Nordcham suggests that in order to maintain a stable power supply, an urgent priority to attract private investment to the energy market in Vietnam is needed. Therefore, Nordcham asks MOIT to accelerate the implementation of this key market reform. While Vietnam Electricity (EVN) remains the monopoly buyer of power, its financial status continues to cause concern for investors of new power plants who are required by law to sell power to EVN. Nordcham asks MOIT to consider new methods to enhance the creditworthiness of EVN, in addition to continued effort to increase power tariffs to cover costs of supply. Nordcham notes with enthusiasm the possibility of other large power consumers becoming power buyers and would suggest to encourage interest in this important role in the market that MOIT immediately publishes guidance on what criteria such companies must meet to satisfy MOIT’s “requirements” to take on this role. Because low-income citizens will suffer from higher tariffs, Nordcham supports that the Government subsidize them (30kWh/month free) and ensure the rural population does not suffer from power cuts favoring industries. Business would benefit if MOIT would share a road map of Retail Power Pricing as it moves to prices decided by market with Government management. This will open access to required private investment, both domestically and internationally, and will stimulate greater energy efficiency efforts from end-use customers.

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WATER AND ENVIRONMENT Water quality, flood protection and waste water management continues to have an impact on Foreign Direct Investment planning and costs for Vietnam. Municipal water and waste water control projects continue to fall behind with negative impact on our environment. Noting the high risk of climate related disasters in coastal, low-lying areas, and urban flooding in Vietnam, continued efforts at mitigation and adaptation are needed. Progress is notable in some areas, but the challenge is serious and needs attention. Recent improvements in the PPP and BOT legislation have been positive, but will are behind on PPP and BOT structure similar to other ASEAN countries to attract private investments. LABOR AND HUMAN RESOURCES The Vietnamese workforce is young and dynamic, even compared to other Asian countries, and is one of the main and important assets of Vietnam, which can stimulate further foreign investment. Many of our companies have difficulties in recruiting skilled workers and also engineers. We believe it is necessary for the authorities to focus and invest more in education, particularly vocational schools and engineering, in order to upgrade the knowledge and standard of the workforce. As to foreign experts that are needed in the initial phase of the establishment of new investments, it should not be made to complicated, as they are needed for a proper technology transfer. For the Nordic companies we believe that the cost of bringing in foreign nationals will anyway limit their use, to only the period the investors judge it feasible. LOGISTICS/TRANSPORT/PORT SITUATION. Many of our member companies are still experiencing great problems due to increased transport and logistic cost as a result of port congestion and lack of handling capacity in the major Vietnamese ports. In order for Vietnam to remain competitive compared with its neighboring countries it is important to improve the cargo handling capacity and cost. Present ports need to be improved and new ports need to be built, this applies both for container terminals and bulk-steel cargoes. We recommend that in order to accelerate investment in this important sector the policy is eased to allow 100% foreign shareholding in transport and port investment projects. The new trucking rules regarding maximum weight trucks can carry have sharply added transport cost and are quite different from international standard. Furthermore the rules and regulations are continuously changed/amended making difficult to even follow what the current regulations are. We agree that maximum weight has to be applied, and we do in general fully support this new measure, however it is today not always applied equally between ports and regions. Furthermore a fully loaded 20 feet container can be transported on a 20 feet trailer in loading ports around the world, but in Vietnam it can now only be transported on a 40 feet trailer. We therefore suggest that relevant rules and regulations are modified to apply international standard so that particularly containers can be transported in a more efficient and safe way. Finally we have noted that as per WTO commitment as from January 2014 foreign companies should be able to operate in the logistic field as fully foreign invested companies, however the regulations on how to apply the new rules have not been issued.

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We recommend that comprehensive regulations are issued without further delay enabling foreign companies to make needed investment in the logistic field, which will make the logistic services more competitive and reduce exporter and importers cost. LEGAL FRAMEWORK FOR FOREIGN INVESTORS In a recent legal case where the Appellate Court of the Supreme People’s court of Ho Chi Minh City revoked an investment certificate from 2007 related to the Conversion of Baria Serece port Co from a joint venture to a joint stock company, and furthermore an transfer of shares in 2010 from one foreign shareholder to another, both of which are our Nordcham members. The claim was filed by one minority Vietnamese 10% shareholder against the People Committee of Baria Vung Tau and its Department of Planning and investment DPI. All shareholders had agreed and signed on the relevant company decision to convert from J/V to STC, but some details in the new charter was not agreed to by this shareholder. The company has 70% foreign shares and 30 % Vietnamese shares and is operating the most successful Port in the Baria Vung Tau area. With the decision by the court 8 years after conversion and 5 years after a share transfer the company now has undefined legal status as this is unprecedented, and there is no legal clear guidance about how the company can now function/operate. To have an investment certificate revoked after such a long time, seriously affecting the operation of a successful company, is a great concern to the foreign shareholders who also have other large investments in Vietnam. From Nordcham’s perspective, our members are confident about their investment in Vietnam which is based on a long term view. Several new Nordic companies have increased their present investments and new companies have been established during the past year. We appreciate this opportunity to participate in the Vietnam Business Forum and thank for this opportunity to exchange views and enhance understanding between the Government of Vietnam and the business community. We wish good health to the Minister, representatives of business associations, and the diplomatic corps, and all the representatives here today. Thank you.

Sigmund Strømme Chairman Nordcham Ho Chi Minh City, October 30th, 2015

Section II

INVESTMENT & TRADE, BANKING AND

CAPITAL MARKETS

2.1. INVESTMENT AND TRADE

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REPORT FROM INVESTMENT AND TRADE WORKING GROUP Presented by

Mr. Fred Burke Investment and Trade Working Group

On behalf of the Investment & Trade Working Group, I respectfully wish to present five issues for consideration at today's Forum. Some of these issues have already been the subject of Working Group meetings and stakeholder consultation events, and much progress has been made in certain areas. The Working Group's Progress Matrix reflects some of the highpoints of such progress. Please forgive us for using our valuable time to focus on the issues that still need more work, and new issues that have arisen recently. I. WEAK ENFORCEMENT OF INTERNATIONAL ARBITRATION AWARDS 1. Background, Recent Developments and Current Status Over the past year and a half, we have raised the issue of the weak performance of the Vietnamese courts when it comes to recognizing and enforcing international arbitration awards, whether they are rendered by the Vietnam International Arbitration Centre (VIAC) or a foreign arbitration institution. This is a critical issue for the confidence of international investors in the rule of law in Vietnam and it directly impacts the cost of capital Vietnam has to pay. Responding to these concerns, the Ministry of Justice and other relevant authorities organized several stakeholder meetings and work has been done on the draft amendments to the Civil Procedure Code. This work is encouraging, but concrete results remain elusive. Moreover, some of the proposals for the amendments to the Civil Procedure Code were quite alarming. For example, one proposal was that after a foreign arbitration award had been granted, the losing party would have the right to request a Vietnamese court to refuse to recognize and enforce such award. This idea is absolutely inconsistent with how arbitration and the enforcement of arbitral awards work around the world under the Convention on Recognition and Enforcement of Foreign Arbitral Awards (1958). Moreover, there have been no reported inspections of the cases in which arbitration awards have been invalidated for spurious reasons. 2. What is the Issue? Mainly - "inconsistent with the principles of Vietnamese law" One of the bases Vietnamese courts most commonly cite as the reason for declining to recognize a foreign arbitration award is that the award is somehow "inconsistent with the principles of Vietnamese law." In the last Forum, we asked the question what are the "Principles Vietnamese law" for this purpose, and we acknowledged that this standard varies from one country to another. But having now done some research into the matter, we can only conclude that Vietnam's courts are taking this basis far beyond the international accepted scope. We attach some preliminary research as Attachment 1 to illustrate how the standard is applied elsewhere. 3. International Practice The common standard among other Parties to the New York Convention is that each country, with the exception of Vietnam, interprets and applies the public policy exemption extremely narrowly and rarely uses public policy as a basis to set aside a foreign arbitral award. The next common similarity is where there is a breach of a domestic law, whether substantive or procedural, it is not considered as a violation of the public policy. For

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example, in almost all of the cases examined, the foreign arbitral award would constitute a violation of a domestic regulation and the respondents are attempting to set-aside the award. However, countries have taken a narrow approach and tend to respect foreign arbitral proceedings by enforcing an arbitral award even if it is inconsistent with a domestic law. This common theme has led to setting aside awards only if they violate fundamental public policies, such as a contract for slavery or awards that lead to illegal and criminal activity. Overall, there is a general consensus that an award that violates a domestic law is not within the narrow scope of the public policy exemption, and setting aside awards will only occur when a core, human right will be violated by enforcing the award. (See Attachment 1 for more information and analysis.) 4. Recommendations: Globalization and cross-border investment, trade and commerce have led to an increased use of arbitration, especially in Asia, a rapidly growing economic region. To adequately respond to this trend, Vietnam should introduce new arbitration rules to cater to the growing demands of the global business community and align Vietnam's arbitration practices with the international community. As a signatory of the Convention, Vietnam should respect international comity. More specifically, Vietnam needs to clarify and narrow the scope of the "fundamental principles of Vietnamese laws" when setting aside both domestic and international arbitral awards. The recent interpretation of "fundamental principles of Vietnamese laws" to be general principals governing the making and implementation of Vietnamese law, such as principles of civil transactions under the Civil Code (as provided in Resolution 01/2014 of the Judges Council of the Supreme Court guiding the setting aside of domestic awards) does not meet the international standards and practices. Finally, judicial officers must be trained on the importance of international arbitration and the need to limit their review of arbitral awards with regards to public policy. Specifically, we propose removing the following draft amendments to the Civil Code, Section 7 – Chapter XXXV and Chapter XXXVI), as they will create more restrictions and obstacles to the recognition and enforcement of foreign arbitral awards in Vietnam: a. Removing the new conditions for international awards which may be recognized and

enforced in Vietnam (Article 422 of Draft CPC), in addition to the prescribed grounds for refusal to recognize;

b. Removing Article 446 of Draft CPC which provides a time limit of three (03) year as from the effective day of such awards, for submitting an application to ask for recognition and enforcement of foreign awards - this is an additional restriction to the recognition and enforcement;

c. Removing Article 452 of Draft CPC that the Court is entitled to request the arbitral organization to explain unclear points in the foreign awards. The Court should NOT be entitled to request the arbitral organization to explain unclear points in the foreign awards and the Court cannot set aside awards due to lack of comprehension (Article 452 of Draft CPC) - this is because firstly, in most arbitrational rules, the parties have a window (e.g., 30 days) to request the tribunal to clarify the award and secondly, in most cases the arbitral tribunal no longer exists at the time of enforcement.

d. Removing the proposed procedure for losers in foreign arbitration to request Vietnamese Courts to refuse the recognition and enforcement of foreign arbitral awards (Articles 442-445 Draft CPC) as this runs against the New York Convention.

5. Further Reasoning These proposed changes to the draft CPC regarding arbitration enforcement do not represent an intrusion on the judicial system. These changes would allow for foreign

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commercial entities to freely and confidently embark upon dispute resolution within Vietnam. This would significantly reduce the cost of doing business in Vietnam, and therefore, attract more foreign investors. For example, the Convention allows a company to take the arbitral award to any of the Convention's state member, and have the award enforced as judgments of the courts of both countries with only minimal scrutiny. This saves parties huge cost arising from multiple litigations. Most of the disputes arising from Vietnamese commercial activity are handled by either the Singapore International Arbitration Center or the Hong Kong International Arbitration Center. If Vietnam can elevate its arbitration landscape to greater heights, companies will be able to cut costs by choosing an arbitration center in Vietnam. More importantly, increased arbitration activity will generate substantial revenue for Vietnam, like it has for Singapore and Hong Kong. Given the seriousness of this issue in Vietnam, we would encourage (1) more stakeholder consultation and capacity building be done to strengthen and unify the approach of local courts on this issue going forward (2) to set up mechanism in which the Court in higher level is entitled to re-consider the decision of the Court which directly considers the award of VIAC; and (3) to very clearly specify definition of “principles of Vietnamese laws” and where “principles of Vietnamese laws” can be determined, referred to for instance, only criminal law matters of a certain degree of seriousness, in the Constitution or preferably other clearer legal reference, to avoid continued arbitrary application by the Judges in charge. 6. An Additional Proposal - Commercial Mediation Finally, there is positive movement towards the adoption of rules governing commercial mediation, which is different from and more informal than arbitration or litigation. We strongly encourage this development because it may, if done properly, help fill some serious gaps in the current laws. For example, the most commonly used engineering, design and construction contracts in Vietnam today are the FIDIC contracts, but those forms use a form of mediation to resolve disputes that is not supported by existing Vietnamese law. Here as with the case of arbitration, it will be very important to the integrity of the system that the discretion of courts to refuse to recognize settlement agreements or re-mediate disputes already settled according to the contractual agreement of the parties be limited to the very narrowest of basic principles. We encourage the drafters of the Draft CPC and Draft Decree on Commercial Mediation to mobilize stakeholders to see their constructive comments and suggestions on this important law. II. CIRCULAR ON IMPORT OF USED EQUIPMENT, SIMILAR IT RULES A. Circular 20 and Circular 23 to replace it: Used Equipment and Machinery Circular 20/2014/TT-BKHCN (“Circular 20”) on the importation of used machinery, equipment and production lines, generally prohibited the importation of used machinery, equipment and production lines (“Used Equipment”) that had: been used for more than 10 years; or a remaining value of less than 80%. The implementation of Circular 20 was suspended on 1 Sept 2014 following complaints from members of the business community.

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On 13 November 2015, the Ministry of Science and Technology issues Circular 23/2015/TT-BKHCN (“Circular 23”) replacing Circular 20 and governing the same. According to Circular 23, Used Equipment is allowed to be imported if they meet the following requirements: The Used Equipment's age is less than 10 years; and Manufactured under the standard complying with the National Technical Regulations

(QCVN), or National Standard (TCVN) of Vietnam, or requirements for safety, energy saving and environment protection of G7 countries.

This Circular shall take effect from 1 July 2016. 1. Background and Context We have been following the drafting process of Circular 23, and we appreciated that Ministry of Science And Technology ("MOST") has taken into consideration the stakeholder consultation during the drafting process. This Circular 20 has been a source of concern to many manufacturers, particularly those in the high tech sector who would like to move to Vietnam with the used, but effective, machinery and equipment they are currently using in other countries. What our stakeholder consultations have brought to light is that even the most modern products sometimes involve used machinery or equipment. For example, the installation of a computer chip assembly and testing line required the importation of a purpose built, specially designed crane that was last used in Malaysia. Vietnam is at a very important crossroads - supply chains are shifting around the region and thanks to the Trans Pacific Partnership, the EU-Vietnam Free Trade Agreement, the ASEAN-China Free-Trade Agreement, and other important trade agreements, many international manufacturing giants are considering a move to Vietnam, with the potential creation of millions of jobs, taxes and technology transfer. But if we don't adjust the domestic regulatory environment in this and other areas we take the risk of losing this historical opportunity.

2. Current Status: Circular 23 (“Circular 23”) on the importation of used machinery,

equipment and production lines So where do we stand? After many in the business community raised this point with the drafters, the implementation Circular 20 was suspended on 1 Sept 2014. However, the MOST had begun drafting a replacement circular that would retain the essential elements of Circular 20. On November 13, 2015 MOST issues Circular 23 to replace Circular 20. In brief, these remaining concerns include the following: 3. Main Concerns Summarized below are our main comments on the Circular 23: a. Expanded Scope of Application Previous drafts of Circular 23 only covered certain 4-digit HS commodities codes under Chapter 84 and 85 of the List of Goods for Importation and Exportation. Circular 23 now covers all commodities listed in Chapter 84 and 85. This represents a step backward, because many types of Used Equipment that were not covered under the 7th version of the draft would now be covered under the Circular 23. b. Elimination of the 80% Remaining Value Criterion Under Circular 23, all Used Equipment must meet the following standards in order to be imported:

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- The Used Equipment's age is less than 10 years;1and - Manufactured under the standard complying with the National Technical Regulations

(QCVN) or National Standard (TCVN) of Vietnam or requirements for safety, energy saving and environment protection of G7 countries.

This Circular also adds a requirement that imported Used Equipment must satisfy the relevant national technical regulations and technical standards or equivalent G7 standard, like the latest draft did. Although this change removes the onerous quality testing requirement, it may have the undesirable effect of prohibiting the importation of Used Equipment that is aged less than 10 years, but which fails to meet these standards. In response to comments made by the business community, this Circular now provides an exemption for otherwise covered Used Equipment (more than 10 years of age or failure to meet the National Technical Standards) - if the Used Equipment was listed in an approved FDI project application. This is intended to facilitate the relocation of production machines and equipment to Vietnam when foreign investors apply for Investment Certificates. This provision may be problematic because it would give considerable power and discretion to the MPI and DPI - which approve FDI projects. Further, national technical regulations apply to all imports in general. However, because the wording of this Circular could be interpreted to mean that Used Equipment listed on approved FDI project applications do not need to comply with the national technical regulations, this may create a conflict with the goods quality regulations. c. Importation Dossier Under this Circular 23, technical documents which are used to identify the year of manufacture of Used Equipment consist of: (1) a testing certificate from a third party, or (2) a confirmation letter from the manufacturer. The testing certificate must be issued within 6 months before the date of importation. These documentation requirements remain the same, despite previous comments from the business community during the drafting process requesting changes. d. Focus on Post-clearance Inspection Circular 23 is aligned with the new customs procedures by specifying that inspection for compliance with the Circular 23 will take place after customs clearance. Although this may help expedite customs clearance, a risk will remain that the Used Equipment will be deemed non-compliant with Circular 23 after the consignment has been released from customs and they will be prohibited from distribution in Vietnam. B. Used Electronic Devices (IT/C) Similar and possibly overlapping issues arise in respect of usedinformation technology equipment under the jurisdiction of the Ministry of Information and Communications ("MIC"). Where used information technology imports are concerned, an additional set of regulations apply. The new rules, our concerns and suggestions follow: 1. E-Waste Circular On 29 October 2015, the MIC issued Circular 31/2015/TT-BTTTT (“E-waste Circular”), effective from 15 December 2015, replacing Circular No. 11/2012/TT-BTTTT (“Circular No. 11”), and promulgating a List of Used Information Technology Products Banned from

1TheUsed Equipment's "age" is defined as the number of years from the manufacture year to the year such equipment is imported

to Vietnam.

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Importation into Vietnam. The intent of the E-waste Circular is to prevent the importation of harmful e-waste into Vietnam where it may be recycled in the informal economy and disposed of improperly, causing environmental harm. Generally speaking, unless an exemption applies, all used electronic products or parts are banned from being imported by the E-waste Circular. Annex 1 of the E-waste Circular contains a comprehensive list of common e-waste products banned from importation. The E-waste Circular removes several of the exemptions contained in Circular No. 11 so that there are now only the following two exemptions to the E-waste Circular’s importation ban: - Imports for scientific use. - Imports for processing, recycling, repair for foreign merchants but must then be re-

exported. The MIC may approve or reject applications for these exemptions on a case-by-case basis. Under the E-waste Circular, the MIC has seven (Exemption 1 above) or fifteen (Exemption 2 above) working days to review, and decide upon, a complete and valid application dossier for these exemptions. The following exemptions were previously available under Circular No. 11 and are no longer available under the current E-waste Circular for products: - Re-imported after being brought abroad for warranty, maintenance, repair or renewal. - Imported in the form of movement of production means within the same agency or

organization. - Imported as used special-use information technology products, with special feature

servicing for specific branches such as measurement, automatic, medicine equipment, biology and other branches, and having time limit from day of manufacture to day of opening Customs declaration not exceeding 03 years.

- Imported for use as production means, control, operation, exploitation, inspection of activity of a part or entire of production system or production line.

- Imported as renewed, refurbished or remanufactured information technology products for production under specific projects, which when implemented will bring about socio-economic benefits or serve security or national defense.

- Imported used and empty ink cartridges, after repair, renew, or remanufacture to supply, distribute in domestic market or re-export.

- Imported to service for other special purpose implements under guides for each specific case by the MIC.

2. Recommendations Taking this shifting landscape into account, the business community has proposed the following key suggestions in respect to the prior draft decision for implementing Circular No. 11/2012/TT-BTTTT that remain as valid comments for this E-waste Circular: - The exceptional circumstances under which used IT products can be imported are too

narrow. The E-Waste Circular should include all of the Circular No. 11/2012/TT-BTTTT's exemptions and further expand them to cover the following: If the products are being imported as part of the provision, expansion and/or

maintenance of commercial telecommunications service production networks. If the products are to be used to control, operate, implement or inspect the

operation of Commercial Licensed Telecommunications Services. If the products are used in support of a licensed service with active customers.

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- Article 6 of the E-waste Circular requires that the applicant submit, inter alia, the applicant's capacity statement (including production line, equipment sufficient to provide the processing service for the relevant products; and personnel and financial capacity to carry out the service). The MIC should clarify what types of documents would meet this requirement and/or provide examples of such documents.

- Under the E-waste Circular, the importation of refurbished products is only permitted

for replacement or repairs, and these items must be later re-exported. Refurbished products are sold with warranties and are quality certified. Thus, their importation should not be limited only to circumstances of replacement and repairs for re-exportation.

- To further streamline import procedures, the E-waste Circular should also provide:

That the period for application processing and issuance of the MIC's approval be shortened to 3 working days (from the current 07 and 15 working days reflected in the E-waste Circular); and

A blanket exemption, from the import permit requirement, for importers with Authorized Economic Operator (AEO) status.

III. TAX ISSUES 1. Investment protection - Some local tax authorities already have different practices in their treatment of

taxpayers and incentives as compared with the current guidance of the Government, and they have even rejected the incentives specified in the Investment Certificate of the enterprise, requiring instead the application of current legal provisions, making difficulties for enterprises in implementing their investment projects and manufacturing in Vietnam market.

- Consistent guidance should be instructed to local tax authorities in respect of Investment incentives for the enterprises that are fully specified in their Investment Licenses or Investment Registration Certificates, avoiding the inconsistent treatment that causes concerns and undermines the confidence of foreign investors in the investment environment.

2. Expenses related to service contracts signed with Parent Company - Tax authorities are taking a harsh line on expenses related to service contracts signed

with Parent Company and they are raising doubts on transfer pricing issues. Some local tax departments treat these expenses as management fees allocated for permanent establishments. Besides, the tax authorities also impose unreasonable documentation requirements for these fees.

- Consistent guidance should be given to tax authorities to have reasonable treatment for service fees paid to Parent companies or corporations in order to reflect exactly the characteristics of these fees. Besides, services received from affiliated parties should be regarded as deductible expenses for Corporate Income Tax purpose.

IV. INTELLECTUAL PROPERTY IN THE COMINGTPP ERA Twelve countries, including Vietnam, accounting for nearly 40% of global GDP and over 30% of global exports, have agreed on the text of a path-breaking new multilateral trade agreement The Trans-Pacific Partnership ("TPP") that will give Vietnam more access to lucrative export markets in return for, among other things, raising the standard of protection of intellectual property rights (of locals as well as foreigners). In order to

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prepare for the entry into effect of the TPP, we wish to note the following areas where the impact on Vietnam's current laws and practices may be greatest. We note that at the time of writing this paper, the final text of the TPP was not yet available, so it is not certain that the following terms will be exactly replicated in the final draft of the agreement, but they represent the best information available to date. 1. Online Copyright Infringement Copyright infringement is becoming a major issue in Vietnam, especially in the Internet era. There are more and more Internet Service Providers (ISP) available, which offer a number of online services for the transmission or storage of digital online material. The Internet carries serious risks of copyright infringements, as Internet users can easily gain access to and download movies, songs or books, just by a simple click. They can even upload unlicensed video clips or films on intermediary service platforms. Authors of such works suffer great loss when their products are distributed throughout the world for free. Vietnamese regulations on the responsibilities of ISPs on protecting copyright and related rights in the Internet and telecommunication networks environment are not sufficient. According to the Joint Circular No. 07/2012/TTLT-BTTTT-BVHTTDL dated 19 June 2012 of the Ministry of Information and Communications and the Ministry of Culture, Sports and Tourism ("Circular 07"), ISP must have in place a system of inspection, supervision, process of information input, storage, transmission to help prevent violation of copyright and related rights. Circular 07 stipulates the responsibility of ISPs to pay damages for the infringing acts of copyright and related rights in instances where they are the sources initiating the publication, transmission or supplying of digital information on the Internet and telecommunication network without the permission of the rights holders. However, to date, there has not been any specific provision detailing these responsibilities. Furthermore, it is unclear whether there are any legal mechanism for ISPs to escape from liabilities, in cases where they are not directly involved in copyright infringements occurring on their respective systems. The new TPP Agreement should not only facilitate the continued development of legitimate online services operating as intermediaries, but it should also provide enforcement procedures permitting effective action by rights holders against copyright infringements that occur in the online environment. Accordingly, under a rather dated leaked version of the IP Chapter of the TPP Agreement, the ISP might enjoy certain "safe harbours" in respect of the online services that they provide. Specifically, ISPs will not be subject to monetary fines for copyright infringements beyond their control. Domestic law may need to be adjusted to reflect this reasonable balance of interests and practicality. 2. Protection for Untraditional Trademarks Today, an increasing number of companies seek to link their brands to the consumers' heart and mind via every human sense not only vision, namely by means of sound and smell (e.g., ringtones of iPhone or Nokia, start/shutdown sounds of Microsoft Windows). Taking into account the functionality of such means, that is, differentiating goods/services originating from different undertakings, smells and sounds should be treated as trademarks. Regrettably, our current IP regulations only accept the protection of trademarks which are visible in the form of letters, words, drawings or images or a combination thereof, represented in one or more colours. However, in light of the TPP Agreement, Parties including Vietnam may be required to recognize the registrability of

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trademarks containing sound elements and make best effort to register scent marks. This innovation will encourage every company to invent and apply new effective branding and marketing tools on the one hand, but will require Vietnamese legal system to have significantly advanced regulations on the registration and enforcement procedures in relation to those untraditional trademarks on the other hand. 3. Patent Issues Among the patent issues negotiated under the TPP agreement, the most controversial one related to pharmaceutical products/drugs. Data exclusivity in pharmaceutical/ agricultural chemical products

In respect of pharmaceutical products, companies are permitted to keep their test or other data, concerning the safety and efficacy of the products, undisclosed for at least 5 years from the date of the marketing approval of the new agricultural chemical product, in the territory of the Party. The terms for biotech pharmaceutical products and agricultural chemical products are 8 years and 10 years, respectively. To market the same or a similar pharmaceutical product, third persons, without the consent of the person who previously submitted safety and efficacy information, are required to: - wait 5-10 years from the expiry date of the patent to apply for a marketing approval; or

- carry out all tests concerning the safety and efficiency of the new similar products on their own to gain similar information.

These provisions demonstrate a stronger legal framework to protect legitimate rights of companies capable of conducting exceptionally costly tests of the pharmaceutical safety and efficacy, especially US pharmaceutical producers. However, this will also obstacles to Vietnam, as its citizens often cannot afford to buy expensive original pharmaceutical products. Extension of Term of Protection

According to TPP proposals, competent state agencies, at the request of the patent owner, may be required to adjust the term of a patent to compensate for "unreasonable delays" that occur in the granting of the patent. An "unreasonable delay" shall include a delay in the issuance of the patent of more than five years from the date of filing of the application in the territory of the Party, or three years after a request for examination of the application has been made, whichever is the later. This also would extend the patent protection term beyond 20 years, which would further prolong the entry of inventions into the public domain, including pharmaceutical products. These among others are the issues that will need to be addressed in domestic legislation as the entry into effect of the TPP approaches. V. DUPLICATIVE REGISTRATION AND APPROVAL OF INSURANCE CONTRACT FORMS 1. Administrative Procedure Reform In the Vietnam Business Forum, we often raise concerns in cases where administrative procedures are proposed or adopted that are duplicative, unnecessary or overly burdensome. We all agree that administrative procedures should be as automatic and as transparent as possible, putting as little burden as possible on the applicant as reasonably

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required to achieve the legitimate public policy interest underlying the administrative procedure. With these policies in mind, we would like to raise our concern today about Decision 35/2015/QD-TTg on the registration and approval of insurance contracts. 2. Concerns regarding New Registration and Approval Rules The Association of Vietnamese Insurers (“AVI”) and Life Insurance Companies (the “LICs”) has already expressed its concerns about Decision No. 35/2015/QD-TTg (“Decision 35”) issued by the Prime Minister dated 20 August 2015 amending and supplementing certain provisions of Decision No. 02/2012/QD-TTg (“Decision 02”) dated 13 January 2012 on regulating list of essential goods and services (“List”) which standards contract forms/general trading conditions must be registered under the Law on Protection of Consumers’ rights. According to Decision 35, life insurance products have been added to the List. The consequence of this is that life insurance contract templates must now be reviewed by an additional authority, when the existing rigorous review procedure of the MOF should be adequate. 3. Summary of Main Suggestions The AVI and LICs have prepared a detailed letter outlining their concerns and recommendations, which we attach to this paper as Appendix 2. In light of the difficulties the industry faces as a result, it has requested among others the following for consideration: - Allow the temporarily suspension the application of Decision 35 for life insurance until a

consolidated set of guidelines can be jointly issued by the Ministry of Finance and the Ministry of Industry and Trade. Such guidelines should include a procedure for combining and harmonizing the ratification mechanism for life insurance product at the Ministry of Finance and the registration mechanism for life insurance contracts at the Ministry of Industry and Trade. The combined procedure could help to reduce overlapping regulations and simplify administrative procedures, and help to reduce cost arising to the insurers.

- Allow insurers to register an insurance contract after obtaining the Ministry of Finance’s approval on relevant insurance product. The official letter on ratifying a insurance product under Circular 124 shall be both simultaneously sent to the Ministry of Industry and Trade and an insurer for registration completion.

- Though the LICs are included within the scope of Decision 35, the LICs did not receive any official letter for collecting stakeholder opinions on the draft of Decision 35. Only the AVI had a chance to provide its comments. Further stakeholder consultation should be sought to give full play to the practical constructive suggestions that the industry may offer.

Decision 35 took effect from 15 October 2015, The Association of Vietnamese Insurers and the LICs hope to get the attention of The Prime Minister and Ministries to solve above difficulties. More detailed analysis of this issue is set forth in Attachment 2.

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V. CONCERNS ABOUT LIMITS ON FOREIGN INVESTMENT IN EDUCATION 1. Encouraged, but Limited, Especially in Primary and Secondary areas The Education Working Group has provided regular constructive feedback on issues facing the education sector in Vietnam. From the perspective of some foreign investors in this sector, there remain some fundamental issues to be addressed before foreign investment can be mobilized to the full extent Vietnam needs to meet its own educational needs, must less the legitimate interests of the investors in this sector. We note that as a general principle, in accordance with the 2014 Investment Law, investment in education is a highly encouraged investment sector. Vietnam's WTO commitments, the Investment Law and the other guiding regulations also encourage foreign investment in education, allowing among other things a foreign ownership percentage of up to 100%. This progressive policy lays the groundwork for mobilizing foreign investment in all sorts of different educational activities, which has already been helpful in enabling Vietnam to meet its socio-economic development objectives. However, back in 2012 the Government issued Decree No. 73/2012/ND-CP on foreign investment and cooperation in education sector (“Decree No. 73”), which still has a limiting effect on the availability of foreign invested educational establishments can have. Specifically, in accordance with Article 24 of this Decree, a foreign invested educational institution may enroll Vietnamese students, but the number of Vietnamese students at the primary and junior high level must not exceed 10% of the total number of foreign enrolled students, and that in senior high level must not exceed 20% of the total number of foreign enrolled students. 2. The Issue The problem encountered by some foreign invested educational businesses here is that the percentage of Vietnamese students allowed to study is calculated based on the number of foreign enrolled students. In the simple calculation, only 01 Vietnamese student of 10 foreign enrolled students is allowed to study in a foreign invested institution. If the foreign invested institutions have inadequate numbers of foreign students, Vietnamese students are not allowed to be enrolled to study. This provision is causing problems for some foreign investors environment in the education sector outside the main cities. The fact is in most second-tier-provinces outside Hanoi and Ho Chi Minh there are very few foreigners residing there to work and live. With a lack of foreign students, it is not possible to create a viable business investing in education for local students. As a consequence, foreign investment in primary and secondary education is effectively closed in second-tier cities of Vietnam. 3. Discussion There is no doubt about the need for more investment in second tier and rural schools. Based on the report of the Department of Foreign Training under the Ministry of Education and Training, the number of Vietnamese students go to overseas for study is increasing every year with current now is more than 110,000 students in 47 countries with the school fees from 30,000 USD to 40,000 per year per student. In other words, Vietnamese is exporting about 3 billion USD every year to send its children overseas for education.

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4. Suggestion In this context, we respectfully suggest that the Vietnamese government reconsider the limitation on the ratio of Vietnamese students who may study in international schools as provided at Article 24 of the Decree No. 73. Perhaps a more flexible policy would be appropriate in areas with few foreign students, or perhaps different curriculum accreditation rules might apply. Those are matters that may be more effectively pursued through the Education Working Group, but for the time being we merely wish to note that a potential for mobilizing foreign investment in the development of rural areas and second tier cities is being missed.

* * * We are grateful for the opportunity to share our views through the Vietnam Business Forum. We hope that as a result of these exchanges, we will continue to overcome challenges and achieve successes.

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ATTACHMENT 1

MEMORANDUM ON: INTERNATIONAL STANDARDS FOR RECOGNIZING, ENFORCING AND SETTING ASIDE FOREIGN ARBITRAL AWARDS BASED ON

"FUNDAMENTAL PRINCIPLES OF LAW" EXEMPTION Introduction Arbitration has become the preferred mechanism for resolving both commercial and investment disputes between international entities and an area Vietnam must turn in its efforts to attract foreign investment and business expansion. Vietnam ranked 36th out of 182 in terms of GDP. However, the nation ranked 99th out of 188 in terms of ease of doing business. A wide discrepancy between these two rankings indicates a need for a legal reform, particularly in arbitration. Although Vietnam, along with 156 other countries, have signed and ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 ("Convention"), Vietnam is still behind in applying and enforcing the Convention. A common understanding between countries ensures seamless and efficient arbitral proceedings and guarantees consistency between each proceeding. In addition, the Convention has proven to be a powerful tool for not only for the business community but also the local court systems. Local courts will be able to focus their efforts on local disputes and become more efficient to serve the local population, while arbitration centres can increase the number of proceedings. Overall, a well thought out set of arbitration regulations allows for efficiencies across the board and reduces risk for foreign commercial entities, thereby reducing the risk of doing business in Vietnam and attracting more investments. The purpose of this paper is to explore and develop an in-depth understanding of international best practices for recognizing and enforcing foreign arbitral awards, and gain insight on the "public policy" exemption under Article V(2)(b) of the Convention, a ground often invoked in Vietnam to set aside arbitral awards. In addition, this paper will propose changes for the Vietnamese judicial system to take a different approach when interpreting the "public policy" exemption so that Vietnam can become a desirable hub for arbitration, and ultimately for business. Vietnam's arbitration law and interpretation of the "public policy" exemption in Vietnam Arbitration in Vietnam is governed by Law on Commercial Arbitration ("LCA"), which was enacted and approved by the National Assembly in 2010. In order to further improve the effectiveness of the LCA, the Supreme People's Court of Vietnam issued Resolution 01/2014/NQ-HDTP ("Resolution"). The Resolution clearly indicates that Vietnam's judicial system is moving towards reducing the number of set-asides of foreign arbitral awards, and hopefully, increase the number of foreign arbitral awards that are recognized and enforced within Vietnam. This Resolution establishes a supportive role of courts in arbitration proceedings, however, the Resolution also outlines bases of annulment of foreign arbitral awards. Under Article 14 sub-paragraph (dd), the Resolution states that the arbitral award is void when "[the] arbitral award contravenes the basic principles of Vietnam's Law." The Resolution continues to explain that an award shall be set-aside after proving that the award contravenes one or some basic rules of Vietnam's law. Vietnam defines "public policy" as the "fundamental principles of Vietnamese law" and regularly cites this as a reason to void a foreign arbitral award. This language and broad interpretation of the meaning of violations of "public policy" has led to a poor enforcement rate of foreign arbitral awards within Vietnam. Vietnamese courts uphold less than half of arbitral awards

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that are challenged, whereas Japan has a 100% success rate and over 90% in China and Hong Kong. The low enforcement rate is quickly becoming an issue and causing real concern in the international business community. Foreign investors perceive this lack of enforcement as a threat and risk to business operations and dispute resolution. However, this risk can be easily mitigated by examining the interpretation of the "public policy" in Vietnam and understand the differences between Vietnam and international best practices. What is considered as a violation of the fundamental principles of Vietnamese laws? - Due to the regulations of Vietnamese laws, court documentation is not made public, but

the Resolution has outlined a few examples of this type of violation. - An agreement between the parties includes a clause on dispute settlement, but when

the parties concluded arbitral proceedings, the arbitral tribunal did not recognize that clause and ruled against it. However, under Vietnamese law, Article 11 of the Law on Commerce allows parties to voluntarily agree to business agreements, thus, the arbitral award would be considered unenforceable because it contravenes a basic rule and violates the fundamental principles of Vietnamese law.

- Another basis for setting aside a foreign arbitral award is that the procedure used to in the arbitration is not consistent with provisions of Vietnam's Civil Procedure Code ("CPC"). Applying the CPC, Vietnamese courts would be able to find a basic and technical reason to void a valid arbitral award.

Overall, the Resolution has taken a positive step and clarified the definition and application of the fundamental principles of Vietnamese law. Unfortunately, it is now clear that the Vietnamese judicial system interprets the "public policy" clause in the New York Convention broadly. Essentially, this interpretation nullifies many foreign arbitral awards and tends to increase dispute expenses for foreign investors. This interpretation is contrary to international best practices, where many member states of the New York Convention take a narrow approach when applying the "public policy" exception. The following sections explore how other countries around the globe interpret the "public policy" exception and draws comparisons to the Vietnamese judicial system. Interpretation of the "public policy" exemption in the international community Brazil: Brazil defines a violation of public policy as "the social, political and legal basis of a State, which is considered indispensable to its survival, which may exclude the application of foreign law." Letter rogatory no CR 9,970/EU, Reporting Justice Marco Aurelio de Mello, decided on 18 March 2002.

This definition seems as a broad interpretation of the "public policy" exemption, but in practice and shown by case law, Brazil takes a narrow and more stringent approach when interpreting the "public policy" exemption of the New York Convention.

The Brazilian court system has been respecting foreign governing laws in determining arbitral awards - this is more consistent with the international community where international public policy is a narrow and stringent standard rather than meeting local mandatory rules.

Examples that are not considered as a violation of public policy: - In L'Aiglon S/A v. Textil Uniao S/A, arbitration was done in London and award was given

without grounds to the decision. Respondent opposed the enforcement in Brazil but the

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Superior Court of Justice ("STJ") held that the absence of reason was consistent with the arbitration rules, and did not violate public policy in Brazil.

- This is shown in a case where a Brazilian citizen was summoned to appear in US District Court of NJ for violating laws in the US but the Brazilian citizen did not violate any laws in Brazil. Letter rogatory no CR 9,970/EU, Reporting Justice Marco Aurelio de Mello, decided on 18 March 2002.

- In Thales Geosolutions Inc. v. Fonseca Almeida Representacos e Comercia Ltda., the arbitration took place in Houston and the respondent claimed that the panel failed to take into consideration a principle of Brazilian contract law. But this argument was rejected by the STJ because violation of domestic law does not amount to violation of international public policy.

Examples that are considered as a violation of public policy: - The STJ, at first, denied to recognize a foreign arbitral award only on four occasions.

Enforcing an arbitral award when there was an absence of arbitration agreements between the parties would be violation of public policy. However, after further review,the court ultmately uphelp the award.

- http://latinlawyer.com/reference/topics/45/jurisdictions/6/brazil/. - Another example that may give reason to not enforce a foreign arbitral award is when

foreign arbitration proceedings do not adhere to Brazil's Code of Civil Procedure. In particular, the rules of discovery differs between the U.S. and Brazil. However, there have been almost no instances of these types of violation, and the STJ are respecting foreign procedures and do not enforce local laws on foreign proceedings. http://latinlawyer.com/reference/topics/45/jurisdictions/6/brazil/.

China: China has adopted the term "social and public interest" instead of the "public policy" set out by the Convention. - This term appears in the Arbitration Law, Civil Procedure Law, and mutual

arrangements between Hong Kong and Macau. - Under the civil procedure code, grounds for setting aside an arbitral award can be done

under public policy interests for domestic and foreign disputes. (Article 213-domestic and Article 258-foreign).

- Under article 70 and 71 of Arbitrational Law - set aside can be made for an award that would harm the "sovereignty, security or public interest" of the nation.

Defining what constitutes as "public policy:" - There is a common misconception that Chinese courts frequently cite a violation of

public policy to set aside foreign arbitral award. In fact, contrary to public views, Chinese case law shows a narrow interpretation of what would constitute as a violation of public policy under the New York Convention.

- What does not constitute as a public policy violation: Damage to interest of state-owned enterprises. Kaifeng Dongfeng Garment Factory v.

Henan Garment Import and Export Group. Damage to state-owned assets. Shenzhen Boasheng Jinggao Environment

Development Co., Ltd. v. Hefei City Appearance Environment Hygiene Bureau, [2005] Min Si Ta Zi [Civil Court Ruling] No. 45, SPC reply, issued on 23 January 2006.

Violation of domestic law does not violate the social and public interest. ED&F Man (HK) v. China Sugar and Wine Company (Group), [2003] Min Si Ta Zi [Civil Court Ruling] No. 3, SPC reply, issued on 1 July 2003.

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Administrative regulations do not generally appear to constitute as public policy. Even a breach of a mandatory law would not fall under this provision. Mitsui Co. (Japan) v. Hainan Textile Industy General Co., [2001] Min Si Ta Zi [Civil Court Ruling] No. 12, SPC reply, issued on 12 July 2005.

Fairness of outcome is not a relevant consideration for determining violation of social and public interest. Shanghai Feilun v. GRD Minproc, Ltd.

- What does constitute as a public policy violation:

If a foreign law violates the fundamental principles of china's laws, national sovereignty, basic moral order, customs or traditions, then it violates the social and public interests of China.

Live performance of heavy metal music without approval of Ministry of Culture was considered as a public policy violation because the music was not suitable for and had a negative effect on Chinese society. American Production Co. and Tom Flight Co. v. Chinese Women's Travel Agency, Ta [1997] No. 35, SPC reply, issued on 26 December 1997. In 1977, a U.S. band entered into a contract to perform a concert, and during the

performance, the concert was suspended. The Chinese authorities asserted that the band had breached the contract by performing heavy metal music, which was not approved by the Ministry of Culture of China.

After not being paid, the band commenced arbitration in China pursuant to an arbitration clause in the contract. The tribunal awarded damages to the U.S. band.

However, when the SPC reviewed the arbitral award, the court concluded that the band violated the social public interest of China and that the arbitral award would not be enforced.

It must be noted that this case took place in 1977, before China adopted its reform and open door policy. Today, the performance of a heavy metal concert would certainly not rise to the stringent level of public policy violation in China.

- Overall, China has a very narrow approach to the notion of public policy arguments to set

aside foreign arbitral awards and it is difficult to reach the strict level required by the SPC to be considered as a violation of public policy.

France: - France distinguishes between international and domestic arbitral awards - this includes

procedural and substantive elements. Code of Civil Procedure Article 1520(5). - Procedural element includes due process, equality of parties and deception of

arbitrators. Cass. Civ. 1, 7 January 1992. DUTCO, no. 8918708, 89-18726. CA Paris, 1 July 2010 - THALES v. Maine de la Republique de Chine, Rev. Arb. 2010, p. 863 et seq.

- International arbitral awards that do not state a reason does not constitute as a violation of international public policy.

- Substantive violations of international public policy are few and rare.

Examples of awards that are contrary, at the time of the award, to French law and public policy: Upholding religious, racial, or ethic discrimination. Similar to the Jivraj case

(Jivraj v. Hashwani [2011] UKSC40, 27 July 2011). Upholding a contract for an illegal activity (slavery), violation of European

competition law, and some provision of French bankruptcy law.

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The French courts have also established a severity threshold. CA Paris, 18 November 2004, Thales v. Euromissile, no. 2002/19606, which states in French that the violation must "crever les yeax.' Most courts have said the violation of international public must be considered as

"flagrant, effective, and concrete." Some courts have gone further and said the violation must be "blatantly

obvious."

- Overall, the approach taken by French courts is restrictive and does not give the local system much control of arbitral awards on the grounds of violating international public policy. Therefore, very rarely setting aside foreign arbitral awards in France.

Germany: - In Germany, the courts have used a general definition of public policy determined by the

European Court of Justice. Case C-7/98 [28 March 2000]. Violation of public policy principles constitutes "a manifest breach of a rule of law

regarded as essential in the legal order of the State in which enforcement is sought or of a right recognize as being fundamental within that legal order."

- Like many other countries, public policy arguments in Germany can be invoked for breaches of either procedural or substantive.

- Examples of violations of substantive public policy (reference to pg 219 of the arbitration handbook): An arbitral award that would render an impossible performance or performance that

would constitute a criminal offense. Schwab/Walter, Chapter 24, note 41. An award obliging a party to perform an act that could not be enforced under

German law, for example, voting in a certain manner at a shareholders' meeting. RGZ 131, 179.

An award that is contradictory in terms. Schwab/Walter, Chapter 24, note 41. An award that would constitute a violation of German competition or antitrust law,

export and import regulations or money laundering provisions. European Court of Justice, judgement of 1 June 1999, Case C-126/97 ("Eco Swiss"); Bockstiegel/Kroll/Nacimeiento-Kroll/Kraft, Sec. 1059, note 83.

An award that was obtained by means of bribery, fraud, or false statements. An award that provides for punitive damages. It is a basic principle of German law

that damages may only be compensatory. To the extent an award grants a party punitive damages, the award would not be enforceable in Germany.

- Examples of violations of procedural public policy: Right to be heard (including proper service, sufficient time to file briefs,

representation in the proceedings, consideration of submissions and evidence provided). Court of Appeal of Cologne, decision of 23 April 2004, file no. 9 Sch 01/03, SchiedsVZ 2005, 163.

Procedural neutrality of the tribunal. Munchener Kommentar-Munch, Sec. 1059, note 45.

Instances that would, under domestic procedural law, allow a res judicata case to be re-opened. This would include false testimonies under oath by either party or a witness, use of forged documents, conduct of judges, or extortion of judges. Schwab/Walter, Chapter 24, note 51.

The notion and purpose of procedural public policy is to ensure that the arbitral proceedings have met minimum standards (of fair trial) set out by German law.

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However, the threshold for procedural breach is high. Only grave breaches of procedural rules can give rise to a denial of recognition. File No. III ZB 50/05.

- Example that does not violate public policy: An arbitral award that provides for payment of compound interest, German law do

not recognize an entitlement to compound interest. However, an award that ordered a respondent to pay compound interest would still be declared enforceable in Germany.

Hong Kong: - The expression "public policy" is a multi-faceted concept. Woven into this concept is the

principle that courts should recognize the validity of decisions of foreign arbitral tribunals as a matter of comity, and give effect to them, unless to do so would violate the most basic notions of morality and justice. (reference to pg 240 of the arbitration handbook).

- The public policy exception is drawn very narrowly in Hong Kong. "Public policy" must not be extended to include every conceivable kind of error (reference to pg 242 of the arbitration handbook).

- "International public policy" should be taken to mean only those elements of a state's

own public policy that were so fundamental to its notions of justice that its courts felt obliged to apply the same not only to purely internal matters, but also to matters with a foreign element, that may affect other states (reference to pg 242 of the arbitration handbook).

- Examples of proceedings that do constitute as a public policy violation:

An arbitral award that was obtained by fraudulent behaviour. E.g. corruption, actual bias, behaviour that is oppressive or otherwise immoral or unconscionable. Shangdong Textiles Import and Export Corp v. Da Hua Non-Ferrous Metals Co. Ltd. [2002] 2 HKC 122.

- Examples of proceedings that do not constitute as a public policy violation: Apparent bias would not necessarily amount to a breach of public policy. The court

must consider what is acceptable in the place of arbitration (pg 244). For example, if it is common for mediation to be conducted over dinner at a hotel in mainland China, an award would not be enforced in Hong Kong because in Hong Kong, such conduct might give rise to an appearance of apparent bias. However, a PRC court is better able to decide what is acceptable or unacceptable in the PRC (pg 245). It is conferred that court should look at the time, place, manner of the arbitration.

India: - In Supreme Court of India, Associate Builders v Delhi Development Authority, 25

November 2014, the Supreme Court has clarified the scope of the “public policy ground” to set aside awards, recognizing that an award could only be set aside on grounds of public policy in very limited circumstances.

- An award would violate “public policy” where it was:

Contrary to the fundamental policy of Indian law; Contrary to the interests of India; Contrary to justice and morality; or Patently illegal.

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- Examples of proceedings that do constitute as a public policy violation:

Foreign Exchange legislations are violated; Orders of superior courts are disregarded; Binding judgments of superior courts are ignored; The tribunal fails to adopt a judicial approach. A „judicial approach‟ is where the

tribunal acts “bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration“;

The Tribunal fails to make its decision in accordance with well accepted principles of natural justice. In this context, the court strongly recommended recording reasons in support of any decision; and

The tribunal reaches a decision “which is so perverse or so irrational that no reasonable person would have arrived at the same“. The court noted that where “an arbitral tribunal takes into account something irrelevant to the decision which it arrives at; or ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.”

- Examples of proceedings that do not constitute as a public policy violation: Violation of domestic evidentiary rules does not constitute a violation of public policy. The court however cautioned that even when considering whether an award is

contrary to the fundamental policy of India, due weight must be given to a determination by an arbitrator – especially on questions of fact. http://hsfnotes.com/arbitration/2015/02/09/supreme-court-of-india-clarifies-the-scope-of-public-policy-grounds-for-challenging-a-domestic-arbitration-award-under-section-34-of-the-arbitration-and-conciliation-act/ http://www.advocatekhoj.com/library/judgments/announcement.php?WID=5346

Singapore: - Singapore has recognized that it is public policy to ensure that courts minimize their

involvement in matters where parties have agreed to submit to arbitration. (Tjong Very Sumito v. Antig Investments [2009] 4 SLR 732, at [29]).

- There is no difference between the concept of public policy as a ground for setting aside

an award made in Singapore and for not recognizing and enforcing of a foreign arbitral award. (AJU v. AJT [2011] SGCA 41, at [31].)

- A public policy objection for resisting enforcement of an award must involve either

exceptional circumstances which would justify the court in refusing to enforce the award or a violation of the most basic notions of justice. The scope is also construed very narrowly. (Ibid.)

- Examples of proceedings that do constitute as a public policy violation:

An award that enforces an agreement that undermines the administration of justice, such as an agreement to stifle the prosecution of a non-compoundable offense. (AJU v. AJT [2010] 4 SLR 649, at [28], [31]-[32]).

An award that enforces an agreement where the object of which was a breach of international comity, in the sense that the object is to do something illegal under the law of the place of performance. (AJU v. AJT [2010] 4 SLR 749 at [21]).

Corruption, bribery or fraud. (PT Asuransi Jasa Indonesia (Persero) v. Dexia Bank SA [2006] 1 SLR 197, at [59]).

- Examples of proceedings that do not constitute as a public policy violation:

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Errors of law or fact, except an error of law as to what constitutes the public policy of Singapore. (AJU v. AJT [2011] 4 SLR 749 at [21]).

Enforcement of an award that seeks to bind a non-signatory. (Aloe Vera of America, Inc. v. Asianic Food (S) Pte Ltd. and another [2006] 3 SLR(R) 174 [75] - [76]).

The tribunal failed to decide the matter in accordance with the facts and evidence presented by the parties (Galsworthy Ltd. of the Republic of Liberia v. Glory Wealth Shipping Pte Ltd. [2011] 1 SLR 727, at [17]).

Any principle that costs incurred (and therefore awarded) should be proportional to the amount in dispute. (VV v. VW 2 SLR(R) 929 at [28]-[31].

United States of America: - Precedents have shown that U.S. courts will uphold this defence only where

enforcement would violate the forum state's "most basic notions of morality and justice." The court expressly noted that the scope of public policy must be construed narrowly if the NYC was to be effective. As a result, a public policy defence has rarely been successful before U.S. courts.

- Federal courts have almost uniformly enforced foreign arbitral awards despite claims

that the enforcement of the very substance of the award would violate U.S. public policy (pg 567).

- There has also been little success in invoking the public policy defence in connection

with attempts to demonstrate procedural infirmities with the arbitrations in which the disputed awards were rendered (pg 567).

- Examples of proceedings that do constitute as a public policy violation:

U.S. courts have been unwilling to enforce awards that are penal in nature. In Laminoirs-Trefileries-Cableries de Lens, S.A. v. Southwire Co., the court found that the use of the French legal rate of interest in the award was permissible but rejected the provision in the award increasing the interest rate awarded to 14.5 and 15.5 percent if the award was not satisfied by a certain date. The increase was rejected as a penalty because the French interest rate was unreasonably high. The court noted that because the interest awarded had no "reasonable relation to any probable damage which may follow," the interest award would not be enforced. 484 F. Supp. 1063 (N.D. Ga. 1980).

The U.S. court, in Sea Dragon, Inc. v. Gebr. Van Weelde Sheedvaartkantoor B.V., declined to enforce a foreign arbitration award that conflicted with the a foreign court decree. The court said that absent any evidence that the award violated U.S. law or policy or that the foreign court lacked jurisdiction, it was the firm and established policy of American courts to respect a valid foreign decree. 574 F. Supp. 367 (S.D.N.Y. 1983).

- Examples of proceedings that do not constitute as a public policy violation: In Parsons, the Court refused to equalize foreign policy with public policy. Parson &

Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier (RAKTA), 508 F.2d 969, 973 (2d Cir. 1974).

In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., the United States Supreme Court set aside Article II(1) of the Convention, allowing certain claims to be removed from arbitration if they were "not capable of settlement by arbitration." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 661, 105 S. Ct. 3346, 3371, 87 L. Ed. 2d 444 (1985). In Mitsubishi, a U.S. party filed a claim in U.S. district court under the federal antitrust laws. The First Circuit ruled that antitrust

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cases are too complex to arbitrate. The Supreme Court reversed the decision and reaffirmed its strong presumption in favour of enforcement of freely negotiated contractual choice-of-forum provisions. The Court said that "concerns of international comity, respect for capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes" require enforcement of transnational agreements to arbitrate. (Id. 629).

In Waterside Ocean Navigation Co. v. International Navigation, Ltd., the court held that the admission and consideration of inconsistent and allegedly false testimony on an issue material to the arbitration, did not meet the high threshold for setting aside the award under the public policy exception. (737 F. 2d 150 (2d Cir. 1984).

Similarly, in Avraham v. Shigur Express, Ltd., the court noted that the admission of evidence in an arbitration that might be precluded in a U.S. court does not sufficiently undermine or make illegitimate an award, unless the mistake is so gross as to amount to fraud or misconduct. (No. 91 Civ. 1238 (SWK), 1991 U.S. Dist. LEXIS 12267, *7-8 (S.D.N.Y. Sept. 3, 1991).

In National Oil Corp v. Libyan Sun Oil Co., the court held that even when actual fraud occurs by a witness in an arbitral proceeding, "courts must be slow to vacate an arbitral award." 733 F. Supp. 800, 814 (D. Del. 1990); See also Newark Stereotypers' Union No. 18 v. Newark Morning Ledger Co., 397 F. 2d 594, 600 (3d. Cir. 1969).

In Generica Ltd. v. Pharmaceutical Basics, the court enforced an award regardless of arbitrator's failure to allow adequate cross-examination, refusal to accept rebuttal evidence and refusal to require the parties to disclose the basis for their damages claim. No. 95 C 5935, 1996 U.S. Dist. LEXIS 13716 (N.D. Ill. Sept. 16, 1996).

In Steel Corp. of the Phil v. Intl' Steel Serv., a pending motion to vacate an arbitral award in a foreign jurisdiction does not prevent a U.S. court from recognizing and enforcing the same disputed award. Enforcing the disputed award would not be against the U.S.'s most basic notions of morality and justice. 354 Fed. Appx. 689, 695 (3d Cir. 2009).

United Kingdom: - English courts rarely rejected enforcement of arbitral awards by reason of public policy

(reference to pg 542 of the arbitration handbook).

- A successful challenge on this ground is likely to require some form of reprehensible or unconscionable conduct, such as illegality, fraud, bribery or corruption. Profilati Italiia SrL v. Paine Webber [2001] EWHC Commercial 24, [17]; Cutflet Chartering v. Caroussel Shipping [2001] 1 All E.R. (Comm) 398).

- The English courts have set aside permission to enforce an award made in England

where the award referred on its face to an illegal object and was therefore found to be contrary to public policy. (Soleimany v. Soleimany [1999] Q.B. 785, in which the arbitral tribunal had found a contract to smuggle carpets out of Iran to be illegal under Iranian law).

- Recognition or enforcement of a NYC award may also be refused by English courts on

public policy ground. (Arbitration Act, s. 103(3)).

- Public policy, for the purposes of the English courts, confined to public policy of England as the country in which enforcement is sought. The enforcement must be "wholly offensive to the ordinary reasonable and fully informed member of the public" to meet

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the public policy exception standard. (See, e.g., Deutsche Schachtbau - und Tiefbohr-Gesellschaft m.b.H. v. Shell International Petroleum Co. Ltd. [1990] 1 A.C. 295).

- "Clearly injurious" and "wholly offensive" principles have been crucial to interpret the

public policy defence. (Richardson v. Mellish [1824] 2 Bing 229/252).

- Examples of proceedings that do constitute as a public policy violation: In Soleimany v. Soleimany, the public policy defence was admitted by the Court of

Appeal of England and Wales and the enforcement of arbitral award was rejected. In this case, Abner Soleimany was directed to Iran by his father, Sion Soleimany, in order to recover the carpets confiscated by Iranian customs authorities. However, the distribution of profits between Sion and Abner created the dispute between parties. The Court ruled that exporting the carpets subjected to the agreement composed of smuggling is illegal. The action is "clearly injurious" and "wholly offensive." Soleimany v. Soleimany [1999] Q.B. 785.

- Where enforcement of an award would result in a breach of England's treaty obligations, then the English courts will not enforce such an award on public policy grounds. For example, awards in favour of drug trafficking will be set aside, whatever their proper law, and wherever the place of performance (reference to pg 546 of the arbitration handbook).

- Examples of proceedings that do not constitute as a public policy violation:

Enforcement of contracts that violate rules of public policy based on purely domestic concerns that are not performed within the jurisdiction of the English courts. (Westacre Investments Inc. v. Jugoimport-SPDR Holding Co. Ltd. [1999] Q.B. 740, applied in R v. V [2008] EWHC 1531 (Comm).

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Comparison of countries

Country Definition Example of not a

violation of public policy Example of a violation of

public policy

Interpretation and application of the

"public policy" exemption

Notes

Brazil

Violation of public policy is a violation of social, political and legal basis of a State that is considered indispensable to its survival, which may exclude the application of foreign law.

The arbitral award failed to consider Brazilian contract law but was still enforced by Brazilian court.

Narrow interpretation and rarely a basis for setting aside foreign arbitral awards.

Respecting the proceedings of foreign arbitral tribunals even when a Brazilian law is being violated. They take an international public policy route.

China

Violation of the social and public interest that would harm the sovereignty, security or public interest" of the nation.

The arbitral award would damage state owned assets but was still enforced by Chinese court. The arbitral award violated a domestic law but was still enforced by Chinese court.

Narrow interpretation and rarely a basis for setting aside foreign arbitral awards.

France

Violation of public policy is flagrant, effective, concrete, and blatantly obvious.

The arbitral award did not state a reason and violated a domestic law but was still enforced by French court.

Narrow interpretation and rarely a basis for setting aside foreign arbitral awards.

An arbitral award that would render an impossible performance or performance that would constitute a criminal offense. similar to Germany.

Germany Violation of public policy manifests a breach of a

The arbitral award enforced compound

An arbitral award that would render an

Narrow interpretation and rarely a basis for

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Country Definition Example of not a

violation of public policy Example of a violation of

public policy

Interpretation and application of the

"public policy" exemption

Notes

rule of law regarded as essential in the legal order of the State in which enforcement is sought or of a right recognize as being fundamental within that legal order.

interest payment which violates domestic law but was still enforced by German court.

impossible performance or performance that would constitute a criminal offense.

setting aside foreign arbitral awards.

Hong Kong Violation of public policy is breaching policies that are so fundamental to its notions of justice that its courts felt obliged to apply the same not only to purely internal matters, but also to matters with a foreign element, that may affect other states.

Arbitration proceedings that are acceptable in the country of proceeding, but are not acceptable in Hong Kong would still be recognized and enforced in Hong Kong.

Narrow interpretation and rarely a basis for setting aside foreign arbitral awards.

India

Violation of public policy is an award that is illegal, contrary to the fundamental policy of Indian law, contrary to the interests of India, and contrary to justice and morality.

The arbitral award was determined by insufficient evidence which is a breach of domestic law but was still enforced by the Indian court.

Narrow interpretation and rarely a basis for setting aside foreign arbitral awards.

Singapore Violation of public policy is a violation of the most

The arbitral award sought to bind a non-

Narrow interpretation and rarely a basis for

The Singaporean judicial system, through

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Country Definition Example of not a

violation of public policy Example of a violation of

public policy

Interpretation and application of the

"public policy" exemption

Notes

basic notions of justice and morality.

signatory which is a violation of domestic law but was still enforced by the Singaporean court.

setting aside foreign arbitral awards.

legislation, minimizes involvement of courts in the arbitration proceedings and enforcement.

Vietnam

Violation of public policy is violating any fundamental principles of Vietnamese law.

The arbitral award was reached by violating a law in Vietnam's Civil Procedure and, therefore, was deemed as a violation of public policy by the Vietnamese court.

Broadly interpreted and used frequently to set aside foreign arbitral awards.

USA

Violation of public policy is a violation of the most basic notions of justice and morality.

Narrow interpretation and rarely a basis for setting aside foreign arbitral awards.

UK

Violation of public policy is clearly injurious and wholly offensive performed by a fully informed member of the public.

The arbitral award enforced a contract that violated domestic contract law but was still enforced by the British court.

An arbitral award that is likely to require some form of reprehensible or unconscionable conduct, such as illegality, fraud, bribery or corruption.

Narrow interpretation and rarely a basis for setting aside foreign arbitral awards.

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Common themes and international best practice The table has outlined several factors that have been commonly used to develop international best practices when interpreting the public policy exemption of the New York Convention and enforcing foreign arbitral awards. The most obvious similarity is that each country, with the exception of Vietnam, interprets and applies the public policy exemption extremely narrowly and rarely uses public policy as a basis to set aside a foreign arbitral award. The next common similarity is where a breach of a domestic law, whether substantive or procedural, is not considered as a violation of the public policy. For example, in almost all of the countries examined, the foreign arbitral award would constitute a violation of a domestic regulation and the respondents are attempting to set-aside the award. However, countries have taken a narrow approach and tend to respect foreign arbitral proceedings by enforcing an arbitral award that violates a domestic law. This common theme has led to setting aside awards that only violate fundamental policies of countries, such as a contract for slavery or awards that lead to illegal and criminal activity. Overall, there is a general consensus that an award that violates a domestic law is not within the narrow scope of the public policy exemption, and setting aside awards will only occur when a core, human right will be violated by enforcing the award. Proposal, Advice, and Impact Globalization and cross-border investment, trade and commerce have led to an increased use of arbitration, especially in Asia, a rapidly growing economic region. To adequately respond to this trend, Vietnam should introduce new arbitration rules to cater to the growing demands of the global business community and align Vietnam's arbitration practices with the international community. As a signatory of the Convention, Vietnam should respect international comity. More specifically, Vietnam needs to clarify and narrow the scope of the "fundamental principles of Vietnamese laws" when setting aside arbitral awards. Finally, judicial officers must be trained on the importance of international arbitration and the need to limit their review of arbitral awards with regards to public policy. The proposed changes regarding arbitration enforcements do not represent an intrusion on the judicial system. These changes would allow for foreign commercial entities to freely and confidently embark upon dispute resolution within Vietnam. This type of reform would significantly reduce the cost of doing business in Vietnam, and therefore, attract more foreign investors. For example, the Convention allows a company to take the arbitral award to any of the Convention's state member, and have the award enforced as judgments of the courts of both countries with only minimal scrutiny. This saves parties huge cost arising from multiple litigations. Most of the disputes arising from Vietnamese commercial activity are handled by either the Singapore International Arbitration Center or the Hong Kong International Arbitration Center. If Vietnam can elevate its arbitration landscape to greater heights, companies will be able to cut costs by choosing an arbitration center in Vietnam. More importantly, increased arbitration activity will generate substantial revenue for Vietnam, like it has for Singapore and Hong Kong. Conclusion International arbitration can no longer be ignored by an economy that is interested in attracting foreign investments to stimulate and grow economic activity. Outside traditional jurisdictions like France, England and the United States, recent years have seen increased activity in other jurisdictions such as Singapore and Hong Kong. These non-traditional venues have embarked on extensive reform aimed at making the practice of international arbitration in their respective countries more efficient in order to attract foreign

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investments. The swing towards arbitration in Asia has been clearly demonstrated by the launch of numerous arbitration centers. Kuala Lumpur has emerged as a strong contender to become a credible arbitration hub in Asia. Seoul has opened its own International Dispute Resolution Centre in May 2013. Cambodia has also launched its first arbitration venue - the National Arbitration Centre in Phnom Penh in March, 2014. With the suggested reforms, and because of its unique location, size of its economy and recent positive development in arbitration, Vietnam can become one of the central hubs for dispute resolution in Asia.

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ATTACHMENT 2 THE ASSOCIATION OF VIETNAMESE INSURERS

Hanoi, September 15, 2015 No: 162/HHBH/2015

Re: Petition on implementation of Decision 35/2015/QD-TTg Respectfully to: - The Prime Minister

- The Ministry of Finance - The ministry of Industry and Trade

The Association of Vietnamese Insurers (“AVI”) and Life Insurance Enterprises (the “LIEs”) has received Decision No. 35/2015/QD-TTg (“Decision 35”) issued by the Prime Minister dated 20 August 2015 amending and supplementing certain provisions of Decision No. 02/2012/QD-TTg (“Decision 02”) dated 13 January 2012 on regulating list of essential goods and services (“List”) which standards contract forms/general trading conditions must be registered under the Law on Protection of Consumers’ rights. According to the Decision 35, life insurance products have been added to the List. After reviewing all provisions of Law on Insurance Business and Law on Protection of Consumers’ rights for implementation, the LIEs are suffering many difficulties in implementing such provisions, detailed as follows: I. Provisions on protection of consumer’s rights (life insured) are provided under the legal documents including Law on Insurance Business and Law on Protection of Consumers’ Rights. According to the mentioned legislation, State administrative agency who supervises insurance business activities is the Ministry of Finance, especially the Insurance Supervisory Authority via the approval of life insurance products (pre-control) and audit, inspection and handling the LIEs’ yearly violations (post-control). A. In accordance with Law on Insurance Business and guiding provisions: Decree No. 45/2007/ND-CP dated 27 March 2007 - Article 20.2 and Article 20.4 of the policy terms and conditions, premium rate provide as

follows: "2. With respect to life insurance products, personal accident and health care insurance

subsidiary to life insurance products, life insurers must comply with the policy terms and conditions (policy wordings) and premium rate ratified by the Ministry of Finance.

4. Policy terms and conditions, premium rate formulated by insurers must ensure the

following contents: Compliance with Vietnamese laws, normal practice, ethical standards, customs and

culture of Vietnam; The language used in policy terms and conditions, premium rate must be accurate

and must use simple means of expression which are easily understandable. For technical terms which require clear content, such terms must be defined in policy terms and conditions;

The following content must be clearly defined explained: insurable interests; insured objects; insured scope and insured risks; rights and obligations of the policy holders and of the life insured; responsibilities of the insurer; exclusion; method of paying insured amount or; and provisions on dispute resolution;

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Premium rate must be formulated on the basis of statistical data, must ensure the solvency of the insurer, and must correspond to the insurance conditions and insurance liability."

- Article 21 on Procedure for ratification of insurance products: "1. With respect to insurance products for which the Ministry of Finance shall ratify the

policy terms and conditions and premium rate under Article 20.2 of this Decree, insurers must forward a written request to the Ministry of Finance enclosing the following documents: Policy terms and conditions, premium rate and commission rate in relation to the

insurance products which it is proposed to underwrite; Formula, method and explanation of the basis of premium calculation and the

insurance reserves for the insurance products which it is proposed to underwrite. 2. Within 30 days from the date of receipt of a complete and valid application dossier,

the Ministry of Finance shall be responsible for providing a written reply with its ratification or refusal to ratify, with an explanation of its reasons in the case of refusal."

Circular No. 124/2012/TT-BTC dated 30 July 2012

- Article 39.1, Article 39.3, Article 39.4 and Article 39.5 on ratification of insurance products and health care insurance products are regulated as follows:

1. A life insurer must, prior to underwriting life insurance products, or an enterprise

conducting insurance business or a foreign branch must, prior to underwriting health insurance products, submit one (01) set of an application file requesting approval of the insurance product(s) proposed to be underwritten. The enterprise conducting insurance business or the foreign branch must correctly implement the policy terms and conditions and premium rate of insurance products approved by the Ministry of Finance.

3. The application file requesting approval of life insurance products or health care insurance products shall comprise the following data: Request to the Ministry of Finance for approval of products, in which the enterprise

or the foreign branch undertakes to be responsible for the contents and legality of the policy terms and conditions;

Policy terms and conditions and premium rate of insurance products proposed to be underwritten which comply with Article 20.4 of Decree 45/2007/ND-CP. The enterprise conducting insurance business or the foreign branch is encouraged to use the standard policy terms and conditions formulated by the Association of Vietnamese Insurers;

Formula, method and explanation of technical bases used to calculate premiums and professional reserves of insurance products proposed to be underwritten.

In the case of life insurance products which distribute dividends, a life insurer must explain in the bases for calculating premium for the proposed product, the principles, methods and the percentage dividend distribution which is committed to be paid to clients.

Relevant documents comprising: sample application form, illustration material on products and services of the insurer or foreign branch, sales brochures, and other sample forms which clients must sign when purchasing insurance. These documents shall be considered as part of the insurance contract.

The application file for approval of life insurance products or health insurance products must be signed by the legal representative of the insurer or foreign branch

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and must be certified by the appointed actuary (in the case of life insurers) and the actuary for professional reserves and solvency margins (in the case of non-life insurers, health-care insurers and foreign branches).

4. The following items shall be evaluated prior to providing approval to a life or health care

insurance product: A check of the validity of the application dossier and compatibility of the policy terms

and conditions with the current regulations. If such policy terms and conditions are prepared according to the standard form, then the Ministry of Finance shall only check the validity of the application dossier;

The economic and technical feasibility of the insurance product shall be evaluated on the basis of an opinion and certification from the appointed actuary (in the case of life insurers) or the actuary for professional reserves and solvency margins (in the case of non-life insurers, health-care insurers and foreign branches);

Where a non-life insurer or foreign branch underwrites package insurance products which include health insurance, it must comply with this Article regarding approval of health insurance products.

5. Term of ratification on a life or health care insurance product: The Ministry of Finance shall, within thirty (30) days from the date of receipt of a complete and valid application file stipulated in clause 3 of this Article, provide a letter approving or refusing to approve. In the case of refusal, the Ministry of Finance must specify its reasons

B. Regulations of Law on Protection of Consumers’ rights and guiding provisions Law on Protection of Consumers’ rights Article 19. Control of standard contract forms and general trading conditions: 1. Any trader conducting business in goods or providing services that fall under the list of

essential goods and services promulgated by the Prime Minister of the Government must register its standard contract forms and general trading conditions with the State administrative body for consumer protection.

2. The State administrative body for consumer protection shall on its own initiative rescind or amend, or shall require the trader to rescind or amend a standard contract form or general trading conditions on discovery that such contract or conditions breach consumers’ rights.

Decree No. 99/2011/ND-CP dated 27 October 2011

1. The registration dossier of standard contract forms and general trading conditions shall comprise the following documents: - Registration application specifying the address and business lines of the trader, The

Ministry of Industry and Trade shall provide guidelines for registration application forms;

- Draft standard contracts forms and general trading conditions;

2. A registration dossier may be directly submitted, sent by post or sent via electrical means in the quantity of one (01) dossier to the competent authority.

3. If the registration dossier is not completed as regulated, within 5 working days from the date of receipt, the competent authority shall have the right of request for

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supplementing the documents, dossiers. The trader shall be responsible for supplementation within 3 working days from the date of receiving the request from the competent authority.

4. During the process of consideration of registration dossier, the competent authority for

registration shall have the right to request that the trader explain the issues relating to the contents of standard contract forms and general trading conditions and the right to consult with relevant agencies, organizations, individuals.

5. The competent authority shall consider the following contents of standardcontract forms and general trading conditions:

a. Invalid contents as follows:

- It (the clause or conditions) excludes statutory liability of the trader; - It restricts or excludes the right of consumers to lodge a complaint or to institute

legal proceedings; - It allows the trader to unilaterally change contractual conditions previously agreed

with the consumer; or the contract fails to specifically set out the rules and regulations on sale of goods or supply of services applicable to consumers when they purchase and/or use such goods or services;

- It allows the trader to unilaterally determine that the consumer has failed to discharge one or more of the consumer’s obligation;

- It allows the trader to fix or change the price at the time of delivery of goods or supply of services;

- It allows the trader to give its own interpretation of a contract containing contractual clauses which may be interpreted in different ways;

- It excludes liability of the trader when the trader sells goods or supplies services via a third party;

- It provides that it is mandatory for the consumer to discharge its obligations before the trader has fully discharge its own obligations;

- It allows the trader to assign rights and obligations to a third party without the consent of the consumer.

b. The language used is Vietnamese, the contents must be clear and easy to understand; the font size shall be at least 12 pt; the background paper and ink color presenting the contents of standard contract forms and general trading conditions must be in contrast.

c. Conformation with provisions of the Law on Protection of Consumers’ rights and general principle of contract execution.

6. If the contents of standard contract forms and general trading conditions are in breach of the law on protection of consumers’ rights or are contrary to the general principles of contract execution, the competent authority shall have right to request that traders amend or cancel such content in breach.

7. If the contents of standard contract forms and general trading conditions are not clear or can be interpreted in many different ways, the competent authority shall have right to request that traders explain and clarify the contents of such standard contract forms and general trading conditions.

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8. Within 10 working days from the date of receiving the request from the competent authority, the trader must amend, cancel the contents in breach and notify consumers who have executed contracts under such standard contract forms. If amendment, cancellation of the contents in breach renders any provision of the executed contract invalid and gives rise to damage to the consumers, the provisions of civil laws shall be applied.

II. Difficulties in compliance with Decision No. 35/2015/QD-TTg 1. Before underwriting life insurance products, the insurers must submit the standard contract forms or general trading conditions regarding such insurance products to the Ministry of Industry and Trade for approval parallel with waiting for ratification of the Ministry of Finance on such insurance products in accordance with regulation and inspection contents in Circular 124. Such regulations arise many issues, such as doubling administrative procedures regarding life insurance business activities, overlapping the State administrative functions and content of initial control of the Ministry of Finance applied to a life insurance product. Accordingly, new regulation regarding life insurance under Decision 35 is not compatible with the spirit of administrative procedure deduction in accordance with the Resolution No. 19/ND-CP issued by the Government. In the light of a period of time taken for above procedures, the LIEs is unable to satisfy customers’ daily demands regarding insurance. 2. There is a competent overlap between the Ministry of Finance and the Ministry of Industry and Trade regarding life insurance management. In case that the Ministry of Industry and Trade requests for amending some contents, mean of interpretation in the submitted standard contract forms, the LIEs must amend the equivalent contents in application dossiers submitted to the Ministry of Finance for re-submission which prolongs the term of such ratification procedure. Additionally, if the Ministry of Finance has not ratified, any insurance products shall not be supplied. If the Ministry of Finance does not ratify any amendments or supplementations as requested by the Ministry of Industry and Trade, the insurers shall fall into dilemmatic circumstances which result in cancellation of an insurance product pre-approved by the Ministry of Finance for the prevention of violating requests from the Ministry of Industry and Trade. Additionally, costs of research, design, development for insurance product and distribution channel per a insurance product, which are at about 1 million up to 10 millions, shall be wasted.

3. Some provisions are not compatible with actual implementation of life insurance. In fact, during product implementation process in accordance with demands and changes of social economy and life insurance purchasers, the LIEs may amend or supplement some of contents regarding insurance policy terms and conditions, premium rate, insurance contract, insured term, term of premium payment, insured interest, etc. In such circumstances, the LIEs specify that the LIEs must submit above amendments to the Ministry of Finance while the compulsion of submission regarding such amendments to the Ministry of Industry and Trade is not clarified. If the Ministry of Industry and Trade does not approve such amendments and supplementations ratified by the Ministry of Finance, difficulties will be arisen as equivalent to Item 2 presented above. 4. Actually, a set of insurance contract includes many different documents and group of subsidiary contracts enclosed in accordance with specific demands of each insurance purchaser, if any. Thus, without any initial consolidated guides and in the light of unclarified registration procedure, the LIEs shall have many difficulties and face with risks in legal

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compliance. Furthermore, the supply of life insurance into market shall be delayed in the light of waiting for guides.

5. As the LIEs’ understanding of Decision 35, from 15 October 2015, regarding insurance product ratified by the Ministry of Finance before the effective date of Decision 35 and being supplied in the insurance market, the LIEs must register such relevant executed standard contract forms at the Ministry of Industry and Trade for continuous distribution into the market. In fact, in 2014, the statistics of revenues of the whole insurance market is about 2,362 billions per month and is approximately about 3,000 billions per month in 2015. Thus, as particular characteristics of life insurance, damages in business while waiting for registration guides are huge. Additionally, suspension of life insurance distribution shall have direct affects in relation to at least 338,000 agents, calculated until the end of June 2015.

6. Life insurance is a sensitive sector of the economy. Insurance premium collected during the term of insurance contracts from 5 years to 30 years shall be used to invest in the Government’s bonds, shares and other financial investment to get interest for paying dividends to insured person. Pursuant to Article 19.2 of Law on Protection of Consumers’ Rights, the Ministry of Industry and Trade on its own may rescinds any life insurance contract. This will lead to the situation where all the policyholders terminate their insurance policies at the same time. Policyholders may not distinguish between the insurance product and the insurer. If they got the information that an insurance product related to an insurer being cancelled, they will immediately request to terminate the policy. Such circumstances shall disturb the life insurance market and the financial market. 7. Term for implementation Decision 35 counting from issuance date to effective date is to rush considering the fact that all LIEs manage insurance policies using IT system. These changes will lead to many complication as discussed, also will require all data systems must be amended, require the involvement from many departments inside the LIEs including data system of overseas holding company. It is anticipated that the LIEs shall take several months with high cost to implement such changes.

III. Petition: The Association of Vietnamese Insurers petitions the Prime Minister and Ministries system for following contents 1. Allow the temporarily suspension the application of Decision 35 for life insurance until a consolidated guidelines mutually issued by the Ministry of Finance and the Ministry of Industry and Trade. Such guide shall include a combination procedure between the ratification mechanism for life insurance product at the Ministry of Finance and the registration mechanism for life insurance contract at the Ministry of Industry and Trade. The combined procedure will help to reduce overlapping regulations and simplify administrative procedures, helps to reduce cost arising to the insurers.

2. Allow insurer to register an insurance contract after obtaining the Ministry of Finance’s approval on relevant insurance product. The official letter on ratifying a insurance product under Circular 124 shall be both simultaneously sent to the Ministry of Industry and Trade and an insurer for registration completion.

3. Though the LIEs are in governing scope under Decision 35, the LIEs did not receive any official letter on collecting opinion for draft of Decision 35. As received information from Legal Department of the Ministry of Finance, the permanent agency of AVI has provided comments and opinions to the Ministry of Industry and Trade and drafting group but these

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comments were not accepted. Thus, the LIEs expect to receive drafts in relation to insurance business activities afterwards (if any).

Decision 35 shall be effective from 15 October 2015, and the Association of Vietnamese Insurers and the LIEs hope to get the attention of The Prime Minister and Ministries to solve above difficulties. Kind regards./. Received: - As above;, - Ministry of Justice; - Saved by AVI.

THE ASSOCIATION OF VIETNAMESE INSURERS

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CONTINUATION IN IMPLEMENTING SOLUTIONS TO ENSURE THE IMPLEMENTATION OF REFORMS IN THE LAW ON INVESTMENTAND THE LAW ON ENTERPRISES

Prepared by

Investment and Trade Working Group Vietnam Business Forum

SUMMARY OF CONTENTS

Vietnam Business Forum has recognized great efforts of the Government and the Ministry of Planning and Investment in directing the drafting of the Law on Investment and the Law on Enterprises as well as Decrees guiding the implementation of these Laws. We perceive that such laws and Decrees have produced breakthrough improvements that help improve the business and investment environment in a way which is more transparent and favourable so as to meet requirements of Vietnam’s integration, including innovations in the procedures for the registration of enterprises and investment. In order to realize such important reforms, we, the Investment and Trade Working Group, would like to have the following opinions and proposals: I. LAW ON INVESTMENT

1. It is necessary to establish a “one-stop shop” mechanism in dealing with the

procedures for the registration of enterprises and investment The Law on Investment 2005 only regulates one type of certificate to be issued to foreign investors that is Investment Certificate, which would concurrently be Business Registration Certificate. The Law on Investment 2014 has changed this provision of the Law on Investment 2005 by detaching the contents of business registration from the Investment Certificate, and at the same time legalizing regulations on the procedures for decisions on investment policy to be issued by the National Assembly, the Prime Minister of the Government and provincial People’s Committees. Recommendation: To avoid the procedures that are being conducted under the Law on Investment 2005 being affected by the changes in the Law on Investment as above-stated and to avoid causing unnecessary disorders to enterprises’ business, we recommend that a “one-stop shop” mechanism should be established to deal with the procedures for investment registration and enterprise formation of foreign investors. Accordingly, foreign investors are entitled to submit their applications to a focal authority where they will receive the results of their applications also. In this regard, we have recognized and highly appreciated efforts of the Ministry of Planning and Investment in designing the above-said procedures as presented in Article 24 of Decree No. 118/2015/ND-CP, and we are willing to coordinate with professionals from the Ministry of Planning and Investment in designing detailed regulations on such procedures to be contained in the Circular guiding the implementation of the Decree. 2. Removal of overlapping documents in application dossiers for the registration of

investment and enterprises We have recognized that, under the Law on Investment and the Law on Enterprises, there is an overlap between applications for issuance of Investment Registration Certificate (or registration of capital contribution, acquisition of shares, portion of capital contribution) and applications for enterprise establishment (or notification/registration of change of

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enterprise registration contents). This is possibly the consequence of the fact that such procedures are regulated in two different laws. Recommendation: We recommend that regulations on dossiers required to be submitted to regulatory bodies should be uniformly stipulated and that overlapping documents should be removed. In consultation with professionals from the Ministry of Planning and Investment, we are aware that such issue may be settled completely in the Circular guiding the implementation of “one-stop shop” mechanism in dealing with the procedures for the registration of enterprises and investment under Article 24 of Decree No. 118/2015/ND-CP. We are willing to coordinate with the Ministry of Planning and Investment in continuing to perfect regulations on such issue. 3. Promptly announce the conditions for investment applicable to foreign investors We have realized that Decree No. 118/2015/ND-CP has solved a number of difficulties in applying the conditions for investment applicable to foreign investors in accordance with the law of Vietnam and international treaties. In this regard, we have highly appreciated efforts of the Ministry of Planning and Investment in drafting regulations relating thereto. However, as the List of investment conditions applicable to foreign investors has not yet been published, foreign investors and local regulatory bodies have, over the last time, found it confused to implement the procedure.

Recommendation: To enhance the transparency and publicity of the legal system and to ensure the implementation of important reforms in the Law on Investment in this regard, we recommend that the List of investment conditions applicable to foreign investors in accordance with laws, ordinances, decrees and international treaties on investment should be urgently published. II. LAW ON ENTERPRISES

1. Continuation in simplifying the procedures for relocation of head offices of

enterprises to a different province or city Pursuant to Decree 78, when moving head office to a different province or city, enterprises must register change of head office and must submit 5 following documents as attachments: - The amended Charter; - Approval of the General Meeting of Shareholders on amendment of the Charter; - List of founding shareholders (only in case where there is shareholder being foreign

investor); - List of foreign shareholders (only in case where there is shareholder being foreign

investor); - Authorized representative of foreign shareholders. Recommendation: We recommend that the above attachments should be removed, and enterprises merely need to deliver the notice of registration of change of headquarter to the business registration office. 2. Simplification of the procedures for changing enterprise registration contents In many procedures for registration of changes, Decree 78 requires supplement a number of documents to be attached thereto.

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Example: For changing foreign shareholders, Decree 78 requires that 5 other documents must be submitted as attachments: - Decision and valid copy of meeting minutes of the General Meeting of Shareholders; - List of foreign shareholders; - If the transferee is a foreign organization: Valid copy of decision on establishment or

other equivalent document and valid copy of one of the documents proving personal identification of the authorized representative(s) and the corresponding decision on authorization, or

- If the transferee is a foreign individual: Valid copy of ID card, passport or other lawful personal identification;

- Written approval from the Department of Planning and Investment on the contribution of capital or acquisition of shares or portion of capital contribution by the foreign investor; and

- Share transfer agreement or other papers proving completion of the transfer.

Recommendation: We recommend that enterprises will be permitted to submit the Notice of Change only to the exclusion of the attached documents as required under Decree 78. 3. It is necessary to publish the list of business lines and strictly implement the

provisions on freedom in doing business in the business lines which have not yet been included in the System of Economic Branches of Vietnam

Under Decree 78: As regards business lines not appearing in the System of Economic Branches of Vietnam but not yet prescribed in other legal instruments, such business lines shall be considered by the Business Registration Office to be recorded on the National Enterprise Registration Database. Recommendation: We recommend that all business lines should be gathered and posted on the website of the business registration office for ease of reference for enterprises. In case of registration by enterprises of a business line not prohibited by the laws and not yet appeared in the announced System of Economic Branches of Vietnam, the business registration office shall be responsible for registering and recording such business line on the National Enterprise Registration Database. 4. Some provisions of the new laws intervening too much in enterprises’ discretion Previously, a limited liability company (LLC) has a time-limit of 3 years to contribute charter capital. However, the new laws require that charter capital must be fully contributed within 90 days. Such time-limit is too short for major projects with charter capital of hundreds of millions of dollars; and thus, it would greatly affect BOT projects and real estate projects.

Recommendation: We recommend that enterprises should be permitted to contribute charter capital in accordance with project implementation progress. III. COMMON PROBLEMS OF IMPLEMENTING 02 LAWS After 05 months of the effective date of the Law on Investment and the Law on Enterprises, local licensing authorities still have to consult with the central authorities about business lines that are not prohibited or restricted. Such consultation process has prolonged the time-limit of license issuance. To ensure the efficient implementation of significant innovations in the Law on Investment and the Law on Enterprises, we recommend that:

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Firstly, certain regulations should be promulgated to limit consultations/collection of opinions with respect to such business lines as provided for by the laws, international treaties, or already licensed in practice. Secondly, there should be a mechanism to control the investment and enterprise registration process; refusal of receiving application dossiers is not allowed, and requirements for supplementing documents should be limited.

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DETAILED CONTENTS The Law on Investment No. 67/2014/QH13 (the Law on Investment 2014) and the Law on Enterprises No. 68/2014/QH13 (the Law on Enterprises 2014) have become effective from 1 July 2015, which is expected to change the investment and business environment in Vietnam in a positive way with procedures being more simplified and especially investors’ freedom in doing business being more respected. After nearly four months from the date of application in practice of the two laws above, we have found a number of restrictions and difficulties as detailed below. 1. Overlapping documents The procedures for investment registration (or registration of capital contribution or acquisition of shares or portion of capital contribution) and the procedures for enterprise establishment (or notification/registration of change of enterprise registration contents) are overlapped in terms of application dossiers and documents. This is possibly the consequence of the fact that such procedures are regulated in two different laws. For example, the procedures for registration of capital contribution or acquisition of shares or portion of capital contribution under Article 26.3 of the Law on Investment 2014 are stipulated as follows: - An investor shall submit an application dossier for registration of capital contribution or

acquisition of shares or portion of capital contribution as prescribed in Article 26.2 of the Law on Investment 2014 to the Department of Planning and Investment of the locality where the head office of the economic organization is located; please note that this application dossier already comprises 2 documents: (i) Written form for registration of capital contribution or acquisition of shares or portion of capital contribution (in standard form); and (ii) Copy of identify card, ID card or passport in the case of investors being individuals; copy of the Incorporation Certificate or other equivalent document(s) certifying the legal status in the case of investors being organizations.

- Where the contribution of capital or acquisition of shares or portion of capital contribution by the foreign investor satisfies the conditions prescribed in Articles 22.1(a) and (b) of the Law on Investment, the Department of Planning and Investment shall, within a time-limit15 days from the date of receipt of a complete application dossier, notify in writing the investor for the latter to carry out the procedures for changing a shareholder or member in accordance with law. In the case of failure to satisfy the conditions, the Department of Planning and Investment shall notify the investor in writing and specify the reason therefore.

If the economic organization whose portion of capital contribution is acquired is a single member LLC, the procedures for registration of change of the owner of a single member LLC under Article 46 of Decree 78 are as follows: If the company owner transfers the entire charter capital to an individual or organization, then the transferee must register the change of company owner. The application dossier for registration of such change shall comprise: - Notice of change of enterprise registration contents signed by the former owner or its

legal representative and also signed by the new owner or its legal representative; - Valid copy of one of personal identification documents prescribed in Article 10 of Decree

78 of the transferee if the transferee is an individual; or valid copy of Business Registration Certificate or other equivalent document(s) if the transferee is an organization [Overlapping with the documents which have already been included in the

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application dossier for registration of purchase of portion of capital contribution as above-mentioned]; List of authorized representatives and valid copy of one of the personal identification documents as stipulated in Article 10 of Decree 78 of such authorised representatives, and letter of authorization of the owner with respect to such authorized representatives;

- Valid copy of the amended, supplemented Charter of the company; - Capital transfer contract or documents proving completion of the transfer of capital; - Letter from the Department of Planning and Investment approving the contribution of

capital or acquisition of shares or portion of capital contribution by a foreign investor in such circumstances as prescribed in Article 26.1 of the Law on Investment: In order to obtain this written approval, the transferee is already required to prepare the application dossier in accordance with Article 26.2 of the Law on Investment (which comprises the transferee’s enterprise registration certificates that are now required to be submitted again and such documents are required to be consularized and legalised).

To take another example, an investment project application dossier for issuance of an IRC under Article 33.1 of the Law on Investment 2014 shall comprise: - Written request for implementation of the investment project (in standard form); - Copy of identity card, ID card or passport in the case of investors being individuals; copy

of the Incorporation Certificate or other equivalent document(s) certifying the legal status in the case of investors being organizations;

- Proposal for the investment project comprising the following items: investors implementing the project, investment objectives, investment scale, investment capital and method of raising capital, location, duration, investment schedule, need for labour, proposal for enjoyment of investment incentives, assessment of impact and socio-economic efficiency of the project;

- Copy of any one of the following documents: financial statements for the last two years of the investor; undertaking of the parent company to provide financial support; undertaking of a financial institution(s) to provide financial support; guarantee for the financial capability of the investor; or a document proving the financial capability of the investor;

- Proposal for a need for land use or a copy of the site lease agreement or other document(s) certifying that the investor has the right to use the site for implementation of the investment project.

Upon being issued with an IRC, the investor must continue to submit an application dossier for enterprise registration. For instance, the application dossier for enterprise registration for an LLC under Article 22 of the Law on Enterprises 2014 shall comprise: - Written request for enterprise registration (in standard form). - Charter of the company. - List of members. - Copies of the following documents:

Citizen's identity card, ID card, passport or other lawful personal identification of members being individuals;

Incorporation decision, Enterprise Registration Certificate or other equivalent document(s) of [members being] organizations and power of attorney; Citizen's identity card, ID card, passport or other lawful personal identification of the authorized representative of the member being an organization [Overlapping with the documents as above-said].

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In the case of a member being a foreign organization, the copy of Enterprise Registration Certificate or equivalent document(s) must be consularized and legalised;

Investment Registration Certificate applicable to foreign investors as stipulated in the Law on Investment.

Recommendation: We recommend that application dossiers to be submitted to State authorities should be united and overlapping documents should be removed. 2. Simplification of the procedures for changing enterprise registration contents After more than two months of the effective date of the Law on Investment 2014 and the Law on Enterprises 2014, the Government officially promulgated Decree No. 78/2015/ND-CP dated 14 September 2015 on Enterprise Registration, with effect from 1 November 2015 (Decree 78). Decree 78 requires enterprises to supplement many additional documents with the phrase the notice prescribed in this clause must be accompanied by: Article 40 (registration of change address); Article 41 (registration of change of name); Article 42 (registration of change of partnership members); Article 45 (registration of change of members); Article 49 (registration of change of business lines); Article 52 (registration of change of a foreign shareholder in an unlisted company); Article 57 (temporary suspension of business); Article 59 (registration of dissolution of enterprise); Article 60 (termination of operation of a branch). Example 1: When registering a change of foreign shareholder(s) in an unlisted company, Decree 78 requires a number of documents to be attached therewith: “The Notice must be accompanied by the Decision and valid copy of meeting minutes of the General Meeting of Shareholders on the changes of shareholders being foreign investors; list of foreign shareholders after the change; share transfer agreement or documents proving completion of the transfer; valid copy of decision on establishment or other equivalent document and valid copy of one of the documents proving personal identification as prescribed in Article 10 of this Decree of the authorized representative(s) and the corresponding decision on authorization if the transferee is a foreign organization, or valid copy of ID card, passport or other lawful personal identification as stipulated in Article 10 of this Decree if the transferee is a foreign individual; and written approval from the Department of Planning and Investment on the contribution of capital or acquisition of shares or portion of capital contribution by the foreign investor in accordance with the Law on Investment.” Example 2: Under Article 46.2 of the Law on Enterprises 2014, the procedures for establishing branches are as below: “2. In the case of establishment of a branch or representative office in Vietnam, the enterprise shall send an application dossier for registration of operation of the branch or representative office to the competent Business Registration Office in the locality where such branch or representative office of the enterprise is located. Such application dossier shall comprise: - A notice of establishment of the branch or representative office; - A copy of the establishment decision and a copy of the minutes of the meeting on

establishment of the branch or representative office of the enterprise; a copy of the citizen's identity card, ID card, passport or other lawful personal identification of the head of the branch or representative office.”

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Therefore, according to this provision, the application dossier for registration of operation of the branch includes only 3 documents. However, under Article 33.1 of Decree 78, the application dossier for registration of operation of the branch includes: - A notice of establishment of the branch (including stipulated contents); - The notice prescribed in this clause must be accompanied by:

Decision and valid copy of minutes of meeting on establishment of the branch or representative office of the Members' Council for an LLC with two or more members, or of the company owner or of the Members' Council or company Chairman for a single member LLC, or of the Board of Management for a shareholding company, or of the partners in the case of a partnership;

Valid copy of the decision appointing the person who will act as head of the branch or representative office [The laws do not require this];

Valid copy of one of the documents on personal identification as prescribed in Article 10 of this Decree of the person who will act as head of the branch or representative office.”

Therefore, Decree 78 requires more documents compared to those required by the Law on Enterprises 2014 (the law does not require the decision appointing the person who will act as head of the branch or representative office) and requires beyond the laws (the laws merely require a copy of establishment decision while Decree 78 requires the original one). Recommendation: Subordinate legislation shall not require more documents other than those required by law.

3. It is necessary to publish the list of business lines and strictly implement the

provisions on freedom in doing business in the business lines which have not yet been included in the System of Economic Branches of Vietnam

Article 7 of Decree 78, the person establishing the enterprise or the enterprise itself shall “select a level 4 business line from the System of Economic Branches of Vietnam in order to record the same on the Written Request for Enterprise Registration, on the Notice of Change of Enterprise Registration Contents or on the Request to Exchange for an Enterprise Registration Certificate.” The specific contents of level 4 economic lines shall be recorded in accordance with the Decision of the Minister of the Ministry of Planning and Investment on the promulgation of regulations on the System of Economic Branches of Vietnam – Decision 337/QD-BKH dated 10 April 2007 is still being applied for the time being. Pursuant to Decree 78: For conditional business lines as prescribed in other legal instruments, such business lines shall be recorded in accordance with the business lines prescribed in such legal instruments. As regards business lines not appearing in the System of Economic Branches of Vietnam but not yet prescribed in other legal instruments, such business lines shall be considered by the business registration office to be recorded on the National Enterprise Registration Database so long as they are not prohibited lines of business, and at the same time the business registration office shall notify the Ministry of Planning and Investment (General Statistics Office) to add such new business lines.

Recommendation: We recommend that all business lines should be gathered and posted on the website of the business registration office for ease of reference for enterprises. In case of registration by enterprises of a business line not prohibited by the laws and not yet appeared in the announced System of Economic Branches of Vietnam, the business

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registration office shall be responsible for registering and recording such business line on the National Enterprise Registration Database. 4. New laws applied in the old way

4.1 Local licensing authorities consulting with ministerial-level authorities Despite being granted with the discretion to proactively process application dossiers within its authority under the new laws, local investment management and enterprise registration agencies still have, in practice, consulted with ministerial-level authorities on investment projects, which has prolonged the duration of processing applications for investment registration. From our experience, Departments of Planning and Investment (the DPI) still consult with the Ministry of Planning and Investment and other related ministries unnecessarily. For example, a foreign investor whose headquarter is located in ABC nation – a WTO’s member – registers to establish a one-member limited liability company in Vietnam with capital valued at around US$100,000 for the purpose of “providing technical support services for products of its group.” The services as registered to be supplied by the foreign investor are wholly consistent with the Vietnam’s WTO Commitments and the Vietnamese applicable laws, particularly: - According to the Vietnam’s WTO Commitments, there are now no restrictions imposed

on such services(except for the service whose code is CPC 663 – Repair services for personal goods and home appliances) – the foreign investor does not provide services for personal goods and home appliances.

- Pursuant to Decision No. 337/QD-BKH, the services as registered to be supplied by the company are under CPC 33 – Services for repairing, maintaining, and installing machinery and equipment, which are not included in the list of prohibited, restricted, or conditional business lines as stipulated under the Vietnamese applicable laws.

The foreign investor submitted the complete application dossier to the DPI in May. Under the Law on Investment 2005, this investment project is not in the category subject to verification, but the DPI served official letters to the Ministry of Planning and Investment (the MPI) and the Ministry of Industry and Trade (the MOIT) for their opinions on this investment project, which unnecessarily prolonged the process. This led to the consequence that till the effective date of the Law on Investment 2014 (nearly two months after the submission date of the application dossier), the application for the issuance of the IC had not yet been considered. The foreign investor then had to wait for guidelines from the MPI and the DPI on how to deal with the applications submitted before 01 July 2015, and its application for establishment of enterprise was not processed until the promulgation of Official Letter No.4366/BKHDT-PC dated 30 June 2015 and Official Letter No. 5122/BKHDT-PC dated 24 July 2015 (nearly one month after the effective date of the Law on Investment). Then, the DPI requested the foreign investor to give its opinions in writing on whether it agreed to have the submitted application dossier processed in accordance with the provisions of the new law. The foreign investor was issued with the IRC early in September 2015, and then with the ERC early in October 2015. Overall, it took nearly 5 months for this foreign investor to establish an enterprise with simple business lines and charter capital of about US$100,000 as it had to meet several requirements for documents (to be elaborated in the following sections), which materially affects its regional business plans(concurrently causing delays in its M&A activities). To take another example, in conducting the procedures for registering foreign investment projects relating to goods trading activities (distribution) in Vietnam not in the category that

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requires a decision on the investment policy under Articles 30, 31 and 32 of the Law on Investment 2014, investors are only required by the law to conduct the procedures for the issuance of an IRC as below: - The investor submits an application to the investment registration agency; - Within a period of fifteen (15) days from the date of receipt of the complete dossier, the

investment registration agency shall issue an IRC; in the case the dossier is rejected by the investment registration agency, it shall notify the investor in writing and specify the reason therefore.

However, the DPI, in practice, still requests for opinions from the MOIT on such projects under Decree No. 23/2007/ND-CP and Circular No. 08/2013/TT-BCT on goods trading activities conducted by foreign traders in Vietnam; and thus, the said 15-day period is completely not achievable. Recommendation: We recommend that certain regulations should be promulgated to limit consultations/collection of opinions with respect to such business lines as provided for by the laws, international treaties, or already licensed in practice. 4.2 Careless consideration of investors’ application dossiers Although investment registration and business registration agencies have required investors to submit plenty of documents and written explanations, it seems that they have reviewed the dossiers without care and overlooked lot of information. Specifically, in the case of the investor mentioned above, the MOIT, upon receipt of the request for its opinions from the DPI, asked the foreign investor to explain what “the products of the group” are without being aware that the foreign investor had already explained and provided in the application dossier initially submitted a list of the group’s products in relation to which the company to be established in Vietnam is about to provide technical services for. Another example was the case of an enterprise with foreign invested capital registering to establish branch(es).Officials of the DPI, upon receipt of the application dossier, examined it and issued a receipt thereof. Nonetheless, when the enterprise came to receive the result, the DPI issued an official letter requesting the enterprise to prepare the application in compliance with Article 46 of the Law on Enterprises even though the initial dossier was prepared strictly in accordance with such said provision – with further reference to Article 33, Decree 78 on application dossiers to be submitted together with notice of registration of operation of the branch. When the enterprise contacted the DPI for further clarification, it was told by the DPI’s officials that the dossier was sufficiently complete. Recommendation: We recommend that there should be a mechanism to control the investment and enterprise registration process; refusal of receiving application dossiers is not allowed, and requirements for supplementing documents should be limited. 5. Difficulties in implementing certain regulations in practice

5.1 “Residence” condition applicable to legal representative Under Article 13 of the Law on Enterprises 2014 regulating legal representatives of enterprises, an enterprise must ensure that there is always at least one legal representative “residing” in Vietnam; if the enterprise has only one legal representative, such person must reside in Vietnam and must authorize in writing another person to exercise the rights and perform the obligations of the legal representative when the former exits Vietnam. Pursuant to the Law on Entry, Exit, Transit, and Residence of Foreigners in

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Vietnam, “residence” means the permanent residence or temporary residence of a foreigner in Vietnam. Accordingly, the temporary residence in Vietnam may still be deemed to have satisfied the “residence” condition under Article 13 of the Law on Enterprises 2014. However, due to the lack of specific guidelines, many business registration offices have required legal representatives to present their “temporary residence card” if they are foreigners (along with work permits). The “temporary residence,” nevertheless, may be proven by a “temporary residence permit”(which means “The immigration control unit shall issue temporary residence permits to foreigners by affixing a seal to their passports or visas”), without requiring a “temporary residence card” (except for certain individuals who must be issued with temporary residence cards as stipulated under Article 36 of the Law on Entry, Exit, Transit, and Residence of Foreigners in Vietnam). 5.2 Time-limit for capital contribution – payment of shares being too short The time-limit for capital contribution – payment of shares as regulated by law is too short, causing several problems to investors and also restricting investors’ participation in projects whose total investment capital is of high value. In particular, Article 48 of the Law on Enterprises 2014 prescribes that members of an LLC must contribute their shares of capital contribution to the company in full and in the type of assets as undertaken within 90 days from the date of issuance of the ERC. Similarly, Article 112 of the Law on Enterprises 2014 also provides that shareholders must pay in full for the number of shares which have been registered for subscription within 90 days, except where the Charter of the company or share subscription agreement stipulates a “shorter” time-limit. The above provisions have brought lots of difficulties to investors, especially to investment projects whose total investment capital is of high value, and therefore, the charter capital required to be contributed within 90 days is also a huge amount. A typical example is the case of investment projects in the real estate sector with projects whose total investment capital amounts to millions and even billions of United States dollars. Under Article 14.2 of Decree 43/2014/ND-CP detailing the implementation of a number of articles of the Law on Land 2013, investors must have “their own capital for implementation of the project not less than 20% of the total investment for projects using less than 20 hectares of land; or not less than 15% of the total investment for projects using 20 hectares of land or more.” For this reason, as regards to projects using large areas of land, the enterprises must contribute huge amounts of capital within a very short time-limit – 90 days whereas the time-limit for the last contribution of capital by each member in the case of an LLC shall, under the Law on Enterprises 2005 and Decree No. 102/2010/ND-CP, not exceed 36 months since the date of issuance of the ERC to the company. In addition, investors of enterprises doing real estate business, besides the obligation to make charter capital contribution (or to pay for the subscribed shares), still have to perform their financial obligations once the enterprises are granted with lands or leased the lands. The time-limit for performing such financial obligations is also very short – 90 days from the date of notification. According to Article 14.4 of Decree No. 45/2014/ND-CP stipulating the time-limit for paying land use fees, land users shall, within 90 days of the date of Notification from the tax authority, pay 100% of the land use fee under the Notification. The time-limit for paying land rent is also stipulated as within 90 days (under Article 24.4 of Decree No. 46/2014/ND-CP). 5.3 Clear regulations found inadequate in practice As regulated by Article 26 of the Law on Investment 2014, an investor shall carry out the procedures for registration of its capital contribution or of purchase of shares or portion of capital contribution to an economic organization in the following circumstances:

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- The foreign investor makes capital contribution to or purchases shares or portion of capital contribution of an economic organization which operates in conditional business lines applicable to foreign investors;

- The capital contribution or purchase of shares or portion of capital contribution shall result in the fact that the foreign investor or economic organization prescribed in Article 23.1 of this Law holds 51% or more of the charter capital of the economic organization.

The Law on Investment 2014 does not provide for any exclusion in neither of the above circumstances. However, when we liaised with a DPI on the procedures for a foreign investor to acquire in whole the capital contribution portion of an economic organization with 100% foreign invested capital in Vietnam that conducts goods trading activities (distribution), we were instructed by such DPI that it is not required to conduct the procedures for registration of the purchase of the capital contribution portion under Article 26 of the Law on Investment 2014, reasoning that such procedures only apply to the purchase of capital contribution portion or shares in a Vietnamese economic organization. We have wondered if this is an official instruction. To the contrary, we were also aware of a case when a foreign investor conducting the procedures for acquiring 49% of the shares of a Vietnamese economic organization that does not trade in conditional business lines applicable to foreign investors. While such foreign investor’s acquisition of shares was approved by a DPI, the foreign investor was required by such DPI to conduct the procedures for the issuance of an IRC.

Investment & Trade Working Group progress reports Vietnam Business Forum, 2015

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INVESTMENT & TRADE WORKING GROUP PROGRESS MATRIX

Solving issue progress scale 0 = Still existed issue; 1 = Partially solved issue; 2 = Solved issue 1-10:10 is the highest priority Score = (Progress point) x (Priority)

Category No. Age Issues Suggested/ Agreed Action Progress 0 1 2 Priority Score

14. Investment and Trade

1 New Burdensome investment and business registration New IL and EL introduce the new timeline for the licensing authorities to issue the Investment Registration Certificate (15 working days) and the Enterprise Registration Certificate (3 working days). However, there are many cases where licensing authorities miss such deadlines. For instance, in terms of foreign investment of uncommitted sectors, local licensing authorities continue to seek opinions of relevant ministries for foreign investment registration (although the new IL does not provide as such) - and this process is very time-consuming. Decree 78 implementing Enterprise Law also imposes additional requirements in terms

Implementing decree of the new IL should clarify the procedure for investment registration in case of investment in uncommitted business sectors so that the Investment Registration Certificate issuing process will become more transparent and predictable. To ensure that local licensing authorities will comply with the statutory timeline provided under the laws - and if having to miss these deadlines, to provide reasonable response to the applicants.

Decree 118 fails to provide clear guidance on how to conduct the investment registration in case of investment in uncommitted business sectors. In terms of business registration, there are good reports that some DPIs are doing their best to fasten the licensing process and timely notify the investors upon any issues with the licensing process. Yet the normal time attributable for issuance and amendment of the ERC is still dragging from 5 - 7 working

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of documentation for licensing purposes, in comparison with the Enterprise Law.

days.

14. Investment and Trade

2 Old Inventory Resolution: Clear Backlog of old inventory

• Stimulate domestic economic growth rate • Expand export markets • Join TPP, RCEP, EU -FTA and other market-opening treaties.

Much good work has been done on the TPP, EU FTA, AEC 2015 and RCEP agreements. But in all four cases everything depends on getting the agreements signed and ratified.

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14. Investment and Trade

3 Old Cap on wholesale price of dairy products Decision 1079/QD-BTC (effective on 01 June 2014)capped thewholesale price of dairy products for children under six years old. The aim is to lower retail prices, which must not exceed 15% of the ceiling wholesale prices. In the long run, this measure can distort the free market since it prevents the price system from rationing the available supply, causing excess demand,resources misallocation and welfare loss. The measure may also disrupt Vietnam's efforts in being recognized as a market economy. In addition, as the price ceiling only applies to 25 products (mainly imported products), a violation of Article III:9 of the GATT

(i) Removing the price control will allow the market to freely function to find its equilibrium, which has always been the rationale behind the "market economy" terminology. At the moment, the US is considering to recognize Vietnam as a market economy, which will bring Vietnam many business opportunities. Removing this price ceiling may add helps to such consideration. (ii) Instead of applying the internal maximum price control, it would be much better to liberalize the supply chain for distribution to increase production efficiency, thereby reducing prices and increasing product affordability.

The price controls on infant formula have not worked. New investors who might increase supply have shied away from Vietnam due to the risk the price controls pose for their business, creating a viscous cycle of scarcity and regulation.

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(non-discrimination principle) would likely arise.

14. Investment and Trade

4 New Draft Circular on Food Safety of Imports The Draft Circular proposed new regulations on food inspection which if adopted in such form, would cause a lot of difficulties to the businesses. Some examples include reducing the number of inspection methods from 4 to 3, which effectively would reduce the flexibility in inspection compliance; requiring that GMP/HACCP qualified food would be subject to sensory inspection of the whole consignment, and also subject to further testing if the inspection agency detects any sensory suspicion; etc.

To remove these items out of the Draft Circular.

According to industry sources, the contentious items have been removed.

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14. Investment and Trade

5 Old Onerous enterprise dissolution procedure The current dissolution procedure is considered onerous, causing many enterprises failing to die. Tax audit delay is the main reason, as the tax offices claim that they don’t have enough officers to do tax audit.

To amend the dissolution procedures - considering the option below: Accepting the private auditors

to conduct tax audit for the tax authorities. Private auditors will be responsible before the tax authorities and the law for the accuracy, truthfulness and completeness of the tax audit reports.

Tax authorities will collect the ERC/IC and chop of the dissolved enterprises, instead of the licensing authorities

The Administrative Procedure Control Committee has welcomed the business community's input in this area. We need experts who can devote their time to help.

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(e.g. DPIs) - The owner of the enterprises will only have to notify the licensing authorities about such collection.

14. Investment and Trade

6 New Streamlining the licensing process DPI HCMC has beenstreamlining the licensing process, as promised by the Vice Chairman of HCMC PC during the VBR forum in HCMC. Specifically, the DPI keeps investors informed via email from time to time the status of the application dossier. Some other licensing authorities started providing investors the investment registration number so investors can check their licensing status on the website.

This initiative is a very good improvement which should be employed by other licensing authorities as well.

However, we have recently seen issues with this system as well sincethe IT system has yet been properly operating and the officers do not take initiative to do their works and heavily rely on the system. Specifically, the IT system has a clear error, but the officer is based on the system to refuse the submission of an IC application. In addition, many times the HCMC DPI fails to inform the investors about the status of the application dossier via emails. DPIs of some provinces (e.g., Binh Duong, Da Nang) are also endeavouring to streamline the licensing process,

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motivating investors to invest more in these provinces. Some provinces/cities still lagged behind (e.g., Hai Phong, Hanoi).

14. Investment and Trade

7 New Shorter timeline for capital contribution The EL requires the owner(s) to fully contribute the charter capital within 90 days from the date of the enterprise business registration certificate. This is not feasible for an enterprise with large charter capital.For example, requiring real estate companies to deposit cash funds for a project which might take years to initiate is practically impossible for foreign investors. Furthermore, the setup of the bank account and all other steps leading to such will take almost 3 months.

The implementing decrees should provide different time schedule for different amounts of capital.

Consider adding exceptions for big investment projects to contribute capital following their specific schedule to reduce their risks of investment. To balance the interests between licensing authorities and the investors to ensure that procedural requirements will not hamper investment and development.

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14. Investment and Trade

8 Old Market access for border-gate transhipment business The border-gate transhipment business without passing through the border-gates of Vietnam appears not to be opened to 100% foreign-invested enterprises, although Decree 187/2013/ND-CP allows enterprises to engage in this business without having to

In accordance with Decree 187/2013/ND-CP and because this business activity in nature still pertains to the export, import and distribution of goods, 100% foreign-invested enterprises licensed to conduct the import-export-distribution activities must also be allowed to conduct this business.

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perform customs procedures or obtain any licenses from the Ministry of Industry and Trade.

14. Investment and Trade

9 New Limited scope of trading Foreign invested enterprises are only allowed to trade products identified with specific HS Codes designated their Investment Certificate. This requirement causes delays in their ability to meet market demands, often by 6 months or more. The current requirements cause a de facto discrimination against foreign invested enterprises because local companies do not need specific HS Codes for trade authorization.

The current HS Code requirement for foreign invested enterprises should be eliminated from the Investment Law.

New Investment Law does not abolish this requirement. The new Investment Registration Certificate still records specific HS codes which foreign invested enterprises are entitled to trade in Vietnam.

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14. Investment and Trade

10 New Recognition of foreign arbitral awards After nearly two decades of being a member of the 1959 Convention on the Recognition and Enforcement of Foreign Arbitration Awards, Vietnam remains very poor in its recognition and enforcement of foreign arbitral awards. The lack of enforcement is seriously undermining the confidence of foreign investors.

Vietnam must commit itself to the enforcement and recognition of these foreign awards while the Vietnam International Arbitration Centre develops as an international centre of arbitration.

The Ministry of Justice has held a workshop on this subject. In addition, the Council of Judges of Supreme People's Court has issued the Resolution No.01/2014/HDTP on guiding the Implementation of Certain Provisions of Law on Commercial Arbitration. That said, this Resolution does not address the issue of recognition of foreign arbitral

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awards. The current Draft Civil Procedural Code being presented for public opinion will introduce some provisions which may be viewed contradicting to the New York Convention (e.g., additional conditions for the recognition of foreign arbitral awards).

14. Investment and Trade

11 New List of conditional sectors under Investment Law Investment Law compiles an exhaustive list of 267 industries/sectors which are considered conditional under the existing international treaties, laws, ordinances and decrees (and thus foreign investors investing by way of M&A in these areas will be subject to the M&A registration requirement). However, unclear description of the business lines causes a lot of difficulties to the investors and local DPIs in determining whether their business lines may be considered conditional or not.

The implementing decree of the IL must clarify what laws would prevail if there is a discrepancy between the IL (and its implementing decree) and the specific laws. The implementing decree of the Investment Law should also clarify whether there is any procedure that foreign investors must undertake to demonstrate that their investment is not subject to the M&A registration requirement. However, the MPI has only been able to identify the conditions for about 120 business lines (based on domestic laws and international treaties). For the remaining business lines, given that laws and treaties are silent, the MPI

Decree 118 implementing Investment Law does not clarify this issue.

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needs to consult with other ministries to work out the applicable conditions for them. Also, if there are changes to this list of 267 conditional business lines, it is important to identify what laws (i.e., the IL or the specific laws) will enact such changes?

14. Investment and Trade

12 New The relation between charter capital and contributed capital Under the new IL and EL, the charter capital and contributed capital are two different concepts, where charter capital is contributed by an investor to establish the legal entity, and the contributed capital is contributed by the investor to implement an investment project. The charter capital must be contributed within 90 days from the establishment of the legal entity, whereas the contributed capital can be contributed as required in accordance with the progress of the investment project. However, the legal entity is established in order to own and operate the investment project, and it is unclear how these capital amounts relate to each other on the various important documents of the legal entity, including the Investment Registration Certificate (IRC), the Enterprise

Implementing decrees must clarify the relationship between these two capitals.

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Investment Certificate (ERC), and its balance sheet and financial statement. If IRC and ERC co-exist for a legal entity that reflect 2 different equity amounts, would M&A transactions be conducted to sell the charter capital under the ERC, or the contributed capital under the IRC? This question becomes a little uncertain under the new laws.

14. Investment and Trade

13 Old Double Taxation Agreement: In order to apply for tax exemption under Double Tax Agreements ("DTA"), Circular No. 156/2013/TT-BTC required foreign shipping lines to submit certain documents to demonstrating their direct vessel operation. This requirement appeared to be too cumbersome and cause many difficulties for enterprises.

To abolish the requirement on documents evidencing the direct vessel operation.

This problem has been solved by the issuance of Circular 26/2015/TT-BTC, taking effective since 1 January 2015. According to which, vessel documents are no longer required to foreign shipping lines in applying DTA exemption. This guideline applies retrospectively to all the DTA applications submitted before the effective date.

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14. Investment and Trade

14 Old Cap on Advertising and Promotion Expenses Under the former legislation on Corporate Income Tax, enterprises were allowed to deduct A&P costs up to 15% of the deductible amount. This

To abolish the cap on deductible A&P costs.

Amended Law on CIT has abolished this provision on the capped deductible A&P costs effective since 1 July 2015.

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restriction on deductibility of A&P costs was not in line with international practices, causing a lot of disadvantages for enterprises in Vietnam, and decreasing the attraction of foreign investment to Vietnam.

14. Investment and Trade

15 New Need for kindergartens in industrial parks and export processing zones Vietnamese workers at industrial parks and export processing zones are facing the difficulties in finding suitable kindergartens for their children as the childcare centers at these areas have poor quality while public kindergartens are closed off to children of migrant workers.

To adopt solutions for handling issues regarding kindergartens and kindergarten classes in industrial parks and export processing zones.

On 22 May 2015, the Prime Minister issued Directive No. 09/CT-TTg on promoting the implementation of solutions for handling issues regarding kindergartens and kindergarten classes in industrial parks and export processing zones. In particular, the PM requires the plan on development of industrial parks to be associated with housing plans for employees working therein up to 2020, and must satisfy the demand for kindergartens and kindergarten classes in such industrial parks. The Directive also imposes certain obligations and

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responsibilities over relevant People's Committees and Ministries in ensuring the development of kindergartens in industrial parks/export processing zones.

That said, shortage of lands is preventing provinces and cities from building kindergartens for children of workers at industrial parks and export processing zones.

14. Investment and Trade

16 New Importation of used equipment Ministries are endeavouring to tighten regulations for import of used equipment. Decree 87/2013/ND-CP provides cases where importation of used equipment is allowed but subject to approval of the PM. In practice, there are cases where enterprises need to import used equipment as per their business demands (R&D, software processing, intra-group investment, refurnishing business, etc.). The Ministry of Science and Technology is preparing the draft

To evaluate and re-consider the criteria for used equipment to be imported into Vietnam;

To eliminate Circular 20 and let other governing legislation apply (e.g., environmental, customs);

If not, then to add exceptions for the proposed restrictions.

The draft Decision of the PM on 7 cases where importation of used IT products is allowed is recently introduced for public opinion. Notably, the draft recognizes importation of used IT products for refurnishing and redistributing in VN as one of the permissible cases. If passed in current form, this Decision

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Circular replacing Circular 20/2014/TT-BKHCN (which has been suspended from implementation soon after being issued) and businesses believe the issuance of such circular will hamper their investment plans.

will partly solve the current issues relating to importation of used equipment which hamper businesses' investment plans.

On the other hand, Circular 23/2015/TT-BKHCN replacing Circular 20 imposes even more difficult standards for importation of used equipment, with wider product line coverage.

14. Investment and Trade

17 New Registration of standardized insurance contracts Under Decision No. 35/2015/QD-TTg, life insurance products are added as one of the essential goods and services which standard contract forms/general trading conditions must be registered to the MOIT under the Law on Protection of Consumers' rights. This causes many difficulties to insurance businesses and doubles administrative procedures regarding life insurance business activities, as they must conduct such registration in parallel with the ratification procedure with the MOF.

To temporarily suspend the application of Decision 35;

To allow insurers to register the insurance contracts after obtaining the MOF's approval on relevant insurance product;

To stipulate a clear scope of review of each ministry to ensure that the MOIT's MOF's authorities will not double the administrative procedures and hinder businesses.

Pending for opinions from the PM and the Ministries.

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BANKING POSITION PAPER

Prepared by VBF Banking Working Group

MACRO ISSUES 1. Developing Cash management products Cash management services help the businesses to effectively manage their cash flow and liquidity. The typical cash management products include Cash sweeping and pooling, inter-company lending and entrustment lending. However, in an absence of specific legal framework and guidance from SBV on such products, banks are not able to provide cash management services to clients. This prevents the enterprises, especially the multi-national companies who have many subsidiaries and affiliates to access effective liquidity management tools. This could adversely impact the competitiveness of the Vietnam-based enterprises and the banking system as well as making the investment environment less attractive. We would like to recommend that SBV promptly adopt the legal framework for cash management activities so that local banks and foreign bank branches could utilise cash management services and provide necessary support to their clients. 2. Risk management framework for enterprises The foreign and local companies involved in large projects have strong demand to effectively manage their Foreign exchange, Interest rate and Commodity rate risks. We suggest SBV to further develop regulatory framework in this area such as issuing circular on commodity derivatives, permitting to conduct CCS on top of interest risk hedging for foreign currency loans for the purpose of full protection, recognize Net Opening Position of Cross currency swap, especially the close-out netting scheme allowed in events of violation to create favorable conditions for the corporate to hedge their business risks at low cost. We look forward to working closely with SBV in this area.

3. Digitisation We are all experiencing the dominance of technology not only in business but also in every other aspect of life and society. Tech-innovation in financial services, which we call “fintech”, has become increasingly prominent in recent years. Vietnam, with young, tech savvy population and 23 million smart phones in operation and 55 million mobile phone subscribers offers significant demographic advantages for the development of financial technologies. We are seeing more and more local fintech products and solutions such as mobile wallet platform, peer to peer lending, crowd funding platform which require strong partnership between technopreneurs and banks. The formation of informed and timely policies for these non-cash management solutions is important to facilitate favourable market conditions and bring benefits to both urban and rural communities. We therefore would encourage SBV to put digitisation high on your agenda and we are delighted to assist you to develop a relevant FinTech ecosystem in Vietnam. 4. Regulatory enforcement There are some regulations adopted with immediate effect (for example: Circular 15/2015/TT-NHNN issued on October 2nd,2015, came into effect on October 5th 2015 came into effect on September 28th, 2015). In practice, it is very challenging for banks to implement new regulations immediately without a proper preparation process. . Banks need to revise their procedures, processes and products, to conduct employee training and to inform the

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customers and clients about the upcoming changes. Therefore, it requires some time for banks to implement new regulations properly and to fully comply. We strongly recommend that for upcoming new regulations, there should be a deadline of minimum 45 days for the regulations to take effect In addition, there exist grey and impractical areas in some new regulations that make implementation and compliance a challenge. For example, the requirement to identify related persons for the control of single borrowing limit; and the restriction on opening no more than one Indirect Foreign Investment Capital account by foreign investor, entrustment lending and refinancing and requirements on translation of documents for account opening in circular 23/2014/TT-NHNN. We would like to recommend SBV to offer banks more opportunities to provide comments and feedback on existing and new regulations before adopting the regulations. We believe a greater focus on consultation process will make regulation even more effective and efficient and will help improve regulatory enforcement. TECHNICAL ISSUES SECTION A – KEY AND EMERGING ISSUES The VBF Banking Working group (“BWG”) hereby presents to the State Bank (“SBV”) the following key issues:

1. Circular 07/2015/TT-NHNN on Bank guarantees In the calculation of single credit limit in banking activities, local regulations including circular 07 on banking guarantees only exclude guarantee balance in case the guarantee issuance is on the basis of the counter guarantee by local credit institutions or foreign bank branches in Vietnam. In case the guarantee is issued on the basis of the counter guarantee that by a foreign bank overseas, for example, the foreign branches of the foreign bank branches in Vietnam or the mother bank of the guarantee issuing bank, such a guarantee is still subject to single credit limit calculations. In fact, in both cases, the credit risk for the guarantee issuing bank associated with this guarantee is almost the same since it already rests with the counter guarantee issuing bank. This is also not in line with international practices. The non-recognition of the counter guarantee issued by a foreign bank as an exclusion in the single credit limit calculation would potentially restrict the capacity of foreign bank branches in Vietnam to issue large-amount guarantees to support large FDI projects in Vietnam. With this, foreign bank branches in Vietnam could only rely on local banks as a counter guarantee issuer with more limited capacity in terms of capital and credit worthiness in comparison with foreign banks.

We recommend that SBV would allow the exclusion of the guarantees which are issued on the basis of a counter guarantee issued by foreign banks overseas out of the single credit limit calculation to be in line with international practices. In case of being concern by SBV on unable to manage the Credit Institutions and Foreign Branches overseas, we recommend SBV to request such organizations for provide the Annual report of these overseas names and the rating of the international Agencies for SBV’s assessment and comfort.

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2. Simplifying requirements for account opening and market entry dossiers for foreign investors

Circular 123/2015/TT- BTC of the Ministry of Finance dated August 18, 2015 provides guidance on foreign investment activities in Vietnam's stock market has removed many rules to simplify the documentation for the foreign investors' participation in the Vietnamese stock market, including(1) removal of the consularizing requirements; (2) removal of the requirement for translation of certified documents in English; (3) removal of notarized translation for other documents in English. But a foreign investor looking to set up a cash account at a bank must adhere to Circular 23/2014/TT-NHNN, guiding on opening and use of transactional accounts at banking service providers, where the client must submit a notarized translation of the applications for account opening and also notarized translations of ID paper/passport that have been consularized in another country for the account holder. The requirements of Circular 23 results in the inability to benefit from the paperwork simplifying efforts offered by Circular 123. In addition, Circular 23 also requested the authorization to use the account in writing, together with the signature registration form and a valid copy of identity card or passport of the authorized person, while according to international practice, the global custodian banks only send commands and instructions to the depository bank in Vietnam through SWIFT from the registered SWIFT addresses, thus ensuring optimal accuracy of instructions and directives. These organizations do not use the paper forms to send orders / instructions to custodian banks in Vietnam. Therefore, the request for authorization documents, sample signature and copy of identity card / passport of the authorized person is not suitable to customers using SWIFT. We hope SBV considers simplifying further administrative requirements for foreign investors to ensure consistent application of documentary requirements for foreign investors, as well as facilitate their participation in Vietnam's stock market or to be specific: (1) removing the requirement for ID paper provision for the registered agent or proxy of the account holder; (2) removal of the need for translation of notarized English documents; (3) removal of notarized translation need for other documents in English; and (4) removal of the need for consularization of the copies of relevant documents. 3. Recommendation for addition of banking products in SBV’s upcoming normative

regulation amendment and enactment

a. Refinancing for offshore loans - draft Circular on lending BWG provided comments on the draft circular, suggesting SBV consider allowing loans used for repaying loans acquired from lending credit institutions and foreign bank branches and/or other credit institutions and foreign bank branches on the basis that the Bank maintains clear procedures to identify that such loans are not granted to conceal bad debt. In practice, there are many companies borrowing foreign currency loans overseas (thanks to relationships of their parent company) when they were first established in Vietnam. However, because of their revenue in VND and when their financial and business status become stable, these companies then would like to borrower VND to repay foreign currency loans. So, once again we suggest SBV consider this proposal in order to facilitate customer business in case loan purposes are clearly not to conceal bad debt. We also recommend SBV to allow rollover loans for the aim of transparency reporting and liquidity gap management instead of re-pricing.

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b. Agent banking Article 106, CI Law, specifies that commercial banks may act as agents in areas related to banking activities, insurance brokerage and wealth management in line with the State Bank’s rulings. But SBV has not released an implementing Circular addressing agent for banking activities. The Banking working group is ready to share information on international practices and work with SBV in pushing out early these rules to facilitate and meet real users’ needs for agent banking offerings and developments of this field of expertise. c. Cash Management product Cash management activity offered by banks will provide clients with effective solutions in the management of clients’ cash flow and liquidity. In Vietnam, the Law on Credit Institutions classifies cash management as one of the banking activities which commercial banks and foreign bank branches in Vietnam can provide to clients.

However, in an absence of a specific legal framework and/or guidance from SBV on cash management, banks could not be able to provide cash management service to clients. This would cause clients; particularly multi-national companies with many subsidiaries and affiliates to lack access to effective liquidity management tools such as cash management offered by local banks and foreign banks in Vietnam. This could potentially have an adverse impact on the competitiveness of Vietnam’s banking system as well as the attraction of foreign investment into Vietnam. We recommend that SBV be able to lay out the legal groundwork for cash management so that local banks and foreign bank branches in Vietnam could be able to offer this service to clients. d. Non- recourse discounting and factoring Laws on Credit Institutions and Circular 04/2013/TT-NHNN dated March 1,2013 only recognize discounting and factoring activities on a with recourse basis to the seller. This is not in line with international practices, for products/ solutions such as factoring, bill discounting and any other product where the bank has enforceable recourse to the buyer or the buyer’s bank.

The recourse imposed on the exporters restricts them from accessing good quality funding to finance their working capital and reduce the payment risks from the buyer. Aligning Vietnam with the international trade finance standards would help protect exporters in Vietnam against buyers’ default and delays of payment, ensuring a steady source of funding. As these products offer risk protections against buyers and buyer’s country risks, Vietnamese exporters would be more comfortable developing commercial relationships with new markets or counterparties to grow their exports. We recommend that SBV issue the regulations allowing discounting and factoring activities on a with recourse basis to both the seller and the buyer.

Notwithstanding the above, we would like the SBV to consider issuing a new or supplementing regulation on business of discounting bills, notes and other valuable papers without recourse and/or bill of exchange. By nature, it is a transaction under which the bank extends credit to the buyer for yearly payments to the seller for purchase of goods/services. Provided that the seller transfers its whole rights relating to the sale contract/invoice executed with the buyer, and the buyer accepts to pay the whole contract price/invoice amount to the bank by the original due date. The discounting charge shall be the difference between the invoice amount and the one duly paid early to the seller, converted into a percentage. The terms and conditions of this type of credit extension are quite similar to

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lending to the borrower and disbursing funds to the supplier of the borrower. The current guideline given by the SBV under OL 3212 of 08/05/2013 and OL 7294 of 05/10/2013 said that the above transaction scheme (i.e. discounting bills, notes and other valuable papers without recourse and/or bill of exchange) is not for credit businesses but would be regarded as international payment services. Kindly be advised that under the (international) payment service, (i) the bank only collect remittance fees (not the discounting charge) and (ii) the bank shall take the fund of the buyer and transfer it to the seller, but not by using its own fund to pay to the seller first, then collecting it from the buyer afterward. 4. Accounting Treatment under UPAS LC Usance Payable at Sight (UPAS) LC provides an option to beneficiaries to choose sight payment terms, within a usance payment documentary credit transaction. If the option is exercised, Reimbursing bank nominated by Issuing bank will make payment at sight to beneficiary. At maturity, Issuing bank will reimburse Reimbursing bank for the face value of the LC plus accrued interests. Official Letter (OL) No. 3333/NHNN-TCKT dated 13 May 15 issued by the SBV provides guidance on accounting treatment for Bank-to-Bank LC reimbursement. Under this guidance, LC reimbursement must be accounted as Borrowing from Reimbursing Bank and Advances to applicant customers (at time of payment by Reimbursing Bank to beneficiary. The accounting treatment for the reimbursement activity varies within the market place. In line with international practice majority of banks consider a UPAS transaction as normal import bill (accepted by applicants) payable at maturity by Issuing bank. As such, it does not fall within the purview of OL 3333. While as per OL 3333 and treat UPAS bills as Loans/Advances to customers. This inconsistency has created some confusion in the market place and in the minds of some customers.

Clarification is being requested from the SBV if UPAS reimbursement is within the scope of OL 3333. If that is the case, all LC reimbursements should be treated as Borrowing from the Reimbursing Bank and as an Advance/Loan to Applicants/Customers.

5. Circular 36/2014/TT-NHNN on stipulating prudent ratios in operations of CIs and FBBs

Circular 36 is a great step to enhance safety and transparency criteria in the operation of Credit Institutions, restricting cross shareholding and accelerating the banking restructuring. We appreciate the intention of SBV to impose the limit of using short term funding to fund for long term asset. However, we would like to bring the attention of the SBV 2 key issues faced by the BWG members:

The first issue in Circular 36 is the stipulation of 15% and 35% limit ratio of Government bonds holding per short term funding for Foreign Bank Branches and Commercial Banks respectively is not in line with Basel II and III where banks are required to hold substantially more Government bonds. In addition, banks are perhaps the biggest (if not only) buyers for Government bonds and this requirement may adversely impact the Government plan in funding fiscal deficit next year and the development of an active primary and secondary securities market.

The second issue is the identification of related persons for controlling credit granting limit is extremely important though it becomes a huge administration steps for banks. The BWG members have taken positive steps in developing a uniform template which include all regulatory requirements on related persons in circular 36 for common use. However, both the banks and customers have faced tremendous difficulty in identifying and verifying the information on related persons which we do not think as an effective way to ensure compliance. We recommend that the SBV either amend the definition of related persons in

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line with international standards or provide guidance to banks on how to identify those subjects for controlling the single borrowing limit.

6. How SBV could play a role in setting up an open platform for better market transparency, benchmark fixing and conduct management

Recently, in response to the growing number of misconduct incidents (e.g.: Libor / foreign exchange fixing), global regulators have been imposing very stricter standards on market conduct. As the Vietnam market grows in size and complexity, the demands for higher ethical conduct and uniform practice increase correspondingly. In helping to foster the market, we believe that Vietnam should adopt the international best practices as well as safeguard the soundness of the system. We therefore would like to recommend the introduction of market conduct, which covers the dealing in money market, foreign exchange, derivatives and other market instruments as follows: a. General market conduct to ensure the right behavior of financial institutions towards their clients and counterparties in the financial markets. In particular, it should provide basic dealing guidelines: - Communication: e.g.: Dealer must not willfully spread rumors or disseminate false or

misleading information. In addition, care must be exercised when handling unsubstantiated market information. Client communications in particular should have a reasonable basis, be fair and balanced, and not contain any inaccurate or misleading information.

- Conflict of interest: e.g.: Dealer should act in good faith and in the best interests of clients. Banks should implement internal policies and procedures which prohibit all forms of market misconduct.

b. Benchmark rate setting Benchmark rate setting to ensure it is reliable, transparent and subject to clear governance and accountability mechanisms. Currently, there are some major benchmarks such as HNX fixing for bond market (Ha No Exchange) and VNIBOR for money market. The HNX fixing is monitored by the HNX and contributed by its members in accordance with Decision 56/QĐ-SGDHN of HNX - Ha Noi Stock Exchanged dated 06 Mar 2013 and the Decision 160/QĐ-UBCK dated 15 Mar 2013 of the SSC - State Securities Commission. For Money market and may be for foreign exchange or swap market in the future, it is necessary to set out the governance, requirements and supervision. 7. Progress of court cases on non-performing loan and mortgaged asset disposal under

Civil Litigation Code 2014 Banks are having difficulties with the progress of the court cases on a number of cases where banks are trying to retrieve funds. a. Complicated and long process

In case the customer does not cooperate with lending bank (in most of bad debt cases), the bank must sue the customer before the Court and spend 01 to 02 years to receive the judgment. After receiving judgment or the decision on acknowledgment of agreements of the parties, the bank must submit the Sentence Execution Agency application and spend more 02 to 03 years to auction the collateral. This long process increases the bad debt settlement expenses and decreases the value of the collateral, affecting negatively the efficiency of loan collection. b. Unreasonable decisions and requests of the Court or the Sentence Execution Agency

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In many cases, the unreasonable decisions and requests of the Court or the Sentence Execution Agency make the process of collateral disposal for debt recovery at the bank go to dead-lock. In case individual customer runs away, the Court does not receive the lawsuit document or suspends the lawsuit for not being able to find the current address of the defendant. For the corporate customer as 100% foreign capital company, in case the legal representatives of the company runs away to their home country, the Sentence Execution Agency requests to perform the foreign judicial authorization procedure via the Ministry of Foreign Affairs to notify the decisions and documents of the Sentence Execution Agency to the legal representatives of the company. In practice, this judicial authorization procedure takes long time without any result and delay the auction process many years. c. Unfeasible asset disposal via non-litigation process The Joint Circular No 16/2014/TTLT-BTP-BTNMT-NHNN dated on 06/6/2014 between Ministry of Justice, Ministry of Natural Resource and Environment, SBV allows the Bank to take the collateral into custody and dispose for debt recovery without the mortgagor’s agreement. However, because there is not active support from the police department and the local authorities for the bank to take the collateral into custody, the implementation of the Joint Circular 16 is not feasible. BWG therefore would like to propose some recommendations as follows: - Shorten the time of the Court and the Sentence Execution Agency process; - In case the individual borrower or the legal representative of the corporate borrower

run away, the Court can open the hearing in the absence of the borrower and it is not necessary to perform the foreign judicial authorization procedure;

- SBV should cooperate with the relevant authorities to elaborate a clear and detailed legal framework regulating the cooperation between the police department, the local authorities, the relevant authorities and the Bank to support actively the Bank in taking the collateral into custody and disposing the collateral for debt recovery without the mortgagor’s agreement or cooperation.

Solving these difficulties and obstacles shall improve the efficiency of bad debt settlement task in all banking system.

SECTION B – REVIEW OF PENDING AND LONG OUTSTANDING ISSUES The working group respectfully recommends that SBV reviews and provides its guidance on the following matters raised previously. 1. Anti-Money Laundering (AML) The working group is delighted that Circular 31/2014/TT-NHNN, revising Circular 35/2014/TT-NHNN on anti-money laundering was released on Nov. 11, 2014, in which many BWG’s recommendations have been accepted. There are, however, several points in the Circular 31 revising Circular 35, and Decree 116 that are in fact very hard or impossible to implement. So the BWG would hereby update SBV of the following information: KYC activity a. Collect identification information on branches or same group foreign associated

companies using the banking services or bank accounts opening in Vietnam. Regarding the cases of subsidiary(ies) or other foreign affiliates of the same corporate structure (eg. a bank branch in country X) being customers of the bank in Vietnam, due that these branches / affiliates share structure, executive management and internal policies

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which is similar to the bank in Vietnam and being managed/supervised by the same Group, from risk-based approach, we propose to have a deviation for customer identification/KYC. b. Implementation of group's internal procedures on customer identification As financial Institutions setup Relationship Management Application (RMA); or companies those have normal international trade payments, there’s no regular banking transactional movements. According to internal regulations of the group, the bank has implemented minimal KYC measures such as: - With regards to LC advising, LC confirmation, Collection, Guarantee, Discount, issuing

bank must have existing relationship with the bank group when the bank in Vietnam plays the Confirming Bank or Discounting Bank role.

- Company names, Legal Rep, Authorized Signers have been screened against applicable sanctions or local lists prior to transaction processing or as and when there is update/change of the applicable sanctions or local lists.

- Verify customer name and address via business registration or reconcile with information provided by other bank, in financial report or their official business website.

- Other Compliance checks will be done for example: Anti-Boy-Cott, AML red flags or other independent check.

- Closely monitoring the transaction frequency for more stringent control. - With regards to the Supplier Financing Program, companies those are buyers must be

existing clients of the bank in Vietnam which means all necessary customer identification have been done. Financing for Suppliers (Sellers) is to support for the Companies (Buyers).

Therefore, we suggest SBV to allow the FBBs and 100% foreign capital banks apply internal simplified procedures. 2. Decree 96/2014/ND-CP on Civil penalization in relation to monetary and banking

practices Decree 96/2014/ND-CP on Administrative sanctions in relation to monetary and banking violations does not provide the mechanism of applying alleviation when banks have self-identified the breaches, conducted necessary preventive measures and reported to SBV. This may prevent the banks from self-improving their internal control system. Decree 96 also does not distinguish whether these breaches are systematic or isolated then applying relevant alleviative or strict measures to tackle this. We suggest that SBV should work with Government to consider amending Decree 96. 3. Reimbursement of interest subsidy Over the last years, banks have been waiting for the reimbursement of 20% of due interest subsidies under the interest rate support initiative that ended in 2009. Following our previous meetings with SBV in late 2012, we note that the figures has been checked and finalized for a number of BWG members. We also understand that this is a complicated matter that may have bearings on the public funding balance sheet and national financial health. However since the unpaid accumulated reimbursements are presenting themselves as a problem with the banks in relation to their internal accounting systems and audited financial statements, the working group would appreciate if SBV wraps this up and starts releasing this interest rate refund as soon as possible.

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CONCLUSION Many of the issues and comments mentioned in this paper come from a clear and urgent drive by the State Bank of Vietnam to create a better governed more transparent banking system. We are moving steadily and progressively to this aim and there is increasing confidence that we are moving in the right direction. As noted in the beginning, we believe that Vietnam can shortly begin work on other aspects of developing the financial markets, so that Vietnam has a solid and robust financial sector for future growth. The BWG remains committed to help in any way possible in furthering Vietnam’s financial market development to serve the needs of our customers and the nation.

Banking – Progress Report Vietnam Business Forum, 2015

Important Note: This "Progress Matrix" was prepared based on the voluntary submissions of the various Working Groups and Sub-Working Groups of the Vietnam Business Forum from 2011 - 2015. In terms of both the feedback and the rankings/progress evaluations, it is not intended to be either complete or scientific. It does nevertheless reflect many issues of concern that have come up in the various Working Groups, and their constructive proposals for solutions. It is hoped that it will provide a useful reference to track and guide progress as the Government and the business community continue their collaboration to improve the business environment though the channel of the Vietnam Business Forum. Among other things, it should be noted that many issues already fully resolved have been dropped from this Progress Matrix to limit the size of the document, and almost all of the issues noted are those that still need more work.

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BANKING PROGRESS REPORT Prepared by

Banking Working Group Solving issue progress scale 0 = Still existed issue; 1 = Partially solved issue; 2 = Solved issue 1-10:10 is the highest priority Score = (Progress point) x (Priority)

No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score 1 06/2015 Circular 07/2015/TT-NHNN on

Bank guarantees Inclusion of offshore counter guarantee in single lending limit calculation

We recommend that SBV would allow the exclusion of the guarantees which are issued on the basis of a counter guarantee issued by foreign banks overseas out of the single credit limit calculation to be in line with international practices. In case of being concern by SBV on unable to manage the Credit Institutions and Foreign Branches overseas, we recommend SBV to request such organizations for provide the Annual report of these overseas names and the rating of the international Agencies for SBV’s assessment and comfort.

Under discussionwith the State Bank of Vietnam (“SBV”) BWG raised the implementation difficulties by comments sent to SBV in July and September 2015.

x 10 10

2 11/2014 Circular 30/2014/TT-NHNN on providing guidance for the operations of entrustment and

We recommend SBV to coordinate with relevant ministries to provide specific guidance for this kind of

SBV issued OL8480/NHNN-TTGSNH dated November 5th, 2015 providing guidance on the

x 10 20

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score

entrustment receipt of Credit Institutions (“CIs”) and Foreign Bank Branches (“FBB”) Unclear guidance for CIs & FBBs to implement the entrustment and entrustment receipt services

activity for implementation to avoid potential violation.

aforesaid issue.

3 03/ 2014

Coordination between SBV, Ministry of Finance and State Securities Commission of the regulations applicable to indirect foreign investment in Vietnam stock market: a. An account structure that

allows foreign portfolio investors to maintain multiple accounts at a same custodian bank

b. Simplifying requirements for account opening and market entry dossiers for foreign investors

a. We hope that SBV considers adopting a more flexible VND account structure, with multiple VND accounts for use by foreign investors, providing that custodian banks ensure segregated monitoring and reporting of the in and out cash flows for each investor to meet SBV’s forex administration needs, while maintaining the integrity and compatibility with a flexible depository account structure and the use of multiple stock trading ID number for major foreign investors.

b. We hope SBV considers simplifying further administrative requirements for foreign investors to ensure consistent application of documentary requirements for foreign investors, as well as facilitate their participation in

Under discussion with SBV x 8 8

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score Vietnam's stock market.

4 09/2015 1. Refinancing for offshore loans - draft Circular on lending

BWG provided comments on the draft circular, suggesting SBV consider allowing loans used for repaying loans acquired from lending credit institutions and foreign bank branches and/or other credit institutions and foreign bank branches on the basis that the Bank maintains clear procedures to identify that such loans are not granted to conceal bad debt.

Under discussion with SBV

x 8 8

2. Agent banking BWG is ready to share information on international practices and work with SBV in pushing out early these rules to facilitate and meet real users’ needs for agent banking offerings and developments of this field of expertise.

Under discussion with SBV

x 7 0

3. Cash Management product

We recommend that SBV be able to lay out the legal groundwork for cash management so that local banks and foreign bank branches in Vietnam could be able to offer this service to clients.

Under discussion with SBV

x 7 0

06/2013 4. Non- recourse discounting and factoring a. Laws on Credit Institutions

a. We recommend that SBV issue the regulations allowing discounting and factoring

Under discussion with SBV x 8 8

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score and Circular 04/2013/TT-NHNN dated March 1,2013 only recognize discounting and factoring activities on a with recourse basis to the seller. This is not in line with international practices.

b. The current guideline given by the SBV under OL 3212 of 08/05/2013 and OL 7294 of 05/10/2013 said that the above transaction scheme is not for credit businesses but would be regarded as international payment services.

activities on a with recourse basis to both the seller and the buyer.

b. We would like the SBV to consider issuing a new or supplementing regulation on business of discounting bills, notes and other valuable papers without recourse and/or bill of exchange.

5 06/2014 Guidance on FATCA implementation

We suggest SBV to: a. inform FFIs in Vietnam when the

previously submitted Form 8966s have been submitted to the IRS.

b. have formal discussions with the IRS on behalf of all Vietnam FFIs to confirm that the IRS will accept the submission from SBV as fulfilling FFIs in Vietnam’s reporting obligations under their respective FFI Agreements.

c. suggest SBV to accelerate the signing of Model 1 IGA with US government so that FFIs in

Have been resolved x 10 0

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score Vietnam no longer need to report directly to the IRS. If none of the above suggestions are possible, or they cannot be achieved quickly, alternatively, SBV shall allow FFIs to send reports (which have previously submitted to SBV) directly to the IRS electronically to avoid violation of FFI Agreements.

6 10/2015 Accounting Treatment under

UPAS LC Under the provision of OL 3333/NHNN-TCKT, UPAS bills are treated as Loans/Advances to customers, which is different to the international practice. This inconsistency has created some confusion in the market place and in the minds of some customers.

We would like SBV to clarify whether UPAS reimbursement is within the scope of OL 3333. If that is the case, all LC reimbursements should be treated as Borrowing from the Reimbursing Bank and as an Advance/Loan to Applicants/Customers.

Under discussion with SBV x 8 0

7 11/2014 Circular 36/2014/TT-NHNN on stipulating prudent ratios in operations of CIs and FBBs

a. the stipulation of 15% and 35% limit ratio of Government bonds holding per short term funding for Foreign Bank Branches and Commercial Banks respectively is not in line with Basel II and III where

a. We propose that SBV considers changing the maximum ratios for purchase of and investment in Government bonds for foreign bank branches to 35%, equal that applicable to joint stock commercial banks, joint venture banks and wholly foreign-owned banks.

b. (ii) We recommend that the SBV either amend the

Under discussion with SBV x 8 0

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score banks are required to hold substantially more Government bonds.

b. the identification of related persons for controlling credit granting limit

definition of related persons in line with international standards or provide guidance to banks on how to identify those subjects for controlling the single borrowing limit.

8 10/2015 Set up an open platform for better market transparency, benchmark fixing and conduct management

We propose to adopt the international best practices as well as safeguard the soundness of the system by setting out the governance, requirements and supervision.

Under discussion with SBV x 8 8

9 10/2015 Progress of court cases on non-performing loan and mortgaged asset disposal under Civil Litigation Code 2014 Banks are having difficulties with the progress of the court cases on a number of cases where banks are trying to retrieve funds. a. Complicated and long

process b. Unreasonable decisions and

requests of the Court or the Sentence Execution Agency

c. Unfeasible asset disposal via non-litigation process

BWG therefore would like to propose some recommendations as follows: a. Shorten the time of the Court

and the Sentence Execution Agency process;

b. In case the individual borrower or the legal representative of the corporate borrower run away, the Court can open the hearing in the absence of the borrower and it is not necessary to perform the foreign judicial authorization procedure;

c. SBV should cooperate with the relevant authorities to elaborate a clear and detailed legal framework regulating the cooperation between the police

Under discussion with SBV x 9 0

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score department, the local authorities, the relevant authorities and the Bank to support actively the Bank in taking the collateral into custody and disposing the collateral for debt recovery without the mortgagor’s agreement or cooperation.

10 11/2014 Anti Money Laundering (AML):

There are positive changes in the Circular 31/2014/TT-NHNN, revising Circular 35/2014/TT-NHNN on anti-money laundering was released on Nov. 11, 2014. However, there are still several points hard or impossible to implement as follows: KYC activity: a. Collect identification

information on branches or same group foreign associated companies using the banking services or bank accounts opening in Vietnam.

b. Implementation of group's internal procedures on customer identification

KYC activity: a. We propose to have a deviation

for customer identification/KYC.

b. We suggest SBV to allow the FBBs and 100% foreign capital banks apply internal simplified procedures.

Under discussion with SBV x 7 7

11 12/2014 Decree 96/2014/ND-CP on Civil penalization in relation to

We suggest that SBV should work with Government to consider

Under discussion with SBV x 10 0

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score

monetary and banking practices Decree 96/2014/ND-CP on Administrative sanctions in relation to monetary and banking violations does not provide the mechanism of applying alleviation when banks have self-identified the breaches, conducted necessary preventive measures and reported to SBV.

amending Decree 96.

12 12/2014 Reimbursement of interest subsidy We understand that this is a complicated matter that may have bearings on the public funding balance sheet and national financial health. However since the unpaid accumulated reimbursements are presenting themselves as a problem with the banks in relation to their internal accounting systems and audited financial statements.

BWG suggets SBV to wrap this up and starts releasing this interest rate refund as soon as possible.

Under discussion with SBV x 10 0

2.3. CAPITAL MARKETS

Capital Markets Working Group – Position Paper Vietnam Business Forum, 2015

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CAPITAL MARKETS WORKING GROUP POSITION PAPER

Prepared by Capital Markets Working Group

Vietnam Business Forum

The Capital Markets Working Group – Vietnam Business Forum highly appreciates the efforts of the Ministry of Finance, the State Securities Commission (SSC), the Stock Exchanges and the Vietnam Securities Depository (VSD) in recent years to improve the legal framework in order to create more favorable conditions for indirect investment activities of investors. For your consideration, we would also like to share some of the difficulties that we are facing, they are as follows: PART 1 – KEY MATTERS 1. Privatization of SOEs We welcome and appreciate the decision of the Prime Minister on the state divestments in the Official Letter No.1787/TTg-DMDN dated October 8, 2015 (hereinafter referred to as the Official Letter 1787/2015). According to this document, the Government will have a divestment plan of the state capital in 10 companies, including Vietnam Dairy Products JSC (Vinamilk), FPT Telecom Corporation, and Bao Minh Insurance Corporation. We think this is a wise decision, showing the determination of the Prime Minister and the Government for equitization. The decision along with allowing the increase in foreign ownership is a breakthrough to bring Vietnam's stock market to the "emerging markets" ranking. In our opinion, compulsory listing of privatised SoEs under Decision 51/2014/QD-TTg dated 15/09/2014 and under the Decree 60/2015/ND-CP dated 26/06/2015 (hereafter referred to as the Decree 60/2015) issued by the Prime Minister are proper provisions and very encouraging signs. However, we wish to emphasize that the State divestment in a transparent manner through bidding, and the compliance and enforcement of, as well as the supervision of compliance and enforcement of, the Decree 60/2015 will play a crucial role in the success of the privatization of the SOEs. To make the privatization process succeed, and also meet the expectation from both the Government and investors, we would like to emphasize on the following:

the State divestment in a number of businesses in the Official Letter 1787/2015 must be carried out in a transparent manner through public bidding;

the Government should strictly request privatized SoEs fully complies with the provisions on compulsory listing under Decree 60/2015;

the Government should publicly publish a list of SoEs to be privatized. The list should contain names of SoEs, estimated time for privatization, and estimated price to be offered to the public;

to create liquidity for the after market, the privatizations should be done through a global syndicate and 25-30% should be sold off;

the Government should pro-actively establish rules on good corporate governance based on the international practice, and apply those rules to the privatized SoEs; and

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the Government should expedite the creation of domestic pension funds as these funds will provide a significant demand for the financial market and privatization.

2. Decree 60/2015/ND-CP on Foreign ownership limits We welcome the passage of Decree 60/2015 by the Government to increase foreign ownership limits (FOL) in public companies. The decree has shown the Government’s important direction and openness in promoting foreign investments in public companies and securities funds in Vietnam. Also under the decree, foreign investors may establish a new 100% foreign owned securities company or a fund manager in Vietnam, or acquire up to 100% interest in an existing local securities company or fund manager. However, there are at least 2 major hindrances to the implementation of this Decree 60:

First, the Government has not still publisized the lists of sectors and business lines, which require conditions for foreign investments and set out clearly FOLs applicable to each of those sectors and business lines. As a result, the lack of the lists in fact effectively stops the operation of the Decree 60;

Second, the Law on Investments 2014 is not clear on the scope of its application. As a result, domestic enterprises, local investors, foreign investors in the stock market in Vietnam, and the regulators, being the State Securities Commission, the Ministry of Finance, cannot have a correct answer to the following question: Do the Law on Investments 2014, particularly, Articles 23, 24, 25 and 25 of this law, apply to domestic enterprises, local investors, foreign investors when they buy shares in listed companies, or when they invest in securities investment funds and securities in Vietnam?

We understand that the Ministry of Planning and Investment, the State Securities Commission and the Ministry of Finance are cooperating to resolve this issue in the law guidelines. We also appreciate and thank the Ministry of Planning and Investment, the State Securities Commission for having dialogues and consultations with us when building these legal texts.

We suggest that:

The Government urgently pass the lists of sectors and business lines, which require conditions for foreign investments and set out clearly FOLs applicable to each of those sectors and business lines; and

The decree to interpret the Law on Investments 2014 to be passed by the Government should clearly state as follows: Investments in public companies, investments in securities investment funds and securities in Vietnam will be governed by the Law on Securities and relevant regulations.

3. Pension Funds To our understanding, the MoF is now completing the draft Decree on Pension Fund (Draft Decree). However, we also understand that the Ministry of Labours, Invalids and Social Affairs (MOLISA) has been also drafting a similar decree on pension fund. We would recommend the government to direct the stakeholders to not overlap each other's works in building the decree on voluntary pension funds and ensuring the decree to be issued as soon as possible.

Capital Markets Working Group – Talking points with SSC Vietnam Business Forum, 2015

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TALKING POINTS

MEETING BETWEEN STATE SECURITIES COMMISSION AND CAPITAL MARKETS WORKING GROUP – VIETNAM BUSINESS FORUM

The Capital Markets Working Group – Vietnam Business Forum highly appreciates the efforts of the Ministry of Finance, the State Securities Commission (SSC), the Stock Exchanges and the Vietnam Securities Depository (VSD) in recent years to improve the legal framework in order to create more favorable conditions for indirect investment activities of investors. For your consideration, we would also like to share some of the difficulties that we are facing, they are as follows: PART 1 – KEY MATTERS 1. Privatization of SOEs In our opinion, compulsory listing of privatised SoEs under Decision 51/2014/QD-TTg dated 15/09/2014 issued by the Prime Minister is a significant breakthrough and a wise decision, showing the Prime Minister’s and Government’s determination towards the process of privatization. However, we wish to emphasize that the compliance and enforcement of, as well as the supervision of compliance and enforcement of, the Decision 51/2014 will play a crucial role in the success of the privatization of the SOEs. To make the privatization process succeed, and also meet the expectation from both the Government and investors, we would like to emphasize on the following: - the Government should strictly request privatized SoEs fully complies with the

provisions on compulsory listing under Decision 51/2014/QD-TTg dated 15/09/2014 issued by the Prime Minister;

- the Government should publicly publish a list of SoEs to be privatized. The list should contain names of SoEs, estimated time for privatization, and estimated price to be offered to the public;

- to create liquidity for the after market, the privatizations should be done through a global syndicate and 25-30% should be sold off;

- The Government should pro-actively establish rules on good corporate governance based on the international practice, and apply those rules to the privatized SoEs; and

- The Government should expedite the creation of domestic pension funds as these funds will provide a significant demand for the financial market and privatization.

2. Decree 60/2015/ND-CP on Foreign ownership limits We welcome the passage of Decree 60/2015 by the Government to increase foreign ownership limits (FOL) in public companies. The decree has shown the Government’s important direction and openness in promoting foreign investments in public companies and securities funds in Vietnam. Also under the decree, foreign investors may establish a new 100% foreign owned securities company or a fund manager in Vietnam, or acquire up to 100% interest in an existing local securities company or fund manager. However, there are at least 2 major hindrances to the implementation of this Decree 60:

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- First, the Government has not passed the lists of sectors and business lines, which require conditions for foreign investments and set out clearly FOLs applicable to each of those sectors and business lines. As a result, the lack of the lists in fact effectively stops the operation of the Decree 60;

- Second, the Law on Investments 2014 is not clear on the scope of its application. As a result, domestic enterprises, local investors, foreign investors in the stock market in Vietnam, and the regulators, being the State Securities Commission, the Ministry of Finance, cannot have a correct answer to the following question: Do the Law on Investments 2014, particularly, Articles 23, 24, 25 and 25 of this law, apply to domestic enterprises, local investors, foreign investors when they buy shares in listed companies, or when they invest in securities investment funds and securities in Vietnam? [if the answer were yes, the whole stock market in Vietnam would stop working].

We suggest that: - The Government urgently pass the lists of sectors and business lines, which require

conditions for foreign investments and set out clearly FOLs applicable to each of those sectors and business lines; and

- The decree to interpret the Law on Investments 2014 to be passed by the Government should clearly state as follows:

Investments in public companies, investments in securities investment funds and securities in Vietnam will be governed by the Law on Securities and relevant regulations.

3. Coordination between the State Bank of Vietnam and the Ministry of Finance to govern the foreign indirect investment capital in securities market Foreign investors when investing in the Vietnam securities market have not only to comply with regulations on securities and securities market set forth by the Ministry of Finance (MOF) but also to comply with regulations on foreign exchange management set forth by the State Bank of Vietnam (SBV). However, there have been various instances of lacking /poor coordination between the two ministries leading to difficulties for foreign investment in securities markets. Key issue is that when the regulations on securities and securities market becomes more and more flexible and adaptive to the international investment practices, SBV’s regulations do not move in the same pace with changes in the market in general and the securities market in particular. More specific, we would like to discuss on account structure for foreign indirect investors having multiple securities accounts at a custodian bank, allowing additional indirect investment accounts at different custodian banks for foreign investors being government investment institutions, inter-government institutions and simplification of account opening document & market access documents for foreign investors. These issues are currently having great impacts on foreign investment activities and are very much in need of cooperation between the SBV and the Ministry of Finance. Details of these issues will be demonstrated in Part 2.II.2 of this paper. 4. Pension Funds We appreciate the effort of the Ministry of Finance (MoF) in preparing the draft Decree on the pension funds. We very much hope that the draft Decree will be submitted to the Government in August this year under the current schedule, and be soon passed by the Government so that the market participants will be able to establish the pension funds at the earliest.

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We particularly appreciate the Government’s effort to set up a legal frame work for the pension funds for following reasons: - these funds will provide a significant demand for the financial market and privatization; - the capital invested in the pension funds will be used to re-invest in the Government

bonds (our research shows that, according to the international practice, 40 to 60% of the assets of pension funds are invested in the Government bonds. This practice is also reflected in the draft Decree on pension funds). The capital invested in the pension funds will also help reducing the investment in Government bonds by commercial banks, which is currently at the alarming level (the commercial banks currently hold 83% of the total issued Government bonds as at the end of 2014);

- the establishment of the pension funds will also help to reduce the pressure on the current Social Security Fund (SSF). The SSF has been going through many changes (including amendments on the Law on SSF) to ensure that it will sustainably grow and not make losses. The pension funds will also provide Vietnam with an advanced social security platform, being multi-tiered system, which is well recognized to enhance benefits for employees; and

- the pension funds will enhance benefits for their members as there is no contribution limit in those pension funds (as opposed to the limited contributions to the current SSF).

To our understanding, the MoF is now completing the draft Decree on Pension Fund (Draft Decree). However, we also understand that the Ministry of Labours, Invalids and Social Affairs (MOLISA) has been also drafting a similar decree on pension fund. We suggest the Government check and give clear instructions on which ministry is in charge of preparing such a decree so that the decree on pension fund could be finalized and passed at the earliest. We understand that Article 19 of the Draft Decree (prepared by MoF) allows pension funds to invest in corporate shares and bonds. In our view, those provisions will create significant risks for pension funds. For this very beginning stage of pension funds, we suggest that the funds should only be allowed to invest in: - Government bonds; - Securities Investment Open-End Funds; - Term deposit; - Other open funds meeting the MoF’s requirements.

Our suggestion is based on the following: - Pension funds would be on the safe side when investing in government bonds and funds.

Investments in open-end funds are safer compared to direct investments in shares as risk allocations often exist in open-end funds. As the large institutional investors’ participation in the stock market in Vietnam is still limited, investments in open-end funds would reduce the downside caused by the market’s volatility.

- Investments in open-end funds are also consistent with the current tendency in

developed countries, which promotes investments in regulated financial products. Particularly, open-end funds in Vietnam have been subject to investment restrictions similar to UCITS (Undertakings for the Collective Investment of Transferable Securities).

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- Finally, a schedule gradually loosening investment restrictions for pension funds in the

future would ensure a stable and healthy development of pension funds during its inception, and build up trust from investors.

PART 2 – OTHER ISSUES I - Pending issues from the Meeting on May 2015 1. Allowing right trading in stock exchanges Practice/Reason for the change Transactions of the rights of listed shares are being executed between the investors in OTC market during one month and a half or two months from the record date of the event to the subscription date. The transfer of the rights is made through the VSD’s system. In many markets, the rights are traded as securities via the trading system of stock exchanges. Recommendations We propose the SSC to consider allowing right trading via the system of stock exchanges. 2. Removal of pre-funding requirements and enhancement of risk mitigating measure in securities trading Practice/Reason for the change While there is no doubt that the requirement of pre-funding serves the purpose of keeping failed trades to a minimum, it is inefficient from the perspective of foreign investors. In most markets, foreign investors have to fund their accounts in the market on the settlement date, whereas in Vietnam accounts have to be funded 3 days prior to settlement date in the case of equity trades. This prevents effective utilization of investors’ assets and lowers the returns generated. In addition, this requirement has created a manual process in the market wherein brokers have to confirm sufficiency of balances in investors’ accounts with custodians. This is done via phone callsand is a risk-prone process as several brokers could be calling custodians in a very short window of time. As volume of trading grows, this risk will only increase. Recommendations We recommend the SSC to replace the pre-funding requirements with other risk mitigating measures (i.e. CCP with a settlement guarantee fund and a CCP driven buy-in mechanism) for the cash equities market to begin with and not wait for a derivatives market to be established. In case our recommendation cannot be implemented in the near future, we propose that the VSD should leverage its new gateway to allow brokers to confirm balances in an automated manner. Custodians could be asked to upload cash and securities balances into a VSD run database to which the brokers could connect and block balances real-time.

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3. Ensuring meeting materials and final voting items are sent to shareholders along with the meeting invitations for annual/extraordinary shareholder meetings Practice / Reason for the change Clause 4.2 Article 7 Circular 52/2012/TT-BTC on Information disclosure in securities market stipulates that: “Such public company shall publish on its website all documents regarding the annual/extraordinary General Shareholder's Meeting: meeting notices, proxy designation forms, agendas, ballots, discussion documents as the basis for decision-making and draft resolutions on each issue set forth in agendas and send notices of such meeting and guidance on logging on the website on such meeting and documents regarding such meeting to shareholders fifteen (15) working days at the latest prior to the commencement of such meeting”. However, per our observation, issuers usually send the meeting invitations within the above timeline; meanwhile, meeting materials are sent to the shareholders much later (usually no sooner than 5 days prior to meeting date, or even later). In many cases, the voting items stated in the meeting materials (sent to the shareholders earlier) are changed/added during the meeting without any prior notice to the investors. These have been causing many difficulties to investors, especially for foreign investors and their proxy, due to the 2 following reasons: - Due to language barriers, foreign investors must wait until the meeting materials to be

translated into English so that they can read, understand and decide their votes. In most of the cases, foreign investors must rely on their depository members to obtain English version of such documents. Late dispatch of the meeting materials will not allow foreign investors/depository members to have sufficient for all these steps.

- Foreign investors are usually not able to physically attend the meetings to cast the

votes, but authorize their proxy to vote on the items specified in the meeting materials they received before the meetings. Late dispatch of the meeting materials or sudden changes of voting items with no prior notice would not allow foreign investors to prepare the authorization for their proxy as well as provide the voting instructions to their proxy.

Recommendations We recommend the SSC to stipulate new sanctions for this violation in relevant regulations to enforce public companies to strictly comply with the stipulations on information disclosure as mentioned above, and amend Article 3 Circular 121/2012/TT-BTC to specify the shareholders’ rights/public company’s obligations to receive/provide full information of the meeting, including meeting materials, final voting items, draft resolution, etc. at least 15 days prior to meeting date. This timeline is also in compliant with relevant stipulations in Circular 52/2012/TT-BTC on Information disclosure in securities market. 4. Procedure for handling collaterals being securities in transactions of commercial loans with the involvement of the VSD Practice/Reason for the change In VSD’s new rules on securities registration issued in March 2015, it is stipulated that in case the borrower and lender authorize the VSD to be the intermediary to manage the collaterals, the dossiers and procedure for handling of the pledged securities would be subject to the contract signed by the VSD with the 2 parties. This new rule has drawn the attention of many foreign investors (being financial institutions) looking for involvement in

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commercial loans with collateral securities in Vietnam but still concerning about the risks arising during the handling of the pledged assets. However, currently, detailed guidance for this case is not available so that the new rule can be implemented in practice. Recommendations We recommend the SSC/VSD to provide detailed guidance on the procedure for the above-mentioned cases to support commercial loans of foreign investors in Vietnam. 5. Electronic system for proxy voting (E-voting) Practice/Reason for the change We appreciate VSD’s proposal on an electronic system for proxy voting to support investors in exercising their voting rights in Vietnam. For a country with stretching geography and more than 31 million internet users like Vietnam, local investors also benefit from e-voting system. Korea, Taiwan and India are few examples of using e-voting systems. The new Law on Enterprises has also introduced new provisions being the very first legal base for the operation of such e-voting system. However, this is a brand new system and its inauguration may reveal technical issues of the system its own or issues from depository members’ sides (due to the limitations of their systems, techniques, operational processes, internal policies, information security, limitation on human resources, etc.) Therefore, the members do need sufficient time for comprehensive preparation before the inauguration of e-voting system. In addition, the investors also need sufficient time to study and prepare to contribute comments to the design of the system, as well as prepare to participate in the voting via e-voting system in Vietnam. Recommendations We would propose the SSC and the VSD to share with the members and investors further details on the proposed operating model of e-voting system and VSD’s draft rules on voting activities via this system, so that the members/investors can contribute consistent, comprehensive, useful comments to VSD’s draft rules. 6. Odd-lot transactions via HOSE system Practice/Reason for the change Currently, the process of odd-lot trading in Vietnam market is actually inconsistent. For securities listed on HNX, investors can carry out odd-lot transactions through the stock exchange’s system and make settlement through VSD system which is similar to round-lot transactions. However, for shares listed on HOSE, odd-lot transactions are still executed off-exchange, the investor will have to sign a contract with a securities company or the issuer. Settlement processes for cash and securities for odd-lot transactions of securities listed on HOSE are completely separated and depend on the agreement between the buyer and the seller. Regarding securities settlement, investors will have to prepare and submit dossiers for transfer of odd-lot securities through VSD as per stipulated process. For foreign investors who do not have a commercial representative in Vietnam, the biggest difficulty in the preparation process for transfer of odd-lot shares is the title verification for authorized signatures. In many cases, proving the legality and validity of the odd-lot transactions of listed securities on HOSE and completing the transfer procedures via the

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VSD system are very expensive compared to the value of the odd-lot transactions and very time consuming due to the notarisation/consularissation procedures. Many investors when carrying out odd-lot transactions have requested to write-off their ownership of odd-lots securities. However, the legal framework in Vietnam market has not provided any stipulation on write-off securities ownership. Recommendations We recommend the SSC and HOSE to consider including odd-lots trading in the existing trading system (which is similar to odd-lot transactions via HNX system) at the soonest to reduce the trading costs and minimize difficulty on execution of odd-lot transactions of securities listed on the HOSE. At the same time, we also recommend the SSC to consider approving a mechanism allowing investors to write-off ownership of odd-lot securities. These securities can be transferred back to the issuer without any payment obligation or transferred to a joint account at the VSD to be centrally handled by the VSD, the issuers or securities companies. II. Recommendations and other issues needed further guidance from the SSC 1. Difference in application documents required to open trading accounts at securities companies for foreign investors having securities account at custodian bank

Practice/Reason for the change As stipulated in Article 48, Circular 210/2012/TT-BTC dated on 31 November 2012 of Ministry of Finance guiding on opening trading accounts, dossiers to open trading account at securities companies including a trading account opening form and an account opening contract. In accordance with Clause 1 Article 7 of Circular 74/2011/TT-BTC dated on 1 June 2011 of Ministry of Finance (“Circular 74”), investors shall take responsibility to provide sufficient and accurate information when opening trading accounts. The draft Circular replace Circular 74 also supplement and clarify further clients’ information provided by investors being identity information(Clause 1 Article 7). In fact, according to feedbacks from foreign institutional investors having securities accounts at custodian banks and trading accounts at securities companies, each securities company requires different supporting documents for trading account opening applications. Supporting documents may vary but basically include (i) copy of securities trading code (STC), (ii) identification documents similar to those of securities trading code application (iii) possibly FATCA documents. In some cases where foreign investors are investment funds, some securities companies require each fund to submit separated document; however, some other securities require opening account dossiers submitted at fund management company level (i.e. all funds under the umbrella of the same fund management company shall collectively submit 01 application dossier). Therefore, in case securities companies require for many supporting documents, the time span for opening account could be extended to several weeks/months. Recommendations We propose the SSC to guide a standard required application documents to open securities trading accounts for foreign investors at securities companies.

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2. Issues related to coordination between the SBV and the Ministry of Finance to navigate difficulties for foreign investors coming into Vietnam’s security market 2.1 Account Structure for foreign indirect investors having multiple securities accounts at a custodian bank Practice/Reason for Change There are foreign investors being foreign governments/global investors with a diversified range of investment portfolios managed by multiple specialized fund managers. In accordance with certain laws and regulations on portfolio asset protection, these clients and their fund managers must segregate the assets, e.g. segregation of equities and Government-bond portfolios. Thus, these foreign investors have the need to open multiple cash and safekeeping accounts in order to segregate the fund and the assets of each portfolio. Circular 05/2014/TT-NHNN dated 12 March 2014 allow only ONE indirect investment account in VND for one foreign investor. Circular 05/2015/TT-BTC dated 15 Jan 2015 allow the flexible custody account structure, under which each foreign investor shall open 01 custody account at a custodial bank/custodial member, and under each custody account, the foreign investor can open multiple custody accounts for different investment purposes. This flexible custody account structure allows the investor to segregate multiple portfolios. In addition, Circular 123/2015/TT-BTC, guiding on foreign investors’ activities in Vietnamese securities market, increases more flexibility by allowing government investment institutions and inter-government investment institutions having separated investment portfolios to be granted one securities trading code for each portfolio at a custodian bank. For each granted STC, these institutions shall open one respective securities account at a custodian bank. Hence the restriction of ONE indirect investment account for one foreign investor may (1) not meet the eligible needs/requirement of portfolio separations for big investors with sophisticated portfolios, (2) not be in consistent with flexible custody account structure and (3) cause challenging for existing process of trade balance confirmation/trade settlement in case eligible investors open multiple custody accounts and can only open one VND account. Please kindly note that the current structure of one client master ID with multiple VND accounts under such master ID in the system of custodians still ensure the funding flow management and reporting requirements separately for each foreign investor, meeting SBV’s expectation in this regard. Recommendations We recommend the SSC/MOF to give comments to the State Bank of Vietnam to allow flexible VND account structure with multiple VND accounts for foreign investors, provided that the banks can monitor/report the funding flow in/out for each investor separately, meeting SBV’s expectation from Foreign exchange management perspective, and meanwhile, in line with the flexible custody account structure and multiple trading codes for big foreign investors.

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2.2 Allowing additional indirect investment accounts at different custodian banks for foreign investors being government investment institutions, inter-government institutions Practice/Reason for the change We are highly appreciated the effort by the SSC and the MOF to issue legal framework which has been increasingly closer to the international investment practices, including the regulation allowing foreign investors having segregated investment desks, investment portfolios to have multiple STCs and multiple securities accounts respectively. Old Circular 213/2012/TT-BTC previously allowed foreign institutional investors being foreign brokers, multiple-investment-managers funds having more than one STC to separate their different investment portfolios. Recently, Circular 123/2015/TT-BTC, guiding on foreign investors’ activities in Vietnamese securities market, increases more flexibility by allowing government investment institutions and inter-government investment institutions if having separated investment portfolios shall be granted one securities trading code for each portfolio at a custodian bank. For each granted STC, these institutions shall open one respective securities account at a custodian bank. However, according to the existing foreign exchange regulations, each foreign investor is allowed to open only one foreign indirect investment capital account at a licensed bank and all cash transactions related to foreign investment operation in Vietnam must be conducted via this account. Due to the segregation of investment portfolios of foreign government institutions and inter-government investment institutions, the usage of the same indirect investment capital account in a bank for different portfolios custodized at different custodian banks will cause big difficulties in monitoring cash flow and investors’ assets. Additionally, transactions to be done via cash account and deposit securities account shall require a complicated confirmation processes between the bank having indirect investment capital account and the bank having securities account. At present, despite of the fact that securities regulations become more and more open, flexible to the international investment practices, the foreign exchange regulations by the State Bank of Vietnam do not support foreign investors to remove this existing barrier when investing in securities market. Recommendations We recommend the SSC/MOF to give comments to the State Bank of Vietnam to remove such barrier for of foreign investment activities in Vietnam market, i.e. to allow foreign investors being government investment institutions and inter-government institutions to open additional indirect investment capital accounts corresponding to each additionally granted STC/securities account at second custodian bank onwards. 2.3 Simplification of account opening document & market access documents for foreign investors Practice/Reason for the change The foreign investor community as well as market stakeholders highly welcome SSC’s efforts on relaxation of market entry document for foreign investors under Circular 123/2015/TT-BTC (removal of (1)consularization request, (2) translation request for notarized English document; (3) notarized translation for other English documents). Of note, under Law on Securities and its detailed guidance, the requirement of information slip for

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foreign investor’s representative including information of his ID/Passport was removed long time ago. Nevertheless, when opening cash account at banks, foreign investors are governed by Circular 23/2014/TT-NHNN, on opening and using transactional accounts at payment service providers which requires notarized translations of account opening documents and notarized/consularised/notarized translated copy of ID/PP of account owners. This SBV requirement prevents the application of document relaxation under Circular 123. In addition, Circular 23 also requires a written authorization to use an account, together with the registration form of specimen signature and a copy of identity card or valid passport of the authorized person. According to international practice, large institutional investors and global custodian banks only send requests and instructions to custodian bank in Vietnam via registered SWIFT address, in order to ensure optimal accuracy of instructions and requests. These organizations do not use any written requests/ instructions to communicate with custodian banks in Vietnam. Therefore, the requirement to provide written authorization, registration of specimen signature, copy of ID card/passport of authorized person cannot be applicable to clients using SWIFT message. Recommendations We do hope that SSC/MOF can help us to discuss with the State Bank to ensure consistent improvement of document requirements for foreign investors, including: (1) Remove requirement of providing ID/passport of legal representative or authorized representative of the account holder, (2) Remove the requirement to translate notarized English documents, (3) Remove the requirement to translation any other English documents, remove the requirement of legalization for copied documents, (4) Remove the requirement to provide written authorization, registration of specimen signature, copy of ID card/passport of authorized person in case client uses SWIFT message. 3. Further guidance from the SSC is needed regarding regulations on security market 3.1 Funds’ investment cap 3.1.1 Application of the investment cap for investments in money market instruments In accordance with Circular 183 (Article 15.2.b), assets that an open-ended fund can invest in consist of: “… money market instruments, foreign exchange, commercial paper and negotiable instruments in line with prevailing banking laws and regulations”. The existing banking regulatory framework does not provide any official definition of money market instruments. However, according to Circular 224 (Article 9.2.d) and Circular 229 (Article 14.2.a), which provide regulations on the eligible portfolios of private equity funds and ETF funds, these funds may invest in “… money market instruments, including commercial paper and negotiable instruments in line with prevailing banking laws and regulations”. Here, we hope to receive SSC’s elaboration on the definition of “money market instrument” in Circular 183 to allow supervisory banks (“SBs”) to monitor the performance of open-ended funds. 3.1.2 Identification of corporate groups having cross-ownership relationships for application of the 30% investment cap According to Article 15.4.b, Circular 183, Funds “must not invest more than thirty percent (30%) of their total asset value in instruments referred to in (a), (d), (d), (e) and (f),

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paragraph 2 of this Article, issued by a company or corporate group having cross-ownership relationships, out of which, the portion of investment in derivatives must equal the committed value of the contract as determined in Appendix 13 of this Circular”. Circular 183 however neglects to provide a definition of corporate groups with cross-ownership relationships. Nevertheless, Circular 229/2012/TT-BTC and Circular 224/2012/TT-BTC did provide a definition – “corporate groups with ownership relationships are corporations having relationships between a holding company, subsidiaries, joint venture companies and affiliates”. We understand SBs may refer to this definition to conduct supervision of the adoption of the 30% investment cap by open-ended funds. Additionally, when a managed fund invests in a state-owned enterprise that has gone public, where the government holds the controlling equity (more than 50%) and may exert influence on the issuer, how should the 30% cap be monitored? Can SBs rely on the agent representing the state ownership (e.g. SCIC or the provincial level People's Committee) to do this? Moreover, in its monitoring role, a supervisory bank can only capture information on corporate groups with ownership relationships through the website of the issuer or brokerage firm (if any).We look forward to receiving SSC’s instructions on the reliable sources that SBs can use to gather necessary information in monitoring compliance with the statutory cap. 3.2 Regular reconciliation between SBs/counterparty bank and fund management company (FMC) In accordance with Article 24.4, Circular 212, “In case of investment or contribution of equity, or trading of assets, equity and non-listed shares on a fiduciary basis, fund management companies must retain the originals of contracts, incorporating and operating licenses or business registration certificates (if any), shareholder book or deeds of asset ownership at depository banks or supervisory banks, to allow these institutions to conduct regular reconciliation with the recipient of the investment fund”. As no specific frequency for reconciliation is given, can SBs/counterparty banks understand that it can be agreed upon between the SB/counterparty bank and FMC? 3.3 Monitoring scope of SBs related to the rules and methods to determine the net asset value of a Fund In accordance with relevant regulations (Article 37.1a Circular 183, Article 29.2a Circular 224, Article 23 Circular 229), “the monitoring scope is limited to the operations of the fund management company related to the funds that a bank performs monitoring on. In its monitoring role, the supervisory bank must: a) Work with the fund management company to review on a regular basis internal procedures related to the rules and methods to determine the fund’s net asset value; examine and monitor the determination of the fund’s net asset value; and make sure that the net asset value of a fund unit is determined properly, accurately and in compliance with applicable laws and the fund’s Articles of Association. Speaking of working with an FMC to regularly review internal procedures related to the rules and methods of determining the fund’s NAV, as we understand, a SB’s responsibility should be limited to making sure that valuation to determine the FMC’s NAV is consistent with the fund’s valuation handbook, rather than extended to determining the appropriateness or accuracy of the valuation method.

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3.4 Revenue and spending management, settlement and monitoring investment

activities According to the current laws (Securities Law and Circulars related to managed funds, Circular 224, Circular 183 and Circular 229), SBs are responsible: - To perform revenue and spending management, settlement and transfer of cash and

stock related to the fund’s operations based on legitimate requests of the FMC; monitor, ensure the legitimacy, and only execute payment from the fund’s assets, and for expenses that comply with applicable laws and the fund’s charter; monitor the fund’s investment activities and asset transactions, in line with applicable investment and lending restrictions defined by law and the fund’s charter, among others;

- Where infringements of the law or the fund’s charter are found, the SB must

immediately report SSC and FMC within 24 hours following the discovery, and at the same time demand corrective or remedial actions within a specified time line.

In the principle of the law, SBs have the liability to report once they detect any misconduct. To that end, we understand that this monitoring role (including cap, purpose of investment and compliance with existing law monitoring) should be guided by post-transaction rules (after a transaction is completed and after the net asset value determining period), with notification made to the FMC and SSC after misconducts are detected. We must also note that post-NAV check is a common practice for investment cap verification and monitoring, because in almost every case, cap-related wrongdoings may only be monitored after the transactions and NAV determining period have completed (for example with listing transactions, SBs only have the information after the transaction has successfully completed at the Stock Exchange, and most investment caps are developed based on the fund’s NAV and can only be determined after NAV determination has completed). We need SSC’s elaboration on this issue and our understanding related to SBs to be able to effectively monitor the fund’s activities.

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CONSULTATION MEETING BETWEEN THE STATE SECURITIES COMMISSION AND CAPITAL MARKET WORKING GROUP - VIETNAM BUSINESS FORUM

- Time: 14:00 – 17:00, Oct. 27, 2015 - Venue: Room 403, Securities Commission headquarters, 164 Tran Quang Khai, Hanoi I. KEY CROSSCUTTING ISSUES 1. Partial privatization of state-owned enterprises Mr. Kien Nguyen, Capital Market working group - While the Capital Market working group (“CMWG”) welcomes the Prime Minister’s

Decision 51, which mandates companies going public to be listed, what is going on in real life seems very disappointing.

- The government needs to take bolder steps to translate policies to actions with these companies.

Response by Mr. Nguyen Thanh Long, Vice Chairman, State Securities Commission (“SSC”): The government is now drafting Decree 108 on administrative penalization. CMWG's comment is duly noted.

2. Decree No. 60/2015/NĐ-CP – enlarging foreign equity Mr. Kien Nguyen, Capital Market working group, VBF - The Ministry of Planning and Investment (“MPI”) has responded positively to our

recommendations regarding the adverse restrictions of Decree No. 60/2015/NĐ-CP. - There are two points related to foreign ownership here:

Applicability to foreign investors and foreign investors’ ownership in these conditional investment sectors.

Investment Law of 2014: a clear line should be drawn on the applicability of the Investment Law and Securities Law. Are investments in public companies, managed funds and stock subject to the provisions of the Investment Law?

Mr. Nguyen Thanh Long, Vice Chairman, SSC - MPI is only authorized to assemble a portfolio from existing rules of different sector-

specific laws, not to make a new list. - MPI has been discussing with SSC on how to divide more clearly between investment in

equity markets and investments that are subject to investment laws, and has reached agreements on how the inefficiencies of Article 23, Decree 60, should be addressed, and not just in relation to recipient of investment capital, i.e. listed companies trading on stock exchanges, but individual investors.

- The Ministry of Finance has also had in place draft implementing documents for Article 23, Decree 60.

Response by Mr. Do Van Su, Head of Foreign Investment Division, Foreign Investment Administration, MPI - List of conditional investment sectors for foreign investors:

Basically, the Investment Law seeks to regulate foreign investors based on international treaties that Vietnam is a party to, as well as applicable local laws and regulations on foreign investors’ access to local markets.

When it comes to application of international treaties, it is a common rule that international agreements come before local laws, and take effect directly without

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the need for implementing documents. Only a few key clauses of international treaties are translated to local laws through sector-specific laws.The bottom line is international commitments will take effect directly.

As access to information by local governments is still limited,there is a need for a pathway to create opportunities for public officials to have access to sufficient information to ensure consistency in enforcement.To that end, national level agencies need to gather and compile a summary list.

Time of publication:the plan is after the government releases Decree No. 60/2015/NĐ-CP, we will publish the list on the national portal for foreign investment.

- Investment Law’s scope of coverage for stock markets:

Article 23 has established that securities laws are to be adhered to, and the Ministry of Finance will be responsible to provide operating guidance for publicly traded companies, brokerage firms and listed companies, which will follow the rules of foreign laws rather than the Investment Law.

The Ministry of Finance will promptly release detailed guidance to avoid any imprint on investments on stock markets.

Mr. Kien Nguyen, Capital Market working group - Could SSC let us know if there is a plan to release an implementing document for

Decree 60 and an implementing Decree for the Investment Law, which elaborate on the parts under the jurisdiction of SSC?

- Through discussions, CMWG understands that the upcoming list of conditional lines of business to be released by the MPI will include also conditional lines of business which are not subject to investment restriction and still adopt the 49% ratio.Can SSC confirm if this understanding is correct?

Response by Mr. Do Van Su, head of Foreign investment division, Foreign Investment Administration - For the lines of business eligible to adopt the “select and granted” rule, international

treaties will apply.But for sectors not included in our investment commitments, as a rule, Vietnam is not responsible to open up its markets.

- As a general rule, lines of business not included in Vietnam's investment commitments will be divided into three groups: Group 1 – lines of business that are not subject to international treaties but there

are already applicable local laws, where these local laws will apply; Group 2 – lines of business that are not included in the commitments and there are

no applicable local law, but permission has been granted to foreign investors, where the market will continue to be opened to these business lines;It is estimated that there are about 125 business lines of this type.

Group 3 – lines of business that are not listed in the above two groups, where the regulatory agencies of the relevant investment sectors will consult specific ministries in charge on what ruling to apply, and notify MPI for update on the national portal.

- A second rule applies in case of investors who are subject to other international treaties, where these investors only need to adhere to the provisions of such stand-alone international treaties without consulting relevant ministries or line agencies.

Response by Mr. Nguyen Thanh Long, Vice Chairman, SSC - Regarding individual foreign investors, SSC, Ministry of Finance and MPI have agreed on

the bottom line to be integrated in the draft Circular replacing Circular 74 to provide clear regulations in this respect.

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- But there is a fact that for listed companies, changes in foreign ownership ratios are impossible to keep track of.So we need some specific rule for this.Thus, SSC has integrated this rule in the draft Circular that will replace Circular 74 for the Ministry of Finance to consider.

3. Collaboration between the State Bank and Ministry of Finance in the management of

foreign portfolio investment in the stock market Mr. Kien Nguyen, Capital Market working group There is a need for more tightened and effective collaboration between the State Bank and Ministry of Finance in releasing securities-related guidelines to avoid overlaps and inconsistency between these two guidelines. Response by Mr. Nguyen Thanh Long, Vice Chairman, SSC SSC duly takes notes of this issue, and may continue working with CMWG in discussions with SBV where there is an opportunity to do so.The working group can also take the issue and solutions directly to SBV for consideration. 4. Voluntary pension fund Mr. Kien Nguyen, Capital Market working group - Pension funds are only allowed to add to their portfolios regulated products. - There is no ruling on how taxes will apply when foreign investors transfer funds from

existing schemes to newly established funds in line with the provisions of the Decree being drafted.We would appreciate if the Ministry of Finance considers granting tax exemption for these fund transfers.

Response by Ms. Pham Thanh Tam – Manager, Finance-Banking Department, Ministry of Finance - The Ministry of Finance recognized CMWG’s comments on how investment portfolio

expansion should be done in a viable manner, and the draft Decree it submitted to the government for release has established that investments are only allowed with stock certificates and Government bonds.

- In the making of the Decree, the Government Office has simultaneously consulted both the Ministry of Finance and Ministry of Labor-Invalids-Social affairs.Recently however, the Prime Minister has advised the Ministry of Finance to quickly finalize the draft Decree on voluntary pension funds, providing in details eligibility criteria to do business for voluntary pension funds, similar to conditional business lines, to be referred to the government within December.

- The Ministry of Finance will take this discussion into account for update of the draft Decree regarding guidance on tax transition between voluntary pension funds.

II. SPECIFIC ISSUES A. Pending issues from the May 2015 meeting 1. Allowing stock option trading on stock exchanges Ms. Thuy Bui, HSBC Bank - The working group welcomes the ruling on stock option trading:release of ISIN numbers

for call options has been made specific in Circular 05 and various implementing documents related to the Stock Depository.

- We would appreciate if SSC considers allowing these options to be eligible for formal trading on stock exchanges’ systems.

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Response by Mr. Nguyen Son, head of the Market Development Department, SSC - Segregation between 1-2 month short-term stock options and 6-9 month warrants is

needed. - SSC’s suggestion is that warrants will adopt procedures for normal listed

trading.Currentprocedure:option owners may sell their options through brokerage firms, and then initiate normal settlement procedures.This is because options have short life cycles, while procedures related to issuing entities, consulting firms, listed companies and so on are many and complicated.

- About CMWG’s recommendation:as impracticable at the present as it is, it is quite feasible in the long run when new systems are available.

2. Improving risk mitigation for securities trading instead of requiring margin/advance Ms. Thuy Bui, HSBC Bank We suggest that SSC considers replacing the margin/advance mechanism with other hedging tools. Response by Mr. Nguyen Son, Head of the Market Development Department, SSC - Circular No. 74/2011/TT-BTC now allows sales of en-route securities, or relieves

investors of the margin liability at the time of placing orders without guaranteeing sufficient settlement capacity on the day of transferring funds to the system.

- The Depository is working on better ways to handle liquidity risk and other concerns, including sales of en-route stock, use of stock borrowing/lending systems and so on, which will also be taken into consideration in the drafting Circular replacing Circular 74.

3. Ensuring meeting documents are sent to shareholders at the same time with the

invitation to annual/adhoc shareholders’ meetings Ms. Thuy Bui, HSBC Bank - While this has been made quite clear in current rules, most foreign investors have

reported that meeting documents are often not enclosed with invitation, and even if they are there, most of these documents are in Vietnamese, making it hard for foreign investors to understand what they are about.We hope that SSC has in place better enforcement solutions and monitors compliance more effectively.

Response by Mr. Nguyen Son, head of the Market Development Department, SSC - The Ministry of Finance has released Circular No. 155/2015/TT-BTC in lieu of Circular

No. 52/2012/TT-BTC, where no longer than 10 days before the annual general meeting starts, information related to the meeting must be fully disclosed.Wealso specifically made clear that any changes to the documents pertaining to shareholders' meetings must be kept up-to-date on websites.

- If changes are at too short notice prior to the meeting commencement, the documents may still be accurate but there will be no time for translation and distribution to foreign investors.

- SSC recognizes the working group’s recommendations and will reflect them in the draft Decree revising Decree No. 108/2013/NĐ-CP on civil penalty related to securities trading.

4. Handling stock collaterals in pledging, mortgaging and depositing with the

involvement of VSD Ms. Thuy Bui, HSBC Bank The Stock Depository’s rules introduce a very new point, allowing pledging and mortgaging parties to enter into direct agreements with VSD, or offering collaterals to obtain loans from Vietnamese credit institutions.However, we will need more specific guidance on this.

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Response by Ms. Phuong Hoang LanHuong, Vietnam Stock Depository (VSD) - VSD plays a middle role in collateral management in the relationship between banks,

and has actually worked on this with a number of banks. - Each bank, however, has their unique systems and needs.As a result, specific

implementing challenges have emerged, e.g. which laws should apply.We suggest using Vietnamese laws, because obviously, asset relationships and transactional relationships occur in Vietnam.

- Any banks with interest or queries may directly get in touch with us for information. 5. Using electronic voting systems to help investors exercise their voting rights Ms. Thuy Bui, HSBC Bank The working group hopes that the electronic voting system is quickly installed in the near future and that SSC and VSD share more on how the system is expected to work, to allow invsetors to do some homework and make better contributions to ensure that the system functions more smoothly and successfully. Response by Ms. Phuong Hoang LanHuong, Vietnam Stock Depository (VSD) - VSD has set the process in motion and made steps to accelerate the progress so that

the system can go live in the 2016 shareholder meeting season. This is an add-on service rather than a mandatory public service that VSD offers.

- In the process, emerging issues will also be considered, for example, what to do in case of voting through emails prior to the meeting and then new proposals are passed in the meeting.

- Legally speaking, enterprise laws have addressed and formalized electronic voting, but the Ministry of Planning and Investment has not introduced any implementing guidelines for it.

- VSD will set up the system before working with stakeholders to agree on specific procedures and rules applicable to meetings.

6. Odd lot trading on HOSE Ms. Thuy Bui, HSBC Bank We urge that SSC and HOSE consider formalize odd lot trading (similar to the odd lot trading system on HNX) as soon as possible to minimize costs and challenges in trading odd lot listed stock on HOSE. Response by Mr. Nguyen Son, head of the Market Development Department, SSC - As the current technology used on HOSE is a system built with support from Thailand,

any system intervention is impossible. - So CMWG’s recommendation unfortunately is not viable. - We expect custodian banks to provide information on international common practices

and rules related to option trading. B. Recommendations and other issues to be advised by the State Securities Commission 1. Difference in requests on applications for transactional account setup at brokerage

firms from foreign investors having depository accounts at custodian banks Ms. Thuy Bui, HSBC Bank We urge that SSC sets uniform rules on a standard sample application dossier for stock trading account setup by foreign investors at brokerage firms. Response by Mr. Bui Hoang Hai, head of the Business Administration Department, SSC

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SSC duly takes notes of this proposal and will reflect it in the revision of Circular No. 210/2012/TT-BTC. 2. Allowing foreign investors who are governmental investment organizations and

international intergovernment investment organizations to set up more indirect investment capital accounts at different custodian banks

Ms. Thuy Bui, HSBC Bank Circular No. 05/2014/TT-NHNN of the State Bank, related to opening portfolio investment accounts by foreign investors, establishes that no matter how many portfolios, activities or trading codes a professional investor may have, he/she may only have one indirect investment capital account in VND.This makes life very difficult for foreign investors. Response by Mr. Nguyen Son, head of the Market Development Department, SSC - The single account rule is unreasonable.While SBV’s Circular 05 was designed on the

platform of the 2005 Investment Law, Securities Law and Amendments of the Securities Law, these very platforms have become rather obsolete and need revising.

- CMWG and Banking working group should jointly raise this issue on the Forum. 3. Issues that need SSC’s advice regarding securities-related regulations Ms. DinhLinh Chi, Standard Chartered Bank We expect SSC to advise on various securities-related rules, including applying limits for investment in money market instruments, identification of corporate groups with ownership relations to apply the 30% investment cap, and regular reconciliation between the supervising bank and fund management company (FMC). Response by Mr. Nguyen QuangThuong, Deputy Director, Fund Management Department, SSC - Application of investment cap for investments in money market instruments:SSC is

drafting amendments to Circular No. 183/2011/TT-BTC (“Circular 183”) and will take into account CMWG’s recommendations.

- In respect of identifying corporate groups with mutual ownership relations to adopt the 30% investment cap, SSC’s current stand is that the 30% rate has nothing to do with the government’s equity.Accordingly, the information that the supervising bank needs to gather in monitoring this rate will not change.

- About regular reconciliation between the supervising/counterparty bank and fund management company (FMC):From the perspective of the Fund Management Department, how frequent this should be done is similar to reporting.Fund management companies should look more deeply into this issue.

- About the scope of monitoring by the supervising bank related to the principles and methods for net asset value determination of the fund, Article 18.4, Circular 183, establishes that “The principle and detailed steps of valuation referred to 3.b of this Article must be clearly defined and reasonable for uniform application in different market conditions, and must be verified by the supervising bank and approved by the representatives of the fund and investors’ meeting". Custodian banks should look further into that.

- About monitoring investment activities, with regards to comments that limit abuses may only be controlled after the transactions have been completed and following the net asset value determination cycle, actually there may be both ex post and ex ante monitoring.Specifically which transaction will be subject to ex ante or ex post monitoring will be provided in the relevant Circulars. For example, NAV determination, monitoring investment cap based on the net asset value, fund’s gross asset value and so on may adopt ex post monitoring, while legitimacy of instructions for release of payment

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from the fund’s assets, compliance with applicable laws of expenses and so on can use ex ante supervision.

LIST OF PARTICIPANTS

Name Title Organization

STATE SECURITIES COMMISSION Nguyen Thanh Long Vice Chairman SSC

Do Van Su Head of Foreign Investment Division MPI

Pham Thanh Tam Manager Finance – Banking Dept., MOF

Nguyen Son Head of the Market Development Department SSC

Phuong Hoang Lan Huong Chairwoman VSD

Nguyen QuangThuong Deputy Director Fund Management Department, SSC

And Representatives from SSC, MPI and other related agencies CMWG

Nguyen Thi Thu Vice President Bay Global Strategies Pham Quang Nghia Country ICG Legal. Citibank Le Ha Thuy Country ICG Compliance. Citibank

Tran Thi Huong Giang Securities and Market Product Dept. Citibank

Nguyen KhacHai DCEO SSI Asset Management

Nguyen Thi Hang Nga Portfolio Manager Vietcombank Fund Management

Dao Yen Nhi An Binh Bank Steven Derek Brown Manager Institutional Sales SSI Securities Services Kien Nguyen Legal Counsel Dragon Capital

Thuy Bui VP, Market & Product Development HSBC Securities Services

Dinh Linh Chi Head of CIC Compliance Standard Chartered Bank Dang Thi Van Anh VBF Coordinator VBF Secretariat Nguyen Ngoc Anh VBF Officer VBF Secretariat

Section III

AGRIBUSINESS, EDUCATION & TRAINING,

HUMAN RESOURCE, GOVERNANCE & INTEGRITY

3.1. AGRIBUSINESS

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AGRIBUSINESS POSTION PAPER Prepared by

AgriBusiness Working Group INTRODUCTION This Position Paper reflects the concerns and issues affecting the international community in Vietnam involved in Agribusiness. Inputs for this paper have come from the members of the Vietnam Business Forum (VBF) Agribusiness Working Group, the International Finance Corporation IFC) and the Food, Agri and Aqua Business Sector Committee (FAASC) of the European Chamber of Commerce in Vietnam. I would like to thank them all for their time, effort and contributions. Several of the issues have been previously brought to the VBF‟s attention by this Working Group but they are raised here again because in our view they have not been (properly) addressed or are still not resolved. This year we have added a part on Food Safety as this is an important topic in the light of the various Free Trade Agreements that have been reached. The Government is taking various actions, but considering the high number of rejections of Vietnamese agricultural products at the border of for example the United States, Japan, Australia, and the European Union, it apparently is not enough.1 The Position Paper is divided into 4 sections: comments on the Draft Decree on Policies promoting Foreign Investment in Agriculture, Modernisation and Sustainability of the Agriculture Industry in Vietnam, other Agricultural related issues, such as Intellectual Property Rights, Pesticides and Fertilisers and we conclude with Food Safety. You will find first an executive summary containing a short overview of the various issues in these sections as well as our recommendations related to that part. After that you will find a detailed description of these issues as well as what the impact is, but also how we believe this can be addressed. EXECUTIVE SUMMARY 1. Draft Decree on Policies promoting Foreign Investment in Agriculture In our view the Draft Decree is still quite general and lacks specifics in a number of places. At the same time there is subjective decision-making built into the Decree. Further to this, the Draft Decree applies only to foreign investment. We wonder why that is the case when Vietnam has a unified legal system for both domestic and foreign investment (law on Investment 2014). Important is also that with regard to the agricultural sector, the Ministry of Agriculture and Rural Development (MARD) is implementing the Agricultural Restructuring Plan (ARP) which will focus on enhancing private sector investment both domestic and foreign. The Draft Decree also issues a list of sub-sectors and refer to the list of locations entitled to incentives. However, it is not clear what the logic is for providing incentives for such activities and locations. We suggest MARD conducts a formal investor survey to define the effectiveness of the current incentives as well as to determine objectively which incentives are really decisive to attract foreign investors. Finally, the Draft Decree mentions an investment promotion arrangement which in our view is very vague and therefore meaningless (Chapter IV). We would like to encourage MARD

1 See Meeting Standards, Winning Markets, Trade Standards Compliance 2015, UNIDO

(www.unido.org/tradestandardscompliance.html)

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and/or the Task Force (on private sector investment)to define what specific services and assistance they will offer to an investor. Recommendations - Make the Draft Decree more specific; - Link to investment promotion; - Enlarge the scope of the Draft Decree and do not limit it to foreign investment; - Conduct a formal investor survey to define effectiveness of current incentives to attract

foreign investors; and - Define and specify what specific services and assistance will be offered to an investor. 2. Modernisation and Sustainability of the Agriculture Industry in Vietnam An issue that prevents Vietnam from being an overall key-player on the agricultural export market is the lack of sustainability, part of which is stemming from the fact that and that there are mainly small-holders in agriculture. The latter one prevents the use of machines – which can improve the quality and quantity – as the investment costs cannot be borne by a single small-holder and the size of land is too small to use machines. The Government has realised that this issue needs to be addressed and is taking measures to attract foreign direct investment to modernise and mechanise agriculture. It is developing hi-tech agricultural areas and putting programs in place which will make borrowing money to modernise and mechanise farming much easier.2 We believe also that the Government should create incentives that will encourage farmers to cooperate. Businesses can also play a role by introducing incentives to encourage farmers to further cooperate. We are aware that mechanisation will increase unemployment in rural areas as many people depend on agriculture for their daily income and we support the idea of building factories in rural areas in order to sustain employment in the concerned areas. In order to put this strategy and these programs in place, money is needed. In recent years investment in agriculture has not been in line with the contribution agriculture made to the GDP. We fully support the view laid down in the Vietnam country paper for the FFTC-NACF seminar, that investments in agriculture are important to ensure food security and sustainable agricultural development in Vietnam.3 We also believe that a modernised and mechanised agriculture system will result in an improved quantity and quality of agricultural produce. In order to achieve this it would be helpful if a level-playing field would be created with regard to all aspects of doing business in the agricultural sector for foreign companies. Especially taking into account the expertise and knowledge these companies can bring to Vietnam which will help to upgrade the sector. In this aspect it is also important to consider the way the agricultural sector is structured and what kind of products are exported. We believe there is a need and a possibility to do this. Considering the various initiatives we believe the Government is already aware of this. It is also important to open up markets to export Vietnamese products, not only countries like the United States, Japan or the European Union, but also neighbouring countries. Currently Vietnam imports many products from for example Thailand or China, but the export to these countries has not been fully utilised yet. Market access to these and other countries for Vietnamese products needs to be negotiated. Even if the level of investment by the Government is not enough, it is still possible to modernise and upgrade through Foreign Direct Investment (FDI) and Private-Public

2 See (vietnamnews.vn/society/263713/farmers-reap-modern-farming-gains.html)

3 See Vietnam country paper for the FFTC-NACF International Seminar on Threats and Opportunities of the Free Trade

Agreements in the Asian Region, held in Korea on 11-15 September 2013, (www.agnet.org/htmlarea_file/activities/20110719103351/2007013101.pdf)

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Partnerships (PPP). To attract more FDI there are several challenges that need to be overcome, even though the before-mentioned Draft Decree will help when our recommendations have been taken into consideration. It is for example necessary to create clear and transparent trade policies and administrative procedures. Furthermore, it is important that equal access is given to small and large-scale farmers and enterprises. Finally, it should be noted that the tax system is not as competitive as in the countries in the region.4 We are pleased with the view of the President that some regions should try to attract FDI and use hi-tech farming techniques to develop the sector. With regard to further developing the PPPs we believe that it is important to realise that in order to continue and maintain this success. In our view the Government should put a monitoring system and right policies in place to ensure that best practices can be applied by the farmers in that aspect. We fear that if this does not happen, there is no level-playing field for all companies involved. The lack of concrete Government policies will in our view result in companies being discouraged to invest in a PPP despite the positive results of the PPP. Another way to improve sustainability of agriculture is providing crop nutrition solutions for growers by the companies. One of the common activities of companies active in that industry is organising farmer meetings. These meetings are aimed at transferring advanced technologies to farmers and help them to understand more about integrated crop nutrient management which in return will increase crop yield and quality as well as income and economic return for the growers. The farmer meetings are usually organised at the village level. However, prior to handling of farmer meetings, a company needs to get permission from the Department of Industry and Trade (DOIT) at provincial level. We believe that the implementing process can be simplified and harmonised, because to obtain permission every time for organising these farmer meetings is quite burdensome and differs per province. There are also some issues with regard to obtaining permission for a foreigner to be active in certain areas. In our view this should be simplified as well. This can for example be done based on the fact that a company already has a distribution license. We also believe that in case a foreigner has a valid work permitor resident card the requirement to obtain permission should be abolished. Finally, we have experienced that occasionally governmental officials and industries are not fully aware of the implications of new regulations. We therefore believe it would be helpful to organise trainings in to increase an effective implementation process. Recommendations - Upscale the agriculture sector; - Encourage cooperation; - Continue to create easier access to financing for farmers and put incentives in place to

stimulate farmers who are willing to modernise and mechanise; - Support farmers leaving the profession to find another job by encouraging construction

of factories in rural areas; - Encourage development of more best practices or PPP; - Develop a monitoring system and right policies in place to ensure that best practices can

be applied by the farmers; - Create a level-playing field in all aspects by:

giving equal access to financing in and outside Vietnam; giving equal access to raw materials in and outside Vietnam; providing equal treatment in obtaining a business license; and

4 See (ap.fftc.agnet.org/ap_db.php?id=106&print=1)

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providing equal treatment with regard to other sector-specific requirements. - Shift from exporting commodities and low quality products to high-end products; - Transform by-products into attractive products for export;

- Diversify products and give the same support as is done for coffee, tea, pepper, seafood and rubber;

- Encourage investment for production, the post-harvest phase, and the processing and preserving sectors;

- Create market access in neighbouring countries for Vietnamese products. - Simplify and harmonise procedures to obtain permission to organise farmer meetings; - Simplify entry permission for foreigners of companies that have a distribution license; - Abolish the need to obtain an entry permission for a foreigner who has a valid work

permit or resident card; and - Organise trainings for Governmental officials and industries to increase the effectiveness

of the implementation process of new regulations. 3. Quality Agricultural Inputs including Pesticides and Fertilisers A recent report has indicated that 50% of fertilisers by authorities were off-specification or sometimes even fake. This report indicates that the loss for the economy is estimated at USD 800 million. Counterfeit and illegal crop protection products are also on the rise, creating devastating losses for farmers and the agricultural industry. Counterfeit pesticides are rarely tested and may contain unknown toxic impurities which may pose risks to farmers and consumers‟ health. Furthermore counterfeit products can severely damage crops or can lead to rejection of the produce by food companies due to unwanted residues. All these factors can put the income of farmers in jeopardy. We believe that stricter registration and enforcement will allow increasing the potential of Vietnamese products and exports to the EU market. This in return will increase the position of the Vietnamese farmers as well. In our view the lack of leadership activities ensuring safe and proper usage of inputs and low quality inputs distributed to farmers lead to environmental and safety issues. Good quality inputs are not affordable to small farmers so they cannot compete with larger companies. However, the negative impact of it is considerable. Proper use of good quality inputs will reduce production cost, improve crop productivity/quality and limit the impact of fertiliser usage on environment. At the same it is important that awareness is created about the risk of using fake fertilisers and pesticides for human‟s health as well the impact it has on the reputation of Vietnamese products for export. Products are often rejected at the border of other countries for import as they contain too high levels of pesticides or other harmful chemicals (as a result of using the wrong or fake products). We believe improvement can be achieved by introducing training programs as well as by sharing the latest information and technology with farmers. It would also help if a clear distinction is made between NPK fertilisers and other chemicals with regard to the HS code. We also think that companies that produce or import high-quality products which are safe for the environment and the population should be treated differently with regard to licensing requirements. Finally, we would like to make some remarks on the new regulations on fertiliser management. They have brought a new wind to the fertiliser market. The aim of these new law and regulation are to restructure the fertiliser market in Vietnam and gradually eliminate fake and poor quality products from the market. We welcome this but the implementation needs improvement as sometimes the result is that companies with good products end-up in having difficulties. Therefore it is important to use the correct sampling method to avoid unreliable and „false‟ results when on the market.

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Recommendations - Strengthen IPR protection measures through strict implementation of legal action

against counterfeiters and enforcement at the market place; and seize illegal products from the market;

- Raise awareness through Governmental mass media communication explaining the risks for farmers, the population and the economy if farmers use (cheap) fake inputs;

- Apply stricter regulations and market control on poor quality and fake fertilisers; - Embed IPR requirements in the registration framework to ensure IPR protection starts

from the registration point; - Implement a strict review of trademark registrations, and enforce removal of „me-too‟

brands, logos, visuals etc. - Address corruption at the local level and make it more difficult for small input

companies to be opened and closed; - Introduce education programs to promote balanced nutrition, appropriate product usage

protocols to reduce over-usage of inputs; - Establish a training program to encourage applying balanced crop nutrition in 4-R

concept (right product, right rate, right time and right place) as well as to tackle the situation of wrong and/or over-usage of inputs; from that will reduce production cost, improve crop productivity/quality and limit the impact of fertilizer usage on environment;

- Update the knowledge of extension agents on crop nutrition and plant protection, and the impact of agri-inputs on the environment in order to implement a training program effectively;

- Encourage transfer of new knowledge and new research results to farmers as soon as possible;

- Promote a level playing field by removing import tax for quality compound NPK fertilisers (fertilisers produced with advanced technology, good performance in the field, safe to human health, with non or less impact on the environment, etc.) to encourage import, /production and use of these products;

- Differentiate fertilisers from generic chemicals and allocate an appropriate HS code to fertilisers to avoid confusion on levy;

- Ensure mandatory leadership programs in all companies with regard to training on safe crop protection product usage;

- Establish a supporting stewardship infrastructure for safe crop protection product usage;

- Develop policies to encourage investors to develop quality infrastructure to enable testing, and monitoring of the quality of farm output.

- Remove the “one-time license” requirement for companies whose business license already include import rights

- Remove the requirement that a confirmation letter from the bank is needed for obtaining permission to import fertilisers into Vietnam;

- Focus on checks on the internal, local market to control the input market in Vietnam; - Make a distinction in companies that have a license for local production and distribution

and those that only have a distribution license; - Set up technical barriers to eliminate the use of high-risk pesticides which can harm

human beings and the environment; - Encourage responsible and ethical management and use of (good quality and safe)

pesticides following good practices in selling products; - Encourage proper labelling of pesticides in compliance with the provided instructions; - Establish regulation with specific criteria to encourage the introduction of new-class

crop protection products with advanced techniques and technologies;

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- Put qualified education programs in place for farmers to reiterate the importance and benefits of proper use of pesticides and following instructions on labels.

- Encourage using the correct sampling method to avoid unreliable and „false‟ results; and - Put in place guidelines which will help following the correct sampling method.

4. Food Safety Food safety is a major issue for the agricultural sector but also for the population. As the World Health Organisation (WHO) writes: “Unsafe food has been a human health problem since history was first recorded, and many food safety problems encountered today are not new. Although governments all over the world are doing their best to improve the safety of the food supply, the occurrence of food-borne disease remains a significant health issue in both developed and developing countries.”5 In the first nine months of 2015, the number of reported food poisoning cases was 129, 3.436 people got sick and 20 people died. Food safety issues not only cause people to get sick, but they also limit the export possibilities for Vietnam and damage the reputation of Vietnamese products. In 2014 trade commissions in the European Union (EU), Japan and the United States received many warnings about seafood shipments containing antibiotic residues exceeding the permitted level. In 2015 various issues with exports have been reported: exports to Saudi Arabia, the United States, and Japan.6 From January till now the Rapid Alert System for Food and Feed (RASSF)of the EU rejected 21 products coming from Vietnam at the border of one of the EU member states. 17 other products were stopped and further information is needed before a decision can be taken. In light of the upcoming signing and ratification of various FTAs, it is important to detect multi-residue levels (MLRs) as competition will be fiercer.7 It is also worth realising that the high levels could be caused by counterfeit and illegal ingredients or raw material which on top of damaging the reputation of Vietnamese products also may pose risks to farmers‟ and consumers‟ health.8 Sometimes it also involves products that are already forbidden for a long time in other countries, but they can still be used in Vietnam; because they are not forbidden yet, regulations are not clear, or they are used due to lack of enforcement.9 It is well-known that inadequate post-harvest handling, storage and distribution impact the rate of success of producing countries and impacts food safety.10 This could partly be achieved by introducing a Food Safety Agency with one ministry responsible, harmonisation and coordination of laws and regulation. This would mean less administrative hassle and a more efficient quality and safety control, which would enable greater stakeholder involvement.

5 „Five keys to safer food manual‟ by the World Health Organisation, see

(http://apps.who.int/iris/bitstream/10665/43546/1/9789241594639_eng.pdf?ua=1) 6 „See (tuoitrenews.vn/business/28078/vietnam-produce-exports-should-meet-food-hygiene-safety-requirements-in-overseas-

markets-ministry) 7 See (http://english.vietnamnet.vn/fms/business/141921/agriculture-sector-faces-tough-times-ahead.html),

(en.nhandan.org.vn/business/economy/item/3044802-agricultural-export-revenue-sets-new-record-of-us$30-8-billion.html), (vietnamnews.vn/economy/271524/vn-produce-losing-their-edge.html), (vovworld.vn/en-US/Economy/Expanding-exports-markets-for-Vietnamese-farm-produce/266152.vov); (vccinews.com/news_detail.asp?news_id=32038) and (www.vir.com.vn/bright-prospects-for-agriculture.html)

8 See (tuoitrenews.vn/society/26193/toxic-tet-kumquats-highlight-vietnam-s-pesticide-problem)

9 „Agribusiness and Food Safety Chapter‟ of the Food, Agri and Aqua Business Sector Committee in the White book 2015 of the

European Chamber of Commerce, paragraph 3.1.5 on legal framework, coordination and enforcement. 10

See Project VIE/61/94, May 2009, page 17 and (www.fao.org/ag/agn/CDfruits_en/launch.html)

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We know that the Government is aware of these issues and is taking initiatives to address them. In 2013 and 2014, several regulations have entered into force.11 In particular, Joint Circular 13/2014/TTLT-BYT-BNNPTNT-BCT (Joint Circular 13) is a significant step forward as it intends to avoid overlapping in food management by the various Ministries, but still this does not eliminate potential confusions. Also, considering the still occurring issues, it is not enough yet. The current system makes it also difficult to have consistency in the process of drafting, implementing and application of the regulations. It becomes even more complicated because at a local and provincial level the regulations are sometimes interpreted in different ways or allow different ways of dealing with for example samples. It can happen that inspectors come check on three, maybe even four occasions and they check the same or different things, contra-expertise is sometimes possible, but not always. This all means that it is quite costly and time-consuming for both companies and government authorities. This will probably result in higher consumer prices, but not necessarily higher food safety. We believe that there are various ways to obtain ones goal. The quality of laboratories and testing methods are also important to improve food safety. We also believe that all companies should be treated in the same way and the control of products should be the same before they are allowed to enter Vietnam. Practice has shown this is not always the case. A recent case also has shown that improvement is necessary, because two tests by different testing agencies for the same product had different results, and were therefore inconclusive as to whether the product was safe or not. Sometimes it is also impossible to perform a test; or products that – would improve the visibility of Vietnamese products -can be legally used within the EU but cannot be imported into Vietnam. This means that the locally cultivated fruit is – compared to fruits produced elsewhere and treated with this wax – less attractive for export. In our view food safety issues can be addressed in various ways, such as a good legal framework, a traceability-system, a centralised Food Safety Agency, IPR, pesticide control and management, good testing facilities and effective legal enforcement. Note that the Food Safety Agency could be involved in various ways in the supply chain. Recommendations - Further clarify the scope of Joint Circular 13; - Establish a working group consisting of representatives of relevant ministries/agencies

and organisations active in the food, agri and aqua business (such as the Agribusiness Working Group of the VBF and the Food, Agriculture and Aquaculture Business Sector Committee of EuroCham);

- Amend the Food Law and create a centralised Food Safety Agency with one Ministry responsible as soon as possible;

- Assign the following tasks to the Food Safety Agency: Inspection, certification and control in relation to import, export and transhipment of

ingredients, raw material and food products Food testing and certification; Food labelling and advertisements; Reporting on food alerts related to the food supply chain including pesticide, fertiliser,

feed, etc.

11

For example: Decree 178/2013/ND-CP dated 14 November 2013 on sanctions of administrative violations on food safety, Decree 119/2013/ND-CP dated 9 October 2013 on sanctioning of administrative violations in the domains of veterinary medicine, livestock breeds, and livestock feeds (Decree 119) and Joint Circular 13/2014/TTLT-BYT-BNNPTNT-BCT dated 9 April 2014 on allocation of tasks and cooperation among regulatory agencies in food safety.

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Licensing and registering food traders and establishments, food processors and food warehouse;

Providing education and trainings on food safety and food safety awareness; Assistance in developing best practices related to food safety; and Organisation of inspections and providing input for criminal investigations related to

feed and food safety. - Incorporate existing structures in the Food Safety Agency in order not to lose existing

knowledge and experience; - Cooperate with neighbouring countries to address cross-border food safety issues; - Encourage companies to introduce a traceability system; - Enforce existing legislation on traceability; - Change the law so that all labs in Vietnam, being local or international, use the same –

internationally recognised and standardised – testing methods; - Promote the VILAS accreditation scheme and use that as the only scheme; - Take measures to improve the reputation of labs in Vietnam; - Encourage enforcing the requirements to remain VILAS accredited; Accept results of a

(foreign or Vietnamese) lab that is accredited according to international standards in the same way as test results are accepted for local laboratories without the need to do another test in order to obtain a license or certificate;

- Increase the testing methods available in Vietnam; - Harmonise the working methods of laboratories and develop best practices; - Take care that current initiatives are implemented in a harmonised way; - Reduce red tape when laboratory tests need to be done abroad; - Amend testing requirements in such a way that a „speciation analysis‟ is requested for

heavy metal; - Test the „species‟ of the heavy metals on harmfulness with regard to mobility,

bioavailability, and bioaccumulation; - Encourage upgrading of testing methods and facilities to be in accordance with modern,

international standards such as accredited by ISO, AFNOL, AOAC to ensure accurate testing results, prevent any undue delay and/or arbitrary or unjustifiable discrimination;

- Allow importing companies to store frozen food products in their own or neutral storage facilities for quarantine and food safety inspections in order not to break the cold-chain;

- Allow products that can be legally used in other countries, to be imported into Vietnam without additional documents; and

- Enforce existing laws, especially if public health is affected. We appreciate the opportunity to present these issues at the VBF. In the document we have described our concerns and views, as well as the benefits when our recommendations will be implemented for each of the before-mentioned items. In the full text you will find some further guidance to certain topics in the overview for 2016.

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DETAILED POSITION PAPER

In this position paper you will find a detailed description of the issues, how it impacts agriculture, the economy, the population as well as export possibilities for Vietnam as well as our recommendations on how these issues can be addressed. 1. Comments of the Draft Decree on Policies promoting Foreign Investment in

Agriculture We note that the Draft Decree applies to only foreign investment. Vietnam has a unified legal system for both domestic and foreign investment (Law on Investment). In regard to the agricultural sector, MARD is implementing the ARP which will focus on enhancing private sector investment both for domestic and foreign companies. The Draft Decree issues a list of sub-sectors (Appendix 1) and refers to the list of locations entitled for incentives. It is not clear what the logic for providing incentives for such activities and locations is. In addition, there is subjectivity in the decision-making built into the Decree. This is not good international practice which is defined by transparency and predictability of the criteria and implementation rules. Long-term investment decisions demand policy security and investors will be concerned if some current incentives could be removed over time. With regard to the level and type of financial incentives, global evidence suggests strongly that tax incentives are not effective for investor‟s location choice. Similarly, evidence worldwide suggests that resource seeking or market seeking investors, most of whom this Draft Decree is targeting, do not require incentives as they will be more persuaded by the extent of opportunities in the country they seek to exploit. We suggest MARD to conduct a formal investor survey to define the effectiveness of the current incentives as well as to determine objectively which ones are decisive in attracting foreign investors. . The Draft Decree also mentions investment promotion arrangement which is very vague and therefore meaningless (Chapter IV). The Draft Decree mandates that MARD will develop a foreign investment promotion function. Recently MARD has set up a Task Force to coordinate private sector investment promotion. In this case, it is not clear why the MARD would require a separate facility for FDI promotion over and above what the Task Force can achieve and what specific services/assistance an additional facility would offer investors?. 2. Modernisation and Sustainability of the Agricultural Sector in Vietnam

2.1. Small-holders: up-scaling An issue that prevents Vietnam from being an overall key-player on the agricultural export market is the lack of sustainability, part of which is stemming from the fact that and that there are mainly small-holders in agriculture.12 The latter one prevents the use of machines – which can improve the quality and quantity – as the investment costs cannot be borne by a single small-holder and the size of land is too small to use machines. The Government has realised that this issue needs to be addressed and is taking measures to attract foreign direct investment to modernise and mechanise agriculture. It is developing hi-tech agricultural areas and putting programs in place which will make borrowing money to modernise and mechanise farming much easier.13 We are aware that mechanisation will

12

See at (english.vov.vn/Economy/Agricultural-restructuring-focuses-on-scientific-application-production/286519.vov), (vietnamnews.vn/society/261897/farmers-reap-benefits-from-innovations.html) and (english.vov.vn/Economy/Why-Vietnams-agriculture-industry-is-unsustainable/287883.vov)

13 See (vietnamnews.vn/society/263713/farmers-reap-modern-farming-gains.html)

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increase unemployment in rural areas as many people depend on agriculture for their daily income and we support the idea of building factories in rural areas in order to sustain employment in the concerned areas. We believe that the Government should create incentives that will encourage farmers to cooperate. Businesses can also play a role by introducing incentives to encourage farmers to further cooperate. A modernised and mechanised agriculture system will result in an improved quantity and quality of agricultural produce. This in return will put Vietnamese agricultural products on equal footing with products from other exporting countries. We hope that the farmers benefiting from these changes will improve their living conditions and that agriculture will become more sustainable. Recommendations - Upscale the agriculture sector; - Encourage cooperation; - Continue to create easier access to financing for farmers and put incentives in place to

stimulate farmers who are willing to modernise and mechanise; and - Support farmers leaving the profession to find another job by encouraging construction

of factories in rural areas.

2.2. Small-holders: transferring knowledge through farmer meetings Since 2014, the management of inorganic fertiliser has been handled by the Ministry of Industry and Trade (MOIT) instead of MARD. Circular 29/2014-TT-BCT dated 30 September 2014 was issued by MOIT regulating the production and trade of inorganic fertiliser. It is understandable that in the transition period several things do not go well yet and need to be improved to support the development of industries. To provide crop nutrition solutions for growers, one of the common activities that industries usually do is organise farmer meetings. These meetings are aimed at transferring advanced technologies to farmers which help them to understand more about integrated crop nutrient management. This will in return increase crop yield and quality as well as raise the income of the farmers. The farmer meetings are usually held at the village level. Prior to holding these farmer meetings, the industry needs to get permission from Department of Industry and Trade (DOIT) at a provincial level. We understand this regulation but we believe that the implementing process can be improved, as currently obtaining permission to organise farmer meetings is complicated and times-consuming. The issues currently faced are the following. The procedures of permission granting are not clearly regulated and are implemented differently from location to location. The same company needs to prepare different documents to submit to a DOIT depending on the province. In some provinces, a company needs to get permission from 2 different local authorities and has to submit the dossier to the district level to get an additional permission from them after getting permission from the DOIT. We believe this is unreasonable and differs from the practice under MARD, when companies only needed permission from the Department of Agriculture and Rural Development (DARD) at a provincial level. We also have noticed that the officers of DOIT seem not to have completely understood the procedures yet. This causes confusion as because they are not yet able to provide clear answers to questions of the companies.We therefore suggest that trainings for governmental officers as well as companies should be organised when new regulations are published. This will help to have an effective implementation process.

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Another burdensome requirement is that a foreigner, even in the possession of a resident permit, can only participate in a farmer meeting after an approval process. Without approval from local authorities, foreigners are not allowed to engage with farmers. We believe that this requirement exists to protect the farmers, which we fully support. However, it also limits the transfer of knowledge about sustainable agriculture technologies. The process to obtain permission takes quite long and is especially very complicated to organise for overseas persons. This while it is often important to be able to organise a meeting at short notice or on a frequent basis, and sometimes fly-in experts from overseas to inform the farmers about the latest technology and insights. It would help if companies can obtain clear guidance on procedures of permission granting for farmer meeting and these procedures should be harmonised across the country. Return to the practice that only permission from one level (DOIT) needs to be obtained and not two as currently some provinces required. Further to this the time the time to obtain permission for a foreigner to attend these farmer meetings should be shortened for those companies that already have a distribution license and for these foreigners that have a valid working permit or resident card the requirement for entry permission should be abolished. As in our view farmer meetings are one of the most effective approaches to transfer advanced technologies to farmers, and taking in to consideration that this is a common industry activity, we believe this issue can be addressed as follows and we would like to make the following recommendations:

- Simplify and harmonise procedures to obtain permission to organise farmer meetings; - Simplify entry permission for foreigners of companies that have a distribution license; - Abolish the need to obtain an entry permission for a foreigner who has a valid work

permit; and - Organise trainings for Governmental officials and industries to increase the effectiveness

of the implementation process of new regulations.

2.3. Climate changes and shift of focus The agricultural sector is also a vulnerable sector, as climate change and the economic situation have an impact on its output. The vulnerability especially applies to the people working in it.A study of the Institute of Policy and Strategy in Agriculture and Rural Development (IPSARD) and Oxfam shows that the risk ratio for farmers is 70-80% with a profitability ratio of just 20%.14 Dependence on weather conditions and fluctuating prices limits the possibility to increase the export volume of products such as rice, coffee and tea.15 At present, Vietnamese products are competitive on price but not on quality, and there is a need, and a possibility, for improvement. Once the focus is not mainly on production, but also on market and consumer needs, there are in our view many opportunities that open up. We believe that the agri and aqua business sector can grow and export more and different products in a sustainable way. This objective can be achieved in various ways. One way is to shift from exporting mainly commodities and low-end mass production goods, such as cashews, pepper, and coffee to exporting high-quality end manufactured products. This will allow Vietnam to enter other markets and earn more.16 We are pleased with the initiative for coffee and the plans the MARD has drafted.17 A second possibility is that instead of only cultivating and selling rice,

14

See (vccinews.com/news_detail.asp?news_id=30755) 15

See (vccinews.com/news_detail.asp?news_id=30288) 16

See (vccinews.com/news_detail.asp?news_id=30497) 17

See (www.livetradingnews.com/vietnam-works-to-increase-export-value-of-coffee-66189.htm#.U_QEsPmSwpU)

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the husk is used in the energy sector.18 Yet another way is to diversify the range of export products. Fruits and vegetables are also potential products to export. However, there are some issues that need to be addressed.19 Government support for these products is needed in the same way as for rice, seafood, rubber, tea and coffee. It is also important to open up markets to export Vietnamese products. In this regard Vietnam should not only focus on markets such as the US, Japan, or the EU, but also neighbouring countries. Currently Vietnam imports many products from for example Thailand or China, but the export to these countries has not been fully utilised yet and is even quite difficult, not to say impossible. Market access to these and other countries for Vietnamese products needs to be negotiated. Furthermore, investments for production, the post-harvest phase, and the processing and preserving sectors are needed, and it is important that farmers and producers will be instructed about food safety and hygiene. We also believe it is necessary to introduce a high logistic level and innovative management scheme.20 In short, a strategy is needed to upgrade and modernise the value chain, which will improve efficiency, competiveness, sustainability, product quality and meet consumer demand.21 Recommendations - Shift from exporting commodities and low quality products to high-end products - Transform by-products into attractive products for export; - Diversify products and give the same support as is done for coffee, tea, pepper, seafood

and rubber; - Encourage investment for production, the post-harvest phase, and the processing and

preserving sectors; and - Create market access to neighbouring countries for Vietnamese products. 2.4. Level playing-field The findings of the Food Agriculture Organisation of the United Nations (FAO) in its report 'World agriculture: towards 2015/2030, an FAO perspective' are in our view important and still valid, even though they date back to 2003.22 The FAO writes that foreign direct investment (FDI) is the main instrument through which multinational corporations (MNC) expand their reach globally. In that way MNCs can affect production levels and composition, production technologies, labour markets and standards. MNC can also make an important contribution as vehicles of capital, skills, technologies, access to both domestic and export marketing channels, and creation of linkages to the rural economy, for example through contract farming. This is supported by discussions during the plenary session of the International Support Group of the World Bank, about the difficulties and challenges such as investment capital for agriculture, sustainable agricultural development, improved competitiveness and participation facilitation of the private sector in agricultural development.23 We share and support those findings as it is in our view important to create a level playing field for small, large, local and international companies regardless of legal entity, size and nationality, based on a common interest, and to create and to provide as much as possible:

18

See (vietnamnews.vn/economy/255018/high-tech-agriculture-needs-funding.html) 19

These constraints are laid down in the Vietnam country paper for the FFTC-NACF International Seminar on Threats and Opportunities of the Free Trade Agreements in the Asian Region, held in Korea on 11-15 September 2013, See: (www.agnet.org/htmlarea_file/activities/20110719103351/2007013101.pdf). Note that we mention only a few of the constraints.

20 See (ap.fftc.agnet.org/ap_db.php?id=106&print=1 and http://vccinews.com/news_detail.asp?news_id=30501)

21 See (ap.fftc.agnet.org/ap_db.php?id=106&print=1), (vccinews.com/news_detail.asp?news_id=30501) and

(en.vietnamplus.vn/Home/Modernising-agriculture-opportunities-and-solutions/20148/53514.vnplus) 22

Ibid, page 273. 23

See(www.isgmard.org.vn/News.asp?Status=1&InfoID=756)

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equal access to financing in or outside Vietnam, equal access to raw materials in or outside Vietnam, equal treatment in obtaining a business licence in Vietnam, and equal treatment with regard to other requirements that are related to the sector. This could also attract FDI. Recommendations - Create a level-playing field in all aspects by: - giving equal access to financing in and outside Vietnam; - giving equal access to raw materials in and outside Vietnam; - providing equal treatment in obtaining a business license; and - providing equal treatment with regard to other sector-specific requirements. 2.5. Financing: FDI Once a strategy has been developed, money is needed to put this strategy in place. In recent years investment in agriculture has not been in line with the contribution agriculture made to the GDP. For example in 2012 agriculture was about 19.7% of GDP, while only 5% of the Government's total investment was dedicated to the agricultural sector.24 We fully support the view laid down in the Vietnam country paper for the FFTC-NACF seminar, that investments in agriculture are important to ensure food security and sustainable agricultural development in Vietnam.25 Even if the level of investment by the Government is not enough, it is still possible to modernise and upgrade through FDI and Private-Public Partnerships (PPP). Noteworthy is also that Agribank, a Vietnamese bank, has started a program to finance the introduction of hi-tech agriculture in Vietnam.26 In 2013 the sector only received 0.6% of the FDI invested in Vietnam.27 To attract more FDI there are several challenges that need to be overcome. For example it is necessary to create clear and transparent trade policies and administrative procedures. Furthermore it is important that equal access is given to small and large-scale farmers and enterprises. Besides that it should be taken into account that there is often a shortage of high-skilled labour resources in the agricultural sector as industrialisation attracts most young workers in rural areas to industry zones. Finally, it should be noted that the tax system is not as competitive as in the countries in the region.28 We are pleased with the view of the President that some regions should try to attract FDI and use hi-tech farming techniques to develop the sector.29 And that some provinces, such as Dong Thap, Lam Dong and Son La, have already achieved that objective.30 Recommendations - Continue to create easier access to financing for farmers and put incentives in place to

stimulate farmers who are willing to modernise and mechanise; and - Support farmers leaving the profession to find another job by encouraging construction

of factories in rural areas. 2.6. Financing: PPP

24

See (vietnamnews.vn/economy/255018/high-tech-agriculture-needs-funding.html) 25

See Vietnam country paper for the FFTC-NACF International Seminar on Threats and Opportunities of the Free Trade Agreements in the Asian Region, held in Korea on 11-15 September 2013, (www.agnet.org/htmlarea_file/activities/20110719103351/2007013101.pdf)

26 See (bizhub.vn/banking/6726/agribank-finances-credit-programme-for-hi-tech-agriculture.html)

27 See (vccinews.com/news_detail.asp?news_id=30755)

28 See(ap.fftc.agnet.org/ap_db.php?id=106&print=1)

29 See (vietnamnews.vn/economy/259037/bac-giang-told-to-attract-fdi-to-agriculture-sector.html)

30 See (vccinews.com/news_detail.asp?news_id=30999), (www.vir.com.vn/lam-dong-promotes-high-tech-agricultural-

projects.html) and (vccinews.com/news_detail.asp?news_id=31126)

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PPP is another way to attract more investment into the agriculture sector.31 Existing PPP projects have boosted agricultural output 2-3 times, and farmers‟ incomes have successfully increased with 10-15%. In this way production chains32 can be created that meet international standards, which make it easier to penetrate supermarket chains33 and improve sustainability of the sector. Hereafter you will find some examples of PPP projects that have been successful or that are being put in place now; and can be used as best practice for that specific part of the sector. PPP or best practices make it possible to increase the output in the sector in a sustainable way providing the farmers with a higher income. At the same time it increases the quality of the product and this will allow Vietnamese products to be exported easier as they will get a better reputation. 2.6.1 Coffee PPP As mentioned already, Vietnam is the number one exporter of coffee in the world. Coffee farmers in Vietnam are only smallholders and the number one in the use of fertilisers. This use has a negative impact on the environment, and it does not necessarily mean that they have a better output. If farmers want to improve production, they have to do that in a sustainable manner, using the limited quantity of farmland in an optimal way. This reduces pressure for deforestation, GHG emissions, water loss and loss of biodiversity. In 2010 an initiative was started to improve the coffee output involving the whole coffee value chain. The project is done in the form of a PPP and participants are from the private sector, public sector, some associations, so Vietnamese authorities, companies and of course local farmers. The local farmers are engaged as ambassadors to spread the best practices amongst their peer farmers. The result of the project is that the output has increased while the carbon footprint, water usage and quantity of fertiliser have been reduced. Another result of this initiative is also the recently formed Vietnam Coffee Coordinating Board aimed to strengthen Vietnam‟s position as exporter of coffee while producing it in a sustainable way.34 In 2009 Minister Coa Duc Phat of MARD embraced the New Vision on Agriculture of the World Economic Forumto reduce the carbon footprint by 20%, increase profit for farmers by 20% and increase productivity by 20% in the coffee production sector.35 After 5 years of collaboration between the various partners such as the Government, private (local and foreign) companies, Non-Governmental Organisations (NGO), on sustainable agriculture on coffee many of the objectives have been achieved. The focus was mainly on reducing the carbon footprint and improving water management. The coffee PPP showsindeed a reduction of 50% of the carbon footprint and usage of only 33.3% of the water with the same yield results. However, in order to continue and maintain this success, we believe the Government should put a monitoring system and right policies in place to ensure that best practices can be applied by the farmers in that aspect. We fear that if this does not happen, there is no level-playing field for all companies involved. The lack of concrete Government policies will in our view result in companies being discouraged to invest in a PPP despite the positive results of the PPP.

31

See (english.vietnamnet.vn/fms/business/101550/ppp-will-make-vietnam-the-world-s-rice-field--cook-house.html), (vccinews.com/news_detail.asp?news_id=30501), and (www.talkvietnam.com/2013/11/ppps-foster-sustainable-agricultural-growth-in-vietnam/)

32 PPPs can for example help in the processing industry, storage, applying international certification, applying modern packaging

technology and traceability systems, applying technology in market information and agricultural product marketing. 33

See (vccinews.com/news_detail.asp?news_id=30720) 34

See (www.idhvietnam.com/site/getfile.php?id=227) 35

See (www3.weforum.org/docs/WEF_CO_NVA_Overview.pdf), (www3.weforum.org/docs/IP/2013/NVA/WEF_IP_NVA_New_Models_for_Action_report.pdf) and (www.weforum.org/news/agriculture-vietnam-gets-boost-new-public-private-sector-project)

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2.6.2 Milk PPP A project that has started recently and that is funded by the Dutch Government consists of a cooperation between companies, the Vietnamese authorities, farmers, and a university.36

The demand for fresh milk in Vietnam is growing, but the dairy sector in is underdeveloped and around 75% of all dairy products is imported. This means that local dairying must develop to meet this growing demand. However, family-owned farms in Vietnam are very small, with an average of less than 10 cows per farm; and they often lack knowledge and skills. This project is intended to develop the sector in a sustainable way while increasing the production of fresh milk, meeting market demands. Within five years three dairy zones will be set up, and each dairy zone will consist of fifty farms with each fifty milking cows. Investments are made to make dairying at family-owned farms more professional. At the same time proper infrastructure systems will be setup to guarantee the highest quality milk. Recommendations - Encourage development of more best practices or PPP; and - Develop a monitoring system and right policies in place to ensure that best practices can

be applied by the farmers. 3. Good quality Agricultural Input including Pesticides and Fertilisers

3.1 Quality and proper use of agricultural inputs A recent report indicated that 50% of randomly tested fertilisers by authorities were off-specification and the loss for the economy is estimated at USD 800 million. In addition, there has been a significant increase of fake (counterfeit) products, misleading growers and leading to the development of counterfeit manufacturing. At the same time, public awareness and demand for traceability and food safety is increasing. The Vietnam PPP Coffee Task Force‟s latest report indicated that Good Agricultural Practices (GAP) combined with good quality imported inputs can increase yield and profitability by 10% while reducing carbon footprint by 50%. A lack of adequate quality testing infrastructure hinders the adoption of better technologies for higher quality output, hampering export competitiveness. Lack of leadership activities to ensure safe and proper usage of inputs and low quality inputs distributed to farmers leads to environmental and safety issues. Good quality and environmentally friendly inputs are not affordable to small farmers as the as they have a 6% import duty compared to other products. This increases the price for farmers and farmers will be inclined to use poor quality inputs or even fake products. This will lead to a risk of limiting crop productivity (or even damaging crop), affecting the produce quality and food safety. Some of these bad quality or fake products can even result in acidified and contaminated soil. There is a risk of increased usage of fertilisers while Vietnam is already one of the highest fertiliser consumers per hectare in the world. The increased usage of low quality crop protection products adversely impacts crop, soil and human health. In our view it is important to set up technical barriers to eliminate the use of high-risk pesticides which can harm human beings and the environment. The improper use and application of poor quality pesticides is a key challenge in the food production process. This can adversely affect the health of pesticide applicators and consumers of the agricultural produce, as well as harm the environment. In addition, it can economically affect exported agriculture produce as this can be rejected due to the

36

See (www.talkvietnam.com/2014/07/sustainable-dairy-zone-project-breaks-ground-in-ha-nam)

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exceeding of maximum residual levels. It has been reported that the associated dangerous practices are still widespread in Vietnam despite the technical training that a large percentage of the farmers have received from state and non-state actors.37

It is said that their practices remain strongly influenced by their traditional routines and experience-based assessments of risks instead of formal technical guidelines. By ensuring safe food production, particularly in the context of pesticide use, Vietnam can increase their export value of agricultural goods, which will increase the inflow of foreign currency. Furthermore, this can help enhance Vietnam‟s reputation as a reliable source of safe food for major food importing countries. This will in turn benefit and improve the income situation of Vietnamese farmers. At the same time it is important that for selling these products good practices with regard to responsible and ethical management and use of (good quality and safe) pesticides are followed. In this respect it is important that pesticides are properly labelled in compliance with the provided instructions. We also believe that a regulation with specific criteria to encourage the introduction of new-class crop protection products with advanced techniques and technologies should be put in place. It is in our view important that education programs are put in place for farmers to reiterate the importance and benefits of proper use of pesticides and following instructions on labels. There should also be education programs to promote the balanced nutrition, appropriate product usage protocols to reduce over-usage of inputs as well as training programs to encourage applying balanced crop nutrition in 4-R concept (right product, right rate, right time and right place). These trainings will also tackle the situation of wrong and/or over-usage of inputs. This will result in reduced production costs but improve crop productivity/quality and limit the impact of fertiliser usage on environment. Further to this it is important to update the knowledge of extension agents on crop nutrition and plant protection, and the impact of agri-inputs on the environment in order to implement a training program effectively; In this aspect it is important that new knowledge and new research results are transferred as soon as possible to farmers. Finally we believe that the lack of an adequate quality testing laboratory infrastructure and third party investments also limits realising the benefits of better technology usage. Recommendations - Ensure mandatory leadership programs in all companies with regard to training on safe

crop protection product usage; - Set up technical barriers to eliminate the use of high-risk pesticides which can harm

human beings and the environment; - Encourage responsible and ethical management and use of (good quality and safe)

pesticides following good practices in selling products; - Encourage proper labelling of pesticides in compliance with the provided instructions; - Establish regulation with specific criteria to encourage the introduction of new-class

crop protection products with advanced techniques and technologies; - Establish a supporting stewardship infrastructure for safe crop protection product

usage; - Put qualified education programs in place for farmers to reiterate the importance and

benefits of proper use of pesticides and following instructions on labels; - Introduce education programs to promote balanced nutrition, appropriate product usage

protocols to reduce over-usage of inputs; - Establish a training program to encourage applying balanced crop nutrition in 4-R

concept (right product, right rate, right time and right place) as well as to tackle the

37 P. Van Hoi, Governing pesticide use in vegetable production in Vietnam, see (http://library.wur.nl/WebQuery/wda/1928507)

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situation of wrong and/or over-usage of inputs; from that will reduce production cost, improve crop productivity/quality and limit the impact of fertiliser usage on environment;

- Update the knowledge of extension agents on crop nutrition and plant protection, and the impact of agri-inputs on the environment in order to implement a training program effectively;

- Encourage transfer of new knowledge and new research results to farmers as soon as possible; and

- Develop policies to encourage investors to develop quality infrastructure to enable testing, and monitoring of the quality of farm output.

3.2 One-time licensing process to import fertilisers Circular 35/2014/TT-BCT of MOIT dated 15 October 2014 regulates the automatic import license applicable to fertilisers. A company has to apply for a one-time license for each lot of fertiliser it imports, even though a company already has a business license for importing and trading fertiliser in Vietnam. Further to this there is an additional requirement for issuing that one-time license which is to have a confirmation from a specific bank at the time of the importation. In our view the first requirement is unnecessary and only complicating the import without having added value. The additional requirement is in our view unreasonable and also not practical as companies are uncertain what bank they will select for payment to the supplier at the time of importation. It depends on the competitiveness of banks and exchange rates when payment to the supplier is due. We understand that the Government would like to control mechanisms in place. However, in our view controls should focus on checks on the internal market in relation to for example counterfeits. It should not be done by slowing down the process to import high quality inputs, in particular not for companies that already have a local production and distribution license, and not just a trading license. These procedures are not only burdensome but this process is also quite costly for the companies38, due to the required documentation and time. In return this will only increase the cost of the product. These costs do not have an extra value, but only will limit the farmers‟ access to these products because of the increased price with as a result a negative impact on health and environmental issues. Recommendations - Remove the “one-time license” requirement for companies whose business license

already include import rights; - Remove the requirement that a confirmation letter from the bank is needed for obtaining

permission to import fertilisers into Vietnam; - Focus on checks on the internal, local market to control the input market in Vietnam;

and - Make a distinction in companies that have a license for local production and distribution

and those that only have a distribution license. 3.3 Tax Vietnam is already one of the highest fertiliser consumers per hectare in the world. Incorrect use or use of fake products limits the crop productivity and can even damage the crop. It also affects the produce quality and food safety; and finally it can cause acidifying and contaminating the soil which makes the use in the future more difficult. An increased usage of low quality crop protection products adversely impact crop, soil and human health. However, products that are of good quality and environmental friendly input have a 6% import duty compared to poor quality inputs, or even fakes. This high tax increases the 38

Companies have to pay demurrage to the shipping lines as a result of this time-consuming process.

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price and encourages farmers to use poor quality inputs or even fake products. Besides this there is also a problem with the HS codes, as the one for generic chemicals used to make fertiliser on the spot, is currently the same as the one for fertilisers. Recommendations - Differentiate fertilisers from generic chemicals and allocate an appropriate HS code to

fertilisers to avoid confusion on levy; and - Promote a level playing field by removing import tax for quality compound NPK

fertilisers (fertilisers produced with advanced technology, good performance in the field, safe to human health, with non or less impact on the environment, etc.) to encourage import, /production and use of these products.

3.4 Quality control The promulgation of Decree 202/2013/NĐ-CP and relevant Circulars of MOIT on fertiliser management have brought a new wind to the fertiliser market. The aim of these new law and regulation are to restructure the fertiliser market in Vietnam and gradually eliminate fake and poor quality products from the market. We welcome this but the implementation needs improvement as sometimes the result is that companies with good products end-up in having difficulties. To illustrate this we would like to give the following example. Companies are importing high quality fertilisers from for example Europe and have an issue when the Market Control Team inspects the product at retailer shops39 and it is concluded that the product does not meet the technical regulation standards. If a company makes a complaint, the inspector can make another analysis which sometimes gives even worse results. This situation is very complicated to handle because all official documents required for import, such as the CoA from the plant where it is produced and the analysis performed by Customs at the port of importation in Vietnam indicate that the products are all within specifications. We believe that the wrong results might be the outcome of the sampling during the inspection process. The samples are taken from one product bag only, while the TCVN 5815 on sampling process requests taking samples from at least five bags. The samples are not taken by a proper tool such as spear and are contained in a market nylon bag instead of a poly-ethylene bag as stipulated in TCVN 5815/2001. There is no reference sample left at the retailer shop as recommended in TCVN. The big difference in analysis of the two labs also raises doubts with regard to the analytical methods used. As we understand, sampling and analysis of fertilisers are the main concern of fertiliser producers and traders in Vietnam. In our view the following guidelines would be helpful to address and improve the issue as has just been described. Importers cannot be responsible for retail level checks, especially if they do not have representatives on site on that same day. A relevant company representative should be present at the time of sampling to be sure that the sampling process is properly followed. If the company representative or dealer sees that the sampling process is not followed according to the regulations, he can refuse signing the inspection minute. To guarantee that the sample sent to lab for analysis is genuine and intact, after taking the samples and sealed, the one for lab analysis should be sent immediately by post to the lab instead of bringing it to the market control team office and send it later as is currently done. After a second sample analysis, in case the company (producer or importer) still does not agree with the result, they can propose an independent (international) accredited and certified lab can be asked do the analysis and the cost of this analysis would be for the company. Another option would be to take four samples per one inspection instead of three as stipulated in TCVN 5815. On sample is kept

39

Considering that companies distribute their products through local distributors, who subsequently sell to retailers who sell to farmers.

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at the dealer‟s shop and two are brought to the management team office. The company (producer or distributor of the product) will take one sample and send it to an (international)accredited and certified lab for analysis. At the same time the market control team also sends one of the two of their samples to another accredited and certified lab for analysis. After that a comparison between the two lab results will make the results more reliable. In this way there will be a guarantee that analysing methods used are not that different. Those changes will make the issue of sampling and analysing become more reliable and transparent and at the same time the concern of the fertiliser company or trader will be in principle be addressed. Recommendations - Encourage using the correct sampling method to avoid unreliable and „false‟ results; and - Put in place guidelines which will help following the correct sampling method. 3.5 IPR Weak enforcement of IPR indirectly causes harm to the agricultural industry in particular and society as a whole. This problem also limits the ability of the industry to drive innovation in the market. Counterfeit and illegal crop protection products are on the rise; counterfeit pesticides are rarely tested and may contain unknown toxic impurities which may pose risks to farmers and consumers‟ health. Furthermore, counterfeit products can severely damage crops or can lead to rejection of the produce by food companies due to unwanted residues. All these factors can put the income of farmers in jeopardy. In relation to this, we are pleased with Decree No. 08/2013/ND-CP on administrative penalties for producing and trading counterfeit products. However, in our view the penalties should be higher to make it unattractive for offenders to disregard the law. Recommendations - Strengthen IPR protection measures through strict implementation of legal action

against counterfeiters and enforcement at the market place; and seize illegal products from the market;

- Raise awareness through Governmental mass media communication explaining the risks for farmers, the population and the economy if farmers use (cheap) fake inputs;

- Put in place effective regulatory rules which do not compromise safety and efficacy; - Put stricter regulations and market control on poor quality and fake fertilisers; - Embed IPR requirements in the registration framework to ensure IPR protection starts

from the registration point; and - Implement a strict review of trademark registrations, and enforce removal of „me-too‟

brands, logos, visuals etc. 3.6 Other issues Some products that are long forbidden in other countries because of health issues can still be used in Vietnam, either because not forbidden yet or existing regulations prohibiting these products are not enforced. On the other hand products that can be legally used in other countries cannot be imported in Vietnam.40 For example, a wax from the EU could be used to better present a locally cultivated fruit destined to be exported. This wax can be legally used within the EU. However, documents needed according to Vietnamese law to approve the import of this by the MOH cannot be obtained from the EU member State because such a document is not issued there. This means that the MOH will not approve, and the locally cultivated fruit is – compared to fruits produced elsewhere and treated with this wax – less attractive for export. If Vietnam accepts products that are approved for use 40

See paragraph 3.1.5 in Whitebook 2015 on legal framework, coordination and enforcement.

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in other countries, Vietnam can export a product with high potential to the EU for example. Vietnamese producers will be able to grow export and compete with fruit exporters in the rest of the world who are allowed to use this product. Recommendations - Allow products that can be legally used in other countries, such as EU-members, to be

imported into Vietnam without additional documents; - Put in place effective regulatory rules which do not compromise safety and efficacy. 4. Food Safety

4.1 Introduction Early August the Free Trade agreement between the European Union (EU) and Vietnam was signed. According to Jean Jacques Bouflet, (now former) Minister-Counsellor and head of the Trade and Economic section of the EU delegation to Viet Nam, the EU's quality requirements, especially for food products, are high and Vietnamese firms should move to meet the requirements.41 This means that companies need to meet the requirements that are set at a higher level than in Vietnam.42 It is expected that more will be exported to the EU as a result of this agreement, which will help to reach the export goal set by the Vietnamese government.43 However, as the World Health Organisation (WHO) writes: “Unsafe food has been a human health problem since history was first recorded, and many food safety problems encountered today are not new. Although governments all over the world are doing their best to improve the safety of the food supply, the occurrence of food borne disease remains a significant health issue in both developed and developing countries.”44 In an opinion poll conducted by Food Industry Asia (FIA)45 on 16 April 2015, food safety ranked on top as the issue that would have the greatest impact on consumer preference in Asia in 2015/2016. It ended up considerably higher than the other topics. 4.2 Food safety issues in Vietnam What is food safety or safe food and why is food safety important? Safe food is food that does not make you sick immediately after you have eaten it, but also that does not make you sick in the long run. If food does contain unacceptable levels of hormones, pesticides, certain heavy metals or other chemical ingredients you can become sick only after some

41

See( http://vietnamnews.vn/economy/274021/eu-vn-agree-on-free-trade-after-three-year-talks.html) 42

See (vietnamnews.vn/economy/271524/vn-produce-losing-their-edge.html), (vovworld.vn/en-US/Economy/Expanding-exports-markets-for-Vietnamese-farm-produce/266152.vov), (vccinews.com/news_detail.asp?news_id=32038); (en.vietnamplus.vn/Home/Food-safety-vital-to-win-EU-market/20156/66823.vnplus), (vietnamnews.vn/society/263169/producers-traders-blamed-for-substandard-food-safety.html) and (english.thesaigontimes.vn/41839/Asian-importers-apply-EU-standards-to-seafood-imports-from-Vietnam.html)

43 See (en.nhandan.org.vn/business/economy/item/3044802-agricultural-export-revenue-sets-new-record-of-us$30-8-

billion.html), „(vietnamnews.vn/economy/271524/vn-produce-losing-their-edge.html) and (www.vir.com.vn/bright-prospects-for-agriculture.html)

44 „Five keys to safer food manual‟ by the World Health Organisation.

45 See (foodindustry.asia/food-safety-key-to-consumer-preference-in-asia)

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time.46 The WHO defines unsafe food as “food containing harmful bacteria, viruses, parasites or chemical substances and can cause more than 200 diseases – ranging from diarrhea to chronic diseases such as cancer.” Food safety is still an issue in Vietnam. In the period 2011-2013, the number of food poisoning related incidents decreased.47 In 2014 about 5,000 people were reported to have been suffering from food poisoning in Vietnam and 16 people died, and this number covers only the „official cases of food poisoning that have been reported and registered.48 In the first nine months of 2015 the number of reported food poisoning cases is 129, 3.436 people got sick and 20 people died.49 We have seen results of efforts conducted by the Government to improve food safety.50 Nevertheless, unsafe food is still a major public health issue in Vietnam, like in other developing countries,51 not because of food poisoning, but because of hidden food safety issues caused by the use of forbidden products like hormones, antibiotics, pesticides, etc. which cause health problems for the population in the long term. 4.3 Limitation of export opportunities Food safety issues not only cause people to get sick, but they also limit the export possibilities for Vietnam and damage the reputation of Vietnamese products. In 2014 trade commissions in the European Union (EU), Japan and the United States received many warnings about seafood shipments containing antibiotic residues exceeding the permitted level. In 2015 there have already been reported various issues with exports to Saudi Arabia, the United States, and Japan.52 From January till now the Rapid Alert System for Food and Feed (RASSF)of the EU rejected 21 products coming from Vietnam at the border of one of the EU member states. 17 other products were stopped and further information is needed before a decision can be taken. In 2014 as many as 130 products were not allowed to be imported directly into the EU.53 About 51 shipments contained too high levels of chemicals and antibiotics, a sevenfold increase from 7 in 2013. In general the reasons imports were stopped because they contained too high levels of certain heavy metals, bacteria, virus, moulds or other prohibited substances. 4.4 Importance of addressing food safety issues In light of the upcoming signing and ratification of various FTAs, it is especially important to detect multi-residue levels (MLRs) as competition will be fiercer.54 For instance, tariff-related advantages emanating from the FTA will require products to be up-to-standard if Vietnam wishes to increase exports, especially as it will also have further competition from the region. In our view, the quality of seafood and fish exports is quite good but other products such as pepper, tea, and coffee still need quality improvement. 46

„Agribusiness and Food Safety‟ at Chapter of the Food, Agri and Aqua Business Sector Committee in the Whitebook 2015 of the European Chamber of Commerce.

47 See (english.tapchicongsan.org.vn/Home/Vietnam-on-the-way-of-renovation/2013/396/Viet-Nam-continues-implementing-

national-target-programs-on-healthcare.aspx) 48

See (www.thanhniennews.com/health/5000-had-food-poisoning-in-vietnam-last-year-who-40796.html), and (www.24h.com.vn/suc-khoe-doi-song/gan-700-nguoi-chet-do-ngo-doc-pham-c62a662299.html)

49 See (vietnamnews.vn/society/276516/20-food-poisoning-deaths-reported-in-nine-months.html)

50 See (vietnamnews.vn/society/258361/advertising-hygiene-violations-cost-firms.html) and (www.vietmaz.com/2014/08/vietnam-

tightens-control-over-imported-agricultural-produces/) 51

See (english.tapchicongsan.org.vn/Home/Vietnam-on-the-way-of-renovation/2013/396/Viet-Nam-continues-implementing-national-target-programs-

on-healthcare.aspx) 52

See (tuoitrenews.vn/business/28078/vietnam-produce-exports-should-meet-food-hygiene-safety-requirements-in-overseas-markets-ministry) 53

RASSF portal of EU: ec.europa.eu/food/safety/rasff/index_en.htm 54

See (http://english.vietnamnet.vn/fms/business/141921/agriculture-sector-faces-tough-times-ahead.html),

(en.nhandan.org.vn/business/economy/item/3044802-agricultural-export-revenue-sets-new-record-of-us$30-8-billion.html), (vietnamnews.vn/economy/271524/vn-produce-losing-their-edge.html), (vovworld.vn/en-US/Economy/Expanding-exports-markets-for-Vietnamese-farm-produce/266152.vov); (vccinews.com/news_detail.asp?news_id=32038) and (www.vir.com.vn/bright-prospects-for-agriculture.html)

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As mentioned before, the fact that Vietnamese products are being rejected for import in other countries damages the reputation of Vietnamese products in general. It might be just one producer or exporter, who does not follow the rules or is not conscious of products not meeting requirements, but the reputation of all Vietnamese products is at stake and all Vietnamese products will be scrutinised in detail. In this aspect it is also important to realise that importing countries often have set a standard that is higher than met by Vietnamese products and higher than required by Vietnam. It is important to address the issues to reach the set export goal of USD 32 billion. It is also worth realising that the high levels could be caused by counterfeit and illegal ingredients or raw material which on top of damaging the reputation of Vietnamese products also may pose risks to farmers‟ and consumers‟ health.55 Sometimes it also involves products that are already forbidden for a long time in other countries, but they can still be used in Vietnam; because they are not forbidden yet, regulations are not clear, or they are used due to lack of enforcement.56 Not only managers of food companies worry about food safety, the Vietnamese people also worry about food safety and what it means for their well-being and health.57 Considering the number of events organised also by the various ministries and agencies, it is clear that food safety is also an important topic for the Government. However, it seems not enough and addressing the issue is important as food safety is said to be the solution to agricultural growth.58 4.5 Who should address these issues It is well-known that inadequate post-harvest handling, storage and distribution impact the rate of success of producing countries and impacts food safety.59 It is also important to have a value/supply chain approach to analyse where the food safety issues occur and how they can be best prevented, as food safety issues can happen in the whole value and supply chain.60There have been initiatives to develop best practices in the (value) chain approach, both by the Government and retailers/wholesalers.61 We believe that a chain-approach is the best way, because it will allow a retailer/wholesaler to steer the process and provide feedback as they know what their customers are looking for. Retailers/wholesalers could be encouraged to adopt this approach if it will mean they will have an advantage as well. This could partly be achieved by introducing a Food Safety Agency with one ministry responsible, harmonisation and coordination of laws and regulation. This it would mean less administrative hassle and a more efficient quality and safety control, which would enable greater stakeholder involvement. Value chain approach Source: Sustainable Food Lab Several best practices and certifications to address these issues have been developed worldwide and in Vietnam. Fish and seafood producers have been quite successful and are 55

See (tuoitrenews.vn/society/26193/toxic-tet-kumquats-highlight-vietnam-s-pesticide-problem) 56

‘Agribusiness and Food SafetyChapter’ of the Food, Agri and Aqua Business Sector Committee in the Whitebook 2015 of the European Chamber

of Commerce, paragraph 3.1.5 on legal framework, coordination and enforcement. 57

See(thediplomat.com/2014/01/vietnam-back-to-organic) 58

See (english.vov.vn/Economy/Food-safety-optimal-solution-to-agricultural-growth/283734.vov) 59

Project VIE/61/94, May 2009, page 17 and at (www.fao.org/ag/agn/CDfruits_en/launch.html) 60

See (aciar.gov.au/files/food_safety_from_farm_to_fork.pdf) 61

See (www.fao.org/ag/agn/CDfruits_en/launch.html )and (vietnamnews.vn/society/244563/seminar-promotes-safer-agri-food-chain.html)

Farm

Work

ers

Producers Processor Retailer Consumer

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exporting their products. However, in general the possibility to qualify for certification and therefore export is often very difficult and maybe even impossible, considering the mainly small scale and the high costs involved. This approach could start with small steps, to begin with for example by training farmers without the necessity to obtain a certification; but they would work in the same way. The Government can support communities and stimulate farmers to participate. Farmers can also be encouraged to form a farmers‟ association. In a report written for a project from the Asian Development Bank can be read that similar associations are quite successful as regular suppliers of supermarkets and are also more likely to receive government support in technical training and quality development than individual farms.62 The direct cooperation between retailer/wholesaler and producer means that the producer will receive a better price because the middleman has been cut out. It also means that breaks in the cool chain will occur less, products will be of a better quality because of fewer handling steps in between, and food safety will increase. If the final part of the chain has less administrative hassle; it could even mean that prices could go down. The sector will become more competitive and the consumer will be the overall winner of this (value) chain approach development. However, the Government also needs to be involved, especially at the beginning of the chain with clear legislation and at the end of the chain when it comes to enforcing legislation. We also believe that a centralised Food Safety Agency (FSA) could play a role in addressing food safety issues. 4.6 How to address food safety issues Food safety issues can be addressed in various ways, such as a good legal framework, a traceability-system, IPR, pesticide control and management, good testing facilities and effective legal enforcement. 4.6.1 Legal framework It starts with a good legal framework and ends with enforcing the regulations. As the Food and Agriculture Organisation writes in its guidelines on food control: "In many countries, effective food control is undermined by the existence of fragmented legislation, multiple jurisdictions, and weaknesses in surveillance, monitoring and enforcement."63 We fully understand this as we believe the current legal framework is one of the main issues why it is difficult to have an effective food safety control and enforcement. The content of the Food Law in itself is not the problem, but the fact that at the moment many ministries and government agencies are involved in managing chemical substances and antibiotics as well as the management of food hygiene and safety.64 In 2013 and 2014, several regulations have entered into force.65 In particular, Joint Circular 13/2014/TTLT-BYT-BNNPTNT-BCT (Joint Circular 13) is a significant step forward as it intends to avoid overlapping in food management by the various Ministries, but still this does not eliminate potential confusions. For instance, if a vitamin additive is added to milk,

62

See (http://mpra.ub.uni-muenchen.de/42591/1/MPRA_paper_42591.pdf), page 11. 63

See (www.wpro.who.int/foodsafety/documents/docs/English_Guidelines_Food_control.pdf) 64

Such as the Ministries of Health (MOH), Industry and Trade (MoIT), Agriculture and Rural Development (MARD), Science and Technology (MoST), and Natural Resources and Environment (MoNRE), as well as National Agency for Food Hygiene and Safety, NAFFQAD; see : (cip.cornell.edu/DPubS/Repository/1.0/Disseminate?view=body&id=pdf_1&handle=dns.gfs/1265385755)

65 For example: Decree 178/2013/ND-CP dated 14 November 2013 on sanctions of administrative violations on food safety, Decree

119/2013/ND-CP dated 9 October 2013 on sanctioning of administrative violations in the domains of veterinary medicine, livestock breeds, and livestock feeds (Decree 119) and Joint Circular 13/2014/TTLT-BYT-BNNPTNT-BCT dated 9 April 2014 on allocation of tasks and cooperation among regulatory agencies in food safety.

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this product will fall under a different Ministry‟s competence than just milk, which makes it complicated for the producer. More generally we believe clarification is needed. We are not aware of any assessments on the impact of Joint Circular 13, the issue remains that multiple parties remain involved in the decision-making process with regard to food safety. In our view, this will not be as efficient and effective as having only one responsible entity. The current system makes it also difficult to have consistency in the process of drafting, implementing and application of the regulations. It becomes even more complicated because at a local and provincial level the regulations are sometimes interpreted in different ways or allow different ways of dealing with, for example, it can happen that inspectors come check on three, maybe even four occasions and they check the same or different things, contra-expertise is sometimes possible, but not always. This all means that it is quite costly and time-consuming for both companies and government authorities. This will probably result in higher consumer prices, but not necessarily higher food safety. In our view a centralised Food Safety Agency could address and solve many of the current food safety issues. We realise this change takes time but in the light of the FTA‟s we believe it is paramount to start preparations to reach the objective of a centralised FSA. There are some points we would like to make about the FSA as some parts of the current structure should not be discarded. A centralised Food Safety Agency needs to: - incorporate current national and local structure(s) in the new structure - harmonise and coordinate local and provincial level; and - cooperate with neighbouring countries to address cross-border food safety issues (as

food safety does not stop at the border).

A centralised Food Safety Agency could: - advise policy makers such as the prime minister and national assembly; - be involved in import, export and transhipment of food requirements related to

inspection, certification and control; - deal with food labelling and advertisement; - license and register food traders and establishments, food processors and food

warehouse; - organise inspections and provide input for criminal investigations related to feed and

food safety; - report on food alerts related to the food supply chain including pesticide, fertiliser, feed,

etc.; - provide information when necessary; - provide education and trainings on food safety and food safety awareness; and - assist in developing best practices related to food safety. A centralised Food Safety Agency would: - improve the management and quality of food safety control; - improve and boost the reputation of Vietnamese products for consumption in Vietnam; - reduce the likelihood of export products being rejected; - improve and boost the reputation of Vietnamese products abroad; - reduce costs for companies and improve (international) competitiveness; - reduce health risks; - support more sustainable and fair trade; and - make enforcement of violations straightforward and transparent.

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Recommendations - Further clarify the scope of Joint Circular 13; - Establish a working group consisting of representatives of relevant ministries/agencies

and organisations active in the food, agri and aqua business (such as the Agribusiness Working Group of the VBF and the Food, Agriculture and Aquaculture Business Sector Committee of EuroCham);

- Amend the Food Law and create a centralised Food Safety Agency with one Ministry responsible as soon as possible;

- Assign the following tasks to the Food Safety Agency: Inspection, certification and control in relation to import, export and transhipment of

ingredients, raw material and food products Food testing and certification; Food labelling and advertisements; Reporting on food alerts related to the food supply chain including pesticide, fertiliser,

feed, etc. Licensing and registering food traders and establishments, food processors and food

warehouse; Providing education and trainings on food safety and food safety awareness; Assistance in developing best practices related to food safety; and Organisation of inspections and providing input for criminal investigations related to

feed and food safety. - Incorporate existing structures in the Food Safety Agency in order not to lose existing

knowledge and experience; - Cooperate with neighbouring countries to address cross-border food safety issues. 4.6.2 Traceability Another important part of achieving a good food safety environment is traceability. That is a track-and-trace system that allows companies and authorities to know where products have gone through the food chain. It will help to improve food safety and to avoid or mitigate health and economic impacts.66 The economic effects are not only related to public health, but also to businesses. The consequences of a product recall can be considerable as a product being out of the market for a certain period of time can lead to loss of shelf space, or in the worst case scenario to loss of customers. Therefore it is important for a company to successfully track and trace its products through the supply chain and retrieve them. Traceability is about risk management and mitigation, about lowering the impact of recalls and lowering liability costs, but it is also about regaining consumer confidence. Besides this, it is an important part in the decision-making process by the relevant authorities in relation to closing-out a product recall.67 However, food traceability is not only about recalls. Consumers also require more information on the origin of products and its ingredients in the whole supply chain: from the farm to the consumer with the processing industry, and the retail and foodservice industry in between. Finally traceability is also about reducing incidences of food fraud as well as unintentional or intentional adulteration; disease management; and environmental emergencies.

66

See (www.foodsafetymagazine.com/enewsletter/the-importance-of-food-traceability/) 67

See (www.foodmag.com.au/features/the-importance-of-traceability-in-your-supply-chai)

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Traceability is also important as sometimes counterfeit or illegal products regain consumer confidence by providing information on the origin of products in the supply chain.68 In our opinion, the centralised FSA could play an important role in this. Recommendations - Encourage companies to introduce a traceability system; and - Enforce existing legislation on traceability. 4.6.3 Laboratories and testing 4.6.3.1 Introduction Even if laws with regard to traceability would be better enforced the laboratories and laboratory tests in Vietnam are not up to standard yet and do not guarantee safe food.69 In light of the upcoming signing of various free trade agreements, it is especially important to detect multi-residue levels (MLRs) to be able to export Vietnamese products to for example the EU. However, tests that can easily detect MRLs such as a broad spectrum analysis of active ingredients cannot be performed in Vietnam. Also a more specific analysis for heavy metal presence is needed to focus only on those types of heavy metal that actually affect human, animal and plant health. Another issue is that test results from foreign laboratories are still not accepted in the same way as test results from local laboratories, even though these international labs have obtained a world-wide recognised accreditation, such as the International Organisation for Standardisation (ISO) 17025. 4.6.3.2 International accreditation On the website of the international organisation for accreditation bodies, the International Laboratory Accreditation (ILAC)70 it reads: “The arrangements71 support the provision of local or national services, such as providing safe food and clean drinking water, (…). In addition, the arrangements enhance the acceptance of products and services across national borders, thereby creating a framework to support international trade through the removal of technical barriers.” According to the ILAC accreditation is “The independent evaluation of conformity assessment bodies against recognised standards to carry out specific activities to ensure their impartiality and competence. Through the application of national and international standards, government, procurers and consumers can have confidence in the calibration and test results, inspection reports and certifications provided.”72 This has as a result that technical barriers should be reduced because products should be accepted across national borders and there is no need for additional calibration, testing, and/or inspection of imports

68

See (http://www.foodmag.com.au/features/the-importance-of-traceability-in-your-supply-chai) 69

„Agribusiness and Food Safety Chapter‟ of the Food, Agri and Aqua Business Sector Committee in the Whitebook 2015 of the European Chamber of Commerce, paragraph 3.1.4 on quality of laboratories and testing.

70 ILAC is the international organisation for accreditation bodies operating in accordance with ISO/IEC 17011 and involved in the

accreditation of conformity assessment bodies including calibration laboratories (using ISO/IEC 17025), testing laboratories (using ISO/IEC 17025), medical testing laboratories (using ISO 15189) and inspection bodies (using ISO/IEC 17020). See for more about ILAC at (ilac.org/about-ilac/).

71 Arrangements = Multi-Recognition Arrangement (MRA) Accreditation bodies, that have been evaluated by peers as competent,

sign arrangements that enhance the acceptance of products and services across national borders, thereby creating a framework to support trade.

72 See (ilac.org/about-ilac/)

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and exports. ILAC Multi-Recognition Arrangement (MRA) could promote international trade and the goal of “accredited once, accepted everywhere” can be realised.73 This means that accreditation bodies could play an important role in ensuring safe food. In Vietnam there is an accreditation body. However, the problem is not only legal enforcement of existing regulations, but also the fact that results from accredited labs, established in Vietnam or elsewhere, foreign or Vietnamese, are not recognised in Vietnam while this - according to the ILC MRA - should be the case. 4.6.4 Vietnam Laboratory Accreditation Scheme 4.6.4.1 Introduction The Bureau of Accreditation (BoA), established in 1995 under the Ministry of Science and Technology (MoST), offers accreditation programs for laboratories, certification bodies and inspection bodies.74 One of the schemes offered is the Vietnam Laboratory Accreditation Scheme (VILAS). This scheme is established under the Directorate for Standards and Quality (STAMEQ).75 VILAS follows the requirements of the ILAC and Asia Pacific Laboratory Accreditation Cooperation (APLAC)76. This should mean that VILAS needs: - to maintain - amongst others - conformance with ISO/IEC 17011; and - to ensure that all its accredited laboratories and inspection bodies comply with relevant

ISO/IEC schemes.77 However, it seems that the requirement under 2 is not always maintained in Vietnam as it appears to be quite easy to obtain and keep an accreditation without the proper regular checks. 4.6.4.2 Accreditation Before a laboratory, foreign or local, can be active in Vietnam it needs to be accredited according to the VILAS scheme. This means the labs are accredited in accordance with the STAMEQ regulations and ISO/IEC. When a lab is accredited according the VILAS scheme it does, however, not mean that automatically all organisations/ministries accept the results of the labs. Depending on the kind of test a lab would like to perform it would need additional accreditation of for example Quatest, Vietnam Food Administration (VFA), the Ministry or Department of Health, etc. Sometimes this only means that they check if a lab is accredited according VILAS, while it takes time and costs money before this additional accreditation is obtained.

73

See (http://ilac.org/ilac-mra-and-signatories/), SO/IEC 17011 on Proficiency testing (for accreditation bodies). Clause 7.12.1 (ISO/IEC 17011) „The accreditation body shall have and apply procedures to demonstrate the competence of its accredited laboratories by their satisfactory participation in proficiency testing activity, where such activities are available and appropriate. Where such activities are available and appropriate, the minimum amount of proficiency testing shall be specified. The amount of proficiency testing and frequency of participation have to be seen in relation to other surveillance activities. Clause 7.12.2 (ISO/IEC 17011) The accreditation body may organize proficiency testing or other inter-laboratory comparisons itself or may involve another body, judged to be competent. Clause 7.12.3 (ISO/IEC 17011) The accreditation body shall ensure that proficiency testing activities that its accredited or applicant laboratories have to undertake are effective, linked to the assessment process and appropriate corrective action are carried out when necessary.‟

74 See (www.boa.gov.vn/)

75 STAMEQ has responsibility for advising the Government on the scientific, technical and legislative requirements of the national

measurement standards system and has specific responsibilities for coordinating the national measurement standards system, and legal metrology.

76 Asia Pacific Laboratory Accreditation Cooperation, APLAC is a cooperation of accreditation bodies in the Asia Pacific region that

accredit laboratories, inspection bodies and reference material producers https://aplac.org/ 77

ILAC is the international organisation for accreditation bodies operating in accordance with ISO/IEC 17011 and involved in the accreditation of conformity assessment bodies including calibration laboratories (using ISO/IEC 17025), testing laboratories (using ISO/IEC 17025), medical testing laboratories (using ISO 15189) and inspection bodies (using ISO/IEC 17020).

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4.6.4.3 Foreign labs It, however, also does not mean that companies or foreign or national inspection services can use these labs to have their products checked when they want to obtain a license to import or export their products. For this they would need to use local Vietnamese labs. Often they would use foreign labs present in Vietnam, such as SGS, Bureau Veritas, Intertek, TUV or InvivoLabs. Reason for this is that the company exporting Vietnamese products would like to be sure the standards for import in their home country are met with regard to multi-residue levels of for example hormones, pesticides and levels of heavy metals. They would not risk the products being rejected at the border and not being allowed to enter the country. According to the Vietnamese law producers, importers and exporters can only use certain (Vietnamese) inspection services, such as VinaCert, VinaControl or NAFIQAD.78 These inspection services can only use the Vietnamese labs such as Quatest 1, 2 or 3, VinaControl, Case, EDC or NAFIQAD. Foreign inspection services such as Intertek, TUV, Control Union, Bureau Veritas, Asia Inspection and SGS are used by exporters and they often will use the foreign labs. 4.6.4.4 Mutual recognition If an importing company provides a lab test or inspection report by a foreign lab or inspection service it is not recognised and the testing needs to be done in Vietnam. Even when the results of the Vietnamese lab have as a result that the license is not given and the results of the international lab would prove the opposite result, they cannot be submitted. This working method is not in line with the goal of ILAC: “accredited once, accepted everywhere”. We believe this should be changed. However, in order to achieve that and Vietnamese labs having the same level as foreign labs another issue needs to be addressed: proficiency testing. 4.6.4.5 Proficiency testing In order for a laboratory to know if its performance is in line with other labs, and results do not deviate from other labs it is important for labs to participate in proficiency testing. For this a lab will send samples to other labs and it will receive samples from other labs to test. The results will be collated and evaluated centrally and the standard will be set. Each lab is informed of this result and its performance in relation to the other participating labs and the results of the test. However, a problem in Vietnam is that labs are accredited by VILAS but the requirements as set by ILAC and APLAC are not strictly followed. For example labs are not required to participate in proficiency tests following a global standard. Currently some proficiency testing is done within Vietnam, however, the level is too low and this means that results do not have the same value as of international labs participating in global proficiency tests.79 This makes it difficult to compare results as the methods might differ from methods used by other labs. It is also not guaranteed that the results are reliable as the methods are not always according to the agreed international standards. 78

It depends on the product which inspection services can or needs to be used. 79

A proficiency test is one of the best ways for a laboratory is to monitor its performance it to participate in proficiency testing scheme. Proficiency testing is a type of inter-laboratory comparison exercise in which samples are circulated to the participating laboratories, results are then collated and evaluated centrally. Each laboratory is then informed of its performance relative to the other laboratories in the scheme and relative to either true or consensus result for the sample. Performance is usually quoted in terms of the number of standard deviations between the achieved value and the consensus or true value. In some schemes participants are given a pass/fail rating, see (www.labnetwork.org/en/testing-areas/chemical-lab/108-proficiency-testing)

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4.6.4.6 Range, kinds and methods of tests and testing Many key measures linked to laboratory performance and quality, are being implemented.80 However, as there are many laboratories belonging to multiple entities with different responsibilities, those measures and programs may not be implemented in a uniform way which should be avoided. The way testing currently takes place is costly, time-consuming and often no guarantee for detection of food safety issues. If the current system can be changed, it will be cheaper for companies which will probably result in a lower consumer price, but certainly in higher food safety. This will make Vietnamese products more competitive. We believe that to improve food safety and competiveness of the sector it is paramount that the quality of laboratories improves, while testing methods should be modernised and brought to international standard. The problem is though that not all tests can be performed in Vietnam and that the range of what can be tested is still limited.81This means that products being exported sometimes will be rejected because too high levels of pesticides, hormones, heavy metals. It also happens that despite positive test results a product is still considered unsafe and will be destroyed.82 Testing methods are also not always in accordance with modern and international standards or the equipment is not up-to-date enough to test adequately. Testing food products, imported or local, for contaminants such as bacteria, total plate count, yeast and mold for the purpose of food safety and food microbiological quality is for example done through so-called traditional methods (growing sample bacteria in petri dishes). These procedures are complicated and time-consuming, which causes companies to be less competitive. New technology is needed as well, to increase the ability to detect residue of antibiotics and pesticides in food. Another issue is that there is no lab in Vietnam that can perform a broad spectrum analysis of active ingredients (AI), the lab needs to be told for which AI the product needs to be tested.83 The test also takes longer than in Europe where in a short time the result is available of which of the 500 AIs are found. At the same time it is problematic that test results of foreign laboratories certified to perform specific tests on food safety are not accepted in the same way as test results from local laboratories. Besides this, the test method does not always guarantee safe food. For example sanitary and phytosanitary requirements on heavy metals, such as mercury and arsenic, should not be tested for the total concentration of heavy metals. More specific analyses, focusing only on those “species” of heavy metals that actually affect human, animal and plant health are needed. Reason for this is that certain harmful species of heavy metals can be very present and concentrated while the total concentration is still acceptable. The current, “general” testing method is not in line with international and EU standards. The way of taking samples can also be improved; now often samples are not taken randomly but are prepared by companies. Further to this, it can become quite expensive if you need to test things that currently cannot be tested in Vietnam. The whole process is further complicated by the fact that you might need a license to export samples. Besides this it is problematic that if third party labs are certified to perform specific tests,

80

International programs financed by JCEA, UNIDO, WHO, GTZ, etc. and national programs. 81

See (http://pops.org.vn/UserPages/News/detail/tabid/138/newsid/833/language/en-US/Default.aspx) 82

See (vietnamnews.vn/society/258756/probe-launched-into-customs-food-tests.html) 83

An active ingredient is a component that can affect the structure or any function of the body of a human-being. The active ingredients list is the part of the ingredient label that must adhere to specific regulations mandated by food safety agencies.

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the results should be accepted and approved in the same way as local ones. For example, the result of Quatest 3 is always considered as the final result in order to import goods into Vietnam, even though there might be test results from an international lab. We already mentioned that it can even happen that a test result is wrong, but a contra-test is not accepted or possible. In order to improve the quality of laboratories we would like to point out the outlines drafted by Food Law Enforcement Practitioners (FLEP).84 Another issue is that sometimes product receive permission to be imported as all the test results are according to specification. However, when the company subsequently would like to obtain a permit to sell the product the product is not according to specification anymore. It is not clear though where the problem – if there is really one – starts and why at first there is no problem but later there is. Finally, a problem is that under Circular 128/2013/TT-BTC, quarantine and food safety testing must be carried out at a customs checkpoint. The facilities at such customs checkpoints are often insufficient, causing delays which have a big impact on the product, as the cold-chain is broken. So this requirement causes food safety issues as well as financial damages for the company. In our view the FSA as described above could also play a role in improving the current system. Recommendations - Change the law so that all labs in Vietnam, being local or international, use the same –

internationally recognised and standardised – testing methods; - Promote the VILAS accreditation scheme and use that as the only scheme; - Take measures to improve the reputation of labs in Vietnam; - Encourage enforcing the requirements to remain VILAS accredited; - Accept results of a (foreign or Vietnamese) lab that is accredited according to

international standards in the same way as test results are accepted for local laboratories without the need to do another test in order to obtain a license or certificate;

- Increase the testing methods available in Vietnam - Harmonise the working methods of laboratories and develop best practices. - Take care that current initiatives are implemented in a harmonised way - Reduce red tape when laboratory tests need to be done abroad; - Amend testing requirements in such a way that a „speciation analysis‟ is requested for

heavy metal; - Test the „species‟ of the heavy metals on harmfulness with regard to mobility,

bioavailability, and bioaccumulation; - Encourage upgrading of testing methods and facilities to be in accordance with modern,

international standards such as accredited by ISO, AFNOL, AOAC to ensure accurate testing results, prevent any undue delay and/or arbitrary or unjustifiable discrimination;

- Allow importing companies to store frozen food products in their own or neutral storage facilities for quarantine and food safety inspections in order not to break the cold-chain;

- Allow products that can be legally used in other countries, to be imported into Vietnam without additional documents; and

- Enforce existing laws, especially if public health is affected.

84

See (www.flep.org/downloads/Products/Enforcement/Official_labs.doc). FLEP is a forum which brings together representatives of European food control authorities, exchange information, address inconsistencies and explore practical enforcement difficulties.

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4.7 Legal enforcement In the earlier mentioned report of the FAO it reads: "Sound food safety legislations and policies are meaningless unless they are effectively enforced through monitoring of inspection service."85 Even if, in principle, the legal framework in its current form allows for higher food safety, we believe that the main problem lies in enforcing compliance. In our view the lack of effective enforcement and too low fines contribute to low food safety. Infringers calculate the costs of getting caught and having to pay a low fine and the costs to comply with the rules. An example used to illustrate difficulties with enforcement of food safety standards in Vietnam is related to potassium bromate (E924), an additive often used in the bread-baking industry. It has been banned in the EU since 1990 and in many countries world-wide, as it is carcinogen and can be replaced by other products.86 It is not on the list of authorised additives in the food industry in Vietnam either. Despite verbally agreeing that such additives should not be used, Government agencies do not seem to be willing to issue a statement in writing that the additive is not allowed. Such a document could make enforcement easier, although problems have been identified with the enforcement of the regulation by relevant authorities. Considering the negative effects of potassium bromate on public health we believe that the authorities should enforce the regulation and no longer allow use of this additive. In other countries the authorities managed to ban the use of the product. Therefore, we believe it is also possible in Vietnam, especially as it is very easy, quick and low-cost to check if the additive is present. No highly equipped laboratory is needed; it is possible to do a simple test on-site. Enforcing the ban of this additive will improve, or at least not damage, the health of the population; not only the people working in the bread-baking industry, but in general. It can be done without losing the possibility to bake bread as alternatives exist. Another issue is that several small animal-feed manufacturers add growth hormones to pig feed. This is done to shorten the growth period of the animal, to make the animal look better (before selling), and to have leaner meat. However, the use of these hormones has damaging effects on the health of consumers.87 Because of the carcinogenic risks, the use of growth hormones has been banned in the EU since 1989. The use of growth hormones is not allowed in Vietnam either, but often enforcement of this regulation is weak. In 2014, several provinces in North Vietnam have strictly enforced the regulations forbidding the use of these hormones.88 This has discouraged many producers from putting growth hormones in animal feed and many farmers no longer buy this animal feed.89 However, in 2015 the problem seems to be even more problematic than before and is said to be mainly an enforcement problem.90 Therefore we ask the Government to enforce existing legislation strictly and even make it more severe. Companies will infringe regulations less as there is no cost advantage anymore. In short, food safety improves. This will also make export easier, as there will be fewer issues with food safety causing the products to be refused. And the health risk decreases which saves costs within several years.

85

Ibid. 86

See (www.ncbi.nlm.nih.gov/pmc/articles/PMC1567851/) 87

See (www.com/consumers/general/hormones_meat.htm) and (ec.europa.eu/food/fs/sc/scv/out21_en.pdf) 88

See (vietnamnews.vn/society/259271/pig-farmers-targeted-in-chemical-probe.html) 89

Decree 119 and see (www.iasvn.vn/san-pham/tin-thi-truong/cong-ty-thuc-an-chan-nuoi-dung-chat-cam-da-co-gay-nhung-ai-xu.html)

90 See (english.vietnamnet.vn/fms/society/140769/pork-safety-risk.html)

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These are just some examples, but there are – unfortunately – many more that could be mentioned here. The guidelines developed by the FAO seek to provide advice to national authorities on strategies to strengthen food-control systems to protect public health, prevent fraud and deception, avoid food adulteration and facilitate trade.91 These could be taken as a starting point to strengthen the enforcement in Vietnam. Recommendations - Allow products that can be legally used in other countries, to be imported into Vietnam

without additional documents; and - Enforce existing laws, especially if public health is affected. 4.8 Conclusion We believe that food safety is important for the following reasons: - Food safety is an opportunity to upgrade quality standards; - Food safety increases the probability to successfully meet foreign standards; - Food safety drives the upgrade of the agriculture sector to ensure the quality of

processed food products and the productivity; - A food safety crisis can be a financial disaster: sales suffer, costs of recall of products,

fines, public relation expenses, etc.; - Communication about a food safety program helps to reassure existing customers and

secure prospective ones; - A more efficient and effective food safety management and enforcement will:

improve food safety; boost exports; reduce costs; and make enforcement of violations straightforward and transparent.

91

See (www.wpro.who.int/foodsafety/documents/docs/English_Guidelines_Food_control.pdf)

3.2. EDUCATION & TRAINING

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EDUCATION AND TRAINING POSITION PAPER

Prepared by Education and Training Working Group

Vietnam Business Forum

Executive Summary The Vietnamese economy continues to grow and in order to sustain this growth at desired levels the need for quality education and training is imperative. Vietnam needs to improve the productivity of its workforce and although a challenge at the present time with effective strategies it can become an opportunity. This will be best achieved through a coordinated effort by all major stakeholders lead by the Vietnamese Government. The paper focuses on two main areas firstly, Decree 73 and secondly, issues relating to Technical and Vocational Education and Training (TVET). Decree 73 applies to foreign investment and cooperation projects in education in Vietnam. The quality of education in Vietnam has been an issue and this can be improved, in part, by attracting foreign institutions that have a record of delivering quality education. A number of issues and recommendations have been raised and made to help make decree 73 more effective in establishment of quality education institutions in Vietnam. Having effective TVET institutions lays the foundation for economic growth by supplying work ready graduates with the necessary knowledge, skills, and attitude to make a positive contribution in the workplace. To achieve this it is necessary to know what competencies are needed by industry and then developing and delivering curriculum to produce the graduates that industry needs. The capacity of the institutions needs to be raised to the required levels to be able to produce these graduates. This requires training of TVET staff in areas such as leadership, curriculum development, market research and analysis etc. In addition, TVET institutions need to be able to attract capable students and the development of a National Qualifications Framework (NQF) and a single articulation system for Vietnamese education. In conclusion the Vietnamese economy continues to grow and this is of benefit to the citizens of Vietnam. There are opportunities for Vietnam, however, it needs a highly competent workforce to drive growth in the economy. Quality education and training is required and this would also require the combined efforts of relevant stakeholders working closely together to find effective solutions. The Education and Training Working Group, through the VBF, will continue with its commitment to assist Vietnam in achieving it economic potential.

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1. Introduction The Vietnamese economy is entering a new era with the formation of the ASEAN Economic Community (AEC) and the Trans Pacific Partnership (TPP). This should lead to many growth opportunities in the Vietnamese economy. However, in order to take full advantage of these opportunities the Vietnamese workforce needs relevant knowledge and skills. The size of the Vietnamese workforce has been a key factor in Vietnam‟s economic growth, however, this cannot continue. Vietnam needs to focus on making its workforce more productive. A recent report from the International Labour Organisation (ILO) showed that Vietnam‟s labour productivity rate in 2013 was among the lowest in Asia Pacific. It was 15 times lower than Singapore, 11 times lower than Japan, and 10 times lower than South Korea. In addition, another report stated that despite considerable improvement in recent years, Vietnam‟s labour productivity is lagging decades behind regional countries. The opportunity for Vietnam is to increase the skills of its workforce to rapidly improve the productivity of its workforce. The World Bank report “Skilling up Vietnam: Preparing the workforce for a modern market economy” states that “Equipping its workforce with the right skills will, therefore, be an important part of Vietnam‟s effort to accelerate economic growth and further its economic modernization in the coming decade and more”. Therefore, efficient and effective education and training is integral to the development of the Vietnamese workforce and economic growth. The success in improving the quality of education and training in Vietnam will require the combined efforts of relevant stakeholders working closely together to find effective solutions. The Education and Training Working Group, through the VBF, will continue with its commitment to assist Vietnam in achieving it economic potential through improvements in education and training. This report will focus primarily on Decree 73 and the Technical and Vocational Education and Training through the identification of relevant issues and opportunities to improve. 2. Decree 73 Decree 73 replaces Decree 06, and applies to foreign investment and cooperation projects in education and vocational training in Vietnam including foreign-invested tertiary institutions, schools and kindergartens, twinning programs, and representative offices of foreign education institutions. We firmly believe that the most important goal is to have quality graduates entering the workforce and that Decree 73 is integral in this respect. The following are the main issues raised by the education and training working group with proposed recommendations. 2.1 Licensing-related issue 2.1.1 Requiring 3 kinds of licenses Under the Decree 73, the working group views it as being much more complicated than in the past, as it requests to have an investment license, then an establishment license, then an operations license. This applies even when setting up a branch of an already licensed organization. A lot of paperwork/steps are repeated during these processes and assessed by many of the same departments. This results in an inefficient use of time for investors/organizations and agencies issuing licenses. New investors to Vietnam, as well as current investors, feel that it is far too onerous to overcome all these complicated licensing procedures. In addition, this is in contradiction

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with what was stated by the Government and National Assembly on the investment law (i.e. simplifying administrative procedures for investors). The license application now has 3 steps instead of 2 like before (the additional step is the establishment license). The application required is exactly the same for all 3 licenses and involves the same departments for approval, which is duplicating processes and, therefore, simplification is strongly recommended. The investment certificate requires the involvement of 7 departments/government bodies including the Department of Planning and Investment, the Department of Education and Training (DOET), the Construction Department, the People Committee of the District (they need to get 2 more Departments‟ approval: the Architects Department, and the Fire Department then finally approval by the Peoples Committee. The establishment license requires the involvement of 3 departments/government bodies, which are DOET, the Provincial People‟s Committee, and the Department of Internal Affairs. The operations license requires only the approval of DOET. Recommendation Retain the two-step process previously provided in Decree No. 06 and Circular 14. 2.1.2 The list of application documents Currently, the list of application documents is not clearly understood and it leads to licensing authorities requiring similar documents for 3 kinds of licenses. This poses a big challenge for investors. For example, at the stage of applying the establishment license, the completed profiles of foreign teachers that need to be submitted, include their work permit and labour contract However, the foreign invested educational institution are not allowed to start operating until the operation license is granted. Articles 38 and 48 of Decree 73 states that “it needs 60 working days to issue the establishment license and 32 working days to issue the operation license”. Therefore, the total duration is 92 workings days, approximately 4 months. This means that the foreign invested educational Institution must pay 4 months salary to these teachers until they obtain the necessary licenses to commence operations. Recommendations - That the documents required to obtain each type of license are clarified. - Circulars to guide the implementation of the Decree 73 need to include clear penalties

when government officials process applications in order to avoid time-consuming delays and unnecessary costs for investors.

2.1.3 Inspection the facilities of foreign invested educational Institution Due to ambiguous regulations in Decree 73, licensing authorities need to conduct a number of inspections of the facilities before issuing each license. Prior to commencing operations, each educational institution will have 3 inspections by three different licensing authorities at the same location. This is an inefficient use of both time and manpower for both investors and licensing authorities.

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Recommendations Decree 73 should include provisions that classify at which period of the license application the facilities of the foreign invested educational institution need to be inspected. 2.2 The limitation on the percentage of Vietnamese students. (Article 24) The limited percentage 10%, 20% of Vietnamese students allowed to join international schools as per provided in Article 24 of Decree No.73 are extremely unreasonable because of some reasons: The demand of Vietnamese students in international school is more and more increasing. If the Government does not allow them to join international schools in Vietnam, they will go oversea. In fact, the number of Vietnamese students go to overseas for study is increasing every year with current now is more than 110.000 students in 47 countries with the school fee is from 30,000 USD to 40,000 per year. Vietnamese is exporting about 3 billion USD every year to overseas for education. With this limitation, the foreign investment in education is closed in second-tier cities of Vietnam because the calculation of percentage 10%, 20% of Vietnamese students allowed to join international schools is based on the number of foreign enrolled students. If the foreign invested institutions have no foreign students, then no Vietnamese students can enrol. The fact is almost second-tier provinces besides Hanoi and Ho Chi Minh where have a few foreigners come to work and live, it seems having no foreign students for enrolment, it shall have no Vietnamese students are allowed to study. As consequence, foreign investment in education is closed to second-tier cities in Vietnam. Some concern that a great number of Vietnamese students studying at international schools will lead to the loss of Vietnamese cultural identity. However, this seems to be a conservative opinion because if these students are not allowed to enrol at international schools in Vietnam, they will go abroad upon their demand. And therefore, the Vietnamese cultural identity will be more difficult to be maintained. Furthermore, some subjects such as: History, Geography, Literature and Vietnam study are compulsory in international schools. Recommendation The quality of the Vietnamese education system needs to improve and to achieve this the presence of foreign investment in education is very necessary. The Government should end this limitation but add more conditions to ensure that Vietnamese students in international schools to learn and retain their Vietnamese culture and traditions. 2.3 Article 74 – Point 1 The following is stipulated in Decree 73. Implementation Provisions - Article 74. Transitional provisions “1.Foreign-capitalized educational institutions and their campuses that have been issued with the Investment certificates concurrently, the Business registration certificates and the Licenses to provide education before this Decree takes effect are exempted from reappraisal, but must supplement and complete the dossiers within 06 months since the effective date of the Decree in order to be issued with the Decisions on approving the establishment of educational institutions and campuses”

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Recommendations If the establishment license is still retained, we respectfully recommend the Ministry to amend Article 74 of Decree 73 as recommended below so that non state higher education organizations can obtain a decision on approving the establishment of educational institutions and campuses in a timely manner. Currently, some members of the Education and Training Working Group are preparing dossiers following the requirements as set out in this Article. However, officials are requesting that new requirements under Decree 73 must be met instead of requirements under Decree 06. We respectfully request that the Ministry indicates in the guiding regulations of Decree 73 that it does not require retroactive applications when applying for the decision. Suggested modification to Article 74.1. “1. Foreign-capitalized educational institutions and their campuses that have been issued with the Investment certificates concurrently, the Business registration certificates and the Licenses to provide education before this Decree takes effect are exempted from reappraisal, but have to submit an application for establishment license and report actual activities in the last 3 years must supplement and complete the dossiers within 06 months as from this Decree takes effect in order to be issued with the Decisions on approving the establishment of educational institutions and campuses. 2.4 Implementing the transitional provisions on enrolment of Vietnamese students and teaching international curriculum (Article 12, Circular No. 34) Clause 2: The foreign invested schools who already owned the pilot license on teaching international curriculum and bilingual language for Vietnamese students issued by the competent authorities before the effective date of Decree No. 73 shall be permitted to continue the issued pilot license. However, there is inconsistent application between the DOET by DOET. Some accepted and followed this guidance while others did not accept it with the opinion that it is only pilot license. For example: Previously, in accordance with Decree No. 06 and Circular No. 14, the foreign invested schools were allowed to provide educational service for Vietnamese students at senior high school level but only piloted in Hanoi and Ho Chi Minh city. Based on this regulation, the schools had been granted the pilot license from Department of Planning and Investment and Department of Education and Training provide educational service for Vietnamese students at senior high school level but only piloted in Hanoi and Ho Chi Minh City. In accordance with Article 12 of the Circular No. 34 as abovementioned, we understand that the schools who already obtained this pilot license shall be permitted to continue that one. On 08 July 2014, MOET issued Official Letter No. 4774 to re-confirm about this matter. However, in fact, some DOETs accepted and followed this guidance while others did not accept it Recommendation We would like to request MOET to have instructions to all DOETs for consistence

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2.5 Invested Capital (Article 28.6) Article 28.6: The projects of investment in establishing higher education institutions must reach at least 150 million VND per student (not including the expense on land tenancy). The total minimum capital is calculated when the estimated education scale is greatest, but must not be lower than 300 billion VND. This provision lacks clarity and creates confusion for investors. Recommendations It is requested that the total invested capital to be calculated based on the total number of full-time equivalent students, instead of basing it on the time when the estimated education scale is greatest. In reality, the total education and training capacity can be 3 times greater than the total number of full-time equivalent students. In addition, the total invested capital for the project will be disbursed through each stage of the project‟s expected implementation. Thus, the invested capital must be registered on the investment certificate based on each implementation stage. 2.6 Conditions for approving educational activities (opening a new degree program) The establishment of disciplines of university and college is prescribed in Circular No. 08/2011/TT-BGDDT dated February 17, 2011 of the Ministry of Education and Training stipulating conditions, dossiers, procedures for opening disciplines of training university, college level. However, this regulation on establishing disciplines is very complicated and not in accordance with foreign-invested educational institutions. Recommendations - It is proposed that there should be separate regulations on establishing educational

disciplines of foreign-invested educational institutions. - We respectfully request to make the guiding regulations of Decree 73 clear in term of

establishing new disciplines for foreign educational institutions to come under one set of separate regulation OR, as an alternative, to come under the existing regulations on establishing new disciplines under colleges and universities issued by the MOET.

2.7 Facilities and equipment (Article 29) Not all students are present at campus at a single point of time. A student may register from one to four courses per semester, and thus shall attend class for 3-12 hours per week. Students will have to spend time for preparation and doing assignment that do not require them to be present at the campus. Therefore, stipulating minimum land/floor areas for students without taking into account the number of students present at the campus at a point of time is not reasonable, and may bring higher costs to education institutions that will then increase tuition fees. Recommendations Minimum land/floor areas for students should not be specified in proportion to number of students. Decree 73 should be amended to provide that the minimum land/floor areas for students should be in proportion to the maximum number of students present at the campus at a point of time, and not simply in proportion to number of students. Furthermore, the facilities and equipment requirements on non-state higher education student ratio etc. may become an increasing challenge with land pressures. Therefore, we suggest greater transparency in how the specific ratios were determined; perhaps this ratio could be lowered.

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2.8 The lack of a legal framework for extension of operation term of educational institution Decree 73/2012 regulated that if the educational institution registers its operation term for more than 20 years it must meet the condition of construction its own buildings. There is no requirement of construction its own buildings if it registers for less than 20 years. However, the decree does not mention the situation where the operation term of the educational institution has expired. In this case, the licensing authority will add the previous term to the extended term, and is the total is greater that 20 years then the conditions of construction of its own building will apply. This is deemed very unfair and needs to be revised. Recommendations - We respectfully request the MOET to amend Article 29.6 of Decree 73 as follows: A

foreign-capitalized educational institution that register or applies for extension of operation‟s license for less than 20 years do not have to build their own facilities.

- The amendment to Decree 73 should add more regulations on registering extension the operation term is less than 20 years, will not require construction of its own buildings.

2.9 The teaching staff (Article 31) 2.9.1 Minimum qualification of instructors We are very much concerned about requirements for teaching staff being too high/challenging for some transnational education delivery especially: - For tertiary education institutions, 60% of course modules must be delivered by

permanent teachers, and 80% of teaching staff must hold postgraduate degrees. - Article 10.2.b. mandates the minimum qualification of instructors at college level to be a

master degree. Recommendation We respectfully request the Ministry and the Government to re-consider amending this clause to reflect the reality that professional instructors in a range of fields may not have post graduate education. However, they earn their expertise and mastery through years of practicing, which may be certified by a professional association. Their instruction is indispensable to the students in the program. Examples of those fields include culinary art, performing art, and fashion design amongst others. 2.9.2 Years of teaching experience of foreign lecturers A number of foreign lecturers are highly experienced experts in their professions, especially in design, fashion and textile programs. However, they do not possess 5 years of teaching experience in the same teaching area. As the requirements for study in those programs have increased, we have tried hard to find appropriate candidates with 5 years of teaching experience in the same teaching area, but still are not be able to recruit sufficient lecturers meeting these requirements Recommendation It is recommended that Decree 73 be amended to decrease number of years of teaching experience of foreign lecturers in special teaching areas such as design (digital media), fashion (merchandise management) to less than 5 years. The combination of experience and qualifications in the relevant field should be considered.

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2.9.3 Requirements for recruitment of English language teachers As with the case of foreign lecturers in special teaching areas as mentioned above, the recruitment of English teachers has been difficult due to scarcity of supply in the Vietnamese market. In reality, very few English teachers possess Bachelor degrees in linguistics or English language teaching (as required by Decree 73). Moreover, we need to recruit seasonal or part-time English teachers who are currently teaching at some other foreign language centres, as long as they meet our qualification requirements. Even though they have already obtained work permits to teach at other centres, we must also submit another complete work permit application package for obtaining another work permit for such sessional or part-time English language teachers (as required by Decree 102). Such regulations and administrative procedures have been very time consuming and costly for our operations. Recommendations Our recommendations are as follows: - Recruitment of English teachers who possess Bachelor degrees in any field of study (not

necessarily in linguistics or English language teaching), as long as they are native English speakers; and

- Part-time or sessional English language teachers to use one work permit to teach at multiple schools or language centres.

2.10 The lack of a legal framework on operation area of foreign-invested educational schools (kindergarten to senior high schools) after obtaining the operating license and starting operations Currently, there is only Decree 73/2012/ND-CP governing INVESTMENT but there is no clear regulations in place at this time governing the OPERATIONS of schools (kindergarten to senior high schools). Therefore, during the operations of educational institution, it is not clear of what regulation will be applied that lead the different authorities will have different opinions on regulation application. Even some authorities used the regulations applicable for local school to apply for foreign invested school with the view that foreign invested school must meet minimum regulations of local schools. For example: with regard to the appointment and recognition of a school principal, different authorities have different opinions. Some authorities have asked that the principal is required to be registered and formally recognized while others advised that there is no need to for formal recognition when it is autonomic decision of school. Recommendation We recommend having transparency and clarity in the legal documents that regulate the operation area of foreign-invested educational institutions. Furthermore, there should be a clear classification between foreign-invested educational institutions and 100% Vietnamese institutions to avoid misunderstanding and wrong application. Without the clarity, it will be difficult for state authorities to manage effectively the area of foreign-invested educational institutions. 2.11 Hospitality education We also respectfully request the Ministry to add new clauses to address the absence of a legal framework to allow a university to operate a commercial restaurant or hotel as a practicum facility where full time training takes place. This format of hospitality education enables students to conveniently and smoothly learn theory, to practice with real

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customers, and to return to theory afterwards. This format requires the learning environment to be the same as the practical one, where real customers are served. There is a great need for teachers with experience in the field and that students have the opportunity to practice in the field to become work-ready graduates. 3 Technical and Vocational Education and Training (TVET) In order to improve the Vietnamese economy and to take advantages of the opportunities from membership of the AEC and TPP, Vietnam will need a high-skilled workforce. The Vietnamese Government has put vocational skills training and boosting employment at the heart of its development goals. Its plan is that by 2020, trained skilled workers will make up 55% of the labour force. The Government also wants to tailor its vocational training more to the needs of the business community, so it is promoting the expansion of vocational education and training provision and improvements in the quality and needs-based focus of training. The Government also wants to tailor its vocational training more to the needs of the business community, so it is promoting the expansion of vocational education and training provision and improvements in the quality and needs-based focus of training. 3.1 Meeting industry needs In order to reduce the mismatch of skills demand and supply at the technician level, Technical and Vocational Education and Training (TVET) institutions should make more effort to improve training programs by carefully analysing the needs of industry. This will ensure that graduates from TVET institutions have the skill sets required by industry both now and in the future. To accomplish this would require coordination between the MOET, MOLISA, TVET institutions, Industry and also the involvement of initiatives funded by foreign governments. The Vietnam Development Partnership Forum (VDPF) TVET sector network organized by GDVT would also be able to provide support here in addition to other areas of TVET activities. Recommendation It is recommended that the skills needs of Vietnamese industry be identified to provide the TVET institutions with the market knowledge they need to develop appropriate curriculum for the market. The colleges should be involved in identifying the needs of industry to meet local demand and have autonomy to link more closely with industry. 3.2 Building the capacity of TVET Institutions In addition to identify in the needs of industry the capacity of the TVET institutions needs to be raised in order to provide them with the capability to meet the needs identified in 3.1 above. Areas including the following need to be addressed: - Organization and Management - Vocational Teachers and Teacher Development - Quality Assurance and System Accreditation - Curriculum development - National Skills Standards and Certification - Assessment and Certification There are already a number of initiatives underway including the following: - The Vietnamese Skills for Employment Project (VSEP) - Canada - Vietnamese - German Programme Reform of TVET in Viet Nam - Japan International Cooperation Agency (JICA)

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- The Higher Engineering Education Alliance Program (HEEAP) - USA Recommendations - It is recommended that the Vietnamese Government liaise with the various initiatives

mention above and other initiatives to have a coordinated approach to the capacity build of the TVET institutions. It would also help the various projects focus on their outcomes while taking into account the outcomes of the other initiatives. It would also help reduce overlap.

- The Vietnam Development Partnership Forum (VDPF) TVET could help with this coordination work.

3.3 Attracting students into TVET institutions One of the issues facing TVET institutions is the fact that high school students want to go directly into University. In addition, it is now easier to enter University due to the lower entry requirements. University degrees are held in high regard even though many graduates with University certificates are unable to find relevant work. The formulation of a single articulation system for Vietnamese education would also help to make TVET more attractive. The reform of the TVET system needs a coordinated, articulated approach so that students‟ training is not dead-ended and they „system‟ as a coordinated whole will attract high-achieving students into careers with a future. Recommendations - In order to persuade more high school students to become interested in vocational

training programs, it is suggested that the Government should improve the paths that vocational college graduates can use to transfer to university courses. It is recommended that the Vietnamese Government continue working on a National Qualifications Framework (NQF) so that students undertaking studies at TVET institution can have this study officially recognised. This will also provide TVET students with recognition for prior learning if they want to continue their studies at University.

- Industry also needs to work with TVET institutions so that students graduating from TVET institutions, with work ready skills are given recognition by industry for having these skills.

- It is recommended that MOET and MOLISA work together to develop a single articulation system for Vietnamese education.

4 Other Issues 4.1 Overseas/Online Learning The Vietnamese regulatory environment makes it difficult for students to gain recognition for overseas qualifications delivered in Vietnam part online (i.e. blended learning modes) even though these qualifications are issued by the overseas university as meeting all the same quality assurance requirements as the same courses delivered by 100% face-to-face mode. In Australia, for example, where there is a robust quality assurance system in place, a university must satisfy the national regulator - The Tertiary Education Quality and Standards Agency (TEQSA) that blended courses leading to an Australian qualification meet the course accreditation standards and are equivalent wherever the qualification is delivered regardless of delivery mode. Online/blended delivery is an emerging global trend and is a cost-effective, flexible and innovative way to deliver quality education. It can help

Education & Training Working Group - Position Paper Vietnam Business Forum, 2015

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Vietnam improve access to quality education and overcome challenges such as an imbalance in the level of development in different regions of the country. Recommendation The VBF would like to see greater flexibility in the regulation to allow the Vietnamese Government assess applications for course accreditation from Foreign education providers to deliver courses with an online component and to recognise the qualifications of students undertaking such courses. 5 Conclusion The Vietnamese economy continues to grow and this is of benefit to the citizens of Vietnam. With membership of the TPP and AEC Vietnam has a great opportunity to grow it economy and become an even more prosperous nation. To achieve this Vietnam needs a highly competent workforce with the knowledge and skills to drive growth in the economy. Quality education and training is required to provide the skilled workforce to maintain this growth. We have focused on two main areas in this paper that will help Vietnam to raise the quality of its education. Through effective legislation and a robust TVET system Vietnam will continue to prosper and take advantage of the many opportunities coming its way. As mentioned in our introduction this would require the combined efforts of relevant stakeholders working closely together to find effective solutions. The Education and Training Working Group, through the VBF, will continue with its commitment to assist Vietnam in achieving it economic potential. We look forward to seeing progress in the above areas and again would like to thank the VBF for inviting us to contribute to this important forum.

Education and Training – Progress Report Vietnam Business Forum, 2015

Important Note: This "Progress Matrix" was prepared based on the voluntary submissions of the various Working Groups and Sub-Working Groups of the Vietnam Business Forum from 2011 - 2014. In terms of both the feedback and the rankings/progress evaluations, it is not intended to be either complete or scientific. It does nevertheless reflect many issues of concern that have come up in the various Working Groups, and their constructive proposals for solutions. It is hoped that it will provide a useful reference to track and guide progress as the Government and the business community continue their collaboration to improve the business environment though the channel of the Vietnam Business Forum. Among other things, it should be noted that many issues already fully resolved have been dropped from this Progress Matrix to limit the size of the document, and almost all of the issues noted are those that still need more work.

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EDUCATION AND TRAINING PROGRESS REPORT Prepared by

Education and Training Working Group Vietnam Business Forum

Scoring to be rated as follows: In progress report: 0 = issue remains; 1 = partially somewhat resolved; 2 = issue has been solved. Priority (1 -10: highest). Score = (Progress) x (Priority) No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score 1 New Providing more autonomy to

Higher Education Institutions Some recommendations to improve the quality of higher education in Vietnam: - The Law on higher education has given

autonomous rights to foreign-invested higher education institutions; however, there is no detailed legal framework to stipulate the level of these autonomous rights. Law and the by-law should include transparency provisions on autonomy. - The reputable universities should have

more autonomy to recruit students. - Give institutions some autonomy/flexibility

to adapt curriculums to meet the fast changing needs of industries in Vietnam.

Slow progress is being made on this issue. The law is giving more autonomy but we need to work closely with MOET to ensure it happens in practice.

x 10 0

2 New The quality and relevance of Higher Education

- Make it easier licensing wise for already established reputable educational organizations to expand into new locations.

Have had discussions with MOET but no actions taken (yet)

x 8 0

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score - Implement a transparent and independent

ranking system for all higher education institutions. - Soon issuing specific legal instruction for

the launching of new programs by foreign-invested higher education institutions

following discussions.

3 Old Specific regulatory issues re Decree 731 and Decree 1022: 1. The conditions of granting work permits and working conditions in Vietnam of the foreign teachers regulated in Decree 73 and Decree 102 are still very tight, they have not been amended yet to be consistent with the resolution No. 473 of the Government which have relaxed the condition of 5 years experiences. 2. The new legislation is recently promulgated, it seems to be more complicated than before. Requiring many children licenses after granting investment license. The FDI

1. Decree 73 and Decree 102 should be amended soon to help remove obstacles of conditions to grant work permits which all foreign teachers are now faced with. The amendment should be: conditions for granting WP for foreign teachers: University degree and teaching certificate must be externally assessed and certified by a recognized body. 2. MOET should consider to promulgate separately the legal regulations for each type of education, from simple to complicated ones, due to the conditions to set up a foreign language training centre are quite different and more simple than the conditions to set up the general education institutions (primary and secondary education) as well as establishment of higher education institutions. 3. The Decree 73 and the Circular to guide the implementation the Decree as well as

1. Government have promulgated the Resolution 47 to relax the conditions of WP issuance. 2. The circular to guide the implementation of Decree 73 has been promulgated. 3. Decree 73 and Decree 102 are under amendment. However, it needs to push to promulgate soon.

x 10

1 Decree No. 73/2012/ND-CP dated September 26, 2012 of the Government on the foreign cooperation and investment in education 2 Decree No.102/2013/ND-CP dated September 05, 2013 on the issuance of work permits to foreign citizens 3 Resolution No.47/NQ-CP dated July 08, 2014 regarding the Government's regular meeting in June 2014

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score enterprises will only be allowed to come into operation after these children licenses have been granted. 3. There is no legal framework for foreign-invested higher education institutions. At present, there is only Decree 73 which manages the operation of foreign-invested higher education institutions. 4. Legal procedures for re-investment projects and expansion should be different to those for newly established projects in order to create the favorable condition for investors who have already contributed successfully for many years. 5. A lack of legal framework for the extension of operation term of educational institutions.

relevant regulations should be promulgated within a year. 4. The legal procedures to grant license for the re-investment or expansion projects must be simple and mentioned clearly in the amendment to Decree 73. 5. The amendment to Decree 73 should add more regulations on registering extension if the operation term is less than 20 years, it will not require construction of its own building.

4 New Vocational Education and Training

- The responsible government agencies should encourage vocational training institutions to improve their programs by carefully analyzing industry needs.

Progress is slowly being made when the Law on Vocational Training is being revised.

x 10 3

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score - The Government should urge high schools

to promote vocational training courses as a future option to their students.

- The Government should consider how

graduates from vocational training courses can have a fair social and economic status in their careers, in close partnerships with business communities. - The Government should organize

awareness raising activities for changing people's mind-set that graduates of vocational training courses will fall into a low social status.

- The Government and vocational training

institutions should consider how to attract more female students to courses such as machinery processing, where few females students tend to apply - The Government should improve the paths

that vocational college graduates can transfer to university courses.

Education & Training WG – Summary of discussions on Decree 73 Vietnam Business Forum, 2015

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SUMMARY OF DISCUSSIONS ON THE GOVERNMENT'S DECREE NO. 73/2012/NĐ-CP ON INTERNATIONAL COOPERATION AND INVESTMENT IN EDUCATION, BETWEEN THE

MINISTRY OF EDUCATION & TRAINING AND EDUCATION & TRAINING WORKING GROUP, VIETNAM BUSINESS FORUM

Time: 15:00 – 16:30, Friday, Nov. 13, 2015 Venue: Ministry of Education and Training, 35 Dai Co Viet, Hanoi Participants: Attachment 1 I. KEY DISCUSSION POINTS - Summary of specific issues and comments/recommendations of the Education and

Training Working group (“Working group”), Vietnam Business Forum (VBF), related to the government’s Decree No. 73/2012/NĐ-CP, dated Sep. 26, 2012 (Decree 73): Regulations on international cooperation and investment in education

- Feedbacks from representatives of relevant departments of the Ministry of Education and Training ("MOET")

- Open discussion.

II. SUMMARY Mr. Pham Chi Cuong, Deputy Director General, International Cooperation Department, MOET Decree 73 has been in place for three years, as an implementing document to two laws - Investment Law of 2005 and Education Law. Implementation of this legislative tool is however still facing specific challenges. MOET is therefore looking to revise the Decree by moving toward minimizing administrative procedures as instructed by the Prime Minister and ease the bottlenecks for investors in education. MOET wants to know any challenges faced by investors in areas ranging from seeking an investment license and operations license, to various governance dimensions, as well as to hear recommendations from stakeholders to take into account in the revised Decree. Ms. Phan Thi Hoang Hoa, representing the Education & Training Working group, VBF / Apollo Education and Training Organization Taking this opportunity, the Working group wants to make our case on several concerns and recommendations that have arisen from foreign companies doing business in Vietnam. While Decree 73 has been a major leap forward from the former Decree 06, given the unique nature of education, one Decree 73 cannot possibly regulate or cover all the aspects involved. This has caused burdens to investors in education. The working group would hereby represent specific comments and recommendations on how Decree 73 should be interpreted, implemented and applied by practitioners, to help MOET to make adjustments to related rules to better keep in touch with the current investment landscape which is being increasingly encouraged to expand, while remaining within the regulatory framework. Ms. Nguyen Kim Dung, Apollo Education & Training Organization In August 2014, the Working group had a meeting with MOET on similar concerns, and in today's meeting, we will go into details on our recommendations for each clause as drawn from the real challenges we met in operation, to help MOET consider and revise Decree 73 to remain in touch with real life operation of foreign investors in education.

Education & Training WG – Summary of discussions on Decree 73 Vietnam Business Forum, 2015

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1. Issues related to licensing Ms. Nguyen Kim Dung, Apollo Education & Training Organization Different types of licenses: Under former rules, setting up a foreign-owned academic institution requires two types of license - investment license and operations license. Since Decree 73 came out, in addition to these two licenses, educational investors/institutions also need an establishment license. As with the investment license, the Investment Law being introduced has in part answered the question of too long licensing time. For the establishment license, applications should be lodged with the relevant licensing agencies and often entail very long waiting time. And while the applications for an establishment license requires the estimated faculty and staff size, enforcement and law making authorities have very different interpretations, and often ask for the teachers' personal files, including legal work permits at the time of licensing. This means that practitioners should hire teachers, sign work contracts, pay salary and obtain work permits for these teachers when the business is not even in operation. Furthermore, the review and approval process goes through a large variety of licensing agencies and functions. And when an establishment license is obtained, an operations licensing process will set in with almost identical steps.

Recommendations: The Working group would propose revising the Decree, clearly spelling out that the tentative list is not tantamount to the need for full dossiers, including work contracts and work permits, to make sure that enforcement and licensing authorities do not ask for any other application documents that are not listed in the Decree.

Inspection of physical facilities before granting the license: For the three licenses, there are three rounds of physical inspection, though the new Investment Law has cut it down to two rounds at a same site.

Recommendations: The revised Decree 73 should reduce this to a single physical inspection before the operations license is released. It should be made clear that physical inspection will be done only at the operating licensing stage, and no more approvals should be needed in the establishment licensing phase, apart from those referred to in the Decree. Making rules clearer will ensure that enforcement and licensing agencies do not translate the rules differently and apply them consistently in different municipalities.

Mr. Phan Manh Hung, Kinderworld Group I agree with Mr. Pham Chi Cuong that education is a conditional area of investment. Some rules in Decree 73 may cause problems for both investors and regulatory agencies. Investors have to deal with lengthy procedures that cost them a lot of time. With the addition of the establishment license, a single business will have two legal entities – the school and the investor. This will entail more risks for regulatory agencies in administration. General recommendations: MOET can consider skipping the establishment licensing step, and stick to the investment license and operations license like with Decree 06, and the requirements for an establishment license may be integrated in the operations license. 2. Vietnamese student percentage restriction Ms. Nguyen Kim Dung, Apollo Education & Training Organization Decree 73 now introduces a cap on Vietnamese students allowed to apply to international schools at 10-20%. This will be a barrier for schools planned to be created and take on students in Vietnam.

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Mr. Phan Manh Hung, Kinderworld Group Students’ demand for international schooling is increasing fast. Surveys indicate that Vietnamese spend USD 3 billion studying overseas. With this rule in place, investment in provinces/cities other than Hanoi and HCMC at the primary education level is virtually impossible.

Recommendations: The government can consider removing this restriction to provide Vietnamese students better access to Vietnam-based international academic institutions, rather than seeking international grade education elsewhere. The government can also add other eligibility criteria for Vietnamese students who want to learn at international schools, so as to keep intact Vietnamese traditional culture or the statutory curricula provided by MOET, possibly by adding Vietnamese traditions and culture as major fields of training.

Response by Mr. Pham Chi Cuong, Deputy Director General, International Cooperation Department, MOET MOET must take into account a conjoint perspective as the Vietnamese and international curricula differ, and there is a lack of mutual recognition between the two. Vietnamese laws now do not recognize a foreign high school diploma to allow the holder to enter undergraduate, community college or graduate education in Vietnam.

The Working group’s recommendations on percentage: Up to 50%; a 30%-50%-70% roadmap; and investors must meet the requirements corresponding to different steps of the percentages and compatibility between Vietnamese and foreign training programs.

3. Transition article Ms. Nguyen Kim Dung, Apollo Education & Training Organization Article 74 of Decree 73 regulates that foreign-capitalized educational institutions and their campuses that have been issued with the Investment certificates concurrently, the Business registration certificates and the Licenses to provide education before this Decree takes effect are exempted from reappraisal, but must supplement and complete the dossiers within 06 months since the effective date of the Decree in order to be issued with the Decisions on approving the establishment of educational institutions and campuses. But in practice, when investor comes and applies for an operations license, the licensing authority will ask for updates as specified in Decree 73, requiring full physical facility compliance, which is a major barrier to investors. Recommendations: The revised Decree 73 should clearly regulate that foreign-capitalized educational institutions and their campuses that have been issued with the Investment certificates concurrently, the Business registration certificates and the Licenses to provide education before this Decree takes effect are exempted from reappraisal, but have to submit an application for establishment license and report actual activities in the last 3 years in order to be issued with the Decisions on approving the establishment of educational institutions and campuses. Moreover, the Decree should also be specific that no more documents are required other than the ones specified in the Decree and included in the list, like in the Investment Law. Response by Mr. Nguyen Tien Dung, International Cooperation Department, MOET Decree 73 and its implementing Circular 34 have actually been specific enough that repetition of approval for the criteria of Articles 36 and 41 is not needed. The question here

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comes down to how the rules are interpreted and applied on the ground. Investors may send petitions through formal written route asking for clear explanations.

4. Investment capital Ms. Nguyen Kim Dung, Apollo Education & Training Organization Under Article 28.6, the total investment capital of an investment project to set up a higher education institution should at least be determined at the expected time the institution reaches its largest scale of operation, but no less than VND 300 billion. This rule is very vague and may be a major implementing challenge for investors. To be specific, at VND 300 billion and VND 150 million for each student, a school can recruit no more than 2,000 students, which should be understood as its largest scale. These numbers may apply in the formula for public schools, but foreign colleges use a course credit approach and classroom attendance with an instructor, followed by online hours of study, self-study, library study, and with online programs, library-to-library connections and links with international libraries, a physical classroom may not even be needed. For example, a college may have 4,000 students/shift x 3 shift/day, which equals 12,000 students. In this case, the total investment capital will be determined based on the number of full time equivalent students - 4,000, instead of 12,000.

Recommendations: We suggest that the total investment capital is determined based on the fulltime equivalent number of students rather than the expected point in time where the student count reaches its climax. 5. Regulations on opening new programs for foreign-owned educational institutions Ms. Nguyen Kim Dung, Apollo Education & Training Organization Opening new university and junior college programs are currently subject to Circular No. 08/2011/TT-BGDĐT, Feb. 17, 2011. But the Working group realizes that these procedures may apply only to public schools, rather than foreign-owned educational institutions, whose curricula are imported and subject to approval and accreditation of foreign universities, which unlike Vietnamese counterparts, adopt a credit system, with the ministry being kept updated.

Recommendations: We suggest that the Ministry of Education and Training has in place specific rules as soon as possible on opening new programs for foreign-owned institutions, with clearly spelled out ruling in the implementing document for Decree 73 that establishment of new programs for foreign-owned educational institutions is subject to current rules on opening new programs for universities and junior colleges released by MOET OR foreign-owned schools should do this in line with MOET’s specific rules. 6. Credential recognition Ms. Nguyen Kim Dung, Apollo Education & Training Organization Decree 73 establishes that students applying to undergraduate level twinning programs must possess b2 level language proficiency in the European reference standards or equivalent, but B2 here is only an intermediate level. However, students completing 3-year twinning Bachelor’s programs (e.g. students of the British University) seeking recognition of their degrees at Department of Examinations and Education Quality Assessment have been asked by the Department to obtain an IELTS certificate to qualify for the recruitment. The working group believes that this is a major concern since an IELTS certificate is not on par with the English proficiency of a graduated college student, and for students applying to a course who do not have an IELTS certificate but have completed the English course

Education & Training WG – Summary of discussions on Decree 73 Vietnam Business Forum, 2015

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recognized by the twinning school to be qualified and recruited in such undergraduate twinning program, their degrees should be recognized.

Recommendations: MOET, in revising the Decree, can consider adding guidance on credential management and recognition, apart from existing rules. 7. Facilities and equipment (Article 29) Ms. Nguyen Kim Dung, Apollo Education & Training Organization Recommendations: We propose that the revised regulations should not set a minimum land area and built complex area corresponding of the number of students. The revised Decree 73 should specify that the minimum land and built structure area for students’ use must correspond to the maximum number of students present at a specific time, rather simply the general number of students. We expect MOET to provide more specific rules here.

8. Lack of legal framework for operation extension Ms. Nguyen Kim Dung, Apollo Education & Training Organization Decree 73 requires educational institutions registered for operation in more than 20 years to build their own facilities and does not mandate this on those in operation for less than 20 years, but it is silent on how institutions can apply for operation extension.

Recommendations: The Working group urgently recommends that MOET revises Article 29.6, adding: short-term educational institutions registering or applying for operating extension of less than 20 years are not required to build their own facilities. We propose that MOET considers this modification, and if possible, release a separate Decree amending this clause, like the case of Article 31 before. Response by Mr. Nguyen Tien Dung, International Cooperation Department, MOET In the intent of Decree 73, an investor committed to do business for a long time should have his own facilities built, and short-term investment, with the need for multiple extensions to avoid property development is not encouraged. MOET nevertheless takes into account the working group’s recommendations and will keep relevant functions updated.

Ms. Nguyen Kim Dung and Ms. Phan Thi Hoang Hoa, Apollo Education & Training Organization Recommendations: To be committed, investors should have their own facilities built, but this legal framework should also be widened and applied differently for individual types. Property development may apply to higher education, rather than to other short-term training programs. For these short-term training types, MOET may set a minimum requirement for property lease agreements, e.g. 5-10 year spans, which should improve strict compliance, while meeting consumers' needs and helping to relieve the current transportation pressure.

9. Teaching Staff (Article 31) Ms. Nguyen Kim Dung, Apollo Education & Training Organization Decree 73 regulates that: - For tertiary education institutions, 60% of course modules must be delivered by

permanent teachers, and 80% of teaching staff must hold postgraduate degrees. - Article 10.2.b. mandates the minimum qualification of instructors at college level to be a

master degree.

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Recommendations: The Working group suggests that MOET considers adding more specific criteria applicable to instructors in special fields of training such as culinary art, performance art and fashion design, to reflect a fact that while these instructors may not be a Master’s degree holder, they do have rich professional knowledge and skills over many years of field practice.

Mr. Phillip Dowler, RMIT University Vietnam In some specific lines of training such as design or fashion, some instructors may not have the qualifications required but well more than five years of teaching experience, while others may have a Master’s degree but less than five years of work experience. We suggest MOET considers reducing the years of work experience for the instructors in the above mentioned special fields to less than five years.

Response by Mr. Mr. Nguyen Tien Dung, International Cooperation Department, MOET Public colleges have actually made similar comments and recommendations. The government released the new Decree 73 in 2015, providing norms for stratification; accrediting classification and standards for higher education institutions; procedures and steps for stratification and accreditation of higher education institutions. The practice college model should also be considered. 10. Recruitment of English teachers While this regulation is not really relevant to Decree 73, it is a real barrier at the moment. Foreign teachers having a work permit in Vietnam who want to switch between school sites within a same training center still have to apply for a different permit. Foreign teachers are also facing challenges from the criminal record requirement. The Working group hereby raises this issue and its recommendations for MOET to seek consultation and cooperation with the Ministry of Labor-Invalids-Social affairs to improve this rule and facilitate foreign teachers to work in Vietnam.

Summary of key recommendations

Ms. Nguyen Kim Dung, Apollo Education & Training Organization - The Working group proposes that MOET directly embed in the revised Decree 73 the

group's recommendations, or release a separate implementing document to this Decree to support foreign-owned educational institutions in a timely manner.

- Applications for establishment licenses should not require documentary evidence along the line of required portfolios at the time of releasing the establishment license, but instead only requires these at the time of granting the operations license.

- Operation extension: short-term foreign-owned educational institutions with a life-cycle of less than 20 years, or those applying for extension for less than 20 years will not need to build their own facilities. Specific rules are in place for different types of training (university, junior college, short-term programs).

- MOET has in place clearly spelled out implementing guidance to avoid different and abusive interpretation and application by execution agencies.

- The E&T Working group may send its experts to help MOET in the consultation and amendment of Decree 73.

Ms. Phan Thi Hoang Hoa, representing the Education & Training Working group, VBF / Apollo Education and Training Organization - A Q&A manual for Decree 73 would be welcomed to allow investors to raise questions

on implementing aspects and receive feedbacks from MOET.

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- In the upcoming annual Business forum on Dec. 1, the Working group will also have a short speaking slot to revisit the isues and recommendations made here today related to Decree 73.

Mr. Pham Chi Cuong, Deputy Director General, International Cooperation Department, MOET After today meeting, the Working group has had significant contributions for MOET to know of the challenges and barriers faced by businesses to consider and revise the Decree accordingly.

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Attachment 1. Participants No. Name Position Organization/Agency Representatives from the Ministry of Education and Training

1 Mr. Pham Chi Cuong Deputy Director International Cooperation Department, Ministry of Education and Training

2 Mr. Nguyen Tien Dung Official International Cooperation Department, Ministry of Education and Training

3 Mr. Dang Van Huan Official International Cooperation Department, Ministry of Education and Training

4 Mr. Nguyen Van Hai Vice Manager, Organization - Staffing Division

Organization and Human resources Department, Ministry of Education and Training

Representatives from the Education and Training Working Group, Vietnam Business Forum

1 Ms. Phan Thi Hoang Hoa

General Director Apollo Education & Training Organization

2 Ms. Nguyen Kim Dung

Head of Legal, Compliance and Government Relations

Apollo Education & Training Organization / British University

3 Mr. Phillip Dowler Head of Campus - Hanoi

Hanoi Branch, RMIT University Vietnam

4 Ms. Nguyen Thi Minh Chau

Assistant Hanoi Branch, RMIT University Vietnam

5 Mr. Phan Manh Hung Director of Legal Kinderworld Group

6 Ms. Nguyen Thi Thanh Senior Legal Officer Kinderworld Group

7 Ms. Ha Thi Hang Executive Director London College for Design and Fashion in Hanoi

8 Ms. Nguyen Vinh Thuy Head of Operations British University Vietnam

9 Ms. Dang Thi Van Anh Coordinator Vietnam Business Forum Secretariat

3.3. HUMAN RESOURCE

Report from Human Resource Sub-Working Group Vietnam Business Forum, 2015

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REPORT FROM HUMAN RESOURCE SUB WORKING GROUP

IMPROVING COMPETITIVENESS OF VIETNAMESE WORKFORCE Enhancing Enterprise Competitiveness for Global Integration

Prepared by

Mr. Colin Blackwell VBF Human Resource Sub-group

EXECUTIVE SUMMARY

- One clear way to enhance enterprise competitiveness is to bring overtime caps in line

with global standards. - Vietnam has one of the lowest overtime limits in the region and the world. - If the workforce, unions and employers are all willing to have more overtime, flexibility

from the authorities would be constructive. - We offer to support with advice on a flexible system modeled on Japan’s own successful

solution to this. - Addressing this issue would be a boost to attracting more export manufacturing

investment. - We thank the government for the positive progress made on work permits. - We look forward to the finalization of the work permit implementation provisions.

Report from Human Resource Sub-Working Group Vietnam Business Forum, 2015

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DETAILED REPORT

Firstly, we would again like to thank the Ministry of Labor, Invalids and Social Affairs for the excellent corporation with the HR sub working group and the business community. Especially appreciated was the good positive progress being made on foreigner work permits and providing us the opportunity to contribute to the process of revising the regulations. Thank you. 1. OVERTIME We all support economic growth in Vietnam and understand that business practices being competitive with other countries is important to achieving this - The better Vietnam compares to especially its regional peers, the more attractive Vietnam is to foreign investment. Whilst excellent progress has been made on many fronts, there is one measure where Vietnam is significantly less competitive than almost any other country in the world. This is Vietnam’s overtime cap, which is significantly below that of other ASEAN countries. By restricting business operations especially in export manufacturing, the current overtime cap also limits GDP growth. Labor productivity measures for Vietnam are well below the ASEAN average, but allowing more overtime flexibility would contribute towards improving this and enhancing enterprise competitiveness for global integration. Overtime flexibility is particularly important in the export manufacturing sector. If a factory in Vietnam is bidding for an international export contract, it has to be able to quickly increase production to meet an export order. If a similar factory in another ASEAN country is more flexible to increase production quickly by having their workers work overtime, they can put in a more competitive bid. This is why export manufacturing investors from Japan and Korea in particular are very concerned about this issue. The good Vietnamese workforce attracts manufacturing investors, but the overtime cap makes them in part reconsider. Vietnam’s existing annual overtime cap is 200 hours and 300 hours under special circumstances. The overtime cap is far below that of regional competitors.

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Thailand Korea Malaysia Singapore Indonesia Laos Vietnam

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We appreciate that the Ministry of Labor, Invalids and Social Affairs is concerned about increasing the overtime cap. We agree that this is a sensitive topic and that any changes should continue to protect Vietnamese workers. Any change has to be well regulated and be something that workers will also benefit from. We understand the Ministry’s concern and would like to provide ideas as to how increasing the overtime cap can actually be beneficial to workers as well as to Vietnam’s economy. The Ministry of Labor, Invalids and Social Affairs had previously said that that the overall health of the Vietnamese people is lower than in other countries and that increasing the overtime cap will negatively affect workers’ health and well-being. Reviewing the leading statistics on health, among which those of the World Health Organization, the World Bank and the United Nations Development Program, we have found that Vietnamese people actually tend to be very healthy. In terms of life expectancy, Vietnam ranks 60th out of 196 countries. With an average life expectancy of 76 years, Vietnam ranks higher than countries such as Thailand, the Philippines and Malaysia. Moreover, whereas globally the average healthy life expectancy is only 62 years, Vietnamese people are expected to live 66 years of their life in good health. With regard to nutrition, Vietnamese people are also relatively well-off. The prevalence of undernourishment is 8.3% in Vietnam, as opposed to 11.8% in the Asia and Pacific region and 12% globally. Similarly, the average Vietnamese person has a daily calorie intake of 2745, which is more than sufficient to lead a healthy life. Obesity rates are some of the lowest in the world. So, in reality, Vietnamese people are not any less healthy than people in other parts of the world. In fact, their health may actually be above average. So, we question the assertion that Vietnamese are less able to work longer hours to meet production needs, than other people in the world. With a literacy rate of 97% and a labor force participation rate of 80%, Vietnam’s labor force is one of its greatest competitive advantages with huge potential. One way of achieving this is by increasing the overtime cap to global norms. To assist in resolving this, we have a suggestion from the Japanese business groups in Vietnam. Their suggestion is an alternative to increasing the overtime cap for all industries. It follows the experience Japan has had in finding a good solution for themselves, which has worked extremely effectively for many years. This alternative, included in the Japanese labor code as Article 36, holds that people are allowed to work overtime when both the employer and the employee agree and the relevant government agency has been notified. Basically, if everyone is happy with working overtime – the employee, the employer and the union, then the government in Japan should facilitate them. To clarify more precisely the content of Japan’s Article 36 is: “an employer shall conclude a written agreement with the labor union … or with an employee representative …, where upon the submission of the concluded written agreement to the administrative authority, overtime work exceeding statutory work hours and/or work during statutory holidays, is made permissible.” The Japanese government has set a maximum number of hours permitted for overtime, “however, limited to exceptional circumstances under which work hours must exceed [this number], the parties under the labor-management relationship are permitted to provide in writing the fact that work hours exceeding the maximum hours for overtime shall be allowed”. In practice this allows for more overtime without the need to change the labor law.

Report from Human Resource Sub-Working Group Vietnam Business Forum, 2015

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Article 36 has proven very successful in Japan and demonstrates that having a higher overtime cap does not need to have a negative impact on workers. This law has been in place for over 50 years and has ensured proper working conditions for people this entire time, a period of immense economic growth in Japan. Considering that an increase in the overtime cap can lead to greater productivity, the introduction of a policy similar to that of the Japanese could thus significantly benefit the Vietnamese economy, while still protecting workers. The Japanese business groups are willing to assist the Vietnamese government with researching alternatives for new overtime regulations and can help the Ministry of Labor in designing inspection systems for companies to qualify for exemptions for additional overtime hours. Such a measure will increase worker productivity and, as a result, will enhance Vietnam’s competitiveness on both a regional and a global scale. Aside from drawing in foreign investment, increasing the overtime cap will also benefit workers. Many Vietnamese people are motivated to work extra hours if they are compensated for this work. It is our opinion that, if people want to work in order to earn extra income, they should be allowed to do so, as long as proper safeguards and regulation remain in place. There is no harm in having people work overtime if they are healthy and are willing to do so. Reducing the limits on overtime hours will thus be good for individuals as well as for the Vietnamese economy as a whole. 2. WORK PERMITS In the past two years VBF has raised several practical issues related to decree 102/2013/ND-CP on the work permit regulation. To reduce administrative burden and streamline procedures for qualified foreign nationals has been a necessity and we are grateful that the MOLISA has collaborated with VBF and the business community in the right direction. A consultative meeting between the MOLISA, MPI representatives and VBF HR sub working group has taken place on August 6th, 2015 in which a new version of draft decree amending decree 102 was introduced. This new draft decree is positive and addresses main concerns from the business community, but it has yet been approved. While MOLISA confirmed that the objective is an implementation of the new decree before the end of 2015, we would like to highlight the urgent need to revise current decree 102. Indeed, while we understand and share the view that the Vietnamese workforce shall remain a priority, the implementation of decree 102 has generally increased timeliness of work permit issuance for qualified foreign nationals. It’s also accompanied with inconsistent implementation and advices in provinces and unreasonable requirements such as a Vietnamese police clearance certificate to foreign nationals who visited Vietnam once on short Business trip visit before applying for work permit. This has in the past resulted in lack of understanding from everyone, cost increases and productivity issues for companies which are in need of qualified foreign nationals for their operations in Vietnam. We are happy that significant progress has been made on this and look forward to the final resolution of this topic.

Human Resources – Progress Report Vietnam Business Forum, 2015

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HUMAN RESOURCES – PROGRESS REPORT Prepared by

Human Resources Sub-Group Vietnam Business Forum

Scoring to be rated as followings: In progress report: 0 = issue remains; 1 = partially somewhat resolved; 2 = issue has been solved. Priority (1 -10: highest). Score = (Progress) x (Priority) Sqt Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score 1 Old Amended Labor Code: In

light of intensifying regional competition and in light of weak export markets, enterprises are concerned that the draft amendments to the Labor Code will increase employment costs and undermine competitiveness, resulting in job losses.

Measured increases in wages and other benefits, and also reform to the approval process for industrial action and strikes to help manage the on-going plague of illegal work stoppages that occasionally disrupt production. Overtime restrictions should be no more strict than ILO and regional standards, and maternity leave should be left unchanged. Work permits for foreigners should not be more difficult than in other countries in the region. New labor rules should rather help Vietnam climb the "value added" ladder, by means of allowing outsourcing arrangements, non-compete and other Knowledge Economy principles.

Some changes have been clarified, particularly with regard to maternity leave. However, there is still a lack of clarity in other areas, such as the new social security regulations.

Also, it is important that overtime caps are in line with regional standards, which is currently not the case.

x 7 7

2 Old Workforce education is insufficient for skilled labor positions.

More vocational training needed, including by foreign-invested educational institutions.

Encouraging progress has been seen in the context of specific public-private partnerships such as the MOET's work with Intel. On the other hand, investment and management of vocational training have been less satisfactory.

x 10 10

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Sqt Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score 3 Old Sub-leasing introduced by

the new Labor Code is only allowed in certain job sectors and mainly focused on full-time work. There are restrictions on the length of duration an employee can be used by the user enterprises, with outsourcing services being banned, sub-leasing does not cater for the majority of user enterprises’ needs for a flexible workforce.

Introduction of a full temporary services addressed in future Social and Medical insurance laws where there is a minimum threshold based on a minimum wage. Dialogue with CIETT globally and in Vietnam on best practices for the industry, including ratification of Convention No. 181 in Vietnam.

New rules are too narrow, should be expanded to support additional sectors/skills.

x 6 6

4 New Restrictions on overtime hours and increasing overtime pay means that employees have no means of earning additional income and has led to many strikes in manufacturing and production industries. Public holiday/holiday overtime payment is high and companies are not able to afford to operate during these periods.

Overtime limits should come up to regional competitive standards. A suggestion is to use something similar to the Japanese “Article 36” system.

Marginal progress under new Labor Code

x 10 10

5 New Work Permit exemption as per Vietnam's WTO commitment on services: Request for update on Circular providing guidance on the basis and

The provision of decree 102/2013/ND-CP dated September 5th 2013, article 7, point 2.a stating that foreign nationals who are assigned to Vietnam within the enterprises engaged within 11 service industries in the commitment on services between Vietnam

The circular #41/2014/TT-BCT was issued at the end of 2014 but several situations remain unclear where the Identification of the business code listed in company’s business license is not exactly the business code listed in

x 8 8

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Sqt Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score procedures to certify that a foreign employee is an Intra-company transferee operating within the 11 sectors listed in Viet Nam’s WTO service commitment

and WTO, including: business, communication, construction, distribution, education, environment, finance, health, tourism, entertainment, and transportation, has yet been enforced. Intra-company foreign national transferees who fall in this category have been required to obtain a work permit while they should be exempted by law.

the appendix of decree 41. (such as a sub codes). MOLISA should work efficiently with MOIT to provide prompt response to companies which are in such situation.

6 New Qualification document requirement for work permit applicant remains the most challenging requirement for work permit application in Vietnam.

The law should be more comprehensive with regards to the qualification documents for work permit application according the work performed in Vietnam. Provincial labor department should be more aware and understanding according to the nature of the work/assignment for the approval of qualification document required.

Resolution 47 was a good sign of improvement and welcomed by the foreign business community but is not sufficient to solve this issue.

The requirement from some provincial labor departments to provide a work experience letter from one and only one company to justify a 5 years’ experience is not justified. Some applicants have 2 experience letters from different employers justifying the 5 years’ experience. This shall be accepted.

x 9 9

7 New Lack of guidelines and discrepancies in the procedures and implementation of the labor code, decree 102 and circular #3 on work permits, between different provinces.

Request all provinces of Vietnam not to request foreign nationals who just visited Vietnam once to provide a Vietnam police record in addition to a foreign police record when filing work permit applications. Processing time to obtain People’s committee approval on the foreign labor demand should be no more than 15 days as stated in circular No. 03/2013/TT-BLĐTBXH, whereas the practice is about 60 days in

Positive development: As per the draft decree amending decree 102/2013/ND-CP that is expected to be implemented by the end of 2015, the local police clearance certificate should be removed.

Timeline to obtain the approval for foreign labor demand report remains an issue. The 15 day timeline is not

x 9 9

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Sqt Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score some provinces. This has significantly delayed the processing time to obtain a work permit and has had a negative impact on companies’ operations.

The request for short-term foreign assignees - whatever the duration of their mission - to apply for similar work permits as long term foreign assignees is not reasonable and workable. Lighter administrative requirements when a foreigner is only working for a short period of time such as a couple of weeks or even days is required.

respected by provincial labor departments.

The similar work permit requirements procedure for short-term and long-term assignees remains an issue. Lighter administrative requirements and shorter timelines are required when a foreigner is only working in Vietnam for a short period.

The proposal from MOLISA to give companies the choice to lodge work permit applications at the provincial DOLISA or at the MOLISA is a great initiative which would allow companies to appeal for consideration in specific cases that may be rejected at the provincial DOLISA.

Human Resources Sub-Working Group – Meeting with MOLISA Vietnam Business Forum, 2015

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CONSULTATION MEETING BETWEEN VBF HUMAN RESOURCE SUB WORKING GROUP & MINISTRY OF LABOUR – INVALIDS AND SOCIAL AFFAIRS; MINISTRY OF PLANNING &

INVESTMENT ON DRAFT DECREE AMENDING DECREE 102/2013/ND-CP MEETING NOTES

Time: 2:00PM, Thursday, August 6, 2015 Venue: Meeting Room 308, MPI Premises, 6B Hoang Dieu, Hanoi AGENDA

Introduction VBF comments and recommendations on the draft Responses and updates on new provisions from MoLISA’s drafting team Any other business

MEETING SUMMARY

1. VBF comments and recommendations on the draft amending Decree

No.102/2013/NDCP - HR WG understands and encourages the principle of drafting the new draft. - HR WG’s main concerns are content clarification, effective implementation for foreign

investors to comply with local laws, regulations and related processing times.

2. Responses and updates on new provisions from Ministry of labour - Invalids and social affairs (“MoLISA”)’s drafting team

- The previous Decree No.102 was established based on Article 242 of the Labor Code. - There are three key reasons for establishment of the new draft:

To address practical issues that have arisen from implementation of the previous decree.

To reduce administrative burdens and streamline procedures related to work permit applications and identify responsibilities of agencies/organizations to enable and facilitate foreign workers needed in Vietnam.

To ensure the Vietnamese workforce remains a priority over the foreign workforce, especially regarding skills available in Vietnam.

- The drafting team took into account comments/recommendations from appraisal workshop and HR WG before proposing to the government for adoption.

Responses and updates from the drafting team - On July 13, 2015 the MoLISA issued a new Circular No.24 guiding implementation of

Decree No.87 for work permits for Vietnamese workers working abroad and for foreign workers working in Vietnam. Advantageous provisions in the new draft decree for amendment of Decree No.102/2013/NDCP are as follows:

Work Permit Exemption

As per the draft decree, work permit exemptions will be granted for foreigners working in Vietnam for less than 30 days (per visit), for foreign interns and students working in Vietnam for less than 90 days.

No qualification documents are expected to be required for an individual eligible for such a work permit exemption.

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The foreign labor demand report for People’s Committee approval as well as confirmation of work permit exemption(s) by the Department of Labor, Invalids and Social Affairs shall not be required in the following cases: Foreigners coming to Vietnam for less than 3 months to address urgent

technical issues. Foreigners coming to Vietnam for less than 3 months for the marketing/sales of

products and services. Foreigners coming to Vietnam for less than 30 days. The MoLISA shall study and consider further cases under World Trade

Organization commitments currently not covered by Decree No.102. Practical issues incurred during the work visa procedure: When a foreigner does

not require a certificate for exemption, how does she/he request a work visa? Clear guidance for implementation is required to support foreign investors.

Work Permit exemption certificates (when applicable) should be valid for up to 2 years.

“Expert” definition In accordance with Resolution No.47, foreign experts and specialists are required to provide either a bachelor’s degree (or higher) or an engineering qualification (or equivalent). If the expert or specialist has neither a degree nor qualification, an evidence of work experience of minimum 3 years in the related field shall be accepted. In the education sector, internationally recognized qualifications will be recognized equivalently by Vietnam if there are agreements between Vietnam and these countries or official acceptance by the Ministry of Education and Training.

Health Check Certificate and Police Clearance Certificate requirements

Health Check Certificate validity for the work permit application should be 12 months, instead of 6 months. The employer shall also confirm in a letter that the employee is in good health to perform his/her work in Vietnam.

Applicants should have the choice to provide either a Foreign or Vietnamese police clearance certificate regardless of the duration and place he/she’s been living (including Vietnam).

Work Permit renewal simplified

The work permit renewal dossier should be accepted by a Department of Labor Invalids and Social Affairs (DoLISA) up to 45 days before the current work permit expiry date. This will provide more time for an applicant’s immigration document renewal process.

The procedure for work permit re-issuance in case of change of work location (different province), change of position or change of employer should be simplified.

Work Permit issuance place

The MoLISA has proposed companies are given the choice to lodge work permit application dossiers at either the provincial DoLISA or MoLISA in Hanoi regardless of where the assignee is working.

This measure would be a significant improvement, allowing companies to appeal to the MoLISA to reconsider an application in specific cases where is has been rejected by the DoLISA.

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Processing Time: Processing time to apply for work permit reduced to 7 working days. The MoLISA

has stated that its objective in the future is to reduce it further to 3 working days.

LIST OF PARTICIPANTS

No. Name Title Company GOVERNMENTAL AGENCIES

1 Mr. Nguyen Noi Deputy Director General

Foreign Investment Agency, MPI

2 Mr. Le Quang Trung Deputy Director General

Department of Employment, MoLISA

3 Ms. Phuong Officer Public procurement agency, MPI 4 Ms. Van Officer Department of Legislation, MPI VBF – HUMAN RESOURCES SUB-WORKING GROUP

5 Mr. Collin Blackwell Sub-Working Group Head

VBF HR Sub-Working Group

6 Mr. Laurent Quistrebert Representative VBF HR Sub-Working Group

7 Enterprises representatives

Canon Mitsui.

8 Phung Thi Thu Ha Coordinator VBF Secretariat

3.4. GOVERNANCE AND INTEGRITY

Governance & Integrity Working Group‟s - Position Paper Vietnam Business Forum, 2015

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GOVERNANCE AND INTEGRITY WORKING GROUP REPORT

Prepared by VBF Governance & Integrity WG

Vietnam Business Forum

This year of 2015, marks a turning point in Vietnam's economic integration goals - TPP, the EUVN FTA, an FTA with South Korean and the full ASEAN integration all concluded. To further prepare and to bring Vietnam standards up to global best practices, the Vietnam Business Forum (VBF) has increased its effort on transparency, governance and integrity. The VBF Governance and Integrity Working Group (G&I WG) is the re-named and expanded VBF Governance and Transparency Working Group. The re-naming reflects the intent to highlight organizational, structural and individual integrity in promoting a fair, level and sustainable business environment, and of Government to support and enable this through regulation and implementation. Activities of this G&I WG include the role of the private sector to support and take responsibility for contributing to both a fair and level playing field in Vietnam, as well as with both government and the business to reduce administrative inefficiencies and avenues for corruption, and improve integrity and good governance in business. The overall intention is to improve the competitiveness of both the private sector in Vietnam, and particularly of small and medium enterprise to be regionally and internationally competitive. British Prime Minister, David Cameron, at a seminar hosted by this VBF Working Group in HCMC, this fall, emphasised together with Deputy Prime Minister Nguyen Xuan Phuc that „at the heart of efficient and effective markets is trust‟, that is, trust in common and generally accepted standards of behavior and adequate penalties for rule breaking. These leaders also emphasised that the ultimate responsibility is for both government and regulators, but also for private enterprise leadership to promote such environments. Prime Minister Nguyen Tan Dung has also spoken very clearly about „the Rule of Law‟, as a basis for Vietnam resurgence. A key element of this organizational integrity is corporate governance. It is well known, from research and practice that “setting the tone from the top” is central to developing the kind of fair business environment necessary to repel and repair unethical and corrupt behavior and business practices. Look at how the case of FIFA has tarnished and affected the image of not only the leadership, but also the game, and the events, and the sponsorship. FIFA is also competing, much like a country does for investors and business, and has lost billions in sponsorship, simply due to a lack of integrity, starting at the top. WORKSHOPS In our last 9 months since establishing ourselves, the G&I WG has been extremely active. We have reorganized and expanded our base of committed companies from X to Y. We have also conducted a series of practical workshops in both HCMC and Hanoi. These have included: “Current Trends for Business in Compliance and Integrity” series, which served as a platform for leading practitioners from Australia, Singapore, Canada, and Vietnam to gather and share information on risk controls and compliance – with practical international case studies. There was wide Chamber support for this series from the Australian Chamber of Commerce Vietnam (AusCham), the British Business Group Vietnam (BBGV), the Canadian Chamber of Commerce Vietnam (CanCham), the European Chamber of

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Commerce in Vietnam (EuroCham) and the German Industry and Commerce Vietnam (GIC/AHK). The first workshops were co-hosted by EuroCham in Hanoi and Ho Chi Minh City on the 16th and 17th of June. The key message was that for both governments and companies, high standards of integrity provide a competitive advantage. There were approximately 100 participants, including business leaders, legal and compliance experts, as well as diplomatic mission representatives. International perspective on recent development trends were shared including, with notable recognition of a greater awareness among business leaders of the costs of corruption. Companies need effective compliance programs but they cannot solve all problems on their own. Governments need to implement an „enabling environment‟ in order to attract high-quality investors. The second set of workshops was co-hosted by CanCham and took place in Ho Chi Minh City and Hanoi on 25th and 26th of June. The key message was that business integrity is as much to do with how profits are made as it is to do with how profits are spent. Participants at the workshops concluded that concrete actions are required to improve matters of integrity and compliance including training and information sharing, as well as to build on existing legislation and government oversight. There was also broad agreement that foreign and domestic Chambers of Commerce should develop initiatives to effectively support the government‟s anti-corruption strategy and efforts. In this context, participants were broadly in favor of developing an informal „Business Code of Conduct‟ drawing on the willingness of large and experienced companies to share their experiences and best practices. Such a Code of Conduct would act as voluntary guidance only but would serve to bring together multiple private sector experiences into a valuable and Vietnam-specific working document. The third G&I WG seminar “Improving Business Competitiveness” was chaired by UK Prime Minister David Cameron and included presentations from Deputy Prime Minister Nguyen Xuan Phuc as well as VCCI. The Prime Minister of UK indicated that transparency and integrity are key for UK business investment and cooperation to greater ensure „safety‟ of their investments. Prime Minister Cameron requested that he be kept informed of developments and progress, with subsequent meetings already organized. Building on these strengths, the G&I WG plans to expand our work to include a greater number of business associations, businesses, and in collaboration with government policy intentions and agendas. Specifically, G&I WG workshops are planned with a focus now on practically strengthening the integrity of supply chains and distribution channels. These will involve real-world experience from companies in Vietnam who will share their best practices and experiences with risk assessment, management and monitoring. Here, the emphasis is on private enterprise to take responsibility for their own operational transparency and integrity, and to encourage other like minded private sector to participate. This is as a direct result of the persistent theme raised by companies during our prior events of the need to and benefit from successfully improving integrity standards of supply chains and distribution channels in enhancing an increasingly integrated and competitive trading environment in Vietnam. In other words, as Vietnam becomes more and more tied

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through trade agreements, Vietnamese companies, in particular, are now increasingly aware of the risks that third-party agents, suppliers and business partners can put them under with increasingly stringent and far-reaching national and international anti-corruption and compliance legislations; highlighted by a growing number of U.S. Foreign Corrupt Practices Act (FCPA) corruption cases that have touched on activities in Vietnam. Companies now clearly want to understand: - tools and practices international companies use to manage risk in Vietnam; - key risk points and mitigation strategies that can be adopted internally; and - particularly how can SMEs adopt such strategies and conduct due diligence with limited

resources; - the role of accounting standards - how are VN standards different from global

standards; - how to limit the use of cash and therefore decrease the areas of abuse within a

company. Our upcoming G&I WG workshops will seek to address these areas as well as offer practical tools, and methods that work in Vietnam so that local companies can reduce risk and improve integrity standards. NEW SYSTEMS Secondly, in a view to the Provincial Competitive Index, which reports that perceptions of corruption among foreign investors are getting worse despite efforts made by Vietnamese authorities to address the problem and investor concerns about the effect of corruption on their operations and relationships with government authorities, the G&I WG has discussed with VCCI, how the business community can join with the government to fight administrative inefficiencies and corruption. Key themes and targets include continuing to work to encourage ways to reduce the use of cash, paper, and face-to-face financial transactions for business-to-business and business-to-government payments. Paper, cash and face-to face transactions take time, open the door for illegal payments, and add administrative costs for business and government. NEW LAWS A third key theme that has emerged from the work done by the G&I WG to date has been with respect to supporting Government‟s legislation and agenda with regards to the criminalization of private bribery and whistle blowing. As Vietnam‟s law currently stands bribery is only criminalized where it involves State actors. Private sector bribery is not expressly criminalized or sanctioned. Vietnam‟s ASEAN and regional neighbors such as Singapore, South Korea, Malaysia, the Philippines, China and Hong Kong all criminalize private sector bribery. This is in part recognition of the fact that increasing privatization of governmental services, blurring of separation between private and public functions, and the growth of trans-national business transactions all increase the importance of clarifying laws in this regard to promote a clean and healthy market. The G&I WG proposes that the government establishes a working group, directly involving both foreign and domestic private sector companies, to examine and consider the issue of criminalizing private bribery. Such working group would support Government‟s rapid examination of the situation in other countries, particularly with a focus on ASEAN nations, and propose to the government recommendations for Vietnam so as to comply with ASEAN AEC requirements and 2016 integration.

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Fundamentally, the G&I WG considers that promoting good governance, transparency, integrity and accountability is at the heart of successful and sustainable anti-corruption efforts. We seek to support and assist both government and private sector to identify and pursue practical, results-driven strategies to achieve such ends. We consider our role to be cross-cutting with all other VBF Working Groups and intend to work further with each to devise and implement practical strategies. We see as key to our activities integrating within the government‟s actions, including close coordination with government initiatives such as Project 12, and similarly close coordination with private sector associations, such as the VCCI and YBA, and private sector companies, both domestic and foreign-invested. We recognize that, in addition to efforts by public and private sector groups, active participation of the broader community plays a very important role. The G&I WG wishes to contribute where possible to helping ensure that there is greater general knowledge and awareness of the issues and support for regions and provinces seeking to inform and involve the broader community, and to achieving concrete results. The success of Vietnam's new FTAs will depend on the success of Vietnamese businesses.

Section IV

INFRASTRUCTURE, AUTOMOTIVE AND MINING

4.1. INFRASTRUCTURE

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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INFRASTRUCTURE PRIVATISATION STATUS REPORT - DECEMBER 2015

Prepared by Infrastructure Working Group

Vietnam Business Forum

The Government has for years been encouraging a more efficient business sector. One aspect of this has been the effort to reduce the dominance of inefficient State-owned enterprises in the economy.

A lot of focus has been placed on “equitizing” SOEs. Yet often the equalization is economically unimportant because few shares of the former SOE are sold, and those that are sold are sometimes sold to passive investors, including banks, that will not have the interest to improve management efficiencies.

The VBF Infrastructure Group has been concerned about the progress of equalization in the infrastructure sector, both in terms of quantity and quality. As this is sometimes difficult to evaluate, this status report is a discussion document.

The status column of this report has been divided into several sections:

“Private sector –potential strategic investor” means that there are reports that the State or SOE are attempting to sell an interest to a strategic investor, but this has not yet occurred.

“Private sector – actual – substantial sale” means that there has been a sale of a substantial portion of a company but not to a strategic investor. Such sales are often of non-core subsidiaries.

“Private sector – actual – minor sale” means that there has been a sale of SOE shares but the State (or SOE) still owns more than 75% of the equity and so has complete control over all corporate activities. The VBF Infrastructure Group if of the view that this is a start but a clear road map should be in place for increasing private shares of those companies that are not on the Government’s list of strategically important companies.

“State to State transfers” means that the State or an SOE has transferred an equity interest but only into an entity that is directly or indirectly owned by the State.

“Not clear” means that the status of the equitization or sale is not publicly available to the best of our knowledge.

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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The VBF Infrastructure Group welcomes the Government’s input on the matters listed so that a more accurate report can be produced at future VBF meetings in order to chart the progress that has been made.

NO. SOE RESTRUCTURING DECISION

BUSINESSES SCHEDULED FOR EQUITISATION/SALE DEVELOPMENT CURRENT

STATUS

1. PetroVietnam (PVN)

Decision 46/QD-TTg of the Prime Minister dated 5 January 2013 approving the plan for restructuring PVN 2012-2015 Decision 1011/QĐ-TTg dated 3 July 2015 amending the plan for restructuring PVN 2012-2015

PVN will sell ownership stakes in the following: - Binh Son Oil Refinery (49 per cent

for sale or equitisation with PVN holding no more than 65 percent of stakes);

- End of July 2015 - PVN was negotiating with Gazprom Neft to sell 49% of Binh Son Oil Refinery. The parties reportedly could not reach agreement on the price. If PVN cannot reach an agreement with Gazprom Neft, PVN may equities Binh Son Oil Refinery.1

Private sector –potential strategic investor

- Ca Mau Fertiliser Plant (49 per cent for sale);

- December 2014 - initial public offering (“IPO”) of Ca Mau Fertiliser Company. Selling 128,951,300 shares to public. PVN holds 75.56% of shares in Ca Mau Fertiliser Company. In June 2015, PVN registered to sell 13 million shares in Ca Mau Fertiliser, representing about 2.4% of the share capital of the company but the offer was not successful.2

Private sector – actual – minor sale

- Dung Quat Shipyard (64 per cent for sale);

- Dung Quat Shipyard was originally a wholly-owned subsidiary of Vinashin. After Vinashin was restructured, Dung Quat Shipyard was transferred to PVN in July 2010. Due to losses, it is not qualified to be equitised.

State to State transfers

1http://www.thesaigontimes.vn/133598/Loc-hoa-dau-Binh-Son-chua-ban-duoc-co-phan-cho-Gazprom-Neft.html

2http://cafef.vn/doanh-nghiep/pvn-lo-ke-hoach-thoai-von-tai-dam-ca-mau-2015080514571491.chn

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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NO. SOE RESTRUCTURING DECISION

BUSINESSES SCHEDULED FOR EQUITISATION/SALE DEVELOPMENT CURRENT

STATUS

PVN plans to transform Dung Quat Shipyard into a joint stock company (JSC) and sell its stake to the State Capital Investment Corporation (SCIC) after 2015.3

- PVN Oil Corporation (25 per cent for sale) - after 2015;

- PVN plans to equitise PV Oil Corporation and PV Power Corporation after 2015.4 Previous effort to find a strategic investor for PV Gas did not succeed.

Not clear

- PVN Power Corporation (25 per cent for sale) - after 2015;

- PVN Transport (approx. 7 per cent for sale);

- PVN Energy Technology Corporation (5 per cent for sale);

- PVN Construction (approx. 20 per cent for sale);

- PVN Petrochemical and Textile Fiber (20 per cent for sale) – Vinatex also has to sell its 14 per cent stake in this company;

- PVN Insurance (4 per cent for sale).

PVN will sell its entire ownership in the following companies: - Lai Vu Industrial Park (100 per

cent for sale);

- June 2015 - PVN handed over the Lai Vu Industrial Park to Hai Duong People’s Committee.5

State to State transfers

- Ocean Bank (20 per cent for sale); - May 2015 - the SBV acquired State to State

3http://tinnhanhchungkhoan.vn/doanh-nghiep/pvn-chay-nuoc-rut-co-phan-hoa-106237.html

4http://kinhdoanhnet.vn/chung-khoan/trong-nuoc/pvn-da-thoai-von-hon-270-ty-dong-tai-3-doanh-nghiep-thanh-vien_t114c17n22957

5http://petrotimes.vn/chinh-thuc-ban-giao-kcn-lai-vu-ve-hai-duong-189481.html

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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NO. SOE RESTRUCTURING DECISION

BUSINESSES SCHEDULED FOR EQUITISATION/SALE DEVELOPMENT CURRENT

STATUS

100% of the shares of Ocean Bank for the price of VND0 due to Ocean Bank’s poor performance and losses.

transfers

- PVcomBank (78 per cent for sale); - July 2015 - State Bank of Vietnam (SBV) confirms that it has received information from PVN regarding the plan to hand over VND 4,680 billion of shares of PVN in PVcomBank to the SBV for its management. It is expected that the transfer will be completed by the end of 2015.

State to State transfers

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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NO. SOE RESTRUCTURING DECISION

BUSINESSES SCHEDULED FOR EQUITISATION/SALE DEVELOPMENT CURRENT

STATUS

2. Vietnam Coal and Mineral Corporation (Vinacomin)

Decision 314/QĐ-TTg of the Prime Minister dated 7 February 2013 on restructuring of Vietnam National Coal - Mineral Industries Holding Corporation Limited (Vinacomin)

Vinacomin will fully divest from 9 subsidiaries including: - SHB-Vinacomin Insurance Joint

Stock Company - VNA Insurance Company - Saigon – Hanoi Commercial Joint

Stock Bank - SHS Securities Company - Vinacomin Finance Company - Hai Ha Economic Zone

Development Company - BIDV – VN Partners Investment

Management Company - Vinacomin Infrastructure and

Housing Development Company - Vietnam Professional Football

Joint Stock Company

In June 2015, IPO of Vinacomin Shipbuilding Company was conducted offering for sale of 49% of charter capital of the company. All the offered shares were sold to one investor at a price that was as twice the starting price. August 2015, Vinacomin has fully divested from five companies including:6 - SHB-Vinacomin Insurance Joint

Stock Company - VNA Insurance Company - Saigon – Hanoi Commercial Joint

Stock Bank - SHS Securities Company - Vinacomin Finance Company

Private sector – actual – substantial sale

Equtisation of the following wholly state-owned companies: - Vinacomin - Viet Bac Mining

Industry Corporation (up to 25 per cent for sale);

30 December 2014 - the Prime Minister issued Decision 2388/QD-TTg approving the equitisation plan of VinacominMinerals Holding Corporation (Vimico). The IPO was conducted on 23 April 2015. Vinacomin sold 2.8% of its shares.7 - 26 January 2015 - the Prime

6http://cafef.vn/thi-truong-chung-khoan/vinacomin-da-thoai-von-khoi-shb-201408251908351538.chn

7http://bizlive.vn/doanh-nghiep/ipo-vimico-e-hon-97-co-phan-959108.html

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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STATUS

Minister issued Decision 132/QD-TTg approving the equitisation of Vinacomin - Viet Bac Mining Industry Corporation. At the IPO on 27 May 2015, only 28 investors participated and 1.6% of the shares of the company were sold.8

Private sector – actual – minor sale

Vinacomin Mining Corporation (35 - 49 per cent for sale);

Vinacomin Electricity Corporation (35 - 49 per cent for sale);

19 January 2015 - the Prime Minister issued Decision 85/QD-TTg approving the equitisation of Vinacomin Electricity Corporation. At the IPO on 27 May 2015, only 28 investors participated and about 5% of the shares of the company were sold.

Private sector – actual – minor sale

Vinacomin – Material, Transport, and Stevedoring Company (35 - 49 per cent for sale);

The IPO of Vinacomin – Material, Transport, and Stevedoring Company was conducted on 26 February 2015 offering to sell to the public 17.96% of the charter capital of the company.9 Only 11.9% of the offered shares were sold.10

Private sector –actual – minor sale

Thai Nguyen Non-ferrous Metals Company (35 - 49 per cent for sale);

The IPO of Thai Nguyen Non-ferrous Metals Company was conducted on 17

Private sector – actual –

8http://baodautu.vn/mo-viet-bac-chi-ban-duoc-16-co-phan-ipo-d27433.html

9http://www.bvsc.com.vn/Sites/QuoteVN/SiteRoot/Phuong%20an%20CPH%20.pdf

10https://vcsc.com.vn/Shared/Views/Web/MessagesDetail.aspx?menuid=4&id=164505&catid=1239&tab=&title=&lang=vi-vn

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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STATUS

April 2014 offering 23.3% of shares of the company.11The shares were sold to one institutional shareholder and one individual shareholder.12However, after the IPO, it was discovered that the company had issued a guarantee and the beneficiary had made a claim against the guarantor. As this was not disclosed in the IPO prospectus, the investors who bought the shares of Thai Nguyen Non-ferrous Metals Company in the IPO are requesting the competent authorities to repudiate the IPO results. The case has not been resolved to date.13

minor sale

Development of Mining Technology and Equipment Company (35 - 49 per cent for sale);

Lam Dong Aluminium Company (35 - 49 per cent for sale); and

Vinacomin Shipbuilding Company (up to 50 per cent for sale).

In June 2015, IPO of Vinacomin Shipbuilding Company was conducted offering for sale of 49% of charter capital of the company. All the offered shares were sold to one investor at a price that was as twice the starting price.

Private sector – actual – substantial sale

11

http://www.thesaigontimes.vn/128956/Cong-ty-khoang-san-lon-nhat-nuoc-ban-dau-gia-co-phan.html 12

http://ndh.vn/ipo-kim-loai-mau-thai-nguyen-2-ndt-mua-het-100-gia-thanh-cong-cao-hon-gia-khoi-diem-88--201404170137149p4c146.news 13

http://baodautu.vn/trach-nhiem-phia-sau-ban-cao-bach-cua-cong-ty-kim-loai-mau-thai-nguyen-d26035.html

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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NO. SOE RESTRUCTURING DECISION

BUSINESSES SCHEDULED FOR EQUITISATION/SALE DEVELOPMENT CURRENT

STATUS

In addition, Vinacomin will reduce its ownership stake to 50 - 65 per cent in other 11 companies in the industry and mechanics, tourism, investment, and transportation sectors, and to less than 50 per cent in 11 others.

3. Electricity of Vietnam (EVN)

Decision 1782 dated 23 November 2012 on restructuring EVN

EVN will sell its interests in An Binh Bank, An Binh Securities, Global Insurance JSC, Saigon Vina Real Estate JSC, EVN Land and Construction Electricity Company by the end of 2015. EVN must limit its ownership to 50 per cent in various engineering companies.

EVN has officially declared that it will sell all of its stakes in An Binh Bank (approximately 81.6 million shares).

By the end of August 2015, EVN has fully divested all of its stakes from three real estate companies (Vietnam Investment and Construction Electricity Company, Saigon Vina Real Estate JSC and EVN Land).

EVN has sold 1 million shares in Global Insurance JSC to ERGO International Group, decreasing its shares in Global Insurance JSC from 22.5% to 20%.

Private sector – actual – substantial sale

EVN must limit its ownership to less than 50 per cent of EVN Finance, Vinh Tan 3 JSC, and ThuanBinh Wind Power JSC.

EVN decreased its shares in EVN Finance from 40% to 16.5% by selling 58.75 million shares. EVN is negotiating with other investors to sell its 3.75 million shares in EVN Finance (accounting for 1.5% of the total shares of EVN Finance).

Private sector – actual – substantial sale

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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4. Power Generation Corporation 3 (Genco3)

Decision 9494/QD-BCT of the Ministry of Industry and Trade dated 22 October 2014 on equitisation of the Genco 3

The content of the Decision 9494/QD-BCT is not available.

Genco 3 is still in the process of preparing and finalising the detailed equitisation plan. The plan may be completed in 2015 to be submitted for approval by EVN and Ministry of Industry and Trade. The IPO is scheduled to happen in March 2016.14

Genco3 will be the first to equitise, followed by Genco 1 and Genco2.

Not clear

5. Vietnam Airlines (VNA)

Decision 172/QD-TTg of the Prime Minister dated 16 January 2013

Vietnam Airlines will be equitised in 2013 with the State retaining at least 50 per cent ownership;

- The Prime Minister issued Decision 1611/QD-TTg dated 10 September 2014 approving the equitisation plan of VNA. Accordingly, that State will retain 75% of VNA’s charter capital. 20% will be sold to strategic investor, 0.722% will be sold to the trade union and the employees and the remaining 3.48% will be offered to the public. In the IPO on 14 November 2014, 3.48% of VNA was sold, primarily to two local banks.15

- VNA has been searching for a strategic investor.

Private sector –actual – minor sale

Private sector –potential strategic investor

- Vietnam Air Petrol Company Not clear

14

http://tinnhanhchungkhoan.vn/doanh-nghiep/sap-trinh-phuong-an-co-phan-hoa-genco-3-130819.html 15

http://vietnamnet.vn/vn/xa-hoi/207240/ipo-thanh-cong--vietnam-airlines-thu-ve-hon-1-000-ty-dong.html

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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(Vinapco) and three ground services companies (Noibai, Da Nang and Tan Son Nhat International airport ground services companies) will be equitised with Vietnam Airlines retaining at least 50 per cent ownership;

- Vietnam Air Caterers will be equitised when the joint venturebetween Vietnam Airlines and Cathay Pacific Catering Services ends;

Not clear

Vietnam Airlines will sell interests in nine companies in the insurance, banking, securities, post, telecoms, aviation services and logistics sectors, including: - Vietnam Air Service JSC; - High Grade Plastic Joint Stock

Company (APLACO); - Aviation Logistics Service (ALS); - Aviation Hotel JSC (SHJSC); - Vietnam Airlines Investment JSC;

and - Techcombank; - Bao Minh Insurance; - Hoa Binh Securities.

To date, VNA has fully divested from the following companies:16 - Techcombank; - Bao Minh Insurance; - HoaBinh Securities; - Aviation Logistics Service; - Vietnam Air Service JSC; - VNA Insurance. - Vietnam Airlines Investment

Private sector – actual – substantial sale

16

http://cafef.vn/thi-truong-chung-khoan/vietnam-airlines-thoai-von-dat-hon-90-45-2015102111251666.chn;and https://www.bsc.com.vn/News/2015/7/20/465043.aspx

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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STATUS

6. Airport Corporations of Vietnam (ACV)

Decision 1710/QD-TTg of the Prime Minister dated 6 October 2015 approving the equitisation plan of ACV

Pursuant to the EP, the State will continue to own 75% of ACV. 20% of shares will be sold to strategic investors. 1.4% of shares will be sold to employees of ACV. 3.47% will be offered for sale to the public.

EP has just been issued. Not clear

7. Vietnam Railway Corporation (VNR)

Under Decision 198 of the Prime Minister dated 21 January 2013 on restructuring Vietnam Railway Corporation (VNR)

- VNR will hold 100% of the charter capital of 23companies operating in railway transportation sector; from 50 to 60 per cent capital in two companies; and up to 50 per cent of chartered capital in 22 subsidiaries in railway operation, construction, printing and other railway services;

- In 2015, VNR has just divested 43.87% of its shares in Civil Engineering Construction Corporation No. 6 (CIENCO 6). According to the plan, VNR has to complete divesting in 27 companies, however, as of now, only 6 of them have been completed.

- In the upcoming period, VNR will divest 100% of its stakes in 10 other subsidiaries, which are My Trang Stone JSC, Hanoi Construction Investment JSC, Hanoi Railway, Hanoi Railway Tourist Service JSC, Transportation Investment and Construction Consultant JSC,Vietnam Railway Signal Telecommunication JSC, Vinh Nguyen JSC, Da Nang Construction JSC, Road And Bridge Engineering & Mechanical Joint Stock Company, Civil Engineering Construction

Not clear

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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Corporation No. 2, and Railway Infrastructure Development JSC.

VNR will fully divest from the following six companies: - Vietnam Railway Transport Service

JSC; - Saigon Train JSC; - Zone 1 Railway Transport Service

JSC; - Chu Lai Stone JSC; - Southern Railway Construction

and Material JSC; and - Hai Van Nam Hotel JSC.

- In 2014, VNR has fully divested from 5 companies, including Chu Lai Stone JSC; Southern Railway Construction and Material JSC, SaiGon Train JSC, Da Nang Railway and Mechanics JSC and Transportation Construction and Investment JSC.

Private sector – actual – substantial sale

8. Vietnam National Shipping Lines (Vinalines)

Decision 276/QD-TTg of the Prime Minister dated 4 February 2013 on restructuring Vinalines

- Vinalines will be equitised in 2015; - Vinalines has submitted the equitisation plan of Vinalines to the Prime Minister. Vinalines is preparing for its IPO which is expected to take place in 2015.17

Private sector – actual – minor sale

- Vinalines has to withdraw from the Van Phong international port development project, leaving this opportunity open for other capable investors;

The following companies under Vinalines will be equitised and available for outside investors brought in: - Saigon Port (25 per cent for sale);

- On 30 June 2015, IPO of Saigon Port was conducted. All the offered shares of Saigon Port Company, representing 16.5% of the charter capital of the company, were sold.

Private sector – actual – minor sale

17

http://kinhdoanhnet.vn/chung-khoan/trong-nuoc/vinalines-se-thuc-hien-ipo-vao-quy-iii2015_t114c17n22656

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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BUSINESSES SCHEDULED FOR EQUITISATION/SALE DEVELOPMENT CURRENT

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- HaiPhong Port (25 per cent for sale);

- On 14 May 2014, IPO of HaiPhong Port Company was conducted, offering to sell 11.51% of the shares of the company. In the IPO 47% of the offered shares were sold to 78 investors with one being an institutional investor.18

- Three investors are interested in becoming the strategic investor of HaiPhong Port Company including State General Reserve Fund of Oman (or its subsidiary); VietinBank; and Vingroup.19

Private sector – potential strategic investor

- Da Nang Port (25 per cent for sale); - On 19 January 2015, the IPO of Da Nang Port was conducted and about 5% of the shares were sold. After the IPO Vinalines still owned 95% of the shares of Dai Nang Port Company.2010% will be offered to strategic investors.21

Private sector – actual – minor sale

- Can Tho and Cai Chui Ports (25 per cent for sale);

- The IPO of Can Tho port22was conducted on 31 December 2014

Private sector – actual –

18

http://www.bvsc.com.vn/Sites/QuoteVN/SiteRoot/10%20Phuong%20an%20CPH.pdf and http://cafef.vn/thi-truong-chung-khoan/ngay-145-ipo-cang-hai-phong-voi-gia-binh-quan-la-13507-dongco-phan-201405151536495903.chn 19

http://cafef.vn/vi-mo-dau-tu/he-lo-nha-dau-tu-chien-luoc-cua-cang-hai-phong-20150907093956469.chn 20http://cafef.vn/thi-truong-chung-khoan/vinalines-chao-ban-tiep-20-co-phan-cua-cang-da-nang-201412181521451708.chn 21

http://www.vinalines.com.vn/?mod=news&view_news_name=phe-duyet-phuong-an-co-phan-hoa-cang-da-nang 22

file:///C:/Users/ngnguyen/Downloads/20141204_20141203%20-%20PHUONG%20AN%20CPH%20CANG%20CAN%20THO%20FINAL%20FINAL.pdf

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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NO. SOE RESTRUCTURING DECISION

BUSINESSES SCHEDULED FOR EQUITISATION/SALE DEVELOPMENT CURRENT

STATUS

and 2% of the offered shares were sold.23

minor sale

- QuyNhon Port (25 per cent for sale);

- QuangNinh Port (25 per cent for sale);

- NhaTrang Port (25 per cent for sale);

- Cam Ranh Port (25 per cent for sale);

- NgheTinh Port (25 per cent for sale);

- KhuyenLuong Port (35 - 50 per cent for sale);

- Nam Can Port (35 - 50 per cent for sale);

- East Sea Transportation (35 - 50 per cent for sale);

- Vinalines Shipping Company (35 - 50 per cent for sale);

- Vinalines Container Shipping Company (35 - 50 per cent for

23

http://vietstock.vn/2014/12/ipo-cang-can-tho-chua-day-2-co-phan-chao-ban-co-nguoi-mua-746-398213.htm

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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sale);

- VinalinesHaiPhong Shipping Service Company (35 - 50 per cent for sale);

- VinalinesNhaTrang Shipping Company (35 - 50 per cent for sale).

By the end of 2015, Vinalines will have to sell its interests in numerous other businesses in various sectors.

9. Vietnam Military Telecommunications Group (Viettel)

Decision 753/QD-TTg of the Prime Minister dated 17 May 2013 on restructuring Viettel

Viettel will own more than 50 per cent of charter capital in seven joint stock companies, including Viettel Post, Viettel Global, Viettel Construction Engineering, Viettel Consultant and Design, Viettel – CHT, Viettel – HancicHousing Development, Viettel Peru; and less than 50 per cent in four others, namely Vinaconex, Military Bank, Vinaconex-Viettel Urban Development, Vinh Son Joint Stock Company.

Viettel will fully divest from five businesses: - ViettelTechnologies Corporation,

- Vinaconex Commercial

By September 2015, Viettel has fully divested from:24

- ViettelTechnologies Corporation; and

Private sector – actual – substantial sale

24

http://ictnews.vn/kinh-doanh/doanh-nghiep/cac-dai-gia-vien-thong-cap-tap-thoai-von-dau-tu-ngoai-nganh-130193.ict

Infrastructure Privatization Status Report Vietnam Business Forum, 2015

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STATUS

Development JSC,

- EVN International JSC,

- Coecoo Rubber Industry JSC, and

- Vinaconex –Viettel Finance JSC.

- Vinaconex Commercial Development JSC

10. Mobifone

Decision 888/QD-TTg of the Prime Minister dated 10 June 2014 on approving the re-structuring scheme of Vietnam Posts and Telecommunications Group (VNPT) for the period 2014-2015

- Mobifone will be handed over to Ministry of Information and Communication and will no longer be a subsidiary of VNPT.

- Ministry of Information and Communication will prepare and submit the plan for equitisation of Mobifone for submission to the Prime Minister in 2014.

To date, Ministry of Information and Communication does not appear to have finalized the plan for equitising Mobifone.25

State to State transfers

Not clear

25

http://vietnamnet.vn/vn/cong-nghe-thong-tin-vien-thong/250697/co-phan-hoa-mobifone---khong-ban-co-phan-lay-duoc--.html

Infrastructure Working Group – Progress Report Vietnam Business Forum, 2015

Important Note: This "Progress Matrix" was prepared based on the voluntary submissions of the various Working Groups and Sub-Working Groups of the Vietnam Business Forum from 2011 - 2014. In terms of both the feedback and the rankings/progress evaluations, it is not intended to be either complete or scientific. It does nevertheless reflect many issues of concern that have come up in the various Working Groups, and their constructive proposals for solutions. It is hoped that it will provide a useful reference to track and guide progress as the Government and the business community continue their collaboration to improve the business environment though the channel of the Vietnam Business Forum. Among other things, it should be noted that many issues already fully resolved have been dropped from this Progress Matrix to limit the size of the document, and almost all of the issues noted are those that still need more work.

Page 1 of 6

INFRASTRUCTURE WORKING GROUP - PROGRESS REPORT Prepared by

Infrastructure Working Group Scoring to be rated as followings: In progress report: 0 = issue remains; 1 = partially somewhat resolved; 2 = issue has been solved. Priority (1 -10: highest). Score = (Progress) x (Priority) No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score

1. Old Municipal governments have made impressive advances in road infrastructure, bridges and bypasses. But with increasing vehicle numbers and inadequate public transport, urban traffic is overly congested and dangerous.

A comprehensive planning program for developing integrated urban transport solutions should be accelerated.

Many plans are afoot, but coordination, transparency and accountability could be improved.

x 10 10

2. Old Purifying of water and handling of waste fall behind international standards, causing risks to health and safety.

x 8 0

3. Old Flood protection and water runoff management are sorely needed in urban areas.

Some municipal water control projects have been constructed and implemented and this has had an impact. Noting the high risk of climate related disasters in coastal and low-lying areas, continued efforts at mitigation and adaptation are needed.

Progress is notable in some areas, but the challenge is serious and needs more coordinated attention.

x 8 8

Infrastructure – Progress Report Vietnam Business Forum, 2015

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score 4. New Tendering process (i.e tender for

selection of investors and tender of construction work) is not transparent and competitive: rules are complex and inconsistent.

Implement administrative reform more strictly in this area. More to more transparent online bidding systems.

Decree 301 (effective as from 5 May 2015) and Decree 632 (effective as from15 August 2014) together with a number of implementing Circulars of Ministry of Planning and Investment have provided a more detailed guidance on tendering for selection of investors and tenders of construction works.

x 6 6

5. New Decision 71 3 and Decree 1084 are not harmonized

Harmonize the two sets of rules and eliminate the common features that discourage investment in infrastructure (e.g., allow international legal principles and dispute resolution to apply).

The government promulgated Decree 155 consolidating the PPP scheme under Decision 71 and the BOT regime under Decree 108 and replacing both Decrees. Decree 15 became effective on 10 April 2015, creating a unified legal framework for boosting private and foreign investment in infrastructure in Vietnam.

x 9 18

6. New PPP: (1) It is unclear whether Decree 108 or

Decision 71 would apply to a particular PPP transaction

(1) Decree 15 is the unified law regulating PPP transactions.

(2) Decree 15 has removed the 30% cap on state

x 8 8

1 Decree 30/2015/ND-CP of the Government dated 17 March 2015 implementing a number of provisions of the Law on Public Procurement relating to selection of

investors. 2 Decree 63/2014/ND-CP of the Government dated 26 June 2014 on selection of contractors. 3 Decision 71/2010/QD-TTg on 9 November 2010 of the Prime Minister on pilot investments in the form of public-private partnership. 4 Decree 108/2009/ND-CP on 27 November 2009 on investment following the form of Construction Contract - Business - Transfer, Construction Contract - Transfer - Business, Construction Contract - Transfer 5 Decree 15/2015/ND-CP of the government dated 14 February 2015 on public-private partnership investment form.

Infrastructure – Progress Report Vietnam Business Forum, 2015

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score (2) Decision 71 do not define the scope

of state contribution and fail to provide a transparent mechanism for determining the same. This leads to difficulties determining the scope of viability gap funding under Decision 71.

(3) Lack of a single PPP unit that is empowered to act on behalf of the government and address investor concerns

(4) Lack of principles guiding risk allocation among parties, leading to significant variations from one deal to another

contribution in a PPP project. Together with the new Law on Public Investment6, Decree 15 sets out a more transparent mechanism for determining the scope of state contribution.

(3) Decree 15 provides for a

clear institutional structure for the State’s management and implementation of PPP projects with the Ministry of Planning and Investment being the central coordinator of the PPP program.

(4) While the government has

taken efforts to provide certain guidance in Decree 15 on risk allocation , Decree 15 is not clear on a number of issues.

7. New Risky aspects in BOT regime:

(1) Foreign exchange guarantee is 100% under the implication and practice of Decree 108 (BOT) so far. 30% is stipulated by law. (2) Mortgage of land use rights and assets attached to land to foreign

(1) Strengthen government guarantee of foreign exchange. (2) Allow mortgage of land use rights. Issue regulations clarifying that domestic banks can hold mortgages of land use rights as security agents for foreign lenders.

No material improvement under Decree 15 regarding risk sharing mechanism in PPP projects.

x 8 0

6 Law on Public Investment No. 49/2014/QH13 of the National Assembly dated 18 June 2014.

Infrastructure – Progress Report Vietnam Business Forum, 2015

Page 4 of 6

No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score lenders is not permitted under Land Law. (3) Double licensing of BOT procedures.

(3) Amend Decree 108 to stipulate that after project documents are agreed by relevant ministries and initialed by the authorized state bodies, the IC will be promptly issued without going through a second round of review by the ministries. Assume the cost of land, prepare for land clearance and compensation in advance. Provide supporting infrastructure Reduce administrative complexity.

8. New PPP regime: (1) The PPP provisions in the Law on

Public Procurement are underdeveloped

1.1. Definitions of key terms are not clearly drafted making the law difficult to interpret

1.2. Unclear linkage between PPP provisions under Decree 108 and Decision 71

(2) A new draft Decree replacing

Decision 71 and Decree 108 is being developed. There are several issues relating to the regulations on PPP under the draft Decree:

2.1. The relationship and interaction between Decree 108/2009/ND-CP and draft Decree (transition clause) are unclear.

(2) The draft decree needs to be further revised so that it can address better the investor's concern and make a PPP project viable and bankable. (4) VGF on PPPs be backed by a state fund that ensures there is balance of budget to fund VGF commitment across projects. (5) Introduce PPP type feasibility study requirements.

(1) Decree 30 provides for transparent principles for tendering PPP projects. In principle, international competitive bidding is required for all PPP projects except for limited special cases where limited tender or direct appointment may be apply subject to approval of competent authorities.

(2) Decree 15 provides detailed and clear guidance on preparation for, selection and implementation of PPP projects.

2.1. Decree 15 clears the confusion between Decree 108 and Decision 71.

x 8 8

Infrastructure – Progress Report Vietnam Business Forum, 2015

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score 2.2. An additional evaluation procedure

will be required for the issuance of the IC

2.3. The Draft Decree stipulates many specific detailed contents of the Project Contract, which are expected to be discussed in the project Contract

2.4. The investors will be in charge of conducting land clearance, compensation and resettlement procedure. The investors will be exempt from land use fees/rental in accordance with the land law

2.5. Foreign law could be applied to (i) Project Contracts; and (ii) Contracts guaranteed by the competent authority, but only if the application of foreign law does not contradict the laws of Vietnam. This is not likely to be provable and hence the use of foreign law will not be possible

(3) A number of bankability and risk

sharing issues remain unresolved 3.1. The Government will not provide

guarantees on exchange rates for the conversion of local currency back into foreign currency. (3.2) No mechanism for viability gap funding

3.1. Mortgage of land use right to foreign lenders is still uncertain.

(4) No viable project pipeline

2.2. Decree 15 still requires an additional evaluation procedure for issuing IC.

2.3. Contract forms are defined with certain flexibility permitted subject to the nature of specific projects.

2.4. The provincial government will be in charge of land clearance and resettlement. The investors or project companies will be entitled to exemption or reduction of land rental or land use fees.

2.5. Application of foreign laws to project contracts are permitted but still subject to broad and ambiguous conditions.

(3) Decree 15 has not fully resolved the outstanding risk allocation and bankability issues of PPP projects.

3.2. There is no explicit guarantee on foreign currency convertibility.

3.3. Although Decree 15 appears to recognize availability payment, the mechanism for determining and making payment is unclear.

3.4. Mortgage of land use rights and assets attached to land to foreign lenders is still not recognized under the Law on Land.

Infrastructure – Progress Report Vietnam Business Forum, 2015

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score (4) Since the effectiveness of

Decision 71 in 2011 on pilot PPP program, no high-profile PPP projects have been successfully implemented under the PPP regime. To date, no official tangible list of PPP projects has been published by the government.

4.2. AUTOMOTIVE

Automotive Working Group Report Vietnam Business Forum, 2015

Page 1 of 6

AUTOMOTIVE WORKING GROUP REPORT Prepared by

Automotive Working Group Vietnam Business Forum

The Automotive Working Group – Vietnam Business Forum comprises interests of the following sub sections of the industry: - Four Wheelers (Passenger Cars and Commercial Vehicles)

CKD (Local Assembly/Manufacturers) CBU (Import)

- Two Wheelers (Scooters/Motorbikes) We would like to express our high appreciation for the Government’s Resolution No. 19/2015 to improve business environment and national competitiveness. We specially thank the Government’s specific instructions, MOF’s and MOIT‘s efforts in reviewing and proposing certain policies, especially remarkable changes in tax laws including special consumption tax (SCT) recently submitted by Government to National Assembly to encourage the automotive industry development in accordance with the approved Strategy for Vietnam automobile industry development to 2025 with a vision to 2035 and the approved Master Plan for Vietnam automobile industry development to 2020 with a vision to 2030. This reinforces the interest of the Government to development of the Vietnam automobile industry by enabling healthy competition and promoting a level playing field for all players. I. FOUR WHEELER INDUSTRY (CKD/CBU) Thanks to the Government„s efforts in addressing our raised issues and the remarkably increasing economy growth this year, automobiles including CKD and CBU have been recovered and surpassed the milestone of 2009 (160,000 units) in Sept. 2015. With the current trend of growing in the first 9 months of 2015, it is estimated that automotive market size may reach over 210,000 units (including CKD and CBU vehicles) in 2015. Even so, the growth in the overall automotive sector with more than 20 players and 40 brands in Vietnam has not been as per expectations of both- the investors and the Government in reference with the total available assembly capacity of ~500,000 units/year. The current total Industry structure of CKD and CBU vehicles with the CKD being approx. 74% of the industry, the overall capacity utilization is a mere ~30%. Lack of sub optimal capacity utilization to grow has hurt the investor confidence and also questioned the future returns for new investments. A key factor to attract investment in a country is to grow the overall size of the market and drive cost competitiveness of the CKD and Component industry.

In addition to adding automobile and its supporting industries in the incentive investment sector list and proposing some tax policy review recently, the Government of Vietnam should consider further steps to accelerate growth of the overall industry and to drive cost competitiveness of CKD to maintain a sustainable automotive industry in Vietnam. These factors will lead to suppliers and investors coming to Vietnam and support the growth and development of the industry. Based on the above and the working of the group and interactions with different bodies, and with estimation that the latest draft of law on revising laws on taxes will be adopted by

Automotive Working Group Report Vietnam Business Forum, 2015

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National Assembly at the 10th session of the National Assembly XIII by end of November 2015, we find there are still some pending issues that we raised since 2013. In this part, we would like to emphasize on the two main issues as below: 1. Cost gaps and weak cost competitiveness of local CKD operations The policy should aim at recognizing the investments of CKD players in Vietnam and ensuring safe guarding of interest of CKD during the transition to ASEAN AFTA regime from 2018 onwards. Due to disadvantages of small production and economic scales, it is estimated that automotive production costs in Vietnam are approx. 20% higher than those of automobiles imported from Thailand.

Recommendations: Some of the actions have been under process and others need to be considered to retain cost- competitiveness of CKD industry are:

- Eliminating import duty for automotive parts that Vietnam has not yet produced - Applying stricter control and enforcing transparency on import of CBU vehicles

Verify declared value of imported cars Tighten the control of “Used Car” import

- Providing adequate production linked incentives acceptable under WTO for CKD

2. High taxes and fees levied on automobile Vietnam is going to fully integrate in ASEAN by 2018 and other FTAs (EVFTA, TPP, …) will be signed and/or come effect in a couple of years, the future (survival and growth) of Vietnam automobile manufacturing industry largely depends on the Government‟s policies on taxes and fees in which the SCT is of importance. Recommendations: We highly appreciate the Government in revising the SCT calculation method in Gov‟t Decree 108/2015/ND-CP dated 28 Oct. 2015 and in proposing to amend SCT tax rates in recent draft of Law on revising, supplementing to tax laws. However, to let the industry of automobile manufactures in Vietnam live up to its full potential, automobile manufacturers in Vietnam would respectfully request the Government further consider the followings: - Have necessary incentive policies for the local production to compensate for higher

production costs, especially in the context of transition period when the market size is not big enough. We would like to propose production incentives that are in compliance with WTO norms i.e. amount equivalent to 10% of SCT taxable price for 10 years from 2018.

- Eliminate the SCT rate for (16-24)-seat-buses and retain the current SCT rate for pick-ups as they are commercial vehicles that are supporting a lot of Vietnamese people in travel or carry goods, especially in suburban areas and/or countryside

- Have clear and feasible definition for environment friendly vehicles and provide more incentives to encourage such vehicles. VBF proposes a joint workshop – industry and Government to align for definition for environment friendly vehicles if needed.

- Eliminate import duty for automotive parts that Vietnam has not yet produced and further review import duty for all other automotive parts and components.

- Further review other taxes and all the fees related to motor vehicles in accordance with the approved strategy for automobile industry development.

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II. TWO WHEELER INDUSTRY (Scooters and Motorcycles) 1. More incentives, encouragement for development of two-wheeler manufacture

industry: During many years developing and improving, the two-wheeler motorcycle industry has reached specific significant achievement and contributes to the development of Vietnamese production industry. This industry also creates a cluster of two-wheeler motorcycle manufacturers with the leading of 5 foreign directed investment companies such as Honda, Yamaha, Piaggio, Suzuki, SYM and theirs suppliers, who supply parts, components to motorcycles manufacturers. Such investments and commitments have brought great contribution to the local economy by generating jobs for the local population, transferring technology and know-how, and increasing revenues. In addition, currently, we have also strengthened the exportation of our motorcycles not only to the Asia Pacific but also to European area. The Vietnamese motorcycle market is considered as a promising industry for manufacturers with high growth rates both in terms of revenues and consumption in the future, particularly if supported by a clear and transparent development strategy from the Vietnamese Government. Furthermore, the motorcycle industry has also been conducting various social activities contributing to the development of society especially many activities to improve road traffic safety in Vietnam. Recommendation: It cannot deny significant contribution of motorcycles industry to the development of production industry of Vietnam; meanwhile we have not received equivalent and sufficient support and encouragement from the Government. Through this position paper, we wish to receive from Government more attention, incentives and reasonable policies, strategy to develop stably the motorcycles manufacture industry. 2. Remove motorcycle from 125cc in the list of goods imposed Special Consumption Tax

(SCT) As we have previously stressed in some meetings organized by VBF, we would like to keep proposing that motorcycles of which the cylinders are from over 125cc to under 175cc, should not be considered as luxury goods, which are subject to SCT, but as popular means of transportation as other motorcycles, to which the SCT is not applicable (same as applied for motorcycle driving licenses and in other countries like Thailand and Malaysia).

Our above proposal has based on following grounds: - In respect of technology sector, the structure and utilization of motorcycles of which the

cylinders are from over-125cc to under-175cc (particularly, we refer to 135cc and 175cc motorcycles which currently exist in market) are not much different from the same of 125cc motorcycles, except for its engine size. We can also see in the category of motorcycles for granting driving license in Vietnam, motorcycles from 50cc to under 175cc are in the same A1 category. A2 category is only applied to over-175cc motorcycles.

- In respect of economical-social sector, since the SCT has been applied, customers have become less willing to buy over-125cc motorcycles, and in practice, the sale volume of over-125cc motorcycles have dropped significantly, meanwhile they used to have a quite big market in Vietnam as they are ergonomically suitable for the traffic infrastructure and community of some countries in Asia. It has had a significant negative impact on local manufacturers which produce over-125cc motorcycles. We actually feel that the application of SCT puts pressure on local manufacturers. The SCT has also impacted on the industry‟s growth and development potentiality. As a result of that, we are less willing to invest in over -125cc motorcycles meanwhile these vehicles are considered as

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transportation means with advanced technology, comfortable, environmental friendly used, and potential exporting market in regional area. Given such modern technology and advantages of this product, the Government should not limit the consumption of this kind of motorcycles via imposing SCT, but should consider applying other alternative methods for providing orientation on the consumption/utilization/circulation of motorcycles, accordingly, only limit low quality motorcycles. Furthermore, the current economical-social conditions are much different from and developed in comparison with those in year 2008, when the SCT was first issued. Therefore, scooter over 125cc should not now be considered as luxury goods which are subject to SCT.

- In respect of policies sector, it can be seen that other tax and fee policies relating to motorcycle manufacture in Vietnam have the same treatment for motorcycles of which the cylinders are from over 125cc to under 175cc. Particularly, import tax has not distinguished when applying import tax rate for motorcycles from 50 to 200cc. Particularly, according to Chapter 87 in the Tariff, HS 871120, the motorbike is internationally categorized by engine capacity of >50cc; ≥ 200cc; ≥ 250cc and the import tax rate applied to all of them are the same. Currently, in a proposal of the Ministry of Transportation on the imposition of transporting/circulating fees against cars and motorcycles during rush hours within five big cities, motorcycles with cylinders over 175cc, (rather than over 125), is subject to VND 1 million per year of transporting/circulating fees during rush hours.

- In respect of contribution to the State budget, the application of SCT to 130cc and 150cc motorcycles have not contributed much more to the State budget, on the other hand, it has caused the less contribution of Value Added Tax (VAT) due to the decreasing in the sale volume of those vehicles (since customer has to pay more tax when purchasing them). In addition, the application of SCT to those vehicles make our customers lose their opportunities to own the advanced technology over-125cc motorcycles and make us lose our encouragement to invest in this business segment.

Recommendations: Given the above developments, we, again, strongly recommend the National Assembly/Ministry of Finance to reconsider the issue, in the process of its amendment/issuance of a revised or new Law on Special Consumption Tax, so that SCT should not be applied to motorcycles of 150cc or more. As a result of that, no SCT tax should be applied to motorcycles; or at least, it could be envisaged to reduce the SCT tax rate for scooters over 125cc for several years, then finally remove over 125cc motorcycles from the list of goods subject to SCT. 3. Challenge regarding the deductibility of the input VAT of invoices As manufacturing enterprises, during production process, we signed mold purchasing contracts with suppliers to produce components for manufacturing activities. Our mold orders are different from the normal one-off purchase of goods because it often took a long time from the stage of designing molds to other stages of manufacturing sample spare-parts from the mold, supervising and testing the mold before putting into the mass production of parts. Under our agreed agreement with suppliers, the suppliers would issue invoices and we would make payments corresponding to progress of the work done. In addition, in order to reduce administrative works, some companies in the group invested in soft wares (SRM software) that can be able to place the order, check progress and confirm the completion of final product, delivery and inspect the molds. We and our suppliers would monitor and confirm the production stage by this software. Our authorized persons would control, supervise and sign to confirm the completion of each process. The software was developed to ensure the authorization of monitoring the mold manufacturing

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process between two parties is properly set up. However, to protect the environment, we and suppliers did not print and sign on the hardcopy minutes. All the acceptance documents have been fully recorded on the software system and the company might be able to present to authorities at any time of your request. The handover process via this system that we have invested hundreds thousand USD is totally accurate and reliable. However, these systematical management procedures caused challenge to us regarding the deductibility of the input VAT of invoices in relation to the molds purchasing from suppliers at the time that handover minutes were not available Recommendation We understand that these procedures are in compliance with law and regulations [particular Circular 06/2012/TT-BTC (“Circular 06”) and Circular 219/2013/TT-BTC (“Circular 219”)] providing conditions for VAT input to be creditable; therefore, our VAT input of mold invoices met the condition to be creditable. Ministry of Finance should take it into consideration and issue a specific instruction for this case so that related companies in our group can resolve this issue soon.

III. COMMON ISSUES ACROSS TWO WHEELER / FOUR WHEELER VEHICLES 1. End of life treatment for products We highly appreciate for the Gov‟t efforts in considering our issues raised in the annual VBF 2014. Gov‟t Decree 38/2015/ND-CP dated 24 April 2015, PM Decision No. 16/2015/QD-TTg dated on 22 May 2015 were issued to replace PM‟s decision 50/2013/QD-TTg related to ELV treatment. Thereby, automobile makers, importers are responsible to arrange ELV collection points, transport them to relevant waste treatment establishments from 1 Jan. 2018. For others related: battery and oils, air-con., tires: will be applied from July 2016. In order to implement the above Decision 16, group of two-wheeler manufacturers has conducted trial activities to collect oil in Hanoi area. Besides positive results, we have also realized some difficulties that we would like to propose to Government for consideration and support. Almost our authorized ELV collection points have not set up and registered with competent authorities their Commitment to Protect Environment as required by the Law on Environment Protection due to their lack of acknowledge about law and regulations of Environment Protection over the past. Currently, they are willing to correct their mistake but still afraid of administrative punishment from Government for their mistake/violation in the past. Recommendations To effectively implement the above Decision 16 and encourage those collection pilots attending in our trial project for ELV collection, we recommend the Government to delay the application of administrative punishment to them who are now setting up their Commitment to Environment Protection to join in our ELV collection trial project. Further, the relevant competent authority should closely work with automotive manufacturers to set up/adjust standards/criteria applicable to warehouse storing discard/ELV products for consistent with our current conditions and situation. Moreover, as many of issues are not clear or transparent guidelines in the PM Decision, we need to have feasible and proper circular to guide certain details for the ELV treatment implementation at least 6 months prior to the effective date for enterprises to prepare for its compliance.

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2. Improved road safety needs Although 4 wheelers are safer than 2-wheelers, the era of motorization will also bring its own potential challenges – a key challenge being “safety requirements” (e.g. driving skills and traffic rule compliance, vehicle safety features, upgraded infrastructure, etc.) Therefore, the Government should approach safety from the aspects of: - People (compliance attitudes and skills of drivers, passengers and other traffic

attendants), - Vehicles (step-by-step enhancing vehicle safety features in line with regional level) - Further improve traffic infrastructure status (including road, parking and traffic control

system, etc.). Since the issues in the above area need longer gestation time frames, we recommend that the Government should start to develop a joint forum for a comprehensive dialogue inviting representatives from different ministries – MOST/MOF/MOT (VR) etc. to discuss and develop a policy framework with key parameters and milestones for the automotive industry of Vietnam. 3. Government policy Information sharing on time We highly appreciate MOF and MOIT in sharing information and considering enterprises‟, associations‟ comments prior to FTAs negotiations. However, it seems often late to have detail information shared by relevant authorities after FTAs negotiation concluded (like EVFTA, TPP, etc.) that may make enterprises take much time to look for the required information and rather short time to prepare proactive actions plan accordingly.

IV. OVERALL CONCLUSION Joint working and cooperation with industry bodies like VBF to address the situation in the automotive sector will help in having inclusive growth policies that will develop the overall industry and serve to increase tax revenue for the Government. The players in the automotive industry are committed to develop the industry in Vietnam and we request the Government to kindly consider the above mentioned key factors for both -Two wheeler and Four wheeler vehicles (CBU-CKD).

Automotive - Progress Report Vietnam Business Forum, 2015

Important Note: This "Progress Matrix" was prepared based on the voluntary submissions of the various Working Groups and Sub-Working Groups of the Vietnam Business Forum from 2011 - 2014. In terms of both the feedback and the rankings/progress evaluations, it is not intended to be either complete or scientific. It does nevertheless reflect many issues of concern that have come up in the various Working Groups, and their constructive proposals for solutions. It is hoped that it will provide a useful reference to track and guide progress as the Government and the business community continue their collaboration to improve the business environment though the channel of the Vietnam Business Forum. Among other things, it should be noted that many issues already fully resolved have been dropped from this Progress Matrix to limit the size of the document, and almost all of the issues noted are those that still need more work.

Page 1 of 9

AUTOMOTIVE PROGRESS REPORT Prepared by

Automotive Working Group Scoring to be rated as followings: In progress report: 0 = issue remains; 1 = partially somewhat resolved; 2 = issue has been solved. Priority (1 -10: highest). Score = (Progress) x (Priority)

No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score 1. Old Cost gaps and weak cost

competitiveness of local CKD operations .

Some of the actions that may be considered to retain cost- competitiveness of CKD industry are: - Provide adequate production linked

incentives for CKD - Review the methodology of taxation

across the industry – for example SCT.

- Impose stricter control and enforce transparency on import of vehicles Verify declared value of

imported cars Tighten the control of “Used

Car” import

- Gov’t has just reviewed SCT calculation method rather fair for both imported CBU and CKD vehicles

- Improved in stricter control and enforce transparency on import of vehicles but still need further manage: Verify declared value of

imported cars Tighten the control of

“Used Car” import - Not yet find feasible

approaches to provide adequate production linked incentives for CKD

x 1 4

2 Old Need for transparency and speed on duty road map within ASEAN &

Since the year 2018 is very significant for integration with ASEAN for Vietnam and is only 3 years away, we sincerely

- CEPT roadmap for 2015 - 2018 was issued

- Often late to share the ongoing

x 2 7

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score Other FTAs .

request the Government to finalize this import duty road map. It will also be helpful to share the ongoing discussions with regards to different Free Trade Agreements (bilateral or otherwise) and possible impact to the auto sector.

discussions with regards to different Free Trade Agreements (bilateral or otherwise) and possible impact to the auto sector.

3 Old Continued high taxes/Special Consumption Tax (“SCT”)_

To let the industry of automobile manufactures in Vietnam live up to its full potential, automobile manufacturers in Vietnam would respectfully request the Government consider revising SCT tax rate applied to the industry as followings: a. Apply the ex-factory price for CKD-

produced automobile SCT calculation as it does in Thailand, Indonesia.

b. Have necessary incentive policies for the local production to compensate for higher production costs, especially in the context of transition period when the market size is not big enough. We would like to propose production incentives that are compliant with WTO norms i.e. amount equivalent to 10% of SCT taxable price.

c. The reduction in SCT will help expand market and support the manufacturers to improve the

- Refused to apply the ex-factory price for CKD-produced automobile SCT calculation as it does in Thailand, Indonesia.

- No incentive policies for the local production.

- The reduction in SCT for cars of ≤2.0L

- Reduction of SCT for the low fuel consumption and environmental- friend vehicles in accordance with the approved Master Plan for Automobile Industry development toward 2020, vision to 2030.

- Not yet issued clear definition for environment friendly vehicles.

- Have reduced somewhat in the SCT rate for (16-24)-seat-buses but increase SCT for pick-ups

x 3 7

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score economics of scale for small passenger cars. A potential roadmap if shared will help the industry and customers to plan.

d. Reduction of SCT for the low fuel consumption and environmental- friend vehicles in accordance with the approved Master Plan for Automobile Industry development toward 2020, vision to 2030. VBF proposes a joint workshop – industry and Government to align for definition for environment friendly vehicles.

e. Eliminate the SCT rate for (16-24)-seat-buses and pick-ups as they are commercial vehicles that are supporting a lot of Vietnam people in travel or carry goods, especially in suburban and/or countryside

4 old Number plate fee Of 2-whellers.

This issue has been raised since 2013; however, it has not yet been solved. Therefore, we would like to reiterate this issue with a recommendation that the highest fees should not be imposed on motorcycles with a value of VND40 million. In addition, we strongly recommend the Government to work on more sustainable solutions such as development of public transportation means, road infrastructure in big cities, as well as education on good traffic practices for traffic users that will

Remain unchanged x 4 0

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score effectively resolve the traffic jam problems in the long-term.

5 Old Remove motorcycle from 125cc in the list to apply SCT

In accordance with the Draft Law, SCT is still applied to motorcycles with capacities over 125cc with the rate at 20%. In fact, this provision is no longer practical, therefore, we strongly recommend the National Assembly and the Government, during its legislation making to amend the Law amending and revising a number of Articles of the Law on Special Consumption Tax, to consider NOT applying SCT to motorcycles with capacities under 150cc or at least having a roadmap reducing the SCT tax rate for scooters over 125cc.

Remain unchanged x 5 0

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score 6 Old Limitation on the

number of two wheel vehicles up to 2020

We would like competent authorities to consider the following factors when working on their goal/schedule, such as the referencing and harmonization of some factors such as: Big immigration numbers in big

cities; People travel demand; A mechanism to manage the exact

number of motorcycles circulating on the road;

The effects to the local economy

These elements could be taken into account in order to build effective objectives and implement the relevant roadmaps on “Decision No. 356”and on the “Development Scheme of suitable transportation means in big cities in Vietnam”, in order to minimize the negative impacts of such limitation on society and the motorcycle industry.

No official clarification on this issue.

x 6 0

7 Old Corporate Income Tax (CIT) incentives for supporting industries

The decree should also be applied to projects meeting conditions to enjoy incentives but operated before the effective date of the decree (provided that those projects are still running in the period for enjoying tax incentives).

none x 7 0

8 Old CIT incentives for expansion projects prior to before 1 Jan 2014

We respectfully request the Government and the MOF to allow the tax incentive entitlement for investment expansion which has been implemented during the period from 1

None x 8 0

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score January 2009 to 31 December 2013, if all criteria for tax incentive are met, to investments implemented in other periods.

9 Old Importation of Remanufactured Parts

We, once again, recommend the Government of Vietnam to allow the import of re-manufactured parts subject to clear definitions. Genuine re-manufactured parts meet the same quality standards as brand new parts. They are produced according to strict quality requirements and undergo final quality examination with exactly the same standards as brand new parts. Furthermore, genuine re-manufactured parts are supplied by car makers with the same warranty as for new parts, and are more cost effective for customers and they align with environmental protection trends.

It is still pending x 9 0

10 Old End of life treatment for products

Based on discussions between VAMA and Vietnam Environment Administration (VEA), MONRE would draft some legal documents including update of relevant decrees and issuance of circulars instead of only one circular for detailing and guiding the implementation of Decision No. 50/2013/QD‐TTg

We highly appreciate for the Gov’t efforts in considering our issues raised in the annual VBF 2014. Gov’t Decree 38/2015/ND-CP dated 24 April 2015, PM Decision No. 16/2015/QD-TTg dated on 22 May 2015 were issued to replace PM’s decision 50/2013/QD-TTg related to ELV treatment. Thereby, automobile makers, importers are responsible to arrange ELV collection points, transport them to

x 10 6

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score relevant waste treatment establishments from 1 Jan. 2018. For others related: battery and oils, air-con., tires: will be applied from July 2016.

11 Old Law making process

We recommend improved time planning between date of decision making, announcement and effective date. We also urge the Government to discuss proposals and changes with industry bodies to assess the implication of changes prior to announcing the proposals in the media and also look at ways to reduce time gap between announcement and implementation especially when reducing duties.

it seems often late to have detailed information shared by relevant authorities after FTAs negotiation concluded (like EVFTA, TPP, etc.) that may make enterprises take much time to look for the required information and rather short time to prepare proactive actions plan accordingly.

x 10 7

12 Old Greater incentive for Eco-Green Vehicles

With the current motorization, the Government should also start to consider factors that can impact automotive solutions for Vietnam in the medium to long term. Some of these are: a) Environment Friendly solution:

Currently the availability of eco/ environment friendly cars is limited primarily due to costs and infrastructure. The Government should consider promoting increased availability

Gov’t have proposed somewhat SCT reduction for such vehicles

x 10 5

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score eco/environment friendly technologies in the auto sector. The Government should consider abolishing duties and taxes for eco/environment friendly cars with a defined road map. The current duty advantage is not adequate to promote these vehicles.

b) Fuel Efficiency/Emission

Guidelines The Government should consider investment to enhance infrastructure as road conditions and traffic management play a key role in improving fuel efficiency. Additionally the Government should commence work on guidelines for establishing benchmarks for fuel efficiencies – for example: CAFE (Corporate Average Fuel Efficiency) norms in developed countries.

13 Old Improved road safety needs

Since the issues in the above area need longer gestation time frames, we recommend that the Government should start to develop a joint forum inviting a comprehensive dialogue from different ministries – MOST/MOF/MOT (VR) etc. to discuss and develop a policy framework with key parameters and milestones for the automotive industry of Vietnam

Government have approached safety from the aspects of: - People (compliance attitudes

and skills of drivers, passengers and other traffic attendants),

- Vehicles (step-by-step enhancing vehicle safety features in line with regional level)

- improved traffic infrastructure

x 10 7

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score status (including road, parking and traffic control system, etc.).

4.3. MINING

Mining Working Group - Executive Summary Vietnam Business Forum, 2015

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EXECUTIVE SUMMARY

THE IMPORTANCE OF INTERNATIONAL INVESTMENT AND HIGH TECHNOLOGY IN EXPLORATION, MINING AND PROCESSING OF VIETNAM’S MINERALS FOR NATIONAL INDUSTRIALIZATION, MODERNIZATION AND INFRASTRUCTURE

DEVELOPMENT AS PART OF VIETNAM’S GLOBAL INTEGRATION

The Prime Minister’s Directive No.2/CT-TTg of January 2012 recognized that Vietnam’s mineral wealth is an important element for national industrialization and modernization and that the country’s minerals need “to be mined and processed by advanced and environmentally friendly technology”.

The commitment to back investment in mining by modern, high technology can be a key contributor to Vietnam’s economic growth and infrastructure development. Unfortunately, major foreign and strong local investment is unlikely to be forthcoming while Vietnam maintains one of the most investor - unfriendly mining legislations in the world, including the highest royalty rates and other taxes and fees which make even advanced and high technology mining not economically viable in the country.

A new proposal has been made since the last Forum in June 2015 which appears to make the situation worse. The MOF has requested opinions on a Draft Resolution to the National Assembly Standing Committee proposing to replace Resolution No.712/2013/UBTV-QH13 by substantially increasing royalty tariffs once again by the order of 2-7%. If this proposal goes ahead, it will potentially, and in most cases almost certainly, effectively make any modern mining operations in Vietnam unprofitable, lead to mine closures; result in the termination of a valuable source of tax revenue for the Government; and condemn Vietnam to ongoing environmental damage and safety issues associated with the outdated mining methods and practices currently used by most Vietnamese companies.

At its meeting in Beijing in June 2014 of APEC Ministers Responsible for Mining (MRM), Vietnam was represented by MOIT as the designated mining ministry. The Ministers’ joint statement recognized “the significance of sustainable development in mining, and believe this could be achieved through regional integration, fostering sustainable investment, increasing social responsibility, and innovation and environmental advances in mining and metallurgy” and the Ministers encouraged APEC economies to “improve their mining investment environments, administration and services” and stressed “the importance of promoting open, transparent and well-operating markets in the mining sector, as well as investment and financing cooperation for win-win development”.

It is to be hoped that Vietnam will be keen to improve its mining status by following the objectives of the APEC Ministers’ joint statement, to which Vietnam was a signatory, before it chairs APEC in 2017. It is further hoped that the main ministries concerned, namely MONRE, MOIT and MOF, with the help of MPI if needed, can cooperate to recommend to the Prime Minister the necessary

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steps which will lead to mining legislation and regulations that will provide the incentives to: Encourage exploration to increase Vietnam's mineral inventory by new, deeper

discoveries using modern technological methods; Allow sustainable mining and processing of the country's mineral wealth by advanced

high technology practices in an environmentally responsible, efficient and safe way; Increase revenue to government and communities; Accelerate development of infrastructure and service industries in the more remote and

often mountainous parts of Vietnam with poor socio-economic conditions, where mineral deposits tend to be found;

Enable the mining sector in Vietnam, which is currently almost isolated, to benefit from global integration within APEC, the TPP and other free trade agreements;

Mining Working Group - Position Paper Vietnam Business Forum, 2015

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THE IMPORTANCE OF INTERNATIONAL INVESTMENT AND HIGH TECHNOLOGY IN EXPLORATION, MINING AND PROCESSING OF VIETNAM’S MINERALS FOR NATIONAL INDUSTRIALIZATION, MODERNIZATION AND INFRASTRUCTURE

DEVELOPMENT AS PART OF VIETNAM’S GLOBAL INTEGRATION Prepared by

Mr. Bill Howell VBF Mining Working Group

INTRODUCTION The Prime Minister’s Directive No.2/CT-TTg of January 2012 recognized that Vietnam’s mineral wealth is an important element for national industrialization and modernization and that the country’s minerals need “to be mined and processed by advanced and environmentally friendly technology”. The commitment to back investment in mining by modern, high technology which can be a key contributor to Vietnam’s economic growth and infrastructure development is welcomed by the Mining Working Group. Unfortunately, major foreign and strong local investment is unlikely to be forthcoming while Vietnam maintains one of the most investor-unfriendly mining legislations in the world, including the highest royalty rates and other taxes and fees which make even advanced and high technology mining not economically viable in the country. EMERGING ISSUE - PROPOSAL TO INCREASE MINERAL ROYALTY TARIFFS EVEN HIGHER Resolution No.712/2013/UBTV-QH13 dated 16 December 2013 of the Standing Committee of the National Assembly promulgating the royalty tariff on minerals raised the royalty rates of a number of minerals by 1-5%. The new royalty rates applied to minerals such as wolfram (tungsten) 18%, antimony 18%, titanium 16%, copper 13%, iron 12%, manganese 11%, and nickel, cobalt, molybdenum, mercury, magnesium, vanadium and other metallic minerals at 10%. Minerals for which the royalty rates were not increased, but were already in the range of 10-15% were platinum, gold, silver, alumina and bauxite, tin, lead and zinc. These are the highest royalty rates in the world and are the single greatest disincentive for potential major investors wishing to come to Vietnam with advanced, high technology exploration and mining methods. For example, the royalty rate on gold averages 1-5% world-wide on the sales value of the metal produced compared with 15% applied in Vietnam. Unfortunately, a new proposal has been made since the last Forum in June 2015 which appears to make the situation worse. The MOF has requested opinions on a Draft Resolution to the National Assembly Standing Committee proposing to replace Resolution No.712/2013/UBTV-QH13 by substantially increasing royalty tariffs once again by the order of 2-7%. If this proposal goes ahead, it will potentially, and in most cases almost certainly, effectively make any modern mining operations in Vietnam unprofitable, lead to mine closures; result in the termination of a valuable source of tax revenue for the Government; and condemn Vietnam to ongoing environmental damage and safety issues associated with the outdated mining methods and practices currently used by most Vietnamese companies.

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COMPARISON WITH SIMILAR MINERAL-RICH COUNTRIES It is to be hoped that when considering the proposal to increase mineral royalty tariffs again, the Government will take into account the mining legislation and regulatory environment of other countries which have attracted significant investment in developing their mineral resources. One example is Peru which will take the chair of APEC in 2016, before Vietnam does so in 2017. Peru encourages foreign investment in its minerals industry and since 2004 has applied a 1-3% royalty on the commercial value of sales (recently changed to 1-12% of operating income for new projects). This approach has led to mining (excluding oil and gas) comprising 55% of all exports, has allowed Peru to maintain a fiscal surplus when many countries have high debt problems and there is nearly US$60 billion of planned future exploration and mine development investment in the pipe-line (Ernst & Young, 2015). Other factors that the Government should consider are: IMF EXPERT OPINION It is worth referring to the words of the International Monetary Fund in its IMF Country Report No.12/219 of August 2012 requested by the Government of the Philippines. The IMF recognizes that a royalty rate of any higher than the 5%, as currently applied in the Philippines, would “particularly when combined with other production-based levies, make the fiscal regime uncompetitive”. For any contemplated royalty rate higher than 5%, the IMF recommended that “mining companies be allowed a tax credit against their income tax for the amount of royalty in excess of 5%”. The IMF recommended that “the Philippines should adopt a fiscal regime for the mining sector that is simple, predictable and transparent. This fiscal regime should ensure a fair distribution between mining companies and the government of the economic benefits from mining with fiscal regulations that are complemented by an efficient and transparent tax administration”. The IMF further commented that “there is a market test for any mining fiscal regime - can the country attract investment in its mining sector? If not, the fiscal regime may be inappropriate for the country, given its exploration, development and production costs; the size and quality of its mineral deposits; and investor perception of commercial and political risk”. Vietnam can learn from the IMF’s words, because at present the country cannot answer IMF’s market test in the positive. It cannot attract investment into its mining sector, as evidenced by the lack of any major mining companies coming to Vietnam to carry out modern mineral exploration and mining. APEC MINING TASK FORCE AND APEC MEETINGS OF MINISTERS RESPONSIBLE FOR MINING On 25-26 August 2015 in Cebu, Philippines, Head of the VBF Mining Working Group was invited by the APEC Mining Advisory Board to attend the APEC Mining Task Force (MTF) Workshop and Public-Private Dialogue, as well as the main session of the MTF9 meeting of all 21 APEC members.

Mining Working Group - Position Paper Vietnam Business Forum, 2015

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Other attendees from Vietnam were the Ministry of Foreign Affairs Deputy Director-General in her role of preparing Vietnam to be National Secretariat of APEC Vietnam 2017, plus two representatives from MOIT. MOIT was present because at the meeting in Beijing in June 2014 of APEC Ministers Responsible for Mining (MRM), Vietnam was represented by MOIT as the designated mining ministry. The Ministers’ joint statement recognized “the significance of sustainable development in mining, and believe this could be achieved through regional integration, fostering sustainable investment, increasing social responsibility, and innovation and environmental advances in mining and metallurgy” and the Ministers encouraged APEC economies to “improve their mining investment environments, administration and services” and stressed “the importance of promoting open, transparent and well-operating markets in the mining sector, as well as investment and financing cooperation for win-win development”. It is to be hoped that Vietnam will be keen to improve its mining status by following the objectives of the APEC Ministers’ joint statement, to which Vietnam was a signatory, before it chairs APEC in 2017. CONCLUSION AND RECOMMENDATIONS Although minerals are a non-renewable resource, most of the country’s mineral wealth has yet to be discovered. Only a fraction of Vietnam has been explored using advanced, internationally accepted technology, which will almost certainly lead to the discovery of new, major deeper ore bodies than have been found so far at or near surface. As a result, very little mining is being carried out using advanced and high technology methods. As long as Vietnam’s royalties, fees and taxes are significantly higher than world averages, international best-practice methods and investment in Vietnam's mining industry will continue to be discouraged and will go to countries with preferable investment conditions. This in turn will encourage the continuation of inefficient and wasteful mining practices and degradation of Vietnam's existing known mineral resources and its environment, and also encourage increased illegal mining and export of minerals on which little or no tax is paid. To achieve the objectives of the Prime Minister’s Directive No.2/2012/CT-TTg, we respectfully urge the Government to improve investment confidence in Vietnam’s minerals industry by: Re-examining existing legislation and Introducing more investor-friendly, competitive

mining legislation which includes an equitable tax system that is fair to both the Government and the investor, and legislation that provides for consistent policies for long-term commitment; and

Establishing a task-force to investigate the incorporation of the best elements of other

successful mining legislation around the world where a balance has been achieved between attracting modern, high technology in exploration, mining and processing of mineral resources while at the same time returning equitable revenue to the host nation whose resources are extracted.

Mining Working Group - Position Paper Vietnam Business Forum, 2015

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This means, as an essential step, reducing royalty tariffs to be competitive with other countries. These steps will help to: Encourage exploration to increase Vietnam's mineral inventory by new, deeper

discoveries using modern technological methods; Allow sustainable mining and processing of the country's mineral wealth by advanced

high technology practices in an environmentally responsible, efficient and safe way; Increase revenue to government and communities; Accelerate development of infrastructure and service industries in the more remote and

often mountainous parts of Vietnam with poor socio-economic conditions, where mineral deposits tend to be found;

Enable the mining sector in Vietnam, which is currently almost isolated, to benefit from

global integration within APEC, the TPP and other free trade agreements. The Mining Working Group sincerely hopes that the main ministries concerned, namely

MONRE, MOIT and MOF, with the help of MPI can cooperate to recommend to the Prime Minister the necessary steps which will lead to mining legislation and regulations that will provide the incentives to deliver on the objectives listed above.

Mining – Progress Report Vietnam Business Forum, 2015

Important Note: This "Progress Matrix" was prepared based on the voluntary submissions of the various Working Groups and Sub-Working Groups of the Vietnam Business Forum from 2011 - 2014. In terms of both the feedback and the rankings/progress evaluations, it is not intended to be either complete or scientific. It does nevertheless reflect many issues of concern that have come up in the various Working Groups, and their constructive proposals for solutions. It is hoped that it will provide a useful reference to track and guide progress as the Government and the business community continue their collaboration to improve the business environment though the channel of the Vietnam Business Forum. Among other things, it should be noted that many issues already fully resolved have been dropped from this Progress Matrix to limit the size of the document, and almost all of the issues noted are those that still need more work.

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MINING PROGRESS REPORT (DECEMBER 1, 2015)

Prepared by Mining Working Group

Vietnam Business Forum Scoring to be rated as followings: In progress report: 0 = issue remains; 1 = partially somewhat resolved; 2 = issue has been solved. Priority (1 -10: highest). Score = (Progress) x (Priority) No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score Old Excessive and inconsistent taxation and

other regulatory controls on mining continue to leave Vietnam in the position of being by-passed for vital international and local investment funding and modern high technology that should be flowing into the country to build the mining sector as an important part of, and sustainable contributor to, Vietnam's growth including vital infrastructure development in more remote, low socio-economic parts of the country. This situation is contrary to the Prime Minister’s Directive No.2/CT-TTg of January 2012 which recognized that Vietnam’s mineral wealth is an important element for national industrialization and modernization and

MOIT, MONRE and MOF cooperate with MPI’s assistance to recommend to the Prime Minister measures to: 1. Reduce royalties to international levels and introduce new legislation to make Vietnam more competitive with other mineral-rich countries. This will: - encourage exploration to increase

Vietnam's mineral inventory by new discoveries using modern technological methods;

- allow development of the country's mineral wealth in an environmentally responsible, efficient and safe way;

- increase revenue to government and communities;

- accelerate development of infrastructure and service

The VBF Mining Working Group in collaboration with MPI and VCCI convened a series of meetings from August to October 2015 to bring together representatives of MOF, MONRE and the General Department of Taxation to discuss issues surrounding the proposal to increase mineral royalty tariffs yet again:

- 4 August 2015: MPI and MONRE hosted a discussion with the MOF Drafting Team which the MWG attended, along with the main mining companies

x 9 0

Mining – Progress Report Vietnam Business Forum, 2014

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score that the country’s minerals need “to be mined and processed by advanced and environmentally friendly technology”. Vietnam will be further disadvantaged if the MOF proceeds with requested opinions on a Draft Resolution to the National Assembly Standing Committee proposing to replace Resolution No.712/2013/UBTV-QH13 by substantially increasing royalty tariffs once again by the order of 2-7%. If this proposal goes ahead, it will potentially, and in most cases almost certainly, effectively make any modern mining operations in Vietnam unprofitable, lead to mine closures; result in the termination of a valuable source of tax revenue for the Government; and condemn Vietnam to ongoing environmental damage and safety issues associated with the outdated mining methods and practices currently used by most Vietnamese companies. As long as such high royalties/fees exist, international best-practice methods and major investment in Vietnam's mining industry will continue to be discouraged, which in turn only encourages increased illegal mining, inefficient and wasteful mining practices and degradation of Vietnam's existing known mineral resources and its environment.

industries in the more remote and often mountainous parts of Vietnam, where mineral deposits tend to be found.

2. Establish a task-force to investigate the incorporation of constructive elements of other successful mining legislation around the world where a balance has been achieved of attracting modern, high technology in exploration, mining and processing of mineral resources, while at the same time returning equitable revenue to the host nation whose resources are extracted.

operating in Vietnam and the Australian Trade Commissioner;

- 25-26 August 2015: The APEC Business Advisory Board invited MWG to participate as a speaker at the annual APEC Mining Task Force meetings of the 21 member countries in the Philippines, the current APEC chair, together with representatives from MOIT and Vietnam’s Ministry of Foreign Affairs. - 8 September 2015: VCCI organized a seminar with the MOF Tax Policy Department to point out the serious implications for Vietnam’s mining industry if royalties are increased again; and - 12-13 October 2015: The Budget & Finance Committee of the National Assembly has invited the MWG to participate in another seminar on the royalty issue in an all-Vietnamese speaker list.

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score These initiatives are most welcomed and the dialogue encouraged. However, as of 30 October 2015, no feedback has been forthcoming on this important issue, where the main objective should be to create incentives to bring modern technology and major investment to the minerals sector in Vietnam.

Section V

REPORTS FROM

OTHER WORKING GROUPS

5.1. TAX

Tax – Sub Group Position paper Vietnam Business Forum, 2015

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TAX – SUB GROUP POSITION PAPER Prepared by

Ms. Huong Vu Head of Tax Sub-group

Global integration is putting significant pressure on the economy and business community in Vietnam. In order to continuously support the enterprises, constantly in the past years, the Government has issued Resolution and Decree to provide tax solution that remove difficulties for enterprises as well as enhance the investment, manufacturing and trading activities. In additional, it has strengthened administrative procedures and administrative reform in taxation – customs, in which the main task is completing mechanisms and policies, promoting reform and administrative procedures in competent authorities as mentioned in Resolution No. 63/NQ-CP dated 25/08/2014, Decree No. 91/2014/ND-CP dated 01/10/2014, Law No. 71/2014/QH13, Decree No. 12/2015/ND-CP dated 12/02/2015, etc. However, in practice, the application of regulations and policies of the tax authorities at lower levels still exist some problems, difficulties that not actually create the most favorable conditions for the enterprises for investment and trading in Vietnam. At this dialogue, we would like to raise some tax issues, as follows: 1. Investment Protection

Issue When foreign enterprises invest their capital in Vietnam, they shall be entitled for incentives regulated by the Government of Vietnam. All tax incentives that enterprises enjoy are specified in their Investment License or Investment Certificate. Hence, investors are guaranteed to receive incentives as stipulated on these licenses even in the case the law has changed. Law on investment also recognizes, maintains the stability and protects the investment incentives, income and legal rights and benefits of the investors, acknowledges the existence and long-term development of investment activities. However, some local tax authorities already have difference treatment and perspective with the current guidance of the Government, rejected the incentives specified in the Investment Certificate of the enterprise, and require for the application of current provisions, making the difficulties for enterprise in conducting investment process, manufacturing in Vietnam market. As tax authorities require enterprise to apply current regulation and reject tax incentive that already stipulated in their Investment License, it would be regarded as contrary to the spirit of Vietnamese Government and not guarantee the benefit of the investors. Proposal Kindly request the Government, the Ministry of Finance for the instruction and consistent guidance to local tax authorities in respect of Investment incentives specified clearly in enterprises’s Investment License, avoiding inconsistent treatment that causes concerns and reduce foreign investors’ confidence in investment environment of the Government.

Tax – Sub Group Position paper Vietnam Business Forum, 2015

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2. Expenses related to service contracts signed with Parent Company Issue Currently, in Vietnam market, there are many foreign – invested companies have been licensed to operate and bring significant economic benefits for Vietnam. The subsidiaries that operated in Vietnam are independent facilities with the tax code and seal prescribed by Law in Vietnam. However, in practice, these subsidiaries are only links in business chains of foreign enterprises, global companies, or multinational corporations. In an open economy, it is essential that these companies should operate flexibly and smoothly among different markets, and comply with business management, and standards defined by Parent Companies. To optimize the business efficiency, multinational corporations regularly establish member companies to cary out a certain function in the global value added chain and to receive services from a professional service providers in the area (e.g.: project/service management, marketing, sales, administration and data management system, information management, etc.) The member companies in the region, instead of establishing a fully and costly functional operation, they could use services from Parent Company, or from their regional headquarter. This approach offers many benefits such as: ensuring consistency, create advantage in negotiating economic contracts with third parties, cost savings, and more importantly to increase the competitiveness of companies in Vietnam market as well as in the world market. The use of services from the Parent Company or headquarter, subsidiaries in Vietnam shall bear the costs corresponding to the value of services received, this is fully consistent with international practices, ensure fairness and compliance with the principle of revenue recognition which requires the recognition of relevant costs. However, tax authorities are having a harsh viewpoint on these expenses and always raising doubts on transfer pricing issue. Some local tax departments only rely on the method of allocating service fees prescribed under contracts in order to jump into conclusions that these fees are management fees allocated for permanent establishments. Besides, the tax authorities also impose unreasonable requirements of documentation for these fees so as to not recognize these fees as reasonable and legitimate expenses of subsidiaries for tax purpose in Vietnam. Proposal Kindly request the Government and the Ministry of Finance to provide consistent guidance to tax authorities so that they will have a fair treatment for service fees paid to Parent companies or corporations. This will correctly reflect characteristics of the above mentioned fees and to create a business environment relevant to international practices. Furthermore, the Ministry of Finance should also provide more specific guidance, particularly documentation standards so that subsidiaries in Vietnam can prepare them to prove that services received from affiliated parties should be regarded as deductible expenses for Corporate Income Tax purpose. 3. The term of Warranty that is stated in sale contract with Foreign contractor Issue In relation to the warranty term stated in sale contract with foreign sellers in Vietnam, this is a common and reasonable rule and should be considered as a condition that sellers can ensure the goods quality in order to protect the right of buyers. The term is always stated in purchase contracts even though this is an disadvantage that both parties do not want to apply. In respect to this case, warranty is not a service which accompanied with the

Tax – Sub Group Position paper Vietnam Business Forum, 2015

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machine as well as cannot be separated from the value of machine. The warranty service (which is provided by sellers and charged fee to buyers) shall be incurred in case the buyers have demand in repairing or maintaining the goods when the period of warranty term stated in contract expired. At that time, this warranty service shall be considered as actually performed. In relation to the calculation of Foreign Contractor Tax (FCT) regarding to warranty fees, the Government of Vietnam in general and the Ministry of Finance in particular has made a huge step forward from the previous regulations before Circular No 103/2014/TT-BTC (“Circular 103”), this regulation reaffirms the straightforward and decisive attitude of Vietnam in making right decisions that are consistent with international rule as well as in assisting enterprises’ operation in Vietnam. Circular 103 clarifies that the purchase contracts that deliver goods at border gate with warranty term is not subject to FCT. However, for those contracts before the effective date of Circular 103, there is no specific and consistent guidance even though this issue has been requested for guidance repeatedly in previous forum for dialogue between the Ministry of Finance and Enterprises and has been agreed on viewpoint by the Ministry of Finance already. Proposal Therefore, in order to avoid undesirable problems in the implementation of Corporate Income Tax (CIT) obligations, confusion for enterprises, as well as for foreign suppliers when supplying goods and services in Vietnam, and in order to unify the method on implementation process of tax policies at all level of tax authorities, VBF once again kindly requests the Ministry of Finance to have an official and specific guidelines for issues in connection with warranty terms stated in purchase contract with foreign contractors in a way that supplying goods accompanied with free of charge warranty term is seller’s obligation and no other services have been performed in Vietnam shall not be subject to FCT. Moreover, kindly request Ministry of Finance to have guidelines for similar situations of contracts signed before the effective date of Circular 103. 4. Issue on application of Double tax agreement in determining permanent

establishment for tax exemption/reduction as per regulations Issue Currently, issues on determination method of permanent establishment in Vietnam have attracted many attentions from enterprises that are going to have the plan to do business in Vietnam’s economic market, especially for some pure trade activities of foreign contractors such as on-the-spot import/export, goods distribution, sales with deliver point at bonded warehouse, etc. Circular 205/2014/TT-BTC and some other guidance from Tax departments have explained the wide definition of permanent establishment to conclude whether a foreign company has permanent establishment in Vietnam or not. Tax departments at all level sometimes do not focus on the nature of transaction as well as consider the international practices on trade, including: - Regarding on-the-spot import/export: Tax departments interpret that if an enterprise

delivers goods to another enterprise in Vietnam under assignment of foreign contractor, the enterprise shall be regarded as doing business on behalf of the foreign contractor. Accordingly, it is the same as implementing business and production in Vietnam via a permanent establishment. However, in fact, assigning a Vietnamese enterprise to perform deliver service is merely a normal trading agreement to optimize goods circulation as well as reasonable cost-saving of normal trade activities.

Tax – Sub Group Position paper Vietnam Business Forum, 2015

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- Regarding goods distribution activity in which the foreign contractors may have control on selling price in Vietnam market: currently, the tax departments are arguing that if a foreign enterprise has control on price, it means that it has control on sales operation of Vietnamese enterprise, making the Vietnamese enterprise to be the permanent establishment of the foreign enterprise. Whereas implementation of price strategy is an integral part of business scheme, especially in integrated economy.

Proposal Such above arguments have led to loss of proper rights of enterprises, in the meantime led to difficulties for applying Double tax agreements of foreign enterprises. VBF would kindly request Ministry of Finance to consider and issue guidance for local tax departments when explaining agreements to reflect the true nature of transaction as well as based on international customs’ view to consistently apply. 5. Management fees Issue In relation to the tax policy in respect to foreign organization hiring cost for business management, inter-ministerial Circular No. 13/TTLB (“Circular 13”) dated on 08/10/1997 of Ministry of Planning and Investment and Ministry of Finance providing detail guidance on the implementation of Decree 12-CP dated on 18/02/1997 of the Government which provides detail guidance on the implementation of Foreign Investment Law in Vietnam regarding the hiring of foreign organization for business management purpose of enterprises with foreign investment capital as following: “Management fees: include basic fees, incentive fees, and fees for consultancy, marketing, reservations and use of signboards and names (trademark). In principle, the parties may stipulate different methods of calculating management fees of various rates. However, the maximum total management fees calculated by any method in comparison with turnover and gross operating profit shall not exceed the rates stipulated in the enclosed appendix, etc.” However, inter-ministerial Circular 13 which has been issued on 08/10/1997 provided detail guidance on the implementation of Decree 12-CP dated on 18/02/1997 of Government providing detail guidance on the implementation of Foreign Investment Law in Vietnam. However, Decree 12-CP has been expired and replaced by Decree No. 24/2000/ND-CP of Government issued on 31/07/2000 regulating the detail implementation of Foreign Investment Law in Vietnam. Until 2005, the entire contents of Foreign Investment Law in Vietnam was rejected by the regulation of Investment Law and guided by Decree 108/2206/ND-CP. Therefore, we understand that the content of Circular 13 has been replaced by the content in respect to the hiring management organization and management fee regulated in Decree 24 and Decree 108. Additionally, the implement regulation in Decree 24 and Decree 108 both stipulated that: “All previous regulations contrary to this Decree are totally annulled”. However, the local tax department currently applies the regulations stated in inter-ministerial Circular 13 to challenge enterprises. Proposal Kindly request the Ministry of Finance to provide detailed guidance in connection with the validity of inter-ministerial Circular No.13/1997 so that enterprises have the grounds to comply with the law.

Tax – Sub Group Position paper Vietnam Business Forum, 2015

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6. Customs procedures in relation to the Export Processing Enterprises performing the trading business

Issue When the export processing enterprises ("EPEs") performs the purchase of machinery and equipment from overseas for the purpose of business production, the EPEs shall not be subject to import duty and VAT in accordance with current regulations. However, as the businesses switch the using purpose of the products, i.e without using this kind of goods for the purpose as originally declared, that is changing into disposal and liquidation of machinery, equipment and transportation for creation of fixed assets in Article 79 of the Circular 38/2015/TT-BTC, upon completion of liquidation procedures, the EPEs shall register imported goods declaration for changing purposes of use; import duty base and VAT at the importation is the taxable value, the tax rates and the exchange rates at the time of declaration registration of changing purposes of use; customs procedures are not required for goods domestically sold. The General Department of Taxation has guidance on the invoice issuance in this case that EPEs shall purchase retail VAT invoices in the tax office and issue corresponding output VAT for the goods domestically sold. Thus, the current regulations do not have official mechanisms in guiding declaration and deduction (or refund) for the VAT amount paid. Proposal Kindly request the Ministry of Finance for simplified and clear guidance to solve current concerns of businesses: EPEs are not required to declare changes use purpose in respect to the liquidation of machine and equipment in the domestic markets. When selling to domestic enterprises, the two parties carry out customs procedures and domestic enterprises shall declare and pay import duty and VAT at the importation for these machine and equipment. 7. VAT rates with respect of imported raw materials for production and sales for

domestic enterprises Issue In case EPEs import raw materials for production and sales for domestic enterprises, the enterprises purchased products from EPEs shall have to pay import duty at the rate of the finished products in accordance with (i) the values of the finished products, or (ii) the values of the materials comprised in the finished products. Before the Circular 38/2015/TT- BTC, this is regulated quite favorable to allow the businesses to be selected: (1) applying the tax rates and the values of the finished products; (2) or apply the tax rates and the values of corresponding imported raw materials. Proposal Kindly request the Ministry of Finance to consider the application of previous regulation before the Circular 38 for this case, in order to ensure consistency in the calculation of different types of raw materials or finished products. 8. Value – Added Tax Refund Issue Pursuant to Point b, Clause 12, Article 1, Circular 26/2015/TT-BTC dated 27 Febuary 2015 of the Ministry of Finance:

Tax – Sub Group Position paper Vietnam Business Forum, 2015

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“4. In the month (if tax is declared monthly) or in the quarter (if tax is declared quarterly), if input VAT on exported goods and services that remains after deduction is 300 million VND or above, such input VAT shall be refunded by month or by quarter; if the aforementioned input VAT in the month or quarter is below 300 million VND, it shall be offset against tax incurred in the next month or quarter. Where a taxpayer both exports and domestically sells goods/services in the month/quarter, such taxpayer may receive a refund of VAT on exported goods/services if the input VAT that remains after being offset against VAT on goods/services sold domestically is 300 million VND or above.” Regarding the VAT refund, as prescribed for business basis paying VAT under the deduction method where input VAT has not been deducted accumulatively after at least consecutively twelve months from the first month or at least four quarters from the first quarter arising input VAT amount having not yet fully deducted, business basis carries out tax refund in accordance with the prevailing tax regulations. Hence, we can understand that the enterprise need to have the taxable income that incur during 12 months, but input VAT might be creditable is still higher than the VAT payable, the enterprise will has the right to perform the VAT refund. This regulation is fully consistent with the commercial enterprises having monthly or quarterly business revenue. However, enterprises with specific charateristics such as enterprises in the ship-building sector, they can only issue VAT invoice and having revenue upon completion of the ship and transferring to customers, while the time to perform shipbuilding lasts for a very long time (with complex cases requiring 2-3 years or more to complete the ship for exportation and delivery to customers). Meanwhile, input costs of shipbuilding activity is very high, which can be up to millions of dollars a month/quarter. If ship-building enterprise is not deducted input VAT on monthly basis, fund for the business activities of enterprises will be affected greatly. Proposal With the above mentioned issues, we very much hope that Government policies shall be consistently applied in all levels in order to maximize their effectiveness and efficiency. Kindly request the Vietnamese Government and the Ministry of Finance to consider and provide detailed guidance, including specific conditions allowing shipbuilding enterprises to perform monthly VAT refund, so as to cover the investment costs of materials, input costs of production and business activities that businesses have spent on. Moreover, shipbuilding is an advantage of Vietnam in the international market; the Government of Vietnam should have policies to boost its development.

With aforementioned recommendations, we expect that the Government’s guidelines and policies shall be in conformity and synchronized at all levels in order to maximize its effectiveness.

Tax Sub-Group – Progress Report Vietnam Business Forum, 2015

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TAX SUB-GROUP PROGRESS REPORT

Prepared by Tax Sub-Group

Vietnam Business Forum Solving issue progress scale 0 = Still existed issue; 1 = Partially solved issue; 2 = Solved issue 1-10:10 is the highest priority Score = (Progress point) x (Priority)

No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score 1 Old Investment Protection:

For All FDI companies being granted with the Investment Certificate/ Investment License by the licensing authorities, the tax incentives they are entitled have been quoted in the granted IC/IL. However, these tax incentive rates are challenged and reduced by the local tax office although the conditions for those tax incentives are satisfied.

The Government to consider and provide a legislative principle that any tax incentive which is already stated under the company’s Investment Certificate shall not be changed by any State authority if the conditions for that tax incentive is satisfied.

Government has positive feedback on this proposal and issued some guidance on some specific cases

x 5 5

2 Old Retrenchment Allowance: Circular 180/2012/TT-BTC – Regulation on the outstanding balance of provision for retrenchment allowance: Under this regulation, in the year 2012, upon the preparation of financial statements, any outstanding balance of the provision for retrenchment allowance (after actual payment during 2012) shall not be carried forward to the following years but shall be recorded as other incomes in 2012, thus this provision will be taxed at current CIT rate of 25%.

The Government should consider the continuance of the severance provision to subsequent years until it is used up. In case, Government still require enterprises to reverse this provision, Ministry of Finance should allow enterprises to apply the corresponding incentive tax rate of the years the provision amounts were made.

Have not been resolved x 3 0

Tax Sub-Group – Progress Report Vietnam Business Forum, 2015

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score 3 Old Personal Income Tax:

According to Circular 84, we see the inconsistency between the start date to determine residency status and the start date of tax year for resident individuals.

We recommend that the point to determine the residency status and the point to determine tax assessment year should be consistent and calculated from the first date of arrival to Vietnam. They will: • Be in accordance with international practices; and • Minimize the burden of administrative procedures for tax payers, avoiding the double taxation.

Circular 111/2013 has provision that the point to determine the tax assessment year calculated from the first date of arrival to Vietnam, however the provision is only applied for countries having Agreement with Vietnam

x 2 2

4 Old Foreign Exchange Rate: In accordance with the Circular and Official Letter guiding PIT finalization from year 2009 to 2011, there is no clear regulation on foreign exchange rates applied to PIT finalization declaration.

We propose MoF to provide detailed guidance on average inter-bank FX rate applied to annual tax finalization.

Have not been resolved x 3 0

5 New Criteria to define enterprise’s investment expansion for the period prior to 2014 Currently, there is lack of specific guidance although VBF has proposed many times to MoF

For the consistency between Investment Law and Tax Law, VBF would propose to Government and Ministry of Finance to provide more specific guidance to identify investment expansion for the period prior 2014 in the way that would base on invested capital which includes charter capital and loan capital and is reflected by the value of fixed asset after accumulated depreciation on the Balance Sheet. In case enterprises use internal cash flow generated from depreciation source to purchase assets, it cannot be considered as expanding investment. In case enterprise used up all registered capital but invest retained earnings to purchase asset to maintain the manufacturing activities without any increase in capital, capacity, scale of

x 3 0

Tax Sub-Group – Progress Report Vietnam Business Forum, 2015

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No. Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score business, then the investment should not be deemed as expanded investment and shall be able to applied corresponding tax policy in each period.

6 Issues on application of Double Tax Agreement (DTA)

6.1 New There is no detailed guidance on determining Permanent Establishment as well as method on calculating tax, withholding tax regarding to cases when foreign entities supply e-commerce service, not through an agent or partner in Vietnam, and receive money from Vietnam through internet.

E-commerce is currently developing very quickly, we request the Ministry of Finance to have specific guidance in order to avoid the case that enterprises shall be subject to tax recollection and unwanted penalties.

Have not been resolved x 5 0

6.2 New There is no detailed guidance on DTA application and tax calculation for case of transferring indirect shares/capital

VBF would request the MOF to have specific guidance on this matter: Is the income from this transfer subject to tax, How to calculate taxable income, Who will be the payer and How to apply DTA?

Have not been resolved x 5 0

Tax – Meeting Talking Points with Ministry of Finance Vietnam Business Forum, 2015

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TALKING POINTS WITH MINISTRY OF FINANCE ON SOME TAX RELATED ISSUES

Prepared by Tax Sub-Group

Vietnam Business Forum (“VBF”)

A – APPLICATION OF DOUBLE TAX AGREEMENT BETWEEN VIETNAM AND OTHER COUNTRIES

1. Residency Issue 1: A Vietnamese company pays interest to the branch of a foreign bank which is the resident of a country signing the Double Tax Agreement (“DTA”) with Vietnam. In this case, the DTA between Vietnam and this country cannot be applied to the interest payment.

Our question: How will the enterprises adopt DTA for the above case? Is there any basis for allowing the application of the DTA between Vietnam and the home country of the foreign bank branch‟s head quarter?

Issue 2: Vietnamese authority shall normally consider a person staying in Vietnam for more than 183 days within a year as a Vietnamese tax resident for and therefore subject to Personal Income Tax (“PIT”). However, there may be arguments that the individual should be treated as tax resident of the foreign country where his property/houses as well as family are located.

Our question: What is the view and treatment of the MOF for the case above? Enterprises propose the MOF to assess the tax residency not only based on the time period that person living in Vietnam but also other aspects such as: family, personal properties, etc...

2. Permanent Establishment (“PE”) Issue 1: Service PE Some DTAs between Vietnam and other countries have no provisions on a service PE. Enterprises are of the opinion that for the application of the DTA, the service provided by foreign enterprises in Vietnam will not constitute a permanent establishment for foreign companies based on such DTAs. In other cases, although service contracts last for several years, the majority of service is provided from overseas, the service provider is only present in Vietnam within a very short period of the year; not exceeding six months within a twelve month period.

The enterprises kindly request the MOF to clarify the determination of PE for the service provision as above.

Issue 2: Agency PE How commonly the agency PE is determined? What are the major considerations for assessment of independent PE vs. dependent PE?

Issue 3: Goods supply Does the regular supply of goods of a foreign company in Vietnam under the delivery Incoterm Group D including the case of on-the-spot import and export constitute PE for the foreign company?

Enterprises are of the opinion that this should not constitute a PE for the foreign company because it is merely an agreement on the delivery location within the importing country.

Tax – Meeting Talking Points with Ministry of Finance Vietnam Business Forum, 2015

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The seller (the foreign company) does not perform business activities through any fixed place, or through any agent in Vietnam.

Issue 4: PE issue in e-commerce activity Please share with us your experience in PE treatment to the case of a foreign company providing e-commerce services, not through any agent or partner in Vietnam and earns money from Vietnam under online payment methods – Can the foreign company be considered not having a PE in Vietnam and hence apply for the income tax exemption under the relevant DTA? 3. Indirect share transfer Enterprises understand that indirect share transfer is subject to income tax in Vietnam. For example, a foreign Company A (a tax resident of Country 1) holds shares of Company X in Vietnam. Foreign Company B (a tax resident of Country 2) is the owner of foreign Company A. When the foreign Company B transfers its capital in Company A to foreign Company C then this capital transfer activity may be subjected to income tax in Vietnam.

For the case above, assuming Vietnam has DTA with Country 1 and Country 2, then for this case, which DTA will be applied for the taxable income in Vietnam. And how will the tax payable amount be calculated if the DTA is applied.

4. Beneficial owner Please share your analysis on the beneficial owner in the case of the owner of interest and royalty? What guidance, criteria, conditions or evidence are required to prove who the beneficial owner of such payment is?

5. Royalty Will it be considered royalty income if a foreign company receives income for the provisions of design services, ideas, advertisement models to a Vietnamese company and not holding the ownership and exploitation right in respect to such ideas, designs and models any more after transferring such items to the Vietnamese company?

Enterprises are of the opinion that the above activity is only a normal service activity and the income from this activity is not considered as royalty for purposes of applying the DTA. 6. Loan interest Are various fees (e.g. loan arrangement fee, commitment fee) to be paid to the lender in the loan agreement considered as loan interest earnings under the Agreement? The current Circular 103 on withholding tax indicates that loan interest consists of any fees payable by the borrower under the loan agreement. Most of the Agreements define loan interest as earnings from loans in any forms. Meanwhile, loan arrangement fees and commitment fees may exist even when the borrower has not withdrawn or refuses to withdraw the fund. MOF‟s clarification of its position on earnings classification for the fees related to loan agreements for the purpose of applying Agreements is also needed. While Vietnam has been engaging in nearly 70 double taxation agreements with other countries and territories, application of these agreements in practice does not always reflect the exact intent of the agreements or international practice. Revenue services often tend to interpret the agreements in ways to win the taxing right for Vietnam and to ask investors to pay tax credit in the host country. Paying tax credit in the host country is in many instances impossible as foreign revenue services do not agree with Vietnam on the

Tax – Meeting Talking Points with Ministry of Finance Vietnam Business Forum, 2015

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taxing right. As such, the meaning and purpose of double taxation agreements has in fact been substantially weakened. B – THE ROADMAP FOR ALIGNMENT OF SOME OF VIETNAMESE TAX TREATMENTS WITH

THOSE OF OTHER REGIONAL COUNTRIES Issue At this stage, amongst the tax issues receiving high attention of multi-sector enterprises whose business activities include; real estate is the issue related to the offset of losses of other business activities against the gain of real estate activity. Current tax regulations do not allow enterprises to offset the gain of real estate activity against the loss of other business activities. This treatment creates an unfair business environment for multi-sector enterprises, causing difficulties for enterprises in terms of mobilizing and utilizing their capital, not promoting the development of the economy as well as not being in line with the tax practices of other countries and in the world over. Enterprises’ proposal With a view to contributing to the sustainable real estate business; establishing equal treatment amongst the enterprise community as well as aligning the Vietnamese tax treatment with the regional tax practices, VBF propose that the MOF consider revising the current regulations such that the multi-sector enterprises involved in the real estate business, are allowed to offset losses against the gains of their business activities (including the gains derived from their real estate business).

C – OTHER ISSUES 1. Investment protection Issue Investors seeking to do business in Vietnam prior to 2004 may have the government‟s pledge to demonstrate any incentives they are entitled to in the Investment license and business incorporation certificate. After the Enterprise Law and Investment Law came out in 2005, businesses had to reapply and change their investment certificates to investment certificates under Decree NĐ 101/2006/NĐ-CP, which made clear that following the renewal, all previous entitlements and obligations would still apply. Many licensing authorities however have altered the eligible incentives businesses are originally entitled to in this process. Through reference, businesses often choose to reapply for the incentives they are entitled stated in the incorporation license, but this may be rejected by the tax authority on account of the renewed investment certificate has provisions allowing it to replace the original investment license. Recommendations Foreign Investment Law of 2000, Investment Law of 2005 and Investment Law of 2014 all recognize the principles of investment protection. The incentives stated in the incorporation license prior to 2004 provide the basis for determination of the incentives businesses are entitled to and cannot be replaced. Renewal of the investment license is just an administrative procedure, and must not be used as grounds to refute eligible incentives. MOF‟s review and response to this issue is needed.

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2. Investment expansion Issue Criteria to tell whether a company actually had any business expansion prior to 2004 still do not have any specific implementing guidance on, despite VBF‟s repetitive reminder of the issue to the Ministry of Finance, resulting in various practical challenges: Any FDI companies must register their total investment capital to obtain an incorporation or project license, which is used as a benchmark for how sizable the company‟s investment is. The total investment capital includes charter capital and mid/long-term loans for capital investment, and does not include working capital. The closest indicator in a company‟s financial statement that reflects how much capital has been paid in is the value of capital assets, minus accumulated depreciation from the initially registered capital. If this figure is smaller than the registered capital in the license, one can hardly say the company has been engaging in any expansion. Yet, many tax authorities are treating any assets purchased from 2009 to date as business expansion operations, or, through comparison of the total historical cost of capital assets and the registered project capital stated in the investment certificate, determine that business expansion has taken place if there is any surplus. Recommendations To harmonize between the Investment Law and tax laws, VBF suggests that the government and MOF provide a clearly defined premise for the criteria used to determine business expansion prior to 2004, which should be the investment capital, including the charter capital and loans obtained by the company, reflected through the value of capital assets, less depreciation as stated in the financial statements. If a company uses cash flows generated internally, such as depreciation funds, to purchase assets, it still cannot be ascertained that the company has made any business expansion. For companies where the registered capital has been fully paid in, and earnings are used to purchase assets to maintain current business operations, without any increased capital, increased output or increased operation scale, such increase in assets should not be treated as business expansion either, and should be subject to relevant tax regimens over time. 3. Input VAT credit

Issue VAT is by nature an indirect tax, imposed on the added value of goods and services providers. From a buyer‟s perspective, if goods or services are purchased for business purposes, they should be considered for deduction, regardless of the buyer generating sufficient revenue and output VAT to offset with input VAT. Given the risky nature of doing business, if a project fails, the investor will suffer full losses for the entire expenses incurred. The losses incurred by the investor will be ten times more than the input VAT and are entitled unanticipated. Added to that, some manufacturers may provide their dealers with sales support but do not use the VAT invoices issued by the dealers to them. While the use of VAT invoices with a 10% tax rate in this case is inconsistent with the law, it does not affect the tax obligations of the parties, and is simply a case of invoice misuse. Recommendations We understand that strict control of VAT excess credit refund is a way to avoid uses of shelf companies and fraudulent transactions to solicit VAT excess credit refund. If the transactions are real and actually stem from real business operations, VAT excess credit

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refund will be consistent with the intents of VAT, i.e. VAT only exists if added value is created in the value chain till the end-use stage. Accordingly, we suggest that MOF considers allowing investors to withhold input VAT for procurements made for business purposes, regardless of whether sufficient output is generated to offset input. We also advise that in case of invoice misuse where the issuers has fully paid any payable VAT, the recipient also may benefit from the VAT credit refund, if the transactions area real and actually take place in the course of business operations. OTHER ISSUES (ADDITION TO THE CURRENT AGENDA) 1. Investment in business expansion

Issue When it comes to investment in business expansion, it is often understood by companies that expansion should mean larger size, output, capacity, or more services delivered than before.Some companies however may bring in more capital to transform their business pattern or help improve risk management performance.For example, a company may start with leasing office space for sublease.After that, the company injects more capital in to buy the leased property, while its sublease agreement remains unchanged, hence no change to the company‟s ability to provide subleasing service. Recommendations From a businessman‟s perspective, switching from leasing for sublease to procurement for sublease is only a change in the way the company does business, rather than enlarging the capacity or size of the business, and therefore is no business expansion as referred to in the Investment Law.MOF‟s clarification is very much expected. 2. Withholding VAT for franchising Issue Franchising VAT has had unclear and conflicting guidance from the General Department of Taxation.Until before Official letter 631/TCT-CS, Mar. 3, 2014, all GDT‟s guidelines pointed out that franchising is not subject to VAT.After OL 631 however, local revenue services started to collect withholding VAT for franchising contracts with foreign parties, but with different tax rates, causing disputes between tax offices and tax payers.At a consultation between MOF and Eurocham in December 2014, Vice Minister Do Hoang Anh Tuan said that added value ratios will apply with other lines of business (and not services), but until now, MOF still does not disseminate any guidelines in writing to local revenue services. Recommendations We urge that MOF gives uniform guidelines to local revenue services regarding the added value ratios applied to franchising in 2009-2014 (before Circular 103) in other lines of business for consistent adoption by local tax offices. 3. Deductible expenses in determining corporate income tax for hotel management fee Issue Inter-ministerial Circular No. 13/TTLB, dated Oct. 8, 1997, providing implementing guidance for the government‟s Decree 12-CP, Feb. 18, 1997, the implementing document to the Law on Foreign Investment in Vietnam, establishes that deductible hotel management fee for taxation purposes must not exceed 1%-3% of the revenue, and 5%-10% gross profit.The Investment Law introduced in 2006 however rules that this fee should be agreed upon by

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the parties involved and is deductible for taxation purposes based on the signed management service agreement.Notwithstanding, Circular 13 still remains in effect, resulting in varying tax treatment among with the tax system. Recommendations To avoid inconsistency in the application of tax policies for tax treatment, the Ministry of Finance can work with the Ministry of Planning and Investment to release a guideline defining the validity of Circular 13. If such a joint guideline is not yet available, the Ministry of Finance can provide internal directives to ensure consistent application of regulations and tax treatment. 4. Withholding tax rate for construction with building material cost included Issue In Circular 134 and Circular 60, guiding on withholding tax for offshore contractors, in addition to the tax rates applicable to construction and building works with material or plant and equipment cost included, the CIT rate on taxable revenue was 2% of the total contract amount. If a foreign contractor has a contract with a subcontractor to hand over all works or work items with material or plant and equipment cost covered, and the foreign contractor is only responsible for the remaining value in the contract, the CIT rate on taxable revenue for service sectors (5%) will apply. If the contractor provides part of the materials (or equipment), and management or supervision services, a 2% withholding tax rate will apply. But in some cases, local tax offices still apply the 5% tax rate if a building contractor shares part of the job to subcontractors, and provide part of the materials (or equipment) and management or monitoring services, leading to inconsistency in the application of tax policies. Recommendations To avoid inconsistency in the application of tax policies for tax treatment, the Ministry of Finance can provide internal directives to ensure consistent application of regulations and tax treatment. 5. VAT filing for companies having multiple sales outlets

Issue According to the Tax Administration Law, eatery service providers and restaurants will have their place of VAT filing determined by the head of the local tax office.But in practice, inconsistent instructions are being provided by different tax office across the country for companies with similar accounting system and sales management systems.In fact, filing VAT separately for every shop in a same province or city will increase substantially the administrative procedure burden, while the gross revenue for the state budget does not change. Recommendations The Ministry of Finance can provide consistent guidance to allow shops located in a same province or city with the headquarters or a company‟s branch to make VAT filing together with the headquarters or branch to minimize the administrative procedure burden.

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6. VAT credit early released invoices Issue As instructed by VAT regulations, to be eligible for input VAT credit, companies need to present eligible VAT invoices and documentary evidence of cashless payment for purchased goods and services worth more than VND 20 million. The Circular also provides on instances where input VAT credit is not allowed, including:VAT invoices not specifying VAT amounts; invoices without or with incorrect information on either the name, address, tax ID of the seller, making it impossible to identify the seller; invoices without or with incorrect information on either the name, address, tax ID of the buyer, making it impossible to identify the buyer; fake invoices or VAT payment statements, defaced invoices, „blank‟ invoices (without any recorded goods or services); invoices presenting the wrong value of the goods or services purchased, sold or traded.This means there is no ruling that disqualifies entitlement to input VAT deduction due to early release of invoices. Particularly in the case of ordering customized products which requires payment by progress, the producer will release output VAT invoices for each time payment is received and submit output VAT filing. Yet, local Tax departments refuse to let buyers register input VAT credit for these invoices, on account of invoices being issued at the wrong time. Recommendations Because the buyer has actually paid VAT when he/she receives the VAT invoice from the supplier, the buyer should be allowed to deduct input VAT, providing that the invoices are legitimate and not in breach of the tax deduction rules of the Circular. This will also be consistent with the common sense and international common practice, help avoid any imprint on the buyer‟s cash flow and promote business development for the buyer. We propose that the Ministry of Finance considers advising local Tax departments for consistent implementation and to make doing business easier for stakeholders. 7. Cost allocation in the group of companies model Issue As the private sector evolves, having a centralized service hub inside the holding company has increasingly become a common approach. The holding company, as the equity holder at its subsidiaries, acts as a service center serving the group‟s member companies, as a way to improve governance, unify operational codes, strengthen bargaining power with partners, and reduce the overall overheads for the group.The holding company does not directly provide services or goods to the market, and earns its revenue only from the services it offers.This model resembles the globally common multinational corporation setup. A unique approach as it is, the holding company claims its service fees from subsidiaries using viable distribution criteria for each type of service (e.g. revenue, staff size and so on as criteria).But when it comes to paying taxes, the revenue service will ask for a detailed break-down of the services that the holding company renders to every subsidiary, and the corresponding cost. While this is doable, it may lead to a massive workload in terms of filing, presentation of documentary evidence and a whole lot of other administrative work. Recommendations To stay in touch with what is going on in the business environment, we suggest that MOF considers a common approach for the group of companies model, particularly the centralized service hubs, and like what has been done in other countries in the region and around the world, to recognize and encourage companies to setup and operate these

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service hubs for cost saving purposes.What tax administration agencies should rely on to review and recognize costs are the organizational setup and the roles of relevant functions as reflected in the uniform codes agreed upon by the parties involved, as well as the aggregate cost reflected on accounting books and sound cost distribution methods.Tax offices should not ask companies to provide detailed description of the jobs done because in practice, most of these are outsourced services, which renders traditional note taking method (on papers, with signatures of the parties involved) unrealistic and unfeasible. 8. Incentives for projects constituted within industrial parks in areas of disadvantaged

socioeconomic conditions

Issue Circular No. 151/2014/TT-BTC rules that investment projects located in industrial parks in areas with advantageous socioeconomic conditions are not entitled to incentives, while elaborating that areas with advantageous socioeconomic conditions are defined as inner city districts of special class cities, central-level Class I cities, and provincial Class I cities, not including urban districts of special class cities, central-level Class I cities, and provincial Class I cities recently upgraded from rural districts following Jan. 1, 2009. We understand that the government introduced this rule as a way to ease the bottlenecks businesses having investment projects in industrial parks, especially projects formed in 2009-2013. However, provincial Class I cities have no administrative units called “urban districts”, just “rural districts”, “towns” and “townships”.According to Decree No. 42/2009/ND-CP on city classification, there are four types of cities – Class I, II, III and IV cities. Normally, for an administrative unit to be recognized as a Class I city, it has to be originally a Class II or Class III (very rare) city, and no current rural district will be upgraded to a Class I city. Moreover, in the current administrative unit denomination system (in the Constitution), provincial cities are district level units (equivalent to a rural district), thus there will be no provincial Class I city upgraded from a rural district. Only urban districts of central-level cities recently upgraded from rural districts may apply this rule. Therefore, the part on “not including provincial Class I cities recently upgraded from rural districts following Jan. 1, 2009” above does not exhaustively cover all the cases and may result in unfair treatment.

Recommendations We propose that the Ministry of Finance explains what the above statement in Circular 151 actually means. We assume that cities recently upgraded to Class I cities following Jan. 1, 2009 are all in areas without advantageous socioeconomic conditions. Is that right? For example,before Apr. 20, 2011, Nam Dinh City is a provincial city of Nam Dinh province and rated as a Class II city. On Apr. 20, 2011, it was recognized through a government‟s decision as a Class I city. Is Nam Dinh city an area without advantageous socioeconomic conditions, and entitled to CIT incentives?

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9. Aggregate VAT invoice for multiple shipments Issue The current rules require businesses to issue invoices for every shipment.Nevertheless, as many large sized companies have multiple shipments in a day, this may lead to a heavy administrative burden and large financial costs for businesses in terms of issuing, managing and adjusting the invoices.We learned that for this very reason, MOF has agreed to let some companies issue an aggregate invoice for multiple shipments if the company‟s software system can ensure reliability, and there is other documentary evidence to substantiate the origin of the goods in transit. Recommendations We suggest that MOF considers adding ruling to allow special parties, specifically major companies with large volumes of transactions and high reliability to issue weekly or monthly aggregate invoices, if these companies so request and their requests are accepted by the head of the corresponding local tax office.This will help cut costs for businesses in terms of time and manpower, and improve performance.

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SUMMARY OF CONSULATION RELATED TO THE APPLICATION OF THE DOUBLE TAXATION AGREEMENT BETWEEN VIETNAM AND OTHER COUNTRIES

Time: 14:00 – 18:00, Wednesday, Aug. 25, 2015 Venue: Ministry of Finance, 28 Tran Hung Dao, Hanoi Participants: See Appendix 1 A. CONTENTS - Summary of proposed points of discussion related to the implementation of double

taxation agreements • Concerns about the adoption of the agreements • Tentative pathway for tax-related treatment between Vietnam and other countries in

the region • Other issues

- Response by the Ministry of Finance - Discussion - Closing B. SUMMARY OF THE MEETING POINTS OF DISCUSSION RELATED TO THE ADOPTION OF DOUBLE TAXATION AGREEMENTS BETWEEN VIETNAM AND OTHER COUNTRIES 1. Resident persons Issue 1. A Vietnamese business paid loan interest to a branch of a foreign bank that is a resident person of a country having an agreement with Vietnam. In this case, the agreement between Vietnam and the other signatory nation does not apply to this interest amount. How will the business apply the agreement in this case? Will the company be able to apply the agreement between Vietnam and the domicile signatory country where the parent bank of the said foreign bank branch is a resident person for tax purposes? Response by Mr. Cao Anh Tuan, Vice General Director, General Department of Taxation Article 1 – Scope of the agreement specifies that the agreement applies to resident persons of either or both the signatory countries. In this case, as this is a resident person of a third country, it does not fall within the scope of the agreement. So when the Vietnamese company paid loan interest to the branch of an offshore parent bank, both the agreements entered into by Vietnam and the domicile country of the branch, and by Vietnam and the domicile country of the parent bank will not apply. The General Department of Taxation has had Official letter 3244, dated Aug. 12, 2015, elaborating on a specific case for a Singapore-based branch and its parent bank in Korea. Issue 2. Vietnamese tax administration agencies often consider a foreign individual living in Vietnam for more than 183 days in a year as a Vietnamese resident person, who has to pay personal income tax. However, many have argued that the individual should only be considered as the resident person of the country where that person‟s family and property are based.

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Can the Ministry of Finance elaborate on this? It would be reasonable if the Ministry of Finance identifies a resident person based on other factors such as the person‟s family and property, rather than exclusively the length of stay of such non-national. Response by Mr. Cao Anh Tuan, Vice General Director, General Department of Taxation Article 4 of the agreement regarding resident person and Article 2.2, PIT Law both recognize an individual having family and property in another country as a resident person of such country. Thus, the individual will be a resident person in both countries. In this case, the residence status of the person will be determined based on his/her personal relationships and economic interests. An individual living in Vietnam for more than 183 consecutive days in 12 months is considered as a Vietnamese resident person because he/she may have economic interests in Vietnam for more of the time. The General Department of Taxation had Official letter 2178, dated June 11, 2014, responding to Bac Ninh Tax Department on this issue. Ms. Huong Vu, head of the Tax Working group Here, there are two concepts – permanent residence and temporary residence. If a non-national having a home in another country, that will be his/her permanent residence; and if he/she comes to Vietnam and lives in a house for rent or a hotel, it will be temporary residence in accordance with the Civil Code. Is it reasonable to consider living in a leased house or hotel in Vietnam for a short period of time, for example, two years permanent residence? Mr. Bass, DTA consultant When we look at the residence concept, normal practice in many countries will be to look at different data and information in a comprehensive manner to tell which country an individual is a resident person in, for example, they will look at the person‟s property in the country he/she lives, and his/her family relationships. Using exclusively a length of stay of more than 183 days is not a common approach. Response by Mr. Do Hoang Anh Tuan – Vice Minister, Ministry of Finance Both the agreement and local law recognize the individual as a resident person, of both countries. If an individual is a resident person of two countries, the taxation right will belong to the country where the person lives in more often and against his/her income (more than 183 days in 12 consecutive months). 2. Resident interests Issue 1. Resident points of service Some agreements between Vietnam and other countries do not comprise a clause on resident points of service. Businesses may contend that when these agreements apply, provision of services by a foreign company in Vietnam will not constitute a resident business establishment for such foreign firm, in line with the agreements. Moreover, it is also common that while a service agreement may exist for many years, most of the related services may be delivered in another country, and the service provider may be present in Vietnam for a short period of time each year, often not exceeding six months in 12 consecutive months. Can the Ministry of Finance elaborate on how residence status is defined for this case of service agreement?

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Response by Mr. Cao Anh Tuan, Vice General Director, General Department of Taxation Determination of residence status often relies on Clause 5 of the agreement. As for local laws, it is determined based on these three criteria: - Maintaining in Vietnam an „establishment‟ such as a property, office building or part of

that property or office building; a vehicle or piece of equipment, and so on; and - Such establishment is permanent in nature. - And the company runs part or all of its business through this establishment. In view of these, saying that service delivery by a resident person of a signatory country in an agreement with Vietnam that has no provisions on resident service sites will not constitute a resident interest is inaccurate, if the act of service delivery meets the above three criteria. If the service provider shows up in Vietnam for a short while but such presence meets the above criteria an annual basis, that act will still constitute a resident interest in Vietnam. The question here is how earnings should be distributed in this case. The General Department of Taxation is working on that and will submit its proposals to the ministry on this. Ms. Huong Vu, Head of the Tax Working group A Malaysia-based company provides consulting services for a client in Vietnam through a 2-year contract. While the services are being delivered, no expatriate consultants are sent to Vietnam as the Malaysia company only provides strategic, policy and business expertise advice. Does this constitute a resident status or not? Response by Mr. Do Hoang Anh Tuan – Vice Minister, Ministry of Finance As an overall rule, the agreement is the dominating normative reference. If there is no definition in the agreement, what is written in a law still cannot be used. The solution may be twofold: - If the agreement does not provide a definition of resident service site, the governments

of the two countries may discuss and agree on an additional schedule. - The definition of a resident manufacturing facility may be borrowed for resident service

sites. Technically, a business establishment must exist, or a physical facility is leased, or humans or equipment must be on site to constitute a resident status.

In the above example, if the provision of the consulting services is not conducted through a Vietnam-based entity, and no personnel is sent to Vietnam, the definition for resident manufacturing facilities may apply to resident service sites. Ms. Huong Vu, Head of the Tax Working group In investors‟ mind, reference to Article 5.b would clearly indicate that the services above do not constitute a resident status. Nevertheless, local revenue services tend to refuse applying the Agreement for service agreements that span more than six months. Circular 205 should clarify this point to make it easier to understand and apply for both local tax authorities and businesses.

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Response by Mr. Do Hoang Anh Tuan – Vice Minister, Ministry of Finance For Agreements without a clause on resident service sites, the tax department‟s answer above would be correct. For Agreements that include provisions on resident service sites, tax administration agencies will be open to discussion and reconsideration. Issue 2. Resident dealers How are independent dealers defined? Which criteria are often used to determine whether a dealer has independent status or not? Mr. Arne Schuckmann, Finance Director, Bayer Bayer provides services to a client in Hong Kong. The contract price is determined through cost-plus pricing. This is a common type of deal in commercial transactions between two parties. Since the price is determined through cost-plus pricing, we agree in the contract that the offshore company may examine Bayer‟s books to verify whether Bayer‟s invoice values are correct. The revenue service however sees the foreign company‟s checking Bayer‟s books as an act of monitoring or controlling Bayer‟s business in Vietnam. We respectfully disagree with this position because it is actually and simply a commercial agreement between the parties for price validation purpose, rather than to control something. The services we provide to the foreign customer are often of supporting nature, such as order notice and collection reminder, and have nothing to do with risk taking for product sales in Vietnam of the Hong Kong company. All sales activities are executed directly by the foreign firm with buyers in Vietnam. Obviously, we are not a resident dealer of the foreign firm. Response by Mr. Cao Anh Tuan, Vice General Director, General Department of Taxation As the Agreement does not provide a definition for independent dealers, determination of independent dealer status will rely on applicable trade laws. But to identify whether a dealer is independent or not, Clause 7 of the Agreement can be used. In the case of Bayer, going into details about the independence or dependence of the parties will not be realistic given the time constraints of this meeting, so we can set up another meet with Bayer so that we can look further into this case, report to the Ministry of Finance and get back to you. Ms. Huong Vu, Head of the Tax Working group When Bayer, like many other companies, provides services to another country, the cost-plus pricing method is often used. As such, examination of the actual cost by the foreign partner to validate the payment amount is inescapable, which is the ground for the parties to come to an agreement that the Vietnamese party lets the foreign partner to check its books to validate the integrity of the costs incurred. This can in no ways turn the Vietnamese firm into a dependent dealer of the foreign partner. Response by Mr. Do Hoang Anh Tuan – Vice Minister, Ministry of Finance The bottom line in the Bayer case is that the company only provides sales supporting services, so it is not a distributor working on a commission or discount.

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Issue 3. Provision of goods Will provision of goods from a foreign supplier, with an Incoterm Group D shipment clause, including in-country import/export, constitute a resident status for the company in question? The business community‟s position is No, because this is simply an agreement on the place of delivery inside the importing country. The seller does not engage in any business transaction whatsoever through any establishment of permanent nature, or any dealer in Vietnam. Ms. Tran Thi Hang, Finance Director, DTI Our company, DTI, buys from our subsidiary in Vietnam for resale to customers. Sometimes, we buy from Vietnam and deliver to buyers in other countries, and at other times, we sell to our customers in Vietnam, and to save costs, we would agree with our subsidiary in Vietnam that instead of shipping to us, they can ship directly to our buyer in Vietnam. In this case, we believe that we do not create a resident establishment in Vietnam because the shipment agreement is simply a commercial one, and we do not sell our products through any other business facilities in Vietnam. Mr. Cao Anh Tuan, Vice General Director, General Department of Taxation This is similar to the first case mentioned above, to which the General Department of Taxation had provided general guidance. To be specific, a Malaysia company had agreed and paid taxes in Vietnam. The question that remains here is how taxable earning is distributed and the 1% tax rate, which is being studied by us before we report to the government to come up with more specific guidance for easier implementation. Ms. Huong Vu, Head of the Tax Working group Our point is not 1% or 5%, but the point is such transactions like these do not create any resident interest in Vietnam. In case merchandise bought from Vietnam is exported by order of a foreign firm, which may then ship the products to its buyers in Vietnam, the deals should be viewed as purely commercial contracts, where no resident interest is created. Ironically, when businesses try to capitalize on the good side of the in-country export/import scheme in trade, they would be deemed to create a resident interest, whereas the nature of the transaction remains the same. Ms. Dang Thi Hoai Thu, Tax Director, Samsung Vietnam This is also a problem with many suppliers for Samsung, typically Dongyang. Dongyang Vietnam is a subsidiary of Korea Dongyang. Samsung has a purchase contract to buy from Korea Dongyang, which in turn buys from Dongyang Vietnam. When Dongyang Vietnam sells to Korea Dongyang, by instructions of the holding company, Dongyang Vietnam will ship to Samsung. Samsung and Korea Dongyang both believe that in this transaction, Korea Dongyang does not create any resident interest in Vietnam, but simply wants to make the shipment from one of its subsidiary to Samsung. The local tax administration however disagrees and insists that Korea Dongyang pays the 1% withholding tax. Despite disagreement, Korea Dongyang had accepted to pay the tax since 2010. But after paying the tax in Vietnam, they take the tax statements home to Korea for tax credit discount only to face objection from the Korean government, which believes that Vietnam does not have the authority to tax this income.

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Korea Dongyang is now preparing proposals for a bilateral agreement between the revenue services of Vietnam and Korea to address this issue. Ms. Huong Vu, Head of the Tax Working group Taking this opportunity, we would like to bring to the table an issue of much interest by various businesses, which is application of the Agreement. Vietnamese revenue service requires paying taxes in relation to in-country import/export, but businesses paying taxes in Vietnam cannot get rebate from the tax authorities in their home countries, which object that Vietnam has the right to tax such transactions. This will render the signing of the Agreement meaningless as businesses still have to pay taxes twice. Similarly, shipment to bonded warehouses as instructed by an offshore party to its Vietnamese suppliers to deliver to bonded warehouse located deep inside Vietnamese soil is also deemed by local tax authorities as constituting resident interests. Mr. Bass, DTA consultant Regarding in-country import/export transactions, there is no dealer relationship between the offshore seller and the party making the shipment in Vietnam, as it is strictly a normal commercial activity with the point of delivery inside Vietnam territory. The Vietnam party has no capacity to ship on behalf of the foreign party. Secondly, when it comes to delivery to bonded warehouses, the Agreement also provides exceptions. To be specific, if the foreign party has a warehouse in Vietnam used for inventory, demonstration and shipment, there is no way this will create resident interests. Furthermore, if the Vietnamese government still considers in-country import/export or shipment to bonded warehouses as creating a resident interest, then we should look at the question of how the taxable earnings are distributed. In this case, it is same-price transactions and the tax has been paid by the Vietnamese firm, so there will be no more earnings to be distributed to the resident establishment in Vietnam. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance For the question of shipment to bonded warehouses, we will look again at the Agreement, and if the Agreement has exceptions for warehouses in Vietnam used for inventory and demonstration, its provisions will apply. Regarding in-country export/import, we admit that two streams of views currently exist, one arguing that a subsidiary in Vietnam is basically a resident facility of its offshore parent company. But according to the Investment Law and Trade Law, a subsidiary and its holding company are independent legal entities. In case of in-country export/import without the involvement of a Vietnam-based holding company, without personnel sent over to supervise the subsidiary, and without leases of plant and equipment, no resident interests will be created. Response by Mr. Cao Anh Tuan, Vice General Director, General Department of Taxation The General Department of Taxation has sent our head of the International Cooperation Department to negotiate with the Korean revenue service on this issue, namely the case of Dongyang Co., to make sure that the principle of no double taxation is observed.

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Issue 4. Resident interests in provision of electronic commercial services The business community understands that a foreign company providing electronic trade services not through a dealer or partner in Vietnam, and collecting payment from Vietnam through on-line payment modes will not be deemed to have resident interests here, thus is entitled to corporate income tax exemption in accordance with the Agreement. What is the Ministry of Finance‟s position on this matter? Ms. Huong Vu, Head of the Tax Working group We hope to hear from the Ministry of Finance on whether tax credit rebate is required in this case. Our position is that in reference to local laws, this activity will be subject to withholding tax as it creates income in Vietnam. Determining the tax rebate side however is not that simple, and if the Agreement applies, can the Ministry of Finance share its view on whether provision of electronic trade services creates resident interests? Mr. Dave, DTA consultant There are mixed views on how to determine the existence of resident interests for electronic trade services. By OECD standards, it should rely on where the server is located and the degree of server control to determine whether a resident interest is created. If the service provider only uses the server for administrative work such as credit card check or leases part of the server to perform the services through cloud computing, there will be insufficient grounds to say that resident interests have been created. Response by Mr. Cao Anh Tuan, Vice General Director, General Department of Taxation Yes, there are mixed views about this issue. As a rule, the Ministry of Finance agrees that the electronic trade service provider in this case has income generated in Vietnam. How taxes are collected and tax credit refunded however needs to be further looked at. We acknowledge the concern and will report it to the Ministry of Finance/government and come up with specific guidance for implementation, ensuring the goal of promoting business development and alignment with international practices. Mr. Mark Gillin, Head of the Customs Working group E-commerce is in a trend of strong growth. We urge the Ministry of Finance to provide specific implementing guidance soon to avoid a situation where companies involved in past transactions are subject to unnecessary tax clawback or fines while waiting for the guidance. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance The Ministry of Finance does not have yet specific guidance on this. We will however take a precautious approach in doing this, consulting relevant partners and international organizations to come up with the guidelines as soon as possible. Businesses should wait for guidance to come out before taking further steps. 3. Indirect transfer of shares We understand that indirect transfers of shares/equity may be subject to income tax levy in Vietnam. For example, a foreign company A (a tax resident person of Country 1) holds equity in a company X in Vietnam. A foreign company B (a tax resident person of Country 2) is the owner of the foreign company A. When company B transfers its shares in company A to another foreign firm C, such equity transfer may be subject to corporate income tax in Vietnam.

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In this case, assuming that Vietnam has had a double taxation agreement with Country 1 and Country 2, which of these agreements will apply to the taxable income in Vietnam? If this tax must be paid, how will the tax liability be determined? PWC representative We hope the Ministry of Finance lets us know how the Vietnamese government determines this is a case of indirect transfer of shares when no change of name appears on the license. Response by Mr. Cao Anh Tuan, Vice General Director, General Department of Taxation This is a new point to consider in the policy. The Ministry of Finance is working on implementing guidelines for it. 4. Real beneficiary What criteria, evidence or determinants are often used to determine the beneficiary in copyright transfer and loan interest payment transactions? We hope to hear the Ministry of Finance‟s elaboration on this. Ms. Huong Vu, Head of the VBF Tax Working group This concern has actually been recently attended to satisfactorily by the General Department of Taxation. We suggest including guidance on this concern in a Circular to align implementation with local tax administration agencies and avoid any confusion in the process, resulting in businesses having to make their cases to the higher levels, which is very time consuming. 5. Copyright/royalty If a foreign company provides services in the form of designs, concepts or advertising mockups to a Vietnam company, with waiver of any ownership or entitlement to such concepts, designs or mockups following the transfer, will this be considered as a form of copyright transfer? We believe that this should be viewed as a normal act of service delivery, and earnings from it should not be considered as royalty for the purposes of the Agreement. Ms. Que Tran, representative of WPP Thailand WPP Thailand has a service agreement involving designs, concepts and mockups for P&G Vietnam. In this agreement, all designs, concepts and advertising strategies transferred to P&G Vietnam will be property of P&G Vietnam, and only P&G Vietnam has the right to use these designs and concepts. The Vietnamese revenue service however informs that the pay we get will be taxed as income from royalty as it is related to designing. As far as we are concerned, this earning is not royalty-related income because we do not have ownership, use right or entitlement over the property. We provide services to P&G in all ASEAN countries, but only in Vietnam, we are deemed to have income related to royalty. Moreover, Article 23, Circular 205 specifies “Regulations on copyright taxes only apply to the recipients who are also the real beneficiaries of any earnings from such copyright, meaning that these persons have the ownership, use right and entitlement over the copyright. Thus, they will not apply to recipients of payments for copyrights/royalty who do not have ownership, use rights and entitlements over copyrights/royalty”. Response by Mr. Cao Anh Tuan, Vice General Director, General Department of Taxation Article 12 of the Agreement provides a definition of copyright/royalty, which includes “designs, mockups”. The presented case falls under the scope of this definition.

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Nevertheless, right before the conference, the Ministry of Finance has taken the lead in holding consultation with stakeholders and gathered quite a few mixed opinions on this. The concern is duly noted and we will further consult the Ministry of Science and Technology and Ministry of Industry and Trade to find an answer to it. Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance Only designs for which the ownership belongs to the author will entail the copyright concern. Mr. Mark Gillin, Head of the Customs Working group In terms of accounting, transfer of intellectual properties will involve changes to intangible assets. Obviously in this case, there is no asset but only expenses incurred to generate income from the services rendered. Moreover in advertising, design is but a very small part of the entire process. Designs or concepts need to be realized if they want to offer any real value. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance General Department of Taxation will take into account the above comments and rethink the implementing guidance. 6. Loan interest Are fees (e.g. loan arrangement fee, commitment fee) payable to the lender as stated in the loan agreement considered as loan interest income in the Agreement? The current Circular 103 on withholding tax specifies that loan interest encompasses fees that the borrower has to pay in accordance with the loan agreement. Most of the Agreements define loan interest as income from loans in any forms. However, arrangement and commitment fees may arise even when the borrower has not or will not withdraw the fund. We need the MOF to clarify on how earnings from fees related to loan agreements are classified for the purposes of the Agreement. Ms. Huong Vu, Head of the Tax Working group What we need here is to clarify whether loan arrangement fee is part of the loan interest or business earnings, because if it is part of the loan interest, Article 11 of the Agreement will apply, and if it is business earnings, Article 7 of the Agreement will set in. Response by Mr. Cao Anh Tuan, Vice General Director, General Department of Taxation To tell whether the fee is loan interest or earnings for the purposes of applying the Agreement, we should rely on the definition of loan interest in the Agreement and the terms and conditions of the contract. Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance The Ministry of Finance, General Department of Taxation and business community need to look further into how the Agreement should be applied in respect of this matter to come up with something specific for investors. 7. Issues One of the current tax concerns that members of the developer community of our association is very interested in, especially multi-industry companies that do business in real property, planning to do business on a large scale an in a sustainable way, is one that relates to swapping losses from other businesses with real property to offset profit from real property business.

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Current rules do not allow offsetting profit from real property transfer with losses from other business activities. The application of this rule is giving rise to an unfair business environment for multi-industry companies, giving a hard time for businesses in harnessing and rolling over capital, fails to create momentum for the economy to grow and is not in harmony with tax best practices in other countries in the region and the world. The recent revised law has attempted to address this issue in ways that allow offsetting profit and loss from real property business with other undertakings. To help create a healthier real property market, ensure fair treatment for multi-industry businesses, and stay aligned with international best practices, we would appreciate if the Vice Minister supports the draft for it to be translated into real life. 8. Investment protection Toto representative Toto had its investment license in 2002 with incentives in the form of 2-year tax exemption, 3-year tax reduction, and 15% tax rate for the entire project life. In 2008, we renewed our license as required by the Investment Law of 2005, where the eligible incentives turned out to be less favorable than the 2002 license. So we chose to fall back to the initial license by applying rulings on investment protection. While export proportionate incentives were cancelled in 2008, implementing documents were only available for textile companies. It was until 2012 implementing documents were released for other types of businesses. So in 2008, we could not figure out which incentives might be the best for us, and were only able to see that in 2012 when the new guidelines came out. Response by a representative of the Policy Department The Policy Department had consulted the Ministry of Justice and MPI before responding to the queries. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance The initial incentives stated in the license of 2002 remained valid even if the company renewed its license in 2008. What the company wanted was to keep the 15% tax rate for the remaining project life by adopting applicable WTO incentive swap rules. I will look back at this matter. As a rule, if the ministries concerned have varying ideas, the matter should be referred to a higher-level authority. 9. Investment in business expansion Ms. Huong Vu, Head of the Tax Working group Determinants of whether a company invests in business expansion prior to 2014 are still supported with specific guidance, despite VBF‟s multiple petitions to the Ministry of Finance in this regard, resulting in inconsistent implementation in practice. Some local revenue services have treated any newly purchased assets from 2009 as business expansion, or they would compare the total historical cost of fixed assets with the registered capital of the project stated in the investment certificate, and any surplus would be considered as evidence of business expansion, while it is actually not. Representative of Yamaha We now have the gross asset value greater than total investment capital as we used depreciation fund to buy capital assets. Production output however remains unchanged, as does investment capital. Will this be treated as business expansion?

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Response by Mr. Cao Anh Tuan, Vice General Director, General Department of Taxation We totally agree with the arguments raised. The Ministry of Finance is drafting implementing documents for this and consulting other relevant ministries. 10. Input VAT credit Mr. Sambuy Constantino, representing Piaggio We order dies from suppliers to make parts. As it takes a long time to make dies, we often pay suppliers on a schedule, and the suppliers will issue their VAT invoices to us. Also to relieve the administrative burden, our suppliers and we use the SRM software for order placement, progress monitoring, handover and acceptance of products. The revenue service however does not approve our claim for tax credit rebate for the invoices issued by the suppliers, saying that the invoices were released too soon and that acceptance certificates are missing. We believe that stage-based invoicing by our suppliers is like in construction, and when the invoices are released, the suppliers have already paid any liable taxes required. Our use of the software for product acceptance is also consistent with the current trend of environmental protection. So we are asking to be allowed input tax credit for these invoices. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance The Ministry of Finance agrees with the request and proposes confirmation for this particular case, as with other similar instances. A representative of Ford Motor Applicable policies for 2008-2010 rule that support for dealers is not required to be invoiced, and instead, only receipts or payment statements will suffice, but recently invoices have been required for such support. In our case, if we provide sales volume support for our dealers, we would ask the dealers to issue a VAT invoice, which is the most reliable evidence for the support we provide our dealers with. While the use of VAT invoices at a 10% tax rate for 2008-2010 was not consistent with applicable laws, it did not affect the tax obligation of the parties involved with the revenue service, but it even does more good than harm as when a dealer issues an invoice, it will have to file and pay VAT and CIT in full. The revenue service however still refuses to let us claim credit rebate for these invoices. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance As the invoice issuing party has filed and paid VAT, input tax credit rebate should be considered for the recipient. This is a matter of retrospective processing, and approval should be given. A representative of Doosan Heavy Industry Doosan Heavy Industry is a prime contractor for a construction project in Vietnam. As the developer was not in a good financial shape, it delayed payment to us, and as a result we did not have an output. Notwithstanding, we approached our holding company to look for support to try and pay our subcontractors in time. As a result, we had more input VAT than output and needed to claim for refund. Given the dispute between the developer and prime contractor, which is being handled by the court, the tax administration refused to refund the tax credit to us until a judicial award was released. Our position: VAT is the tax money we actually paid from our pocket to the state budget. In the face of the developer‟s poor financial performance, we were the one taking the risk for

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the costs incurred. And now if we are not allowed to claim the input VAT excess credit refund, our risk will double. We therefore urge the Ministry of Finance to take a look at our case. Ms. Huong Vu, Head of the Tax Working group We share the views of policy makers that input tax credit refund where only input tax is reflected, without output, should be strictly controlled to avoid scams of using shelf companies and phony transactions to claim input VAT excess credit refund. But in the case of Doosan, it is the developer‟s poor financial state that led to its failure to pay the main contractor, hence the absence of the output side. It would be a long time to wait for the court to give its award before the company can claim its refund. We urge the Vice Minister to look at this company‟s case. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance The issue is duly noted and we will ask the relevant tax administration agencies to report to the ministry for consideration. Meanwhile, related files can be submitted to the Ministry of Finance for our review. Mr. Mark Gillin, Head of the Customs Working group Court proceedings and VAT processing are two different matters. The suppliers (subcontractors) already paid VAT when they issued the invoices. By nature, value added tax is levied on the incremental value of goods and services. If the goods and services are not used (no output), there will be no added value, thus no tax. Doosan‟s claim for refund only applies to the tax money already paid by the suppliers. 11. HS code classification Mr. Adachi Yasuhiro, General Manager, Hi-lex Our company has been using imported goods for business purposes. When we import the goods, we would consult the HS code classification function of the General Customs Department to apply the right codes for the goods we import. In 2010 and 2014, the Customs Department of Haiphong City checked and accepted the HS codes filed by us. But in 2015, Haiphong customs checked again and surprisingly refused to accept the HS codes that we used, and also initiated tax clawback procedures and imposed fines that tripled the value on us. Regarding HS codes, we do not import motorcycle parts, but instead we import semi-finished products, which have to go through multiple technical stages at our factories before becoming parts and assemblies. These semi-finished products therefore should not be treated as finished parts, like commercially imported parts. We believe that the customs‟ verdict was in breach of the current investment protection policy of the Vietnamese government and Vietnam-Japan Investment protection agreement, and a setback in efforts to promote supporting industry development in Vietnam. Response by a representative of the General Department of Vietnam Customs Regarding HS code classification, before Nov. 1, 2013, the General Department of Customs had three independent code classification centers to cater to businesses‟ proposed code classification. Given the sometimes complex and hard to classify nature of some products, inconsistency had emerged between the three centers. Therefore, after Nov. 1, 2013, the General Department of Customs resorted to one classification result only – that endorsed by the General Director of the General Department of Customs. But Article 6.4, Circular

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14/2015 of the Ministry of Finance specifies that in case the customs approved a registered HS code classification and later changed its verdict, such new decision will apply only from the time it came out. To help us look further into your case, you can provide necessary documents to Haiphong customs for further reporting to the General customs department for consideration. Mr. Mark Gillin, Head of the Customs Working group Now that Vietnam is a member of the World Customs Organization (WCO), HI-lex can provide HS classification from other countries for reference by the local customs. Hi-lex can also access the WCO‟s website, GRI section to look for classification information there. Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance The new Customs law being in effect from Jan. 1, 2015 has clauses stating that Vietnam fully recognizes and respects international customs code classification. In your case, it is just a matter of conflicting ideas between the customs and taxpayer, rather than an official award has been given. So you can make your case to the Ministry of Finance and General customs department so that we can follow-up and make sure your rightful interests are protected. 12. Customs valuation A representative of Tetra Park We are an importer of milk packaging materials. It is out holding company‟s policy that packaging prices may vary based on market conditions, and the prices are often lower in Vietnam. But when we do the import, we are often asked by the customs why the prices are low, and clearance is often not as smooth as expected, affecting our ability to ensure continuing supply for production. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance The Customs Law specifies that in case any difference of positions exists between the customs and importers, the customs still have to clear the imported goods no later than 24 hours to make sure that production does not suffer. Any disputes will be handled later, after clearance. In case the contract price is the paid price and the one factored in the product cost, the customs has to accept it as a market price. 13. Withholding VAT for franchising Ms. Huong Vu, head of the Tax Working group Franchising VAT has had unclear and conflicting guidance from the General Department of Taxation. Until before Official letter 631/TCT-CS, Mar. 3, 2014, all GDT‟s guidelines pointed out that franchising is not subject to VAT. After OL 631 however, local revenue services started to collect withholding VAT for franchising contracts with foreign parties, but with different tax rates, causing disputes between tax offices and taxpayers. At a consultation between MOF and Eurocham in December 2014, Vice Minister Do Hoang Anh Tuan said that added value ratios will apply with other lines of business (and not services), but until now, MOF still does not disseminate any guidelines in writing to local revenue services. We urge that MOF gives uniform guidelines to local revenue services regarding the added value ratios applied to franchising in other lines of business for consistent adoption by local tax offices. PWC representative Levy of withholding VAT should only start when specific guidelines come out.

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Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance The Tax Policies Department, Ministry of Finance, has been consulting relevant agencies and international best practices to decide whether taxing is needed, and if yes, how much. Mr. Sambuy Constantino, representing Piaggio Since Official letter 631 came out, we have been filing and paying VAT, but the revenue service now asks us to retrospectively pay taxes for amounts before Official letter 631. We urge the Ministry of Finance to give specific instructions on the timing of tax collection. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance We have agreed that the Ministry of Finance and General Department of Taxation will review Circular 103 and other implementing documents to come up with more specific guidelines. The principle however is to impose tax from the time an implementing document comes out. 14. Investment in business expansion A representative of Parkson We started doing business here in 2006 through subleasing levels 1-4 of the trade center. Subleasing however did not give us control over the rent and space, so in 2008, we decided to acquire the whole building. To buy the building, we need to increase investment capital and renew the license. After we bought the building, the business at levels 1-4 remained the same, and we only renewed the lease contract for level 5 to be consistent with the ownership change. We understand that despite our increased capital, there was no increase of business size, except some extra income from leasing level 5. Earnings from the on-going business at levels 1-4 therefore should not be treated as business expansion. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance For your particular case, please send your file to the Ministry of Finance for our review. Nissin Brake We manufactures motorcycle brakes. We had our investment license in 1996, stating the tax incentives we were entitled to. In 2007, we added some lines of business and investment capital, and obtained an Investment certificate. In the Investment certificate of 2007, the licensing agency kept the incentives of the investment license of 1996 intact, and we have followed these incentives in the investment certificate of 2007 to date. We believe that in accordance with the current investment protection policy, the tax incentives stated in the license are the highest benchmark for our implementation. Can the Ministry of Finance validate our understanding? Also, we urge the Ministry of Finance to walk us through how to determine business expansion investment based on the total investment capital for our correct application. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance Regarding investment incentives, we agree with the investment protection rules you raised, as they are defined in the law. For wrongly defined incentives stated in the investment certificate, like the Honda case, we would address the issue in the principle that if the regulatory agency is at fault, it should bear the consequences. So the company will continue to benefit from the incentives stated in the license. In your case, if things are as you reported, you can send a request to the Ministry of Finance for specific guidance.

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In respect of how to identify business expansion investment, the Ministry of Finance is working on a specific scheme. We agree with the recommendation from this forum that increase of assets from retained earnings and depreciation fund, without making the business size to enlarge will not be deemed business expansion. 15. Withholding tax rate for construction with building material cost included A representative of Falcon Falcon is the main contractor of the Tram Lake project. We signed the contract in 2011 and 2012, and applied Circular 134 for the tax rates applicable to construction and building works with material or plant and equipment cost included, for which the CIT rate on taxable revenue was 2% of the total contract amount. If a foreign contractor has a contract with a subcontractor to hand over all works or work items with material or plant and equipment cost covered, and the foreign contractor is only responsible for the remaining value in the contract, the CIT rate on taxable revenue for service sectors (5%) will apply. We received Official letter 3602, Mar. 19, 2015 from the Ministry of Finance, asking us to use the 5% CIT rate in case we hand over all construction works to subcontractors and retain only the supervision part. The official letter however was not specific on whether, we, in both a supervision and partial material (or plant/equipment) provision capacity, can use the 2% rate. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance The Ministry of Finance agrees that if a main contractor transfers all construction works, material and equipment provision to subcontractors, and only retains the supervision part, the 5% rate will apply; if the main contractor is in charge of both supervision and material provision, the 2% rate will apply. The current 5% applied on project management is unreasonable. The Policy Department will consider revising the Circular to increase its real value. 16. Issuance of cumulative VAT invoices for multiple shipments A representative of Honda Honda has a wide dealer network all over the country. For every shipment now, we release an invoice. But given the large number of dealers, we need a large volume of invoices accordingly. We suggest that the Ministry of Finance allows us to issue invoices on a monthly basis to relieve the paperwork burden. The reason behind that proposal is that we have a good software system that is capable of strictly controlling orders, and we have shipment notes listing fully VIN numbers. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance The government is about to release a Resolution on electronic invoicing to relieve the paperwork burden for businesses. Only the sample invoice and how the invoices are used will be registered to the tax office to become recognized. To safeguard your own interest, you can register for use of electronic invoicing. For special cases, MOF has delegated GDT to address businesses‟ concerns. 17. A representative of Vinaflour We are based in an industrial park in Ha Long City, Quang Ninh province – a Class I City upgraded from a Class 2 city in 2013. We are engaging in a business expansion project, but as we are located in an industrial park in a better-off municipality, we do not have any incentives. But Circular 151 has specified on criteria to define areas with advantageous socioeconomic conditions as urban districts of special class, Class 1 central-level, and

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Class 1 provincial level cities, and not including districts of special class cities, central level Class 1 cities and Class 1 cities of new provinces formed from districts since Jan. 1, 2009. We would appreciate if the Ministry of Finance helps us determine if we are located in a non-advantageous site as indicated in Circular 151. Response by Mr. Do Hoang Anh Tuan, Vice Minister, Ministry of Finance You are based in Ha Long City – a Class 1 city, so no incentives.

5.2. LAND

Land Sub-Group Position Paper Vietnam Business Forum, 2015

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LAND SUB-WORKING GROUP POSITION PAPER Prepared by

Mr. David Lim Head of Land Sub-Working Group

A. INTRODUCTION With the new Law on Real Estate Business 2014 (“LREB”) and the Law on Residential Housing 2014 (“LRH”) taking effect on 1 July 2015, we have seen renewed interest and activity in the nation’s real estate market. Decree No. 76/2015/ND-CP guiding the LREB was officially issued on 10 September 2015 (“Decree 76”).It is encouraging to note that some of the key comments on the draft Decree 76 raised at the Vietnam Business Forum Meeting held on 9 June 2015 were incorporated. At the same time, Decree No. 99/2015/ND-CP guiding LRH was officially issued on 20 October 2015 (“Decree 99”). In light of the theme “Enhancing Enterprise Competitiveness for Global Integration “for the Annual Meeting 2015 organized by the Vietnam Business Forum, we set out our comments in respect of the key provisions in the relevant laws which may restrict competitiveness in the real estate industry and our recommendations to address such issues. B. ISSUES 1. Restrictions on sources of capital Article 69 of the LRH and Article 19 of Decree 99 provide a list of sources of capital for residential housing projects. This list limits the sources of capital for residential housing developers. This reduces the ability of real estate developers to raise capital effectively and directly affects the competitiveness of such developers. There is no need to limit the ability of property developers from raising capital from legitimate sources. If there is a concern about the sources of capital, measures should be introduced to ensure that the sources are legitimate. A blanket restriction is not the most efficient way to deal with this issue. Recommendation We suggest inserting the right to raise capital from offshore credit institutions and non-credit institutions; and capital from other sources which are not prohibited by laws.

2. Restrictions Affecting Foreign Developers According to Article 11 of the LREB, foreign developers are not permitted to transfer the land use right in form of division of land into plots for sale whereas Vietnamese real estate developers are permitted to do so. Further, enterprises with foreign owned capital are permitted to collect up to only 50% of the value of the contract for sale and purchase or hire-purchase of real estate to be formed in the future whereas the applicable percentage to Vietnamese real estate developers is 70%. It is not clear why this difference in treatment for foreign invested and Vietnamese real estate developers is necessary. This inconsistent treatment creates inefficiencies within the real estate sector and impairs the competitiveness of the industry in general.

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Recommendation We would recommend that any difference in treatment between foreign invested and Vietnamese developers to be removed to ensure a fair and level playing field for all in the real estate sector in Vietnam.

3. Notarization of Contracts for Sale and Purchase of Residential Houses According to Article 93.3(b) of the law on residential housing in 2005, contracts for residential houses to which a party is a real estate business enterprise shall not be required to be notarized. However, pursuant to Article 122 of the LRH, all contracts in relation to the sale and purchase of residential houses are required to be notarized/ certified. This implies that contracts for sale and purchase of residential houses entered into with the seller being a real estate business enterprise are also required to be notarized/certified. However, this Article is not consistent with Article 17.2 of the LREB which provides that the notarization/certification of contracts for real estate business shall be subject to the agreement between the parties, while it is mandatory for the real estate agreements entered into between individuals/households to be notarized/legalized. It is not clear if the intention is to require all contracts in relation to the sale and purchase of residential houses to be notarized including contracts in which one of the parties are the real estate business enterprises. Recommendation We suggest clarifying this point in the Draft Decree by providing clearly that “contracts for sale and purchase of residential houses entered into with the seller being enterprises having function of doing real estate business need not be notarized/certified” to be consistent with the provision under the LREB.

4. Capital Reserve According to Article 108.1(b) of the LRH, the developers are required to contribute 2% of the value of apartments which are not sold at the time of commissioning of the apartment building for maintenance of parts under common ownership of the apartment building. Such value is calculated based on the highest selling price of the apartment in an apartment building. As there are many categories of apartments with different designs or floor areas in an apartment building, there are significant differences in the prices of the apartments. Therefore, this requirement is not practical and causes much difficulty to developers. Further, there is no mechanism to deal with payments made for this purpose where the apartments are sold at a later stage. Recommendation We suggest amending such provision as follows: “…this value is calculated based on the highest selling price of the apartment in the same category within the apartment building”. Further, there should be a mechanism for the capital reserve paid by the developers to be refunded or retained by the developer when the apartment is sold to the buyer.

5. Foreigners Buying Real Estate in Vietnam Article 161.2(a) of the LRH allows foreign individuals/organizations to own a maximum number of 250 individual residential houses in a ward, comprising villas and terraced houses. We note however that Article 68.4 of the Draft Decree introduces an additional restriction whereby foreign organisations/individuals may own no more than 10% of the total number of individual

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housing in each residential housing project. We are of the view that the number of maximum units which the foreign individuals and organisations are allowed to own are further limited and not consistent with the LRH. Further, according to Article 67 of the Draft Decree, foreign individuals and organizations are not entitled to own residential houses in areas where foreigners are prohibited or restricted from residing or travelling as provided under the law on residence and travel. We note however that according to Article 159.2(b) of the LRH, foreign individuals and organizations are only prohibited to purchase houses in national defense and security area. Article 67 of the Draft Decree has introduced a wider restriction for areas which foreign individuals and organization are allowed to purchase houses. Moreover, Articles 69.2(b) and 69.3(b) of the Draft Decreeprovide another additional restriction in the one-time extension of residential housing ownership requested by foreign owners. Such restriction will cause concerns to foreign buyers and may cause negative impact to business development of developers. We propose that unlimited extensions should be provided except where foreign individuals and organisations are not allowed to own such residential houses for national defence and security reasons only. Recommendation We suggest removing such additional restrictions under the Draft Decreeas such restrictions may deter the foreign investors from purchasing real estate in Vietnam and affect the ability of real estate enterprises to conduct business. These restrictions also cause Vietnam to lose competitiveness in comparison to other countries which have fewer restrictions on foreigners owning real estate.

6. Timeline for Capital Contribution It is provided in Articles 48.2 and 74.2 of the Law on Enterprise 2014 that the members of a limited liability company are required to contribute capital in full within 90 days from the date of issuance of the enterprise registration certificate. Investors are required to contribute capital within a short period of time notwithstanding that the implementation of the project may be conducted over an extended period of time. This requirement is unrealistic as a substantial amount of capital may not be required at the beginning of the project. An example of this is large scale projects e.g. township developments and infrastructure projects. These requirement disincentives developers from undertaking large scale projects which are necessary for organised and coordinated development. This requirement will also lead to inefficient use of capital and inhibit business competitiveness in the real estate industry. Recommendation We propose incorporating provisions which allow capital to be contributed according to the implementation of the project. Flexibility is also required for extended period for contribution of capital in large scale projects.

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C. CONCLUSION The points we have highlighted limit the rights of real estate enterprises hence affecting the competitiveness in the real estate industry. The additional restrictions, onerous contribution obligation and delay in introducing necessary guidelines provided in the draft decrees create the impression that the investors will face many hurdles to invest in the real estate sector in Vietnam. The impact of the new laws to increase competitiveness in the real estate industry would therefore be diminished. In view of the issues above and the government’s objective to ensure growth in the real estate industry, it is crucial that clear and consistent guidelines are provided to eliminate any complications or confusion to the investors and real estate buyers. The administrative procedures should also be simplified to expedite the process and onerous requirements should be removed to provide more flexibility to the investors.These changes are critical to ensure that Vietnam continues to remain competitive in the region.

Land – Progress Report Vietnam Business Forum, 2015

Important Note: This "Progress Matrix" was prepared based on the voluntary submissions of the various Working Groups and Sub-Working Groups of the Vietnam Business Forum from 2011 - 2014. In terms of both the feedback and the rankings/progress evaluations, it is not intended to be either complete or scientific. It does nevertheless reflect many issues of concern that have come up in the various Working Groups, and their constructive proposals for solutions. It is hoped that it will provide a useful reference to track and guide progress as the Government and the business community continue their collaboration to improve the business environment though the channel of the Vietnam Business Forum. Among other things, it should be noted that many issues already fully resolved have been dropped from this Progress Matrix to limit the size of the document, and almost all of the issues noted are those that still need more work.

Page 1 of 32

LAND PROGRESS REPORT Prepared by

Land Sub-Group Scoring to be rated as followings: In progress report: 0 = issue remains; 1 = partially somewhat resolved; 2 = issue has been solved. Priority (1 -10: highest). Score = (Progress) x (Priority)

No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score

Part I. Law on Land

1 Old Foreign investors are disadvantaged in securing property because of arduous, discriminatory procedures. A lease must be negotiated with the State and an investment registration certificate (“IRC”) and an enterprise registration certificate (“ERC”) must be obtained before a foreign investor may compensate the land user. These procedures disadvantage foreign investors relative to local developers. Obtaining the IRC and ERC are lengthy process, and land users will be unlikely to wait for their issuance before compensation.

Do away with the requirement that leases must be negotiated with the State. Allow land use rights certificate to be issued to foreign investors before issuance of the IRC and ERC.

Not addressed. X

8 0

2 Old Decree 84/2007/ND-CP, art. 32, allows foreign developers to secure 70-year lease terms for residential leases, indefinitely extendable without

At a minimum, clarify that the extendable 70-year term is available to any project with a residential component. Additionally, it would be

Decree 71/2010/ND-CP (“Decree 71”) defines developments to include mixed use developments with residential component.

x 5 0

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additional rent. However, "residential"

is not a defined term and it remains unclear as to what will be considered a "residential" project in the context of mixed-use development. This uncertainty causes disincentives for highly beneficial mixed-use projects.

beneficial to provide the same lease terms to any project regardless of its "residential" nature.

Article 17 of Law on Residential Housing dated 25 November 2014 (“New LRH”) provides the same as Decree 71. However, it is not clear if the 70 year lease terms apply to such mixed use developments or not. This should be clarified.

Article 126 of the Law on Land

dated 29 November 2013 (“New Land Law”) provides that the lease term shall be 50 years for all projects and it may be extended by the State. The land user shall pay the land use fee for the extended term.

3 Old The interpretation of "economic organisation" provided under the Land

Law dated 26 November 2003 (“Old Land Law”) refers only to local enterprises, is inconsistent with the definition provided in art. 103 of the Civil Code.

Amend the Old Land Law to clearly provide that the term "economic organisation" refers to "local enterprise." This is a fundamental legal inconsistency that requires technical correction to harmonise the laws on land development.

The New Land Law provides definition of "Foreign invested

enterprises"(“FIE”) and "Economic organisations". Accordingly, FIE include joint

venture (“JV”) enterprises, enterprises with wholly or partly owned by the foreign company. Economic organisations refer to local enterprises only. The law on real estate business

2014 (“New LREB”) does not provide definition of “Enterprises with foreign owned capital”

x 10 0

4 Old Investment approval for real estate projects is impossible to obtain under current circular, multi-step procedures.

Amend arts. 7, 12 of Decree 71 as to simplify the approval procedure and remove circularity. Approval should, ideally, be a one-step procedure.

The head of the Property Market and Management Administration, Ministry of Construction, points out that Decree 71 applies only to

x 9 0

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score

Art. 29.1(e) of the investment law 2005 (“Old LOI”) requires an Investment

Certificate before implementation of a project. Decree 108, arts. 11.2, 46–47, conditions the certificate on the presentation of various documents, including (under Decree 71, art 7.) an

Investment Approval. Such approval is itself conditioned on a Certificate of Recognition of Investor (see Circular 16/2010/TT-BXD, art. 6.1), which, circularly, is conditioned on an

Investment Certificate (see Decree 71, art. 12). Article 23 of the investment law 2014

(“New LOI”) provides that foreign investors must obtain the IRC prior to establishment of enterprises in Vietnam. Article 170 of the New LRH provides that an in-principle

investment approval (“IIA”) shall be obtained if the residential housing project is not subject to the in-principle

investment decision (“IID”). It is unclear whether the IIA shall be obtained prior to or after the issuance of the IRC/ERC.

There should be specific procedure for land clearance and land compensation process without involvement of State. Also, this should be treated the same as projects involving the State. VCCI's proposal to reduce procedures for land development projects from five days to three days should be supported.

residential projects. Nonetheless, circularity appears to persist.

The New Land Law does not adequately address this and still does not separate investment and land approval procedures. Also New Land Law only provides for procedures for land clearance and land compensation involving the state, but is silent for procedures where investor undertakes compensation process.

Article 58.3 of the New Land Law requires that investors must prove their financial capacity and make deposit in order to be allocated land or leased land by the State for investment projects. Details for such requirements are however not clear under the New Land Law. Such conditions are investment requirements and should be separated from land related procedures.

Article 42 of the New LOI provides that investor must provide an escrow deposit (1% to 3% of investment capital of the project) as the security for performance of the project for which the State allocates or

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score

leases out land or permits conversion of the land use right.

5 Old Land Compensation is unavailable following the recovery of leased land, whether or not the lease is paid in advance as a lump sum. See Old Land Law, art. 43.1(dd).

This is at odds with the treatment of land allocated from the State under art. 43.1(d), where compensation is available. This distinction is unfair and cuts against foreign investors. According to Article 83.5 of the Draft land law, Land Compensation is not applied for the recovery of leased land, which the lease is paid annually, or as a lump sum for the whole term of lease and being entitled to lease exemption.

Amend the law to provide for compensation to all lessees regardless of where payment is made annually, lump sum or with rental exemption.

The New Land Law provides compensation for lump sum payment only and not annual payment or rental exemption.

x 8 8

6 Old Old Land Law, art. 90.4, seems to allow subsequent investors in industrial zones the choice between lease and allocation from the State, but art. 90.3 and Circular 01/2005/TT-BTNMT make it clear that subsequent investors may only receive their assignments/leases directly from the original developer.

Amend art. 90.4 to remove any reference to lease/allocation directly from the state in the case of subsequent investors.

According to Articles 149.2 and 149.3 of the New Land Law, it is clear that the subsequent investors can only sub-lease land from the original developer.

x 4 8

7 Old Land disputes (under Land Law, Arts. 136) must undergo conciliation before a local People's Committee before referral to a court or provincial/district People's Committee for final resolution. The minutes from conciliation must be signed by both

Amend the law to provide for the refusal of a party to attend conciliation, perhaps by treating an absence as an unsuccessful conciliation capable of referral.

Article 88.1 of Decree 43/2014/ND-CP dated 15 May

2014 (“Decree 43”) provides that if one of the parties to the dispute is absent for the second time, the conciliation is deemed unsuccessful and shall be

x 8 16

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score

parties before referral. This process may be abused by an uncooperative party. A refusal to attend conciliation prevents the creation of the minutes necessary for a referral. The law does not currently address such a situation.

resolved by either the People’s Committee and People’s Court.

8 Old Old Land Law Art. 93.3 prohibits foreign investors from leasing/subleasing from individuals or households for business/production. No such restriction applies to Vietnamese economic organisations.

Amend the Old Land Law to allow foreign leasing from individuals and households.

Not addressed in the New Land Law.

x 8 8

9 Old Presently, the ability to mortgage a land use right is severely restricted for individuals, households, and economic organisations: • Individuals/households may only secure a mortgage for production or business purposes. See Old Land Law, Art. 113.7 • Economic organisations (both domestic and foreign) may only secure mortgages from on-shore credit institutions. See Old Land Law, art. 119.3(d).

These restrictions fail to recognise the non-commercial reasons why individuals may wish to borrow, and fail to recognise the importance of flexible mortgage laws to corporate financing.

Amend the Old Land Law to allow for more flexible mortgage arrangements. Specifically: • Amend 113.7 to allow individuals and households to mortgage their land use rights for non-business purposes. • Amend 119.3(d) to allow economic organisations to mortgage their land use rights to domestic economic organisations in addition to credit institutions. • Amend 119.3(d) to allow economic organisations to secure a mortgage from offshore lenders. Land users should be permitted to mortgage land use rights to domestic economic organisation or individual and not just a credit institution, which will create more

The New Land Law has incorporated many of recommendations by removing restrictions on purpose of

mortgaging land; however, the New Land Law still limits for economic organisations, Vietnamese residing overseas and FIE to mortgage to credit institutions authorised to operate in Vietnam.

x 8 8

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flexible investment mechanism.

10 Old There is uncertainty as to whether the

rights of real estate (enumerated in Decree 108/2006/ND-CP (“Decree 108”), art 2.1) and the "right to develop on land" are assets attached to land. Certainty is required to clarify what capital contributions land use rights holders may make with their land.

Amend the Old Land Law to include rights of real estate and the right to develop projects on land as assets attached to land.

Not addressed in the New Land Law

x 4 0

11 Old Annual land rental tariffs, under Circular No. 94/2011/TT-BTC, are set at 1.5% of the published land price. However, local authorities may instead set this rate as high as 3% if the property provides "special profits" or "outstanding advantage." These ambiguous terms gives the authorities a great deal of discretion over rental tariffs without any guidance as to where the higher rates may be appropriate.

Provide more detailed guidance as to where the higher tariffs are appropriate.

Not addressed in the New Land Law and Decree 46/2014/ND-CP dated 15 May 2014 (“Decree 46”) on collection of land rent and water surface rent.

x 5 0

12 Old Leases obtained by FIE are almost identical (particularly in cost) to a land allocation made to a local or overseas Vietnamese investor (see Decree

69/2009/ND-CP (“Decree 69”), art. 13) yet the leases made to FIE generally do not share the stability or longevity associated with allocations. This discrimination seems unfair.

Amend the Old Land Law to allow FIE the same terms given to local investors.

Significant improvement in the New Land Law, where rights of lands users are adjusted so economic organisations and FIE have more equal rights to obtain land allocation/land lease from the state. Right of land users to obtain allocation/lease now based on project rather than land users being foreign or

x 7 7

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score

domestic. In particular, land allocation applicable to all entities who invest in residential housing projects for sale/for sale and lease provided allocation is within term of project; land lease with one-off payment/annual payment applicable for these entities that invest in residential projects for lease, commercial projects and other agriculture/non-agriculture projects. However, according to Article 127.3 of the New Land Law, economic organisations are entitled for land use right for use on a stable and long term basis upon conversion of land use purpose from non-agricultural land use right for use on a stable and long term basis to non-agricultural land use right for a definite duration or from non-agricultural land use right for a definite duration to non-agricultural land use right for use on a stable and long term basis. This provision is however not applicable for FIE. Further, according to Article 55.4 of the New Land Law, economic organisations are entitled to be allocated land for grave yards/cemetery for business

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score

purpose, which is not granted to FIE.

13 Old Decree 69, art. 11, allows for the re-determination of land prices, creating investor uncertainty regarding the full costs of an investment. Furthermore, the decree provides no objective guidance as to how the recalculated prices are determined, compounding its inherent problems. Under the Land Law relating to land prices, land prices are to be determined according to market prices. Unfortunately, there is a lack of transparency and clarity on the procedures to determine land prices and this has caused great difficulties to developers and caused projects to be delayed unnecessarily.

Remove the provision completely. At a minimum, ensure that objective guidelines are provided as to when and how redeterminations are to occur.

Article 114 of the New Land Law provides a price list which is prepared for a 5 year period and can be adjusted when the common market price increases by 20% or more as compared to the maximum price or decreases by 20% or more as compared to the minimum price in the land price list. We agree that the use of a price list provides more certainty but a 5 year period is too long to properly reflect changes to the market prices.

x 8 8

14 Old Circular 94/2011/TT-BTC (“Circular 94”), art. 8.2, repealed provisions allowing for land compensation and clearance deductions for agreements reached directly between land users and FIE or overseas Vietnamese. This arrangement unnecessarily penalises developers for directly negotiating their agreements.

Amend Circular 94 to allow for the deduction of all legally documented compensation payments against any payments due to the State.

Decree 46 provides that land compensation and clearance shall be deducted from the land rent payable if the person leasing land from the State voluntarily advances the payment for compensation and site clearance.

x 8 16

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15 Old Decree No 02/2006/ND-CP (“Decree 02”), art. 12.1(e) gives developers of "New Urban Zones" the right to assign or sublease their interest in the land. However, there are no implementing guidelines, and it remains unclear how these rights are properly exercised.

This is an important mechanism to encourage healthy urban development. Clarify the requirements on the assignment/subleasing of New Urban Zones.

Marginal progress. Decree 02 is no longer valid.

x 5 5

16 Old The Old LOI is unclear about what percentage of foreign ownership is required to distinguish a FIE from a domestic enterprise. See Old LOI, art. 3.6. The determination materially affects the procedures for acquiring land. See Old Land Law, art. 108. Article 3.17 of the New LOI provides

that Economic organization with foreign investment capital means an economic organization with a foreign investor being a member or shareholder. Further, Article 23 of the New LOI provides that in case the foreign ownership is from 51% or more, such enterprise shall be subject to investment procedures applicable to foreign investors. However it is unclear whether enterprises with less than 51% of foreign ownership will be treated as local investors, except from investment procedures.

• Provide clear guidance as to the threshold at which a domestic enterprise becomes a FIE. Definition of "Foreign Invested Enterprise" status triggers WTO market access and National Treatment limitations, so it should be linked to voting control (i.e., the 51/65% threshold under the enterprise law). • Clarify what steps a land-holding domestic enterprise must take upon becoming a FIE. Specifically, address whether land allocations must become leases and the process for doing so.

The New Land Law has not provided with the threshold at which a domestic enterprise becomes a FIE.

x 10 0

17 Old Land with water surface area is narrowly restricted in its use. See Old

Amend the Old Land Law to provide a legal framework for alternative

Clause 140 of the Draft Law provides that inland water

x 6 0

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score

Land Law, arts. 78–80. Various recreational, commercial, and residential uses are not currently provided for, making investment in such properties very difficult. Not necessary to set out in the Draft Law any limitation of the use purpose of the inland water surface.

uses for water surfaces. This is a technical correction and should be easy to make.

surface shall be leased to Domestic Entities, Foreign Entities and JV Entities for purposes of aquaculture, agricultural or agricultural combined with non-agricultural. Suggest removing restrictions on inland water surface use purpose and setting out clearly the form of water surface lease applicable to investors for clarity. Not addressed in the New Land Law.

18 Old Difficulties of businesses in obtaining and developing land outside of industrial zones, particularly in urban centres where it affects the services economy.

The Government should issue a decree or implement other forms of guidance to free up more idle land for development.

The Government is driving developments toward areas outside of the traditional city centres. Article 93 of the Old Land Law and Article 153 New Land Law was specifically amended to allow FIE to lease land from non-State land use right holders outside industrial zones. However, without legal elaboration in a decree or implementing circular, most provincial authorities refuse to allow this type of land use except in a few cases for port projects. There is still no decree or implementing circular regarding the procedures to obtain and develop land outside of industrial zones.

x 9 9

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19 Old The Old Land Law's use of "foreign

investor" is interpreted too narrowly. Currently, the Old Land Law embraces only FIE. This interpretation is inconsistent with the Old Land Law, Art. 3.4, and Decision No. 88/2009/QD-TTg, which include enterprises with ≥49% foreign ownership.

Please see Item 16 for the New LOI.

Amend the Old Land Law to provide a definition matching that of the New LOI.

Article 5 of New Land Law provides a clear definition of enterprises with foreign invested capital (please see item 3 for further details).

x 7 7

20 Old Conversion of land use purpose, Article 58.1 of the draft land law, the following types of land have been additionally included in those that must get the approval of the authorities for conversion of land use purposes: (i) Conversion of land for other annual crops to land for raising and planting salt-water aquatic products, salt production, land for raising and planting aquatic products in the forms of ponds, lakes, marshes; (ii) Conversion of forest land for production purpose to forest land for other purposes; and (iii) Conversion of land for construction of public building works, land used for public purpose with business purposes, land for non-agricultural production [and/or] business not being land for commercial, service purpose to land for commercial service purpose; conversion of land for commercial, service purpose, land for construction of public building works to land for non-agricultural production establishments.

It is not clear why the requirement for approval has been inserted. To avoid additional administrative burden, we suggest retaining the provisions of the Old Land Law which do not require the approval of the authorities for conversion of land use purposes.

Article 57 of the New Land Law provides that foregoing types of land are required to apply for the approval of the authorities for the conversion of land use purposes.

x 5 0

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In the Old Land Law, such types of land are not required to apply for approval of the authorities but just need to be registered with registration office for land use rights.

21 Old Recovery of the residential land which is under pollution or in a threat of breaking down and detrimental to human lives. Article 68.1(dd) has provided the provisions on recovery of the residential land which is under pollution or in a threat of breaking down and detrimental to human lives. It is however unclear under the draft land law as to which criteria and who is entitled to determine if residential land is under pollution and/or the threat of breaking down and detrimental to human lives.

Provide more guidelines on this in the draft land law

Article 65 of Decree 43 provides the order and procedures for land resumption in areas with environment contamination posing a threat to human life; residential land likely to suffer from landslides or subsidence or to be affected by some other natural disaster, causing a threat to human life. Accordingly, provincial and district-level People’s Committees shall have authorisation to assign competent agency to determine the level of pollution and/or the threat of landslide. The specific competent agency has not been determined. However, Decree 43 does not provide the criteria to determine whether any residential land is affected by pollution and/or the threat of landslide which may be detrimental to human lives.

x 4 0

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22 Old Land use right certificate (“LURC”) which has been issued with wrong information According to Article 107.2(d) of the draft land law, the State shall be entitled to withdraw the LURC which has been issued with wrong information on authority, land user, land area, without satisfaction of all conditions for issuance of LURC, with wrong land use purpose, land use term or land use source in accordance with the land laws unless the land user has transferred the land and the assets attached with the land in accordance with the land laws. Note however that the draft land law does not mention if the State shall issue a new LURC in which the wrong information has been corrected to the land user especially in the case where the mistake is not the fault of the land user.

Clarify the action after the land use rights certificate is withdrawn. There should be a provision for reissuance of a corrected land use rights certificate.

According to Article 86 of Decree 43, land user or owner of assets attached to land can submit an application to request for correction in the case the error is due to the fault of the land user or owner of assets attached to land; or the land registration office requests the land user or owner of assets attached to land to submit the issued LURC for correction in case the land registration office discovers an error in the issued LURC.

x 5 10

23 Old The time for calculating for payment of the land use fees/land rentals Article 109.3 of the draft land law The land use fees/land rentals shall be calculated and paid from the date of issuance of the decision on land allocation/land rental, on conversion of land use purpose or recognition of land use right by the State. In practice, after the issuance of the decision on land allocation/land rental, it may take a long time for the land

Provide the time for calculating for payment of the land use fees/land rentals should be at the date of issuance of the decision on land allocation/land rental, on conversion of land use purpose or recognition of land use right by the State but payment to be made at the time the compensation and clearance procedure have been completed

Article 108 of New Land Law has recognised our recommendation by providing that the timing for calculating land use fees/land rental shall be at the date of issuance of the decision on land allocation or land lease, on conversion of land use purpose or recognition of land use right by the State. Decree 45/2014/ND-CP dated 15

x 8 0

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users to compensate and clear the land from the previous land holders. In the circumstances, it is not reasonable to ask the land users to pay for the land use fees/land rentals for the time they have not been yet handed over the cleared land.

May 2014 and Decree 46 provide that the payment of the land use fees/land rental with one off payment must be made within 90 days after the notice from the tax authority.

24 Old Specific regulations on allocation or lease of land in relation to specialised use forest land Article 77.6 of the Old Land Law provides that “The Government shall provide specific regulations on allocation of specialised use forest land; on the rights, obligations and interests of organisations, family households and individuals being allocated specialised use forest land; on allocation or lease of land in buffer zones of specialised use forest land; and on lease of specialised use forest land in combination with the joint landscape and ecological-environmental tourism business.” Note however that this provision has been removed from Article 138 of the draft land law.

Provide the specific regulations on allocation or lease of land in relation to specialised use forest land

Article 68.2 of Decree 43 provides the order and procedures for land allocation, land lease and conversion of land use purposes on specialised use forest land for implementation of investment projects. The New Land Law however fails to provide specific regulations on the rights, obligations and interests of organisations, family households and individuals being allocated specialised use forest land; on allocation or lease of land in buffer zones of specialised use forest land; and on lease of specialised use forest land in combination with the joint landscape and ecological-environmental tourism business.

x 4 4

25 Old Regime on land for construction of the apartment blocks The draft land law only mentions that the Government shall provide the specific regulations of the regime on

Provide the specific regulations relating to the regime on land for construction of the apartment blocks.

Regime on land for construction of the apartment blocks has been provided in Article 49 of Decree 43.

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land for construction of the apartment blocks and land for construction of works servicing directly the lives of the households in apartment blocks.

26 Old Land recovery due to failure of investors to meet implementation schedule: draft land law retains provision in Article 38.12 of Old Land Law that provides that the State will recover land if it allocate or lease the land for investment project and that land is not used for a period of 12 consecutive months or the actual land use schedule is 24 months behind schedule recorded in investment project, and adds an additional requirement that an extension shall be granted one time for a maximum period of 24 months. Also shall be no compensation or refund by the State to investors for their expenses/assets attached to land as result of land recovery.

Remove additional requirements as the State already has the authority to make the decision not to grant an extension. Institute clearer appeal mechanism.

Article 64 of New Land Law has no change in substance.

x 9 0

27 Old Issues related to compensation in draft land law: (1) According to Articles 71 and 72.2 of the draft land law, the compensation council shall attend to the compensation process. However, it does not specify who comprises in the compensation council. Therefore, it is still unclear if the representative of the investor can be entitled to attend to the compensation process or not (2) Lack of clarity in determination of

(1) It should be clear in the draft land law who comprises in the compensation council. The investors who are determined and approved in-principle by the State authorities as the investor for a specific investment project should be entitled to attend to the compensation process, so that they can observe the process and make complains/recommendations if their rights and benefits are affected.

Not addressed in the New Land Law.

x 10 0

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fault in land compensation if there is a difference in price at point of decision versus actual time of payment (Clause 95.1).

(2) Not clear which entities will have the right to determine fault and how this will be done, clearer procedures needed.

28 Old Right to receive land use right Discrimination between Domestic Entities and Foreign Entities/JV remains in the new provision of the Old Land Law regarding receipt of the land use right. Foreign Entities can (i) receive land use right pursuant to an agreement in a mortgage contract for debt settlement/ an administrative decision of State body resolving a complaint or denunciation relating to land/judgment of relevant enforcement body/legal instrument on division of land use right in accordance w/ law and (ii) receive of assignment of investment capital being value of land use right. The JV can receive assignment of land use right by receiving capital contribution in form of land use right. The draft land law however does not set out the rights of Foreign Entities in respect of the land use right received and what they can do to deal with such land use right

Discrimination between the Domestic Entities and Foreign Entities should be eliminated by giving the Foreign Entities the same rights to receive the land use right as the Domestic Entities. Also, the draft land law should also set out rights of Foreign Entities/JV Entities in respect of land use right received and ability to use such right to land.

Not addressed in the New Land Law.

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29 Old Draft land law does not set out clear procedures and required documents for issuance of land allocation/land lease decision applicable for land with and without completion of clearance and compensation.

There should be specific procedures and required documents for land allocation/land lease applicable for land with and without completion of clearance and compensation. Such procedures should separate the requirement on investment procedures from land procedures to avoid confusion and unnecessary delays.

Not addressed in the New Land Law.

x 6 0

30 Old Clause 167.3 of draft land law proposes for notarisation/certification of the transactions involving land use right as follows: Notarisation/certification shall be compulsory for transactions regarding assignment, bequeathal, donation, mortgage, and capital contribution of land use right/asset attached to the land. Such requirement however shall be optional to transactions regarding exchange of agricultural land use right, lease/ sub-lease land use right/assets attached to land. The draft land law also provide that (i) the notarisation shall not be required for transactions regarding assignment of land use right/asset attached to the land if one party is a real estate enterprise; and (ii) the notarisation for transactions regarding bequeathal shall comply with provisions of the Civil Code.

Notarisation/certification shall be optional of all transactions involving land use rights to enable real estate transactions to be conducted easily

Article 167 of New Land Law provides that contracts regarding performance of rights of a land user must be notarised/certified, except for the case that one or more parties participating in the transaction are organisations conducting real estate business activities.

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31 Old Articles 9–10 of the Law on Real Estate Business 2005 restricts the conduct of foreign organisations and individuals in their real estate transactions and businesses. Foreign entities may not lease or purchase houses or construction facilities for the purpose of sale, lease, or sublease, and may not invest in or lease land for the purpose of improvement and subsequent lease or sublease. These restrictions unnecessarily restrict investment in Vietnam's real estate sector. They may also affect the activities of non-real estate foreign invested entities in acquiring facilities for their own use.

Remove the restrictions in Articles 9–10 so that the foreign and domestic investors will have the same rights and obligations.

The New LREB provides to foreign organisations and individuals and to Vietnamese residing overseas the rights as follows: (i) invest in the construction of residential housing for sale, sub-lease or lease purchase; (ii) lease houses, buildings for subleasing; (iii) invest in construction of construction works which are not residential on leased land for sale, sub-lease or lease purchase; (iv) receive assignment of whole or part of real estate project; (v) invest in construction of houses, construction works on leased land (applied to foreign entities), or on leased land and land got from assignment (applied to Vietnamese residing overseas) in industrial zones, industrial complexes, export processing zones, high tech zones or economic zones for business in accordance with the land use purpose, and (vi) provide real estate business services. Note however that foreign organisations and individuals and Vietnamese residing overseas are still prohibited from undertaking the following: (i) purchase houses and buildings for sale, lease, lease-

x 8 8

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purchase; (ii) receive the transfer of land use right; (iii) invest in construction of technical infrastructure works on allocated land, land from assignment or lease, land under lawful using right for assignment and lease of land already having technical infrastructure thereon (the right to invest in construction of technical infrastructure works on leased land is removed); (iv) assign land use right in the allocated land in form of land plots which is inconsistent with the Land Law; (v) lease land from other organisations or individuals to invest in construction of houses, construction works for sell, sublease, lease purchase; and (vi) invest in the construction of houses, construction works on land got from assignment and land under lawful using right for sell, lease out, lease-purchase.

32 Old Article 4.3 of the draft LREB issued in 2013 (“Old Draft LREB”): Removing the word “create” The word “create” is used when referring to the business activities of foreign owned capital enterprises. This suggests that construction works must be “created” which could exclude renovation works.

Remove the word “create” for Articles 4.3, 15 and 16; replace with “renovation” for Article 4.14 and adding the word “renovation” after the word “creation” for Article 10.1 (a).

The New LREB has replaced the word “create” and “renovation” with the word “construct”.

x 5 10

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33 Old Article 7 of the Old Draft LREB: Conditions applicable to real estate made available for business The Old Draft LREB has no provision on cases of houses and buildings under new urban area projects, residential housing projects which have been completely constructed but have not been issued with a certificate of land use right, ownership of residential house and other assets attached to the land (the “Certificate”). However, this may be deemed as existing houses and buildings and not the assets to be formed in the future.

Add cases of houses and buildings under new urban area projects, residential housing projects which have been completely constructed but have not been issued with a Certificate.

Not addressed in the New LREB x 5 0

34 Old Articles 7.2(e), 26.4(a) and 50.1 of the Old Draft LREB: the term “technical infrastructure” is not clearly defined. This has caused uncertainty and lack of clarity.

Insert clear definition of technical infrastructure in Article 7.2(e); Article 26.4(a) and Article 50.1

Not addressed in the New LREB x 5 0

35 New Articles 8.1, 18 and 19.2(b) of the Old Draft LREB and Articles 25.2 (c), 69, 70 and 72 of the Old Draft LRH on legal capital The Old Draft LREB requires investors to have legal capital but a specific amount of legal capital is not yet provided. Further, the Old Draft LRH laws also specify certain sources of the capital to be mobilised which limit investors’ ability to raise capital. In addition, the Old Draft LREB also requires the placing of a deposit in an escrow account for investment commitment.

Since there are already requirements on compulsory charter capital contributions which are a percentage of the investment capital required for a project, requirements on legal capital, these requirements are unnecessary. Remove the requirements on legal capital, the source of capital and placing a deposit in an escrow account for investment commitment.

Article 10 of the New LREB requires investors to have legal capital of VND20 Billion and the New LRH also requires the investor to place a deposit for investment commitment. Further, Article 69 of the New LRH also specify certain sources of the capital to be mobilised which limit investors’ability to raise capital.

x 9 0

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No Age Issues Suggested/Agreed Action Progress 0 1 2 Priority Score

36 Old Article 8 of the Old Draft LREB: Conditions applicable to organisations and individuals engaged in real estate business The Old Draft LREB stipulates that any organisation or individual conducting real estate business must establish an enterprise or co-operative. However according to laws on investment, organisation or individual may also conduct real estate business by way of entering into a business cooperation contract without establishment of a legal entity.

Add the form of entering into a business cooperation contract without establishment of a legal entity in order to conduct real estate business.

Not addressed in the New LREB x 3 0

37 New Articles 8, 61 and 66 of the Old Draft LREB: Practising cards (1) The words “practicing cards” in Articles 8.1, 8.2, 61 and 66 of the Old Draft LREB do not conform with the term that has been used in other regulations. (2) Article 66 providing on the real estate valuation practicing cards is not necessary since the Law on Price already has such provisions in relation to Price Evaluator Certificate, including real estate valuation service.

(1) Replace the words “practicing cards” with “practicing certificates” in Articles 8.1, 8.2, 61 and 66 of the Old Draft LREB; (2) Remove Article 66.

The New LREB has replaced the words “practicing cards” with “practicing certificates” and removed Article 66.

x 2 4

38 Old Article 11 of the Old Draft LREB: Publicity of information about property which is made available for business. (1) The Old Draft LREB has no specific regulations regarding the time to publicise information about the properties, and the cases in which the

(1) Clarify the time and cases requiring publicity of properties information. (2) Exclude the cases of transfer of real estate project from cases required information publicity.

Not addressed in the New LREB.

x 5 0

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publicity of information about the properties is required. (2) The Old Draft LREB requires the transfer of a real estate project between investors to be published. It may cause adverse impact to the project as well as to the business operations of the concerning investors.

39 New Article 19 of the Old Draft LREB and Articles 25.2 (a) (b) and 116 of the draft LRH issued in 2013 (“Old Draft LRH”): Selection of investors for real estate project for business The draft laws require two conditions, inter alia, which are being an enterprise established and operating in accordance with the provisions of law concerning enterprises and having registered to conduct real estate business. This shall cause difficulties to investors being foreign individuals and organisations who make investment in Vietnam for the first time. Further, this provision is in conflict with the law on investment which requires that a foreign investor who makes investment in Vietnam must have an investment project to be entitled to establish an enterprise.

Exempt foreign individuals and organisations who make investments in Vietnam for the first time from these requirements.

Not addressed in the New LREB and the New LRH Decree 76/2015/ND-CP dated 10

Sep 2015 (“Decree 76”) has recognised our recommendation in the previous report. Article 12.2d of this decree provides that foreign investors who make investment in Vietnam but has not established a company are not required to establish an enterprise prior to receiving transfer of real estate project. Article 21.3 of the New LRH provides that the investor must be a real estate enterprise to undertake commercial residential project. Article 23 of the New LOI provides that the foreign investor wishes to establish an enterprise must obtain the IRC and ERC. Article 170 of the New LRH provides that an IIA shall be obtained if the residential housing project is not subject to the IID. It is unclear whether the IIA shall be

x 7 0

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obtained prior to or after the issuance of the IRC/ERC.

40 Old Article 20.6 of the Old Draft LREB. Rights of investors of real estate projects The Old Draft LREB provides that investors are entitled to exemption or reduction of land use fees or to be entitled to pay land use fees by instalments in accordance with the project schedule. However, there are no specific regulations on the criteria for eligibility.

Provide the specific regulations on the criteria for eligibility.

The New LREB has removed the provision on the right of investors to be exempted or reduced land use fees or to be entitled to pay land use fees by instalments in accordance with the project schedule.

x 5 0

41 Old Article 26 of the Old Draft LREB and Articles 31.4 and 122.1 (c) of Old Draft LRH. Payment for real estate transactions The draft laws provides some methods of payment applied to real estate transactions including party to receive payment, maximum amount of advance payments and deposit allowed, fixed late payment interest rates. Parties should be free to agree on these processes without restrictions.

Remove restrictions in Article 26 of the Old Draft LREB and Articles 31.4 and 122.1 (c) of the Old Draft LRH

Article 57 of the New LREB provides that the first payment for real estate to be formed in the future cannot exceed 30% of the contract value. For the domestic investors, in any case the seller cannot obtain more than (i) 70% of the contract value before the handover of the houses and buildings; and (ii) 95% of the contract value before the issuance of the Certificate.

For the foreign investors, in any case the seller cannot obtain more than (i) 50% of the contract value before the handover of the houses and buildings, and (ii) 95% of the contract value before the issuance of the Certificate.

x 8 0

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42 New Time of transferring ownership Article 26.3(c) of the Old Draft LREB and Articles 13 and 150.3 of the Old Draft LRH provides that the purchaser shall be entitled to own the property after having made payment in full or upon the time the contract on capital contribution is notarised or certified. However, pursuant to the New Land Law, the time of transfer of the property shall be the time such transaction is registered with the land use right registration office.

Amend such provisions for consistency with the land law: the purchaser shall be entitled to own the property after being issued with the Certificate.

Article 19.5 of the New Draft LREB issued in 2014 (“New Draft

LREB”) and Article 12.3 of the New Draft LRH provide that the ownership of the property shall be transferred upon the handover of such property. Article 19.5 of the New LREB and Article 12.3 of the New LRH provide that the ownership of the property shall be transferred upon (i) the handover of such property, (ii) the payment in full of the purchasing price, or (iii) otherwise agreement of the parties.

x 3 0

43 New Article 27 of the Old Draft LREB and Article 4.21 of the Old Draft LRH on guarantee There are no provisions on what the guarantee will be and how it will be implemented.

Clarify who the third party having right to provide guarantee is, how much the guarantee fee is, terms regarding responsibilities of the guarantor and investor, how it is performed.

Article 56 of the New Draft LREB provides that the guarantee will be provided by the financial institution or credit institution licensed to operate in Vietnam. In addition, this Article also provides the contents and guarantee fee will be agreed by parties in the contract. Article 57 of the New LREB provides that such guarantee will be provided by eligible commercial banks. The Circular 07/2015/TT-NHNN

dated 25 June 2015 (“Circular 07”) provides conditions and procedures for commercial

x 4 0

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banks to provide guarantees. Following Circular 07, the State Bank of Vietnam issues a list of 33 commercial banks qualified to provide guarantees. On 28 August 2015, five more banks are added to such list. On 29 September 2015, the total number of qualified banks increases to 40.

44 Old Articles 28 and 32 of the Old Draft LREB: Sale and purchase of houses and buildings (1) Regarding Article 28.2: The Old Draft LREB fails to mention the transfer of ownership of common areas in cases of selling houses and buildings not in mixed use buildings or in cases of villas/individual residential houses having common areas. (2) Further, the form of land use rights for the non-residential components (i.e. office for lease and/or commercial centre area) is not provided yet.

(1) The transfer of ownership of the common areas in non-mixed use building projects, villas and individual residential housing projects with common areas should be treated the same way with those in mixed use buildings. (2) Clarify that form of land use rights should follow the land use purpose e.g. long term and stable use for residential components and lease for the non-residential components.

(1) Not addressed in the New LREB. (2) The New LREB only provides that the land use right of owners after purchasing areas within a mixed use building must throughout follow either of the forms being long-term and stable or lease. Note that the New LREB fails to clarify that the form of land use right being long term and stable use will be applied to residential components, and the form of land use right being lease applied to the non-residential components.

x 8 8

45 New Articles 49, 50 and 51 of the Old Draft LREB: Assignment of the real estate project. The Old Draft LREB provides that the assignment of a real estate project must be approved by competent

Provide that the competent authority will consider if the parties satisfy the conditions for assignment and receiving such assignment (not just approval or disapproval for assignment) before the parties enter

The criteria as well as the competent authority for approving the assignment of the project have been addressed in the New LREB.

x 9 18

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authority. However, the draft LREB does not provide the criteria as well as specific competent authority for approving the assignment of the project. Further Old Draft LREB only provides a number of cases in which transfer of real estate project is permitted. These restrictions may cause difficulties to investors in their business activities, especially in the performance of procedures. In addition, currently many State regulatory agencies require that the name of the investor must be the same in all of the project documentations even though the project is permitted to be transferred and actually has been transferred (entirely or in part) to another investor. This is unnecessary in case there is no change needed in the content of the approvals except the name of the investor.

into the assignment contract; and remove the restrictions on cases of transfer of real estate project. Provide further that approvals and consents from the State should be automatically assigned and transferred to, and be received by the receiving investor without any further procedures for re-approval or for name replacement if there is no other change needed in the content of the approvals. In addition, the transfer of project is associated with the transfer of land use right, therefore, the Old Draft LREB should provide regulations on the conversion of the form of land use from land allocation to land lease or vice versa in case of transfer of projects from domestic investors to enterprises with foreign owned capital, and regulations on whether the Certificate of the assignees shall reflect the origin of land use being receipt of transfer in part/entirety of project or the form after converting to land lease or land allocation.

Further, the restriction on numbers of cases in which transfer of real estate project is permitted has been removed. In addition, the New LREB provides that the assignees are not required to prepare the project dossiers, construction plan and construction permit if there is no change under the in principle approval and decision of investment in the project. Decree 76 also provides detailed regulations on transfer procedures of whole or part of project.

46 New Article 53 of the Old Draft LREB: Real estate business services contract The Old Draft LREB provides that the notarisation/certification of real estate business services contracts shall be as agreed by the parties. Since the law does not require

Remove the clause on notarisation/certification of real estate business services contracts and stipulate only the main and essential contents of real estate business services contracts.

The New Draft LREB still remains that the notarisation/certification of real estate business services contracts shall be as agreed by the parties.

x 3 0

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notarisation/certification of real estate business services contract, it is unnecessary to specify this which leads to more confusion. Article 53.3 of the Old Draft LREB provides that the Government will specify the content of each type of real estate business services contracts. This is unnecessary since parties should be free to specify the content of the contracts according to their needs. If at all, the Government only needs to specify the main and essential contents.

Article 122 of New LRH provides that all contracts of sale, purchase of residential houses are required to be notarised and legalised. The New Draft LREB has recognised our recommendation in the previous report by inserting a provision on main content of a real estate business services contract, instead of providing that the Government will specify the content of each type of real estate business services contracts. Article 7 of the Decree 76 provides that the real estate contract templates shall only be for reference and the parties may amend the provisions, provided that they comply with the laws.

47 New Article 62.2 of the Old Draft LREB: Market price The Old Draft LREB provides that a valuation of real estate must be based on the market price at the time of valuation. However, it is unclear what “market price” is and how to determine market price at the time of price valuation.

Provide clear regulations on what is “market price” and the method for determining market price.

The real estate valuation business has been removed from the New Draft LREB. The New LREB has also removed the activity of real estate valuation service.

x 9 0

DRAFT LAW ON RESIDENTIAL HOUSING

48 Old Article 131 of the LRH restricts the Allow all resident and non-resident According to Article 159.1 of the x 7 7

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lease of residential property to those foreign organisations and individuals permitted to stay in Vietnam for a period of ≥ 3 months. Purchasing residential property is likewise restricted by Resolution 19/2008/NQ-QH12, art. 2, to very few classes of foreign individuals — those with direct investment in Vietnam, those honored by the President or Prime Minister, those educated and working in desirable technical fields, those married to Vietnamese citizens, and non-real property foreign enterprise that have employee housing needs.

foreign individuals and organisations to own and lease all types of property with the same term as applied to Vietnamese.

New LRH, only foreign individuals who are permitted to enter Vietnam will have the right to own houses in Vietnam. We are of the view that this condition is unnecessary and can lead to confusion. Further, the foreign entities’ rights are restricted by the maximum number of units of apartment/ houses, and the term of ownership is 50 years at maximum which may be extended in accordance with laws.

49 Old Article 10 of the Old Draft LRH: Recognising ownership over residential houses The Old Draft LRH provides that the State shall only recognise the ownership rights of purchasers by issuance of a Certificate. This will not be done for the investors. This will cause difficulty to investors who invest in construction of houses for sale where there is a large number of unsold houses, and who invest in construction of houses for lease-purchase while waiting for the lessee-purchaser to pay the price in full. In particular, the investors are restricted from having the rights to mortgage residential housing units the construction of which have been completed but not yet being issued with

Provide that the State shall issue the Certificate to investors at the request of investors which construct residential houses for lease, for sale but have not successfully sold them, or for lease-purchase but have not received the payments in full from the lessees-purchasers.

Addressed in Article 9 of the New LRH.

x 5 10 x

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the Certificate in order to raise capital.

50 Old Article 12.1 of the Old Draft LRH: Ownership over individual residential houses The Old Draft LRH fails to provide the multiple ownership and common use rights in respect of common areas in the individual residential houses projects (such as swimming pools, gymnastic rooms), which currently exist in many projects of investment in construction of individual residential houses.

Provide that owners of individual residential houses shall have the right of multiple ownership and common use rights in respect of common areas in the residential projects if so agreed between owners and developer.

Not addressed in the New LRH.

x 9 0

51 New Article 12.3 of the Old Draft LRH: term of ownership of apartment building There is a proposal in the Old Draft LRH to define the term of ownership of apartment unitson construction level and conclusion on evaluation of quality of construction. According to the draft provision, apartment unit owners are required to surrender their apartment units and land to the authorities at the end of the ownership term so that the apartment building can be demolished. The apartment owners will be resettled by the State. This shall have a very negative impact on the housing market on the whole and create great dissatisfaction among apartment unit owners.

This provision should be rejected swiftly.

Not addressed in the New Draft LRH. Article 99.2 New LRH: term of utilisation of apartment building Upon the expiry of utilisation term of apartment building, the apartment is not automatically demolished; instead, the competent authority shall conduct a quality inspection regarding the status of the building.

If such building is considered safe for use, the owners are allowed to continue using. If such building is considered as serious damaged, in danger of collapse or unsafe, it shall be demolished.

x 10 0

52 New Articles 14, 160 and 163 of the Old Remove the discrimination between According to the New LRH, there x 8 8

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Draft LRH: Rights of owners of residential houses There is a significant improvement in the Old Draft LRH where rights of owners of residential houses are adjusted so that Domestic Entities and Foreign Entities have more equal rights. However there still exists the discrimination among rights of owners being domestic organisations and individuals and of Vietnamese residing overseas and foreign individuals and FIE regarding their ownership over residential houses. Particularly, in comparing with rights of domestic organisations and individuals, Vietnamese residing overseas, foreign individuals and FIE are lacking in the following rights: to lease-purchase; to own residential houses other than residential houses in commercial residential housing project; to lend residential houses, to permit others to reside with them; to make capital contribution by residential houses; to exchange residential houses; to request to recognise the ownership over residential houses which are lawfully created; and to own residential houses on a long-term and stable basis.

domestic organisations and individuals, Vietnamese residing overseas and foreign individuals and FIE with respect to residential housing ownership.

is no discrimination between domestic organisations and individuals, Vietnamese residing overseas and FIE and individuals with respect to residential housing ownership, except for the type of residential houses in commercial projects.

53 Old Article 21 of the Old Draft LREB and Articles 20, 32, 36, 37 and 42 of the Old Draft LHR: Social houses The draft laws provide that the investors have to reserve a land area

Provide that the investors shall not be obliged to reserve a land area for housing construction with completed technical infrastructure within the project for constructing social

Not addressed in the New LRH.

x 9 0

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for housing construction with completed technical infrastructure within the project for constructing social houses. This provision may impact the housing market and create dissatisfaction among investors.

houses, but they may choose other methods such as contributing in cash, arranging another land area in other project, or making coordination with the investor of other project to jointly contribute social residential houses.

54 Old Articles 47 and 60 of the Old Draft LRH: Sale of commercial residential houses to the State The Old Draft LRH does not clarify if investors of commercial residential houses are required to sell commercial residential houses to the State to be used as official residential houses or residential houses for resettlement upon request or not. If this is the case, then the fact that investors do not have the right to discuss and agree on the selling price on negotiation basis is unfair and is detrimental to investors.

This should be provided as agreements between the State and investors.

The New LRH has recognised our recommendation in the previous report by removing the provision on selling price of commercial residential houses to the State.

x 8 16

55 Old Article 85 of the Old Draft LRH: Warranty of residential houses The Old Draft LRH provides that the main structural part of a residential house shall be beams, pillars, floors, ceilings, roof, walls, pavings, tilings and plasterings. In practice, if the parts being the pavings, tilings, plasterings are also deemed as the main structure and thus are guaranteed in accordance with the current provisions, e.g. 60 months for apartment buildings from 9 floors or more, it is too onerous to the investors.

Remove the parts being the pavings, tilings, plasterings from the main structure part of a residential house.

Not addressed in the New LRH.

x 5 0

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56 Old Article 132 of the Old Draft LRH: Unilateral termination of performance of residential housing lease contract The Old Draft LRH provides regulations on the unilateral termination of performance of residential housing lease contract. However, the Civil Code also governs this issue. Furthermore it should be agreed by the parties to decide on this.

Remove this provision. Not addressed in the New LRH.

x 6 0

5.3. POWER AND ENERGY

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POSITION PAPER POWER AND ENERGY SUB-WORKING GROUP

Prepared by Power and Energy Sub-Working Group

The Vietnam Business Forum’s (VBF) Power and Energy Sub-Working Group agrees with Mr. Hoang Quoc Vuong, Deputy Minister of the Ministry of Industry and Trade (MOIT). At the 9th June, 2015 VBF meeting, the Deputy Minister remarked that since 2011 there has been a reliable power supply for Vietnam, with a 20% reserve margin. Yet, in some local areas network quality is not assured, and old transmission lines require financing to upgrade. Nevertheless, reliable power has been essential in developing the current Vietnamese business and investment climate. The business sector in Southern Vietnam has concern that the Power Master Plan VII, confirmed by Deputy Minister Vuong, forecasts delays in sources of new energy which will lead to power shortages in 2017/2018, and will require power `transferred from Northern Vietnam for sufficient supply. Other concerns are the long timeframe to mobilize financing for the transmission lines. Additionally, private investor’s move to invest in new power sources is being postponed in long and complex negotiations. The Government’s regulatory frame work is still a barrier, and licensed projects are failing to attract financing. The Power and Energy Working Group has the following old and new positions: 1. Competitive Electricity Wholesale Market for Vietnam - Decision No. 8266/QD-BTC

issued on 10th August 2015 The VBF Power and Energy Sub-Working Group representing, in particular, its Chamber members AmCham, EuroCham and NordCham, offers the following commentary and suggestions to MOIT following the publication of Decision No. 8266/QD-BTC. According to Decision No. 8266/QD-BTC, the timing of full implementation has been determined to be 2019. VBF suggests that in order to maintain a stable power supply, an urgent priority to attract private investment to the energy market in Vietnam is needed. Therefore, VBF asks MOIT to accelerate the implementation of this key market reform. While Vietnam Electricity (EVN) remains the monopoly buyer of power, its financial status continues to cause concern for investors of new power plants who are required by law to sell power to EVN. VBF suggestsMOIT to consider new methods to enhance the creditworthiness of EVN, in addition to continued effort to increase power tariffs to cover costs of supply. Foreign donors, who wish to support sustainable energy development in Vietnam, may be willing to improve the creditworthiness of EVN with specific risk guarantees where the power seller is a renewable energy project. A mechanism which could engage foreign donor support in this way would be very welcome and end the current burden on the Ministry of Finance providing guarantees to all power sellers. In particular, developers of renewable energy and small power plants in Vietnam need support because the increased cost of commercial debt, guarantees, and delays are a significant barrier to investment. VBF previously noted that many energy resources, in particular wind power, are not included in the remit of the competitive wholesale market. VBF also noted the reference to other detailed regulations that would determine how wind power is promoted in Vietnam. VBF suggests that wind power could be included in the market and points to the successful

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development of wind power in other developing countries, such as Mexico, under “direct” power purchase agreements (PPAs). VBF would welcome urgent guidance from MOIT indicating whether such PPAs may be implemented in Vietnam and incorporated into the structure of the competitive wholesale market. VBF would welcome the opportunity to continue its dialogue with MOIT on this subject and to provide support from the wider international experience of its members. An essential element of a functioning open power market is that the key players operate independently of each other and their relationships are governed by commercial contracts that are transparent. VBF notes that the five regional power buying corporations listed in Decision No. 8266/QD-BTCare within the legal structure of EVN and therefore associated with the largest producers of power in Vietnam, EVN’s power generation companies (GENCOs). Until the GENCOs are substantially equitized (more than 50% of the equity being held by non-state shareholders), VBF doubts that an independent wholesale market can be established. While the timetable to begin initial partial equitization of a minority share of the GENCOs is well-known, VBF would welcome guidance on how MOIT intends to complete the dis-establishment of GENCOs and the five PPAs from EVN. VBF notes with enthusiasm the possibility of other large power consumers becoming power buyers and would suggest that to encourage interest in this important role in the market that MOIT immediately publishes guidance on what criteria such companies must meet to satisfy MOIT’s “requirements” to take on this role. In countries where stable electricity supply is invested by private sectors for prospect profits, liberalization of the wholesale electricity market may bring about a reduction in electricity price thanks to the competitive environment. However, at this moment, if Vietnam faces with this kind of competition for electricity, we are concerned that necessary investment in power industry including electricity transmission cannot be secured, but also leads to a higher retailing electricity price. Besides, in the context of insufficient electricity generation comparing to the growth in the electricity demand, especially the shortage in electricity supply in the South that most of our manufacturing companies and all members are experiencing, we firmly expect for the secured stable electricity supply. In this field, in order for the 7th Development Plan (PDP7) to be implemented steadily and the electricity capacity expanded, we hope that measures to invite foreign investment such as long-term Purchase Price Allocation (PPA) contract or Government Guarantee and Undertaking (GGU) between Government and EVN should be implemented. Finally, the energy regulator also should be wholly independent of executive government influence to play the necessary role of oversight of a de-regulated market. VBF would urge consideration to giving Electricity Regulatory Authority of Vietnam (ERAV) a status which is entirely independent of MOIT as in other developing country’s energy markets. 2. Electricity Tariff Road Map Even though the Prime Minister’s decisions on electricity tariffs since 2012 have helped the market, EVN continues to operate at a loss, and electricity costs remain the lowest in the region. This limits direct investment in new power sources, grid infrastructure, and discourages energy efficiency efforts by customers and businesses. VBF suggests MOIT continues adjusting energy tariffs to create sustainable power sector development in Vietnam. Because low-income citizens will suffer from higher tariffs, VBF suggests that the Government subsidize them (30kWh/month free) and ensure the rural population does not suffer from power cuts favoring industries. Business would benefit if MOIT would share a

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road map of Retail Power Pricing as it moves to prices decided by market with Government management. This will open access to required private investment, both domestically and internationally, and will stimulate greater energy efficiency efforts from end-use customers. VBF supports the use of donor funds to off-set Government guarantees as the Government reaches it limits in the coming year. 3. Renewable Energy As Minister Hoang stated on 9th June 2015, fossil fuels are a finite resource and will eventually become economically unfeasible, forcing Vietnam to import energy and threaten its energy security. Environmental, Social and Public Health protection is an issue further encouraging Vietnam to expand renewable energy (RE) development. VBF congratulates authorities for Prime Ministers Decisions on Solar and Biomass. Our detailed comments to the Draft Decision on Mechanism to Support Development of Solar Energy Projects in Vietnam is an annex to this paper. The 5% RE target set for 2020 could increase to much more than 5% with proper incentives on RE production, such as solar and wind power. VBF feels RE is best positioned to support Vietnam’s current energy needs due to its scalability during a short time frame. In order to bolster RE, the Power and Energy Working Group supports the creation of an attractive investment environment for these sectors. As such, the Group backs the recommendations put forth by MOIT consultants (UNDP and GIZ), which calls for an increase in the feed-in tariff (FIT) levels for solar and wind energy and simplification of the application process. Our main comment on solar is also the low $0.11/kWh electricity tariff for grid connected solar power projects. The present RE tariff levels seem to have been set at a low level to attract donor support by use of their concessional loans with grant facilities, rather than private investments. 4. Direct Power Purchase Agreements The Power and Energy Working Group has shared information to MOIT consultants working on Direct PPAs option between electricity end-users and independent Vietnamese power producers. There is high interest of implementing this model from Vietnamese private developers and businesses, and providers of technology, as well as finance banks. Direct PPAs have worked well in Mexico, India, and Brazil, especially in areas not needing Government Guarantees.

5. National Power Master Plan VII The Power and Energy Working Group looks forward to receiving the updated National Power Master Plan VII for commenting on as mentioned by MOIT on 15 May, 2014.

6. EVN Rescue Plan The EVN Rescue Plan has been updated by EVN and plans to be published in September 2015; VBF looks forward to receiving a copy. VBF understands from the World Bank that the 10 year roadmap of reforms that EVN should take to meet certain financial indicators and standards. But as above, a road map must come from the final authority. 7. Exploitation of Natural Resources The Power and Energy Working Group emphasizes that the proposed strategy to support Vietnam’s successful exploitation of natural resources for stable energy supply is in-line with the expected realization of Free Trade Agreements (FTAs) while strengthening the private sector and small and medium-sized enterprises (SMEs).The expected boost in Vietnam’s GDP and economic development, which is expected as a result of FTAs, will be founded on aliable power supply.

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8. Coal Policy Lastly, the Power and Energy Working Group is concerned about the slow progress of the planned increased coal policy over rapid reductions in cost of Vietnam’s natural resources of natural gas, sun and wind. As stated above, the Build-Operate-Transfer negotiations are long and complex. The scale up of coal will require a major increase in infrastructure by 2020 to import 38 million tons. VBF is not clear who pays for the needed infrastructure for coal imports.

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COMMENTS ON PM DECISION ON MECHANISM TO SUPPORT DEVELOPMENT OF SOLAR ENERGY PROJECTS IN VIETNAM

Prepared by Power & Energy Sub Working Group

Vietnam Business Forum

No. Draft Decision Comments/Feedback 1 Article 1.3

The regulated entities of this Decision include organizations and individuals related to the development of solar power projects in Vietnam.

A rooftop solar PV system that is grid connected but aiming primarily at local power consumption might not be called a “project” (dự án điện mặt trời) in the same way as solar power plants. Therefore in this article there should already be a clear separation of solar power plants (-projects) which have the purpose of selling all power produced into the grid (who trade in power) and rooftop & community solar PV systems (other types of projects) that aim to consume most produced power on site and only feed a small fraction into the grid.

2

Article 2.2 The electricity sellers are organizations and individuals that have licenses for electricity activities in the sector of electricity generation from solar power plants. For roof-top solar power projects that have the capacity smaller than 500kW do not need licenses for electricity activities.

A household, community or enterprise that put a small solar PV system on the roof and are grid connected should be treated fundamentally differently from power plants and should be subject to simpler licensing etc. For success there is a need for a very simple administrative procedure. 500 kW of rooftop systems is relatively large when considering households (typically: 2kWp), however, some large scale foreign direct invested business and industries are expected to be interested in larger systems and consider as much as 2 MW. It is recommended to increase the maximum limit to 10MW, as there is no clear reason to limit the upper scale of rooftop power production and larger installations will be better value for money. This would also minimize the impact on land use and increase the efficiency of investment.

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No. Draft Decision Comments/Feedback

3 Article 2.10 Power Purchase Agreement form for the grid-connected solar power project is the Agreement issued by the Ministry of Industry and Trade, is the basis for the application in selling and purchasing electricity from grid-connected solar power project.

This is problematic, because it does not provide a clear distinction between rooftop and power plants. What is the lifespan of the PPA, recommend 20 years and/or that of the solar PV.

4 Article 8: Termination of implementation of projects This should also be explicitly made to apply only to power plants for which some kind of advanced planning permission / license must be issued. A rooftop system should not be subject to such a process, since it complicates. The owner of a rooftop project should be able to proceed with the project after having notified the local EVN distribution company in writing of their intention to invest in a project and describing the scale of the project and the amount of energy likely to be produced by it. That should be the only regulatory requirement on a rooftop project.

5 Article 9.6 The purchaser is responsible for buying all electricity generated from roof-top solar power projects and paying the seller in accordance with Section 2 of Article 15 of this Decision. Metering technology is not in place for households to execute this Article.

Bidirectional meters and billing will be important here to have households invest in solar, as this is the incentive and way to cover capital investment costs. The intended solar power produced by households is possible only after they have meters capable of measuring hourly power consumption and bidirectional power flows. Households do not have such meters and each solar PV project household would need to include the cost of a new meter being installed. Would the cost fall on the household or EVN?

8 Article 10.2 The electricity purchasing and buying is done through

MOIT issues a standardized PPA, is MOIT responsible for deciding who could be investors / producers and who are eligible for getting the FIT. It

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No. Draft Decision Comments/Feedback Power Purchase Agreement follow the Power Purchase Agreement form applies for grid-connected solar power projects, issued by the Ministry of Industry and Trade.

is important that the FIT (in Art 13) is linked to the USD price over 20 years, which should be feature of the standard PPA

9 Article 11: Incentives on investment and tax Is this for both solar power plants and rooftop systems? 10 Article 12: Incentives on land Dose this only apply to commercial solar power plants? 11 Article 13.1

… with electricity tariff at the connection point is 2352 VND/kWh (equivalent of 11.2 US cents/kWh)…

Calculations from MOIT consultants suggest that a of over 15 USD Cents (over 20 years) would attract investors. The. 11.2 USDC) will not attract any new investment capital to Vietnam. Solar can play a positive role in reducing the Peak Hour power supply pressure in Vietnam in 9.30am – 11.30 am daily by displacing demand and adding supply to the grid. If the government sees this as the main benefit of supporting solar PV development, we would ask them to note the following: 1. Power Price paid to Small Hydro to supply power to EVN in Peak

Hours in the Dry Season is currently 2,783 VND or 12.38 US Cents/kWh.

2. The Retail Power Peak Hour Price paid by high voltage connected customers (Average of the Commercial and Manufacturing Tariffs) is 3,225 VND or 14.4 US Cents/kWh. (Commercial 3,829VND and Manufacturing 2,556 VND)

We would suggest that the Minister sets the initial solar power plants with reference to: 1. The “Avoided Cost” of peak hour retail power and; 2. The higher investment costs for solar than small hydro (Hydro

$1m/MW capacity v Solar $1.6m /MW capacity). 3. The cost savings to EVN of having less power supply pressure on the

transmission grid and reduced power transmission losses during peak hours of demand

4. The recommended PPA price provided by the foreign consultants (UNDP) to the Ministry

5. Experience in other countries in the South East Asia which began with

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No. Draft Decision Comments/Feedback a high to attract initial investment and to develop supporting services for solar in Vietnam and then gradually reducing the level for new projects after the industry has established itself and has become more competitive with lower development and financing costs.

And increases in the peak hour Avoided Cost for the remaining 20 years of the PPA, increased annually. The over 20 years of USD0.19 is needed for island situations.

12 Article 13.2 … When electricity generated is higher than electricity consumed, the difference shall be purchased by the purchaser at the connection point, with the electricity tariff is 3150 VND/kWh (excluding value added tax, equivalent of 15 USDcents/kWh). Electricity tariff shall be adjusted according to the fluctuations of the exchange rate between VND/USD. …

The USD0.15 (only for excess production and off-set against monthly or annual bills) is reasonable, and believe even rural households will be interested, but this is mainly targeting customers who currently pay the highest tariffs. The situation may however change soon (perhaps as fast as 2-3 years), as national retail tariffs are expected to be forced up. It is the value of the avoided cost of EVN supplied energy which will determine demand for investing in solar rooftop power. We urge the Minister to follow up his commitment to VBF in June 2015 to publish a roadmap of retail power pricing for the next period of planning to 2030. Potential investors in rooftop solar could then make decisions informed with the value of the benefit of energy savings that are created by self-generating energy with solar PV.

13 Timing of Implementation When will the MOIT develop detailed regulations and implement them. When will the draft SPPA be available for consultation and feedback? Will the SPPA include the improvements and revisions suggested by GIZ in their report to the Ministry on Wind Power PPAs in June 2015? SPPA should clearly state EVN’s responsibility to purchase all solar power provided from projects. Inclusion of Power Projects in the Master Plan VII – how will this be achieved?

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No. Draft Decision Comments/Feedback 14 Promote Local Assembly and Manufacturing Provide a higher price for projects and power plants which use locally

sourced equipment (to be defined with similar provisions of “domestically produced” in free trade agreements). We would suggest 10% higher than for those projects using wholly imported equipment.

15 Remove the barriers to accessing Project Finance Loans to develop Power Plants is blocked by EVN’s poor credit status.

Project developers in wind and biomass have failed to attract project finance loans because the PPA is with EVN, which is regarded as an uncredit worthy off-taker of power by the commercial banks, who have solar PV project financing experience. While we await an improvement in EVN’s financial status, we would urge the Minister to seek donor support to provide limited performance guarantees to support EVN’s liabilities to pay for power under the PPA. Thus project developers could attract commercial project finance loans to build projects without increasing the cost of energy unreasonably and relieving the Ministry of Finance from the burden of guaranteeing all grid connected energy projects in Vietnam.

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ROUNDTABLE DISCUSSION ON POWER AND ENERGY RELATED ISSUES WITH THE MINISTRY OF INDUSTRY AND TRADE AND MINISTRY OF PLANNING AND INVESTMENT

- Date and Time: 2PM-4PM, Tuesday, 10th November, 2015 - Venue: General Directorate of Energy, 23 Ngo Quyen , Hanoi - Participants: Appendix 1 A. MEETING AGENDA - Competitive Electricity Wholesale Market for Vietnam - Decision No. 8266/QD-BTC

issued on 10th August 2015 - Electricity Tariff Road Map - Renewable Energy - Direct Power Purchase Agreements - National Power Master Plan VII - EVN Rescue Plan - Exploitation of Natural Resources - Coal Policy - Comment on PM Decision

B. MEETING SUMMARY 1. Competitive Electricity Wholesale Market for Vietnam - Decision No. 8266/QD-BTC

issued on 10th August 2015 Mr. John Rockhold – Head of the Power & Energy Sub-Working Group, Vietnam Business Forum (VBF) - The business community would like to see the competitive electricity market move

forward quicker, especially with approximately 28 billion dollar investment flow from private sector over the next 15 years into new power resources in Vietnam.

Response from Mr. Le Tuan Phong – Deputy Director, General Directorate of Energy - Vietnam's Government has promulgated special mechanisms to accelerate progress of

thermal power plant projects in Vinh Tan, Long Phu and Song Hau power areas to address power shortage in Southern Vietnam. All of them are coal power plants.

- Gas in Mekong River Delta has been exploited (petroleum gas and natural gas), in addition to coal-fired energy to respond to power shortage. Apart from coal energy, no other sources of energy can be exploited to tackle this problem.

- The proposal to turn large power consumers into seller is already embedded in power market development roadmap prepared by General Directorate of Energy.

Response from Mr. Pham Quang Huy – Deputy Director, Electricity Regulatory Authority of Vietnam - According to the roadmap in Decision 8266/QD-BCT approving the competitive

wholesale power market, the market will be piloted and officially scaled up as of 2019. - MOIT is working with internatonal consultants on developing wholesale power market

rules. - The biggest difference in the competitive wholesale market in the coming time is that

power wholesale buyers/major customers meeting MOIT's requirements will be able to purchase power directly from customers or from the market on market-contract mechanism.

- It is not rational to include wind power in the wholesale market. The current average retail price of power in Vietnam is 7.25 cents/kWh. Meanwhile on average, power

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generation costs account for only 70% of such price. This means average price of input power is quite low compared to the production costs of wind power. With Vietnam's existing capacity, we think it is better not to include wind power in the competitive power wholesale market in early phase, especially when wind is a natural resource which is not predictable in the long run.

- Regarding the issue of 5 regional power buying corporations under legal structure of EVN associated with major power generation companies where EVN holds controlling shares (GENCO): ERAV, in coordination with MOIT, is developing the power market restructure plan to submit to the Prime Minister in December this year. In the draft, MOIT proposed to cap EVN's holding share in 3 GENCO (directly under EVN) no higher than 50%. The equitization of these 3 GENCO will be completed by 2017.

- Criteria for major power consumers to participate in the competitive power wholesale market: it is expected that in initial phase, large entities directly connected to the transmission grid may participate in the first competitive power wholesale market because transmission fees can be determined. Next will be customers connected to Grid 110.

- It is recommended that regulatory agencies should operate independently: we need to have a roadmap and this totally depends on competition level in power market.

2. Electricity Tariff Road Map Mr. John Rockhold – Head of the Power & Energy Sub-Working Group, Vietnam Business Forum (VBF) - VBF suggests MOIT continues adjusting energy tariffs to create sustainable power

sector development in Vietnam. Energy efficiency could save a lot of money for Vietnam in not just producing power but using the power that we have in a more sustainable way.

- Business would benefit if MOIT would share a road map of Retail Power Pricing as it moves to prices decided by the market.

Response from Mr. Pham Quang Huy – Deputy Director, ERAV - Existing regulatory approach on power price: MOIT has been following market

mechanism so far through 2 instruments namely average retail price and average price adjusting mechanism.

- Bracket of retail electricity rates in the 2013 - 2015 period is regulated in Decision 2165/QD-TTg of the Government and mechanism for average electricity retail price adjustment is regulated in Decision 69/2013/QD-TTg.

- To stabilize power price and ensure consumers' rights, time and level of adjustment will be in alignment with socio-economic conditions of each phase.

- Every year, when adjusting power price, MOIT will coordinate with involved ministries to conduct end-line inspection and publicly disclose details related to production costs. Such results will be posted on MOIT's website.

3. Renewable Energy Mr. John Rockhold – Head of the Power & Energy Sub-Working Group, Vietnam Business Forum (VBF) - We believe that there is still room in the Prime Minister Decisions for the renewable

energy. We understand that it is expensive but we have cases where we see that once you start investing in renewable energy, prices will fall quite quickly.

- With wind energy, our position remains that feed-in tariff (FIT) needs to be raised higher than the 7.8 cents/kWh rate at the moment if the Government wants to see more investment in this particular area.

- It has been promised and this PM Decision on solar and biomass has shown the Government’s effort in this matter.

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- However, we do hope that the regulations on direct power purchase agreements need to be clearer, especially with rooftop energy purchase agreements. Solar power plants at 11 cents/pWh is relatively low to start an investment.

- We understand from a meeting with the World Bank that there will be a top off on top of the 11 cents/pWh. For example, South Africa started off with 20 cents/pWh, however, today, that same energy cost only 6 cents/pWh. We believe that Vietnam can follow that learning curve, starting at a high price, when the market gets more investment, more competitive, we will see the price drop quite quickly.

Response from Mr. Le Tuan Phong – Deputy Director, General Directorate of Energy - Wind power price: In calculating the price for investors to invest in wind power, our

initial price was 10 cents/kWh. Taking into account incentives including concessional loans from development banks, tax exemption or reduction, import tax removal, etc. the price dropped to 7.8 cents/kWh, including 1 cent subsidized by the Government.

- Instead of making investors apply for individual incentive, MOIT is recommending the Government to apply a specific negotiable price of about 10 cents/kWh.

- MOIT is also designing support mechanisms to develop renewable energy for each type. Among these, we are proposing subsidy mechanism for wind power and will take into account comments from your subworking group.

- Compared to some other countries like South Africa where there is enormous potential in terms of wind availability, cloud coverage, number of sunshine hours, solar radation intensity and other natural conditions, all are much better than Vietnam, resulting in much lower production costs for wind power. That is not to say we will not move towards producing wind and solar power due to these constraints, but it requires a step-by-step roadmap. Once again we would like to assert that it is impossible to include wind power in the competitive wholesale market but we will consider solar power.

4. Direct Power Purchase Agreements Mr. John Rockhold – Head of the Power & Energy Sub-Working Group, Vietnam Business Forum (VBF) - There are corporations in Vietnam here that are willing to purchase wind energy at 13

cents to 15 cents/kWH as they see that they can sell their products overseas for approximately 10 to 15% more.

- These businesses have their green energy policies within their corporations where they need to meet their own target world wide.

- One of the positive outlooks with the direct power purchase agreements is that it will create revenue for EVN as investors will pay EVN to use their grid. These agreements do not require any Government guarantees (100% financed by the private sector), hence we see it as a win-win proposition for Vietnam to move this direction.

- VBF is preparing a proposal to the Ministry of Investment and Trade (MOIT) and the Prime Minister’s Office where we will show a number of corporations that are willing to invest, how to carry out these direct power purchase agreements and how it has been successful in countries like Brazil, Mexico and India. We look forward to a fruitful discussion on our proposal when it is sent to you.

Response from Mr. Le Tuan Phong – Deputy Director, General Directorate of Energy - We have not received the sub working group's proposal. But we promise to review once

receiving it.

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5. National Power Master Plan VII Mr. John Rockhold – Head of the Power & Energy Sub-Working Group, Vietnam Business Forum (VBF) - Part of the master plan VII has been introduced at a workshop in Da Nang, and it is

focusing on coal. - We would like to see Vietnam move to a “made-in Vietnam” power plan as we believe

that Vietnam can still rely on its natural resources and do not have to import so much coal.

- A number of corporations here in Vietnam are working on a plan where Vietnam can make use of its natural resources and still have the same results with the current Master Plan VII which depends heavily on coal. We hope it will be ready to share with you by the end of 2015.

Response from Mr. Le Tuan Phong – Deputy Director, General Directorate of Energy - Due to global economic crisis, MOIT hired consultants to adjust National Power Master

Plan VII before submitting to the Government by end 2015. - Vietnam has been exploiting all major hydro power resources, and there are only 4,000

kWh remaining small hydro-power to be developed. - In the long run, the importation of coal for power generation will apply “clean coal

technology” and CCS (“Carbon capture and storage”).

6. EVN Rescue Plan Mr. John Rockhold – Head of the Power & Energy Sub-Working Group, Vietnam Business Forum (VBF) - We understand that there is a rescue program for EVN put up by the World Bank to help

investors when dealing with the banks and to reduce the current burden on the Ministry of Finance providing guarantees to all power sellers.

Response from Mr. Le Tuan Phong – Deputy Director, General Directorate of Energy - The basic issue in rescuing EVN is power price as we presented.

7. Exploitation of Natural Resources Mr. John Rockhold – Head of the Power & Energy Sub-Working Group, Vietnam Business Forum (VBF) - We believe that the gas field can be developed. - Even though price is an issue but if you look at the whole price of gas, it would be very

competitive for Vietnam. We hope that negotiations with all the gas suppliers will move forward.

Response from Mr. Le Tuan Phong – Deputy Director, General Directorate of Energy - MOIT's proposition is to prioritize gas development as production costs for gas power

are much lower than those for coal power and the time required to build gas power plants is also shorter.

- Vietnam is studying the exploitation of blue whale gas field. Once the power supply which can potentially be exploited from blue whale gas field is determined, the proportion of coal power will be reduced. In addition, Vietnam has been purchasing power from Southern China, and plans for investments in hydroelectric projects in Laos and transmission to Vietnam as well as developing nuclear power plants.

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8. Coal Policy Mr. John Rockhold – Head of the Power & Energy Sub-Working Group, Vietnam Business Forum (VBF) - We would also like to see the coal negotiations between Vietnamese Government and a

number of our companies move forward after being long dragged down. - Many of these coal power plans were actually supposed to start construction already.

Investors start to worry about future power supply. - Vietnam will need to improve road and port infrastructure if it is going to import

approximately 30 million metric tonnes of coal by 2020. - We hope that with other resources, Vietnam will lower its coal consumption and try to

use more natural resources. Response from Mr. Le Tuan Phong - Deputy Director, General Directorate of Energy - Regarding infrastructure for the importation of coal, JICA and MOIT has researched and

are in the process of finalizing location, scope and plan for expansion in different phases. The Government has instructed Vietnam National Coal - Mineral Industries Group (Vinacomin) to finalize the plan for building station for coal importation to be submitted to the Government by the end of 2015.

- Regarding guarantees for imported coal: Vietnam's Government encourages investments in BOT. Investors bring capital into Vietnam, construct factories/plants and import coal for production and sale of power to Vietnam market. Profits made by investors in VND, after subtracting all costs, will be converted back to foreign currency and returned to investors. Of which, Vietnam's Government commit to provide guarantee for 30% of conversion needs and the remaining 70% will be covered by commercial banks. If within 7 days and commercial banks cannot provide enough foreign currencies needed by investors, the State Bank of Vietnam will intervene to support commercial banks in resolving the problem within the next 7 days.

- Delays in signing BOT contracts are not soly attributed to Vietnam's Government but also due to many involved parties, including the Government, investors and banks.

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Appendix 1: List of participants Name Title Organization REPRESENTATIVES OF GOVERNMENT BODIES 1 Mr. Nguyen Noi Deputy Director Foreign Investment Agency,

Ministry of Planning and Investment

2 Mr. Le Tuan Phong Deputy Director General Directorate of Energy

3 Mr. Pham Quang Huy Deputy Director Electricity Regulatory Authority of Vietnam

4 Mr. Nguyen The Huu Director of the Center for Power Market Development Research and Training

Electricity of Vietnam (EVN)

5 Mr. Tran Hong Ky Energy Specialist The World Bank 6 Mr. Vu Quoc Huy Deputy Director of Economic

Zone Management Department

Ministry of Planning and Investment

7 Mr. Pham Minh Tuan Deputy Director of Power Market Department

EVN

8 Mr. Nguyen Anh Tuan

Deputy Director Institute of Energy

9 Ms. Le Nguyet Anh Deputy Manager of Policy Division

Foreign Investment Agency, Ministry of Planning and Investment

Representatives from Departments of the General Directorate of Energy

VIETNAM BUSINESS FORUM – POWER AND ENERGY SUB-COMMITTEE 10 Mr. Mr. John Rockhold Head VBF Power & Energy Sub-Working

Group 11 Shenbagam

Manthiram Chief Representative - Vietnam

TATA Power Ltd

12 Thuy Nguyen Government Affairs and Policy leader

GE Global

13 Do Duc Tuong Clean Energy Specialist U.S. Agency for International Development

14 Sean Chung Vice President ExxonMobil 15 Sagara Hirohide Chief Representative -

Vietnam Marubeni Corporation

16 Sato Susumu Deputy Director Jetro Hanoi Office 17 Ngoc Nguyen Associate Freshfields Bruckhaus Deringer

LLP 18 Tran Hong Viet Senior programme

Manager Embassy of Denmark

19 Hoang Thanh Programme Officer – Cooperation & Develompent Section

EU Delegation

20 Nguyen Ngoc Anh VBF Officer VBF Secretariat 21 Dang Thi Van Anh VBF Coordinator VBF Secretariat

5.4. PORT AND SHIPPING

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PORTS AND SHIPPING POSITION PAPER

Prepared by VBF Port and Shipping Sub-Group

EXECUTIVE SUMMARY

The Ports’ and Shipping Sub Group of the Vietnam Business Forum wishes to emphasize again the importance of creating a domestic and international transshipment hub in Cai Mep, that will not only contribute to solving the excessive demand / supply container terminal imbalance in South Vietnam, it will also, as a direct consequence, create the necessary scale to operate the required deep sea terminal for Vietnam and for all of her importers and exporters. Whilst it is recognized that the drive towards this ambition is well known within the Ministry of Transport and the Ministry of Planning and Investment, this position paper draws the support from a number of previous reports and recommendations together current information, sourced from Government Departments as well as the Port and the Shipping Industries themselves. This Position Paper aims to bring together the recommendations of these different government departments, organizations and business communities in order to demonstrate that the overall aims of such groups are in fact the same. This would indicate that with such common support, there lies a golden opportunity for the Vietnamese Government to make a small number of decisions, in order to create significant positive impact for Vietnamese importers and exporters. With the advent of the Trans Pacific Partnership and the European Free Trade Agreement, the need to create such a terminal has never been so great as now. The resultant increase in trade (and therefore container traffic in and out of Vietnam) is now expected to far exceed the previously expected growth of 7% to 8% from now until 2020. In order to maximize the potential that both the TPP and European FTA will bring to Vietnam, it is essential that an efficient deep sea container terminal exists to cater for such a demand. The current reliance on the HCMC City Terminals is not sustainable both from an operational and a commercial point of view. In order to create this scale, it is essential first to create a competitive environment in which to operate the container terminal. As described on a number of occasions before, the first and critical steps in this regard are as follows: - A reduction in port dues for certain sized vessels. Note that in reducing the port dues

per vessel, a greater number of vessels will call in Vietnam, with the resultant increase in overall income for the Country.

- A relaxation of the Cabotage Regulation. Whilst it is understood that there is a reluctance to carry out a relaxation, the current local services on offer are not of the required standard and they are currently prohibitively priced, which on both counts, are blocking the progress. It is of course only a requirement to relax such a regulation in and out of Cai Mep. In this way, a more competitive environment will be created as Vietnam aims to take market share away from other hubs such as Hong Kong and Singapore.

- In line with the changes of Customs’ processes and regulations that are taking place, the Ports’ and Shipping Sub Group focuses on the key areas of the required customs’

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reform. This focus and action is fundamental, if Vietnam is to remain competitive with other Asean Countries.

Potential Financial Gain For Vietnam: - For every Feeder Vessel that is no longer required to transport Vietnamese cargo

to/from existing Hubs such as Singapore and Hong Kong, there is a saving of transport costs of at least USD 7 million per year.

- For each Mainliner call that would berth in Vietnam if the above 3 items are resolved, there would be an additional income to Vietnam (through Port Dues) of around USD 1 million per year.

- Initial estimations of 2 feeders to be reduced and 10 mainline calls to be added, implies a saving on feeder costs of USD 14 million and an additional income to Vietnam of USD 10 million per annum through Port Dues.

The Draft Decree on publication of ocean freight rates and surcharges Background: Under the draft proposal of the new Decree, shipping liners are requested to publish the followings on shipping liners’ and Vinamarine’s websites: - Shipping liners’ costs paying to the service providers - Ocean freight rates for all serving port pairs - Freight related surcharges and local surcharges (including destination surcharges) - Any changes to ocean freight rates and surcharges (increase) must be effective only

after 30 days from the notification day.

Liner industry position: If the draft proposal is implemented, it will not be beneficial to the development of Vietnamese export and import trade due to the below reasons: - The draft proposal is inconsistent with international practice - It will not enhance competition - It increases state intervention and burden

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DETAILED CONTENT

I. BRIEF REPORTS FROM RELEVANT STAKEHOLDERS The following organizations, presentations and reports have been consulted and they have all, within the past 2 years, advocated the creation of a hub of sufficient scale in South Vietnam. In order to achieve this, the solving of the three issues above is deemed essential for progress. - Report to Deputy Prime Minister Hai 6th August 2013

The Value of the Hub - The Transport and Logistics’ Sector Committee of the European Chamber of Commerce

Within the Whitebooks of 2014 and 2015 - “Efficient Logistics” Report written by The World Bank, published 2014

Efficient Logistics, The Key to Vietnam’s Competiveness - The Vietnam Trade Facilitation Alliance (American Chamber of Commerce and Vietnam

Chamber of Commerce and Industry) Discussed with them in the American Chamber of Commerce April 2015 Particular emphasis on Customs’ Reform

- Transport and Logistics Partners Quarterly Meeting(TLPQM) A group conceived in February 2014 comprising of the Department of Transport and

Industry Leaders. - Current Input from Ports’ and Shipping Sub Group – March 2015

From Shipping Lines: Maersk Line, CMA CGM, MSC, APL From Container Terminals CMIT, SSIT

1. Value of a Hub: Report to Deputy Prime Minister Hai – 6th August 2013 On the 6th August 2013, a report was written to the Deputy Prime Minister Hai. The report summarized the value of creating a Hub in Cai Mep. Since then, the Operating Cooperation Contract has been signed between CMIT and Saigon Newport and this is a good step forward as the Hub concept is developed. Whilst some of the figures in the report are now out of date, it was clear even then that the reduction of port dues and the relaxing of the cabotage regulations are two vital ingredients if the Hub creation is to materialize. 2. Whitebooks (European Chamber of Commerce) – 2014 and 2015 In relation to separate reports written by the European Chamber of Commerce, through its Whitebooks of 2014 and 2015, it has been made clear that the reduction of Port Charges and the relaxing of the Cabotage Law (Section 2.8.2 Whitebook 2014) and similar recommendations in the 2015 Whitebook (Section 2.9.2), are necessary actions if the Hub is to be created. 3. Efficient Logistics: The World Bank - 2014 Published in 2014, the World Bank presented the extensive report entitled “Efficient Logistics – A Key to Vietnam’s Competitiveness”. In that report (Chapter 3, pages 71 and 79) it was recommended that Vietnam needs to relax its Cabotage regulations. In addition, also in Chapter 3, pages 80 to 82, there are a number of recommendations in relation to the need to improve the Customs’ Regulations. Both aspects have the direct link to the development of the Hub in Cai Mep. 4. Vietnam Trade Facilitation Alliance (VTFA) - 2014 In conjunction with the American Chamber of Commerce, the Vietnam Trade Facilitation Alliance is organized to provide advisory support to the General Department of Vietnam

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Customs and other agencies of the Government of Vietnam whose regulatory requirements are enforced by the GDVC with imports and exports. By definition, the VTFA therefore is particularly keen that the Customs’ Procedures are in line with the target of creating the Hub Port.

See the Press release as announced on 12th December 2014:

Ho Chi Minh City, December 12, 2014 - The U.S. Agency for International Development (USAID) today joined the American Chamber of Commerce in Vietnam and the Vietnam Chamber of Commerce and Industry to formally establish a new Vietnam Trade Facilitation Alliance (VTFA) through a memorandum of understanding. The private sector-led alliance will provide policy and technical assistance to the General Department of Vietnam Customs and relevant trade facilitation agencies and authorities in Vietnam to advance Vietnam’s competitiveness.

“Trade facilitation is a powerful tool for integrating small and medium enterprises (SMEs) into domestic and global value chains, which makes growth more inclusive,” said USAID’s Acting Assistant Administrator for Asia Anne Aarnes. “The VTFA will be an important voice for these SMEs that too often are not well-represented in policy processes.” A number of USAID programs, including the Provincial Competitiveness Index (PCI), highlight the importance of SMEs, including women-led enterprises, to Vietnam’s growth and the value of involving business in policymaking. With today’s launch, the VFTA will support the implementation of the Trade Facilitation Agreement (TFA) in Vietnam, as well as next generation free trade agreements such as the Trans-Pacific Partnership (TPP). The Alliance also aims to improve competitiveness of Vietnam’s domestic and foreign companies through a more predictable and transparent business enabling environment. There will be special emphasis on helping Vietnam achieve the target it established in Resolution No. 19/NQ-CP to improve its performance trading across borders by significantly reducing the time and cost of importing and exporting to regional averages.

Through its multi-stakeholder networks, the VFTA will improve information sharing on trade facilitation including participation in the annual Traders Satisfaction Survey, implemented by Vietnam Chamber of Commerce and Industry in partnership with General Department of Vietnam Customs, and the sharing of private sector generated data on customs performance.

USAID has been working closely with the Vietnamese government and business groups to develop and implement effective trade facilitation assistance to enable Vietnam to meet the commitments in the TFA and prepare Vietnam for the implementation of the TPP. USAID support for the VTFA will enable Vietnam to build a sustainable and open public-private partnership to facilitate trade, thereby reducing poverty and promoting inclusive growth. The VTFA is a pioneering effort for USAID under its global trade facilitation programming.

See more of USAID’s work on trade and other issues on www.usaid.gov/vietnam. 5. Transport and Logistics Partners Quarterly Meeting In conjunction with the World Bank, the Ministry of Transport has established the Transport and Logistics Partners Quarterly Meeting (TLPQM).

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The main purpose of the TLPQM is to facilitate an effective interaction between the Ministry of Transport and the transport/logistics stakeholders. This will assist all TLPQM participants to better understand the common issues that relate to Government policies.Therefore it will pave the way to pragmatic and workable solutions to any concerns that may exist with the Logistics’ Industries of Vietnam. Central to the aims of the TLPQM is the creation of a Hub in South Vietnam and this will require the customs procedures to be made more efficient, cabotage regulations to be relaxed and port dues to be reduced. 6. Input from the Ports’ and Shipping Sub Group The comments that are made below have been made and brought to the attention of the Ports’ and Logistics Sub Group of the VBF. All comments have been made from Shipping Lines and Port Operators.

Benefits to Vietnam through the creation of a Hub: - There will be less pollution for Ho Chi Minh City by diverting the truck flow within HCMC

into Cai Mep - There will be less traffic and less risk of port congestion, since there is a far greater

port capacity in the Cai Mep region. The consequence of having less inner-city traffic will be an improvement in safety and less risk of cargo delay. Reducing the risk of cargo delays,improvesthe overseas buyers’ satisfaction through the reliability of Vietnamese export cargo which, in turn,leads to an increase in purchasing orders.

- There will be less river traffic due to fewer barges and vessel traffic. The river could be deployed for tourism purposes with river tours and river activities thus attracting greater revenue for Vietnam; a similar approach to that successfully adopted in Bangkok.

- The considerable risk associated with not making the change quickly enoughis quite simple: there will be insufficient capacity to cater for the growth of the TPP and European FTA. Through the TPP, Vietnam’s economy has been identified to have potential growth of up to 35% by 2020. Exports are a major factor when influencing this growth. The exports with the US have been growing between 10-11% in the past years and the TPP will open up even more growth. It is essential that Vietnam capitalizes on this opportunity immediately after the TPP has been signed. Failing to capitalize runs a significant risk of damaging the direct foreign investment that is already underway and indeed any further potential direct foreign investment.

- As long as Vietnam continues to rely on river ports, cargo will rather find its way on feeders to connect over other established hubs in the region, such as Singapore ad HKG. This adds cost, increases inefficiency and reduces the competiveness of Vietnam.

- Consolidation provides the critical mass to cater for larger services; thus saving cost and making it more worthwhile for direct call services

- For as long as river ports remain an option for the Intra-Asia businesses, carriers will find it difficult to run a more optimal “panama size” service (larger vessels) into Cai Mep, given the concerns with shipper/consignee acceptance.

Attached below (via YouTube) explains the scale of change at the Port of Shanghai. It is clear and evident that one of the central pillars of China’s growth in exports is the establishment of a Port with sufficient scale. This video summarizes how it was achieved. https://www.youtube.com/watch?v=MlQmMTp_T0M

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Cost Savings from the reduction of feeder services to/from existing hubs in Singapore and Hong Kong - The weekly cost of running an 1100 TEU sized vessel is around USD 136,000, implying an

annual cost of around USD 7 million - The weekly cost of running a 1700 TEU vessel is around USD 208,000, implying an

annual cost of around USD 10 million. Weekly cost FIO/1100 teu usd 136,324 Weekly cost FIO/1700 teu usd 208,444

Additional income to Vietnam if Cai Mep can attract additional mainline calls If Port Dues’ charges are set at USD 20,000 per call, additional income to Vietnam per year per additional mainline call is USD 1 million. Potentially, through the creation of a hub and the resolution of the 3 recommendations above, at least 10 mainline calls can be attracted, generating a further USD 10 million per year. II. THE DRAFT DECREE ON PUBLICATION OF OCEAN FREIGHT RATES AND SURCHARGES:

Background On 18 March 2015 Deputy Prime Minister Hoang Trung Hai requested the Ministry of Finance, the Ministry of Industry and Trade, and the Ministry of Transport to investigate the imposition of maritime transportation surcharges by shipping lines operating in Vietnam. Subsequently, on 13 April 2015 a number of shipping lines were invited to a meeting at the offices of the Ministry of Transport, following which, a number of lines were subject to an inspection by the Ministry of Finance. There followed the release of the Draft Decision (it has been advised the Decision is upgraded into a Decree) which would require shipping lines to publish the followings on shipping liners’ and Vinamarine’s websites: - Shipping liners’ costs paying to the service providers - Ocean freight rates for all serving port pairs - Freight related surcharges and local surcharges (including destination surcharges) - Any changes to ocean freight rates and surcharges (increase) must be effective only

after 30 days from the notification day.

Liner industry position Based on data collection of the 5 representative shipping lines APL, CMA-CGM, Hapag Lloyd, Maersk Line and MSC: - Transparency of information: ocean freight rates, surcharges and local surcharges are

updated and available on the shipping liners’ websites. - Customers are informed to all adjustments to rates and surcharges by email in advance

with 30 day advanced notification for FMC trade and 15 day advanced notification for non-FMC trades (as per international maritime regulation).

- As per historical data of the above mentioned 5 shipping liners, local surcharges have been very stable over the year. In last 4 years, local surcharges (THC and Documentation fee) have been increased with an average rate at 2-4% only (in comparison with average inflation rate at 10%).

Impacts if the Draft proposal is implemented - The draft proposal is inconsistent with international practice:

No other jurisdiction in the world requires carriers to publish the transportation rates they agree to with their customers in a confidential contract. If the Draft

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Decision is adopted, Vietnam would be the only country in the world with this requirement.

This requirement would also directly contradict government trade policies of other countries and lead to trade conflicts. All other jurisdictions also either require, allow or encourage contract confidentiality. As a result, the Draft Decision is contrary to current international practice and may lead to conflicts with trading partners, such as the U.S., European Union, China, Taiwan, Japan, Korea and Australia.

Adoption of the Draft Decree also would require carriers to breach the terms of hundreds if not thousands of existing contracts which require the terms of those contracts to be kept confidential. It would also expose carriers and their customers (including their Vietnamese customers) to legal risk for violating the laws of jurisdictions which require the terms of ocean shipping contracts to be kept confidential.

- It will not enhance competition

By requiring disclosure of confidential contract rates of shipping liners and their service providers, it removes the confidentiality and hence it will run contrary to international experience and would be likely to decrease, rather than enhance, competition.

- It increases state intervention and burden

The imposition of an obligation on the Lines to announce Freight Rates, Surcharges and costs increases, rather than minimizes, State intervention. It would directly lead the Vietnamese government into an examination of the operational costs of international shipping lines. No other jurisdiction in the world engages in such an examination.

The Draft Decision would impose a substantial burden on the Vietnam Maritime Administration, and possibly other governmental bodies, which would have to process thousands of transactions on a daily basis at various times during the year.

The Draft Decision would also impose significant additional administrative burdens on the Lines at a time when the Government is trying to reduce such burdens on business. It is likely that extra filing would lead to delays in providing rates to importers and exporters in the Vietnam trade. Moreover, the increased costs of this burden would be passed on to customers in whole or in part in the form of higher rates. Added cost, delay, and uncertainty would make Vietnamese exports more expensive and less competitive.

Proposal: Removal of the followings on the Draft Decree: - To remove the requirement to shipping liners to publish shipping liners’ costs paying to

the service providers - To remove the requirement to shipping liners to publish all ocean freight rates and

surcharges on Vinamarine’s website given the information is available on the shipping liners’ websites. Vinamarine will create a web link to shipping liners’ websites where Vietnamese shippers can connect for information on shipping schedules, ocean freight rates and surcharges.

- Advanced notifications to rate and surcharge adjustment to be aligned international maritime regulation. This means 30 day advanced notification for FMC trade and 15 day advanced notification for non-FMC trades.

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III. FLOOR RATES AT ALL VIETNAMESE PORTS Background - The following section is put forward by the Shipping Line Community - Whilst it is understood that the current floor rate mechanism is currently in place within

the CaiMep-Thi Vai port complex, the expansion of that mechanism to be applied to Ports nationwide has no basis.

Proposal: NOT to implement the floor rate: - With the exception of the CaiMep-Thi Vai complex, Ports across the nation are

operating at very high utilization levels (in some cases demand outstripping supply). In such a favorable environment, it is irrational to apply a floor price. In any case, it can be argued that extension of a false pricing mechanism merely develop complacency among enterprises to improve service standards.

- The floor rate does not benefit the importers and exporters. Rather it only benefits existing port operators, many of which have reported healthy profits over many years.

- Carriers have valid contracts with terminal operators. These contracts were awarded based on cost competitiveness and service level through tender process and are legally binding.

- Setting a pricing mechanism for services goes against free market competition, particularly in light of various free trade agreements currently being negotiated and close to finalization – including the Transpacific Partnership Agreement (TPP) and Europe Free Trade Agreement (EU-FTA).

- There is no basis for including terminal container handling services as a price stabilization items under the Law of pricing, alongside essential commodities such as rice, milk powder and fuel and it raises concerns about the stability of policies and the involvement of the State in commercial activities of enterprises. Article 16 of Law on Pricing sets outs two conditions under which price stabilization should be introduced: 1) for goods and services listed under the Act; and 2) where price level changes affect social-economic stability. Price setting of port services (i.e. Decision No. 1661) does not fulfill any of these requirements. In fact, goods and services that do not fall under such conditions but involves sellers in a dominant market position, entitle buyers to seek the help of the Government to negotiate prices and such buyers are not to be subjected to any price setting mechanism. On 7 January 2013, the Government issued Resolution 02/NQ-CP aimed at helping enterprises overcome business difficulties by lowering costs. Decision No. 1661 is counter-productive to such efforts. Further, there are Implications of Decision No. 1661 on prevailing Competition Law since this may be tantamount to price fixing by a group of enterprises in a dominant market position.

- Should a national floor price be set for additional terminals, the impact to foreign shipping lines is estimated to be approximately US$85 million. This would only add to the cost of shipping services and erode competitiveness, in an environment where the cost of calling Vietnamese ports is high by regional standards.

- Shipping and the maritime industry at large in Vietnam have made considerable progress in its development over the past 15 years. A floor rate mechanism, if applied, will regrettably lead to a set back of the industry.

5.5. TOURISM

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TOURISM POSITION PAPER Presented by

Mr. Ken Atkinson Tourism Working Group

OVERVIEW Whilst visitor arrivals in 2014 were up by 4% from 2013 levels at approx. 7.9 million, there was a worrying trend with year on year decreases in arrivals for 13 months in a row but year on year increases in the months of June to September has increased business sentiment in the sector. This led to a year on year decrease of 11.3% for H1 2015 and 5.9% at the end of September 2015. The impact of the political tensions with China and the problems faced by the Russian economy as a result of political tensions with the US and Europe were the main contributors to the decrease in arrivals from June 2014 to June 2015. Notwithstanding the above, mainland China is still the largest inbound market with 1.26 million arrivals in the first 9 months of 2015 (down 18.2% on 2014). In 2014, visa waiver countries (South Korea, Japan, Norway, Sweden, Finland and Denmark) except Russia showed an average a 5% year on year increase and in H1 2015 there was an average 8% increase over the corresponding H1 of 20141. South Korea registered the biggest growth with 13% in 2014 and 31.4% in the first 9 months of 2015. Travel and tourism is a major contributor to both employment and to GDP and in comparison to other major contributors, seems often sadly neglected. Direct contribution of travel & tourism to GDP in 2013 and 2014 was 4.6%. The total contribution of travel & tourism to GDP (including wider effects from investment, the supply chain and induced income impacts) in 2013 was 9.6% of GDP and 9.3% of GDP in 2014. Moreover, direct contribution of travel & tourism to GDP is expected to grow by 6.6% per annum to 4.8% of GDP by 2025.On the employment front, in 2014, travel & tourism directly supported 3.7% of total employment. This is expected to be 3.6% in 2015. In 2014, total contribution of travel & tourism to employment, including jobs indirectly supported by the industry, was 7.7% of total employment.2 The objectives targeted in the Government‟s National Strategy (for 2020, vision 2030) regarding the development of the tourism industry are to: attract 10-10.5 million international visitors by 2020, serve 48 million domestic tourists, increase tourism revenue to US$ 18-19 billion by 2020 and contribute 6.5-7% of GDP by 2020.There are several key issues that we continue to believe need to be addressed in order for the travel and tourism industry to achieve its full potential and for Vietnam to achieve its development plan 2020 and Vision 2030. Prior to addressing these, we would like to congratulate all Ministries on the recent significant enablers to the industry which include: the granting of visa exemptions to 5 major European countries plus Belarus; the minor improvements in the processing of E visa applications at Tan Son Nhat International Airport in particular; on the bold move to allow foreign ownership of residential property, which we anticipate will increase the percentage of return visitors to Vietnam;and on the very recently announced reduction in

1 Vietnam National Administration of Tourism (VNAT). Data available at (http://vietnamtourism.gov.vn/english/index.php/cat/1501)

2 „Travel & Tourism Economic Report 2014 World‟, World Travel and Tourism Council Council, p.1. Available at

(http://www.wttc.org/-/media/files/reports/economic%20impact%20research/regional%20reports/world2014.pdf)

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Visa fees to levels on a par with Cambodia and Laos, which will take effect from late November. Some of the major hindrances which we wish to see addressed include Entry Visa Policy; Destination Marketing, Land Use costs and tax issues, MICE travel and Tour operator accreditation. 1. VISA POLICY Whilst the addition of the 5 European Countries and Belarus, to the list of visa exempt countries was very welcome, there are still several issues in this area: - Currently Vietnam has Visa waiver or exemptions for citizens of 21 countries3 which is

far lower than our neighboring competitors such as Malaysia 164, Philippines 157, Indonesia 45 Thailand 52, (however it is important to note that Indonesia and Thailand offer most countries true visa on arrival). The list of Visa exempt countries needs to be further expanded and there are common complaints from representatives of foreign investors that they still require to obtain visas. We believe that it is inconsistent and somewhat illogical to have free trade agreements with countries and to maintain the requirement that Visas are required by visitors from those countries. We understand that another 19 countries are under consideration and we urge the Government to expedite these approvals;

- The announcement that the exemption for the new visa waiver countries is for 1 year

only also limits the positive effect as most long haul tour operators and travelers plan their trips up to a year ahead so a longer trial period is required. To maximize the benefit of these trials, the period needs to be extended longer than 1 year so the industry as a whole can maximize the benefits this offers;

- Extend the Visa Waiver to 30 days instead of 15 as for many long haul tourists 15 days is not enough. We have already heard reports from tourists that to take advantage of the visa waiver they have had to curtail their visits and shorten their itineraries and in support of this we have heard from some home stay businesses that since the introduction of the visa waiver they have seen a significant reduction in home stay visits;

- The problem of not allowing a return visit within 30 days, for persons with visa

exemption seems to have in part been resolved with the imposition of a US$ 5 administration fee it is not yet clear how this will operate in practice. This is major hindrance to visitors who take flights to Vietnam and return from Vietnam but who want to visit Cambodia and or Laos during their trip. So clear regulations and guidance on implementation needs to be issued;

- The Government should consider the issuing of Visas on line – E Visas, which can be

printed on line and handed in at immigration to avoid the often long delays at the airports of Hanoi and HCMC. The current on line application system works very well there are often considerable delays experienced by passengers collecting visas in Ho Chi Minh City and less so in Hanoi. There seems no reason why Visas could not be issued on line as they do in Cambodia to avoid the unnecessary delays on arrival;

3 „Vietnam Visa Exemption‟, Vietnam Visa Easy, 2015. Available at (http://www.vietnamvisa-easy.com/pages/vietnam-visa-

exemption)

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- With Vietnam Airlines upgrading its aircraft on its European Routes there is an opportunity to attract transit traffic and passengers to stop over in Vietnam when in transit from other Asian destinations. Vietnam should consider to introduce a system for 72 hour transit visas to be issued free of charge at international gateways (Hanoi, HCMC and Danang) for passengers transiting on International inbound and outbound flights.

Recommendations - The list of Visa exempt countries needs to be further expanded to include all countries

with whom Vietnam has Free Trade Agreements, significant trading or investment partners and targeted inbound tourism markets e.g. India;

- To extend the period of recently announced Visa exemptions and new exemptions to 5 years not 1 year;

- To extend the visa exemption from 15 days to 30 days; - To urgently clarify the procedures and rules allowing returns within 30 days for visa

exempt travelers; - To move to a system of E Visas allowing visas to be issued on line rather than the E

application as currently in use; - To allow transit visas to be issued on arrival for up to 72 hours for passengers with

connecting flights. 2. MICE TOURISM The MICE segment has long been desired segment for any country seeking to generate growth in the Tourism arrivals. The revenue generated by these types of groups crosses many aspects of the city that they are accommodated in. Revenue is generated by airline travel fees, transportation, visas, hotels, restaurants and catering, sight-seeing and tourism attractions and the before and after opportunities that attendees take advantage of to spend time visiting and exploring the country they are hosts of. Often it is the MICE segments that lay the foundation for future tourism travel as FIT visitors and event individual travel from their initial preview of a city within a country. MICE has not been a large portion of the arrivals for Vietnam as the developed MICE hotels or Convention centers have not been large enough to accommodate the needs of the segment. This accommodation is slowly developing and with formidable convention space now available, MICE could see a very large growth if professionally and properly marketed and pursued. Several impediments remain before we can truly say that MICE events are sincerely coveted by the Vietnamese Tourism Ministry. MICE competition is extreme and many Asian countries are heavily focused on attracting regional and international MICE events. Countries such as Thailand, Cambodia, Bali, Indonesia, Philippines and Kuala Lumpur are considered the more valued locations with seasonal pricing. Singapore, Hong Kong and Seoul are the more costly but also considered more mature and providing more attractions for MICE entertainment. Below are those issues that we believe currently prevent Vietnam from being considered a competitive force in the MICE segment and need to be addressed in order to create demand; such actions would certainly establish Vietnam as a formidable location for MICE events in Southeast Asia and beyond. Many of these issues are similar to those faced by the film industry which offers huge potential for world-wide (free) publicity.

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- Visas Visa costs are a prime example of how we fare with those countries that are visa cost free. Many companies/organizations/associations will see this additional cost and will look more favorably towards countries that do not have visa requirements and fees or if so, a fixed rate and inexpensive cost. Process is also deemed as important to insure that individuals will not be disqualified from attending these events. Visa waiver announcements will be helpful but the big opportunities still exist with USA, Australia, India and China, as combined these countries have over 1 billion individuals that have the income to travel independently from their business travel. In addition, 30% of corporate and association attendees seem to originate from China currently. - Registration of MICE Events This has been deemed as a hassle and many customers have the feeling that they are not wanted Vietnam for corporate meetings or international organizations. The current policies of requiring registration of events and approval of content is not only laborious but outdated; and - Convention Bureau Sponsorship As we have no Convention Bureau, we are beginning to run up against those countries/cities that do. Many, Thailand, Singapore, and Manila, Philippines are now promoting incentives for bringing MICE events to their respective cities with sponsored programs, welcome receptions, transportation and complimentary entrances to some tourism destinations. We particularly are seeing this with International Organizations involving medical, healthcare and educational events, where sponsorship is necessary to make the event viable to hold for the organization. - Customs Clearance The process of getting equipment and tools in for these exhibitions, is deemed long, difficult and without procedures and posted costs. Receipts are not readily available. Companies have said they will seek alternative locations for these events in the future based on experiences. These tools, equipment are key to the successful execution of events. - Airline Lift and Frequency Compared to several Asian countries, it is quite difficult to schedule trips to Hanoi with some major cities having only single flights and some not daily. Long haul routes from Australia and US make it easier to attend events in Korean and Japan as well as China, Hong Kong, Singapore and Thailand. We have only one flight direct from India to HCMC and none to Hanoi! This in itself causes many Southeast Asian MICE events to go to Thailand, Singapore and Bali due to ease and cost of transportation. Lastly, if you look at the cable airwaves these days, you are likely to see MICE promotions from Countries such as Cambodia, Thailand and Singapore. Obviously others from Malaysia Indiana and even Myanmar. Vietnam desperately needs to visually promote the cultural City of Hanoi, the beautiful beaches of the country and the MICE venues that have begun to show what can happen if they choose Hanoi. We are very confident that should we make headway in these initiates that are holding back the MICE explosion that is available to Hanoi and Vietnam, we will see the great many benefits that will come from increased arrivals, revenues expenditures and more service jobs, not just in Hotels, but throughout.

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Recommendations - Whilst the announced reduction in Visa fees will be of value in attracting MICE groups

consideration should be given for a fixed fee for group visas (not related to the number of people) so that fees will be even lower for groups of say larger than 50;

- Relax the requirements for MICE event registration as these are internal events and any registration requirements handle through the venues themselves;

- Create a one Stop Shop for MICE groups either through the establishment of the Convention Bureau or through the provincial tourism offices;

- Create a simple system for import of items required by the MICE groups including corporate gifts, re-export of hardware and unused items.

3. DESTINATION MANAGEMENT & MARKETING a. Public-private partnership and destination competitiveness To compete effectively, destinations have to deliver superb experiences and excellent value to visitors. The business of tourism is complex and fragmented and, from the time that visitors arrive in the destination until they leave, the quality of their experience is affected by many services and experiences, including a range of public and private services, the environment and community welcome. Delivering excellent value depends on many organisations working together in unity. Destination management calls for a coalition of these different interests to work towards a common goal to ensure the viability and integrity of the destination now and in the future. This is a key challenge in a region where there is limited cooperation and communication between the public and private sectors, and between competing private sector companies, at present. Most destination management issues arising in the region need to be addressed at the provincial level. This is where structures of Government exist to address them and can be strengthened. It is therefore important that effective governance structures for tourism are in place locally. It is at the local destination level that many services vital to tourism are delivered and where the positive and negative socio-economic and environmental impacts of tourism are most apparent, requiring sound local planning and management. Destination management at present is largely the responsibility of Departments of Culture, Sport and Tourisms (“DCSTs”) reporting to People‟s Committees and, occasionally, to the Vietnam National Tourism Administration (VNAT). In general, there are no structures for shared responsibility between Government agencies which impact tourism, or between DCSTs and the business sector. DCSTs do not formally meet with the business sector, and industry representation organisations in the provinces are weak. Financial resources for marketing are very constrained and not transparent. In order to better serve the customers of the tourism sector in Vietnam and improve the destination development and management, the Ministry of Culture, Sports and Tourism (MCST) and VNAT have started a strategic planning initiative by strengthening destination management structures at destination levels. The EU-funded Environmentally and Socially Responsible Tourism Capacity Development Programme (ESRT) with VNAT are supporting the collaboration of provinces and business sector stakeholders to jointly work on destination management issues. With this support, existing Provincial Steering Committees have been strengthened to include the business sector, and developing practical agendas for them.

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The overall performance of the tourism industry gives cause for concern, however. There has been a decline in occupancy as accommodation supply is increasing. The collapse of the Chinese market and the Russian market in 2014 has brought the need for better destination management regarding accommodation supply, and the need for a more strategic, broad-based marketing approach. Tourists are not restricted by provincial boundaries when they travel. They visit and travel throughout regions based upon the product offerings available. However, working at a destination/regional level needs to be carefully guided by development of destination bodies that develop and implement projects based upon strategic regional tourism plans. We believe it would also be helpful if tourism planning and tourism products would be further improved. In particular, a regional approach to tourism which goes beyond provincial borders and allows joint product development will encourage tourists to stay longer as well as encourage return visits to different parts of the country. Effective stakeholder engagement and mechanisms for collaboration such as public-private partnerships, and coordination bodies for destination management in the regions will contribute to enhance competitiveness and distinguish Vietnam, as a destination that delivers high quality, sustainable tourism experiences that benefit local people and respect and conserve national resources. Recommendations Our members feel that active involvement of the Ministry and the Government in enabling and supporting the development of destination management structures in key provincial regions is necessary. Furthermore, we believe that the private industry should be incorporated into these destination management bodies as key stakeholders. We also recommend the following specific measures: - Establishing improved mechanisms for communication between tourism-related

businesses, associations and the public sector; to work with industry groups and associations in working groups on a regular basis; to coordinate organisational structures;

- Putting in place region-wide coordination structures to focus and maximise the actions of cooperating provinces and facilitate cooperation;

- Strengthening Tourism Associations in creating co-operation and representatives for the business sector in order to contribute to important issues within the tourism sector;

- Strengthen public-private cooperation for promotion and marketing at destination levels to support responsible tourism products and services;

- Adopting green and responsible tourism agendas and implementing them; - Improving the product, province by province, to meet (future) market needs and

providing more things to do for visitors staying in the region‟s expanding accommodation base;

- Develop stronger regional products that clearly reflect destinations and attractions of Vietnam; Create the regional linkage in tourism product development;

- Apply responsible promotion and marketing programmes, which create a competitive advantage, increase value and demand, customer loyalty and satisfaction, and facilitates more respectful interaction in destinations;

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- Delivering professional marketing, focussed on specific target markets and addressing issues such as greater awareness, electronic media and seasonality to improve business viability.

b. Joint marketing initiative between TAB & VNAT Following the establishment of the Tourism Advisory Board (TAB) in 2013, industry stakeholders have worked with officials from the Vietnam National Administration of Tourism (VNAT) to strengthen Vietnam‟s competitivenesss as a tourism destination. One of the main focuses is to improve the country‟s international marketing efforts. VNAT and the TAB are undertaking a joint marketing initiative focused on key international markets. The aim of this program will be to develop an internationally recognized, digital platform for marketing Vietnam globally. Central objectives of the marketing initiative include: - Position Vietnam as a must-see tourism destination in SE Asia - Develop internationally recognized branding materials - Focus marketing activities on select key markets - Increase international arrivals to Vietnam - Attract high value visitors with longer stays and higher spends - Enhance industry cooperation to leverage resources The main focus of TAB is to increase Vietnam‟s competitiveness as a travel and tourism destination by allowing government and industry leaders to pool their resources–financial, human and intellectual. To achieve this mission, the TAB has established a joint marketing initiative with VNAT focused on key international markets. The specific aim is to redevelop key assets (e.g. website, , branding campaigns) and programs (trade shows, junkets, etc). Funding for these projects will be contributed to from public and private sources. c. Appointment of a Third Party Agency In May 2015, the TAB and VNAT formally launched a tender to identify a digital marketing agency to develop a global E-Marketing campaign. Digital marketing is an extremely effective channel that offers increased engagement with visitors and the travel trade, highly measureable performance, rapid strategy adjustment and enhanced targeting capabilities. Developing a strong digital marketing campaign is crucial given the government‟s limited marketing budget. In October 2015, VNAT and TAB identifed OgilvyOne Worldwide Vietnam, as the selected agency and are targeting to launch the campaign in Q1 2016. OgilvyOne Worldwide is one of the most trusted names among national tourism boards, having represented Australia, Great Britain, Hong Kong, Japan and India. Appointing an international recognized agency to market Vietnam globally sends a strong statement to the internaitonal travel trade and demonstrates that Vietnam‟s tourism authorities are thinking progressively about the future of the industry. d. Key Target Markets The campaign goals will focus on markets where travelers are already searching for Vietnam related travel offerings. This will yield higher results as there will be a closer correlation to online marketing efforts and actual visitation. The eight countries that we will focus on include: USA, Germany, France, UK, Japan, Singapore, Malaysia, and Australia. Consideration of additional markets will be made on a case-by-case basis.

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The aim of this global marketing program is to create an effective platform to broadly position Vietnam as a top-tier tourism destination. The ultimate objective is to identify key segments within each target market that will yield the highest value visitor. We are focusing on visitors that offer extended length of stay and higher levels of local expenditure. We want high-yielding visitors, which in turn will promote a more sustainable industry environment. e. Budgetary Constraints This joint marketing initiative is unprecedented in Vietnam and entails collaboration between public and private stakeholders. The long-term objective of this marketing initiative will focus on building VNAT‟s capacity to administer similar, best-in-class campaigns and to collectively lobby support for the government to contribute additional funding towards the promotion of Vietnam‟s tourism industry. In order for this partnership to work, the TAB is requesting for formal commitments from MCST/VNAT to contribute funds to a joint marketing initiative to be administered by TAB in conjunction with VNAT. The aim is to achieve a 1:1 matching of Public-Private contributions. At present, the funding that is contributed to marketing Vietnam globally is less than US$1.5 million. This amount is substantially inadequate for VNAT to be effective and is a fraction of what Vietnam‟s neighboring competitors contribute to their national tourism boards. We cannot emphasize enough the importance of the travel and tourism industry to Vietnam‟s economy. The industry generates nearly 10% of GDP on an indirect basis. Thus, it is imperative that the government recognize the industry‟s contribution to the socioeconomic welfare of the state and to properly support the industry with an adequate budget for international marketing. Recommendations Our membership strongly advocates that the Government recognize the importance of the tourism industry and its socioeconomic impact by contributing additional funding in promoting Vietnam tourism internationally. In addition to public funding, the Government should make possible public-private partnerships for building trade alliances and marketing initiatives. We also recommend the following specific measures: - Vietnam‟s tourism promotion budget should be increased significantly to reflect the

socioeconomic impact of the tourism industry; - VNAT‟s marketing budget should entail increased contributions to online marketing as

well as trade promotions; - VNAT should be given authority to work with private stakeholder groups (e.g. the TAB) in

developing public-private funding mechanisms; - The government should develop broader initiatives with the private industry to

undertake destination marketing as well as destination management activities; - Marketing activities should become increasingly sophisticated to allow for targeting key

countries, profiling select traveler types and positioning the appropriate products - To develop world class initiatives, VNAT should work more closely with the private

industry and also appoint internationally recognized agencies (e.g. advertising and branding agencies).

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4. LAND AND TAX ISSUES Investment decisions made around the level and scope of tourism and hospitality projects are driven significantly by the implications of land policy. a. Land Acquisition and Land Use Policy Vietnam‟s constitution and the Land Law, 45/2013/QH-13 dated 29 November 2013, provides that all land is owned collectively by the People and that only land use rights may be granted to individuals and enterprises either through an allocation or a lease arrangement. For leased land, which is generally the form of acquisition for tourism and hospitality investment, the tenor of the lease is 50 years with some exceptions for 70 years and this is relevant as it imposes a fixed period over which the value of the investment can be realized and therefore is a significant factor in financial feasibility and return calculations. Regional competitors in comparison, allow for some form of freehold which provides both for the ability to front-load the return profile and create a more robust financial return profile. Investment incentive is further limited by the lack of clear regulations and policy direction with respect to the ability to include residential components for master plan approval (zoning) on land which is located on beach front property adjacent to the ocean. There has been inconsistent treatment by provincial authorities with respect to this. The successful development of a critical mass of high quality, high-end resorts in Da Nang and Quang Nam can be attributed to a more liberal view on the ability to develop vacation residences (with the issuance of “pink” or even “red” books) by these provincial governments. When a vacation residence in a resort is “owned”, but put back into a hotel rental pool arrangement, this has the benefits of a) creating a cheaper source of financing (buyer financing) for the investor for the development of high-quality tourism products and b) creating an incentive for repeat visitation to the property by the owner as well as an incentive to promote the tourism property due to an economic interest in the success of the hotel room rental pool. Given the recent legal development allowing foreigners to own real property assets in Vietnam, this could potentially be a strong promotional scheme to encourage improvement of the return visitation rate which has been very poor for international visitors as recently reported at being only 5%. b. Land Rent The Land Law, 45/2013/QH-13 dated 29 November 2013 and Decree 46/2014/ND-2014, dated 15 May 2014, are the most relevant documents for guiding the determination of land use rent to be paid by lease-holders. A major change from the previous legal framework is that land prices will be published every five years rather than annually with a mechanism for adjustment only in the event that prices are deemed to have changed by a factor of 20%. The “coefficient method” for land valuation still applies under Decree 46/2014/ND-2014 and continues to apply a single rate for all land whether there is land with tourism structures (hotel buildings, restaurants…) built on them or landscaped areas and mandatory areas for supporting infrastructure or community services such as circulation for emergency services such as fire prevention. For many tourism developments, this results in a very heavy burden of cost and since this method has been put in place in late 2010 many companies have seen their annual land rental cost increase by as much as 19 times. The biggest area for concern and potential gain is to make Vietnam more competitive for investment capital compared with its regional competitors. Table 1 shows Vietnam‟s

Tourism Position Paper Vietnam Business Forum, 2015

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position relative to the competitive based on proximity and some level of similarity in both offering and target markets for inbound tourism (hereafter called collectively “the Competitive Set” – Appendix 1): - Cambodia - Malaysia - Philippines - Thailand It is difficult to make a direct comparison given the difference in the treatment of land under the differing legal systems. However, it is clear that the more successful attractors of inbound tourism provide clear incentives. Malaysia and Thailand have substantial incentives for the development of tourism businesses, including hotel development. Malaysia has programs of Pioneer Status and Investment Tax Allowances which offer substantial economic benefit to developers of hotels. The development of the tourism industry should be viewed in the same context as other industries, recognizing that there is competition not only for attracting visitors, but also competition for attracting capital to the tourism and hospitality infrastructure which will help to attract and support those visitors. Recommendations: - Master Plans for key areas with development potential for tourism should be given

priority both at the central and provincial levels and should be coordinated with a unified tourism development strategy and plan. Particular attention should be provided to ensuring that infrastructure development is

- A framework should be put in place to clearly instruct and allow the relevant authorities to have a graded or preferential land use pricing for tourism projects (particularly those within an identified tourism focused master plan) and should allow flexibility on the rates applied for land that is used for the construction of structures versus landscaping, infrastructure and circulation.

- Support should be given for providing formal clarification and support for the permission to designate some portion of beach front land adjacent to the ocean. It is recommended that projects that are licensed for the development of five-star, international standard developments, particularly those that have a distinct destination element (such as golf courses, entertainment centers, access to medical tourism, etc.) should be given priority to develop a component of the project as residential for sale.

5. SUSTAINABLE TOURISM In 2005, the Vietnamese law on tourism has clearly defined sustainable tourism as “development of tourism that meets the needs of the present without harming the ability of the future to meet tourism needs”4. As well the first paragraph of article 5 is stating that in Vietnam tourism development will rely on developing “sustainable tourism in line with master plans and plans, ensuring harmony between socio-economic development and environmental protection; develop cultural and historical tourism and eco-tourism in priority and key regions; and conserve, embellish and promote the values of tourism resources”.

4 Other definitions given by the Tourism law “Eco-tourism: means a type of tourism that is based on nature, connected with the local

cultural identity and with the participation of local communities for the sake of sustainable development”. “Cultural tourism: means a type of tourism that is based on the national cultural identity with the participation of local communities in order to preserve and bring into full play their traditional cultural values”.

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According to recent figures and to Mr. Nguyen Van Tuan – General Director of the Vietnam National Administration of Tourism, “during the last two decades, Vietnam tourism has strongly grown; representing an impressive annual growth of 12%; contributing to developing national economy, eradicating hunger and poverty, ensuring social security, preserving and upholding cultural values, protecting environment, maintaining national security. However, the current tourism development still faces many challenges, especially the competitiveness of destinations and sustainability”5. These initiatives could be further develop among the industry with best practices sharing and detailed guidelines, enabling each stakeholder of the tourism industry to play its part towards sustainability. Nowadays, sustainable certification schemes are being developed in Vietnam especially for accommodations (such as Green Lotus Award, ASEAN Green Award and other private initiatives Planet 21 from ACCOR, Intercontinental Green Engage, Hilton Clean Air etc..) which allow to enhancing the application standard systems in the industry. However, they are often only considering basic environmental aspects of sustainability and not taking into the account the social impacts caused by the tourism businesses. One of our members EXO Travel a Destination Management Company, is committed to a sustainable certification scheme developed by Travelife, in order to share best practices and to be able to better promote our suppliers also involved as key stakeholders in the development of responsible tourism. Tour operators and Travel agents play a central role in the tourism industry. As intermediates between tourists and tourism businesses they can influence the choices of consumers, practices of suppliers and the development within destinations. Through their unique position travel companies can make an important contribution to the protection of the environment and culture and in promoting social and human rights in the destinations they operate in. However, the lack of standards for Tour Operators, Travel Agents and other tourism businesses is a hindrance to promote the ones that are taking actions. Following a sustainable certification scheme and committing to responsible tourism helps to raise the standards of the industry as a whole. The lack of knowledge about responsible tourism and best practices for sustainability is an impediment to future development and sound governance of the industry. Trainings and raising awareness campaigns are deeply needed to boost understanding of this pressing situation (such as tourism in sensitive areas etc). Recommendations - Expedite the application of industry standard systems; to create a healthy competitive

environment in the sector; - Raise awareness of all administrative levels, sectors and the whole society about the

position and role of tourism to the country‟s socio-economic development; giving prominence to social and environmental responsibility in all tourism activities;

- Encourage and incentives the adoption of a certification scheme that meets the Vietnamese requirements and conditions.

5 Author Hong Nhung – Source: http://vietnamtourism.gov.vn/english/index.php/items/6531

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APPENDIX 1

No. Categories Taxes and

Fees Vietnam Cambodia Malaysia Philippines Thailand

1 Governing Laws

Real Estate Business Law

Land Law Real Property Law

Real Estate Taxes

Building and Land Act

2 Tenure of Land

Long-term or term Use Right max 50 yr with renewable to additional 50 years

Free-hold and Lease hold upto 99 years

Free-hold and Lease-hold

Conditional Free-hold and Lease-hold

Free-hold and Lease-hold. Foreigners are allowed max 30-yr Lease renewable to add 30-yr

3

Tenure of Property for Developers and Owner

Permanent or term- ownership. From July 1, 2015 foreigners are allowed conditional ownership of landed and apartment properties

Permanent or term- ownership. Foreigners can conditionally own properties

Permanent or term- ownership. Foreigners are allowed to own properties. Special government program: MM2H

Only Filipinos or companies with domestic equity of > 60% can

Permanent or term- ownership.

Permanent or term- ownership

4 Land and Property Taxes

One-time fee and Taxes - Acquisition and/or purpose change

Acquire directly from the government to attract Investment

Data still to be sourced

Market-based. GST tax of 6% and Stamp Duty tax of up to 3%

Market-based. VAT charge of 12% on transaction and a Documentary stamp tax of 1.5% on conveyance.

Market-based. Land tax of 3.3% and Documentary stamp tax of 0.5% on conveyance.

Transfer Tax 2% of Property/Land Value

4% on all "hard title'

0.25-0.75% of selling or zone value

Fees Re-registration fee of 0.5%

Documentary stamps 1.5%

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No. Categories Taxes and

Fees Vietnam Cambodia Malaysia Philippines Thailand

Ongoing and recurring

Land - un-developed

0.03% annual on gov pricing

An annual land tax of 2% is levied on all unused properties on market price by sqm

Small tax depend on location. Will be < 0.5% if

commercial and <0.1% of residence

Property Tax No applicable law regarding property tax

0.10% 6% annual payment

Real property tax 1- <2%

depends on locations payable 1st quarter of Yr

Exempt for the 1st owner occupied, but not quite on other owners properties. Foreigners own through a company will have to pay property tax even wihout rental. New Property Tax - all - <0.5% of

commercial use and <0.1% if own

use

Rental Taxes

Individual on PIT of taxable invoice income on the person receiving income. Consolidated year end with other income

withholding tax of 10% on rental amount

22.4% after deducting all relevant costs including depreciation, annual property tax, operation expenses (mgmt, services)

Local residents have much better deductible rate otherwise non-resident foreigners pay 25% of rental

12.5% of annual rental value or annual assessed rental value whichever higher

Tourism WG – Roundtable Discussion with VNAT Vietnam Business Forum, 2015

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ROUND-TABLE DISCUSSION BETWEEN TOURISM WORKING GROUP AND VIETNAM NATIONAL ADMINISTRATION OF TOURISM (VNAT)

- Time: 2:00PM, October 8, 2015 - Venue: VNAT premises, 80 Quan Su, HoanKiem, Hanoi Mr. Ken Atkinson – Head of Tourism Working Group, VBF - In preparation for the Annual VBF on December 1, the VBF Tourism Working Group

would like to touch on the following issues: Visa policy Destination marketing MICE Land use fees and tax issues Responsible and sustainable tourism

1. VISA POLICY

Feedback from Mr. Nguyen Van Tuan – Director General, Vietnam National Administration of Tourism (“VNAT”) - We would like you to emphasize impacts of visa exemption policy, especially the

following 3 key points: Visa exemption policy only lasts for one year. The Government should commit to

extend the visa exemption period to more than one year. 15-day-visa waiver shall be extended to 30 days as this limitation does not encourage

tourists to come to Vietnam. Tourists are not allowed to have a return visit within 30 days, the tourism working

group should propose the Government to lift off this barrier as this is major hindrance to visitors who take flights to Vietnam and return from Vietnam but who want to visit Cambodia and or Laos during their trip. We understand that these barriers come from the old immigration law, the Government and the National Assembly should take this issue into consideration and amend the law in the future.

- Recently, Vietnam has granted visa waiver to 6 new countries which is seen as a positive progress but it is still not enough to increase Vietnam’s competitiveness. The list of visa exemption countries should be extended, especially for key target markets, and only except some countries with problems that needs further consideration. Priority shall be in the following orders: 1st:the remaining European Union countries, 2nd: India, Australia, New Zealand, Canada,3rd: SNG and Eastern European countries.

- Visa is the first key to attract tourists coming to Vietnam, increase the competitive advantage, and develop tourism industry.

Feedback from Mr. Ha Van Sieu – Deputy Director General, VNAT - Visa fees should be used to invest back to tourism to improve technologies including visa

on arrival and e-visa system in order to create incentives and to smooth the process. Mr. Ken Atkinson – Head of Tourism Working Group, VBF - The 30 day return rule is a major problem not only for tourists but also for business

travelers. - Transit visa: With Vietnam Airlines’ upgraded aircraft and new routes to European

countries, there is an opportunity to attract transit tourists and passengers to stop over in Vietnam when in transit. Vietnam should consider introducing a 72-hour transit visas for passengers with connecting flights.

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Feedback from Mr. Nguyen Quy Phuong – Director, Travel Department, VNAT - Before the immigration law, transit visa was allowed under the name of “transit-no-visa”

which was applicable to both air travel and sea travel tourists. However, when the immigration law is introduced, tourist must have a visa when coming to Vietnam.

- To improve this issue, Deputy Prime Minister Vu Duc Dam has allowed tourists transit in Vietnam to apply for a visa without having to present police check. Deputy Prime Minister Vu Duc Dam has also asked the Ministry of Finance to review and lower the visa fees for transit tourists from 45 dollars to 10 dollars.

- Visa exemption period should be extended to attract more travelers. In Vietnam, countries with visa exemption can stay up to 15 days, but in Phu Quoc, tourists from all destinations can enter with 30-day-visa exemption. However, now we can only choose 1 out of 2 options. In order to encourage more customers to travel to Phu Quoc, it is proposed that the Government allows choosing both options.

2. DESTINATION MARKETING

Feedback from Mr. Nguyen Van Tuan – Director General, VNAT - The VBF Tourism Working Group should emphasize the importance of introducing a

Tourism Development Fund. - Comparing with other neighboring countries, the amount of Government funding Vietnam

is using for destination marketing is too little. The Government should contribute additional funding towards the promotion of Vietnam’s tourism industry.

- It is very important to promote Vietnam tourism at the international border gates, especially airports, sea ports, land border crossings and more in flight advertisements on international flights to Vietnam.

- Vietnam needs to set up overseas tourism offices to promote Vietnam image. This is not a new proposal but the Government should really take action on this.

Feedback from Mr. Ha Van Sieu – Deputy Director General, VNAT - A single national image should be identified and used across all industries’ activities

within Vietnam and overseas. We recommend that Vietnamese tourism image should be used to attract overseas travelers and investors.

Mr. Ken Atkinson – Head of Tourism Working Group, VBF - We would also like to include the point on adopting green and responsible tourism

agendas as tourists nowadays are getting more and more green conscious. Feedback from Mr. Nguyen Van Tuan – Director General, VNAT - We are very aware and supportive of green and sustainable tourism and will include this

as a separate chapter when we revise the Tourism Law. - Taking this chance, we would also like to promote role and responsibility of Environment

and Socially Responsible Tourism Capacity Development Programme - ESRT and recommend to legalize sustainable and responsibility tourism.

- Accordingly, we should focus on quality rather than quantity with mass-tourism. Green tourism focuses not only on the environment but also on ethnicity and cultural environment.

Tourism WG – Roundtable Discussion with VNAT Vietnam Business Forum, 2015

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3. NATIONAL TOURISM PROFESSIONAL BOARD (“NTPB”) & NATIONAL TOURISM CERTIFICATION BOARD (“NTCB”) UNDER VIETNAM TOURISM CERTIFICATION BOARD MEETING (VTCB)

Feedback from Mr. Ha Van Sieu– Deputy Director General, VNAT - Currently, in Vietnam VTCB include responsibilities of NTPB and NTCB. According with

the new labor law, NTCB is assigned to the MOLISA but no detailed instructions are introduced, thus, at the moment VTCB has not have its official status.

- In the near future, tourism industry will try its best so that VTOS standards will be passed as national standards.

- In order for Vietnam tourism to stay competitive in ASEAN, the Government has to be fully aware of the importance of national standards, clear guidance and consistent regulation and laws.

4. MICE TOURISM

Mr. Ken Atkinson – Head of Tourism Working Group, VBF - We believe that the issues faced by MICE tourism are similar to the issues that have been

faced bythe film industry. The film industry is a great opportunity to promote Vietnam as a destination all over the world.

- There are some critical issues that MICE tourism are facing: Customs clearance: The process of bringing promotional goods, equipments and

tools in for conventions, exhibitions, is very long and difficult. We need to work with the customs department to fast track and reduce the custom time, and simplify customs procedures.

Registration of MICE Events: foreign groups often face difficult registration requirements with local authorities.

National Convention Bureau: some countries have established their own National convention bureau to help organize MICE events. We should study these best practices and establish “one stop shop” to support MICE tourism.

Recommendations from ESRT Representatives - There is a possibility for Vietnam to establish and promote MICE tourism in Hanoi, Ho Chi

Minh, and possibly in Da Nang in the future. Our contact point should be the Department of Tourism.

- ESRT proposes a separate meeting with TAB, VNAT to discuss further on development of MICE tourism in 2016.

Feedback from Mr. Nguyen Van Tuan – Director General, VNAT - Vietnamese Government should encourage MICE tourism because this kind of tourism

includes event organization, leisures and shopping. - In order to encourage MICE tourism, the Government should facilitate more favour

conditions by: simplifying licensing process delegating a contact point to be in charge.

- Vietnam needs to position or identify destinations relating to MICE tourism to include Hanoi, Ho Chi Minh, Ha Long, Da Nang, Nha Trang and Phu Quoc.

- The VBF Tourism Working Group should send a strong message to the Government so that they are aware of all benefits from the MICE tourism.

- A number of opportunities that MICE could look into including golf tournament, surfing competition, sailing competition and any other international sport events.

Tourism WG – Roundtable Discussion with VNAT Vietnam Business Forum, 2015

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5. LAND USE FEES & TAX

Mr. Ken Atkinson – Head of Tourism Working Group, VBF - There are a lot of differences in different provinces about land allocation, whether

investors can have long or short term use. Pricing policy tends to have a standard price, which will have major impacts on the cost of developing resorts.

Feedback from Mr. Nguyen Van Tuan – Director General, VNAT - This is also an issue that VNAT is working on at the moment. - It is best if VBF prepares a detailed report on land use fees for us to use as reference to

submit along with our documents and proposals to the Government in November 2015. - Policy is decided by Chairman of the People’s Committee in each province, therefore,

there is a difference between provinces. We should propose to the Government that Vietnam should have a consistent policy on land use fees and tax that improve liquidity of land and resorts.

- Before 2010, the base price used for tax calculation purpose is very low. However, after 2011, the Government decided to move the price closer to market price, pushing it a lot higher. The tax is equally treated between construction area, greenery area or unused areas. Therefore, the larger the area, the more difficult investor will face.

- The Government is suggested to look carefully into this problem to reduce the cost burden for businesses.

Mr. Ken Atkinson – Tourism Working Group - Included in this section, we would like to focus on the need for master planning

development areas to keep investment sustainable. 6. RESPONSIBLE AND SUSTAINABLE TOURISM

Mr. Ken Atkinson – Tourism Working Group - Focusing on setting standards & accreditations for tour operators, trying to get

accreditation system that lays down minimum standards. - One way to get it done is that we may use overseas accreditation agency as a

professional third party to have periodical audit and provide certification if the Vietnam tour operators meet the minimum standards.

Feedback from Mr. Nguyen Van Tuan – Director General, VNAT - It is best if VBF could send us recommendations and feedbacks on this for us to reflect in

the revised Tourism Law.

7. VTOS

Mr. Ken Atkinson – Tourism Working Group: - There is an additional issue for the international 4 - 5 stars hotel who already spent a lot

of money training their staff up to international standard. However, it is required that 70 - 75% of their staff have to be VTOS accredited. Following this requirement, there will be huge additional cost for them.

Feedback from Mr. Nguyen Van Tuan – Director General, VNAT - The hotel group’s internal training standards are not accredited by an authorized

organization, hence, cannot be accepted here in Vietnam.

Tourism WG – Roundtable Discussion with VNAT Vietnam Business Forum, 2015

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LIST OF PARTICIPANTS No. Name Tile Organization 1 Mr. Nguyen Van Tuan Director General VNAT 2

Mr. Ha Van Sieu Deputy Director General

VNAT

3 Mr. Nguyen Ngoc Duc Director

International Cooperation Department, VNAT

4 Mr. Nguyen Quy Phuong Director Travel Department, VNAT 5 Mr. Vu Van Thanh Director Hotel Department, VNAT 6 Mr. Vu Quoc Tri Project Director ESRT 7 Ms. Mary McKeon Team Leader ESRT 8 Ms. Dang Thi Van Anh VBF Coordinator VBF Secretariat 9 Ms. Nguyen Ngoc Anh VBF Officer VBF Secretariat

SECTION VI

APPENDIXES

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MIDTERM VIETNAM BUSINESS FORUM Hanoi, June 9, 2015

OPENING REMARKS Vietnamese Government – H.E. Mr. Bui Quang Vinh, Minister of Planning and Investment While Vietnam has achieved positive socio-economic results by early 2015, it still faces difficulties such as the economy’s weak competitiveness in the context of deeper international integration. Therefore, the Government is focused on breakthroughs in economic restructuring to transform the growth model, encourage investment in the form of public-private partnerships (PPP) and into supporting industries, reform public investment as well as the financial system and banks to insure efficiency and recover bad debts. It is also working to accelerate the equitization of State-owned enterprises (SOE) and drastically reduce Government-held capital in equitized enterprises, improve business efficiency and achieve equality in market mechanisms and allocation of resources. Today’s midterm VBF has the theme “Enhancing enterprise competitiveness for global integration” and will address six key areas: trade, tourism, investment, banking, capital markets and infrastructure. These areas are closely linked with innovation requirements for Vietnam to achieve on its path to deeper integration into the global and regional economies and create a favorable investment environment for businesses in 2015. International Finance Cooperation – Mr. Kyle Kelhofer, Regional Manager Vietnam’s economy is standing at a critical juncture. The first wave of global integration in the 1990s spurred growth and the second such wave has coincided with the ASEAN economic community’s emergence and important trade agreements such as Trans-Pacific Partnership (TPP) and EU-Vietnam Bilateral Trade Agreement to kick-start the next stage of growth. Such opportunities include development of innovative domestic private sector companies integrated into global supply chains with greater access to global technology, partnerships and funding to improve Vietnam’s competitiveness. To achieve this, policies that encourage more innovation and risk-taking are needed to grow the next generation of competitive entrepreneurs. To achieve this, Vietnam should continue investment climate efforts through transparency and predictability. Equally important for business development and competitiveness, is the rule of law and enforceability. A key competitiveness determinant will be Vietnam’s ability to efficiently channel scarce capital to more effective uses, while banking restructuring remains vital. Finally, continued development of infrastructure to enable growth is critical, especially in power and energy. Energy efficiency and renewable energy can help address power demands in an environmentally safe way. Clear legal and regulatory frameworks, improved pricing policies and accessible commercial financing would be beneficial. Overall, a more competitive Vietnam will further improve people’s lives and achieve competitive growth. Vietnam Business Forum Consortium – Mrs. Virginia B. Foote, Co-Chairman Significant progress has been made on issues important to the business community, especially Resolution 19. However, the implementation of some influential laws has raised concern. The country’s goal to aspire to the standards and success of the ASEAN six and transition from factor-driven to efficiency-driven economies is commendable. To achieve this, productivity and strengthening enterprise competitiveness will be key. While trade agreements of potential are

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in the pipeline, high standard laws and regulations as well as administrative reforms are needed to help companies take advantage of integration into global supply chains and attract supporting industries. VBF’s partnership with the Vietnam Chamber of Commerce and Industry (VCCI) under Project 12 on how the business community can join the Government to reduce administrative inefficiencies and corruption is taking shape, while integrating Vietnam Integrity Alliance activities into VBF work on how enterprises can learn from international governance best practices is equally promising. AmCham continues to encourage and support ways to reduce the use of cash, paper and face-to-face financial transactions for business-to-business and business-to-Government payments. It is also willing to help address troublesome restrictions on domestic and foreign internet companies that hinder connectivity and innovation beneficial to all enterprises. Meanwhile, bringing Vietnam’s accounting system closer to global standards is encouraging. Finally, the new Investment Law could prove challenging as its 267 lines of conditional business is significantly more than regional competitors and approval processes are more complicated. The Government to encouraged to ensure the law does not impede firms. SESSION 1 – BUSINESS INVESTMENT CLIMATE Vietnam Chamber of Commerce and Industry – Dr. Vu Tien Loc, President Acceleration of negotiations and endorsement of a series of free trade agreements (FTAs) as well as transforming the regulatory framework and administrative procedures under Resolution 19 embody two recent major Government reform efforts. A VCCI survey in April 2015 indicated that 46% of Vietnamese private firms and 50% of FDI enterprises planned to increase the scale in the near future. However, this contrasts with the domestic private sector’s limited ability, resulting in a shortage of medium-sized firms to act as bridges to connect with global value chains or infiltrate international markets. The domestic private sector must drive the local economy’s self-sufficiency and make effective connections between the FDI sector and domestic business community. To realize this, the Government must consider to:

- Develop a “National program for starting a business” to navigate a career path for younger generations, encourage supporting industries to help give Vietnam a competitive edge, simplify criteria to start and run a business and enhance education standards, especially skills training in universities and vocational schools.

- Enhance effective lending programs, other forms of financial incentives and developmental funds, especially those to support small and medium-sized enterprises (SMEs) and private investment.

- Strengthen information systems for technology and markets as well as promote SME trade and investment through business associations.

- Resolution 19 has paved the way for groundbreaking administrative procedure reforms. Unnecessary business and business licensing criteria among the 5,000 procedures and business-related criteria for 267 conditional lines of business specified in the new Investment Law should be screened for removal, while other criteria outside this list of 267 business lines should be annulled from July 1, 2015.

- Increase judiciary reform parallel to administrative reform to build trust among businesses.

- Better inform businesses about the opportunities and challenges from upcoming FTAs.

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- Request FDI firms play a more active role in implementing support programs for domestic SMEs, especially in supporting industries, to help them become supply chain partners and suppliers.

American Chamber of Commerce – Ms. Sherry Boger, Chairman Vietnam could be a large beneficiary of the TPP, which will help lay a foundation for regional integration and be an engine for a comprehensive U.S.-Vietnam partnership. Regarding enterprise competitiveness, integration into global supply chains with access to global sources of funding, technologies and global markets is vital. Action plans should include private sector cooperation to better inform Government and companies on SME development incentives and necessary requirements for joining global supply chains. On Government competitiveness, local and national Government agencies must improve competitiveness as service providers. There should be meaningful Government cooperation and consultation with businesses on a monthly and quarterly basis to assess progress. Further to this, the Vietnam Trade Facilitation Alliance will facilitate regular Government-business consultations. However through Government-business dialogues, AmCham members and prospective FDI investors have been frustrated by persistent delays and uncertainties regarding projects, policies and regulations. In the automotive sector, the lack of a clear road map has dampened investor confidence and risks manufacturers considering alternate plans within ASEAN. Banking policies are well intended, but delays are challenging. Additionally, banking system and State-owned enterprise reforms, non-performing loans and corruption remain perennial policy challenges. European Chamber of Commerce – Mr. Tomaso Andreatta, Deputy Chairman To achieve growth, prosperity and improve firms’ competitiveness, there needs to be enhanced infrastructure investment, liberalization surrounding national trade and investment and a more flexible labor market. Infrastructure is another key issue, with logistics and energy prioritized. Vietnam needs an effective railway, roads and ports to enhance industrial production capacity. To achieve this, project financing must be bankable and authorities must facilitate projects by taking rapid and transparent decisions. Market liberalization, especially adjustment of electricity prices, is needed. To realize a greater level of environmental protection, cleaner sources of energy must be created through new technology and incentivizing renewable sources. A reduction in State monopolies will benefit this process, with privatization of electricity generation through the sale of assets and allowing local and international companies to build new power stations. Professional training and modernization of schools at all levels is also essential, especially in high technology and tourism. Overall, Vietnam can attract companies relocating from neighboring countries and skilled workers by maintaining flexibility and ensuring higher salaries match productivity increases. Facilitating foreign, qualified workers will allow for knowledge transfers and enhance the Vietnamese workforce’s productivity. Korean Chamber of Business – Mr. Ryu Hang Ha, Chairman KorCham has four major issues to raise. The first relates to difficulties in the import of used machinery and equipment. Draft Circular 20 contains restrictive conditions on imported used equipment of concern to foreign-invested enterprises. In particular, clear criteria are needed to evaluate the usage period and remaining quality of equipment. Secondly, there is potential for a serious power crisis as early as 2018 due to delayed power projects, including nuclear ones. The Government is encouraged to expedite power projects undertaken by trusted and well-known companies. Thirdly, under current labor laws and regulations in Vietnam, an employer cannot immediately terminate a labor contract or dismiss an employee who falsifies qualifications, skills or experience. The termination process is cumbersome and a revision of

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such regulations is needed. Finally, regarding changes in HS code applications, during the course of implementation of Circular 164, the following case may occur: the goods which is previously exempted from import duty may become the goods which is imposed the import duty. In some cases, the goods which used to be exempted from the import duty can be imposed retroactively. The Government of Vietnam should consider not imposing the import duty retroactively in respect of the goods which was imported before the Circular 164/2013/TT-BTC took effect. Japanese Business Associations in Vietnam – Mr. Shimon Tokuyama, Chairman The Japanese business community remains committed to further promoting economic and industrial development in Vietnam. To achieve these goals, fiscal discipline and infrastructure development must be balanced. While fiscal discipline is welcomed, sufficient finance must be channeled into quality infrastructure projects for further economic growth. To achieve this growth, further FDI is needed as well as enhanced manufacturing for domestic markets, especially automobile industry development. However, many manufacturers face unfavorable legislation. To enhance international competitiveness in manufacturing, restrictive legislation on overtime work must be addressed, a clear explanation on the revised decree on importing used machines and a framework on annual minimum wages with inputs from businesses are needed. Regarding visa exemptions for Japanese visitors, more flexible conditions are needed to enhance business and tourism activities. Hanoi Young Business Association – Mr. Tran Anh Vuong, Standing Deputy Chairman Regarding the Science and Technology Law 2013, a step-by-step procedure is needed to enhance its simplicity and the Government must invest sufficient and sustainable capital to support science and technology development. Businesses’ investment in supporting industries should be encouraged, especially investment from private SMEs. A dedicated decree on supporting industries should be issued soon and could concentrate on development of craft villages and household businesses to become outstanding supporting industry units, while more SME-sized industrial clusters could be created through formalized incentives and venture capital from Government funding with preference to start-ups, especially joint venture companies. After a period of implementation, specific businesses could be merged into a network of promising supporting technology firms, while more robust Government investment funds must focus on small and micro companies to build their own factories. Regarding enhancement of enforcement and healthy competition for businesses, poor quality audits and inspections could lead to unqualified businesses slipping through. Meanwhile, the Government is recommended to issue specific policies in order for SMEs to meet requirements, such as those related to environment and fire controls. Regarding education, the Education and Training Law 2012 gave autonomy to academic institutions. However, it has had little impact on public universities. Despite limited advancement in raising skills and competencies of graduate students, the quality of graduates is still not good enough. This low quality human resources will hamper Vietnam’s productivity and blunt its labor-related competitive edge. SESSION 2 – TRADE, TOURISM AND INVESTMENT - ISSUES OF IMPLEMENTATION OF NEW LAWS ON INVESTMENT, ENTERPRISES, IMMIGRATION, RESIDENTIAL HOUSING AND REAL ESTATE BUSINESS

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1. Investment and Trade Investment and Trade Working Group – Mr. Fred Burke, Co-Head

- The first area of concern is the failure to recognize and enforce Vietnamese or foreign arbitration awards. Feedback from stakeholders points to weaknesses in the courts to support arbitration. While the law and institutions have developed into reliable dispute resolution mechanisms, the courts lag behind. As a result, Vietnam’s record in enforcing arbitration awards is poor compared to regional countries. Two reasons for this trend have emerged. The first is procedures used in arbitration not viewed as consistent with Vietnam’s Civil Procedure Code. The second is courts in Vietnam are prone to quoting the fundamental principles of Vietnamese law as the basis for setting aside arbitration awards, despite the New York Convention. To address this situation, an appropriate body should comprehensively review the legal basis of awards set aside in the past few years to judge whether courts have applied the convention correctly. Greater transparency to enhance accountability of judgments and skills training are also needed.

- The second area of concern is increased non-tariff barriers, which contradict the Government’s call to reduce red tape. For example the new Investment Law, contrary to business community inputs, has persevered the replacement of the old one-step licensing process with the new two-step one. Now a foreigner to invest in Vietnam must get investor and business registration certificates. Similarly, administrative reform concerns have emerged in the context of several new non-tariff barriers, as noted by business chambers today, such as the recent Circular requires imported equipment to be at least 80% or more of its initial design capacity and less than ten years old. Another two examples are two new draft circulars on food safety only introducing greater administrative burdens and cost on food imports and on cosmetics management requiring Notification Number printed on the packageing of the cosmetic products. However, the most egregious example of how administrative procedures are abused is in tax administration, as a World Bank survey of manufacturers and traders this year ranked Vietnam as the worst country in Asia-Pacific regarding tax administration. Meaningful deadlines, accountability standards and resources to help taxpayers file correct tax returns are needed. A tax website could highlight frequent mistakes discovered in the post-audit assessment process and provide help-lines for taxpayers.

- The last is the continuing difficulties in getting work permits for foreigners and we would like to see tangible progress of this issue.

Response by Ministry of Planning and Investment – H.E. Mr. Bui Quang Vinh, Minister

- Lists of banned and conditional lines of work for investment and business: The Government is committed to making investment more transparent and drafters of the new Investment Law aggregated all current regulations on banned and conditional business lines, and respective eligibility criteria from different legislation. From 51 banned business lines and 386 conditional business lines, the lists have been narrowed to six banned and 267 conditional business lines. Furthermore, the Investment Law requires annual reviews of such lists, with the Ministry of Planning and Investment (MPI) the lead agency. Moreover, relevant ministries will finalize respective eligibility criteria with updated information on national websites. The new Investment Law clearly specifies that conditional business lines will be provided in normative regulations at decree level and above. Article 4.2, Investment Law of 2014, specifies that if discrepancies exist between the Investment Law and other

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sector-specific laws regarding banned or conditional business lines, the new Investment Law will apply.

- Investment and business registration certification into two different procedures: The Investment Law of 2014 intends to provide openness and opportunities for businesses. To achieve this, it requires foreign investors to first acquire an investment certificate within 15 days (previously 45 days), then the business registration certificate can be released within two days. Investors are not required to submit other documents aside from documents specified in the Enterprise Law.

Response by Ministry of Finance – H.E. Mr. Dinh Tien Dung, Minister - In the spirit of Resolution 19, the Ministry of Finance (MoF) has initiated administrative

procedure reforms to enhance national competitiveness in taxes and customs, including:

+ As of January 2015, 370 hours for tax filing and payment have been shed from the previous total of 537 hours.

+ Tax administration and customs agencies are encouraged to increase application of information technology in revenue and customs governance. More than 97% of businesses have used electronic filing and more than 140,000 firms switched to electronic tax payments.

+ Future steps: (i) cutting hours spent paying taxes and clearing customs to ASEAN 4 level, (ii) review regulations and operating procedures to curtail/simplify at least 10% and 20% of tax-related administrative procedures, respectively, while modifying all operating procedures related to taxpayers; (iii) ensure businesses’ usage of electronic tax payment modes to achieve 90% by end of 2015, (iv) work with the MPI and ministries to create a single identification number for transactions with all ministries/line agencies, (v) release a circular on risk management as recommended by the World Bank and (vi) accelerate initiation of a national single window for ministries/line agencies and a ASEAN single-window mechanism.

- Development of new food safety standards to avoid adverse impacts on food imports and exports: The MoF is developing a project to improve the effectiveness of specialized inspections and audits of import and export goods to clearly divide responsibilities of relevant ministries in sector-specific regulations to ensure smooth clearance of goods and support business operations.

- Pricing controls of milk products for under-6 children: Recent average sales prices for formula milk for under-6 children in Vietnam have been higher than some regional countries. Milk pricing controls in Article 18.4, Pricing Law and Article 6.4, Decree 177/2013/ND-CP provide implementing details and guide specific Pricing Law provisions. These are necessary to protect consumers, businesses and national interests.

- HS codes for import and export goods: According to Article 6.4, Circular 14/2015/TT-BTC, if a guiding document on goods classification affects the customs declaration process in terms of ID numbers, tariff rates and potential profit and loss-making for declarers or taxpayers, goods classification and applied tariff rates will apply as soon as the revised guidelines come into effect. Accordingly, any previous goods classifications and ID numbers with lower tariff rates subject to higher duty rates once the revised guidelines apply, will not be considered for retrospective law application.

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Response by Ministry of Health - Mr. Nguyen Viet Tien, Vice Minister

- Conditional lines of work for investment and business in health: The Investment Law of 2014 states that any applicable eligibility criteria must be enacted through decrees for every respective conditional business line and made public on the national portal for business registration. The health sector, under the Investment Law of 2014, has 19 conditional business lines regulated through specialist laws under the specialist jurisdiction of the Ministry of Health (MoH). The Investment Law of 2014, however, requires such eligibility criteria be made specific in Government decrees and achieved within a one-year transitional period.

- Importation of used medical equipment: Based on the Trade Law, the MoH released Circular 24/2011/TT-BYT making clear that imports of used medical equipment are prohibited. Any acceptance of used medical equipment will only apply to non-refundable projects of offshore non-governmental organizations in accordance with Decree 93/2009/ND-CP, and apply to simply - structured equipment with Prime Minister’s approval. The MoH, in collaboration with the Government Office, will submit to the Prime Minister a list of used medical equipment with more than 80% of remaining value, which can be imported without the Prime Minister’s approval. The need for equipment quality meeting the 80% requirement subject to declaration by the donor, confirmation of source country or inspecting agency verification in the source country/Vietnam must also be highlighted.

- Draft food safety regulations for imported and exported food products: The Food Safety Law identifies trading in foods as a conditional line of work. Food safety governance should rely on codes and norms released by authorities and regionally-accepted standards. All rules should ensure the interests and health of consumers are protected, not contrary to international practices and do not interfere with legitimate trade activities.

- Publication of identifier numbers, barcodes and registration numbers on packaging of cosmetics and food products: ASEAN practices do not mandatorily require disclosure of identifier numbers, barcodes or registration numbers on packaging for cosmetics nor prohibit it. The draft aims to support management of product information/quality and information transparency.

Response by Ministry of Science and Technology – H.E. Mr. Nguyen Quan, Minister - Permitting imports of used plant and equipment: Circular 20/2014/TT-BKHCN is being

modified with business community inputs. For FDI enterprises, if the investment project proposal provides information on production lines and equipment accepted by Vietnamese authorities and the project is approved, there is no need for quality or use period inspections for project technologies or equipment. For plant and equipment not listed in the investment project proposal or imported after the project, businesses could choose between two criteria, a use period of less than 10 years or over 70% remaining quality. Businesses are encourage to obtain a quality inspection certificate prior to importation. Once equipment is in operation, the quality inspection process will kick-in and the importer will bear costs if equipment fails to live up to declared standards. Meanwhile, other specific criteria may be imposed by authorities, such as in sectors requiring machines and equipment to have more than 70% remaining quality, for example, healthcare equipment or equipment which may generate impacts on environment.

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Response by Ministry of Labor, Invalids and Social Affairs – H.E. Mrs. Pham Thi Hai Chuyen, Minister

- Overtime work: Article 106, Labor Code of 2012, clearly specifies that overtime work must not exceed 200 hours and 300 hours for some special cases. Questions and recommendations raised on overtime work, however, are duly noted for further consideration. The ministry has counseled the Government to provide guidance on selected industries and sectors where overtime work not exceeding 300 hours is allowed in line with Article 106, Labor Code.

- Decree 102/2013/ND-CP providing implementing details for specific Labor Code provisions related to guest workers operating in Vietnam is under review to provide opportunities for non-national employees in Vietnam, taking into account the following considerations:

+ Narrowing work experience for non-national employees from five to three years

+ Non-nationals staying and working in Vietnam for less than consecutive 30 days will not be required to obtain a work permit

+ The procedure for certification of personnel not required to obtain a work permit will be waived in several instances, including non-nationals working in Vietnam for less than three months on complex technological incidents or situations, and non-nationals working for less than 30 days

+ A maximum validity of six months for health certificates from issuance till submission for work permit applications

+ Requiring a legal background certificate from Vietnam or the home country of the guest worker, which is a reduced burden from the previous ruling which requires legal background certificates from both sides.

+ Simplifying work permit applications in specific cases such as for employees with valid work permits who seek another job without changes to employer, employees with expired work permits and non-nationals with a Master’s degree or higher doing research and teaching work at educational institutions

+ Lead-time for work permit release reduced from 10 to seven days

+ Expanding applicability for individuals who may receive a work permits compared to Decree 102

+ Additional attribution for the Ministry of Labor, Invalids and Social Affairs to issue work permits to adapt to changes.

- Minimum wage: Article 91, Labor Code, specifies that, based on minimum living needs of workers and families, socio-economic conditions and market pay levels, the Government will set regional minimum wages, following consultation with the National Pay Council. The current annual regional minimum wage should be adjusted as it fails to meet the minimum living needs of workers and families.

- KorCham’s recommendation that an additional ruling on employment contract termination for employees found to be provide fraudulent information on competencies and work experience is supported. The Labor Code does not provide details on employment contract terminations in such cases.

- Public-private mix in upgrading human resources quality: The Government has a occupational education reform strategy. It allows importation of equipment, teaching

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manuals and teachers for occupational education institutions, application of mixed public-private provision in vocational training facilities, foreign investors setting up joint ventures in vocational education as well as opening schools.

Response by People's Supreme Court – Mr. Dang Xuan Dao, Economics Court Chief Judge

- Recognition/non-recognition, execution of foreign arbitration awards in Vietnam and consideration of requests for annulment/non-annulment of domestic arbitration awards: The Commercial Arbitration Law of Vietnam authorizes the court to consider requests for annulment of arbitration awards. The Civil Litigation Code allows the court to consider execution of foreign arbitration awards in Vietnam. While considering requests for annulment/non-annulment of an arbitration award or allowing execution of a foreign arbitration award in Vietnam, some judges may fail to follow book rulings on civil litigation, Commercial Arbitration Law and the New York Convention of 1958 on recognition and execution of foreign arbitration awards. Concerns emerging from implementation of these rules are known to the People's Supreme Court, which has responded with various remedial actions. To be specific, the People's Supreme Court has delivered trainings for judges. The Justice Board of the People's Supreme Court has also released resolutions explaining a number of rules from the Commercial Arbitration Law. The National Assembly is studying the draft revised Civil Litigation Code, which is strict on procedures for recognition and execution of foreign arbitration awards in Vietnam.

- Disclosing court decisions on handling requests for voiding arbitration awards or recognition and execution of foreign arbitration awards in Vietnam on court websites: The People's Supreme Court has adopted this kind of disclosure and the People's Supreme Court published a collection of decisions passed by its Justice Board.

Response by Ministry of Justice – Mr. Nguyen Khanh Ngoc, Vice Minister

- Vietnam is undertaking far-reaching legal and judicial reforms to meet the country’s changing development needs. The legal system has been reviewed and modified to reflect the Constitution 2013, with a focus on international integration.

- The Government and Ministry of Justice (MoJ) have made concerted efforts to achieve civil sentence execution targets set by the National Assembly, specifically through amendments to the Civil Sentence Execution Law 2014. The MoJ has also looked at a public-private mix in civil sentence execution with trial bailiff services in 13 provinces/cities. If this succeeds, the MoJ will propose a set of rules to be formalized in the existing civil sentence execution system.

2. Tourism Tourism Working Group – Mr. Ken Atkinson, Head

- Each month this year, there has been a decrease in visitor arrivals against the same period last year, with a 12.2% fall in the past four months. However in the first quarter of 2015, visa waiver countries showed a 7% increase over 2014. The direct contribution of travel and tourism to GDP is close to 5% and including the supply chain it is approximately 10%, a significant part of Vietnam’s economy. While Vietnam attracted 7.9 million visitors in 2014 and granted visa waivers and exemptions to 16 countries, such figures are dwarfed by regional competitors. As well as requiring visas for the majority of international visitors, Vietnam has the second highest visa costs. One of the biggest obstacles to more visa

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exemptions is the loss of such fees. However, this argument is short sighted. Visa exemptions for the EU, North America, Australia and New Zealand are needed. Revenue generated by current visa fees would be heavily outweighed by spending from increased visa-free arrivals. Overall, Vietnam must seriously examine its current visa regime from a neutral perspective, without undue influence from individual stakeholders to encourage tourism and business travel, which would be further enhanced by a true E-visa system and development of Vietnam as a transit hub.

Response by Ministry of Culture, Sports and Tourism – Mr. Huynh Vinh Ai, Vice Minister - The Government recently unilaterally exempted visas for tourists from 16 countries and the

Ministry of Culture, Sports and Tourism (MoCST) will work with the ministries of Public Security and Foreign Affairs to propose a list of countries to further benefit from Vietnam’s unilateral visa waiver. The Prime Minister has also instructed the MoCST to propose ways to further simplify visa issuing procedures, while mainstreaming visa issuance at airports, transit visas, electronic visas and possible visa fee travel. The MoCST is also working to enhance tourism development in Vietnam and importantly the Prime Minister has assigned it to quickly make proposals for a Tourism Development Fund, with a focus on PPP.

Response by Ministry of Public Security - Mr. Tran Viet Tan, Vice Minister

The new Entry, Exit, Transit, and Residence of Foreigners in Vietnam (Law No. 47/2014/QH13) in effect since early 2015 has widened the applicability of visas on arrival and the Ministry of Public Security (MoPS) is working with other ministries to consider options to streamline the issuance of visas on arrival and the scope of unilateral visa exemptions. The new law specifies visas or residence cards for guest workers are valid for two years and five years for investors, and allows residential non-nationals in Vietnam to invite their families to Vietnam. The law also specifies that transit visitors to Vietnam are not required to obtain a visa for the transit period. For visitors entitled to visa exemption returning to Vietnam within 30 days or wishing to stay on longer, the Ministry of Public Security and other relevant ministries and line agencies have reported to the government an option for this situation, which is granting visitors a visa on arrival valid for no longer than 15 days. During these 15 days in Vietnam, if the visitors take travel tours in Vietnam from local travel agencies, they will receive another 15-day extension. Overall, the visa issuing procedure has been improved. Visitors for work, investment or employment, including tourists with an institutional invitation, will be considered for visa issuance within five days. More urgent cases, with a request from the inviting entity, may receive the visa within one working day. The recommendation that visa fees be lowered to become more competitive with other countries will also be examined.

3. Land and Property Land Sub-Group - Mr. David Lim, Head - The real estate industry has welcomed the passing of the new Real Estate Business and

Residential Housing laws to streamline investors’ rights and allow greater foreign participation. But, there is concern that implementing decrees and circulars have not been passed. Regarding the draft decrees, they stipulate higher minimum legal capital of VND50 billion for property projects subject to investment in-principle decisions or approvals. Such requirements will discourage companies from undertaking small projects, lead to inefficient capital use and inhibit business competitiveness. Legal capital should only be applicable to the value and scale of projects. If more capital is required, a percentage of total investment

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capital should be applied. Secondly, members of a LLC are required to contribute capital in full within 90 days from issuance of enterprise registration certificates, which is unrealistic and will disincentivize developers from undertaking large projects. Provisions should allow for capital contributions according to a project’s implementation. Clarity is also needed on the implementation of agreements already signed under old laws, especially in relation to method of calculation and record of the residential housing area, the warranty period and the parking plot. Moreover, under the new laws the sales and lease-purchases of residential houses must be guaranteed by a commercial bank of Vietnam. But, implementing provisions have not been issued. Necessary provisions and detailed guidelines must be issued urgently. Regarding the rights of foreigners to own property in Vietnam, the draft decrees provide further restrictions that could dilute the positive impacts of the new laws.

Response by Ministry of Construction – Mr. Pham Hong Ha, Vice Minister

- The Government will release five implementing decrees, submitted for approval in the first weeks of July 2015, as part of the roll out of the Real Property Trading Law and Housing Law.

- Legal capital top-up: The Ministry of Construction (MoC) has noted the recommendation to remove the requirement that real property investment projects subject to a preliminary decision or acceptance procedure must have a statutory capital of no less than VND50 billion. Thus, the final draft submitted to the Government will not include this legal capital requirement.

- Legal capital: The Real Property Trading Law requires legal capital be not less than VND20 billion. Of the 306 property projects suspended and 460 other projects in need of modification after recent scrutiny, most belong to project owners with limited legal capital. Hence, this requirement is needed to filter out incompetent property market participants.

- Sunset clause for completion of contracts under the former Real Property Trading Law and Housing Law: Contracts signed before the Real Property Trading Law and Housing Law come into effect will continue in line with applicable laws at the time of contract execution.

- Foreign investors acquiring property in Vietnam: The draft decree specifies that foreign entities and individuals may own no more than 10% of total housing units in a number of projects. This is necessary, as the law allows foreigners to own no more than 250 independent housing units in a ward-equivalent resident area, in which there may be many on-going development projects. Thus, the ruling ensures compliance with the law on the 250 housing unit restriction.

- Draft implementing decree to the Housing Law being more restrictive than the law itself on non-nationals subject to limited ownership of residential houses in Vietnam: The MoC welcomes further inputs from the working group as the draft decree submitted to the Government will undergo some modifications, in which, Ministry of Public Security and Ministry of Defence shall be requested to concretize circumstances where foreign individuals are prohibited or restricted for residence.

- The MoC notes the recommendation regarding the inclusion of the company registration certificate in project transfer dossiers impeding foreign investors investing in Vietnam for the first time.

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SESSION 3 – BANKING AND CAPITAL MARKETS – NEEDS FOR POSITIVE GROWTH

1. Banking Banking Working Group – Mr. Nirukt Sapru, Head

- For Vietnamese companies to capitalize on fresh market opportunities and withstand more intense regional competition, they need tools to benefit from an integrated market. This includes greater access to information on utilizing free trade pacts. The Government could also consider a sustainable lending program to SMEs, while credit guarantee funds need developing. As Vietnam integrates into global supply chains, stronger SMEs’ participation will improve efficiency and strengthen confidence in the financial institutions supporting them. For enterprises, adopting international corporate governance, risk management, law and compliance standards will improve their competitiveness and help Vietnam fully integrate into global supply chains. Regarding banking-specific issues, the BWG appreciates SBV efforts to improve the sector’s regulatory framework and is ready to help enhance the consultation process to benefit regulatory reform. The Government and SBV have helped stabilize financial and monetary markets, but a differentiated policy approach is more appropriate as different banks have different levels of risk management, governance, liquidity, capital capacity and business plans. For example, the credit growth cap policy is helping big banks, not good ones. Regarding financial market development, the BWG has agreed to set up a Financial Markets sub-committee to assist companies involved in large projects manage foreign exchange, interest and commodity rate risks. Furthermore, the BWG is working on a shared manifesto to manage risk to raise the bar on conduct and compliance to better develop the financial services system.

- Overall, the BWG has some important recommendations. Firstly, all requests for banking license updates are on hold until the new licensing re-issuance regulation is issued. The SBV is requested to allow for a continuation of business activities pursuant to applicable regulations to avoid banks being subject to legal risks. Secondly, regarding entrustment lending in Circular 30, the MPI is requested to provide clearer implementation guidance to be compliant with applicable laws and regulations. Thirdly, while Vietnam is about to sign the Inter-Governmental Agreement with the United States, FATCA reporting is looming and there is concern there will be no formal basis for banks to report Vietnam-related data to the IRS. The SBV is asked to allow foreign bank branches and foreign-owned banks to send data to head offices for onward reporting to the IRS.

Response by State Bank of Vietnam – Mrs. Nguyen Thi Hong, Deputy Governor

- Directional credit policies for 2016: By the end of this year, the State Bank of Vietnam (SBV) will calculate credit growth and specific regulatory solutions. Such policies will promote expansion, maintain safety and performance, with a further focus on production and trade.

- Entrusted loans under Circular 30: The SBV has requested departments examine this issue and work with the MPI for action.

- Banking licensing under newly released rulings: The SBV is finalizing enacting procedures to update licensing mechanisms for credit institutions for smooth operations.

- Compliance with reporting requirements under FATCA: The SBV has actively participated in bilateral negotiations between Vietnam and the US Government on implementation of FATCA. The SBV will wrap up necessary procedures so an IGA agreement can be entered into by June 30 to support credit institutions.

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- Guidance on bank guarantees for selling houses taking shape in the future: The SBV is working on a new circular on guarantees with a specific provision providing guidance on this issue.

2. Capital Markets

Capital Market Working Group – Mr Kien Nguyen, Representative

- Vietnam has a stock market capitalization of approximately $46 billion, only 25% to its GDP. As a result, Vietnam’s stock market will be unable to support the privatization process. If the estimated total value of SOEs to be privatized in the next three years is US$25 billion and the Government offers to sell only 15% of shares, the market will need US$3.75 billion to buy such shares. Thus, the capital mobilized locally will not be insufficient and a new flow of foreign capital will be needed. To develop the local stock market, we suggest:

- Privatization and listing of SOEs: The Government should ensure privatization in step with the listing of privatized companies. And to create liquidity, a global syndicate with 25-30% sold off should be considered.

- Increasing foreign ownership limits: To attract foreign capital to the stock market and newly privatized SOEs, Vietnam should abolish the 49% foreign ownership restriction applicable to public companies and apply World Trade Organization (WTO) commitments on public companies providing services and open up the stock market by removing ownership restrictions on public companies doing business not under Vietnam’s WTO commitments, excepting for businesses which affect national security.

- Creation of pension funds: The Government is urged pass the draft decree on pension funds as they will provide a significant demand for the financial market and privatization and help reduce pressure on the Social Security Fund.

Response by Ministry of Finance – H.E. Mr. Dinh Tien Dung, Minister

- Recommendations for stock market development are aligned with Government intentions and stated policies. The MoF has advised the State Securities Commission (SSC) to work closely with relevant ministries/line agencies to expedite new mechanisms and policies to further the corporatization and public divestment processes.

- Recommendation for sales of 25-30% of equity of a company going public through international and professional brokers: Regarding the working group’s 25-30% figure, is it based on the gross owner’s equity or the offering amount of each issue? Decree 59/2011/ND-CP on conversion of SOEs into joint stock companies allows sales of equity through guarantees, but few companies have chosen this method. The MoF will undertake research and address the remaining questions.

- Increase in foreign ownership: The MoF has proposed revising Decree 58/2012/ND-CP, including expansion of foreign equity in line with Vietnam’s WTO commitments. Except for conditional business lines and restricted investment areas, other investments will be considered for a higher foreign ownership rates in accordance with Vietnam’s WTO commitments. The Government will soon make a decision on this issue.

- Recommendation on early release of a decree on voluntary pension funds: The MoF has led the decree drafting and consultations with relevant ministries/line agencies, businesses and public. The draft decree is now being finalized by the MoF.

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SESSION IV – INFRASTRUCTURE, REQUIREMENTS FOR PPP IMPLEMENTATIONS, PORT STRENGTHENING AND POWER GENERATION NEEDS IN MASTER PLAN VII 1. Infrastructure Infrastructure Working Group – Mr. Tony Foster, Co-Head - Businesses remain concerned about infrastructure development delays. The MPI reports

that VND500 billion is needed for hard infrastructure over the next 10 years, of which the private sector will provide VND300 billion. However, equity and debt markets are insufficiently developed to realize such infrastructure needs. This places a big burden on PPP, which is still evolving in Vietnam despite many positive steps forward. While Decree 15 is encouraging, it is unlikely to help raise the needed capital. The Infrastructure Working Group recommends the fast implementation of PPP, infrastructure projects under the Investment Law - even outside the PPP framework and a greater focus on infrastructure financing mechanisms.

Infrastructure Working Group – Mr. Tran Tuan Phong, Co-Head

- Impact on current infrastructure projects: Many projects, particularly projects in the power sector, are discussed and negotiated under current BOT framework of Decree 108/2009/ND-CP. However, the transitional provisions of Decree 15/2015/ND-CP on investment in the form of public-private partnerships ("Decree 15") does not seem to encompass BOT projects, which has completed negotiations or are being negotiated and waiting for approval of the Prime Minister. Therefore, more procedures may incur under Decree 15, which leads to prolong negotiation process.

- The competitiveness of Vietnam's economy depends heavily on the implementation of Decree 15. Decree 15 should try to limit making rigid, unclear rules, and need to clarify how specific issues and risks are allocated, standard templates for each infrastructure sector in the guiding Circular to avoid different interpretations of ministries. In addition, there should be a specific communication channel for attractive and feasible PPP projects for structural infrastructure that Vietnam visibly needs and that also attract investors. The scope of available guarantees and further visibility into viability gap funding principles are among the main gaps that ideally would be filled before starting bidding out a comprehensive PPP program. These gaps can be filled on a project by project basis, but the expense of preparing project proposals without having guidelines on what support is available will make such preparation unattractive.

Response by Ministry of Planning and Investment – H.E. Mr. Bui Quang Vinh, Minister

- Decree 15, incorporating Decree 108 and Decision 71, toward public investment reform is welcomed and is consistent with international practices. However, several implementing concerns will be addressed.

- The PPP decree needs to adapt to specific needs of Vietnam. Accordingly, Decree 15 will not only open doors to large-scale infrastructure, but also rural water/sanitation as well as agriculture and rural development.

- Financing projects: The viability gap fund is being rolled out and projects may receive Government support, based on specific cost-effectiveness calculations.

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- Sunset clause: Implementing circulars for Decree 15 will provide specific provisions for unapproved BOT projects, that could be approved if not contrary to Decree 15 or only parts in conflict with Decree 15 will be reviewed.

- Foreign exchange guarantee: The Government will warrant foreign exchange purchases for investors and enterprises, but not guarantee exchange rates as they fluctuate over time. However, the Government will safeguard foreign exchange purchases and some projects could receive special treatment, as decided by the Prime Minister.

- Decree 15 provides fundamentals for the PPP model as it designates specific ministries to release implementing circulars for respective areas of governance to negate rules from being overly rigid or out of touch with realities on the ground.

2. Power and Energy; Port and Shipping Power and Energy Sub-Group – Mr. Sean Chung, Representative - While Vietnam has provided a stable power supply to consumers, business concerns about

future power shortages could be a deterrent to attract further domestic and foreign investment. Such concerns are exacerbated by current low power tariffs. In the first quarter, VBF met FDIs, held workshops and sent out questionnaires on Vietnam’s power supply. The clear response was energy security was the most important issue, above energy prices and the majority had no opposition to planned power increases. Energy investors will have greater confidence in the sector if power tariffs reflect the true cost of generation and a clear roadmap of expected power pricing and policies is needed. The VBF Power and Energy Working Group will develop more information/data related to cost-benefit analysis on Vietnam's domestic natural resources and renewable energy to be compared to major planned increases in imported coal as well as direct power purchase agreements used by similar countries to Vietnam. This analysis will assist dialogue on balanced energy security, environmental solutions and create energy supply options. In summary, the Government’s power tariff increases are encouraging, but careful examination of domestic energy supply development policies is needed.

Port and Shipping Sub-Group – Mr. Robert Hambleton, Head - Creation of a domestic and international transshipment hub in Cai Mep remains of vital

importance to address the demand/supply container terminal imbalance in southern Vietnam and create an effective deep-water port for Vietnam. In general, the Government has a golden opportunity to make a small number of decisions to significantly help Vietnamese importers and exporters. This is especially important, as the numerous trade agreements in the pipeline will increase container traffic. Current reliance on HCMC urban terminals is not sustainable and an internationally competitive environment to operate container terminals is needed. To achieve this, a reduction in port dues for certain sized vessels is required, as is a relaxation in cabotage regulations. Local services are sub-standard and prohibitively priced as well as a barrier to progress. Another important area is reform of customs regulations, essential if Vietnam is to remain competitive with other ASEAN countries. If Vietnam fails to take advantage of such opportunities, the main supply route in and out of the country could be jeopardized, resulting in higher costs and a less internationally competitive environment.

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Response by Ministry of Industry and Trade – H.E. Mr. Vu Huy Hoang, Minister

- Electricity and energy: Power generation and supply in Vietnam is in its best position since 2011, with 20% of output in reserve. However, the quality of electricity may not be well guaranteed due to an outdated power distribution system in certain areas. The Ministry of Industry and Trade (MoIT) has advised the electricity sector to raise capital from different sources to upgrade the power system for corporate users.

- A potential supply shortage is forecasted in 2017-2018 for southern Vietnam and in response the Prime Minister has tasked the sector to undertake urgent projects in the south. The Government intends to encourage domestic and foreign investors to engage in power development, mostly through BOT or BOO models.

- Power tariff change roadmap: The Government believes power tariffs must be market-determined, but regulated by the Government as well as ensure reasonable payback and profits for the sector. Nevertheless, applying higher power prices will burden poor and disadvantaged members of society. As such, the Government will provide direct subsidies from the budget for poor households. And by early 2016 power tariffs will become entirely market-determined.

- Renewable energy: The Government intends to increase the use of safe and renewable energy to ensure sustainable development and a controlled environmental footprint. The Government has requested the MoIT work with the electricity sector to recalculate and increase renewable energy use to more than 5% of total energy sources in Vietnam by 2020.

- Roadmap for electricity retail sales: + Competitive power generation levels: From 2012 power plants have made offers to the

electricity sector to buy electricity + 2015-2020: Trial a competitive wholesale electricity market + From 2021: Introduction of a competitive retail electricity market.

- Automotive industry: The MoIT is working with the MoF to draft a decision for the Prime Minister on mechanisms and policies to materialize the Strategy for Automotive Industry Development in Vietnam by 2025 and vision to 2035.

- Special sales tax for automobiles: The MoF is taking the lead in building a formula for determination of the special sales tax, ensuring equality between locally manufactured/assembled cars and imported CBUs.

- Supporting industries: The current legal framework for supporting industry development remains narrow. As a result, the Prime Minister requested the MoIT draft a decree on supporting industries, which is complete.

- In addition, the National Assembly has agreed to give its opinion and pass the draft law on supporting SMEs, respectively in October 2015 and 2016. Moreover, the recent National Assembly, also endorsed new laws, including the Enterprise Law, Investment Law and amendments to the Tax Laws. These laws provide specific tax and administrative procedure incentives for supporting industries.

ADDRESS OF PRIME MINISTER H.E. Mr. NGUYEN TAN DUNG The socio-economic picture of Vietnam in the first months of 2015 is more promising than 2014. However, there is still room for improvement. First, the Government will continue macroeconomic stability, with inflation not exceeding 5%, stable exchange and interest rates,

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build foreign currency reserves, maintain Government over-expenditure at 5% for 2015 and less than 5% for the next five years, restructure Government debt, enhance investment efficiency and achieve an average export revenue growth of 10%-15% per year.

Second, the Government will ease bottlenecks and provide opportunities for the business community to enhance production and trade to help achieve economic growth goals for the industry, agriculture and services sectors. Restructuring SOEs will be prioritized as will corporatization in parallel to Government divestment from companies. Also, restructuring process of banks and financial institutions will be accelerated towards efficiency and transparency.

Third, Vietnam will accelerate its international economic integration and meet trade agreement commitments that will be a cornerstone to establish markets and enabling environments for investment and business activities.

Fourth, Vietnam is concentrating efforts in a three-pronged strategic approach:

- Ensure the local economy operates according to market economy rules and values, with disclosure, transparency and fair competition.

- Concentrated efforts will be made to improve the regulatory system and safeguard the rule of law. The legal system will be enhanced in alignment with international laws. In tandem, improvement in governance capacity as well as Government administration and regulations will be emphasized for better public services and the right to do business in accordance with the prevailing law and to fight corruption more effectively.

- Resources will be mobilized for infrastructure development, with a focus on increased investment in transport infrastructure and energy and power supply to drive economic growth. At the same time, Vietnam is working towards an electricity pricing market mechanism, with a power tariff pathway to provide investors with certainty. Engaging the private sector through PPP in line with international best practices will also be encouraged.

+ A focus on better leadership in human resources development will harness local training capacity and open doors to international education to help improve workers’ skills and quality and ultimately labor productivity.

CLOSING REMARKS The World Bank in Vietnam – Mrs. Victoria Kwakwa, Country Director The assurances from the Prime Minister and various ministries today are a demonstration of the strong partnership between the Government and business community to develop Vietnam. In particular, the Prime Minister’s assurances for macroeconomic stability are welcomed. For Vietnam to take full advantage of deeper trade integration with various trade agreements in the pipeline, it is apparent that strengthening implementation of existing and new laws as well as monitoring their impacts will be vital. The Government and line ministries are encouraged to continue to work with the private sector to secure more efficient regulations and regulatory frameworks for a healthy business environment. Moreover, promoting a strong and vibrant domestic private sector is important. For this to be achieved, a level playing field between SOEs and private sector is needed, with a particular focus on SMEs and micro enterprises.

We also look forward to further progress in the financial and banking sectors, such as strengthening of the regulatory framework for asset management companies. Infrastructure

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remains a significant issue and further development of PPP with private sector support is needed. Power remains critical and assurances today that more will be done in terms of pricing is encouraging. Again, the support and valuable inputs from the Prime Minister, Minister Vinh and all ministers are welcomed and we look forward to continue working together for a prosperous Vietnam. Government of Vietnam – H.E. Prime Minister Nguyen Tan Dung Commitments for administrative procedure reform have been made in Resolution 19, to improve the investment and business climate and heads of ministries have made commitments to achieve or outperform Resolution 19 targets. Public administration reform, by the end of 2015, will help Vietnam to reach ASEAN 6 block status and by late 2016 on par with ASEAN 4. Vietnam Business Forum Consortium – Vu Tien Loc, Co-Chairman Through dialogue, the gap between the business community and Government has narrowed and many recommendations have been addressed. The business community appreciates the Prime Minister’s attendance at the forum and pledges to continue working closely with Government agencies to promote economic development.

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ADDRESS OF PRIME MINISTER H.E. Mr. NGUYEN TAN DUNG At Midterm Vietnam Business Forum 2015

8am – 12.30pm, June 9, 2015 Lotte Hanoi Hotel

The socioeconomic picture of Vietnam in the first months of 2015 has shown more promising developments, with more solid and efficiency over 2014, which is a result of Vietnam’s general efforts, as well as its particular focus on the coordinated execution of targeted solutions. The outcomes, however, remain insufficiently sustainable and not on par with the country’s potentials and inherent advantages. Vietnam can do better, and in a more effective and solid manner.

To that extent, Vietnam will be rolling out in a coordinated fashion the following major action items.

First, the government of Vietnam will continue its governance and regulatory role in ways that maintain and enhance macroeconomic stability. This specifically entails better inflation containment to make sure that the inflation rate does not exceed 5%; keeping exchange rates and interest rates level, responsive to market signals; building the foreign currency reserves; maintaining government over-expenditure at 5% according to the plan for 2015, and less than 5% for the next five years; keeping government debts within a safe limit; conducting effective restructuring of government debt for more concentration and efficiency; enhancing the investment efficiency of the economy; and achieving an average export revenue growth of 10%-15% per year, and a trade gap of no more than 5%.

Second, the government of Vietnam will focus its leadership efforts in easing the bottlenecks and providing opportunities for the business community to further prosper in its production and trade activities, to help achieve the set economic growth goals for all the three sectors of industry, agriculture and services. The government will further press ahead restructuring toward higher productivity, quality, performance and competitiveness. Concentrated efforts will be made in restructuring state-owned enterprises for better performance and competition on an equal ground with other stakeholders. The government will make sure that corporatization takes place according to the approved plan and pathway, in parallel to divestment of the government from companies that the government’s dominating or controlling holding is no longer necessary. In the meantime, reorganization of banks and financial institutions will also be accelerated for more efficiency, disclosure, transparency and soundness.

Third, Vietnam will make active efforts in propelling international economic integration. It will seriously fulfill its parts in the trade agreements it endorsed. Recently, Vietnam had closed more free trade agreements with Korea and the Eurasian Economic Union. For now, Vietnam is in the final negotiating stages for the free trade agreements with the European Union, as with the Trans-Pacific Partnership (TPP). These will be the key cornerstone to establish the markets and enabling environments for investment and business activities, not just for Vietnamese firms but also foreign corporations doing business in Vietnam.

And fourth, Vietnam is currently concentrating its efforts in a three-prong strategic approach:

- Ensuring that the local economy operates fully according to the rules and values of the market economy, with disclosure and transparency, and on a fair competition basis, while

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the government, with its available instruments, policies and resources, works to guarantee cultural development, social advancement and equality, social security, and improved living standards, and achieve good poverty reduction outcomes.

- Concentrated efforts will be made to improve the regulatory system and safeguard the rule of law with a government that is truly ‘of the people, by the people and for the people’, as democracy and freedom are ensured for citizens in line with the newly released Constitution. The legal system will be improved over time, with effective enforcement. In the context of Vietnam having made its way far and wide to the international community, local laws need to approach and absorb the quintessence and advancement of the world, and remain in alignment with international laws. In tandem with the improvement of the rule of law, enhancement of governance capacity and the government’s administration and regulation will need to be emphasized to offer better public services and provide citizens with better democracy and freedom, as well as the rights to freedom in doing business of enterprises in accordance with the prevailing law, and fight corruption more effectively.

- Mobilizing resources for infrastructure development: investment to provide adequate infrastructure facilities for both economic and social development needs, with a focus on increasing investment in transport infrastructure and provision of sufficient energy and power supply. This will go hand in hand with solutions to provide sufficient power supply for economic growth, while focusing on efficiency and quality enhancement. At the same time, Vietnam has also made serious efforts in adopting the market mechanism in electricity pricing, as the power tariff pathway will soon be announced to provide investors with certainty as they consider investing in this field. In addition, engaging the private sector through public-private partnership (PPP) in line with international best practices will also be encouraged.

- Focus for better leadership in human resources development: capitalizing on the local training capacity, while opening doors to international education to help improve workers’ skills and quality, and labor productivity. This will be a key driving force in enhancing corporate and national competitiveness.

Vietnam Business Forum Consortium:

For more information, please contact:

Vietnam Business Forum SecretariatG/F, Sofitel Plaza Hanoi, No. 1 Thanh Nien Road,

Hanoi, Vietnam

Tel: 84-4-3715 2223

Fax: 84-4-3715 2218

Email: info@vbf.org.vn

www.vbf.org.vn

Annual Vietnam Business Forum 2015 Sponsors:

Foreign Investment Agency Ministry of Planning and Investment6B Hoang Dieu Str., Ba Dinh Dist.,

Hanoi, Vietnam

Tel: 84-804 8416

Fax: 84-4-3734 3769

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