Lawyer in Vietnam Oliver Massmann - First time in history - Government

Procurement Tender Decisions will be subject to International Arbitration and

Investments subject to Investor State Dispute Settlement And Enforcement

by Oliver Massmann

Vietnam is one of the countries with the highest ratio of public investment to GDP on the world (i.e., 39%

annually from 1995). However, Vietnam has not agreed to coverage of their government procurement by the

Government Procurement Agreement of the WTO (GPA). Indeed, Vietnam for the first time has undertaken to do

so in a recent Free Trade Agreement with the EU (EVFTA).

Currently Chinese companies profit the most from Vietnam’s procurement market. 90% of power, mining,

manufacturing, ferrous and chemical projects of state-owned companies in Vietnam are awarded to Chinese

contractors. China State Construction Engineering Corp (CSCEC) keeps winning important contracts although it

has a poor track record and has even been blacklisted by the World Bank due to bribery charges. With the EVFTA

that attractive market would be open to European companies which probably would be welcomed.

How is government procurement addressed under the EVFTA?

The EVFTA on Government Procurement mainly deals with the requirement to treat EU bidders or

domestic bidders with EU investment capital and Vietnamese bidders equally when a government buys

goods or requests for a service worth over the specified threshold. Vietnam undertakes to timely publish

information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain

confidentiality of tenders. The EVFTA also requires its Parties assess bids based on fair and objective

principles, evaluate and award bids only based on criteria set out in notices and tender documentation,

create an effective regime for complaints and settling disputes, etc. These rules require all Parties,

especially Vietnam, in the context of China’s bidders predominantly win the bids with cheap offer price

but low-quality services, to reform their bidding procedures and protect their own interests by disqualifying tenders with poor performance and low capacity.

What is the covered procurement?

Government procurement of goods or services or any combination thereof that satisfy the following criteria falls

within the scope of the EVFTA Government Procurement rules:

Criteria EVFTA

Monetary values that determine

whether procurement by central

government is covered under an

agreement

130,000 Special Drawing Rights (SDRs) (US$191,000) after

15 years from the entry into force of the agreement

Initial transitional threshold: 1.5 million SDRs (US$2.23

million)

Procurement of construction services

by central government entities

Initial threshold: 40 million SDRs (US$58.77 million)

After 15 years, 5 million SDRs (US$7.35 million)

Entities covered 22 central government bodies

42 other entities (including 2 utility-related state-owned

enterprises, 2 universities, 2 research institutes and 34 public

hospitals under the control of the Ministry of Health

Sub-central government coverage: including Hanoi and Ho Chi

Minh

Exclusion of preferences for SMEs Broad exclusion

Application of offsets Based on value of a contract

Currently the EU investors are expressing great interest in Long Thanh Airport project, whose total investment

amount is approximately USD16 billion. This project is located in Dong Nai, 40km East from Ho Chi Minh City.

When it is completed in 2025, it will become the biggest airport in Vietnam. The project is now at the feasibility

study stage. Its result will be submitted to relevant authorities for approval in Q3 2017. It is expected that in 2019,

the investor – Aviation Corporation of Vietnam will select the main constructor for the project. Selection form

and requirements are not available at the moment. This is a great opportunity for European investors, considering

that the next phase of the project will start when the EVFTA is already in effect.

How to appeal Government tender decision?

EVFTA makes it possible that the EU could sue Vietnam (or vice versa) for its tender decisions according to the

dispute settlement by arbitration rules in a separate chapter of the EVFTA. The violating party must take all

necessary measures to promptly comply with the arbitral decision. In case of non-compliance, as in the WTO, the

EVFTA allows temporary remedies (compensation) at the request of the complaining party.

Enforcement of arbitral awards

In disputes regarding investment (for example, expropriation without compensation, discrimination of

investment), an investor is allowed to bring the dispute to the Investment Tribunal for settlement (Investor-to-

State dispute settlement mechanism - ISDS). The final arbitral award is binding and enforceable without any

question from the local courts regarding its validity. This is an advantage for European investors considering the

fact that the percentage of annulled foreign arbitral awards in Vietnam remains relatively high for different

reasons. According to report of the Supreme Court of Vietnam, the biggest reason lies in the relevant courts which

are responsible for implementing the procedures for recognition and enforcement of foreign arbitration bodies.

Specifically, in-charge judges do not fully understand nature of Vietnam’s commitments to New York Convention

1958, wrongly apply Vietnamese proceeding rules and, in some cases, are simply corrupted by the losing parties,

often the local defendants.

Different from investment related disputes, disputes over a Government tender decision must be brought to the

arbitration panel by a Government against the other Government. It is not clear whether local courts could annul

arbitral awards of the arbitration panel regarding a wrongful tender decision. However, it is gradually becoming a

less significant issue as over time, the number of rejected enforcement of arbitral wards in Vietnam is

substantially on decline. The recognition and enforcement process is also shortened and is getting more

straightforward and transparent. This is thank to efforts of the Supreme Court of Vietnam in training courts of

lower levels, voices raised by foreign business communities and drastic changes in Vietnam’s proceeding laws

recently.

We believe that the procedural and legal changes regarding government procurement will enable EU exporters to

reach markets that were closed before and compete more effectively.

***

If you have any question on the above, please do not hesitate to contact Mr. Oliver Massmann under

omassmann@duanemorris.com . Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!