Vietnam - New Investment Law, The TPP, AEC, EVFTA and Star Trek: Scotti: Beam Vietnam Up

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AGENDA:

• INVESTMENT LAW AND ENTERPRISE LAW – WHAT IS NEW?

• ASEAN ECONOMIC COMMUNITY (“AEC”) –WHAT IS

IT? WHAT DOES AEC HAVE TO OFFER TO INVESTORS?

• EU – VIETNAM FREE TRADE AGREEMENT (“EVFTA”) AND TRANS-PACIFIC PARTNERSHIP (“TPP”) –BENEFITS FOR VIETNAM

• CONCLUSION

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Vietnam 2014 Economy at a glance • GDP: US$187.5 billion • GDP per capita: US$2,028 • GDP Growth: 5.98 % • Inflation: 4.09% • Population: About 90.73

million • Labor force aged 15 and above:

54.48 million • Total export and import

turnover: : US$ $298 billion • Minimum wage: VND 2.7

million (US$ 147) per month (Jan 2015)

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Vietnam has the fastest-growing middle and affluent class in the region (Boston Consulting Group)

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WTO analysis of liberalization of market access

Vietnam ties in first place with Singapore

• *Typical restrictions: number of opened sectors, JV requirement, limits on foreign-owned shares, permission requirement

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Country Limitation of market access*

Country Limitation of market access*

Malaysia medium Myanmar high Indonesia medium Cambodia medium

Philippines medium Laos medium Singapore low India high Thailand medium China medium Brunei high Vietnam low

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Investment environment in Vietnam • Main governing laws: Investment Law, Enterprise Law and their

implementing documents • Forms of doing investment in Vietnam:

– Economic entity establishment; – Business cooperation contract: a contractual arrangement

between two or more investors without creating a legal entity – Public-Private Partnership; a contractual agreement

between competent state authorities and investors, an enterprise project in order to implement an investment project;

– purchase of shares or capital contribution.

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Investment environment in Vietnam • Forms of enterprises in Vietnam – Limited liability company: members are liable to the extent of their

capital contributed – Shareholding Company: charter capital (authorized share capital) is

divided into shares and members are liable to the extent of their capital contributed

– Partnership: established between two or more partners; – Business Cooperation Contract: an agreement without constituting a

legal entity and each party is individually responsible for paying taxes. – Branch: a branch of a foreign company permitted to conduct

commercial activities – Representative Office: represents the parent company, no actual

business operations. A suitable tool for market research 7

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Definition of foreign investor

• New Investment Law: Very simple definition!

Foreign investor is any foreign individual or organization incorporated under foreign law doing

business investment activities in Vietnam

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Foreign investors – Who are they?

• Foreign nationals and foreign corporate entities • Foreign Invested Economic Organizations (FIEO):

those whose members or shareholders are foreign investors

• FIEO under the M&A rules: narrower scope (discussed in the next slide)

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FIEO under the M&A procedures

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A Offshore Investor

F1 Company in

Vietnam with 51%+ ownership by A

F2 Company in

Vietnam with 51%+ ownership by F1

F3 Company in Vietnam

with 51%+ ownership by A and

F1

F1, F2 and F3 are considered as FIEO and subject to investment

requirements applicable for Offshore Investor

Others: subject to requirements applicable

for domestic investor

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• Prohibited business activities: – Trade in the narcotic substances as specified; – Trade in the chemicals and minerals as specified; – Trade in specimens of wild flora and fauna as specified in Appendix

1 of Convention on International Trade in Endangered Species of Wild Fauna and Flora; specimens of rare and/or endangered species of wild fauna and flora as specified;

– Prostitution; – Human trafficking; trade in human tissues and body parts; – Business pertaining to human cloning.

• Freedom to conduct business activities not prohibited by law less risk in doing business

Prohibited business activities

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Investment procedure

• 2 separate steps: Application for Investment Registration Certificate (“IRC”) and Application for Enterprise Registration Certificate (“ERC”) Step 1: IRC – IRCs for projects required to obtain preliminary approval of the National

Assembly/ People’s Committee are issued within 05 working days upon issuance of such approval

– For other projects, IRCs are issued within 15 days (instead of 35 days as in the old law) upon receipt of the application dossier

• Step 2: ERC – Submit an application dossier to the licensing authority upon issuance of

the IRC – ERCs are issued within 03 working days upon receipt of the application

dossier 12

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M&A procedures for foreign investors • Appears to be simple!!! Only registration required, no more IRC

Satisfying the requirements for investment Submitting application dossier Assessment by the licensing authority and decision making after 15 days

• Subjects: foreign investors making investment in conditional business activities

applicable for foreign investors; F1, F2 or F3 holding 51% or more of the targeted economic enterprise as a

result of the M&A Exclusion: Company other than F1, F2 and F3:

Registration to amend the ERC (for LLCs) Notification of the change in foreign shareholders (for JSCs) The change will be effected within 03 working days

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M&A procedures for foreign investors

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ASEAN ECONOMIC COMMUNITY

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AEC establishment

• AEC members: Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam

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AEC Market Snapshot – Asia’s main investment hub • GDP: US$2311.3 billion (2012) • GDP per capita: US$3748.4 (2012) • Population: 620 million, 60% under the age of 35 • AEC % of world GDP: ~3.3% • AEC % of world population: 9% • AEC’s merchandise exports: US$1.2 trillion - ~54% of total

ASEAN GDP and 7% of global exports • If ASEAN were one economy, it would be the 7th largest in

the world – 4th largest by 2050 if growth trends continue 17

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Key characteristics of AEC

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ASEAN Framework Agreement on Services

• Expanding WTO commitments on services • Free flow of services in AEC: substantially no restriction on

ASEAN service providers in providing services and in establishing companies across national borders within the region

• Modes 1 (cross-border supply) and 2 (consumption abroad): none except for bona fide regulatory reasons

• Mode 3 (commercial presence): gradually allow 70% foreign (ASEAN) equity participation for all service sectors

• Removal of Other Mode 3 MA Limitations by 2015 • Set Parameters of Liberalisation for Mode 3 NT, Mode 4 (presence

of natural person), and Horizontal Limitations 19

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Services sectors of priority integration

• Air travel • e-ASEAN • Healthcare • Tourism • Logistics services

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Mutual recognition arrangement • To facilitate the free flow of professional services • Professional service providers registered/certified in their home

countries to be equally recognized in other signatory countries • Up to now, 8 mutual recognition arrangements on:

– Engineering services – Nursing services – Architectural services – Surveying qualifications – Accountancy services – Medical practitioners – Dental practitioners – Tourism professionals

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AEC perspectives – What does AEC have to offer? • Shared market, shared benefits - From TEN to ONE • Simplified rules, greater access - Trading on a bigger stage • ASEAN: Home for your investment – Partners in Business • Making capital work for you – Expanding access to finance • ASEAN professionals in the move – Best people and Best

practices (Source: www.asean.org) 22

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6 out of 10 ASEAN countries have improved their rankings

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EU – Vietnam Free Trade Agreement (EVFTA)

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EVFTA – Bilateral negotiations

June 2012 October

2012 Hard work July 2015

August 2015

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Launch of negotiations

First round in Hanoi

15 rounds alternately in Vietnam and Brussels

Last round in Hanoi

Agreement in principle

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EVFTA – Comprehensive agreement • Trade in goods Market access for goods – tariffs Rules of Origin Export duties Technical Barriers to Trade (TBT) Sanitary and Phytosanitary Measures Customs and Trade Facilitation Administrative Cooperation in Customs Matters

• Services and investment: National treatment Liberalisation commitments / market access Investment to state dispute settlement

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Cross-cutting issues Dispute Settlement and Investment Dispute Settlement Government Procurement State Owned Enterprises & Subsidies Intellectual Property Rights Geographical Indications Trade and Sustainable Development Cooperation and Capacity building Annexes (car; green tech and pharma)

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EVFTA – Main features

Symmetrical elimination of nearly all tariffs (over 99%)

Removal of almost all export duties and cap on remaining ones

Services commitments going beyond GATS

Negotiations on Investment protection and disputes settlement on-going

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EVFTA – Tariff liberlization

• Tariff liberlization: – 99% of tariffs both value and number of tariff lines – After 7 years for EU – Vietnam 10 years

• Coverage at entry into force: – 71% of value of Vietnamese exports / 84% tariff lines – 65% value of EU exports / 49% tariff lines

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EVFTA – Service commitments beyond GATS

• Improvements in financial services, in particular insurance • Securities • Banking • Elimination of Economic Needs Test on retail outlets in 5

years • Improvements on maritime services including feedering for

one route • Repositioning of empty containers • Dredging services • Certain air transport services

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EVFTA – Government procurement

• Vietnam has taken over close to 90% of disciplines or the revised Agreement of Government Procurement (GPA rules)

• Access to public procurement markets covering ministries, state-owned enterprises, provinces and regions

• Vietnam will create a web portal and publish summary or notices in English

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EVFTA – Benefits for Vietnam • Vietnam’s annual economic expansions rate may grow an additional 15%

every year (said Tomaso Andreatta, representative of the European Business Association in Vietnam (EuroCham), at the Vietnam Business Forum 2014)

• Tariffs for most of Vietnamese export product to the EU will gradually reduce to 0% and Vietnam’s export to EU is expected to grow about 35% for next few years

• The real wages of skilled laborers may increase by up to 12% while real salary of common workers may rise by 13%

• The EVFTA is the legal framework for a more stable relationship in bilateral trade for Vietnam when competing in the international market

• The EVFTA will generate greater effects, e.g. increased quality of investment flows from EU, acceleration of the process of sharing expertise and transfer of green technology and the creation of more employment activities

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TRANS-PACIFIC PARTNERSHIP

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How is the TPP Different? • The TPP is the most ambitious FTA: an annual gross domestic

product of nearly $28 trillion that represents roughly 40 percent of global GDP and one-third of world trade

• The TPP is being touted as a “high-standard agreement” meaning “a landmark, 21st-century trade agreement, setting a new standard for global trade and incorporating next-generation issues”

• The TPP negotiations are taking place across twenty-nine chapters and as part of a single undertaking.

• So-called "key elements" including the notion of comprehensive market access, a fully regional agreement, cross-cutting issues (regulatory coherence, competiveness and business facilitation, small and medium sized enterprises, and development), new trade challenges (particularly rules on state owned enterprises); as well as, finally, the notion of a living agreement. 34

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How is the TPP Different? TPP with 30 chapters covering: • Competition, • Cooperation and capacity building, cross-border services, • Customs, • E-commerce, Environment, • Financial services, Government procurement, • Intellectual property, investment, labour, Legal issues, • Market access for goods, Rules of origin, • Sanitary and phytosanitary standards (SPS), Technical barriers to trade

(TBT), • Telecommunications, Temporary entry, • Textiles and apparel, and • Trade remedies.

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How is the TPP Different? • In terms of international treaty commitments in areas that have thus far

eluded multilateral trade rules, the TPP seems to harbor the prospect of a new textual template that will set the tone in both the Transatlantic Trade and Investment Partnership currently getting started between the EU and the US, as well as - further down the road - future trade and investment agreements.

• These “new” areas include the following: – Regulatory coherence, – State-owned enterprises, – Government procurement, – Competition, – Investment, – E-commerce, – Environment and – Labour.

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How is the TPP different?

• In areas that have long been part or were recently brought within the purview of multilateral trade rules, the TPP seems to promise more far-reaching commitments with regard to contracting parties‘ policy space and regulatory autonomy, particularly in policy areas such as: – Export taxes and restrictions, – Subsidies, – Sanitary and phytosanitary measures, – Technical barriers to trade, – Trade in services, – Intellectual property rights.

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Government procurement agreement • 3 out of 11 TPP negotiating countries are parties to the WTO

Government Procurement Agreement (Singapore, Japan and the United States)

• Allows all firm operating in any signatory country to be provided equal access as domestic firms to the domestic procurement contracts (National Treatment principle).

• The United States is the biggest trading partner of Vietnam Vietnam enterprises operating in the United States have significant access

and equal treatment as the U.S. firms in the government procurement process.

• TPP is a stepping stone for Vietnam to become party to the WTO GPA increase competition, enhance the efficiency and transparency of the government procurement system VN to attract more foreign investment and avoid corruption.

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Investor-state dispute settlement (ISDS) • Through binding arbitration, including for violations of the investment

and financial services chapters. • ISDS provisions are expected to include protections commonly found in

investment agreements such as non-discrimination; fair and equitable treatment; full protection and security; the prohibition of expropriation that is not for public purpose, without due process, or without compensation; the free transfer of funds related to investments; and the freedom to appoint senior management positions regardless of nationality.

• Expected new protections in the TPP: – Transparency in arbitral proceedings, disclosure of filings and arbitral awards, and

participation of interested non-disputing parties to make amicus curiae submissions to a tribunal

– Safeguards to ensure government’s ability to regulate in the public interest (public health, safety and the environment)

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HOW WILL TPP BENEFIT VIETNAM?

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How will TPP benefit Vietnam? • Vietnam will enjoy strong economic and trade expansion. Vietnam’s

GDP would add an additional increase of 13.6% to the baseline scenario.

• Vietnam is expected to gain significantly from the TPP’s considerable plans for tariff and duty reduction

• Vietnam’s export will enjoy the agreement’s great benefits when the US and Japan are one of the biggest partners of Vietnam, especially the garment and textiles sector

• Export to the US would increase by 13-20% a year until 2017, fetching total export of US$25-30 billions

• The foreign businesses are planning to enter Vietnam in preparation for a post-TPP business climate. 41

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How will TPP benefit Vietnam?

• FDI inflows grow • Improving agricultural yield: maximising yields on

existing lands and utilizing unusable / idle land by new deployed technology

• Reducing power and waters needs that are retarding growth and GDP plans

• More sophisticated joining of separate business sections to integrate into new profit streams

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TPP and AEC intersection

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Thailand

Malaysia

Brunei

Canada Australia

Cambodia

Indonesia Myanmar

Peru

Philippines

Japan

Laos

Mexico New Zealand

Singapore

The United States

Vietnam

Chile

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Come and invest in Vietnam now!!!

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Questions & Answers

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DUANE MORRIS VIETNAM LLC

Thank you very much!

HANOI OFFICE HO CHI MINH CITY OFFICE Pacific Place, Unit V1307/08, 13th Floor, Suite 1503/04, Saigon Tower 83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1 Hanoi, Vietnam Ho Chi Minh City, Vietnam Tel.: +84 4 39462200 Tel.: +84 8 3824 0240 Fax: +84 4 3946 1311 Fax: +84 8 3824 0241

Contact email:

[email protected]

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Vietnam - New Investment Law, The TPP, AEC, EVFTA and Star Trek: Scotti: Beam Vietnam Up

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Transcript of Vietnam - New Investment Law, The TPP, AEC, EVFTA and Star Trek: Scotti: Beam Vietnam Up