The dark side of foreign direct investment in Vietnam

high so that workers either have to work overtime to achieve or cannot achieve and use that as a basis for salary deductions, bonus exemptions, failure to sign labor contracts according to the provisions of law, failure to publicize payroll or failure to make contributions to social insurance and health insurance for workers. According to survey data from the Institute of Workers and Trade Unions, Vietnam General Confederation of Labor in some localities with many FDI enterprises such as Ho Chi Minh City, Hanoi, Dong Nai, Binh Duong, Ba Ria-Vung Tau, Vinh Phuc, Bac Ninh and Hai Duong: only about 74% of workers in foreign-invested enterprises (FDI) have stable jobs, 22% do not have stable jobs and 4% are underemployed. Only 16.6% of workers in FDI enterprises feel comfortable at work. 26.3% of workers said they have a good relationship with their employers. 44.4% of workers said that businesses pay low wages, not enough to live on. 15.4% of workers are upset about having to work overtime and increase their hours regularly (Thanh Nien Newspaper, December 2007).

Thus, strikes most often occur in joint ventures, where the foreign parties are often small and medium-sized enterprises, and even in multinational companies (up to 4/5 of FDI enterprises are TNCs). The reasons for the current strike situation are:

Firstly , due to low wages, poor material and spiritual life and working conditions of workers:

As we know, in the early years of entering the market economy, especially from 1991 onwards, the demand for jobs was still very high compared to the massive shift of labor from rural areas to large cities, while industrial zones had not yet appeared much. That situation caused the price of labor (wages) to remain low, but workers still had to accept it. However, at that time, the general living standard of society was also much lower than today, so the

The living, eating and travelling conditions of workers have not yet become pressing. Therefore, workers still accept that salary level.

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In addition, in many places, workers' working hours are extended beyond the legal limit of 4-5 hours/day. Low wages, high labor intensity, long working hours, but their lives are not taken care of: poor quality meals, insufficient drinking water, harsh management... Also at the Hue Phong company mentioned above, workers were fined 20,000 VND right at the meal if they "cut in line" to receive rice. Here, each meal including rest time is only 45 minutes, if working overtime on a day, it is only 30 minutes. Yet 600 people have to wait for each other under the close supervision of Taiwanese management experts. 600 people waiting for each other for 45 minutes, there will definitely be someone who has to go back to work because he is standing at the end of the line even though it is not his turn yet (Family and Society Newspaper, No. 93, 2000). That situation gave rise to many pressing issues among workers. That conflict, if not resolved, inevitably led to strikes.

Along with the issue of wages, working conditions, the working environment as well as the safety of workers are slowly improving: noise, dust, protective clothing... Efforts in inspection and education on labor protection, although applied in practice, only have a very small effect in reducing the severity of the situation. Working conditions of FDI enterprises are still a very pressing issue. This is also the underlying cause leading to discontent among workers, potentially leading to strikes.

In addition to the above problems, there are some problems directly related to the living conditions of workers, namely housing. Most families and poor workers still have to live in cramped apartments. It is worth noting that the majority of workers in industrial zones do not have housing, because they are workers from other provinces and cities. These people all have to give up a part of their salary.

There are already very few people who can afford to rent a house. They call it a house but in reality they are just small, hot, humid rooms without any amenities to ensure the health of the workers. In contrast to that image are the luxurious villas with full amenities of the business owners. That situation has created a mood of being on the run and being discouraged among the workers.

Second , it is due to weak grassroots trade union organizations. Through the above surveys, it can be seen that the relationship between employees and employers in FDI enterprises is not really harmonious in terms of rights and interests. Meanwhile, the voice of trade unions in FDI enterprises is not strong enough. Through the investigation, the rate of workers joining trade unions in those FDI enterprises establishing grassroots trade unions is only 59.3%, a low rate compared to the general rate of other types of enterprises. In particular, when asked whether they want to join a trade union or not, only 28.3% of workers in FDI enterprises affirmed "yes"; 5.9% said "no" and 53% of workers did not answer. Perhaps that is why in many enterprises, collective labor agreements seem to be "forgotten". Only 50% of enterprises have collective labor agreements. And in particular, although there is a collective labor agreement, according to the survey team's assessment, this is just a form of excuse, the content of the agreement is just a rigid copy of the provisions of the law, with very few provisions that are higher on the rights of employees. In fact, up to 10.3% of employees do not know whether the company they are working for has an agreement or not.

Most of the strikes taking place across the country, especially in the FDI economic sector, are illegal strikes, without unions but all originate from reasonable grounds. That raises the question of where the unions stand? The unions have one of three functions: to represent and protect the legitimate rights and interests of workers. But in the current mechanism, in many places, especially in

In FDI enterprises, the function of the trade union is blurred. A survey by the Institute of Social Sciences in October 2008 at 24 FDI enterprises showed that only 16% of workers felt that the trade union had a role in resolving labor disputes. The reason is due to the mechanism, first of all, there is no mechanism to protect the rights of trade union officials. If the union president leads a strike, they will immediately be fired by the employer, lose their job without anyone standing up to protect them. There have been many cases where trade union officials have just "moved" to submit a petition demanding workers' rights but have been neutralized.

Third , the majority of workers are young, from rural areas, do not have industrial working style, low education level, skills, and legal knowledge. The survey shows that currently only more than 20% of the workforce at FDI enterprises have been trained. Of which, 13.3% have received vocational training; 4.4% have graduated from vocational high school; 4.8% have graduated from university or college. Moreover, the gap in the rate of trained workers between regions is also quite large: due to limited skills, understanding of policies and laws, they are easily provoked and enticed to participate in strikes when their interests such as wages, bonuses, and working conditions are affected.

It can be affirmed that strike is the last resort, the last weapon of struggle that workers must use; because they always have to race against time to find a job, to have a stable job and income. Strike also means facing being fired, losing a job, losing food and clothing for themselves and their families, so workers have to do it only when they are at their wits' end.

e. The phenomenon of transfer pricing in FDI enterprises is quite common.

Transfer pricing is understood as the implementation of pricing policies for goods, services and assets transferred between members of a group across borders.

not at market price to minimize the tax of multinational companies (Multi Nations Company) globally.

Thus, transfer pricing is an act carried out by business entities to change the exchange value of goods and services in relations with related parties. The main object of that act is price.

Transfer pricing occurs almost everywhere in multinational companies. In Vietnam, transfer pricing is manifested through: over-declaring the value of contributed capital assets; purchasing raw materials and input production factors at high prices; and tax evasion. Specifically:

- Declaring increased value of contributed capital assets : A fairly common phenomenon in FDI enterprises is that when contributing capital to participate in joint ventures, foreign parties often declare increased value of contributed capital in the form of machinery, equipment, and technology values many times higher than the actual value.

- Buying raw materials and other input production factors at high prices : Subsidiaries in the multinational corporation system buy raw materials and other input production factors at prices set by the company, much higher than the actual price. Therefore, in case the subsidiary makes a loss, the parent company is not affected much. This is beneficial for investors but harmful to Vietnam.

- Tax evasion , FDI enterprises have taken advantage of loopholes in state management, using fraudulent trade tricks, fraudulent accounting to make enterprises lose money on accounting books and make profits in reality. This is a phenomenon of "virtual loss" that foreign investors take advantage of to evade taxes for the purpose of illegal profit in Vietnam.

Some FDI enterprises belonging to branches of multinational companies have taken advantage of loopholes in state management to transfer pricing by "making losses for subsidiaries and profits for parent companies" through raising input prices and lowering output prices.

to take advantage of the difference from the outside, commit commercial fraud, evade taxes, and take advantage of monopoly to raise product prices higher than the prices of similar imported goods.

Recently, the phenomenon of business losses has appeared more and more in FDI enterprises. Typically: 12 out of 43 approved construction joint ventures had to declare dissolution before the deadline; 15 out of 31 remaining joint ventures are operating at a loss, especially joint ventures with large losses, continuously from 1997 to the present. This situation has forced the Ministry of Construction to intervene. However, it is difficult to resolve the huge losses. The losses of 2 joint ventures that have been "taken care of" quite carefully since the project establishment, construction, and operation of Vietnam Cement Corporation, Sao Mai Joint Venture Company (VND 224 billion), Nghi Son Cement Joint Venture (VND 207 billion loss) are explained as "due to the first year of production, they had to suffer large losses". However, since then, the losses have continued. West Lake International Company had a loss of 545 billion VND in 2000, of which 211 billion VND was lost in 2000 alone. The joint venture company Vuon Bac Thu Do Hotel in 4 years lost 34.7 billion VND, of which 6.4 billion VND was lost in 2000 alone.

According to the General Department of Taxation, through a recent survey on the production and business situation of foreign direct investment enterprises nationwide, of the total number of FDI enterprises conducting production and business, the number of enterprises reporting profits and paying corporate income tax accounted for 31.7%; the remaining number is in the process of tax exemption according to the Law, has not made a profit or reported a loss. Typically, Nomura Industrial Park Development Company lost about 337 million VND, followed by Daeha Joint Venture Company with 120 million VND and Theater Hotel with a loss of 105 million VND...

The objective cause of losses, according to economic experts, is primarily due to FDI enterprises having large investment capital, so costs related to management, salaries, service contracts and management with foreign countries are all high. There are even cases of joint ventures losing money.

large, long-term, but the Vietnamese side does not have the financial capacity to "bear" the large loss to continue the joint venture, so they have to "swallow the bitter pill" and switch to the model of a 100% foreign-owned enterprise for the partner. After that, the enterprise continues to exist, develop and do profitable business!

Subjectively, in the production and business process, those FDI enterprises spend too much on brand promotion programs, consulting fees, management and protection of ownership rights... regardless of losses. Regarding this issue, according to the General Department of Taxation's calculations, most enterprises exceed the control level of 5-7% of total expenses on advertising and promotion. That is why, many times the Ministry of Finance has warned about the reality that not only do businesses (subsidiaries) fail to capture the market for their parent company in Vietnam, they accept to sell at a price lower than the cost price and increase promotions and advertising to attract customers, causing unhealthy competition between FDI enterprises and domestic enterprises. In addition to the above "superficial" reasons, there is also an equally important issue that has been debated a lot, which is the capital contribution ratio in joint ventures... Normally, for projects in some fields with the potential for sustainable development and high profitability, the Vietnamese side only contributes to the joint venture with real estate, but accounts for a proportion of the total investment capital... In addition, when participating in a joint venture, due to the limited management level of the Vietnamese side, the joint venture is actually often under the management and operation of the On the foreign side, as well as on the Vietnamese side, it is actually only used to do foreign affairs with state management agencies... Therefore, the Vietnamese side does not fully grasp the production and business situation of the enterprise; leading to the situation where the partner in the joint venture reports a loss, and the Vietnamese side is helpless.

In addition, according to the analysis of tax experts at the General Department of Taxation, due to the advantage in capital and management level of the Vietnamese side in the joint venture, it leads to the situation of shifting the basket in favor of foreign partners, which is currently common in FDI enterprises. For example, in the case of enterprises declaring increased prices of imported raw materials for production, but the Vietnamese side does not have enough information about the market to compete with foreign parties to achieve reasonable import prices; similarly, when exporting goods, in some fields, usually the parent companies of subsidiaries in Vietnam often purchase the products, but pay at low prices... causing FDI enterprises (subsidiaries) to not make a profit, leading to a loss situation...

(This is essentially just a drama to turn a joint venture company into a 100% foreign-owned enterprise and also a drama of "complaining" of joint venture enterprises to state management agencies to enjoy preferential tariffs, and in fact, that profit lies neatly in the pocket of the parent company abroad).

And although, in fact, not only the Vietnamese side in the joint venture discovered the above trick of the partner, but also the state management agencies also knew but had to give up. It turns out that, from a legal perspective, according to the opinion of the General Department of Taxation, currently in the Tax Law and other related laws, tax agencies are not allowed to request enterprises to declare and provide information related to companies associated with FDI enterprises, or information on the prices of goods signed in sales contracts to be able to compare with the market. Therefore, transfer pricing significantly reduces Vietnam's budget revenue.

The above analysis allows us to affirm that we should not be too optimistic about the rapid growth of FDI capital in Vietnam, but need to see the second side of the problem. If we look at the allocation of capital, we can see that they do not aim for a long time as we think, sometimes they only see Vietnam.

The dark side of foreign direct investment in Vietnam - 11

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