Vietnam's Investment Attraction Policy Facing the Trend of Forming Free Trade Agreements in Asia

Implement the investment license registration regime; diversify investment forms and methods of mobilizing foreign investment capital ...

ASEM Asia-Europe Investment Promotion Action Plan (IPAP)

Over the years, Vietnam has actively participated in all activities of this Forum, including the implementation of the Asia-Europe Investment Promotion Action Program (IPAP) and “Best Practices for Attracting FDI” as an initiative to restore FDI activities in the region during and after the economic crisis. The overall goal of IPAP is to build a favorable investment environment to increase two-way investment flows between Asia and Europe, implement cooperation programs to promote investment among members, and strengthen measures to improve investment mechanisms, policies and regulations in the region. Within the framework of IPAP, members have been implementing the Program to improve investment policies and regulations to create a high-level dialogue forum on policies to improve the investment environment towards implementing the principle of non-binding investment with the main content being national treatment; removing restrictions related to transferring capital and profits abroad; provide fair and equitable treatment in accordance with the principles of international law in cases of expropriation or confiscation of investments for public purposes; remove restrictions on trade in goods of investment projects in accordance with the provisions of the TRIMs Agreement; implement an investment dispute settlement mechanism in accordance with international principles and practices; increase the signing of agreements to avoid double taxation among members ...

In addition to the above-mentioned international treaties and forums, in recent times, Vietnam has signed dozens of double taxation avoidance agreements, joined the Convention on the Establishment of the Multilateral Investment Guarantee Agency (MIGA) and the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

2.4. Commitments on Investment within the framework of WTO

Currently, the WTO has many agreements with clear regulations on the fields of agriculture, textiles, intellectual property, tariffs, financial services, air transport, etc. However, in the field of investment, the WTO has not yet agreed to turn investment issues into an investment agreement, comprehensively addressing investment issues. As a result, when the Uruguay Round of negotiations ended, an investment agreement was signed, the Agreement on Trade-Related Investment Measures (TRIMs). However, the scope of this agreement is only the legal mechanism regulating the commercial activities of investment projects and does not comprehensively address all investment issues.

The main content of the TRIMs agreement is to require countries to eliminate investment measures that hinder trade. The scope of application of the Agreement is the trade in goods activities of foreign direct investment enterprises. The main objective of the agreement is to eliminate the negative impact of investment measures on trade in goods, creating conditions to promote trade liberalization and FDI. Accordingly, member countries are not allowed to apply any investment measures that are contrary to the obligation to provide national treatment (Article III) and eliminate quantitative restrictions (Article XI) of GATT 1994.

Table 8: Prohibited measures under the TRIMs agreement

Measure

Content

1. Requirement of localization ratio ( violation of Article III.4, GATT 1994 )

Foreign enterprises purchase or use products originating domestically or from a domestic source, whether such requirement is determined on a product-by-product basis, by quantity or value of products, or by a percentage of the volume or value of output of products.

business output

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2. Requirement of trade balance ( violation of Article III.4)

and XI.1, GATT 1994)

Foreign enterprises are only allowed to purchase or use imported products limited to a total calculated by the volume or value of domestic products that the enterprise exports.

3. Restrictions on foreign exchange transactions ( violation of Article XI.1, GATT 1994)

Restrict foreign enterprises from importing products for use in or related to their production by limiting their access to and use of foreign exchange to a certain extent relative to their sources of income.

This company's foreign exchange

4. Export restrictions ( violation of Article XI.1, GATT 1994 )

Restricting foreign enterprises from exporting or selling for export products in the form of specific products or quantity or value of products or according to a proportion of the quantity or value of domestic production output of

business

Implementing the TRIMs Agreement is a requirement of all regional and world economic organizations and forums that Vietnam has or is in the process of negotiating to join. Within the framework of WTO accession negotiations, Vietnam has committed to:

- Eliminate mandatory requirements stipulated in the Investment License on implementing the localization program for projects on manufacturing and assembling automobiles, motorbikes, and mechanical, electrical, and electronic products.

- Eliminate the mandatory requirement for investment associated with the development of domestic raw materials for FDI projects processing products: milk, vegetable oil, sugar cane, wood specified in the List of conditional investment sectors issued with Decree 24/2000/ND-CP.

- Eliminate import tax incentives based on localization rates for enterprises manufacturing and assembling mechanical, electrical, electronic products and auto parts as stipulated in Joint Circular No. 176/1998/TTLT. Do not re-apply measures contrary to the provisions of the TRIMs Agreement.

Apart from the above investment commitments, Vietnam has not yet participated in any BFTA, and the FTAs between ASEAN and its partners China and Korea are only FTAs on trade in goods and services. However, in order to promote investment and establish a competitive, free, favorable and transparent investment regime, China and ASEAN countries have agreed to: (i) Conduct negotiations to actively liberalize the investment regime; (ii) Strengthen investment cooperation, and improve the transparency of investment regulations and rules;

(iii) Provide an investment protection mechanism. (Article 5, Framework Agreement on ASEAN-China Comprehensive Economic Cooperation). Currently, ASEAN and China are negotiating an investment FTA. In the future, when an investment FTA between ASEAN and China is formed, Vietnam will also need to adjust its investment attraction policy to comply with those commitments.

3. Vietnam's investment attraction policy in the face of the trend of forming free trade agreements in Asia - Pacific

The wave of FTA signing is taking place strongly in the Asia-Pacific region, especially in Vietnam's main investment partners such as the US, China, Korea, Japan, Singapore ... This has had a great impact on Vietnam's investment attraction when Vietnam's major partners shift their investment to member countries of the BFTAs with these countries. The FTA trend has created momentum for Vietnam to adjust its investment attraction policy. In recent years, stemming from changes in the awareness and views of the Party and State towards the sector with foreign investment capital and Vietnam's commitments on foreign investment, Vietnam has made adjustments to its investment attraction policy to create a competitive investment environment.

compete with the trend of signing FTAs taking place like a storm in the Asia - Pacific region. The general trend of adjusting policies to attract foreign investment is to increasingly expand rights, create more favorable conditions for foreign investors and narrow the gap between domestic and foreign investors. Adjusting policies to attract investment has contributed to creating an attractive investment environment, creating significant changes in attracting foreign investment in Vietnam in recent times.

3.1. Policies related to foreign investment promotion

To attract capital, investment mobilization and promotion play an important role in attracting foreign investment. In Vietnam, foreign investment promotion activities are carried out at three different levels. The Ministry of Planning and Investment is responsible for drafting and promulgating policies related to foreign investment and the whole country. The Department of Planning and Investment implements investment policies issued by the Ministry of Planning and Investment and manages investment activities in each province and the Management Board of Industrial Parks and Export Processing Zones manages investment activities in each industrial park and export processing zone located in each province. All three agencies are state management agencies and perform other functions besides investment promotion.

However, in reality, the organizational structure of the Ministry of Planning and Investment does not have a specialized department for investment promotion; the activities of each investment promotion agency are unclear and inconsistent. This has affected the overall investment promotion strategy at the national level and led to a lack of close coordination between central and local agencies. In addition, Vietnam's investment promotion policy is still very passive, focusing on propaganda, laws and policies that lack unified direction and coordination from the central focal agency. Direct investment promotion activities in some countries, regions and through Vietnam's trade diplomatic representative agencies abroad are currently limited due to lack of funding and staff. In particular, funding for public services

Investment mobilization activities have not been allocated from the state budget. Another factor is that the list of projects calling for foreign investment capital has not taken into account the specific needs and conditions of investors. These limitations in investment promotion are one of the reasons why attracting foreign investment capital in the period 2001-2005 grew slowly, not fully exploiting the available resources of localities.

Since 2006, the Party and the State have changed their perception and implementation of FDI promotion. That is the close coordination between ministries, branches, and provincial People's Committees in organizing domestic investment promotion activities and paying attention to the work of mobilizing FDI promotion abroad. Instead of the previous situation where investors came to us, now we must proactively plan effective investment promotion based on the suitability of each locality and each type of enterprise. Directive 15/2007/CT-TTg dated June 22, 2007 on a number of key solutions to promote FDI in Vietnam has specified investment promotion activities as follows:

- Complete the announcement of the National List of Projects calling for Foreign Investment for the period 2006-2010 towards 2020 (with a period of 2002-2010). Develop an investment mobilization program in key areas and potential transnational corporations; focus on supporting industries of some sectors (manufacturing, assembly, textiles, footwear) and socio-economic infrastructure. Continue to review, update and supplement the list of projects calling for investment in accordance with the needs and development plans of the sector and locality.

- Issue regulations on the development and implementation of the National Investment Promotion Program for the 2007-2010 period to ensure funding for investment promotion activities associated with trade and tourism promotion. Urgently adjust the objectives, mechanisms and organization of the activities of the Export Support Fund (established under Decision No. 195/1999/QD-TTg dated September 27, 1999 of the Prime Minister) in accordance with WTO principles and current laws. Step up propaganda and promotion of Vietnam's image, combining business trips of

high-ranking leaders of the Party and State with investment promotion activities; well-organized seminars at home and abroad; improved the quality of investment promotion documents and electronic information pages on FDI. Well-organized "Vietnam Days Abroad".

- Strengthen investment mobilization delegations to work directly with large corporations in key locations abroad to call for investment in large and important projects. Proactively approach and effectively support potential investors who want to invest in Vietnam.

- Urgently establish investment promotion departments in some key locations abroad. Develop regulations for close coordination between investment promotion, trade promotion and tourism promotion agencies at all levels, both domestically and overseas, to synchronize and improve the effectiveness of these activities.

In recent times, Vietnam has paid attention to establishing the Foreign Investment Promotion Department in some key areas to guide, participate in and support Vietnam's investment promotion activities in the host country; introduce the situation, capabilities and investment cooperation needs of the host country to Vietnamese agencies, organizations and enterprises. On May 9, 2007, in Notice No. 103/TB-VPCP of the Government Office, the Prime Minister agreed to establish the Investment Promotion Department in some key areas such as Japan, the US, Germany, France, Korea, Singapore, Saudi Arabia, Qatar and Taiwan. Of which, Japan is given priority to have 2-3 active positions; the US has 2 positions; the remaining areas each have 1 position [34].

In addition, Vietnam has also opened an investment promotion fund to support investment activities. According to information from the Foreign Investment Agency (Ministry of Planning and Investment), in 2008, the budget for the National Investment Promotion Program was determined to be 22.5 billion VND. This fund will be used to implement investment promotion programs approved in the National Investment Promotion Program in 2008. Implementation will begin on January 1, 2008.

Investment methods will also be changed in the direction of mobilizing investment according to key projects and partners, approaching and mobilizing large companies and corporations with financial and high-tech capabilities to invest in Vietnam in accordance with the general direction. In addition, regulations on coordination and implementation of investment promotion units in some key areas will also be issued, in order to strengthen coordination in investment promotion between central and local levels [35].

3.2. Policies related to state management of foreign investment activities in Vietnam

3.2.1. Granting licenses for the establishment of foreign-invested companies and investment projects

State agency issuing Investment Certificate

Before the Investment Law 2005 was promulgated, the state agencies that issued investment licenses were the Ministry of Planning and Investment and the provincial People's Committees. The issuance of investment licenses for projects in industrial parks, export processing zones, and high-tech zones was carried out under the authorization mechanism of the Ministry of Planning and Investment. This regulation lacks consistency and creates a cumbersome management apparatus. The Ministry of Planning and Investment takes on too many responsibilities (even the issuance of investment licenses), making it difficult to focus on effectively implementing its policy-making, forecasting, inspection, and supervision functions. Furthermore, the provincial People's Committees and industrial parks, export processing zones, and high-tech zones are the agencies that directly manage investment activities and understand the characteristics of their localities, so they are not allowed to participate much in the issuance of investment licenses.

In response to the requirements of international economic integration, the 2005 Investment Law was enacted to meet the need for a more compact, faster and more efficient issuance of Investment Certificates. The new point of the 2005 Investment Law is the strong decentralization of authority to provincial investment management agencies to issue Investment Certificates as well as manage investment activities. These are: Provincial People's Committees and Management Boards of Industrial Parks, Export Processing Zones, High-Tech Parks, and Economic Zones. Vietnamese law specifically stipulates (in Articles 37, 38, 39 of Decree

Vietnam's Investment Attraction Policy Facing the Trend of Forming Free Trade Agreements in Asia - Pacific

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