Investment Climate 2017

Policies Towards Foreign Direct Investment

Foreign invested companies continue to play an important role in the economy. According to the GSO, FDI accounted for 71.5 percent of total exports in 2016 (up from 47 percent in 2000), while the contribution from foreign companies towards the overall GDP increased to 18 percent from 13 percent over the same period.

Strong FDI inflows continued due to improvements in business environment. Vietnam’s ranking in the World Bank’s 2017 Doing Business Report improved by 9 places, to 82 out of 190 economies due to tax payment reforms and the establishment of an electronic customs clearance system which facilitated cross-border trade. Due to low labor costs, openness to trade, and an advantageous geographic location, FDI was a driver for Vietnam’s strong trade and economic performance according to the World Bank’s 2016 Taking Stock Report. In 2016, according to fDi Intelligence (a division of the Financial Times), Vietnam attracted over six times more new investment capital than expected given its share of global output. Vietnam far outperformed regional competitors, including Malaysia, Thailand, and China, in this metric.

The government continues to focus on attracting foreign investment, especially in sectors that will facilitate technology transfer, increase skill sets in the labor market, and improve the labor productivity. Vietnam seeks to attract FDI projects in high-tech, high value-added industries and supporting sectors with good environment safeguards as the country strives to move up the global supply chain.

Vietnam‘s legal reforms related to the business climate also facilitate FDI inflows. Specifically, the 2016 Provincial Competiveness Index (PCI), which ranks provinces by transparency and business facilitation, sited several changes to regulations for registering a business that made it much easier for foreign companies to enter the market. Notably, Decree 78 issued in November 2015, expanded online business registration, greatly reduced the required business registration documents, and reduced the time to issue the Enterprise Registration Certificate (ERC) from five days to three. In addition, the 2014 Investment Law and the follow-up legislation in July 2015 allowed investors to participate in all sectors except six related to national security, and an additional 267 provisional sectors. Finally, it is easier for existing operations to shift into non-prohibited or restricted business activities not listed in their ERC than in the past. As a result, the PCI study found that 90 percent of businesses were able to obtain all required documents to start legally operating within three months, and over 40 percent within one month.

While there are no laws discriminating against foreign investors, the government continues to support domestic companies through various incentives. Although regulations are drafted very carefully to avoid conflicts and violations of signed bilateral or international agreements, in reality, U.S. investors do not feel there is a level playing field in all sectors. In the 2017 Perceptions of the Business Environment Report, by the Hanoi Chapter of the American Chamber of Commerce, the Chamber stated succinctly: “Whether a result of corruption, protectionism, or the government trying to pick winners and losers, our members often see areas where inconsistencies, inefficiencies, and unfair practices persist. We believe that it is vital that laws and rules are enforced fairly and equally. Better results in this area will improve the trust that people have in their decision makers.”

The Ministry of Planning and Investment (MPI) oversees an Investment Promotion Department to facilitate all foreign investments, and most of the provinces and cities also have investment promotion agencies. The agencies provide information, explain regulations, and offers support to investors when requested.

The biannual Vietnam Business Forum allows for a direct dialogue between the foreign business community and government officials. The U.S. ASEAN Business Council (USABC) hosts a yearly visit by many of the biggest U.S. companies to engage directly with senior government officials. The government maintains frequent dialogue with foreign investors, and is proactive in meeting with U.S. companies to resolve issues.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own a business except in six prohibited business lines, such as drug, wild life trading, prostitution etc., and 243 conditional sectors.

Foreign investors must negotiate on a case-by-case basis with the government on market access in sectors that are not explicitly open through a trade or investment agreement. The government occasionally issues investment licenses on a pilot basis with time limits or to specifically targeted investors.

Foreign owners are permitted to acquire full ownership of local companies except when mentioned otherwise in Vietnam’s international and bilateral commitments. Moreover, most foreign ownership limitations in the service sectors specified under Vietnam’s World Trade Organization (WTO) commitments have been removed. However, there is a 25 percent cap on foreign investment in local banks from one foreign entity, and a 30 percent cap on overall foreign investment in local banks. The Prime Minister can waive these caps on a case-by-case basis. There are also limits to foreign ownership established by the government in state-owned enterprises (SOEs).

The dominant restrictions are equity caps, mandatory domestic joint venture partner and investment prohibition. Such restrictions are publicly stated in signed international agreements. For example, highly specialized and sensitive sectors such as banking, telecommunication, and transportation still maintain foreign ownership restrictions as specified in the Vietnam’s WTO commitments. Vietnam also prohibits importation of old equipment and technologies which are more than 10 years old. However, there are exceptions in some special cases.

Merger and acquisition (M&A) activities can be tricky if a domestic company is operating in a restricted or prohibited sector. For example, when a foreign investor buys into a local company through an M&A transaction, it is difficult to determine which business lines the acquired company is allowed to maintain.

Vietnamese authorities evaluate investment license applications using a number of criteria, including: 1) investor’s legal status and financial capabilities; 2) the project’s compatibility with the government’s “Master Plan” for economic and social development and projected revenue; 3) technology and expertise; 4) environmental protection; 5) plans for land use and land clearance compensation; 6) project incentives including tax rates, and 7) land, water, and sea surface rental fees.

The decentralization of licensing authority to provincial authorities has, in some cases, streamlined the licensing process and reduced processing times. It has also, however, given rise to considerable regional differences in procedures and interpretations of investment laws and regulations. Insufficient guidelines and unclear regulations can prompt local authorities to consult national authorities, resulting in additional delays. Furthermore, the approval process is often much longer than the timeframe mandated by law. Many U.S. firms have invested successfully, though a lack of transparency in the procedure for obtaining a business license can make investing riskier.

Investment projects that must be approved by the National Assembly include those that:

Vietnam maintains trade relations with 200 countries, and has 61 bilateral investment treaties and 21 treaties with investment provisions. In 2016, Vietnam exported $176 billion, an increase of 8.6 percent from 2015. Fueling Vietnam’s exports is a continued focus on further integration in the global economy. While the U.S. withdrawal from TPP slows Vietnam’s global economic integration plans, the country has made headway with other agreements. For example, the Korea-Vietnam Free Trade Agreement (FTA), which came into effect in 2016, was estimated to increase Vietnam’s 2016 exports to South Korea by 29 percent to $11.4 billion. In addition, in 2016 the Vietnam-Russia and the Eurasian Economic Union (EAEU) FTA boosted Vietnam exports to the EAEU by 20 percent to USD $1.6 billion. Moreover, Vietnam and the EU have concluded negotiations on the EU-Vietnam FTA, which is pending review and approval from both sides. Vietnam is negotiating Regional Comprehensive Economic Partnership (RCEP) agreement. A full list of agreements Vietnam has signed can be accessed through the UNCTAD website.

The U.S. and Vietnam concluded and signed the Double Taxation Avoidance Agreement (DTA) in 2016, and the agreement is expected to be presented to the U.S. Congress for ratification in 2017.

There are no systematic tax disputes between the government and foreign investors. However, an increasing number of U.S. companies are having to dispute tax audits that retroactively tax companies. These cases stem from Vietnam’s continued fiscal deficits and the need to find sources to fill the revenue gap left from falling tariffs and falling oil revenues. These tax cases against U.S. companies can obscure the true risks of operating in Vietnam and give some U.S. investors pause when deciding whether to expand operations.

Transparency of the Regulatory System

The 2016 PCI report found that regulatory risks were the primary concern for foreign companies investing in Vietnam. The two biggest issues cited were the amount of time complying with business regulations (taxes, social insurance, and customs procedures) and the high number of regulatory inspections in 2016. The American Chamber of Commerce (AmCham), in a report on the business environment released in March 2017, noted that AmCham members face significant challenges with inconsistent regulatory interpretation, irregular enforcement, and unclear laws. The report also noted that a survey of AmCham members in the Association of Southeast Asian Nations (ASEAN) region found that more than in any other ASEAN country, American companies perceive a lack of fair enforcement of laws in Vietnam, which heavily impacts their ability to do business in the country.

The PCI report also found that a significant issue facing companies is post-entry regulations (regulations businesses face after they start operations). Time spent complying with business regulations (taxes, social insurance, and customs procedures) and regulatory inspections were found to be the two biggest burdens. All regulatory processes are done by the government and there are no informal regulatory processes managed by NGOs or private sector associates.

Laws are approved by the national assembly, and ministries draft circulars in order to implement laws. Regulatory authority exists in both the central and provincial government, and foreign companies are bound by both central and provincial government authority. Vietnam has its own accounting standards to which publicly listed companies are required to adhere to.

The Law on the Promulgation of Legal Normative Documents requires all legal documents and agreements to be published online for comments for 60 days, and published in the Official Gazette before implementation. Business associations and various chambers of commerce regularly comment on draft laws and regulations. However, when issuing more detailed implementing guidelines, government entities sometimes issue circulars without public notification or with little advance warning or opportunity for comment by affected parties. In several cases, authorities just receive comments for the first draft and make subsequent draft versions unavailable to the public. The centralized online location where key regulatory actions are published can be found here online.

The Ministry of Justice (MOJ) is in charge of ensuring that government ministries and agencies follow administrative processes. The Ministry has a Regulatory Management Department, which oversees and reviews legal documents after they are issued to ensure they comply with the whole legal system.

Over the course of 2016 and early 2017, the government issued three primary resolutions to improve the business environment, increase national competitiveness and productivity, and reform the economic growth model.

Investment Incentives

Foreign investors are exempt from import duties on goods imported for their own use and which cannot be procured locally, including: machinery, vehicles, components and spare parts for machinery and equipment, raw materials, inputs for manufacturing, and construction materials that cannot be produced domestically. Remote and mountainous provinces are allowed to provide additional tax breaks and other incentives to prospective investors.

In addition, projects in the following areas are entitled to investment incentives such as lower corporate income tax, exemption of import tariffs, or land rental: high-tech; research and development; new materials; energy; clean energy; renewable energy; energy saving products; automobile; software; waste treatment and management; primary or vocational education; or projects located in remote areas or industrial zones.

Vietnam promotes foreign investment in certain priority sectors, and geographic regions that are remote or underdeveloped. The government encourages investment in the production of new materials; new energy sources; metallurgy and chemical industries; manufacturing of high-tech products; biotechnology; information technology; mechanical engineering; agricultural; fishery and forestry production; salt production; generation of new plant varieties and animal species; ecology and environmental protection; research and development; knowledge-based services; processing and manufacturing; labor-intensive projects (using 5,000 or more full-time laborers); infrastructure projects; education; training; and health and sports development.

Foreign Trade Zones/Free Ports/Trade Facilitation

In recent years, Vietnam has prioritized efforts to establish free trade zones (FTZs). Vietnam currently has approximately 300 industrial zones (IZs) and export processing zones (EPZs). Many foreign investors note that it is easier to implement projects in industrial zones because they do not have to be involved in site clearance and infrastructure construction, and enterprises pay no duties when importing raw materials if the end products are exported. Customs warehouse keepers in FTZs can provide transportation services and act as distributors for the goods deposited. Additional services relating to customs declaration, appraisal, insurance, reprocessing, or packaging, require the approval of the provincial customs office. In practice, the time involved for clearance and delivery can be lengthy and unpredictable.

Most import or export pending goods can be deposited in bonded warehouses under the supervision of the provincial customs office. Exceptions include goods prohibited from import or export, Vietnamese-made goods with fraudulent trademarks or labels, goods of unknown origin, and goods dangerous or harmful to the public or environment. The inbound warehouse leasing contract must be registered with the customs bond unit at least 24 hours prior to the arrival of goods at the port. Documents required are a notarized copy of authorization of the holder to receive the goods, a notarized copy of the warehouse lease contract, the bill of lading, a certificate of origin, a packing list, and customs declaration forms. Owners of the goods pay import or export tax when the goods are removed from the bonded warehouse.

Performance and Data Localization Requirements

Vietnam does not mandate that businesses hire local workers, including for senior management roles or on the board of directors. However, companies must prove that efforts to hire suitable local employees were unsuccessful before recruiting foreigners. That rule does not apply to members of the board who are elected by shareholders or capital contributors.

On February 3, 2016, the government issued Decree No.11/2016/ND-CP (Decree 11), guiding a number of articles of the Labor Code on foreigners working in Vietnam. Decree 11 will take effect on April 1, 2016 and replace Decree No. 102/2013/ND-CP (Decree 102) and Resolution No. 47/NQ-CP (Resolution 47) of the government dated July 8, 2014. Decree 11 proposes major changes, many of which represent positive developments from the viewpoint of the business community, including changes to the conditions, paperwork, and timeline for work permit applications and exemptions. The most prominent feature of this decree is to clarify that the requirement for a work permit or an exemption certificate does not apply to foreigners coming to work for less than 30 days and whose cumulative working time does not exceed 90 days in a year.

Another encouraging aspect of Decree 11, is that it extends the timeframe for lodging the re-issuance of work permits. Accordingly, work permit re-issuance applications will be accepted from 45 days prior to the expiry date, instead of the 15 days as per current regulations. Hence, foreigners have sufficient time to renew visas or obtain residence cards after the granting of the new work permit. The simplified terms of eligibility for work permits for individuals who have been previously granted such documents in Vietnam was welcomed by the business community.

The government does not have a forced localization policy per se, but strongly encourages foreign investors to use domestic contents in goods and technology. In the automotive industry, Circular 14/2015/TT-BKHDT includes a list of products (with Harmonized System (HS) codes) already produced in Vietnam that will be applied high import tax rates to protect domestic production. The Circular applies high import tax rates to bus spare parts (that have not been produced in Vietnam). Because all of these spare parts (for buses and cars) have the same HS codes, the higher import taxes will impact foreign car manufacturers in Vietnam. These higher import tax rates that will increase import component costs appears designed to entice foreign auto manufacturers to locally source component parts.

When Vietnam joined the WTO in 2007, it established minimum commitments on market access for U.S. goods and services, as well as treatment for Vietnamese and foreign companies. Vietnam undertook commitments on goods (tariffs, quotas, and ceilings on agricultural subsidies) and services (provisions of access to foreign service providers and related conditions). It has also committed to implementing agreements on intellectual property (Trade-Related Aspects of Intellectual Property Rights Agreement), customs valuation, technical barriers to trade, sanitary and phytosanitary measures, importing licensing provisions, anti-dumping and countervailing measures, and rules of origin.

As part of its WTO accession, Vietnam also committed to the removal of performance requirements that are inconsistent with the agreement on Trade-Related Investment Measures (TRIMs). The 2014 Investment Law specifically prohibits the following requirements: giving priority to the purchase or use of domestic goods or services; compulsory purchase of goods or services from a specific domestic firm; export of goods or services at a fixed percentage; restricting the quantity, value or type of goods or services that may be exported or that may be sourced domestically; fixing import goods at the same quantity and value as goods exported; requirements to achieve certain local content ratios in manufacturing goods; stipulated levels or values on research and development activities; supplying goods or services in a particular location; or mandating the establishment of head offices in a particular location.

The list of high-tech products that are given investment priority is updated on an ad hoc basis, and companies investing in research and development for items on the list are entitled to the highest tax incentives and may be eligible for funding from the National High Tech Development Program. Companies that develop infrastructure for high tech parks will also receive land incentives.

In 2016, MIC issued Circular 38/2016/TT-BTTT on Cross-border provision of General Information. While the circular does not require localization of servers, it requires offshore service providers with a large number of users in Vietnam to comply with local content restrictions. Circular No. 38 is one of the implementing circulars of Decree No. 72/2013/ND-CP on the management, provision, and use of internet services and online information. Specific requirements under Circular No. 38 apply to an offshore entity that provides cross-border public information into Vietnam (including websites, social networks, online applications, search engines and other similar forms of services and (a) has more than one million hits from Vietnam per month or (b) leases a data center to store digital information in Vietnam in order to provide its services. The offshore service providers have to comply with Vietnam’s content requirements by providing contact information to the MIC and cooperate with the authority on taking down information that is illegal according to Decree 72. There are no requirements that foreign IT providers have to turn over source code and/or provide access to encryption.

There are no measures that prevent or unduly impede companies from freely transmitting customer or other business-related data outside of Vietnam. Recently issued circular 38/2016/TT-BTTT permits cross-border provision of public information (applicable for various websites and social networks that provide information to the public) with no local server requirements. The only requirement for foreign providers is point of contact information, and cooperation with the government on content takedown.

For online gaming, Vietnam has no international commitments in this area and does not permit cross-border online gaming. Therefore, the gaming providers tend to establish a joint venture with a Vietnamese company and locate one server in Vietnam. Regarding financial data localization, Circular 31 requires backup information, but does not impede cross-border data flows.

The Ministry of Information and Communications (MIC) is the lead agency for administrative enforcement of cyber-related regulations, including data storage requirements. The Ministry of Public Security’s cyber division may also get involved if there is a suspected criminal violation of data storage rules. MIC’s Decree 72/2013 on Management, Provision, and Use of Internet Services and Information Content Online, which came into effect on September 1, 2013, is the primary legal document establishing data storage requirements.

Decree 72 requires all organizations establishing “general websites,” or social networks and companies providing online gaming services or services across mobile networks to maintain at least one server in Vietnam. It also establishes requirements on the type of data that these companies must store (personally identifiable information of users, user activity logs, etc.) but it is unclear if that information must be stored on a local server.

Real Property

State protection of property rights is still evolving, as the state can expropriate land for socio-economic development. Under the new Housing Law and Real Estate Business Law passed by the National Assembly in November 2014, land can only be taken if it is deemed necessary for social-economic development in the public or national interest, and is approved by the Prime Minister or the National Assembly, as well as the Provincial People’s Council. However, ‘socio-economic’ development is loosely defined, and there are many outstanding legal disputes between land owners and local authorities. Disputes over land rights continue to be a significant driver of social protest in Vietnam. Foreign investors also may be exposed to land disputes through M&A activities when they buy into a local company.

Real estate rights are divided into collective land ownership by the government, and land-use and building rights, which can be held privately. All land in Vietnam is collectively owned and managed by the state, and as such neither foreigners nor Vietnamese nationals can own land. The majority of land in Vietnam (94.5 percent) has been issued a land use rights certificate. Vietnam is building a national land registration database, and some localities have already digitized their land records.

In addition to land, collective property includes “forests, rivers and lakes, water supplies, wealth lying underground or coming from the sea, the continental shelf and the air, the funds and property invested by the government in enterprises and works in all branches and fields - the economy, culture, society, science, technology, external relations, national defense, security - and all other property determined by law as belonging to the State.”

The new Housing Law and Real Estate Business Law extended “land-use rights” to foreign investors, allowing title holders to conduct real estate transactions, including mortgages. Foreign investors can lease land for renewable periods of 50 years, and up to 70 years in some poor areas of the country.

Some investors have encountered difficulties amending investment licenses to expand operations onto land adjoining existing facilities. Investors also note that local authorities may intend to increase requirements for land-use rights when current rights must be renewed, particularly in instances when the investment in question competes with Vietnamese companies.

According to the Ministry of Planning and Investment, as of December 2015, 94.5 percent of land use rights certificates had been issued. If land is not used, according to the land use rights certificate, or if unoccupied, it will revert back to the government.

Intellectual Property Rights

The legal basis for intellectual property rights (IPR) includes the 2005 Civil Code, the 2005 Intellectual Property Law as amended in 2009, and implementing regulations and decrees. Vietnam has joined the Paris Convention on Industrial Property and the Berne Convention on Copyright and has worked to meet its commitments under these international treaties. In 2009, Vietnam revised the Intellectual Property (IP) Law and IP-related provisions in the Criminal Code with respect to criminal penalties for certain acts of IPR infringement or piracy. However, enforcement agencies still lack clarity in how to impose criminal penalties on IPR violators and continue to wait for further implementing guidelines. In 2015, Vietnam continued to revise the Penal Code related to criminalization of IP crimes. Because its implementation was delayed, it led to the delay of the implementation of criminal penalties for certain IPR violations.

Although Vietnam has made progress in establishing a legal framework for IPR protection, significant problems remain and new challenges are emerging. The country remains on the Special 301 Watch List. In 2016, Vietnam had mixed results in its efforts to protect IPR. Vietnam’s continued integration with the global economic community, through its efforts to meet obligations set out in the terms of the TPP and the European Union-Vietnam Free Trade Agreement, were seen as harbingers of positive change. Nevertheless, infringement and piracy remained commonplace, and the impact of digital piracy and increasing prevalence of counterfeit goods sold online continued to undermine the IPR environment. The increasingly sophisticated capabilities of domestic counterfeiters, coupled with developing smuggling routes through Vietnam’s porous borders, were also worrisome trends.

The number of entities involved in IPR enforcement in Vietnam is also problematic, with nine different ministries and agencies responsible for protection and enforcement. Additionally, the roles and power of these ministries and agencies varies widely.

An example of IPR actions include Ministry of Science and Technology (MOST) inspectors which, in coordination with the Ministry of Public Security, carried out 46 inspections in 2016, seizures included of counterfeit Nokia devices, bottled water, Energizer batteries, and apparel bearing U.S. brands.

In 2016, NOIP reported receiving 58,217 cases and processing 38,872 cases in 2016, increases of 14.2 percent and 9.9 percent over 2015, respectively. A breakdown of applications received by NOIP is attached. That same year, Vietnam Customs received 60 inspection requests related to 181 IPR suspected infringements. The total value of seized infringing goods reached $150,000 and all the infringing goods were destroyed. The Copyright Office of Vietnam (COV) handled 31 copyright-related complaints (nearly a 50 percent decrease from 2015). Moreover, the COV reported that it issued 6,540 copyright certificates in 2016, a 17 percent increase from the previous year.

Most often, authorities use administrative actions such as warnings and fines to enforce IPR protection because they are less demanding on enforcement time and resources. The U.S. government has conducted training for enforcement agencies, prosecutors and judges. Some businesses and rights holders have started to assert their rights under the law more forcefully. One positive sign is the growth of Collective Management Organizations (CMO), particularly for the music and publishing industries. Vietnam’s most successful CMO, the Vietnam Center for the Protection of Musical Copyrights (VCPMC), boasts a membership of over 90 percent of Vietnam’s music composers and collected nearly $3 million in royalties on behalf of its members in 2016. However, the ability of other CMOs to protect their members’ IP and collect royalties on their behalf, remains weak. In recent years, the government pledged, but only partially implemented a plan to rid government offices of pirated software.

Vietnamese enforcement bodies have investigated, and in some cases raided and fined, businesses suspected of using pirated software. Even still, Vietnam still has one of the highest rates of online piracy in the world (over 80 percent in 2013). Rights holders continue to seek additional enforcement actions against websites containing infringing digital content. To date, however, very little enforcement action has been taken to punish or prevent digital and internet piracy.

Substantial compensation for IPR violations is only available under the civil remedies section of the IP Law. Vietnam has yet to establish specialized IP courts, and knowledge on IP issues within the judiciary remains low. Significant improvements are still needed, but legal experts are optimistic that the court system is slowly improving its ability to handle civil IP cases. Criminal offenses are prosecuted under the Criminal Code, and criminal proceedings are regulated under the Criminal Procedure Code. In practice, criminal prosecutions are rarely used to address IPR violations.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

During 2016, the government issued the following IPR-related legislation:

Capital Markets and Portfolio Investment

Challenges to raising capital domestically include insufficient transparency in Vietnam’s financial markets and non-compliance with internationally accepted accounting standards. While the government has acknowledged the need to strengthen both the capital and debt markets, there has been no substantial progress, leaving the banking sector as the primary capital source for Vietnamese companies.

Vietnam has two stock exchanges: the Ho Chi Minh City Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX). As of March 2017, 326 stocks were listed on the HOSE with total market capitalization of approximately USD $74 billion, and 381 companies were listed on the HNX with total market capitalization of approximately USD $7.3 billion. The present market capitalization of the combined exchanges accounts for approximately 39 percent of Vietnam’s GDP, and the State Securities Commission (SSC) has made a strategic plan for it to reach 70 percent by 2020. A trading floor for unlisted public companies (UPCOM) was launched at the Hanoi Securities Center in 2009. As of March 2017, 493 companies were listed on UPCOM, with total market capitalization of approximately USD $19.4 billion. Government bonds are traded on the HNX. UPCOM is important because equitized SOEs list first on the UPCOM (due to lower transparency requirements) before moving to an exchange. In October 2016, Prime Minister Nguyen Xuan Phuc decided to merge the two exchanges into the Vietnam Stock Exchange (VNX), which should be complete by late 2017. Morgan Stanley Capital International (MSCI) still classifies Vietnam as a Frontier Market, which still precludes some of the world’s biggest asset managers from investing in its stock markets. The government, along with the SSC and the HOSE, is working to meet the criteria necessary to attain “emerging market” status and attract greater foreign capital inflows.

While the government has tried to direct banks to loan to domestic small and medium enterprises (SMEs), they have little ability to direct where private banks choose to deploy capital. In addition, much of the credit is flowing into the real estate sector. At the end of 2016, the Central Bank, the State Bank of Vietnam (SBV) directed credit institutions to restrict lending to the real estate sector over concerns that credit was concentrating in the sector.

Vietnam complies with IMF Article VIII. The government notified the International Monetary Fund (IMF) that it accepted the obligations of Article VIII, Sections 2, 3 and 4 effective November 8, 2005.

Loan rates are relatively high due to banks charging a higher interest rate on new loans in order to service existing non-performing loans (NPLs). The domestic sector has difficulty accessing resources for several reasons. As domestic companies’ accounting standards are low, credit is granted based on collateral such as equipment. However, collecting the collateral when a company defaults is very difficult, so small and medium sized companies have little access to banking credit.

Money and Banking System

The percentage of Vietnamese that are underbanked or do not have bank accounts is estimated by SBV, to be around 70 to 80 percent of the total population. The low penetration rate is due in part to an inherent distrust of the banking sector, the engrained habit of holding assets in foreign currency and gold, and limited use of financial technology tools.

SBV’s actions in the wake of the global economic downturn in 2008, such as injecting cash into banks, arresting bank CEOs, merging weaker banks with stronger banks, and taking over three failed banks, have resulted in a more stable banking sector. Despite the reforms, Vietnam’s banking sector continues to be concentrated at the top and fragmented at the bottom. State-owned or majority state-owned banks accounted for 45 percent of total assets and 35 percent of equity capital in the banking sector by the end of 2016. Vietnam’s 28 joint stock commercial banks are all smaller than the state-owned commercial banks, but are gradually gaining market share, and the government has an ambitious plan to reduce the number of private banks to between 15 and 17 by the end of 2017.

Despite progress on reducing NPLs, most domestic banks remain under-capitalized and have high NPL levels that continue to drag on economic growth. By law, banks must maintain a minimum chartered capital of VND3 trillion (roughly USD $134 million). The SBV continues to underreport the level of NPLs, and accurate data is not available. Other issues in the banking sector include state-directed lending by state-owned commercial banks, cross-ownership and related-party lending under non-commercial criteria, and preferential loans to SOEs that crowd out credit to SMEs.

In 2016, the SBV for the first time allowed a joint venture bank (VID Public Bank) between Vietnam’s Bank for Investment and Development and Malaysia’s Public Bank Berhad to convert to a 100 percent foreign owned company. Following the conversion, it was renamed the Public Bank of Vietnam, and received a license in March, 2016. In addition, the government granted a license to CIMB Bank (Vietnam) and Woori Bank in August and November 2016 respectively, to join the five fully existing foreign-owned banks in Vietnam, namely HSBC, ANZ, Standard Chartered, Shinhan and Hong Leong, making a total of eight fully-owned foreign banks currently operating in Vietnam. HSBC became the first fully-owned foreign bank licensed to operate in Vietnam in 2009.

Currently, the ceiling for total foreign ownership in a Vietnamese bank remains at 30 percent, with a 5 percent limit for non-strategic individual investors, a 15 percent limit for non-strategic institutional investors, and a 20 percent limit for strategic institutional partners. In early 2017, Vietnam’s Prime Minister promised to increase the limits of foreign ownership in local banks to quicken the overhaul of Vietnam’s banking system and further lure overseas investment to boost economic growth, though he did not specify the new ceiling. Prudential measures and regulations apply the same to domestic and foreign banks.

Regarding correspondent banking, we are unaware of any lost correspondent banking relationships in the past three years. After the SBV's take-over of the three failing banks (Ocean Bank, Construction Bank and GP Bank), and placement of Dong A Bank under special supervision, correspondent banking relationships with these banks may have been limited.

There are no restrictions on a foreigner’s ability to open a bank account.

Foreign Exchange and Remittances

Foreign Exchange

Exporters must remit all foreign currency earnings into a foreign currency account with an authorized credit institution in Vietnam. Retaining foreign currency earnings overseas requires SBV approval. Any resident or institution permitted to conduct offshore investment must open a foreign currency account at an authorized credit institution and register the account with the SBV.

Currency transfers are protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement, which is available online. Funds associated with any form of investment cannot be freely converted into any world currency. As part of its efforts to de-dollarize the economy, the government issued Decree 70 in 2014, to prohibit foreigners (residents and non-residents) from holding foreign currency denominated savings accounts. Foreigners are still allowed to have checking and investment accounts in any foreign currency and Vietnamese Dong (previously foreigners were only allowed to have U.S. dollar investment accounts).

The SBV has adopted a new mechanism to determine the interbank reference exchange rate. In order to provide flexibility in responding to exchange rate volatility, the SBV now announces the interbank reference exchange rate daily. The rate is determined based on the previous day’s average interbank exchange rates, taking into account movements in the currencies of Vietnam’s major trading and investment partners.

Remittance Policies

Vietnam allows foreign businesses to remit profits, capital contributions, and other legal investment activity revenues in hard currency. There are no time constraints on remittances and no limitations on the inflow or outflow of funds for remittances of profits or revenue. However, outward foreign currency transactions require certain supporting documents (such as audited financial statements, import/foreign service procurement contracts and proof of tax obligation fulfillment, and approval of the SBV on loan contracts etc.). Foreign investors cannot remit through a legal parallel market, including utilizing convertible, negotiable instruments.

Vietnam is a member of the Asia-Pacific Group (APG), which assesses the implementation of anti-money laundering and counter-terrorist financing (AML/CFT) measures in Vietnam. While Vietnam is mostly technically compliant with the 2012 Financial Action Task Force’s (FATF) AML/CFT standards, and is not one of the FATF blacklisted countries, over the last year it has not demonstrated effectiveness in reducing AML/CFT. This could become an issue during the next country assessment in early 2019.

Sovereign Wealth Funds

The State Capital Investment Corporation (SCIC) technically qualifies as a sovereign wealth fund (SWF), as the SCIC has a mandate to invest dividends and proceeds from privatization in assets outside of the state-owned sector. However, the SCIC does not manage or invest balance of payment surpluses, official foreign currency operations, government transfer payments, fiscal surpluses, or surpluses from resource exports.

The primary mandate of SCIC is to manage the non-privatized portion of state-owned enterprises. According to the SCIC website, the SCIC currently manages a portfolio of over 500 enterprises that operate in various sectors, including: financial service, energy, manufacturing, telecommunications, transportation, consumer products, health care, and information technology. The SCIC invests 100 percent in Vietnam, and the SCIC’s investment of dividends and divestment proceeds does not appear to have any ramifications for U.S. investors. The SCIC budget is reasonably transparent, audited, and can be found here online. In addition, the SCIC is working towards becoming a member of the IMF-hosted International Working Group on SWF’s.

According to the 2014 Law on Enterprises, an SOE is defined as an enterprise in which the state holds 100 percent of its equity, a definition that does not follow international standards and obscures the true number of SOEs.

There are approximately 2,000 SOE’s where the state controls a majority interest, and 781 SOE’s where the state controls 100 percent. However, Vietnam does not publish a full list of SOEs. SOEs operate in most industries and areas, including those such as apparel, banking and mobile phone services where the private sector would operate more efficiently. However in 2016, the government issued Decision 58/2016/QD-TTg (Decision 58) that specifies the industries and areas in which the government will have wholly-owned and majority-owned enterprises The industries specified in Decision 58 included electricity distribution, airport management and operation, large-scale mineral mining, production of basic chemicals, and telecommunications services with network infrastructure, among others.

While SOEs have a board of directors, these boards are not independent, with centrally owned SOEs governed by government ministries and local SOEs governed by provincial governments. The government ministries and provincial governments have the right to appoint its staff sitting as member of the boards. In the SOEs where the government holds majority stake, the government ministries and provincial governments even have the right to appoint executive staff of the companies. While SOE senior officials do not typically retain their government positions, they still retain their links to the government, and may return to government service once they terminate their employment with the SOE.

SOEs do not operate on a level playing field with domestic companies and continue to benefit from preferential access to resources such as land, capital, and political largesse. Foreign firms are frustrated with preferential treatment for SOEs. The PCI report found 70 percent of foreign firms polled perceived SOE’s receive preferential treatment for access to resources – primarily land and capital. Foreign firms stated that preferential access to resources allowed SOE’s to expand into multiple sectors at the expense of foreign firms.

In 2015, the government issued Decree 81/2015/ND-CP in order to improve corporate governance and transparency. The decree requires SOEs to implement strict information disclosure procedures in accordance with listed company requirements. However, because there is no clear punishment for violations, SOEs have little incentive to follow the decree.

According to the World Bank, SOEs would benefit from a “modern corporate governance system that separates state ownership rights from regulatory functions and implements an objective and transparent mechanism for the selection of CEOs and board members.” The government framework for 100 percent owned SOEs is fragmented and incoherent, and the management of SOEs is not in line with sound corporate governance. Part of the issue is that the government does not have one ministry or agency that has oversight over all SOEs.

Privatization Program

Vietnam’s efforts to reform the SOE sector through selling all or a portion of SOE’s over the last 15 years has done little to change the SOE sector. As SOE sales have historically only transferred a nominal (2 to 3 percent) interest to the private sector, the process of selling of state-owned assets is termed equitization, not privatization. Case in point, while only 8 percent of state owned capital has been passed to the private investors, 92 percent are still in the government hands. Hence, SOEs’ capital structure has not been changed significantly.

During 2014-2015, the government’s target was to have 432 SOEs equitized but the government only achieved 60 percent of its goal. For 2016-2020, 103 SOEs will be rearranged and 137 SOEs will be equitized according to Decision 58. This plan is less ambitious but is not necessarily easier as the equitization procedures have not been adequate and comprehensive, and group interests are seen as the biggest obstacles to equitization. The targeted sectors for equitization are the industries and areas listed in the categories of over 65 percent, between 50 and 65 percent and less than 50 percent state ownership of Decision 58.

However, the historic lack of progress in reforming the SOE sector may change as the government is now more committed to SOE equitization due to budget pressures. First, the government can no longer fund inefficient SOE’s, which take in more revenue than they generate for the state. Second, the government is now using proceeds from equitizations to reduce the budget deficit. For example, in 2016 the government received an estimated USD $800 million in proceeds from equitizations and applied some of these funds to reduce the budget deficit. Also in July 2016, the government decided to wholly divest out of 10 large SOEs, including Vinamilk, the most heavily invested stock in frontier market funds, and Sabeco, which controls 47.5 percent of the beverages market.

Foreign investors can invest in equitized SOEs. The bidding process can be found online.

The government has issued regulations intended to protect the public from adverse business impacts in relation to labor rights, consumer protection, and environmental protection. However, the enforcement of these laws is weak. The new Enterprise Law allows shareholders to take court action against the management of a company and can nullify fully or partly a resolution of a shareholder general meeting through a court order or an arbitration decision. Companies are required to publish their corporate social responsibility activities, corporate governance work, information of related parties and transactions, and compensation of the management. Companies must also announce extraordinary circumstances such as changes to management, dissolution or establishment of subsidiaries within 36 hours of the event.

Most multinational companies implement Corporate Social Responsibility (CSR) programs that contribute to improving the business environment, and awareness of CSR programs is increasing among domestic companies. However, currently only the largest Vietnamese companies have CSR programs. The Vietnam Business Forum (VCCI), which is the Vietnam Chamber of Commerce, conducts CSR training and has a website dedicated to these efforts. In addition, the American Chamber of Commerce started a CSR group that organizes events and activities to raise awareness of social issues.

Overall, the government has not defined responsible business conduct (RBC), nor has it established a national plan or agenda for RBC. The government has yet to establish a national contact point or ombudsman for stakeholders to get information or raise concerns about RBC. In order to improve RBC efforts, the 2016 report by Transparency International found that Vietnam should “develop and ensure the enforcement of regulations requiring companies to do business with ethics and social responsibilities, creating an environment that enables and protects companies doing business with integrity.”

Given the significant presence of multinational corporations in the garment manufacturing sector, there are a large number of labor-related codes of conduct and other similar initiatives designed to ensure that working conditions and workers’ rights in factories producing clothes for U.S. or European markets meet certain minimal standards. One of the largest programs is Better Work Vietnam, which is implemented by the International Labor Organization (ILO). Better Work monitors garment producing factories’ compliance with international labor standards and national laws. The results of factory monitoring visits are made available to major brands and buyers, who can then use the information to help determine where they place their orders. Better Work also provides technical assistance to factories to help them improve their compliance with international labor standards. The program currently covers about 290 factories employing approximately 293,000 workers.

There are a small number of workers’ organizations that are not affiliated with the Vietnam Confederation of Labor (VGCL) which monitor working conditions and advocate for worker rights. Labor activists and representatives of independent (non-VGCL) workers’ organizations seeking to form unions separate from the VGCL or inform workers of their labor rights sometimes face government harassment, including being followed and detained by police.

For a detailed description of regulations on worker/labor rights in Vietnam, see the 2016 Department of State Human Rights Report.

In April 2016, a toxic spill from the Formosa Ha Tinh steel plant decimated fisheries across four central coastal provinces. In the process, millions of fishing communities lost their source of income. The local and central government came under considerable criticism which led to protests in Ho Chi Minh City, Hanoi, and in other cities across Vietnam. In the end, the government found Formosa Ha Tinh Steel Company culpable for the fish kill and issued a hefty fine. The incident was the first big test of the newly formed government. Following the incident, the government is more aware of how environmental issues can impact both the economy and political stability. The government has requested that the Ministry of Natural Resources and Environment (MONRE) review all environmental regulations in order to address any inconsistencies and to develop an effective legal framework to respond to environmental incidents. A report on these findings is required to be submitted to the Government by the end of 2017, which will lay the foundation for the revision of the current Law on Environmental Protection.

Environmental Protection

The government has issued many legal documents regulating the environment, including the revision of the Environmental Protection Law of 2014, Constitution of 2013, the Law on Water Resources of 2012, the Law on Fisheries of 2003, as well as hundreds of decrees and circulars that guide the implementation of these laws.

However, as with many areas, the practical enforcement of laws on environmental protection is inadequate. For example, the 2003 Law on Fisheries clearly stipulates that fishing organizations and individuals must follow set standards when catching fish, and prohibits the use of explosives and pulse fishing. However, in practice, violations of these regulations are quite common. Additionally, the Law on Environmental Protection regulates that entities, individuals, and households that discharge waste must classify the waste in order to recycle and reuse effectively. However, violations of this provision are rampant with a small percentage subject to penalties.

Enforcement of labor rights regulations

Enforcement of labor rights regulations remains low; and it is unclear how strict the government enforces provisions for wages, hours, and benefits or occupational safety and health restrictions, including in the informal economy. Enforcement has been irregular for many reasons, including low funding and a shortage of trained enforcement personnel. The VGCL has asserted that authorities do not always prosecute violations. The Ministry of Labor, Invalids, and Social Affairs (MOLISA) has acknowledged shortcomings in its labor inspection system and emphasized the number of labor inspectors countrywide is insufficient. Shortcomings include an insufficient number of labor inspector’s countrywide, fines that are too low to deter violations, corruption, and a lack of prosecution of violations.

The government developed a master plan between 2012 and 2013 to strengthen its labor inspectorate. The master plan aims to improve the enforcement of labor law by strengthening the organizational structure of the inspectorate, reforming inspection methodologies, investing in equipment for labor inspectors, and enhancing training for inspectors. The VGCL has stated, and MOLISA has acknowledged, that fines levied against firms for labor violations were too low to act as an effective deterrent against violations. Fines generally range from USD $48 to USD $4,800 depending on the offense.

Corporate Governance

The Law on Enterprises in theory regulates corporate governance in line with OECD corporate governance principles. However, according to Deputy Director of the Central Institute of Economic Management Mr. Phan Duc Hieu, “no company in Vietnam applies OECD corporate governance standards.” While that may be harsher than the reality, corporate governance in Vietnam ranks lower than Thailand, the Philippines and Indonesia.

While corporate governance for listed securities is fairly clear and transparent, enforcement of these rules on the Ho Chi Minh stock exchange is low. However, according to the Ho Chi Minh stock exchange, 182 out of 344 companies listed on the Hanoi stock exchange did not provide their point of contact to shareholders, 150 companies did not have internal policies to let shareholders approve transactions with related parties as required by law, and 50 percent of the companies were believed to not provide adequate information relating to board members or shareholders. Only 44 percent of the companies approved board and committee member’s compensation.

Extractive Industries Transparency Initiative

In 2016, Prime Minister Nguyen Xuan Phuc called on the MOIT to implement the Extractive Industries Transparency Initiative (EITI) in order to improve the efficiency of the minerals extraction industry. However, to date, Vietnam has not agreed to do so. Vietnam remains only an observer in EITI.

A study by the VCCI released in March 2017 on transparency in the mining sector, found issues with inaccurate financial disclosure, unreliable reports on mine reserves throughout the country, withholding information on development and adjustments to mining planning, especially at the provincial level.

As a result of low reported revenues, taxes from the mining sector accounted for just 1 percent of government revenues. Payments made to government for projects related to the commercial development of oil, natural gas, or minerals are not made public; only aggregate contributions to the state budget from oil and gas sector are published together. The VCCI study also found that a higher number of mining companies (12 percent) reported having to pay “unofficial fees” than in other industries. However, Decree 158/2016/ND-CP issued on November 29, 2016 and came into effect on January 15, 2017, provided guidelines for implementing the Mineral law and may improve transparency in the mining sector.

Transparency International’s 2016 Corruption Perception Index determined Vietnam had made positive steps to improving some areas of the legal framework and policies on anti-corruption. Specifically, it cited the government’s passing of the law on access to information, and the revision of the law on anti-corruption. However, ranking 113 out of 176 in the global index reflects the country’s continuing challenge fighting corruption and the ongoing risk that corruption poses.

Corruption is due, in large part, to a low level of transparency, accountability, and media freedom, as well as low pay for government officials and inadequate systems for holding officials accountable for their actions. Competition among agencies for control over business and investments has created overlapping jurisdictions and bureaucratic procedures that in turn create opportunities for corruption.

Vietnam’s 2005 Anti-Corruption Law requires that government officials declare their assets and sets strict penalties for corrupt practices. However, a government official speaking at a provincial anti-corruption United Nations Development Programme (UNDP) event in March 2017, said that asset declarations by government officials do not provide actual income and asset levels, and are not useful in fighting corruption.

The Government has tasked various agencies to deal with corruption, including the Central Steering Committee for Anti-Corruption (chaired by the General Secretary Nguyen Phu Trong), the Government Inspectorate, and line ministries and agencies. The Central Steering Committee for Anti-Corruption was formed in 2007 and since February 2013, has been under the CPV Central Commission of Internal Affairs.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Vietnam signed the UN Anticorruption Convention in December 2003 and ratified it in August 2009. According to the PCI report, 66 percent of enterprises have to pay informal charges which account for 10 percent of their revenue. The trend is increasing, with 25 percent of foreign invested enterprises admitted that they paid bribes when they attempted to acquire their investment licenses, and 13.6 percent paid bribes when competing for government contracts. The law does not cover family members of officials, but does cover ranking members of the Communist Party.

Public Procurement

According to local media reports in late 2016, conflict of interest concerns in public procurement took center stage during a National Assembly meeting on November 15, when Minister of Industry and Trade Tran Tuan Anh was asked about special interest groups influencing the approval and management of “megaprojects” that had adverse economic and environmental impacts. Also fueling outrage, a recent National Assembly report found that in 2014, 90 percent of engineering, procurement, and construction projects were awarded to Chinese companies.

However, in a signal that the new government is serious about reforming government procurement, PM Nguyen Xuan Phuc on July 13, 2016, approved a 10-year master plan for procurement. This will emphasize and promote online tendering, with the purpose of increasing transparency and reducing corruption opportunities. To this end, the government is working to roll out an e-bidding public procurement site in early 2018, which will supplement its existing e-procurement portal that provides information on public procurement laws and regulations.

Implications for the Private Sector

There are laws in place prohibiting companies from bribing public officials. While some private companies have internal controls, ethics, and compliance programs to detect and prevent bribery of government officials, the government does not require companies to establish internal codes of conduct.

The PCI report found that almost half (46 percent) of foreign companies cited corruption as their biggest challenge to doing business. The PCI report stated, “…Vietnam appears to rank even worse than every possible competitor when it comes to corruption and the regulatory burden. These weaknesses are broadly consistent with Vietnam’s performance on other international rankings.” AmCham concurred in its 2017 report on business environment perceptions: “The uncertainty caused by corruption continues to be a top business challenge faced by AmCham members. Corruption has become corrosive and widespread in Vietnam and is dangerous to the economy and society as a whole and can be a barrier between domestic and foreign partnerships.”

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

Mr. Phan Dinh Trac
Chairman, Communist Party Central Committee Internal Affairs
4 Nguyen Canh Chan
+84 0804-3557
Contact at NGO

Ms. Dao Thi Nga
Executive Director, Towards Transparency
12B Floor, Machinco Building, 444 Hoang Hoa Tham, Tay Ho, Hanoi
+84 (04) 3715-3532
DaoNga@towardstransparency.vn

Vietnam has a history of protests against perceived social, environmental, and labor injustices. In May 2014, Vietnam experienced some of the largest protests in history against China’s movement of Haiyang Shiyou Oil Rig 981 into Vietnam’s territorial waters. These anti-Chinese protests turned deadly at the Formosa Steel plant in Ha Tinh province, resulting in at least one death and dozens of injuries among the plant’s Chinese workers. Protesters separately destroyed and looted multiple foreign-owned factories.

In April 2016, after the Formosa Steel plant discharged toxic pollutants into the ocean and caused a massive fish death, affected fishermen and residents in central Vietnam began a series of regular protests against the company and the government’s lack of response to the disaster. Demonstrations also took place in multiple cities throughout May and June, but were largely suppressed by security forces. Despite Vietnam’s history of protests, the majority of protests are relatively small and have had little effect on the operations of U.S. companies.

According to the official government statistics, there are 71.5 million persons aged 15 and above in Vietnam, with 54.4 million participating in the labor force. The labor force is relatively young, with 15 to 39 year olds currently accounting for about half of the total labor force. Despite the strong shift towards urbanization, the majority of workers are still located in rural areas, making up 67.8 percent of the total labor force.

The official labor force participation rate is 76.7 percent of the total population, and the official unemployment and underemployment rates hover round 2 percent. These figures, however, likely under-report rates of unemployment and under-employment by counting people who have multiple, very low-paying informal jobs along with those with one formal job. The vast majority of under-employed workers (84.8 percent) are located in rural areas. The official unemployment rate among youth, defined as those between the ages of 15 and 24 years, is 7.9 percent, accounting for 55.3 percent of the total unemployed population.

While literacy rates, enrollment, and graduation rates for primary and secondary education are high, less than 20 percent of the employed population have ever attended college or received vocational training or mid-term professional training. Those who complete a post-secondary degree are often unprepared with the types of skills necessary to enter a highly-skilled workforce. Many Vietnamese companies report a shortage of workers with adequate skills. While there is a shortage of educated and skilled labor, Vietnam is a labor surplus country overall, with an un- and under-employed labor force that serves as an abundant source of migrant labor regionally as well as globally.

Minimum wage varies geographically. In 2016, the minimum wage for workers in businesses ranges from USD $157 to USD $107 monthly. Businesses in urban districts of Hanoi, Ho Chi Minh City, and neighboring areas are subject to a higher minimum wage.

Shortages or Surpluses of Specialized Labor Skills

According to ASEAN’s Human Capital Outlook 2016, Vietnam ranked 5^th in the Human Capital Index 2015 among nine ASEAN countries (after Singapore, the Philippines, Malaysia, and Thailand). Also according to this report, it is fairly difficult to find skilled labor in Vietnam. For example, over half the Singaporean workforce qualifies as skilled labor, while in Vietnam that ratio falls to one in ten.

Vietnam has the highest ratio of low-skilled labor in the region (over 40 percent), compared to 9 percent in Thailand and 8 percent in Singapore. The government is aware of the deficiencies in higher education and vocational training, and the need for reform in order to increase skillsets. To this end, the Law on Vocational Education took effect in 2015, and stressed the importance of vocational training in human resource development, as well as the government’s strategy for vocation education through 2020. In addition, the national employment fund, managed by the Ministry of Labor, Invalids and Social Affairs, will sponsor targeted vocational training programs for poor households, youth, members of the military, and entrepreneurs. Foreign nationals are restricted to employment in high-skilled professions, such as managers, executives, and consultants..

Layoffs and Unemployment Insurance

An employer is permitted to lay off employees due to: (1) Technological changes such as changes in part or all of the equipment, machinery or technology processes; (2) Changes in organizational structure, in cases of a merger, consolidation or cessation of operation of one or several departments or units, or where the employer faces difficulty in economic conditions. If these changes lead to the termination of two or more employees, the employer, in conjunction with the grassroots trade union, is required to form and implement a "labor usage plan". The termination of two or more employees on a lay off basis can be implemented only after consultation with the grassroots trade union and after the provincial labor authority has been served with a 30-day notice. The employer must pay a job-loss allowance for a retrenched employee who had regularly worked for the employer for at least 12 full months.

The job-loss allowance is equal to one month's salary for each year of service for the employer, but not less than two months' salary. The length of service for the purpose of calculating a job-loss allowance excludes months when the employee participated in the compulsory unemployment insurance. For this period, the job-loss allowance is paid by the Social Insurance Fund, not by the employer. Salary, for the purpose of calculating a job-loss allowance, is the average salary under the employment contract for the six months immediately preceding the job loss. After being layoff, the workers will be covered under the unemployment scheme if they contribute to the unemployment fund at least 12 months. There are no exceptions in labor requirements in order to attract investment in Vietnam.

Collective Bargaining

Chapter 5 of the Labor Code provides conditions for collective bargaining. Although collective bargaining is not a new concept in Vietnam, the quality of a collective bargaining agreement (CBA) is limited. Most CBAs are just copies of the law that do not include more stringent conditions. In 2015, Vietnam has approximately 25,400 CBAs accounting for 75 percent of the unionized enterprises. Vietnam is piloting the multi-employer CBAs in some industrial zones and sectoral CBA in textile sector.

Vietnam, through its participation in an industrial relations program with the ILO, has been piloting the concept of multi-employer CBAs in some industrial zones and sectoral CBAs in the textile sector. On June 19, 2016, the Hai Phong Economic Zone Trade Union and five Korean manufacturing enterprises based in Trang Due Economic Zone signed the country’s first multi-enterprise collective bargaining agreement negotiated between a group of foreign-invested enterprises and trade unions to decide basic conditions of work, including recognition of union rights. The agreement would likely benefit nearly 2,500 workers through improved recruitment and female worker policies, increased base wages, better bonuses, allowances, leave, and rest time as well as conditions for ensuring trade union operations in the enterprises.

Labor Dispute Resolution Mechanisms

The 2012 revised Labor Code introduced a process of mediation and arbitration for labor disputes. The law allows trade unions and employer organizations to facilitate and support collective bargaining, and requires companies to establish a mechanism to enable management, and the workforce to exchange information, and to consult on subjects that affect working conditions. Regulations require conducting workplace dialogues every three months.

The Labor Code stipulates that trade unions have the right and responsibility to organize and lead strikes, and it establishes certain substantive and procedural restrictions on strikes. Strikes that do not arise from a collective labor dispute or do not adhere to the process outlined by law are illegal. The law makes a distinction between “interest-based” (“a dispute arising out of the request of the workers’ collective on the establishment of a new working condition, … in the negotiation process between the workers’ collective and the employers”) and “rights-based” (“a dispute between the workers’ collective with the employer arising out of different interpretation and implementation of provisions of labor laws, collective bargaining agreements, internal working regulations, other lawful regulations and agreements”) disputes. In contravention of international standards, the law forbids strikes over “rights-based” disputes. This includes strikes arising out of economic and social policy measures that are not a part of a collective negotiation process, as they are both outside the law’s definition of protected “interest-based” strikes.

The Labor Code sets out an extensive and cumbersome process of mediation and arbitration before a lawful strike over an interest-based collective dispute may occur. Before workers may hold a strike, they must submit their claims through a process involving a conciliation council (or a district-level labor conciliator where no union is present). If the two parties do not reach a resolution, unions must submit claims to a provincial arbitration council. Unions (or workers’ representatives where no union is present) have the right either to appeal decisions of provincial arbitration councils to provincial people’s courts or to strike. Individual workers may take cases directly to the people’s court system, but in most cases they may do so only after conciliation has been attempted and failed. Vietnam is continues to revise the Labor Code and dispute resolution is also subject to change.

Strikes in Vietnam

The Vietnam General Confederation of Labor (VGCL) reported 168 strikes in 2016. However, all strikes are unofficial (due to the impracticality of a legal strike under Vietnamese labor law), making data reliability questionable. Approximately 61 percent of strikes took place in foreign invested enterprises (FIEs) and the remaining 39 percent in domestic private companies. The majority of strikes (76 percent) took place in Ho Chi Minh City and surrounding provinces where most FIEs are located, particularly in the garment, footwear, and furniture sectors. The government rarely takes direct action against “illegal” strikers, but has prosecuted independent labor organizers.

Gaps in Compliance in Law or Practice with International Labor Standards

Vietnam has been a member of the ILO since 1992, and has ratified five of the core ILO labor conventions (Conventions 100 and 111 on discrimination, Conventions 138 and 182 on child labor, and Convention 29 on forced labor). Vietnam has not ratified Convention 105 dealing with forced labor as a means of political coercion and discrimination or Conventions 87 and 98 on freedom of association and collective bargaining, although the government is currently taking steps toward ratification. Under the 1998 Declaration on Fundamental Principles and Rights at Work, however, all ILO members, including Vietnam, have pledged to respect and promote core ILO labor standards, including those regarding association, the right to organize and collective bargaining.

The constitution affords the right to association, but limits the exercise of these rights, including preventing workers from organizing or joining independent unions of their choice. The law requires every union to be under the legal purview and control of the country’s only trade union confederation, the VGCL. Since the VGCL answers directly to the Community Party’s Vietnam Fatherland Front, no trade unions are protected from government interference in or control over union activity.

A July 2015 report of the Better Work Vietnam program noted 62 percent of factories discriminated against or interfered in the activities of the trade union. Similarly, the data revealed that management staff continued to sit on trade union executive committees in approximately 45 percent of factories, which could undermine the function of the union as a legitimate representative voice for the workforce. At the same time, the report noted 7 percent of factories had cases of direct and overt management interference in union activities, and fewer still were found to have prevented workers from meeting without management present.

Vietnam’s legal framework on child labor appears generally in accordance with international standards; however, the Labor Code allows children under age 13 to work in “specific work regulated by the Ministry of Labour, Invalids and Social Affairs.” Since 2012, the U.S. Department of Labor’s List of Goods Produced by Child Labor or Forced Labor has included Vietnamese garments, produced with child labor and forced labor, and bricks, produced with child labor, in violation of international standards. Vietnamese garments are also included in a list of products produced by forced or indentured child labor under Executive Order 13126: Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labor. Based on the results of Vietnam’s National Child Labor Survey, in 2016, the U.S. Department of Labor included 14 additional goods produced by child labor in Vietnam to the List of Goods Produced by Child Labor or Forced Labor: cashews, coffee, fish, footwear, furniture, leather, pepper, rice, rubber, sugarcane, tea, textiles, timber, and tobacco.

The government has increasingly acknowledged the issue of child labor in recent years and is a participant in a five-year, USD $8 million dollar project implemented by the ILO to enhance national capacity to reduce and prevent child labor. The project targets three provinces and three sectors: garments (Ho Chi Minh City), agriculture and fisheries (An Giang), and handicrafts (Hanoi and Ho Chi Minh City).

The government is also in the process of enhancing its policy and regulatory framework for occupational safety and health (OSH). A new OSH law, passed in June 2015, extends OSH protections to all workers, including the informal economy, and includes the establishment of an injury compensation system for workers in the informal economy, which constitutes more than 60 percent of the workforce. The ILO is assisting the government with the drafting of implementing regulations for the new law and finalizing a national OSH program for 2016-2020.

New Labor Related Laws or Regulations

As Vietnam revises the 2012 labor code, significant changes, especially to industrial relations and workers’ organizations, are expected to be included in the revision, and it is expected to be considered for passage by the National Assembly in May 2018.

OPIC signed a bilateral agreement with Vietnam in 1998, and Vietnam joined the Multilateral Investment Guarantee Agency (MIGA) in 1995. In October 2016, former OPIC president Elizabeth Littlefield, visited Vietnam in order to develop private sector investment, and in January 2017, former Secretary of State John Kerry and former OPIC president Littlefield presented a letter of intent to Fulbright University of Vietnam.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Economic Officer
7 Lang Ha, Ba Dinh, Hanoi, Vietnam
+84-4-3850-5100
InvestmentClimateVN@state.gov