New-generation FTAs offer FDI firms more rights in Vietnam

New-generation FTAs offer FDI firms more rights in Vietnam

Though Vietnam has more opportunities to promote exports thanks to tariff reduction in new-generation free trade agreements (FTA), the country, in return, also has to offer foreign invested enterprises more rights under the deals’ commitments.

Vietnam is one of the countries with the most FTAs in the world. It has signed a total of 17 trade deals, of which 10 have become effective, 2 have been signed but are yet to take effect, while negotiations have concluded on 2 deals and are on the way for three others.

The FTAs has opened the door wider for Vietnamese goods to enter foreign markets, helping the country improve trade balance with its trade partners.

According to Ngo Chung Khanh, deputy head of the Multilateral Trade Policy Department under the Ministry of Industry and Trade, before the signing of the deals, 60-70 percent of the Vietnamese firms had business relations with those in East Asia. However, they suffered heavy losses, resulting in trade deficit of nearly US$70 billion in 2007.

The situation has been improved as free trade pacts help set up sound trade ties with other regions and they serve as a boon for local products to break in into foreign markets. While Vietnam exported only US$5.4 billion worth of products in 1995, it gained US$48 billion from shipments in 2007 and the figure hit US$213 billion in 2017.

However, to get the rise, Vietnam, in return, also has to open door wider for foreign traders and investors with preferential treatments according to commitments of the deals.

According to Le Quoc Phuong, former deputy director of the Ministry of Industry and Trade’s Industry and Trade Information Center, under new-generation FTAs, such as the EU-Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the rights of foreign investors will be greater while the power of the government will reduce.

Accordingly, Phuong said, when foreign firms invest in Vietnam, they can sue the government at international courts if they see the Vietnamese laws impose limitations that affect on them and do not accord with the deals’ commitments. After then, if the firms win the lawsuits, the government must pay compensation.

PPP projects

Notably, in public-private-partnership (PPP) projects, Vietnam will be bound by its commitments in the Government Procurement chapter in the CPTPP and the EVFTA, including procedures to carry out a tender and in what specific circumstances the government must call for a public tender.

According to Oliver Massmann, general director of Duane Morris Vietnam LLC, under the commitments, foreign investors have the opportunity to participate in procurement by Vietnamese government entities and challenge the government if it does not grant them the opportunity to do so in qualified circumstances.

The CPTPP and the EVFTA both make a list of government entities and agencies whose procurement of particular goods and services at a particular amount must be subject to public tender, Massmann said, adding that the deals make it possible for foreign investors to sue the Vietnamese government for its tender decisions according to the dispute settlement by arbitration rules.

The violating party must take all necessary measures to promptly comply with the arbitral decision. In case of non-compliance, as in the WTO, the CPTPP and the EVFTA allow temporary remedies (compensation) at the request of the complaining party, Massmann said.

According to experts, new-generation FTAs also pay attention to fairness, which forces Vietnam to act to improve domestic business environment towards fair treatment between state-owned and private enterprises.

The trade deals also assist with efforts to improve infrastructure, push forward administrative reforms and remove market obstacles.

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