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Draft resolutions clarify WTO commitments   2008-10-01 - Vietnamnet

Since Viet Nam joined the World Trade Organisation (WTO) on January 11, 2007, many issues relating to the clarity and implementation of investment commitments have arisen.

The first big issue is that WTO commitments and domestic legislation provide different conditions for some business sectors – and are silent about some other business sectors. For instance, both sets of rules provide no guidance when foreign investors want to invest in multiple-sector projects subject to different business conditions and limits on foreign ownership.

Secondly, there are commitments in the WTO Schedule of Specific Commitments in Services ("Schedule in Services") that are more restrictive than domestic regulations, especially those for education, health, tourism and the environment. This could make foreign investors suspect the consistency of Viet Nam’s foreign-investment policy.

Thirdly, there are conflicts on investment conditions between WTO commitments and those in bilateral treaties that Viet Nam has signed. Commitments in some are less restrictive than WTO commitments.

To align WTO commitments with domestic legislation and bilateral treaties, the Government has submitted to the Standing Committee of the National Assembly resolutions on the application of some commitments on investment with the WTO ("Draft Resolutions").

Regarding foreign investment in multiple-sector projects, the Draft Resolutions require the application of most restrictive investment conditions, except where foreign investors establish different legal entities for each sector or sub-sectors.

Under the Draft Resolutions, uncommitted sub-sectors, such as operating leases for machinery and equipment – and audio-visual, entertainment and rail-transport services, are subject to investment conditions under the current domestic regulations.

With regard to sectors or sub-sectors in the Schedule in Services that are less favourable than domestic regulations, the Draft Resolutions allow for the application of domestic regulations. For instance, for higher education services, under the Schedule in Services, only joint ventures are allowed and 100 per cent foreign-owned education entities must wait until January 1 next year. In accordance with current domestic regulations on education, there is no restriction for foreign investors for establishing education entities. As a specific example, before January 11, 2007, RMIT – a well known, 100 per cent foreign-owned university – was licensed.

Those sectors not listed in the Schedule in Services, such as real estate and power generation, shall be subject to domestic regulations on investment conditions. These include the Investment Law, Enterprises Law and other relevant regulations.

For sectors or sub-sectors on which both WTO commitments and domestic regulations are silent, licensing authorities shall consult with the Ministry of Planning and Investment and relevant ministries to obtain approval from the Prime Minister on a case-by-case basis. This will avoid cases where investment projects are refused licences because of a lack of regulations. However, it may lengthen the time of the licensing process, making it disadvantageous for investors.

According to the Draft Resolutions, enterprises, whether established before or after WTO accession, are entitled to apply simple majority voting. This is permissible under WTO commitments (Paragraph 502, 503 of the Report of the Working Party on the Accession of Viet Nam) if shareholders agree in the corporate charter. This does not help create an automatic mechanism on simple majority voting. Many foreign-invested companies are facing a deadlock on the removal of unanimous voting under old domestic laws.

The Draft Resolutions also give overseas Vietnamese the right to choose investment conditions under WTO commitments or domestic regulations, whichever are more favourable.

For the first time, the Draft Resolutions provide a distinction between domestic companies and foreign-invested companies, based on the foreign ownership threshold. Enterprises with up to 49 per cent foreign ownership, regardless of whether newly established or acquired by foreign investors, shall be subject to the same investment conditions as applicable to domestic investors. This is good news for foreign investors and will stop arguments that enterprises with only 1 per cent foreign capital be given investment conditions the same as foreign investors. However, this distinction may not cover other conditions, such as land or labour issues.

On foreign ownership in multiple sector companies, the Draft Resolutions will apply the limit of the major business line of that company. However, there is no definition of what a major business line is. Hence, it might lead to different understandings and explanations by local authorities and create difficulties for investors.

To ensure the consistency of WTO commitments and other related international treaties that Viet Nam has signed, the Draft Resolutions confirm that all commitments under bilateral treaties regarding investment continue to be effective. Where WTO commitments are different from bilateral treaties on the same matters, investors can choose the more favourable.

In conclusion, the Draft Resolutions bring advantages to the investment environment of Viet Nam in general, and foreign investors in particular. They will help solve most problems on investment conditions that have arisen since Viet Nam joined the WTO. However, there are still minor issues the Government should reconsider to create truly clear and helpful regulations.

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