Transparency of the Regulatory System in Vietnam
U.S. companies operating in Vietnam are continually faced with challenges stemming from inconsistent regulatory interpretations, irregular enforcement of laws, and an ambiguous legal framework. The lack of a fair legal system for investment has been a persistent concern, affecting the overall business climate for Americans seeking to engage in Vietnamese markets.
Accounting practices in Vietnam do not align well with international standards, leading to increased transaction costs for investors. The government previously indicated that by 2020, most companies would transition to International Financial Reporting Standards (IFRS). However, this deadline was pushed to 2025 when the Ministry of Finance (MOF) recognized the herculean task at hand.
The National Assembly is responsible for passing laws that serve as the ultimate legal guidelines, yet these laws often lack the necessary specifics. Ministries draft these laws and submit them to the National Assembly for approval. The prime minister issues decrees to aid in the implementation of these laws, while individual ministries produce circulars that guide how each ministry will administer elements of a law or decree.
Before a law can be enacted, it undergoes a public comment period of 60 days, in accordance with the Law on the Promulgation of Legal Normative Documents. In practice, however, this period is not always adhered to, and comments from foreign governments, NGOs, and private-sector stakeholders may be cut short. After revisions, the law moves through governmental offices for approval before reaching the National Assembly, where further amendments may occur. The Politburo holds rights over special legislation, and all legal documents must be published in the Official Gazette before they take effect.
The drafting ministries often lack the resources for comprehensive, data-driven policy impact assessments, which are crucial to providing a solid foundation for new legislation. Consequently, the quality of these assessments can vary widely.
The Ministry of Justice (MOJ) plays a crucial role in overseeing administrative procedures for government ministries and ensuring that new legal documents comply with the established legal framework. Although business associations and chambers of commerce provide feedback on draft laws, there are instances where implementing guidelines are introduced suddenly, minimizing opportunities for stakeholder input. The key regulatory actions are often centralized on specific platforms, making accessibility a challenge.
In recent years, the MOF has mandated annual disclosures for public companies regarding their environmental, social, and governance (ESG) policies. Additionally, an Environmental and Social Disclosure Guide was published in collaboration with the International Finance Corporation to promote external audits. While many public companies perform these assessments, they often view them as mere formalities rather than substantive measures for responsible investment.
Despite some level of information being available to the public, Vietnam’s finances and debt obligations remain opaque. Certain public debt figures exclude substantial liabilities from large state-owned enterprises (SOEs). To enhance fiscal transparency, Vietnam could benefit from making its executive budget proposals readily accessible before National Assembly approval, alongside clearer off-budget account disclosures.
International Regulatory Considerations
Vietnam’s participation in ASEAN, a regional bloc committed to economic collaboration, signals its dedication to advancing integration across various sectors, including economic, social, and technical areas. Within this context, the ASEAN Economic Community (AEC) aims to create a single market akin to the European Union, though significant strides remain to be made beyond tariff reductions on traded products.
As a member of the Asia-Pacific Economic Cooperation (APEC), Vietnam engages in initiatives designed to promote free trade across the Pacific Rim. APEC focuses on enhancing trade facilitation and fosters dialogue among member nations to streamline business operations.
Vietnam has also aligned itself with the World Trade Organization’s Trade Facilitation Agreement (TFA), having begun implementation of key provisions. As of August 2018, timelines for completing subsections of the TFA were submitted, with goals set for full compliance by the end of 2024.
Legal System and Judicial Independence
The legal landscape in Vietnam is a blend of indigenous practices and influences from French and Soviet civil law traditions. Operated within a framework that emphasizes a top-down, one-party political structure, Vietnam is gradually introducing adversarial elements into its traditionally inquisitorial judicial system.
Judicial authority hierarchically exists within four main court levels: the Supreme People’s Court, High People’s Courts, Provincial People’s Courts, and District People’s Courts, which cover various divisions, including criminal and economic matters. The Supreme People’s Procuracy oversees criminal prosecutions and judicial supervision, alongside military tribunals at multiple levels.
One significant concern is the absence of an independent judiciary—a critical element for fair legal proceedings. The chief justice’s dual role as a Politburo member exemplifies the lack of separation of powers. Transparency International has highlighted corruption risks within the judicial process, with many households reporting incidents of bribery when engaging with the court system.
Persistent issues in the judiciary include inadequate training among judges and arbitrary appointments based on political affiliations. While regulations are subject to appeal, the Law on Complaints allows individuals and companies to question enforcement actions systematically.
Commercial contract regulations fall under the Commercial Law, which prescribes specific stipulations for various types of agreements. Dispute resolution clauses can be incorporated as per the Law on Commercial Arbitration, aligning somewhat with international standards. However, the enforcement landscape remains complicated, as recognition of foreign judgments is restricted, primarily limited to treaties with countries like France.
Competition and Antitrust Laws
The Vietnam Competition and Consumer Authority (VCCA), within the Ministry of Industry and Trade (MOIT), plays a pivotal role in monitoring competition and reviewing transactions that may threaten market fairness. The VCCA aims to curtail anti-competitive practices and guard against the emergence of monopolistic entities in the Vietnamese market.
Expropriation and Compensation
Vietnam’s laws permit the government to expropriate investor property only in specific cases like natural disasters or national emergencies, ensuring compensation is provided. This requirement aligns with international standards outlined in the U.S.-Vietnam Bilateral Trade Agreement, mandating non-discriminatory actions and prompt compensation for U.S. investor assets in the event of expropriation.
Dispute Settlement
Vietnam’s approach to resolving investor disputes involves a nuanced legal framework. While the country is not a party to the International Centre for Settlement of Investment Disputes (ICSID) Convention, it has expressed interest in joining. The New York Convention, however, is applicable, allowing for the enforcement of foreign arbitral awards.
Notably, many of Vietnam’s investment treaties and Free Trade Agreements (FTAs) include provisions for investor-state dispute settlement (ISDS). Although foreign and domestic awards are theoretically enforceable, foreign investors often prefer international arbitration for its predictability, as domestic courts may reject awards contrary to Vietnamese legal norms.
The underdeveloped legal system frequently hampers the efficiency of domestic courts, with many parties opting for negotiation or arbitration. The Law on Commercial Arbitration constrains foreign investors from referring disputes to overseas courts, placing restrictions on applying foreign law in local cases.
Statistics are limited on how often the courts favor state-owned enterprises, but the overall perception is that the slow-moving judicial process and potential for corruption drive foreign companies toward arbitration or informal resolution channels.
Bankruptcy Regulations
Vietnam’s Bankruptcy Law outlines a framework where insolvency is identified when a business falls more than three months behind in debt obligations. Bankruptcy is not regarded as a crime unless linked to additional illegal activities. Creditors have the right to initiate proceedings, and licensed credit institutions can likewise file for bankruptcy.
To assist foreign investors wary of engaging financially with Vietnamese partners, the Credit Information Center of the State Bank of Vietnam provides critical data on potential bankruptcy risks, encouraging informed decision-making in partnerships.