Understanding Vietnam’s Regulatory Landscape
Transparency of the Regulatory System
U.S. businesses operating in Vietnam frequently encounter obstacles related to regulatory clarity. These challenges include inconsistent interpretations of laws, irregular enforcement, and a legal framework that can be ambiguous. Many U.S. investors express concerns about Vietnam’s legal system, citing it as a barrier to successful business operations.
The country’s accounting systems diverge from international norms, inflating transaction costs for investors. Initially, Vietnam’s government aimed to transition most companies to International Financial Reporting Standards (IFRS) by 2020. However, this target was missed, leading the Ministry of Finance (MOF) to extend the deadline to 2025.
In Vietnam’s legislative framework, the National Assembly is responsible for passing laws, which represent the highest legal authority. Unfortunately, these laws often lack specificity, leading to confusion among investors. Draft laws are prepared by various ministries, and the prime minister issues decrees to guide their implementation. Individual ministries then produce circulars detailing how specific laws will be administered.
Public commentary is part of the legislative process, with a 60-day window for feedback following a law’s announcement. However, this period is sometimes shortened, limiting opportunities for input from foreign governments, NGOs, and corporations. Ministries may revise laws based on feedback, subsequently forwarding them to the National Assembly for review.
Despite this structured process, ministries often lack the resources to conduct comprehensive, data-driven assessments during law drafting. The Ministry of Justice (MOJ) oversees administrative procedures, but quality control varies widely across ministries.
Business associations actively engage in the legislative process, yet there are instances where government entities issue detailed circulars with minimal notice, preventing effective public commentary. MOF does require annual disclosures from public companies regarding their environmental, social, and governance practices, though many view these assessments as mere formalities.
While some general financial data is accessible, transparency around public finances and debt obligations remains inadequate. Official debt figures often exclude liabilities from larger state-owned enterprises (SOEs), indicating a pressing need for improved fiscal transparency.
International Regulatory Considerations
Vietnam is an active participant in ASEAN, a 10-member organization focused on regional economic integration. The ASEAN Economic Community (AEC) aims to create a single market similar to the EU, although substantial progress has yet to be made. AEC’s most notable achievement has been the reduction of tariffs on most intra-regional products.
In addition, Vietnam is a part of the Asia-Pacific Economic Cooperation (APEC), which promotes free trade among 21 Pacific Rim economies. APEC facilitates business collaboration through initiatives, high-level meetings, and ongoing dialogue.
Vietnam also adheres to the World Trade Organization’s Trade Facilitation Agreement (TFA) and has begun implementing its provisions. The government submitted timelines for further implementation, committing to full adherence by the end of 2024.
Legal System and Judicial Independence
Vietnam’s legal system is a blend of indigenous, French, and Soviet legal traditions. It operates under a rule of law understood through the lens of a top-down, one-party political structure. Recent reforms have introduced some adversarial elements to the judicial process.
The court hierarchy is structured with the Supreme People’s Court at the top, followed by High People’s Courts, Provincial People’s Courts, and District People’s Courts. Courts are organized into divisions handling various legal matters—criminal, civil, administrative, economic, and labor. The Supreme People’s Procuracy oversees criminal prosecutions and judicial oversight.
A significant limitation of Vietnam’s legal system is the lack of judicial independence; for instance, the chief justice is also part of the Politburo. Transparency International highlights a risk of corruption in judicial rulings, with many citizens reporting experiences of needing to bribe officials to navigate the system. This culture of corruption pushes many businesses to avoid the court system entirely.
The judiciary faces several issues, including a lack of adequate training among judges and appointments often tied to political affiliations. Dispute resolution procedures are governed by the Commercial Law, which stipulates that courts have jurisdiction unless a dispute resolution clause is present.
Vietnamese courts recognize civil judgments from other jurisdictions only if reciprocal agreements are in place, which limits international enforcement possibilities.
Competition and Antitrust Laws
The Vietnam Competition and Consumer Authority (VCCA), functioning under the Ministry of Industry and Trade (MOIT), scrutinizes transactions for competition-related issues. The agency aims to manage anticompetitive behavior, especially actions that could lead to monopoly control or dominance in the market.
Expropriation and Compensation
Vietnamese law permits the government to expropriate property only under specific circumstances such as emergencies, disasters, or national interest, and mandates compensation for affected investors. Under the U.S.-Vietnam Bilateral Trade Agreement, Vietnam is obligated to adhere to international standards during expropriation, ensuring nondiscriminatory practices and due process.
Dispute Settlement
Vietnam has not joined the International Centre for Settlement of Investment Disputes (ICSID) Convention but is a participant in the New York Convention on Foreign Arbitral Awards. This creates a complex landscape for dispute resolution.
Investment treaties and free trade agreements generally include investor-state dispute settlement (ISDS) provisions, although foreign investors often favor international arbitration for added predictability. Despite this, complexities persist; Vietnamese courts may reject foreign arbitral awards if they’re perceived as contrary to domestic law.
Since 2013, multiple ISDS cases have emerged, involving foreign investors from countries like the U.S., Germany, and the U.K. However, the Vietnamese judicial system often falls short in addressing commercial disputes, with arbitration being a more common and preferred method of resolution.
The Law on Commercial Arbitration restricts foreign investors from seeking legal recourse in foreign jurisdictions, which complicates matters further. The court system is known for its inefficiency, and enforcement of international arbitration awards can take an extended period.
Bankruptcy Regulations
Vietnam’s Bankruptcy Law does not criminalize bankruptcy unless related to criminal activity. Insolvency is defined as an inability to meet payment obligations for over three months. The law enables creditors to initiate bankruptcy proceedings, providing a structured mechanism for addressing financial distress.
Investors can obtain vital credit information regarding potential Vietnamese partners through the Credit Information Center, which aims to alleviate concerns related to bankruptcy risks.