The Common Investment Law (CIL) is one of the two critical business

laws (together with the Unified Enterprise Law) being drafted with the

goal of spurring the development of local private sector and further

attracting foreign investment. The CIL will replace both the Law for

Domestic Investment Promotion and the Foreign Investment Law (FIL),

with the goal of creating a unified legal framework for investment in

Vietnam. It is anticipated that the draft law will be submitted to the

National Assembly later this year.This bulletin identifies some of the

Still not fully supportive of private investmentTHE COMMON INVESTMENT LAW:

(Continued in page 4)

draft were passed, many thousands of enterprises wouldface additional procedures, which would result inadditional costs, delays, and even the loss of businessopportunities. The bottom line is that neither the State norits citizens would benefit from such bureaucracy andpaperwork.

The classification of projects is confusing andcumbersome. We suggest that any classification bebased on the nature, rather than the size, of projects. Forexample, the classification of projects with non-state

capital exceeding VND 300 billion into the 'conditionalordinary' category is groundless. Another example is thatof financial services, which are very broad and spanauditing, accounting, price appraisal, debt retrieval, etc.These services are very common and should not beclassified as “important projects.” The existence of acondition on investment registration, such as holding aprofessional license, should not mean that an investmentproject thereby becomes subject to a full-scaleevaluation, if it otherwise would only be subject to

Unresolved issues in the draft law

� I think one major strong point of the draft CIL is that it

opens up a number of sectors, currently under state

monopoly, to domestic investors. These include

publishing, television, radio broadcasting, advertising, air

transport, maritime and air ports, and petroleum

exploitation. If the State is really to open up these sectors,

we will witness a boom in private investment in the

services sector in the coming years. However, this

opening will not materialize unless the NationalAssembly

amends related specialized laws, so as to open these

sectors to domestic investors before Vietnam's

international commitments open them to foreign

� The risk of overlap and conflict of law is one of my

biggest concerns to date. If you look at the CIL in

conjunction with the UEL, paperwork will be duplicated,

not eliminated. The last CIL draft has a whole section on

tendering. But tendering is already covered under

existing tendering regulations. In this case, if the two laws

are not word-for-word the same, or if the Government or

the National Asembly later amends one of them, it will

cause a lot of trouble for people. The same concern

applies to tax incentives and project appraisal criteria,

which are also covered by other laws.

Mr. Fred Burke, Managing Partner,

the Law Offices of Baker & McKenzie

� Business freedom needs to go hand-in-hand with the

protection of the public interest. The review of the

Enterprise Law's implementation shows that we have

made life easier for businesspeople, at the expense of

many other people. A number of “ghost' enterprises have

� I find that the CIL reflects less business freedom than

the current Enterprise Law. The CIL maintains strict

State control over investment projects, by classifying

them into four categories, of which three require

appraisal and licensing. Some people argue that State

control is necessary to limit the number of “ghost” firms.

But this is kind of thinking is wrong, because establishing

and registering an enterprise is an individual's right. The

fact that some enterprises fail very quickly is common in

a market economy; just because the State does not have

the capacity to keep track of company closures does not

mean it should restrict business freedom. Instead the

focus should be on strengthening the capacity of State

agencies to cope with changes in the business

environment. Adding more control does not guarantee

against inefficiency and waste, as many SOEs have

demonstrated. Clearly the solution needs to be found

elsewhere. To successfully carry out public

administration reform, the State should minimize its

involvement in the activities of businesses–that should

be left to the investors themselves. If private investors

need to appraise their project's feasibility, they can enlist

the help of banks or independent auditors. Vietnam has

been set up to illegally trade VAT bills, and many fake

projects have been formulated by people who just want to

raise money and then disappear with it. There is an

urgent need to restore corporate social responsibility and

ensure financial security in business. The draft CIL will

enable the State to better handle registration and

implementation of investment projects. The introduction

of investment registration procedures is a nessessary

measure to address these “bogus” enterprises who cheat

customers. Those enterprises which exist only in paper

will be inspected and punished. The draft stresses the

supervisory role of the State and the implementation role

of Ministries, as well as the role of investment inspectors.

(Continued from page 1)

No.9 (12) August 200THE BUSINESS INFORMATION CENTER AT THE VIETNAM CHAMBER OF COMMERCE AND INDUSTRY

Viewpoints

Creat ing a uni form lega l

framework for investment activity

One of the most important

commitments Vietnam has made to

accelerate the country's bid for

closer international integration,

including WTO membership, is to

remove discrimination between

investors based on ownership

origins. To date, a number of reforms

have been enacted, including

removing: i) the dual pricing regime

for key inputs; ii) compulsory

r e q u i r e m e n t s o n

importing/exporting, or domestic

content; and iii) restrictions on

technology transfer and hiring

employees. These efforts, though

significant, have not completely

levelled the playing field for

domestic and foreign investors, as a

fundamental difference between

those two groups rema ins

embedded within the current legal

framework–while foreign investors

must obtain an investment license,

which strictly defines the scope of

their operations in Vietnam (under

the Foreign Investment Law),

domestic investors can operate

more freely in any sectors not

prohibited or restricted by law.. The

new CIL, however, will be applied to

both domest ic and fore ign

investment activities alike, thus

unifying the legal framework for

investment in Vietnam.

Under the current FIL, the

investment licenses issued to

foreign investors strictly limit the

scope of their activities. The new CIL

will eliminate most of these

limitations, giving foreign investors

the same kinds of rights that

domest ic inves tors a l ready

enjoy–the right to decide where to

invest, under what legal forms, and

h o w t o m o b i l i z e c a p i t a l .

Furthermore, the CIL will allow

foreign investors to conduct

business in all sectors not prohibited

or restricted by the law, as defined in

a 'negative list' and 'restricted list'.

The new law will also allow foreign

investors to register their activities in

multiple business lines, with the

freedom to choose the most

appropriate legal form for their

enterprise. They will also be

al lowed to conduct indirect

investment in company shares,

More freedom for foreign

investors

1

bonds, through onshore investment

funds and financial intermediaries.

The most current draft of the new

CIL creates new definitions of types

of investment, and requires

additional registration and licensing

procedures that, to date, have not

existed for domestic investors. In

addition to registering their company

under the Enterprise Law, domestic

investors will now need to register

any new investment project.

Moreover, any investment with a

value over VND 5 billion in the

“ordinary” projects category will

need a registration certificate;

investment projects falling under

any of the other three categories will

need to be appraised before an

investment license is granted.

In the debate on the CIL in the last

few months, this is the biggest issue

of concern among the local business

community. Questions revolve

around the lack of clarity behind the

definitions of the various types of

investment. In addition, investors

Less favorable conditions for

domestic investors

2

(1) A 'negative list' is a list of prohibited sectors and a 'restricted list' identifies those sectors wherepeople may invest if they satisfy certain conditions. These replace a 'positive list' which statesthose sectors where investment is permitted.(2) The draft law groups domestic investment into four categories - ordinary, conditional ordinary,important and nationally important.(3) FIAS/MPDF, Investment Incentives and investor protection in Vietnam: Opportunities for

feel that these new requirements are uncessarily

cumbersome and will result in less transparency.

Investment incentives are often to be found in a

country's investment promotion policy, as a means to try

and attract greater inflows. At present, investment

Unresolved issues in the current draft law

incentives in Vietnam are generally granted based on a

company's investment plans, usually before investment

actually takes place. This is contrary to international best

practice, in which investment incentives are granted on

a “perfomance” rather than “expectation” basis. This

has been an ongoing debate during the drafting process

of the CIL. As of mid-August 2005, there has been some

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� The unification of the FIL and theLaw for Domestic InvestmentPromotion into the CommonInvestment Law, will elimitatediscrimination and create a levelplaying field for businesses in alleconomic sectors. This movealigns Vietnam with its internationalcommitments. However, for foreigninvestors, the principle of non-discrimination and investment

freedom will not be applied 100%. Rather, it will follow theintegration roadmap that Vietnam is committed to. Thesigning and implementation of international agreementscommit Vietnam to open up its market, and removeinvestment-related obstacles, customs and non-customsbarriers, and any subsidies incompatible withinternational practice, while at the same time, permittingit to maintain protection of domestic production for aslong as the agreed timetable allows.

� I think the draft CIL has indeedbeen designed to create a levelplaying field. Almost all of itsprovisions are applicable to allinvestors and businesspeople,regardless of their nationality.Less favorable treatment of foreigninvestors remains, but only inprovisions related to someconditional sectors.

The big issue for domesticinvestors is the fact that overall, the “level playing field” isactually less favorable for them. The new CIL conveys asense of more control similar to the more restrictive FIL.Instead, the CIL should apply some of the investment-friendly provisions contained in the existing Law onDomestic Investment Promotion.

Mr. Vu Tien Loc, President and Chairman,Vietnam Chamber of Commerce and Industry

Unifying the legal framework for enterprisesin different economic sectors

2 3

� The unification of investment regulations, aiming tocreate an equitable business environment for differentplayers, has a number of advantages. These include,first, explaining in a single consolidated source what theprocedures are, and second, consolidating the statemanagement agencies. This is a welcome change. But

� Some people complain that the classification ofprojects into four categories is too complex. I don't thinkthis is true. If you look at the draft CIL in detail, you willfind simplified procedures. The classification of projects(ordinary, conditional ordinary, important and nationallyimportant) will make the investment managementprocess more transparent. It will clearly state thatimportant projects with implications on the environmentand population relocation will need to be appraised. Theappraisal process will also be simplified, focusing on theenvironmental impacts of projects. For private projects,investors are responsible for their own economic andfinancial feasibility. For projects using state funds forbusiness purposes, the State conducts an appraisal,prior to the investment decision, so as to avoid waste andinefficiency. However, the appraisal, licensing, anddecision-making process will be decentralized into thehands of Ministries and localities.

Investment procedures will be simplified, as mostinvestment projects will fall under the category of“ordinary projects”, for which investors will only need toapply for an investment registration certificate. A limitednumber of projects (including conditional ordinaryprojects, important projects, and very few nationally-important projects) will require appraisal, prior toissuance of an investment license. In particular, ordinaryprojects by domestic investors, who do not apply forinvestment incentives and require capital of less than

� Initially, the CIL was planned to replace the Law onDomestic Investment Promotion and the ForeignInvestment Law, so as to create (together with the UEL) aconducive and equitable business environment for alltypes of enterprises. In other words, the CIL wasoriginally designed to regulate investment activity ofprivate investors. But in Vietnam “investment”encompasses both private investment and state-fundedinvestment, and as a result, state-funded investmentactivities were included in the CIL.

I believe that this is a big mistake, as state investmentneeds to be strictly regulated and should follow a differentset of rules. Private investment–both domestic andforeign–needs to be promoted, and therefore wouldbenefit from more favorable regulations. The twoopposing approaches of “more control” and “simplifiedprocedures” cannot co-exist in a single law. Thus, the“more control” approach ends up dominating the draft CIL.We suggest designing a law on investment promotion

� Frankly, I think most of us in the business communityare a little concerned that the CIL will add new so-called“baby permits” to the investment environment. Thereseems no need to have a common investment law,because most of what the old FIL covered is addressed inthe draft UEL. As a corporate law, the UEL is addressingthe issue of creating a level playing field, and seems tocover the basic corporate governance framework for allcompanies. That would be sufficient. The origial purposefor the CIL, as I understood it, was to set forth investmentguarantees that applied equally to all businesses. Asecond purpose was to set forth the tax incentives ratestandards–i.e. who would be eligible for taxincentives–on an equal basis for all businesses, bothforeign and domestic.

the basic question is whether the new law will providepeople with more business freedom. Moreover, foramendments of the investment and enterprise laws to bereally effective in creating a better and more equalbusiness environment, there is a need to reformregulations in related sectors such as banking, taxation,land, labor, social security, and so on.

More freedom for foreign investors

� The draft CIL states that foreign investors can set uptheir company under the Unified Enterprise Law. Thebusiness creation process is therefore simplified, with theinitial capital requirement removed, which is animprovement on the current FIL. Some people find thismove a bit too liberal because business creation is nolonger tied to the availability of initial capital, and thus atodds with the national objective of attracting foreigninvestment inflows. Many countries in the region (such asThailand, Malaysia, Indonesia, Philippines and China),and even some developed countries, require foreignersto submit a project proposal and demonstrate adequatefinancial capacity, before setting up their enterprise. The

� The main concern of foreign businesses is that the CILcould slow down economic growth in Vietnam and be badfor business. For foreign investors, the CIL will createanother layer of bureaucracy, because foreign investorswill already have to get a business registration certificate,under the UEL. If they build a factory, they will also haveto go to the Ministry of Natural Resources andEnvironment to get environmental approval, and they

MPI advocates for business simplification because theCIL (as well as the UEL) is deliberately designed to createa conducive regulatory environment for all economicsectors, and to comply with Vietnam's international

already have to go to the Ministry of Construction to getconstruction permits, and so on. Why should they need togo to MPI to get an investment license approval? If MPIwere to act as a one-stop-shop, coordinating all thosegranting investment approval, that would create a betterinvestment environment. But if the MPI is just anotherapproval agency, it will create a worse investment

environment. If people who come up with new businessideas have more trouble starting a business in Vietnam,they will go elswhere. Of course, the Government shouldhave some flexibility to restrict things, if it finds that theyhurt the environment or society. But basically, theprinciple is to allow people to be creative andentrepreneurial within the framework of the law. If people

Less favorable conditions for domestic investors

� Perhaps the inclusion of less investment-friendlyprovisions, taken from the current FIL, into the CILexplains the increased State interference in investmentactivities. For example, the draft CIL sets forthrequirements for investment projects, and procedures forregistration, appraisal, and project modifications. Fordomestic investors, these requirements are obviouslymore cumbersome, costly and time-consuming than thecurrent regulations on domestic investment. We suggestthe draft CIL be revised to remove such controls overordinary projects. With regard to project implementation,the draft CIL provides for state micro-management ofinvestment, which ends up tying investor's hands. Forexample, investors are required to subject importedmachinery and equipment to an evaluation on price andquality. Project implementation, including evaluation ofequipment, is an investor's job, and we therefore suggestthat this provision be dropped.

In principle, regulations related to investment shouldbe simple, supportive of investors, and limit opportunities

� The draft CIL appears to use stronger administrativetools and procedures to manage investment, and calls foran investment agency to appraise investment projects,

� According to the draft law, allinvestment projects require aninvestment registration or license.Why do investors need toundertake registration? For whatpurpose does the State needregistration from investors? I don'tsee a c lea r answer. Therequirement that ordinary projectsbe registered does not makesense, and provides opportunities

for corruption. In my opinion, registration and investmentregistration certificates may be necessary only in thefollowing cases: i) when a contribution to capital comesfrom abroad; ii) when investors apply for incentives; or iii)when investors need State support for land rental. In allremaining cases (except conditional projects subject toapproval), the CIL should drop the registration processand the investment registration certificates.

In addition, the draft also sets forth a number of newsub-licenses for domestic enterprises with privateinvestment. For example, projects with over 30% of statecapital, or projects with 100% private investmentexceeding VND300 billion, require a license. This isconfusing because most projects which receive loansfrom state-owned commercial banks or investment funds

� I believe that the draft does notpromote investment. On thecontrary, it hinders investment, andlimits business freedom throughthe licensing procedures forinvestment and investmentincentives. The draft CIL does notfollow the Prime Minister's guidingprinciples on the formulation of theCIL and UEL. The current Law onDomestic Investment Promotion,

despite its shortcomings, is more conducive toinvestment than the draft CIL. VAFI's concern is that if this

prior to their implementation. Once the license isgranted, the State believes that investors will adhere tothe license. In my opinion, investors' commitments arepurely formal because the information they provide is onlyan economic forecast. During implementation, investorsneed to follow market rules and adjust their projectsaccordingly; they cannot go back to the investmentlicensing agency to re-register after each adjustment.Rather, they should only have to work with specializedagencies, such as environmental or labor agencies, tocertify that they are compliant with standards. If the lawdoes not state this clearly, it would leave room for

Viewpoints Viewpoints

� The unification of the FIL and theLaw for Domestic InvestmentPromotion into the CommonInvestment Law, will elimitatediscrimination and create a levelplaying field for businesses in alleconomic sectors. This movealigns Vietnam with its internationalcommitments. However, for foreigninvestors, the principle of non-discrimination and investment

freedom will not be applied 100%. Rather, it will follow theintegration roadmap that Vietnam is committed to. Thesigning and implementation of international agreementscommit Vietnam to open up its market, and removeinvestment-related obstacles, customs and non-customsbarriers, and any subsidies incompatible withinternational practice, while at the same time, permittingit to maintain protection of domestic production for aslong as the agreed timetable allows.

� I think the draft CIL has indeedbeen designed to create a levelplaying field. Almost all of itsprovisions are applicable to allinvestors and businesspeople,regardless of their nationality.Less favorable treatment of foreigninvestors remains, but only inprovisions related to someconditional sectors.

The big issue for domesticinvestors is the fact that overall, the “level playing field” isactually less favorable for them. The new CIL conveys asense of more control similar to the more restrictive FIL.Instead, the CIL should apply some of the investment-friendly provisions contained in the existing Law onDomestic Investment Promotion.

Mr. Vu Tien Loc, President and Chairman,Vietnam Chamber of Commerce and Industry

Unifying the legal framework for enterprisesin different economic sectors

2 3

� The unification of investment regulations, aiming tocreate an equitable business environment for differentplayers, has a number of advantages. These include,first, explaining in a single consolidated source what theprocedures are, and second, consolidating the statemanagement agencies. This is a welcome change. But

� Some people complain that the classification ofprojects into four categories is too complex. I don't thinkthis is true. If you look at the draft CIL in detail, you willfind simplified procedures. The classification of projects(ordinary, conditional ordinary, important and nationallyimportant) will make the investment managementprocess more transparent. It will clearly state thatimportant projects with implications on the environmentand population relocation will need to be appraised. Theappraisal process will also be simplified, focusing on theenvironmental impacts of projects. For private projects,investors are responsible for their own economic andfinancial feasibility. For projects using state funds forbusiness purposes, the State conducts an appraisal,prior to the investment decision, so as to avoid waste andinefficiency. However, the appraisal, licensing, anddecision-making process will be decentralized into thehands of Ministries and localities.

Investment procedures will be simplified, as mostinvestment projects will fall under the category of“ordinary projects”, for which investors will only need toapply for an investment registration certificate. A limitednumber of projects (including conditional ordinaryprojects, important projects, and very few nationally-important projects) will require appraisal, prior toissuance of an investment license. In particular, ordinaryprojects by domestic investors, who do not apply forinvestment incentives and require capital of less than

� Initially, the CIL was planned to replace the Law onDomestic Investment Promotion and the ForeignInvestment Law, so as to create (together with the UEL) aconducive and equitable business environment for alltypes of enterprises. In other words, the CIL wasoriginally designed to regulate investment activity ofprivate investors. But in Vietnam “investment”encompasses both private investment and state-fundedinvestment, and as a result, state-funded investmentactivities were included in the CIL.

I believe that this is a big mistake, as state investmentneeds to be strictly regulated and should follow a differentset of rules. Private investment–both domestic andforeign–needs to be promoted, and therefore wouldbenefit from more favorable regulations. The twoopposing approaches of “more control” and “simplifiedprocedures” cannot co-exist in a single law. Thus, the“more control” approach ends up dominating the draft CIL.We suggest designing a law on investment promotion

� Frankly, I think most of us in the business communityare a little concerned that the CIL will add new so-called“baby permits” to the investment environment. Thereseems no need to have a common investment law,because most of what the old FIL covered is addressed inthe draft UEL. As a corporate law, the UEL is addressingthe issue of creating a level playing field, and seems tocover the basic corporate governance framework for allcompanies. That would be sufficient. The origial purposefor the CIL, as I understood it, was to set forth investmentguarantees that applied equally to all businesses. Asecond purpose was to set forth the tax incentives ratestandards–i.e. who would be eligible for taxincentives–on an equal basis for all businesses, bothforeign and domestic.

the basic question is whether the new law will providepeople with more business freedom. Moreover, foramendments of the investment and enterprise laws to bereally effective in creating a better and more equalbusiness environment, there is a need to reformregulations in related sectors such as banking, taxation,land, labor, social security, and so on.

More freedom for foreign investors

� The draft CIL states that foreign investors can set uptheir company under the Unified Enterprise Law. Thebusiness creation process is therefore simplified, with theinitial capital requirement removed, which is animprovement on the current FIL. Some people find thismove a bit too liberal because business creation is nolonger tied to the availability of initial capital, and thus atodds with the national objective of attracting foreigninvestment inflows. Many countries in the region (such asThailand, Malaysia, Indonesia, Philippines and China),and even some developed countries, require foreignersto submit a project proposal and demonstrate adequatefinancial capacity, before setting up their enterprise. The

� The main concern of foreign businesses is that the CILcould slow down economic growth in Vietnam and be badfor business. For foreign investors, the CIL will createanother layer of bureaucracy, because foreign investorswill already have to get a business registration certificate,under the UEL. If they build a factory, they will also haveto go to the Ministry of Natural Resources andEnvironment to get environmental approval, and they

MPI advocates for business simplification because theCIL (as well as the UEL) is deliberately designed to createa conducive regulatory environment for all economicsectors, and to comply with Vietnam's international

already have to go to the Ministry of Construction to getconstruction permits, and so on. Why should they need togo to MPI to get an investment license approval? If MPIwere to act as a one-stop-shop, coordinating all thosegranting investment approval, that would create a betterinvestment environment. But if the MPI is just anotherapproval agency, it will create a worse investment

environment. If people who come up with new businessideas have more trouble starting a business in Vietnam,they will go elswhere. Of course, the Government shouldhave some flexibility to restrict things, if it finds that theyhurt the environment or society. But basically, theprinciple is to allow people to be creative andentrepreneurial within the framework of the law. If people

Less favorable conditions for domestic investors

� Perhaps the inclusion of less investment-friendlyprovisions, taken from the current FIL, into the CILexplains the increased State interference in investmentactivities. For example, the draft CIL sets forthrequirements for investment projects, and procedures forregistration, appraisal, and project modifications. Fordomestic investors, these requirements are obviouslymore cumbersome, costly and time-consuming than thecurrent regulations on domestic investment. We suggestthe draft CIL be revised to remove such controls overordinary projects. With regard to project implementation,the draft CIL provides for state micro-management ofinvestment, which ends up tying investor's hands. Forexample, investors are required to subject importedmachinery and equipment to an evaluation on price andquality. Project implementation, including evaluation ofequipment, is an investor's job, and we therefore suggestthat this provision be dropped.

In principle, regulations related to investment shouldbe simple, supportive of investors, and limit opportunities

� The draft CIL appears to use stronger administrativetools and procedures to manage investment, and calls foran investment agency to appraise investment projects,

� According to the draft law, allinvestment projects require aninvestment registration or license.Why do investors need toundertake registration? For whatpurpose does the State needregistration from investors? I don'tsee a c lea r answer. Therequirement that ordinary projectsbe registered does not makesense, and provides opportunities

for corruption. In my opinion, registration and investmentregistration certificates may be necessary only in thefollowing cases: i) when a contribution to capital comesfrom abroad; ii) when investors apply for incentives; or iii)when investors need State support for land rental. In allremaining cases (except conditional projects subject toapproval), the CIL should drop the registration processand the investment registration certificates.

In addition, the draft also sets forth a number of newsub-licenses for domestic enterprises with privateinvestment. For example, projects with over 30% of statecapital, or projects with 100% private investmentexceeding VND300 billion, require a license. This isconfusing because most projects which receive loansfrom state-owned commercial banks or investment funds

� I believe that the draft does notpromote investment. On thecontrary, it hinders investment, andlimits business freedom throughthe licensing procedures forinvestment and investmentincentives. The draft CIL does notfollow the Prime Minister's guidingprinciples on the formulation of theCIL and UEL. The current Law onDomestic Investment Promotion,

despite its shortcomings, is more conducive toinvestment than the draft CIL. VAFI's concern is that if this

prior to their implementation. Once the license isgranted, the State believes that investors will adhere tothe license. In my opinion, investors' commitments arepurely formal because the information they provide is onlyan economic forecast. During implementation, investorsneed to follow market rules and adjust their projectsaccordingly; they cannot go back to the investmentlicensing agency to re-register after each adjustment.Rather, they should only have to work with specializedagencies, such as environmental or labor agencies, tocertify that they are compliant with standards. If the lawdoes not state this clearly, it would leave room for

Viewpoints Viewpoints

The Common Investment Law (CIL) is one of the two critical business

laws (together with the Unified Enterprise Law) being drafted with the

goal of spurring the development of local private sector and further

attracting foreign investment. The CIL will replace both the Law for

Domestic Investment Promotion and the Foreign Investment Law (FIL),

with the goal of creating a unified legal framework for investment in

Vietnam. It is anticipated that the draft law will be submitted to the

National Assembly later this year.This bulletin identifies some of the

Still not fully supportive of private investmentTHE COMMON INVESTMENT LAW:

(Continued in page 4)

draft were passed, many thousands of enterprises wouldface additional procedures, which would result inadditional costs, delays, and even the loss of businessopportunities. The bottom line is that neither the State norits citizens would benefit from such bureaucracy andpaperwork.

The classification of projects is confusing andcumbersome. We suggest that any classification bebased on the nature, rather than the size, of projects. Forexample, the classification of projects with non-state

capital exceeding VND 300 billion into the 'conditionalordinary' category is groundless. Another example is thatof financial services, which are very broad and spanauditing, accounting, price appraisal, debt retrieval, etc.These services are very common and should not beclassified as “important projects.” The existence of acondition on investment registration, such as holding aprofessional license, should not mean that an investmentproject thereby becomes subject to a full-scaleevaluation, if it otherwise would only be subject to

Unresolved issues in the draft law

� I think one major strong point of the draft CIL is that it

opens up a number of sectors, currently under state

monopoly, to domestic investors. These include

publishing, television, radio broadcasting, advertising, air

transport, maritime and air ports, and petroleum

exploitation. If the State is really to open up these sectors,

we will witness a boom in private investment in the

services sector in the coming years. However, this

opening will not materialize unless the NationalAssembly

amends related specialized laws, so as to open these

sectors to domestic investors before Vietnam's

international commitments open them to foreign

� The risk of overlap and conflict of law is one of my

biggest concerns to date. If you look at the CIL in

conjunction with the UEL, paperwork will be duplicated,

not eliminated. The last CIL draft has a whole section on

tendering. But tendering is already covered under

existing tendering regulations. In this case, if the two laws

are not word-for-word the same, or if the Government or

the National Asembly later amends one of them, it will

cause a lot of trouble for people. The same concern

applies to tax incentives and project appraisal criteria,

which are also covered by other laws.

Mr. Fred Burke, Managing Partner,

the Law Offices of Baker & McKenzie

� Business freedom needs to go hand-in-hand with the

protection of the public interest. The review of the

Enterprise Law's implementation shows that we have

made life easier for businesspeople, at the expense of

many other people. A number of “ghost' enterprises have

� I find that the CIL reflects less business freedom than

the current Enterprise Law. The CIL maintains strict

State control over investment projects, by classifying

them into four categories, of which three require

appraisal and licensing. Some people argue that State

control is necessary to limit the number of “ghost” firms.

But this is kind of thinking is wrong, because establishing

and registering an enterprise is an individual's right. The

fact that some enterprises fail very quickly is common in

a market economy; just because the State does not have

the capacity to keep track of company closures does not

mean it should restrict business freedom. Instead the

focus should be on strengthening the capacity of State

agencies to cope with changes in the business

environment. Adding more control does not guarantee

against inefficiency and waste, as many SOEs have

demonstrated. Clearly the solution needs to be found

elsewhere. To successfully carry out public

administration reform, the State should minimize its

involvement in the activities of businesses–that should

be left to the investors themselves. If private investors

need to appraise their project's feasibility, they can enlist

the help of banks or independent auditors. Vietnam has

been set up to illegally trade VAT bills, and many fake

projects have been formulated by people who just want to

raise money and then disappear with it. There is an

urgent need to restore corporate social responsibility and

ensure financial security in business. The draft CIL will

enable the State to better handle registration and

implementation of investment projects. The introduction

of investment registration procedures is a nessessary

measure to address these “bogus” enterprises who cheat

customers. Those enterprises which exist only in paper

will be inspected and punished. The draft stresses the

supervisory role of the State and the implementation role

of Ministries, as well as the role of investment inspectors.

(Continued from page 1)

No.9 (12) August 200THE BUSINESS INFORMATION CENTER AT THE VIETNAM CHAMBER OF COMMERCE AND INDUSTRY

Viewpoints

Creat ing a uni form lega l

framework for investment activity

One of the most important

commitments Vietnam has made to

accelerate the country's bid for

closer international integration,

including WTO membership, is to

remove discrimination between

investors based on ownership

origins. To date, a number of reforms

have been enacted, including

removing: i) the dual pricing regime

for key inputs; ii) compulsory

r e q u i r e m e n t s o n

importing/exporting, or domestic

content; and iii) restrictions on

technology transfer and hiring

employees. These efforts, though

significant, have not completely

levelled the playing field for

domestic and foreign investors, as a

fundamental difference between

those two groups rema ins

embedded within the current legal

framework–while foreign investors

must obtain an investment license,

which strictly defines the scope of

their operations in Vietnam (under

the Foreign Investment Law),

domestic investors can operate

more freely in any sectors not

prohibited or restricted by law.. The

new CIL, however, will be applied to

both domest ic and fore ign

investment activities alike, thus

unifying the legal framework for

investment in Vietnam.

Under the current FIL, the

investment licenses issued to

foreign investors strictly limit the

scope of their activities. The new CIL

will eliminate most of these

limitations, giving foreign investors

the same kinds of rights that

domest ic inves tors a l ready

enjoy–the right to decide where to

invest, under what legal forms, and

h o w t o m o b i l i z e c a p i t a l .

Furthermore, the CIL will allow

foreign investors to conduct

business in all sectors not prohibited

or restricted by the law, as defined in

a 'negative list' and 'restricted list'.

The new law will also allow foreign

investors to register their activities in

multiple business lines, with the

freedom to choose the most

appropriate legal form for their

enterprise. They will also be

al lowed to conduct indirect

investment in company shares,

More freedom for foreign

investors

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bonds, through onshore investment

funds and financial intermediaries.

The most current draft of the new

CIL creates new definitions of types

of investment, and requires

additional registration and licensing

procedures that, to date, have not

existed for domestic investors. In

addition to registering their company

under the Enterprise Law, domestic

investors will now need to register

any new investment project.

Moreover, any investment with a

value over VND 5 billion in the

“ordinary” projects category will

need a registration certificate;

investment projects falling under

any of the other three categories will

need to be appraised before an

investment license is granted.

In the debate on the CIL in the last

few months, this is the biggest issue

of concern among the local business

community. Questions revolve

around the lack of clarity behind the

definitions of the various types of

investment. In addition, investors

Less favorable conditions for

domestic investors

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(1) A 'negative list' is a list of prohibited sectors and a 'restricted list' identifies those sectors wherepeople may invest if they satisfy certain conditions. These replace a 'positive list' which statesthose sectors where investment is permitted.(2) The draft law groups domestic investment into four categories - ordinary, conditional ordinary,important and nationally important.(3) FIAS/MPDF, Investment Incentives and investor protection in Vietnam: Opportunities for

feel that these new requirements are uncessarily

cumbersome and will result in less transparency.

Investment incentives are often to be found in a

country's investment promotion policy, as a means to try

and attract greater inflows. At present, investment

Unresolved issues in the current draft law

incentives in Vietnam are generally granted based on a

company's investment plans, usually before investment

actually takes place. This is contrary to international best

practice, in which investment incentives are granted on

a “perfomance” rather than “expectation” basis. This

has been an ongoing debate during the drafting process

of the CIL. As of mid-August 2005, there has been some

3