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THE COMMON INVESTMENT LAW:
Still not fully supportive of private investment
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 highlights of the current draft CIL, and comments on the
major implications for investors.
Creating
a uniform legal 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
requirements on importing/exporting, or domestic content; and iii)
restrictions on technology transfer and hiring employees. These
efforts, though significant, have not completely leveled the playing
field for domestic and foreign investors, as a fundamental
difference between those two groups remains 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
domestic and foreign investment activities alike, thus unifying the
legal framework for investment in Vietnam.
More
freedom for foreign investors
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
domestic investors already enjoy–the right to decide where to
invest, under what legal forms, and how to mobilize capital.
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'.1 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
allowed to conduct indirect investment in company shares, bonds,
through onshore investment funds and financial intermediaries.
Less
favorable conditions for domestic investors
The most current draft of
the new CIL creates new definitions of types of investment,2 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 feel that these
new requirements are unnecessarily cumbersome and will result in
less transparency.
Unresolved issues in the current draft law
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
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.3 This has been an ongoing debate during the drafting process
of the CIL. As of mid-August 2005, there has been some indication
that a “perfomance-based” regime will be adopted, but the full
extent of the change remains to be seen.
For the CIL to be fully effective, it must be consistent with other
laws and regulations related to business, and especially the
impending UEL. Based on current drafts of the two laws, some
observers argue that while the UEL strives to simplify procedures to
facilitate market entry, the CIL seeks to increase administrative
procedures. Recent debates in different fora and in the mass media
suggest that these two laws, originally envisaged as being “two
sides of the same coin”, have yet to dovetail in a way that will
create an enabling business environment that can support Vietnam's
international integration process.
(1) A 'negative list' is a list of
prohibited sectors and a 'restricted list' identifies those sectors
where people may invest if they satisfy certain conditions. These
replace a 'positive list' which states those 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 Introducing Investment-Friendly Change,
November 2004. <www.mpdf.org> |
