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STREAMLINING BUSINESS LICENSING
is a crucial step towards
sustainable regulatory reform in Vietnam
In 1999, the Prime Minister set up an Enterprise Law Enforcement
Task Force, an advisory body responsible for overseeing the
implementation of the Enterprise Law 2000. In its first two years of
operation, the Task Force successfully recommended the abolishment
of 160 business licenses that were deemed extraneous or unnecessary
out of a total 353 licenses that were in effect.1 By
2003, however, the momentum had slowed – of an additional 80
licenses recommended for abolishment by the Task Force between 2003
and now, only three were cancelled. In the meantime, a number of new
business licenses and conditions have emerged, and some of those
abolished have been reissued in other forms.2
The business community considers the widespread use of unnecessary
business licenses and conditions to be a major barrier to doing
business, increasing entry and operational costs, as well as
hindering the freedom to do business. It continues to advocate for
revamping licensing requirements and procedures as a top priority.3
Some of these concerns are addressed in the draft Decree on State
Management of Business Licenses, one of the implementing decrees of
the Enterprise Law 2005 scheduled to take effect this July.
This bulletin summarizes the main shortcomings of the business
license regime in Vietnam, and discusses ways to streamline it under
the new Enterprise Law.
Why
Business Licenses are needed
According to the
Organization for Economic Cooperation and Development (OECD),
business licenses represent a prior approval, usually in writing,
from the government for an individual or an enterprise to conduct
commercial activities. Like other administrative tools, the purpose
of a business license is to protect public interests, in areas such
as security, the environment and safeguarding consumers. On one
hand, business licenses can be an effective way to address specific
problems while minimizing regulatory burdens. On the other hand, if
improperly implemented or abused, they can significantly increase
enterprises' market entry costs and ultimately undermine their
freedom to do business. The real challenge for the Government is to
find the right balance between the ease of doing business and
protecting the public interest.
Shortcomings of the current business license regime in Vietnam
A number of key issues
have been commonly cited related to business licenses over the past
few years. One major issue is the question of their validity many of
the existing licenses have been issued by Ministries and local
municipal authorities; by law, however, only the National Assembly,
the Standing Committee of the National Assembly, and the Government
are authorized to promulgate business licenses and conditions. In
addition, the underlying objectives of many business licenses and
conditions are unclear, making it difficult to assess which, if any,
public interests they intend to serve.
At present, the business
community considers the business licensing process to be opaque for
a number of reasons. First, the decision to grant a license is
heavily subject to the judgment of officials which increases the
prospect for discretion and lack of transparency. Second, the
criteria to grant a license are often unclear. Third, the reasons
given for refusal are often unsubstantiated in the eyes of
businesses. Fourth, there are no clear and consistent procedures for
appealing such decisions. In a recent study on business licensing,
businesses reported that some of the vague reasons they were given
by authorities for refusal included: i) inconsistency with local
socio-economic planning; ii) difficulty in exercising State control
due to the informality of the enterprise; and iii) potential harm to
the public without further explanation.4
Finally, there is the
issue of institutional weakness. The Task Force reported that one of
the biggest challenges it faces has been convincing the central and
local government agencies to give up a number of unnecessary
licenses. As it has been observed too frequently, trying to cancel
some licenses without changing the way that issuing agencies
regulate does not lead to sustainable change - experience shows that
those agencies tend to re-regulate and try to extend their powers
further. Despite the initial success of the Task Force, over the
past several years a number of new licenses have been issued and
many abolished licenses have been re-introduced in a different form.
In fact, at present there are a total of over 300 licenses and a
large volume of unwritten conditions in effect, imposing heavy
burdens on businesses.5 Moreover, even where licenses and
conditions are justified, it is difficult for some government
agencies to effectively monitor business compliance due to both lack
of staff numbers and capacity.
Vietnam
urgently needs a legal framework to govern the issuance and
implementation of business licensing
International experience
shows that in order to substantially reform the business licensing
system, changes must be made in three fundamental areas, namely to
establish processes which will: i) effectively monitor the lawmaking
process related to business licenses and conditions; ii) monitor the
licensing procedures; and iii) create mechanisms through which
citizens can appeal for the removal of unreasonable regulations that
affect their freedom to do business.6
The Decree on state
management of business licenses - one of the four implementing
decrees of the 2005 Enterprise Law - is a crucial step towards
establishing a strong mechanism for quality control and
implementation of business license regulations. The Decree lays out
the fundamental principles for issuing any license as well as
defining the licenses and specific conditions which apply to
different business activities. The Decree will introduce a number of
best practices in regulatory making process recommended by OECD,
such as: i) the basic required components for each business license,
including the mechanism for a person to file a claim in case he is
not granted a license or his application process drags on; ii) the
compulsory procedures for promulgating a business license, including
a regulatory impact assessment (RIA), public consultation and
petitioning the issuing agencies about serious consequences that the
business license may have on large community; and iii) the
transparency, objectiveness, and fairness of the licensing
procedures, including the time limits for the processing and
provision of a response for each application.
In order to be effectively
implemented, the draft Decree proposes setting up two important
institutions: the National Council for Business Licenses and the
Registration Office for Business Licenses. The former, to be
established by the Prime Minister, includes representatives from the
private sector. Its responsibilities are to oversee the procedures
for business license issuance and to control the quality of the
licenses to ensure they are justified and effective. The latter
agency would be responsible for ensuring that information on
business licenses and conditions is transparent and easily
accessible to businesses and the public. These two institutions will
help establish more frequent efforts to review the current stock of
business licenses and to control the flow of new ones.
(1) From early 2000 to the end of
2002, the Government and the Prime Minister, at the proposal by the
Enterprise Law Enforcement Task Force, decided to abolish 114
business licenses and converted 46 others into business conditions,
GTZ - CIEM, 6 years of implementing the Enterprise Law: Issues
and Lessons Learnt, 2006.
The number of business licenses has increased rapidly from 194 in
2002 to 246 in 2003 and 298 by the end of 2004, GTZ - CIEM, ibid.
(3) VCCI/The Asia Foundation, Replacing Business Licenses by a
Regulatory Oversight System, 2002.
(4) ADB/GTZ/PMRC, Business licensing: Current status and the way
forward, 2006
(5) According to a VCCI survey conducted in 2002, www.vcci.com.vn
(6) The Right of appeal is a legal action through which a person
requests the authorized agencies (mostly courts) to review and
protect his or her right. |
