ASSESSMENTS OF THE IMPACTS OF

VIETNAM'S WTO ACCESSION ON SOME

VIETNAMESE PRODUCTS AND SERVICES
Tran Trung Thuc
Deputy- Director, NCIEC - the Lead Consultant
Nguyen Khanh Ngoc
Deputy Director of the International Law Department, Ministry of Justice (legal
services)
Ha Huy Tuan
Director of the Tax Policy Department, Ministry of Finance (financial services)
Phan Tam
Deputy Director of the International Cooperation Department, Ministry of Post and
Telematics (telecom services)
Nguyen Huu Hung
International Cooperation Department, Ministry of Construction (construction
services)
Tran Quang Hung
Secretary General of the Electronics Association (electronics goods)
Chu Dang Trung
Deputy Head of the Law and Policy Section, Vietnam Pharmacy Agency
(pharmaceutical products)

Etude ralise dans le cadre du FSP Intgration

Sminaire de diffusion, le 24 aot 2007

During the negotiation toward WTO membership Vietnam made many commitments to
open up its market for foreign goods and services. But, due to the different levels of
commitments for market access and the local conditions for competitiveness, individual
Vietnamese products or group of products and service sectors or sub-sectors may have
different opportunities and face different challenges.
This Study is aimed at assessing the impacts of the WTO accession on some specific
product groups and service sectors of Vietnam. As there has been a number of studies on
other areas, namely banking services1, maritime services, vegetables and farm produce, steel,
cement, automotive industries2 within the FSP 2000-148 Project, this Study focuses on and
covers the following services and industries: legal services, financial services (only insurance
and securities), telecom services, construction services, electronics goods and pharmaceutical
products.
The national independent consultants have carried out the Study in accordance with the
study methodology, approach and structural arrangements agreed upon with the international
consultants: using qualitative analytical method referred to as SWOT; using quantitative
analyses for assessing the goods and services competitiveness referred to as RCA; the Study
has been based on the official data and reports of relevant state agencies, WTO negotiation
documents, relevant research papers and studies done by international and domestic
organizations.
The views and proposals contained in the Study are only of the authors and do not in
any way relate to or aimed at reflecting the views of any other agency, organization or
individual.

See "Study of the Banking Services in the Context of International Economic Integration" by the
National Committee for International Economic Cooperation, published by the National Politics Publishing
House, 2006
2

See "Study of the Impacts of the ASEAN-China Regional Free Trade Area on Vietnam" by the
National Committee for International Economic Cooperation, published by the National Politics Publishing
House, 2006

PART I WTO ACCESSION IMPACTS ON LEGAL SERVICES

In the World Trade Organization (WTO), legal services are a sub-sector of the
Professional Services in the Business Services heading. Although in international trade legal
services do not bring as much financial benefits as some other more important services, such
as banking services, financial services, telecom services... do, those who provide legal
services - lawyers, have been known to have "clout" or influence and even known to be the
"architects" of many legal rules and their interpretation in the WTO. Traditionally, due to
many different reasons, including the special nature of the legal profession, legal service
market had been highly protected and closed for foreign lawyers. The market has been really
opened up only since the end of the Uruguay Round. Therefore, legal services have been in
the focus of attention of WTO members: those that have comparative advantages in this area,
such as the US, UK, Netherlands or Australia...have pushed the liberalization moves, while
the others tend to protect these services for their local lawyers. These conflicting views in the
Uruguay Round led to the compromise: the levels of commitments of the WTO founding
members in legal services are very different and diverse3. However, the situation has been
changed substantially in recent years towards opening up the legal service market for foreign
lawyers as witnessed through the relevant commitments of the recently acceded countries4.
Legal services, in the context of international commerce, go normally side-by-side or
"follow" the economic, commercial and investment activities. That is why countries which
want to attract business and investment from outside need to promote the legal services
development, including allowing foreign investors and businessmen to use lawyers at their
choice.
In Vietnam, the supply of legal services has become a true legal profession, which has
enjoyed development opportunities since the launch of the Doi moi policy. It is to note the
important moves by Vietnam in adopting the 2001 Ordinance on Lawyers and the 2006 Law
on Lawyers that have created a favorable legal framework for the legal profession in Vietnam.
The so called "unilateral" opening up (without any connection with international
commitments) the market for foreign legal service providing organizations in early 1990est
was a new development toward creating better conditions for legal profession, including the
opportunities for local lawyers to learn from and to compete with foreign lawyers. All these
have contributed to the gradual positive developments of the legal profession in the country.
The pressure of the international economic integration to liberalize the legal service market
has emerged only since the implementation of the US-Vietnam Bilateral Trade Agreement
(BTA). The BTA implementation and particularly the issuance of the Government Decree
87/2003/N-CP dated 22/07/2003 (Decree 87) have been clear moves toward creating
favorable conditions for foreign legal service providers to come and practice in Vietnam. By
the end of the year 2006 there were 27 branches of foreign legal service providers and 7
foreign law firms with 90 foreign lawyers registered to practice legal profession in Vietnam5.
3

Generally, almost all WTO founding members have modest or low commitments in legal services.
Particularly, about half of them did not make any specific commitments in these services. See International
Trade in Legal Services by Sydney M. Cone.
4

See specific commitments of the recently acceded countries at www.wto.org

See Article "Legal Regulations on Legal Services by Foreign Legal Service Organizations and Foreign
Lawyers in Vietnam", Special Edition on Lawyers 2006, Journal Democracy and Law

The above-mentioned developments have influenced substantially the negotiation of the

commitments in legal services during the WTO accession. For example, the WTO potential
commitments in legal services could be predicted to be at least as open and liberal as those in
the BTA. This was understandable since all WTO members would enjoy automatically all the
benefits of Vietnam's commitments in the BTA without any need to renegotiate the
commitments due to the most favored nation treatment clause (MFN) of the WTO. It was
natural to foresee that WTO members would want something more than BTA commitments.
This part of the Study focuses on two main issues:
What are the WTO commitments of Vietnam in legal services, arbitration
service and conciliation service6?
What are the impacts of the WTO commitments in legal services, arbitration
and conciliation services on Vietnam?

I. VIETNAM'S WTO COMMITMENTS IN LEGAL SERVICES, ARBITRATION

AND CONCILIATION SERVICES
I.1 Legal Services
To understand the entire WTO commitments in legal services it is necessary to know the
approach and methodology, which are used to express and structure the commitments. Any
service sector or subsector mentioned in the Schedule of Specific Commitments needs to be
analyzed from three perspectives or dimensions:
o First, the text of the General Agreement on Trade in Services (GATS) and
the relevant commitments contained in the accession documents (accession
protocol, Working Party Report (the Report) and their annexes, including
the one on MFN exemptions);
o Second, the so called horizontal commitments applicable to all service
sectors and subsectors, unless otherwise provided in the specific
commitments; and
o Third, the specific commitments in the relevant service sectors or
subsectors.
The GATS contains 29 articles, which set out a general legal framework for
international trade in services, including important principles and rules, such as MFN,
national treatment (NT), transparency, domestic regulation... and other annexes. In addition,
the Report contains many paragraphs where Vietnam made commitments on its policies on
trade in services (which applies to legal services and all other services)7 as well as the general
6

In the WTO, arbitration and conciliation services are not part of the legal services under CPC code
861, but part of the services related to management consulting under CPC code 866.
7

See the Report paragraphs on policies affecting trade in services. For example, paragraphs numbered
506, 507 and 508 of the Report dated 16/10/2006:
506... Viet Nam would publish all laws, regulations and other measures of general application
pertaining to or affecting trade in services. Publication of such laws, regulations and other measures would
include the effective date of these measures and the general scope of services or activities affected. The

commitments on framework for making and enforcing policies. This part of the Study does
not look at these general commitments on service policies, but notes the entirety and
comprehensiveness of the WTO legal regulations on legal services.
With respect to the horizontal commitments in the Vietnam's Schedule of Specific
Commitments there are some important notes to bear in mind. These commitments apply to
all services for which Vietnam has made specific commitments during the WTO negotiation,
including legal services, arbitration and conciliation services. The commitments have been
developed in such a way to match the normal foreign investment context (for example, the use
representative of Viet Nam further confirmed that Viet Nam would publish a list of all organizations that
were responsible for authorizing, approving or regulating service activities for each service sector. In
addition, from the date of accession Viet Nam would publish in the official journal all of its existing
licensing procedures and conditions. The Working Party took note of these commitments.
507. With respect to licensing procedures, the representative of Viet Nam confirmed that Viet Nam
would ensure that its licensing procedures and conditions would not act as independent barriers to market
access. The representative of Viet Nam confirmed that for those services included in its Schedule of
Specific Commitments, Viet Nam would ensure that: (a) Viet Nam's licensing procedures and conditions
were published prior to becoming effective; (b) in that publication, Viet Nam would specify the timeframe
for the relevant authorities' decision on the license; (c) relevant authorities would review and make a
decision on licensing within the period specified in official procedures; (d) any fees charged in connection
with the filing and review of an application would not constitute an independent barrier to market access;
(e) on the request of an applicant, Viet Nam's relevant regulatory authority would inform the applicant of
the status of its application and whether it was considered complete.

An application would not be

considered complete until all information specified in the relevant implementing measure was received. If
the authority required additional information from the applicant, it would notify the applicant without
undue delay and specify the additional information required to complete the application. Applicants would
have the opportunity to cure deficiencies in the application; (f) on the request of an unsuccessful applicant,
a regulatory authority that had denied an application would inform the applicant in writing of the reasons
for denial of the application; (g) where an application had been denied, an applicant may submit a new
application that attempted to address any prior problems; (h) where approval was required, once the
application was approved, the applicant would be informed in writing without undue delay; and (i) where
Viet Nam required an examination to licence professionals, such examinations would be scheduled at
reasonable intervals.
508. The representative of Viet Nam further confirmed that for the service sectors included in Viet Nam's
Schedule of Specific Commitments, the relevant regulatory authorities would be separate from, and not be
accountable to, any service suppliers they regulated. Further, the representative of Viet Nam confirmed
that, except in emergency situations or for regulations and other measures involving national security,
specific measures setting foreign exchange rates or monetary policy and other measures the publication of
which would impede law enforcement, Viet Nam would (a) publish in advance any regulations or other
implementing measures of general application that it proposed to adopt and the purpose of the regulation or
other implementing measure; (b) provide interested persons and other Members a reasonable opportunity to
comment on such proposed regulation or other implementing measure; and (c) allow reasonable time
between publication of the final regulation or other implementing measure and its effective date.

of the investment forms (business association) of the Investment Law); therefore, there is an
important rule that if the specific commitments in specific services are different from the
horizontal commitments, the specific commitments prevail. The horizontal commitments
contains two following relevant important commitments:
- First, regarding the commercial presence "the conditions of ownership, operation and
juridical form and scope of activities as set out in the respective licenses or other form of
approval establishing or authorizing the operation or supply of services by an existing foreign
service supplier shall not be made more restrictive than they exist as of the date of Vietnam's
accession to the WTO". This reflects the "standstill" rule in the WTO negotiation for services.
- Second, the intra-corporate transferee commitments for presence of natural persons.
I.1.1 Scope of Legal Services in the WTO Classifications
Service sectors and subsectors in the WTO are classified in accordance with the UN Central
Product Classification (referred to as the CPC) to ensure the uniformity and convenience for
trade in services. Legal services in the WTO are coded as CPC 861, which are then further
classified into smaller sub-sub sectors with 4 or 5 digits, as follows:
CPC861

Legal Services
8611

Legal advisory and representation services in the

different fields of law
86111 Legal advisory and representation services in
criminal law
86119 Legal advisory and representation services in
judicial procedures concerning other fields of law

8612

86120 Legal advisory and representation services in

statutory procedures of quasi-judicial tribunals,
boards, etc.

8613

86130 Legal documentation and certification services

8619

86190 Other legal advisory and information services

I.1.2. Vietnam's WTO Commitments in Legal Services

During the WTO negotiation, certain countries, including the US, EU, Canada,
Australia... expressed interests in the legal service market of Vietnam. All the bilateral
accession agreements had been combined and synthetized as specific commitments on legal
services to be as follows:

1.

BUSINESS SERVICES
6

A. Professional Services
LIMITATIONS ON MARKET ACCESS

(a) Legal services

(CPC 861,
excluding:

LIMITATIONS ON
NATIONAL
TREATMENT
(1) None.
(2) None.
(3) None.

(1) None.
(2) None.
(3) Foreign lawyers organizations8 are
permitted to establish commercial
- Participation in
presence in Viet Nam in the following
legal proceedings in
forms:
the capacity of
defenders or
- Branches of foreign lawyers
representatives of
organizations;
their clients before
- Subsidiaries of foreign lawyers
the courts of
organizations;
Viet Nam;
- Foreign law firms9;
- Legal
- Partnerships between foreign
documentation and
lawyers organizations and
certification
Viet Nam's law partnerships.
services of the laws
of Viet Nam)
Commercial presences of foreign
lawyers organizations are permitted to
make consultations on Vietnamese
laws if the consulting lawyers have
graduated from a Vietnamese law
college and satisfy requirements
applied to like Vietnamese law
(4) Unbound, except as
practitioners.
indicated in the
horizontal section.
(4) Unbound, except as indicated in the
horizontal section.

Column 1 of the chart indicates the sector or subsector where Vietnam has made
committments. So, for legal services Vietnam has accepted committments related to all legal
services contained under the code CPC 861, except two categories of services:
i/ participation in legal proceedings in the capacity of defenders or representatives of
their clients before the courts of Viet Nam;
ii/ legal documentation and certification services of the laws of Viet Nam

A "foreign lawyers organization" is an organization of practicing lawyers established in any

commercial corporate form in a foreign country (including firms, companies, corporations, etc.) by one or more
foreign lawyers or law firms.
9

Foreign law firm is an organization established in Viet Nam by one or more foreign lawyers
organizations for the purpose of practicing law in Viet Nam.

Column 2 contains all the limitations on market access for modes used to provide legal
services: cross border supply (Mode 1), comsunption abroad (Mode 2), commercial presence
(Mode 3) and presence of natural persons (Mode 4). In this column, Vietnam is committed to
limitation free for modes 1 and 2. For mode 3, there are four business association forms that
can be used by foreign legal service organizations to operate in Vietnam: branch, subsidiary
of foreign law firm, foreign law firm and parnership between foreign and Vietnamese law
partnerships.
Column 3 contains all the limitations on the national treatment for foreign legal service
organizations with respect to the legal services where Vietnam made committments.
According to the chart, there is no such limitations; therefore, foreign legal service
organizations operating in Vietnam may perform the same services as Vietnamese ones do
(except appearance before courts and legal documentation and certification).
For mode 4 - presence of natural person, Vietnam does not have any specific
committments in legal services, except the general committments in the horizontal section.
I.1.3. Other International Committments in Legal Services and the BTA
Since Vietnam has integrated itself into the world and regional communities, it has made
a number of other international committments in legal services.
a. In ASEAN Free Trade Area (FTA): the committments in this FTA are basically the as
liberal as those regulations of the Decree 87, as follows:
SECTOR
AND
SUBSECT
OR
(a) Legal
services
excluding
practice of
Vietnamese
law

CPC
CODE

LIMITATIONS ON MARKET ACCESS

861

(1) None.
(2) None.
(3) Foreign lawyers organizations10 are
permitted to establish commercial presence
in Viet Nam in the following forms:
-

Branches of foreign lawyers

organizations;
Foreign law firms11;
Partnerships between foreign lawyers
organizations and Viet Nam's law
partnerships.

LIMITATIONS
ON
NATIONAL
TREATMENT
(1) None.
(2) None.
(3) None,
except
Foreign
lawyers
working in
foreign
legal service
presence
in
Vietnam may
not take part in

10

A "foreign lawyers organization" is an organization of practicing lawyers established in any

commercial corporate form in a foreign country (including firms, companies, corporations, etc.) by one or more
foreign lawyers or law firms. Foreign lawyers organizations shall be responsible for their activities before the
law of Vietnam
11

Foreign law firm is an organization established in Viet Nam by one or more foreign lawyers
organizations for the purpose of practicing law in Viet Nam. Foreign law firms shall be responsible for their
activities before the law of Vietnam

Foreign lawyers working in foreign legal

service
presence in Vietnam may not take part in legal
proceedings in capacity of defenders or
representatives for clients
Commercial presences of foreign lawyers
organizations are permitted to make
consultations
on Vietnamese laws if the consulting lawyers
have graduated from a Vietnamese law college
and satisfy requirements applied to like
Vietnamese law practitioners.
(4) Unbound, except as indicated in the
horizontal section.

legal
proceedings in
capacity of
defenders or
representatives
for clients

(4) Unbound,
except as
indicated in
the
horizontal
section.

It is to note that Vietnam's service commitments in ASEAN FTA are exempted from the
WTO MFN principle under Article V of the GATS. This means, whatever Vietnam commits
in ASEAN shall not automatically apply to non-ASEAN countries.
b. The committments in legal services Vietnam made in the BTA were the most liberal
ones by the year 2000. But, these committments later had become less liberal than those
regulations of the Decree 87 issued in 2003. The BTA committments are as follows:
SECTOR
AND
SUBSECT
OR
Legal
services
PCPC 861
(excluding
practice of
Vietnamese
law

LIMITATIONS ON MARKET ACCESS

LIMITATIONS
ON NATIONAL
TREATMENT

(1) None.
(2) None.
(3) Companies of the US may supply services in the
form of branches, company with 100% US invested
capital, and US-Vietnam joint ventures.
Practicing lawyers of the US are not permitted to
participate in legal proceedings in the capacity of
defenders or representatives of their clients before the
courts of Vietnam.
The term of operation of a branch of a law form of the
US is 5 years from the date when license is granted and
may be extended every 5 years.
Branches of US law firms, law firms with 100% US
capital, joint venture law firms between Vietnamese law
firms and US law firms are permitted to make
consultations on Vietnamese laws if the consulting
lawyers have graduated from a Vietnamese law college
and satisfy requirements applied to like Vietnamese law
practitioners.

(1) None.
(2) None.
(3) None.

(4) Unbound,
except as
indicated in
the horizontal
section.

(4) Unbound, except as indicated in the horizontal

section.
c. The WTO negotiation in legal services has been influenced by many factors,
including the domestic legal regime on legal services at negotiating time (the Decree 87) and
the commitments Vietnam has made in the BTA (under the WTO rule on MFN, the BTA
benefits shall be granted automatically to other WTO members; this means BTA
commitments in legal services serve as the "floor" or starting point for negotiation). As a
result of the negotiation, Vietnam's WTO committments in legal services if compared with the
BTA committments, have some following differences:
Firsrt, For column 1 of the charts or schedules of specific committments, it is evident
that the WTO shedule contains different scope of committment from the BTA one. Namely,
In the BTA, Vietnam excludes entirely the practice of Vietnamese laws from the
committment, although it offers an opportunity for practicing Vietnamese law if the
consulting lawyers meet all the requirements applicable to the like Vietnamese lawyers
(column 2). The BTA format was used by Vietnam to offer its committments in legal services,
but faced certain opposition from WTO members as it seemed to lack of consistency between
column 1 and column 2. Those members urged Vietnam to change the format by moving the
Vietnamese law practice from column 2 to column 1. At first glance, such move looks like of
technical nature, but careful look may find that it may change substantially the scope of
committment. As a negotiated compromise, the final scope of committment in legal services
excludes only two areas:
- participation in legal proceedings in the capacity of defenders or representatives of their
clients before the courts of Viet Nam;
- legal documentation and certification services of the laws of Viet Nam.
All those seem to indicate that the scope of committment in legal services in the WTO is
broader than the one of the BTA.
Second, there are differences in columns 2 as follow:

In terms of business association forms of foreign legal service organizations in

Vietnam, the BTA provides for only three forms: branch, company of 110% US invested
capital and US-Vietnam joint venture; while in the WTO foreign legal service organizations
may operate in Vietnam under 4 forms: branch, subsidiary, foreign law firm and joint
partnership. Generally, for the business form, the WTO committments and BTA
committments are the same if a subsidiary of foreign law firm can be understood as a foreign
law firm established by a single foreign legal service organization and the partnership form as
substitute for joint venture form. But, in the WTO there is no clear committment for joint
venture form, except partnerhsips between foreign law firms and local firms.

In terms of business duration, the BTA sets out the term of 5 years renewable for 5
years each for branches; while there is no such limitation in the WTO for branches.

The prohibition for participating in legal proceedings in the capacity of defenders

or representatives for clients before the court of Vietnam in collumn 2 of the BTA schedule
has been moved to collumn 1 of the WTO schedule.
I.2. Arbitration and Conciliation Services
I.2.1 Arbitration and Conciliation Services as Clissified in the CPC
10

In the CPC classification, arbitration and conciliation services are part of the services
related to management consulting coded 866 where the arbitration and conciliation services
are coded 86602.
Unlike legal services coded 861, which are divided further into smaller sub sectors with
5 digit codes, the arbitration and conciliation services are of 5 digit code and are not divided
into smaller sub sectors.
I.2.2. Vietnam WTO Committments
In the WTO negotiation, some WTO members requested Vietnam to open arbitration
and conciliation services. Based on the bilateral accession agreements with the members, the
WTO Secretariat has synthetized and developed the following final committments of Vietnam
in these services:

- CPC 866,
except
CPC
86602
- Arbitration
and
conciliation
services
for
commercial
disputes
between
businesses
(CPC
86602**)

Services Related to Management Consulting

Limitations on Market
Limitations on
Additional
Access
National
Committments
Treatment
(1) None
(1) None
(2) None
(2) None
(3) None, except
(3) None
...
for
arbitration
and
conciliation services for
commercial disputes between
businesses (CPC 86602**):
for the period of 3 years from
the date of accession:
unbound. Thereafter: none.
(4) None, except as
(4) Unbound, except as indicated in the
indicated in the horizontal horizontal section
section

Column 1 of the chart shows the services for which Vietnam made commitments.
Accordingly, Vietnam has made commitments for the entire arbitration and conciliation
services under CPC 86602, but only in connection with commercial disputes between
businesses. The interpretation of concepts "commercial" and "businesses" is subject to
Vietnamese law and international practice.
Column 2 contains limitations on market access regarding 4 modes of service supply:
cross border supply (Mode 1), comsumption abroad (Mode 2), commercial presence (Mode 3)
and presence of natural persons (Mode 4). For modes 1 and 2, Vietnam does not have any
limitation. This means Vietnam allows Vietnamese businesses to use foreign arbitration and
conciliation services for their commercial disputes. For mode 3-commercial presence, after
three years from the date of accession, foreign arbitration and conciliation service suppliers
are allowed to be established in Vietnam in any forms mentioned in the horizontal section
(which is developed based on the Investment Law and Enterprise Law).

11

Column 3 contains limitations on national treatment in arbitration and conciliation

services for commercial disputes between businesses. Accordingly, foreign arbitration and
conciliation service suppliers are allowed to provide the same services as Vietnamese service
suppliers do for commercial disputes between businesses.
I.2.3. Other International Commitments in Arbitration and Conciliation Services
In other international agreements of Vietnam, including the BTA, Vietnam does not
make any specific commitment in arbitration and conciliation services. That means prior to
the WTO commitment, the arbitration and conciliation services are entirely regulated by
Vietnam domestic law.
II. IMPACTS OF THE WTO COMMITMENTS
ARBITRATION AND CONCILIATION SERVICES

IN

LEGAL

SERVICES,

II.1. Legal Services

It is to note that the negotiation in legal services in the context of WTO accession was
carried out on the basis of the "floor" BTA commitments and the domestic regulations at that
time (Decree 87). When Vietnam got the first bilateral accession agreement that contains
commitments in legal services (the one with EU) in 10/2004, the commitments with EU
becomes fixed new higher "floor". At the end of the negotiation process Vietnam passed the
Law on Lawyers of 2006 which enters into legal force on 1/1/2007. The new legal rules on
legal practice of foreign service organizations in Vietnam are contained in Chapter VI of the
2006 Law on Lawyers, which are quite different from the Decree 87 in certain aspects. The
followings are the assessments of the compatibility of the Law with the WTO commitments in
legal services:
First, regarding the scope of practice (column 1), WTO commitments do not allow
access to legal proceedings in the capacity of defenders or representatives of their clients
before the court of Vietnam. While Article 70 of the Law on Lawyers provides "Branches and
foreign law firms operating in Vietnam ...are not allowed to designate a foreign lawyer to take
part in legal proceedings in the capacity of advocates, defenders for their clients' interests.
representatives of clients...before any Vietnam's legal proceeding agency, but allowed to
assign their Vietnamese lawyers working in their organizations to be representatives or
defenders for their clients' lawful rights and interests before the court of Vietnam for cases
where the branches or firms provide legal advice, except criminal cases.
This means the scope of practice under the WTO commitment is broader than that of the
Law on Lawyers: the commitment prohibits only the legal work in legal proceeding before the
court of Vietnam. However, the Law on Lawyers allows Vietnamese lawyers working in
foreign legal service organizations to participate in legal proceeding before the court of
Vietnam, except criminal proceedings - this seems to show that the Law is more liberal than
the WTO commitment with regard to legal proceeding before the court.
Second, for legal documentation and certification services, the Law on Lawyers does not
set out any specific rules. But, the Law on Notarization adopted at the end of 2006 requires a
notary to possess Vietnamese citizenship - this is consistent with the WTO commitment.
Third, regarding the business form, Article 69 of the Law on Lawyers provides that a
foreign legal service organization may supply services in Vietnam in one of the following
business form: i/ branch of foreign legal service organization; ii/ limited liability law company
with 100% foreign capital; and limited liability joint venture company. While the WTO
12

commitment allows 4 forms of commercial presence in Vietnam: branch, subsidiary of

foreign law firm, foreign law firm and partnership between foreign and Vietnamese law
partnerships.
Further, Article 72.1 of the Law defines "A limited liability law company with 100%
foreign capital shall be a legal service organization established in Vietnam by one or more
foreign legal service organizations". This means that the Law implies the form of subsidiary
of foreign legal service organization as a company set up by one foreign service organization.
In short, regarding the business forms for commercial presence, there is only one major
difference: the Law provides for limited liability joint venture company, while the WTO
commitment mentions partnerhip between foreign legal service organizations and Vietnamese
law partnerships (this form of partnership was provided for in Decree 87).
Another note is that legal rules on enterprises do not provide for the form of partnership
between different organizations, but only bewteen individuals (natural persons): Article
130.1(b) of the Law on Enterprise states "A partner in a partnership shall be shall be a natural
person who must bear personal [unlimited] liability for any obligation of the partnership."
Proposal: Because of differences between the Law on Lawyers and Vietnams
commitments on legal services as above mentioned, in the process of adopting Vietnams
accession into the WTO, the National Assembly has decided to apply those commitments
according to the Resolution No.71/2006/QH11 ratifying the WTO Protocol on Accession of
the Socialist Republic of Vietnam to make it consistent with the relevant WTO commitment
in legal services. In specific, by ratifying this Resolution, Vietnam has complied with
commitments as a Member of the WTO. However, Vietnam should oversee implementation
of Vietnams commitments of legal services in order to lay out further appropriate
adjustments creating favorable conditions for better contribution of this services into
Vietnams development process.
II.2. Arbitration and Conciliation Services
According to the current Ordinance on Commercial Arbitration, the only commercial
presence form for arbitration organizations in Vietnam is so called arbitration center. The
center is a legal entity which has its own seal and bank account. The center maitains its own
roster of arbitrators. One of the first conditions for establishing an arbitration center is to have
at least 5 founding arbitrators who shall meet all the quanlifications set by law.
Currently, Vietnamese law provides only for the establishment and operation of
Vietnamese arbitration centers, but not of foreign arbitration organizations. The current law
also does not set out any rule for conciliation of commercial disputes between businesses by
foreign conciliation service organizations in Vietnam.
In addition, under the Ordinance an arbitrator must be Vietnamese citizen; therefore,
foreigners or stateless persons may not become arbitrators of any existing Vienamese
arbitration centers.
Further, as there is no limitation for mode 2 - comsumption abroad, Vietnam allows
domestic businesses to recourse to arbitration in foreign countries. The Ordinance on
Commercial Arbitration does not have a such specific rule under which the Vietnamese
disputing parties (not involving foreign elements) may use foreign arbitration service to solve
their disputes.

13

The column 2 on limitations for market access indicates that foreign arbitration and
conciliation service organizations will not face any restriction regarding the form for
commercial presence after 3 years from the date of Vietnam's accession to the WTO.
In short, compared with the relevant WTO commitments, the current law of Vietnam
basically does not provide any general rule for the establishment and operation of foreign
arbitration and conciliation service organizations in Vietnam.
Proposal: Since there are 3 year transitional period for Vietnam to implement its
commitments on arbitration and conciliation services, it is advised to have in the 2008
Legislative Agenda of the National Assembly a Bill on Arbitration and Conciliation (it is

possible to divide two issues of arbitration and conciliation into two separate legal
texts) to make the current law consistent with the relevant WTO commitment on commercial
arbitration and conciliation services. However, before opening up the market for foreign
service providers, it is appropriate to issue an early legal normative document to allow
commercial conciliation services to be supplied by domestic service providers.

PART II- IMPACT OF THE WTO ACCESSION ON INSURANCE SERVICE

MARKET
I. INSURANCE SERVICE MARKET IN VIETNAM
1. Development of Insurance Service Market in Vietnam
Before 1975, there were some insurance companies operating in the South of Vietnam.
In the North, Vietnam Insurance Corporation (Bao Viet) was established on January
15, 1965 providing insurance services for import and export goods and maritime
insurance services in the first years of its operation.
After 1975, Bao Viet has expanded its market to the South and then nationwide,
becoming the biggest and leading insurance company in the insurance market of
Vietnam.
On December 18, 1993, Decree No 100/CP on Insurance Business was adopted,
marking a milestone for the insurance industry of Vietnam. In 1999, the insurance
market rapidly developed with the establishment of 5 foreign invested insurance
companies.
Since 2003, there have been many important changes in Vietnam insurance market as
follows:
- Vietnam Insurance Corporation (Bao Viet) has been reorganized to become a
business group, comprising of financially independent subsidiaries. Vietnam Insurance
Company specializes its business operation in non-life insurance services and Vietnam
Life Insurance Company specializes in life insurance services;
14

- Some State owned insurance and reinsurance companies have been equitized to
become joint stock companies;
- Some joint stock insurance companies and insurance brokerage companies have been
newly established.
In 2006, Vietnam insurance market was very busy with the presence of 31 insurance
companies, varying in shape and size and operating in the fields of life insurance, nonlife insurance, re-insurance, insurance brokerage. In addition, the presence of more
than 30 representative offices of foreign insurance companies has also facilitated the
development of the insurance market.
INSURANCE MARKET STRUCTURE IN THE PERIOD 1993-2005
Market Share

1993

1996

1999

2002

2003

2004

2005

10

13

14

14

15

Life
insurance
enterprises
Non-life
insurance
enterprises

Reinsurance
enterprises
Insurance Brokerage
enterprises

Total number
enterprises

15

20

24

26

31

of

2. Comments on the Development of Insurance Service Market in Vietnam

In recent 10 years, the growth rate of the insurance market has been high. The average
growth rate with respect to premium income was approximately 38 % per year in the
period 1993-2004. For non-life insurance services and life insurance services, the rates
were 23 % and 81 % per year respectively in the period 1999-2004 despite the fact that
life insurance services have been provided only since 1996, but it has full potentials
for development. However, the growth rate of Vietnam insurance market has been
gradually slowing down, equivalent to the rate of insurance markets in the region (16%
in Vietnam in comparison with 9 % in the South East Asia in the period 2003-2004).
Similarly, in 2005, the growth rate rapidly decreased and lower than the GDP growth
rate.
The contribution of insurance services in the GDP rapidly increased in the period
1993-2004. In 1993, income contribution of the insurance industry accounted for 0.37
% of the GDP and that rate increased to 2 % in 2004. Especially, the rate was nearly 1
% in the period 1999-2002.
15

In investment activities, insurance enterprises have become a very important channel

for mobilizing capital to serve the cause of socio-economic development of the
country. In 1999, the capital invested by the insurance sector in the economy was
VND 2,662 billion. However, in 2002, the capital amount was VND 9,995 billion or
increased by 3.8 times after only 3 years. Especially, in only 1 year, the capital
invested was VND 10,000 billion higher than that in 2004. Investment structure has
been aggressively changed from short-term investment to long-term investment in the
forms of buying Government bonds, directly investing in infrastructure, developing
business for serving people.
There is a big work force in the insurance industry. In parallel with the development in
quantity and the expansion in business of insurance enterprises, the work force in the
insurance industry has also become bigger and bigger. The number of laborers and
insurance agents was 1,000 in 1993, increased to 30,000 in 1999 and then to 136,900
in 2004, which was 136.9 times higher than that in 1993.
3. Assessment of Competitiveness of Vietnam Insurance Enterprises
Although Vietnam insurance industry has rapidly developed in recent years, insurance
enterprises are still facing some shortcomings with respect to the competitiveness as
follows:
a. Lack of Long-term Competition and Development Strategy
Like in China in the first years after its WTO accession, in Vietnam, life insurance
companies often compete by employing as many agents as possible, non-life insurance
companies often compete by attempting to reduce insurance premium as much as
possible. These are not appropriate long-term strategies.
b. Lack of Hospitality in Serving Clients
While foreign insurance companies appreciate the importance of hospitality and care
towards clients, domestic insurance companies lack a strategy in building hospitality
and care towards clients.
c. Lack of Good Governance
Lack of good governance in insurance companies is partly due to their short time
operating in insurance market. Junior personnel can learn basic work skills very fast
but senior managers need a long time to learn and experience in practice. It is true for
every industry in general and insurance companies in particular.
Managers of domestic insurance companies may be in managing positions for a long
time but they still lack of experience and knowledge on market economy. Lack of
16

good governance such as delay in making decisions, unclear responsibilities among

staff, salary and bonus are not corresponding with work performance, junior personnel
has a limited discretion is still popular in domestic insurance companies. It is a popular
phenomenon in Vietnam, not only in the insurance industry.
In addition to managing skills, managers also needs specialized knowledge on
insurance. However, managers, especially senior ones do not need specialized
knowledge much. What is more important is the ability to learn and govern companies
and to form and implement long term strategies.
d. Lack of Skills in Structuring Premium
One of the weaknesses in domestic insurance companies is that they lack skills in
calculating and structuring premium. In doing so, experts need mathematic skills to
identify insurance premium as well as standby amount. Insurance companies cannot
compete without such good experts because they need to identify an appropriate
premium. If the premium is too low, insurance companies cannot make profits and if
the premium is too high, they are not competitive in providing their services.
II. VIETNAMS COMMITMENTS IN THE WTO
Vietnams commitments in the WTO are herein briefed and compared with the current
Vietnamese legislation as follows:

Market
Access

Vietnams
Committments in the
BTA
(1)
(2)
(3)
(4)

Vietnam Legislation
(1)
(2)
(3)
(4)
(1) None
(2) None
(3) Foreign-invested insurance
enterprises shall be subject to
limitations as follows:

(1) None
(2) None
(3) None
As of January 2012,
foreign insurance
enterprises shall be
National
Treatment allowed to establish
branches provided that
prudent criteria issued by
the International Insurance
Association are observed.

Limited
in the scope of operation when
providing insurance services to
State-owned enterprises and for
State-funded works;


The
establishment of branches shall
be allowed only after certain
17

Vietnams
Committments in the
BTA

Vietnam Legislation
time frames and with a limited
number.
(4) Work permits are required.

(4) Unbound, except as

indicated in the horizontal
section.
Note:
(1):
(3):

: Consistent
Cross-border supply
Commercial presence

(2):

Consumption abroad
(4): Presence of natural person

It can be seen that basically, Vietnams WTO commitments are consistent with
existing Vietnamese legislation. However, these commitments are high in comparison
with that of other WTO member with the same level of development.
III. ASSESSMENT OF WTO COMMITMENTS IMPACTS
1. Positive Impacts
a. Good Approach to International Standards by Vietnamese Legislation
Vietnams WTO Commitments are basically consistent with its legislation. However,
in the implementation of these commitments, Vietnam still has to adjust its legal
system to make it the most consistent as well as to make the market work safely and
effectively. This adjustment is not only necessary for the insurance industry but also
for other financial industries in order to improve the legal environment for a better
performance of insurance companies. It also creates more and more benefits for
insurance companies and their clients when operating under a good legal system.
b. More Foreign Investment Mobilized
In order to develop a safe and effective market, sufficient capital is needed. In the
current context of Vietnam, domestic enterprises including State owned enterprises
and joint stock enterprises would face difficulties in mobilizing capital. Private
enterprises are even more difficult in mobilize big amount of capital. Therefore,
Vietnams WTO commitments to an easier market access shall facilitate and attract
more foreign investment as an extra source of capital.
c. Risks Are Effectively Managed for Creating a More Attractive Investment
Environment in Vietnam
18

With commitments for an easier market access, foreign insurance companies, which
are well known and experienced in risk assessment and management, shall participate
and operate in Vietnam market. Risk assessment and management shall be made not
only when insurance companies sign an insurance contract with its clients but also
when they invest their capital. The participation of these well known insurance
companies shall provide an effective risk assessment and management tool to Vietnam
economy in general and Vietnam enterprises and individuals in particular. Effective
risk assessment and management shall ensure enterprises and individuals facilitating
their business and improving investment environment.
2. Negative Impacts
a. Untargeted Group of Clients
In 2000, the Swiss Re Company released a report on economic study with the
expressed concerns that foreign insurance companies may choose to target and provide
services to only some groups of clients and therefore, some other groups of clients
shall be ignored. Foreign insurance companies shall focus on financially powerful
clients and not provide services to other groups of clients, especially who have low
income.
b. Domestic Companies Will Lose Market Share and Become Having Less Competitive
Advantages Compared with Foreign Companies
It is the most concerned matter in the trend of globalization. Although domestic
insurance companies enjoy some benefits from the participation of foreign insurance
companies in Vietnam market, they still feel uncomfortable when their market shares
are gradually lost. The whole market grows and every company may develop.
However, domestic insurance companies desire to develop in terms of both their size
and market share. The Government may worry seeing that market shares are
transferred from domestic insurance companies to foreign insurance companies. The
single Prudential firm may leave the Vietnam Life Insurance Company far behind. At
the end of the second quarter of 2005, domestic companies only accounted for 40 % of
market share. This percentage tends to decrease further.
IV. RECOMMENDATIONS AND SOLUTIONS FOR VIETNAM INSURANCE
COMPANIES
Taking account the Chinese experience, Vietnam insurance companies should
establish and develop a long-term strategy. Company income from premium is an
important indicator but it is not the most important one in the current context of
Vietnam. Insurance companies should establish a development strategy, building
human resource development indicators (for example, improving specialized
knowledge and management skills) or developing indicators on performance
19

effectiveness (for example, standardizing processes and saving working time). Surely,
a long-term development strategy shall create a firm base for future development.
Some solutions are recommended to Vietnam insurance companies in the current
period as follows:
1. Building a Service Hospitality and Attitude Towards Clients
Studies have shown that domestic insurance companies do not pay attention to
hospitality and care towards their clients while foreign insurance companies have built
and developed a hospitability and caring strategy in a successful manner in Vietnam.
Foreign insurance companies standardize work processes, creating favorable
conditions for clients in solving problems, paying premium, requesting information
and paying damages. In contrast, domestic insurance companies do not have an
appropriate development strategy and an implementation plan for building hospitality
and care although they are aware of the importance. Therefore, domestic insurance
companies should improve their performance in order to provide better customer care
services. In addition, insurance companies should stand in clients shoes to understand
clients desire, assess and improve their services and hospitability towards clients.
2. Improving Managing Skills
Managers of domestic insurance companies may be in managing positions for a long
time but they still lack of experience and knowledge on market economy. This is a
popular phenomenon in Vietnam, not only in the insurance industry. In addition to
managing skills in general, managers also need specialized skills in insurance.
Therefore, domestic insurance companies should focus on long-term training. They
should employ foreign managers or sell shares to foreign investors in order to bring
their experience and managing skills to conduct business in Vietnam. Domestic
insurance companies should also look for strategic partners to establish long-term
cooperation relationships.
3. Improving Ability to Insure Complex Risks
At present, despite the lack of ability to insure complex risks, domestic companies
may still be able to secure insurance contracts with respect to State funded projects,
which are almost to be reinsured to foreign insurance companies. In future, limitations
on foreign insurance suppliers shall be abolished or removed in accordance with WTO
commitments. Therefore, domestic insurance companies should immediately learn
skills to insure complex risks by training, employing foreign experts, collecting
statistics because this work is very complex and time consuming.
4. Building a System for Collecting, Keeping and Handling Statistics
20

Domestic insurance companies should be very active in this work area because it is
very crucial to every company.
5. Applying Information Technology
Domestic insurance companies are left far behind by their foreign competitors with
respect to the application of information technology (IT). Domestic companies should
solve this problem immediately by establishing an appropriate IT strategy to
accommodate future changes. Clearly, spending an amount of millions US dollars
investment in an IT system is really a big challenge for small companies. However,
domestic insurance companies should try their best to have an appropriate IT strategy.
6. Developing a Network of Traditional Clients
Vietnam insurance companies should spare no effort to take advantage of their market
experience, knowledge and relations in order to develop a network of traditional
clients. It is very important factor supporting these companies to employ resources to
implement their strategic development plan and compete with powerful foreign
insurance companies.
7. Improving Financial Potentials
In the insurance industry, foreign insurance companies investing in Vietnam are often
subsidiaries of powerful and leading financial groups in the world market. To be ready
for competition, the local Bao Viet has been reorganized to become a financial group
with the support form the State. Other State owned enterprises, joint stock companies
or private companies are not entitled to this kind of support. Therefore, they should
establish and develop their own strategy to be more financially stable in order to face
challenges in the market, then expand and develop. In addition, Vietnam insurance
companies should seriously pay attention to possible mergers or cooperation with
Vietnam banks as experienced in China.

PART III:
MARKET

IMPACTS OF THE WTO ACCESSION ON SECURITIES

I. CURRENT
MARKET

STATUS

AND

COMPETITIVENESS

OF

SECURITIES

1. Development History of Securities Market

The State Securities Committee (SSC) was established on November 28, 1996 in
accordance with Decree No 75/CP of the Government. At that time, the SSC was an
agency attached to the Government, performing the functions of State management for
securities and securities market. The SSC played a very important role in creating
21

favorable conditions for the establishment of the securities market; mobilizing capital
for development investment; ensuring a safe, transparent and effective operation of the
securities market; and protecting legitimate rights and benefits of investors.
On February 19, 2004, the Government issued Decree No 66/2004/ND-CP transferring
the SSC to the Ministry of Finance in order to improve the effectiveness of
coordination works among relevant State authorities in promoting the development of
securities market.
In addition to the establishment and operation of the SSC, Ho Chi Minh Securities
Trading Center (HoSTC) and Hanoi Securities Trading Center (HaSTC) have also
become into operation since July 2000 and March 2005, respectively. The Securities
Depositing Center was also established and operated since May 2006.
With respect to legal framework, on June 29, 2006, the Law on Securities was adopted
by the National Assembly, which came into force on January 01, 2007.
The practice has shown that the improvement of organization and performance of the
SSC as well as Vietnam legislation on securities has had a very good impact on the
fruitful development of the securities market in terms of both quality and quantity,
which can be seen in the Table below:

Year /
Criteria
Number of
companies
listed
Nominal
values of
listed capital
(in billion
VND)
Capitalized
Percentage
of share
market
(% GDP)
Number of
securities
companies
Number of
accounts
opened

2000
5

2001

2002

20

2003

2004

22

26

2005
32

2006
76

321

484

1.000

1.120

1.336

1.918

16.016

0,28%

0,34%

0,48%

0,39%

0,64%

1,21%

13%

11

13

2.908

8.774

13.520 15.735

22

21.616

14

21

31.316

85.000

2. Comments on Competitiveness of the Securities Market

2.1. Strengths
As seen in the Table above, the securities market has been rapidly expanding. By
November 2006, there were 76 companies listed with the total value of shares of VND
110,000 billion, accounting for 13 % of the GDP (ten times bigger than that at the end
of 2005).
In addition, there are nearly 400 types of Government bonds, municipal bonds, and
bank bonds listed with the total value of more than VND 70,000 billion, accounting for
8.5 % of the GDP. The total value of both bonds and shares accounts for 21.5 % of the
GDP. By January 2007, VN-Index had reached more than 1000 points.
The securities market has initially become a channel for mobilizing long-term capital
for the economy. More and more enterprises have mobilized their capital through the
securities market. For example, in 11 months of 2006, there were 27 enterprises listed
and mobilized capital with the total value of shares and bonds of VND billion 1,300.
Brokerage players have been also established and operated in the economy. By the
beginning of 2007, there had been more than 30 investment funds registered and
operated in the securities market. In addition, almost securities companies registered
and operated in the securities market were established by enterprises conducting
business in financial sectors such as banks and insurance companies.
As analyzed above, the legal system for securities market has been established and
improved. In 1996, the securities market operated under the framework of a
Government Decree but since 2007, the securities market has operated under the
framework of the Law on Securities. The transfer of the SSC to the Ministry of
Finance has also supported and linked the securities market with other financial
activities such as insurance and equalization of State owned enterprises.
The securities market has also attracted more and more foreign investors. In 2000,
there were only 3 securities companies established and operated but this number was
40 and then 50 by the end of 2006 and by the beginning of 2007 respectively. In
addition, 30 investment funds were also established and operated; thousands of
accounts, both foreign and domestic were opened and transacted.
2.2. Weaknesses
The scale and size of the securities market is still small (with respect to contribution to
the GDP) although the market has continuously developed. The total value of
securities accounts for 0.28 % and 13 % of the GDP in 2000 and by the end of 2006
respectively. However, in countries with the same level of development, that rate were
30 % in Indonesia, 34 % in the Philippines and 27 % in China.
23

The transparency is limited. Some companies operating in the market has not updated
and sent financial reports in a regular manner as required. There were also some
offences against regulations on transaction information in the market. Especially
although the OTC market has strongly developed but financial status of companies
operating in this market has not been reported and supervised.
The State management on the securities market still has shortcomings. Due to limited
number of staff, weak reporting system and needs for improving legal system, the
State management, supervision and inspection have mainly focus on handling
violations.
In recent years, especially before the merger of the SSC into the Ministry of Finance,
the securities market and the SSC had almost operated in isolation with other financial
and monetary policies. It led to a situation that the securities market operates in an
ineffective and risky manner.
II. WTO COMMITMENTS ON SECURITIES
It may be said that Vietnams WTO commitments on securities are broad and open as
follows:
- Vietnam allows foreign investors to conduct business in the Vietnam securities
market such as supply of securities settlement and balance settlement services, supply
and transfer of financial information (Mode 1). In addition, Vietnam has no limitation
on Vietnamese investors conducting business in foreign securities markets (Mode 2).
- With respect to foreign direct investment in Vietnam securities market (Mode 3),
Vietnam allows foreign enterprises to establish joint venture with the maximum
foreign capital of 49% from the date of WTO accession (at the beginning of 2007) and
after 5 years (2012), foreign investors are allowed to establish 100% foreign capital
enterprises and/or branches to conduct some types of business.
III. ASSESSMENTS OF THE OPPORTUNITIES AND CHALLENGES
1. Opportunities
The openness of the securities market to international investors shall help Vietnam
companies and managers approach in terms of both depth and width with international
standards, experience and advanced technology.
In addition, domestic players in the securities market and other financial institutions
are required to improve their knowledge and skills and competition ability, thereby
improving the competitiveness of Vietnam securities market.
24

Through international integration, Vietnam regulators of the securities market shall be

required to improve their knowledge, helping the policy making process to approach to
international standards and practice.
By implementing the WTO commitments on securities, the securities market shall
become an important channel for mobilizing foreign capital in service of the cause of
modernization and industrialization of the country. That is the very goal of the
establishment and operation of Vietnam securities market.
2. Challenges
The securities market has been in the first years of its operation. Therefore, the policy
making process for and the organization and management of this market need to be
improved. This challenges become bigger when commitments on market access shall
be implemented in accordance with the committed roadmap.
The ability to compete in the marketplace of securities companies is weak. These
companies are players in the securities market. Therefore, weak competition ability of
securities companies means weak securities market, which may be easily affected
negatively by and vulnerable to external factors.
Vietnam economy is not capable of consume a huge source of capital while in a macro
level; the State management on the flow of foreign capital is weak. The ability of the
State authorities to foresee new developments is limited. These factors have caused
financial crisis in many countries. Therefore, the managers of Vietnam securities
market should be very concerned on this matter. Since the end of 2006 and in the first
quarter of 2007, the foreign capital flows into Vietnam securities market are very big,
while the Law on Securities only came into full force and effect on July 01, 2007 with
many problems waiting for guidance or implementing regulations to be issued. In
addition, the ability by State authorities to warn, to predict or supervise or inspect the
market is still limited.
One of the traditional challenges in many countries is that one country may lose its
sovereignty due to strict commitments and obligations imposed by other countries. The
market may be distorted because of the application of economic principles, which are
only suitable to imposing countries but not appropriate for imposed countries. Another
challenge is that the ability of being affected by or vulnerable to external crisis or
changes. It is called chained effect.
IV. PROPOSED SOLUTIONS
Based on the assessment of opportunities and challenges with respect to the securities
market above, some solutions are recommended for implementation as follows:
1. Improving the Legal Framework
25

The first urgent work to do is to adopt legal documents guiding the Law on Securities
as soon as possible. It is very important but complex because the market in Vietnam is
in the first years of its operation but Vietnam regulators must predict and adopt
regulations for the market to operate in an effective manner for a long time. Therefore,
guiding legal documents should be adopted to ensure investors for a safe legal
environment.
In addition, legal documents for both encouraging the development of the market and
preventing risks are needed. Clearly, in recent time, many investors have a lot of hope
in the market and invest a very big amount in the market. However, a lot of investors
are just short-term investors or speculators. The improvement of legal framework to
encourage long-term investors and limit unhealthy and speculating investors is very
necessary.

2. Harmonizing the Demand and the Supply in the Market

The development in the securities market in recent years has shown an imbalance
between the demand and the supply of securities in the market. The supply has been
increasing but securities circulated in the market are still limited. Therefore, to make
the market operate and develop in a healthy manner, solutions to facilitate the
harmonizing and matching the demand and the supply in the market are needed as
follows:
- To develop the supply, the State should facilitate and speed up the equalization of
State owned enterprises, especially big-sized enterprises. The percentage of capital
sold to the public should be increased, as the State does not need to keep 51 % of the
capital in every State owned enterprise. In addition, the issuance of bonds should be
strongly encouraged by broadening the forms of issuance, improving the method to
issue for such bonds to be listed in the securities market.
- To develop the demand, the establishment and operation of institutional investors and
professional financial institutions such as banks, insurance and securities companies in
the securities market are strongly encouraged. In addition, a clear plan or roadmap for
market access by foreign investors in Vietnam securities market should be built,
especially in sensitive sectors to serve as a background for developing the demand in
a systemized manner and avoiding speculations. A mechanism for linking the
securities market with other financial market such as insurance, social insurance
should be also built to attract idle sources of capital, investing in the economy.
3. Increasing Transparency in the Market
It is an important solution to avoid unhealthy speculations in the securities market. The
transparency should focus on two main matters. Firstly, policies and laws on securities
26

should be transparent, stable and predictable for long-term investment. Secondly, the
operation of companies registered and listed in the securities market should be
transparent in terms of financial reports and disclosure, so that investors can predict
their investment. If the financial status of these companies is not transparent, investors
and these companies themselves are encouraged to make unhealthy speculations.
4. Improving the IT Infrastructure
This solution is only additional one, supporting the operation of the securities market
but it is important because the operation of the market is mainly based on available
information. Therefore, a weak IT infrastructure shall have negative impacts on the
securities market. In recent time, Vietnam securities market has been affected due to
problems from the IT infrastructure overcapacity. This problem shall become more
serious when the number of investors increases, the supply is bigger and the number of
transactions are many more. Therefore, the improvement of IT infrastructure should be
implemented at once.
5. Enhancing the Dissemination and Training
In recent time, in Vietnam securities market, there has been al lot of amateur investors
who have gained certain initial benefits from the market. They are short-term
speculators who invest as if to follow the positive "movement" (joining the herd).
However, if the number of these speculators increases, it is not for the securities
market in the long term. The market only operates in an effective manner if investors
are dominantly professionals and investments are made in a professional manner
(calculating, predicting and taking risks). Therefore, the dissemination and training
should be promoted so that all investors in the securities market are knowledgeable
and responsible to the market.
6. Improving the Supervision and Inspection of the SSC
The SSC is a center coordinating all activities and operation of securities trading
centers in Vietnam or in other words, it is the coordinator for the securities market in
Vietnam. Therefore, the capability of the SSC with respect to the supervision and
inspection of the market should be enhanced. This capability should be manifested by
the work of making policies, laws and regulations; supervising and inspecting the
market as well as releasing prediction, assessment and warning on irregular activities
of the market, thereby recommending solutions for risk prevention to make the market
develop in a healthy manner.
7. Coordinating Policies Making
The operation of the securities market relates to many economic and financial
activities in the economy so that the policy making process for the securities market
27

should be in close relation with other financial sectors such as monetary policies,
policies on issuing shares and bonds, management of flow of foreign capital...
PART IV IMPACTS OF WTO ACCESSION TO TELECOMMUNICATION
SERVICES
I. ACTUAL SITUATION AND COMPETITIVENESS
Well understanding the important roles of telecommunication services to the
countrys socio-economic development, Viet Nam has made tremendous efforts in
developing telecommunication network and services to all areas in the country.
Telecommunication infrastructure
Viet Nam has a comparatively modern telecommunication infrastructure. All
telecommunication switching and transmission systems have been digitalized. This is
an important advantage for implementation of new applications and upgrade to next
generation network (NGN) and IP network. International and backbone transmission
lines have been established and modernized country wide by different methods, like
optic cables, bronze cables, micro wave, sub-marine cables, etc which have made
contribution to improving and ensuring information security. Series of
telecommunication and Internet services, voice telephone and mobile phone services
have been provided according to customers demand. Modern telecommunication
services like 3-G mobile services, television on mobile phones, IP television, etc have
been or going to be provided in Viet Nam.
Universal services
By the 2nd Quarter 2007, the total number of telephones in Viet Nam reached
40 millions, equivalent to a tele-density of nearly 46% (in 1995 this figure was 1%);
there were more than 4 million equivalent Internet subscribers with about 18 million
users, reaching the internet density of more than 20%; rural telephone networks
achieved high growth rates, nearly 75% of communes have post office-culture points,
32% of which have Internet access points. At those points, besides the supply of postoffice, telecommunication services for customers, there are also free reading culture
services. Mobile phone networks have nearly 30 millions subscribers linking hundreds
of mobile phone networks in more than 50 countries in the world. In other words, Viet
Nams mobile phone subscribers bringing their phones can make telephone calls as
they are at home in more than 50.
Internet universalisation
Internet, after nearly 10 years of development, from the end of 1997, has more
than 18 million users, reaching worlds average internet density. From 2003, Internet
has been provided to all schools: secondary schools, secondary vocational schools,
colleges and universities. High speed Internet and wideband services have been given
28

high priorities in investment and development, especially in schools, research and

development institutions, training institutions, creating opportunities to provide
services and apply modern multimodel equipments
Telecommunication service market
Until now, Viet Nams telecommunication service market is a highly competitive
in all services. Viet Nam has had 6 mobile phone service providers (three GSM service
providers and three CDMA service providers), four voice telephone services (VNPT,
SPT, EVN Telecom, Viettel), many internet and value added service providers.
Different economic sectors have been participating into the telecommunication
services, there are many 100% private enterprises or enterprises controlled by the
private sector providing non-facilities based services. Telecommunication has
attracted more than USD 2 billions in the forms of business cooperation contracts
(BCCs).
Thanks to competition, telecommunication service enterprises have better
understanding on business effectiveness and market dominance. Enterprises have
better knowledge and have been adjusting their organizational activities, production
and business management towards increasing competitiveness. In practice, domestic
enterprises has been developing quite well in strategic areas, national information
infrastructure have been widely developed and modernized to regional level, service
fees are reducing and at present are equivalent to or lower than the regional average
rates, services are increasingly diversified and their quality is further improved.
However, in absolute terms, both network scope and financial capabilities, Viet Nams
tele-communication enterprises are only small and medium sized. Their productivity
remains lower than that of the region. As a result, to compete and develop when
multinational companies enter Viet Nams market presents a considerable challenge.
II. VIET NAMS WTO ACCESSION COMMITMENTS
In WTO commitments on telecommunication services, Viet Nam has made
commitments on market access and on management policies for a competitive
telecommunication market. Detailed commitments in Vietnamese can be downloaded
at
the
following
address:
http://www.mpt.gov.vn/details.asp?Object=211054830&news_ID=131161222
or
commitment in both Vietnamese and English can be downloaded at:
http://www.mot.gov.vn/mot/render.userLayoutRootNode.uP.
II.1. Market access commitments
- Supply of facilities-based services (service suppliers own transmission capacity
and bandwidth): In basic telecommunication services (voice telephone services, data
transmission services, Private leased circuit services) foreign investors may make
investment through establishment of joint ventures with telecommunications service
suppliers duly licensed in Viet Nam. Foreign capital contribution shall not exceed 49%
29

of legal capital of the joint ventures. With value-added services (electronic mails,
facsimile, protocol conversion, etc), Foreign capital contribution shall not exceed 50%
of legal capital of the joint ventures.
- Supply of non-facilities based services (service suppliers do not own
transmission capacity but contract for such capacity from facilities based service
suppliers): Upon accession: foreign investment in the form of joint ventures with
telecommunications service suppliers duly licensed in Viet Nam will be allowed.
Foreign capital contribution shall not exceed 51% of legal capital of the joint ventures.
Three years after accession, foreign investors can freely choose their partners and
foreign capital contribution shall not exceed 65% of legal capital of the joint ventures.
Only for virtual private network (VPN) and value added services (electronic mail,
internet access, etc) which major partners who have special attention and are provided
through facilities controlled by Viet Nam: upon accession, joint ventures shall be
allowed without limitation on choice of partner. Foreign capital contribution shall not
exceed 70% of legal capital of the joint ventures.
- Cross-border supply of telecommunication services (International
telecommunication services): For wire-based and mobile terrestrial services, foreign
service supplier must provide services through commercial arrangements with an
entity established in Viet Nam and licensed to provide international
telecommunication services in order to approach customers in Viet Nam. For satellite
based services, three after WTO accession, Viet Nam commits to expand scope of
clients to include multinational companies operating in Viet Nam, which are licensed
to use satellite-earth stations. Viet Nam also specifies that a multinational is a
corporation which: a) has a commercial presence in Viet Nam; b) operates in at least
one other WTO Member; c) has been in operation for at least 5 years; d) is publicly
listed on the stock exchange of a WTO Member; and e) is licensed to use satellite
services in at least one WTO Member (see telecommunication service schedule).
Viet Nam also commits that for consortium submarine cable links where Viet Nam is
member, foreign service suppliers shall be permitted to control fully-owned submarine
cable transmission capacity (e.g. IRU or consortium ownership) terminating at a
licensed cable landing station in Viet Nam, and to provide such capacity to
international facilities-based service suppliers licensed in Viet Nam (like VNPT,
VIETTEL, VP Telecom). 4 years after accession foreign service suppliers shall be
permitted to provide such capacity to international VPN and IXP service suppliers
licensed (like FPT, VNPT, VIETTEL, VP Telecom) in Viet Nam.
- Commitment to covert business cooperation contract (BCC): In the
telecommunications sector, foreign investors in BCC will have the possibility to renew
current arrangements or to convert them into another form of establishment with
conditions no less favorable than those they currently enjoy.
30

II.2. Annex on telecommunication services

Viet Nam has committed to undertake the obligations in the GATSs Annex on
telecommunication services since it signed the Viet Nam-US bilateral trade
Agreement, which came to effect from December 2001. GATSs Annex on
telecommunication services can be understood as a document containing the most
general rights and obligations that parties relating to the supply and use of
telecommunication services in WTO Members must comply with:
Rights of service suppliers:
- to access to and use of public telecommunication transport networks and
services or services offered within or across the border (including private leased
circuits of companies, multinational corporations);
- to purchase or lease and attach terminal or other equipment which interfaces
with the network and which is necessary to supply a supplier's services;
- to interconnect private leased or owned circuits with public telecommunications
transport networks and services or with circuits leased or owned by another service
supplier;
- to use operating protocols of the service supplier's choice in the supply of any
service, other than as necessary to ensure the availability of telecommunications
transport networks and services to the public generally.
Rights of management agencies:
- To promulgate restrictions on resale or shared use of services;
- To promulgate a requirement to use specified technical interfaces;
-To promulgate a requirement for inter-connection with such telecommunication
networks and services;
-To promulgate requirements, where necessary, for the inter-operability of
telecommunication services;
- To promulgate restrictions on inter-connection of private leased or owned
circuits with public networks or services or with circuits leased or owned by another
service supplier; or
- To promulgate notification, registration and licensing. With the condition that
those measures are necessary to:
- safeguard the public service responsibilities of suppliers of public
telecommunications transport networks and services, in particular their ability to make
their networks or services available to the public generally (or universal services)
- protect the technical integrity of public telecommunications transport networks
or services
- ensure that service suppliers of any other Member do not supply services unless
permitted pursuant to licenses

31

II.3. Reference Paper

Viet Nam also commits to undertake obligations in the GATS/WTO Reference
Paper in the Viet Nam- US bilateral trade agreement, which came into effect since
December 2001. This document provides basic principles for the establishment and
development of management regulations in the telecommunication sector towards
promoting healthy competition and effectiveness.
Transparency in licensing policies:
- licensing procedures and conditions will not act as independent barriers to
market access (not more burdensome that necessary);
- licensing procedures and conditions are published prior to becoming effective;
- relevant authorities will review and make a decision on licensing within the
period specified in official procedures;
- any fees charged in connection with the filing and review of an application will
not constitute an independent barrier to market access
- on the request of an applicant, Viet Nam's relevant regulatory authority will
inform the applicant of the status of its application and whether it is considered
complete. An application will not be considered complete until all information
specified in the relevant implementing measure is received. If the authority requires
additional information from the applicant, it will notify the applicant without undue
delay and specify the additional information required to complete the application.
Applicants will have the opportunity to cure deficiencies in the application;
- on the request of an unsuccessful applicant, a regulatory authority that has
denied an application will inform the applicant in writing of the reasons for denial of
the application;
- where an application has been denied, an applicant may submit a new
application that attempted to address any prior problems;
- where approval is required, once the application is approved, the applicant will
be informed in writing without undue delay;
- where an examination to license professionals is required, such examinations
will be scheduled at reasonable intervals.
To access, use telecommunication networks and services: service suppliers, users
are allowed to access and use public telecommunication networks on reasonable and
non-discriminatory terms and conditions. This requirement mostly relates to facilities
infrastructure suppliers and public telecommunication service suppliers, including
access to and use of essential equipment.
Shared use of infrastructure like antenna towers, cable terminals, etc: procedures
and steps relating to the shared use must be publicly announced and applied on
subjective, timely, transparent and non-discriminatory basis. This requirement mostly
relates to facilities-based suppliers.
Competitive safeguard: The following actions are considered as anti-competitive:
- engaging in anti-competitive cross-subsidization;
32

- using information obtained from competitors with anti-competitive results;

- not making available to other services suppliers on timely basis technical
information about essential facilities and commercially relevant information that are
necessary for them to provide services.
- attached/parallel sales: This is to link one product/service with another
service/product. There are two types of attached sale which have been identified: one
company creates a product and service package and refuses to sell the component of
the package. By this way, the company refuses to sell one product or service
individually unless the customer buys another product of that company. The second
case is when a company refuses to sell a product for customers unless the customer
buys another product of another company.
- Refuse to supply services: The fact that a telecommunication service company
refuses to supply services to another telecommunication may be an anti-competitive
action and totally eliminate competitors from market. An example of refusal to supply
services is refusal to inter-connection.
Management measures must have active measures to limit such actions.
Interconnection:
Viet Nam commits to promulgate legal documents providing for interconnection
regulations, including:
- Conditions to ensure interconnection:
- Procedures on interconnection negotiations
- Sample interconnection agreement
- Dispute settlement procedures for interconnection
Universal telecommunication services:
Any Member has the right to define the kind of universal service obligation it
wishes to maintain. Viet Nam commits to manage the supply of universal
telecommunication service through the public telecommunication services fund on a
transparent, non-discriminatory basis, not creating competitive advantage for universal
service suppliers and do not cause burdens for supplying enterprises.
Independent state regulator
Viet Nam commits that the state regulator on telecommunication services will be
independent, separate from, and not accountable to, any supplier of basic
telecommunications services. The decisions of and the procedures used by regulators
shall be impartial with respect to all market participants. Independent regulators will
result in objective and impartial management; decisions will be impartial to all
enterprises.

33

Allocation and use of scarce resources

Scare resources are necessary for the exploitation of telecommunication services
like spectrum, numbers and rights of way (can be understood as the right for shared
use of infrastructure) should be allocated on a non-discrimination, efficient basis,
suitable with public interest. This allocation should balance the competitive interests
and security/defense priorities.
Viet Nam commits to carry out allocation and use of scare resources, including
frequencies, numbers and rights of way, will be carried out in an objective, timely,
transparent and non-discriminatory manner. Practical allocation spectrum must be
made public, however, there is no requirement to make public the details spectrum
allocated for governments special purposes.
Generally, provisions in GATS Annex on telecommunication and Reference
Paper has been legalised in the Post and Telecommunications Ordinance, which came into
effect in July 2002, in guiding Decrees of the Government, Plan on national radio
frequencies, etc. The Post and Telecommunications Ordinance provides for
telecommunication policies, operation and business and management of radio frequencies,
creating an important legal framework to liberalize market and a level playing field. Together
with this Ordinance, guiding Decrees of the government, circulars and decisions of Ministry
of Post and Telematics have been promulgated, providing regulations on interconnection, fees
and fees calculation methods, frequencies and national numbers, inspection, dispute and
claims settlement. The use of international information terminals and telecommunication
networks is provided at Article 43 in the Ordinance and Articles from Article 27 to Article 33,
Article 60 of Decree No. 160/2004/ND-CP. Those provisions have been put forward to
ensure rights and obligations of telecommunication service providers in accessing and
using of other providers shared telecommunication transmission networks. Article
43.2 of the Ordinance provides for non-discrimination in assessing and using of shared
telecommunication
transmission
networks.
Under
the
Article,
public
telecommunication service providers must allow other telecommunication service
providers interconnect with their networks under non-discriminatory and reasonable
terms and conditions. Long-term development plans and strategies have been approved
and made public.
III. ASSESSMENT ON IMPACTS OF WTO ACCESSION
For Viet Nam in general and the post and telematics in particular, WTO
accession means accepting major changes. Its right that WTO accession is closely
linked with opening market, with adjustments of domestic laws and regulations to
make them consistent with international rules and regulations. Similar to any change in
general, this has both positive and negative impacts, bringing about both opportunities
and challenges.
III.1. Some general positive impacts and opportunities

34

WTO accession will create opportunities to attract foreign capital, to invest in the
national information and communication infrastructure, thereby to boost national
economic development. Viet Nams telecommunication and information market has a
lot of development potentials. Once market access to telecommunication market is
improved, together with economic development impetus when Viet Nam has joined
the WTO, the telecommunication market will surely attract more foreign investment.
While making efforts to develop domestic capacity, foreign investment should also
receive due attention. Like infrastructure in other sectors, the information and
communication infrastructure requires large investment and long time to recover cost.
While domestic savings for reinvestment remains modest and transportation,
electricity infrastructure are being given priorities in state investment, foreign
investment in telecommunication, information and technology will help enhancing the
development of national information infrastructure. Given the current role and
importance of information technology, The strong and speedy development of the
national information and communication infrastructure would help improve efficiency
of the economy, the countrys competitiveness, and to bridge the gap in development
with the more advanced countries.

WTO accession will provide favorable conditions to receive modern technology

and advanced management experiences: usually, coming together with foreign direct
investment is modern technology and advanced management experiences. Obviously,
technology and operation, business efficiency of VMS MobileFone Company, with
investment from Comvik, Sweeden receives better remarks than 100% Viet Nam
capital Vinaphone. Technology can be bought but management experiences,
experiences in effective operation and use of new technology as well as modern
business culture cannot be bought if foreign sides are not allowed to participate,
directly or indirectly, in enterprises management. This is a fact that developing
countries in general find it difficult to address immediately if they follow the selfdependent policy given the fast development of technology and telecommunication
business environment. However, with direct participation of foreign investors, the
transfer of technology, knowledge and business experience can be done more
efficiently and substantively. Moreover, improved investment and trade together with
better protection of intellectual property rights will also make contribution to bringing
advanced technology to Viet Nam after its WTO accession.
WTO accession will create more impetus for production and business reforms
towards improvement of competitiveness: in the current market for telecommunication
in Vietnam, there is competition among many domestic companies but the competition
is still limited, as there still comparable gaps between capabilities between traditional
and new services providers. The WTO accession would make competition fiercer, with
the entry of foreign corporations and firms. Domestic telecommunication enterprises
are all aware of their weakness as compared with foreign enterprises, for example in
trade mark tradition, lower productivity (only equal to one third of regional
35

productivity), etc. This is a new motivation for domestic companies to further apply
measures to improve operation and business effectiveness in order to survive, develop
and enter the world markets. The fact has shown that both traditional and new
enterprises have recently paid attention to measures to boost their trade marks by
hiring professional advertisement companies to carry out mass media campaigns,
design their logos. Major players like VNPT, VIETTEL have been changing their
organizational models, reducing intermediaries, increasing autonomy for their
subsidiaries, implementing independent accounting to have clearer pictures of losses
or profits in each business phase, etc.
WTO accession create conditions for reforms of state management towards
improving effectiveness and efficiency: joining the WTO also implies the obligation to
implement many management rules and methods which have been tested in terms of
effectiveness, efficiency and have bee accepted by most countries. These management
rules and methods are significant even though there is only domestic competition. In
practice, Viet Nam has also studied and applied on a selective basis those modern
management experiences to better manage its competitive telecommunication market
in the recent period. However, capability to implement and address newly arising
issues when the market is really multi-providers and multi-sectors remains modest.
WTO accession will open a practical school to train a pool of dynamic human
resources with modern industrial working and studying style. WTO accession would
strengthen the investment and trade relations with other countries, especially the
developed industrial countries. The domestic economic activities are now more closely
linked to the world market. This is the practical learning place, though daunting, but
necessary to train quality human resource for the countrys development.

WTO accession creates opportunities to participate in international and regional

markets: WTO includes not only developed Members but also developing Members.
Some of which have undertaken strong market access commitments and Viet Nam has
certain comparative advantages in level and potentials in telecommunication,
information and technology markets. As a result, joining the WTO, Viet Nam also has
more opportunities to get access to some Members markets. In reality, Viet Nam has
participated in Cambodias mobile phone market (Viettel has established a fully
owned company and provide VoIP telephone service and is implementing to provide
mobile phone and Internet services by the end of 2007) and made joint ventures with
several countries in developing data transmission services in the region (VNPT
participates in a multi-party joint venture of ACASIA in ASEAN), taking initial steps
to enter the US market (VNPT opens its representative office in the US and is
considering to buy shares of some US companies, etc)
WTO accession will enable Viet Nams consumers to have more opportunities to
enjoy telecommunication, information and technology development achievements: to
get footholds in Viet Nams market, foreign enterprises shall have to make efforts to
36

provide Viet Nams consumers with new products and services or existing products,
services at lower prices and higher quality. Domestic enterprises also have to make
more efforts to survive and develop by continuously improving their products and
services.
The above positive effects and opportunities can only be realized by appropriate
integration policies and measures by Viet Nam. At the same time, negative effects and
challenges from WTO accession are visible.
III.2. Some general negative effects and challenges
a. Maintaining position and development once market is open to foreign investment:
The competitiveness of major domestic telecommunication companies remains weak
due to a long time operation under natural monopoly mechanism. Most new
telecommunication enterprises are just at initial development phase and are struggling
to establish themselves, finding their own ways in the market. Generally, Viet Nam
telecommunication enterprises are small and medium sized as compared with
telecommunication enterprises in other WTO Members like US, EU, Japan, Korea, etc,
those countries have special attention on Viet Nams telecommunication services.
Those industrialised countries have strict legal systems to assist and protect interests of
their enterprises when they make outward investments. Their enterprises also have
abundant international competition experiences and capabilities. As a result,
possibilities to loose market, even making losses or being merged are not impossible
for Viet Nams telecommunication enterprises. When this occurs, problems of
employment and social stability will arise.

b. Market shares held by foreign enterprises: the demand for development and
application of information and technology for the countrys industrialisation and
mordernization is tremendous. A market with a population of more than 80 million
people whose income and consumption demand are on the rise is not saturated.
Meanwhile, current capacity and size of the post, telecommunication, information and
technology sector remain limited. Scattered investments so far have not allowed the
establishment of several strong enterprises/corporations as well as real competition
practices before integration. Productivity in the telecommunication sector remains
lower than that of the region and in the world. Investment capability of the
telecommunication sector itself (which is about USD 400-500 millions per year) has
not met requirements for strategic objectives in network development. As priorities
have been given to investment in quantity, improvement quality of telecommunication
services has just recently been paid attention to, but at still limited level. As a result,
when there is participation of foreign investors, telecommunication, information and
technology market will develop but market share of Viet Nams telecommunication
enterprises may decrease.
c. Tools to make macroeconomic planning and adjustments: Foreign invested
enterprises will focus on profitable areas, for example provision of services in urban
37

areas, industrial parks, etc while there is no service provider in rural, especially in
remote, hinter land areas. This situation will lead to imbalances in socio-economic
development, without promoting reforms in production structure and territorial
planning.
d. Legal and mindset adjustments: Viet Nam is a transitional economy. Legal
environment for telecommunication and information technology is being developed
and improved. Many important legal regulations for integration like the Competition
Law (27/2004/QH11), the Ordinance on anti-dumping duties on goods imported into
Viet Nam (20/2004/PL-UBTVQH11), the Law on electronic transactions
(51/2005/QH11), Law on outward Investment, etc have been promulgated, but there is
no specific regulations for the telecommunication sector. However, the biggest
challenge lies in the reform in management perception and knowledge as well as
management methods during the development and amendments of the legal system to
make them consistent with integration requirements: transparency in licensing criteria,
universal service obligation, competition protection, etc. This change is a long process
and even unwanted, Viet Nam is likely to face with many trade disputes. For example,
interconnection disputes have occurred among Viet Nams telecommunication
enterprises and are likely to happen when foreign telecommunication services enter the
market.
e. Brain drain: Although human resources are abundant and relatively cheap but
there is generally still a serious lack of skillful human resources. Besides, both in State
management sector and enterprises, workers knowledge on international trade rules
and standards is generally very limited. Equal remuneration mechanism has not
encouraged labors to work better and more efficiently. Remunerations in absolute term
are also lower than those in many regional countries. The labor market after WTO
accession will be non-discriminatory and more liberalized than before since labors
have more competitive choices as well as the equal remuneration mechanism shall
not have a foothold when market mechanism takes shape more strongly. State
management agencies and enterprises shall face with increasing risks of brain drain.
f. Ensure information transmission and communication for the Party and States
management and directing activities, for security and defense: Information
transmission and communication is an essential tool to direct and manage a country
and is very important in a countrys security and defense activities. As a result, owning
the national information transmission and communication is also very significant to
ensure national sovereignty. It will be much more difficult and complicated to ensure
information transmission and communication activities when foreign invested
telecommunication enterprises take part in the development and use of national
telecommunication networks.
IV. RECOMMENDATIONS
IV.1. General recommendations
38

In order to fully implement WTO accession commitments and still ensure sound
development after accession, efforts must be made by both state management agencies
and enterprises;
- Enterprises should continue to study their advantages and difficulties to develop
and actively implement reforms in production and business plan so that they can
enhance their competitiveness, make use of comparative advantages.
- State management agencies should continue to complete detailed and specific
legal regulations to ensure national interests at the highest level, establish
implementation capacity and ensure sound management of multi-economic sector
telecommunication environment but at the same time ensure both national
development objectives and national information sovereignty and security.
IV.2. Specific recommendations
a. Regulations on foreign investment in the telecommunication sector: The Investment
Law in 2005 and the governments Decree No. 108/2006/ND-CP guiding the
implementation of the 2005 Investment Law has provided that telecommunication is a
conditional investment sector. Conditions for participation to the telecommunication
service sector for foreign investors comply with Viet Nams WTO accession
commitments. In order to have a complete and synchronised legal system, to ensure
transparency and publicity as well as favourable conditions for implementation at
different levels, Viet Nam should quickly promulgate systems of systemised legal
documents on investment in telecommunication sector, including foreign investment.
b. Non-discriminatory regulation/national treatment: Viet Nam has committed to
comply with the national treatment for foreign service suppliers who establish their
commercial presence in Viet Nam. However, WTO also has regulations applied only
to developing countries and economies in transition. In order to best protect Viet
Nams enterprises, Vietnamese citizens, especially when disputes occur without
violating WTO rules, Viet Nam should study carefully to make full use of regulations
only applicable to economies in transition.
c. Transparency regulation: Viet Nam should continue to review more carefully
existing documents, making comparison with relatively detailed commitments on
licensing regime and procedures in order to have necessary amendments and additions.
Especially, Viet Nam should quickly add and train implementing officials to timely
address licensing requirements under objective principle and, non-discrimination.
d. Management of a multi-provider market: Viet Nam has had Competition Law,
however, there is no guiding document and detailed instructions on competition
activities unique only to telecommunication service supply area. Foreign invested
telecommunication enterprises also bring to Viet Nam new competition measures. To
ensure sound competition among different economic sectors, Viet Nam should have
specialised regulations on competition in the telecommunication sector, giving
39

management agencies more power in investigations and make decisions on anticompetitive activities, allowing stronger deterrent fine measures.
Interconnection management in a competitive market will continue to present big
problem after WTO accession. Viet Nam should immediately require facilities-based
service providers announce their sample interconnection agreements so that new
enterprises can have clearer understanding on market entry conditions. Besides,
interconnection dispute settlement steps and procedures should be further elaborated.
Given general capacity, and in the telecommunication sector in particular, of Viet Nam
economics courts remains limited, Viet Nam should also consider the establishment of
the telecommunication Association.
e. Regulations on shared use of telecommunication infrastructure: Viet Nam should
consider the promulgation of regulations to encourage the shared use of network
infrastructure. The share use of infrastructure (pillars, columns, underground tunnels,
trenches, ditches, manholes, towers) will increase investment efficiency, avoiding
unnecessary time, money and effort wastes, reducing environmental impacts and
uncomforts for the public. For example: when service providers are participating in
telecommunication markets, micro wave towers, underground tunnels, drains will
appear with higher frequencies, affecting aesthetics as well as daily activities of people
and this trend must be considered by local governments. Besides, there should be
encouragements for relevant sectors to shared use of infrastructure like the electrics
combines with telecommunication sector.
f. Regulations on use of numbers, frequencies: Viet Nam should consider early
promulgation of regulations to ensure the effective use of spectrum and numbers, as
well as clearer obligations of service providers on allocated resources; application of
market principle in management spectrum and numbers (for example, spectrum can be
sold through highest price biddings to create revenues for development of new services
or allocated at reduced prices to decrease service fees to certain users.
g. Management of multi-economic sector market: Viet Nam has established a public
telecommunication service Fund so that public service providers can implement their
obligation to provide public services.
PART V IMPACT OF WTO ACCESSION ON CONSTRUCTION RELATED
SERVICES
I. REALITIES AND COMPETITIVENESS
Construction is one of key sectors in the national economy. Together with
economic development, scope of construction activities of the country have been
expanded, the construction market becomes more active; the socialization process of
the production of construction products is increasing. The total construction
investment capital of the economy has achieved fast increases, most of which has been
realized through construction activities. The role of construction sector is clearly
40

demonstrated through its annual proportion with added value around 10% in total
gross domestic 10% GDP 12, creating employment for many labors in society as well
as in the construction sector.
In recent years, investment for development of physical properties and facilities
has been on the rise with total investment amounts are relatively higher than those of
years before reforms; besides state investment, there are also other investment sources,
especially foreign direct investments have made considerable contribution to the
construction sectors development. Construction consultants and construction, erection
executors have applied modern technologies, designed and executed many big, modern
and important buildings for the country in civil, energy, oil and petroleum,
transportation, industry and culture areas. Sectoral management policies and
mechanisms have been timely studied and amended, adjusted; many legal documents
have been considered and promulgated in order to keep track with national economic
developments and with growth of construction enterprises in each period. The
amendments of and additions to the Regulation on Construction and Investment and
the promulgation of the Construction Law have addressed institutional barriers to
stronger decentralisation in construction investment management, administrative
procedure reforms in project investigation, appraisal and approval have attracted
investments from many economic sectors, creating increased total investments from
the whole society, as a result, there is a need for construction enterprises to improve
their capabilities if they want to meet practical demands.
In trade in services, major services related to construction sector include:
Architectural services (CPC 8671), Engineering services (CPC 8672), Integrated
engineering services (CPC 8673), Urban planning and urban landscape architectural
services (CPC 8674), construction and related engineering services (CPC 510). To
make it easier to study the practical situation and competitiveness of construction
consulting enterprises and constructors, we can consider Architectural services (CPC
8671), Engineering services (CPC 8672), Integrated engineering services (CPC 8673),
Urban planning and urban landscape architectural services (CPC 8674) as one type of
consulting service, which is construction consulting services.
I.1. Construction consulting services
In recent years, development of construction consulting organizations has been
linked with improvement of professional knowledge and skills in each area, many
consulting organizations have consulted, designed major works. With respect to
organizational structures, there have been rearrangements towards improving
capability, however, in reality, shortcomings in previous periods cannot be overcome
immediately. Equipments, software for surveys, designs have received investment and
improved in order to meet new quality requirements. Officials have been trained and
provided with upgraded knowledge, skills on international markets to keep pace with
development of era trends.

12

Ministry of construction

41

Consulting organizations are either operating under the Law on State enterprises
or being non-productive entities with experienced experts, relatively modern technical
equipments for designing and have rich experiences in designing activities, are capable
of providing survey consulting services, designs of civil, industrial architecture works
or urban planning, participating in works requiring high quality or foreign invested
works. Shortcomings of these types of organizations are their approaches and
scientific, technological reforms in designs, which are behind domestic investment
demands and regional and world scientific and technological progresses. Production
reforms, organizational arrangement and management have not kept pace with reform
requirements in a market economy, as a result, potential strengths have not been taken
advantage of, competitiveness remains weak.
Construction consulting organizations in construction general corporations and
companies have small scales with limited number of staff. Even though this type of
enterprises has advantage that their service activities are linked with their parent
companies, but their professional skills are not synchronized, lack of staff who have
multi-sector experiences, their equipments have not received appropriate investment.
Several major general corporations have paid attention to developing construction
consulting organizations which have large scale; synchronized and modern technical
equipments to achieve independent operation and can take part in comprehensive
design-construction biddings or in domestic EPC biddings and create pre-conditions
for taking part in bidding overseas.
Besides the above mentioned consulting organizations, recently, especially after
the promulgation of the Law on enterprises, the establishment of construction
consulting organizations as limited liability companies is booming and qualities of
those companies are not guaranteed, their staff is limited, in many cases companies
only have key staff but still in charge of all phases, from forming investment project to
implementation of investment projects, but because they do not have specialized
professional skill, quality of their consulting work is not high, especially the quality of
the forming of investment project is low due to limited ability in getting access to and
acquiring domestic and international market information. They cannot provide designs
using with modern technologies, electro-mechanics designs and especially
implementation management for major project because of limited professional skills,
foreign language, limited knowledge on international practices and experiences.
Especially, the management consulting for management of foreign invested projects is
mostly done by foreign companies, only some projects are managed by domestic
enterprises, however, their quality is not up to high standards or the construction is
slow.
I.2.Construction service:
At present, state owned construction enterprises is playing the leading role and
account for majority part in corporate investment value as well as construction and
erection value. Major construction companies are mostly in several Ministries who
have civil industrial, construction, and irrigation construction activities.
42

However, recently, there has been intertwining in capacity investment. Some

major organizations like type I companies and some construction general corporations
are paying their attention to comprehensive development, multi-sector business and
expand their business activities, from civil-industrial construction to irrigation,
hydroelectricity, transportation construction, some organizations specialized in
equipment installation and erection now making investment in industrial construction.
Especially, in order to ensure their competitiveness in international biddings,
construction enterprises have gradually develop their internal consulting units so that
they can prepare bidding documents, design construction technical solutions.
Developing toward this direction, domestic bidders have gradually moving from subbidders to co-bidders with foreign bidders and have gained bidding contracts in many
bidding packages for road construction, bridges and industrial, civil projects in
international bidding projects or foreign invested projects. Many construction
enterprises have made investment in renewing equipments, modern technology and
now they can meet requirements of every projects, from small to large scales.
However, there are some equipments, technologies that our construction have not
made sufficient investment like barrette foundation construction, boundary walls for
underground levels of high buildings, major well drillings, underground pipeline
construction without digging, etc.
Generally, it terms of internal capability, if domestic enterprises can corporate
and coordinate, with financial guarantee from the State, they can win biddings and
manage the construction of international bidding works on transportation, light
industrial works, cement construction works and construction material works, medium
high buildings. However, the comprehensive management of any major modern and
complicated technology works is limited in terms of technology knowledge, ability to
acquire international market for materials and construction equipments as well as weak
coordination between supply-construction-completion, as a result, they cannot meet
quality and progress requirements of bidders. In this respect, domestic construction
enterprises must enhance and improve themselves.
In terms of independence of each domestic construction enterprise, there are
strengths in each specialized sector, and competition among domestic construction
enterprises is fierce. This also has positive impact when they take part in domestic
biddings. However, with foreign invested projects or in international biddings, there is
a lack of coordination among domestic enterprises to establish consortiums in order to
compete with foreign bidders, as a result, there are unfair competition like lowering
prices, bidding at very low prices, leading to unnecessary disadvantages for other
domestic enterprises. If construction enterprises specialized different sub-sectors can
create cooperation link, then we can gain many domestic international biddings as well
as participate in regional and international projects
With the development of domestic construction enterprises, in recent years, we
can compete with foreign bidders in certain phases of international biddings. As a
result, in coming time, when our construction enterprises are still sub-bidders for
foreign enterprises, we should have measures to gradually limit the present situation of
worker sub-biddings.
43

Implementing current policies, recently, equal cooperation between domestic and

foreign bidders have helped some domestic enterprises win biddings in many road
transportation, industrial (cement), water provision and drainage infrastructure. This
method has enabled our construction enterprises develop and learn experiences in
operating and gradually take part in major projects as main bidders.
With respect to construction join-ventures, at present, there are many joint
ventures established in construction services. These companies have low investments,
ranging from USD 1 million to 2 millions, this is very tiny in comparison with total
foreign investment in Viet Nam. On the other hand, those companies do not bring to
Viet Nam any new technology; some equipments even do not meet investment
objectives. As a result, competitiveness of those joint ventures in Viet Nams market is
very low, most of them are making losses since they do not gain many contracts while
costs for foreign managers and staff and other administrative costs are too high.
With respect to activities of other foreign bidders in Viet Nam, so far, there have
been about 100 foreign construction and erection bidders from more than 20 countries
receiving bidding contracts in Viet Nam13. Generally, foreign bidders have certain
advantages to our bidders in terms of financial capability, international bidding
experiences, and knowledge on international markets for materials, equipment as well
as their knowledge on bidding cooperation and coordination in the form of establishing
(consortium). Several major foreign bidders who have carried out construction works
in Viet Nam are: OBAYASHI Corporation, MARUBENI Corporation, SUMITOMO,
MITSUI (Japan); POLYSIUS A.G (Germany); TECHNIP (France); LUIS BERGER
(the U.S), CSCEC, YMC-TRANSTECH Partnership (China), etc.
II. VIET NAMS WTO ACCESSION COMMITMENTS
II.1. Commitments
II.1.1 Architectural services (CPC 8671)
- Mode 1 (Cross-border supply): None
- Mode 2 (Consumption abroad): None
- Mode 3 (Commercial presence): For the period of 2 years from the date of
WTO accession, 100% foreign-invested enterprises may only provide services to
foreign-invested enterprises in Viet Nam.
- Mode 4 (Presence of natural person): Unbound, except as indicated in the
horizontal section.
II.1.2. Engineering services and integrated engineering services (CPC 8672 and
CPC 8673)
- Mode 1 (Cross-border supply): None
- Mode 2 (Consumption abroad): None
- Mode 3 (Commercial presence): For the period of 2 years from the date of
WTO accession, 100% foreign-invested enterprises may only provide services to
foreign-invested enterprises in Viet Nam, with the condition that the supply of services
13

Ministry of Construction

44

related to topographical, geotechnical, hydro geological and environmental surveys

and technical surveys for urban-rural development planning, sectoral development
planning are subject to the authorization of the Government of Viet Nam.
- Mode 4 (Presence of natural person): Unbound, except as indicated in the
horizontal section.

II.1.3. Urban planning and urban landscape architectural services (CPC 8674)
- Mode 1 (Cross-border supply): None, with the condition that the service must
be authenticated by an architect who has appropriate practicing certificate working in a
Vietnamese architectural organization that has juridical entity status, and comply with
relevant laws and regulations of Viet Nam.
- Mode 2 (Consumption abroad): None.
- Mode 3 (Commercial presence): After 2 years from the date of accession,
100% foreign-invested enterprises may be established, with the condition that the
responsible foreign architects working in foreign-invested enterprises must have the
professional practicing certificate granted or recognized by the Government of
Viet Nam and in some areas, subject to the regulations of the Government of Viet Nam
for national security and social stability purposes, foreign service suppliers may not be
permitted to provide this service. For the period of 2 years from the date of WTO
accession, 100% foreign-invested enterprises may only provide services to foreigninvested enterprises in Viet Nam.
- Mode 4 (Presence of natural person): Unbound, except as indicated in the
horizontal section.
II.1.4. Construction services (CPC 510)
- Mode 1 (Cross-border supply): unbound due to lack of technical feasibility
- Mode 2 (Consumption abroad): None
- Mode 3 (Commercial presence): For the period of 2 years from the date of
accession, 100% foreign-invested enterprises could only provide services to foreigninvested enterprises and foreign-funded projects in Viet Nam. After 3 years from the
date of accession, branching is allowed with the condition that the chief of the branch
has to be a resident in Viet Nam.
- Mode 4 (Presence of natural person): Unbound, except as indicated in the
horizontal section.
II.2. Comments
In general, in term of open market, level of commitment is very transparent.
Number of reserved limitatations is very small and their schedule is very short.
Basically, those commitments are non-discriminatory between domestic and foreign
service suppliers.
Existing legal documents and policies such as Law on Investment, Law on
Enterprises, Law on Commerce, Law on Construction should be reviewed, completed
45

but are sufficient and favorable for foreign investors, contractors and consultants
working in construction field in Vietnam. In general, commitments are conformity
with domestic current context and possible having no breakthrough in the near future.
III. ASSESSMENT ON IMPACT FROM WTO ACCESSION

With construction consulting, through cooperation with foreign enterprises, Viet

Nams construction consulting enterprises have achieved fast development and they
can handle and take charge of several types of work like topographical,
hydrogeological works; design of cover for industrial projects, urban infrastructure
works, roads, bridges and sewers, etc; their staff has been trained with improved
professional and management skills and they can be in charge of medium and small
works as well as high tech works with support from foreign consultants. However,
Viet Nams construction consulting enterprises still have many big shortcomings.
Consulting activities have not been strictly managed, the arrangement for consulting
organization has not been reasonable and efficient, and the standard system has many
shortcomings. The policies and mechanisms for standardization in professional
standards of individual consultants and standardization of consulting organizations are
being studied; consulting fees taxations are not reasonable. Knowledge and skills of
staff and officials remain low, especially they do not understand international practices
and their language ability is weak; coordination among subjects has not been good;
there still signs of unfair competition. In summary, even there have been progresses
but competitiveness of Viet Nams construction consulting services remains lower
than that of the region, let alone that of Europe and the U.S.
Requirements that Viet Nams construction consulting services must pay
attention during international economic integration are they should not only try to
develop in order to be competitive domestically but also to get foothold in foreign
markets. However, Viet Nams professional construction consultants will face a huge
hurdle, that is specialized professional technical standards, which are used by most
countries, especially developed countries, as technical barriers to legally protect their
domestic professional consultants. As a result, if Viet Nams construction consultants
would like to work in foreign markets, they have to meet professional standards
provided in their regulations and must be granted professional licenses in those
markets or through regional arrangements or bilateral or multilateral mutual
recognition agreements. Participation in bilateral or multilateral mutual agreements in
those professional areas will enable Vietnamese engineers and architects who have
sufficient capabilities to work in markets of parties to those agreements. However, we
need to develop a strict management system for registry, inspection and supervision
over each professional activity. On the other hand, education programs to train local
engineers and architects as well as continuous development training programs for
recognized architects, engineers should also be updated to meet recognized standards.
The current weakest point is that even though Viet Nams engineers and
architects can meet professional requirements but they are limited in foreign
46

languages, ability to exploit and update information, project management, finance,

environment skills, human resources, knowledge on international trade and practice,
etc.
The above key issues should be addressed by additional management policies and
rules from the State, requiring attention, human resource development supports from
enterprises, at the same time requiring efforts from each Vietnamese engineer and
architect in their professional development.
With construction contractors, domestic construction contractors have gradually
developed from sub-contractors to co-contractors with foreign contractors and have
won many bidding contracts on road transportation, bridges and industrial, civil
bidding packages in international biddings or ODA projects. However, compared with
regional and foreign countries, Viet Nams construction contractors are limited in
project management and operation, skills and knowledge, especially international
practice knowledge, of managers and technical staff are low; weak financial ability,
lack of modern equipment and technology, lack of regional and global market
information, construction organization skills are limited; ability to use resources,
equipment and facilities, human resources is limited; weak cooperation among
domestic contractors, there are still signs of unfair competition, especially in bidding
prices.
With respect to management of construction bidders, countries all have strict
management system for domestic and foreign bidders. Domestic and foreign bidders
are all required to register to be granted the bidder capability certificates during
construction biddings. The certificate only allows bidders to implement construction
works whose scales and technical requirements suitable with certain capabilities on
capitals, equipments and facilities, experiences and key officials. As a result, the
development, amendments and additions to policies and regulation managing domestic
and foreign construction bidders should be studied further and improved consistently
with international practice in order to successfully manage activities of domestic and
foreign bidders given the international economic integrations process, ensuring
effectiveness and investment quality of projects.
The above assessment has partly shown that given current capability level of Viet
Nams construction consulting services and construction contractors and when there
are not so many opportunities to work abroad to learn experiences, together with
creating favorable conditions for inflows of foreign investments, opening markets for
foreign construction consultants and construction contractors shall be a good
opportunity for Viet Nams enterprises to learn and improve their skills, especially in
organization management, professions, modern technologies during strong advances of
information and technology. In other aspects, we can say that under strong competitive
pressure, foreign enterprises are also a positive factor to push and force domestic
enterprises to transform themselves and be active in enhancing their competitiveness.
47

However, being bound by bilateral and multilateral commitments, Viet Nams

construction consulting firms and construction companies shall now receive protection
from the State through limitations applied on foreign enterprises. Foreign enterprises,
especially strong ones from developed countries shall have careful calculations when
they choose investment methods for long term operation in Viet Nam and they will
absolutely try to make full use of best beneficial factors, conditions and advantages.
Together with national treatment, with advantages like capital, management skills,
equipment and technology, experiences and market knowledge, 100% foreign invested
enterprises will gain upper hand in competition, especially with long term operation
objective, it is likely that Vietnamese skillful staff and experts will be attracted by
100% foreign invested enterprises.
IV. PROPOSALS
IV.1. Policies and mechanisms
- Enhancing state management over international biddings for projects using
foreign loans by promulgating clear regulations, strict management of implementation
of these rules and regulations, mitigating capital outflows by appropriate division of
bidding packages, suitable with competitiveness of domestic bidders and having detail
policies for domestic bidders in international biddings.
- Maximizing the use of domestic workers and staff in construction joint
ventures. Encouraging foreign enterprises to provide construction services by using
new technologies and having clear policies for technology transfer and training.
- Making appropriate investment planning for construction and erection
equipment, technology to avoid save costs. At the same time, having appropriate
policies on directing technology modernization process, making it appropriate with
development level, creating competitive prices and maximizing the use of domestic
labors.
- Training human resources are a major task and measure, firstly training the
management officials, professionals and high level workers to meet the sectors tasks.
Re-organizing training schools and centers, reforming training programs towards more
practical, linking markets with production. Improving quality of training personnel,
especially vocational training teachers. Enhancing investment on facilities for
education and training institutions, reforming and applying modern education and
training programs. Strengthening scientific research and new technology application,
making scientific research a key task of the sector.
- Making specific studies on situation and ability of enterprises as well as
economic development of each region, area to have investment policies creating
corporations strong enough to increase competitiveness, on the other hand, we should
base on development investment in rural, remote areas and hinterlands to develop
small and medium size enterprises to handle domestic development.

48

- Establishing on the pilot basis the Viet Nams construction industry

corporation, which operate mostly in various construction works. Equitizing large
scale State owned enterprises to attract all domestic and foreign resources for
production development. Transforming current State general corporations into the
parent-subsidiary company model. In this process, depending on each area, we can
maintain some parent companies as State owned (most of parent companies in the
construction area will be joint-stock), subsidiaries will be enterprises with full legal
status, being joint-stock or limited liabilities in which parent companies hold
controlling shares. Carrying out equitization most of independent State owned
enterprises under Ministry of Construction.
- Construction general corporations or groups should have sufficient project
management organizations to handle works under turnkey method.
- Consulting companies of specialized construction and erection enterprises
(transportation, irrigation, civil, industrial, post-office areas, etc) must create their own
strengths by specializing and coordinating with different specialized construction
general corporations under partnerships to take part in domestic or foreign
international biddings, receiving major domestic project biddings from different
financial sources so that they are not dependent on foreign sources when borrowing.
- With construction and erection, construction consulting activities, we should
improve financial capability, equipments and technology, skills, management capacity,
financial and banking techniques, foreign language skills and legal knowledge as well
as international practices. First of all, giving priority to studying and implementing the
improvement of management policies and mechanisms, bidders capability standards
and professional standards in construction consulting in the regional and international
integration process.
- Studying the possibility for our construction enterprises to form more jointventures and partnerships with foreign bidders, especially joint ventures and
partnerships operating in regional and developed markets to increase understanding on
markets, techniques, finance, at the same time to create markets for our enterprises
when free trade areas are established and we join the WTO.
- Studying proposals for cooperation scientific, technical and technological
programs with members of APEC, ASEM and ASEAN to create basis for developing
cooperation in the construction area.
IV.2. Issues that the sectors enterprises should pay attention to
- Implementing studies to reconsider their development capabilities and abilities,
taking into account regional markets, applying new technologies, improving product
quality, building appropriate investment strategies for the period from now to 2010
and 2020.
- Paying special attention to improving professional skills in terms of project
management, project establishment, bidding documents, etc. These staff must be
49

equipped with foreign language skills and have deep knowledge on technical
standards, construction norms and foreign practices. Training and improving
professional skills for skillful workers, products must have high quality and up to
international standards.
- Updating scientific, technological information, economic and international
market knowledge.
- Making enough investment in equipments, especially specialized equipments,
having software at high level and is strictly managed.
- Looking for and clearly understanding technical standards, making timely
improvements to produce high quality works and products.
- Improving partnerships among domestic organizations in international
biddings in the form of groups to create competitiveness against foreign bidders.
PART VI-ANALYSIS ON THE IMPATCT OF WTOS ACCESSION ON
ELECTRONICS SECTOR IN VIETNAM
I.

BACKGROUND

The development of electronics sector in Vietnam was initially defined in 1960s

of the last century but came into full shape after 1975 and can be divided into 2 stages:
The first stage (1975-1990): In 1975, after the unification of the country, some
electronics companies in the South were handed over to new Government. These
companies included joint ventures with leading corporations in Japan such as Sony,
National, and Sanyo..., which were specialized in consumer electronics and some
small companies providing maintenance services. These newly handed-over
companies together with some enterprises in the North helped to shape the infant
electronics industry during this period.
Fully aware of the importance role-play by electronics sector, right after the
unification, the Party and Government worked out the detailed blueprint for the
development of the sector. On 3 October 1975, the Government issued Decision No.
316-TTg14 on the establishment of Sub-Committee on Electronics Industry
Development under the direct supervision of Prime Minister. This Sub-Committee
came up with Approach for the development of electronics industry in
Vietnam15which was approved by the Government and was implemented starting
from the end of 1976. Along with expeditious measures for the development of
electronics sector, the Government also urged the newly-handed over companies in the
South to undertake measures for quick recovery and get down to business to assemble
consumer electronics to meet domestic needs. At the same time, some more factories
were also set up to produce electronics components to provide inputs to assembling
enterprises, which were facing difficulties for losing supplying sources. Many
14

Archive at Office of Prime Minister

15

Archive at Office of Prime Minister, Ministry of Industry

50

companies, such as Z181 specialized in producing semi-conductors, Hoa Binh

Electronics Co., Ltd specialized in resistors and capacitors, Tan Binh Electronics Co.,
Ltd specialized in amplifier, were constructed during this period. These enterprises
not only provided inputs for assembling factories but also exported to the Soviet Union
and Eastern Europe. At the end of 1980s, despites of difficulties operating under
condition of a command economy, Vietnams electronics sectors was gradually
established with enterprises from Union of Vietnam Electronics Enterprises as its core
units. Even though the scale of the sector was still small but it could produce as well as
assemble many essential components to meet the increasing demands from both inside
and outside the country.
When the socialist system in the Soviet Union and Eastern Europe countries
collapsed at the beginning of 1990s, Vietnam electronics sector was seriously affected
for losing supplying channels of materials, accessories as well as export markets.
Without markets and lacking of resources for technology renovation, electronics
companies face serious difficulties. Some enterprises had to terminate their operations.
Others had to change to produce other products. Vietnams infant electronics sector
faced severe challenges.
Second Phase (from 1990 till now): Starting from 1990s, with the orientation
toward renovation and integration, Vietnams economy started to moved toward
direction of market economy. With favorable environment for investment, strong
promotion for infrastructure and export-processing zones development, Vietnam has
attract a lot of investors who in turns have great impacts on the national economic
development and Vietnams electronics sector.
Vietnams electronics sectors were in bloom after 1998 with the participation of
enterprises from 3 economic components: state-own enterprises (SOEs), private
enterprises and foreign-invested enterprises. SOEs are very active in reforming their
methods of doing business, and fostering up joint ventures with foreign partners. Many
private enterprises were established and have very good business. A lot of famous
enterprises from countries with advanced electronics sector set up their own business
in Vietnam under the form of joint venture or 100% foreign-invested enterprises16.
New mechanism and environment gave a strong impetus for the development of
Vietnams electronics sector. Thanks to favorable investment policies, attractiveness
of local market with more than 80 millions people and vast human resources,
electronics sector becomes a sector that attract most of foreign investments
(approximately USD 2 billions in 2003 and 4 billions by June 2007).
After more than a decade of construction and development, Vietnams electronics
sector gained lot of remarkable achievements, which set a momentum for new
development as follows:
- Annual growth rate of the sector is 20-30% on average. Of which, consumer
electronics achieved strong growth rates during the period of 1991-1995 (35%);

16

Bureau of Foreign Investment, Ministry of Planning and Investment

51

accessories has strong growth rates during the period of 1995 -2000 (30-45%); ICT
products has strong growth rates during 2000-2005 ((30-50%)17.
- Productions basically meet local demand for consumer electronics, refrigerators
and ICT products. There has been a sharp increase in total national production for
electronics products in recent years, to VND 230 trillions in 2004 from VND 4
thousand billions in 199618.
- Export to 35 countries in the region and worldwide and export turnover is 20
times higher within 10 years. In 1996, the country started to export few electronics
products. In 2004, the export turnover reached USD 1.075 billions and became USD
1.075 billions and USD 1.77 billions in 2005 and 2006 respectively 19. The main
export items are electronics and computer components.

II.

CURRENT STATUS AND COMPETIVENESS OF THE SECTOR

II.1. Current status of development

In the past decade, despite robust developments and achievements as stated
above, Vietnams electronics sector still faces many obstacles which impedes it to
become a spearhead sector in the national economy. The current status of the sector
can be summarized as follows:
a.
Geographic distribution: Vietnam has nearly 300 enterprises; of which
30% are foreign invested enterprises based mostly in Hanoi and HoChiMinh City and
few other cities. HoChiMinh City accounts for more than 60% of total enterprises
nationwide.
b.
Operation mechanism: Developing during an open and integration
period, electronics sector comprises enterprises from 3 economic components: stateown enterprises (SOEs), private enterprises and foreign-invested enterprises. Stateown enterprises (SOEs) and foreign-invested enterprises focused on assembling/
manufacturing products and accessories while private enterprises mostly operate in
merchandising and providing services. There are only a few private enterprises
participating in the assembly and production. Foreign invested enterprises usually
operates following two methodologies: (i) export orientation: some big enterprises
such as Fujitsu and Canon, Orion-Hanel... (usually 100% foreign-invested enterprises)
with modern technology and export orientation will import most of raw material and
components for production and export 100% of its output. Some of smaller scale such
as Sony, Panasonic, JVC, Toshiba, Samsung, LG, and TCLoften operates under the
form of joint ventures with local enterprises with import-substituted orientation.
Foreign-invested enterprises play a key role in electronics sector of Vietnam
accounting for 90% of investment and export turnover and 80% of local market.
17

National Statistical Yearbook 1996-2005

18

National Statistical Yearbook 1996-2005

19

Ministry of Trade

52

c.
Product structure: Except for few 100% foreign-invested enterprises
specialized, most of enterprise in Vietnams electronics sectors focused on assembling
products to meet demand for consumer electronics in the local market. Thus there is a
serious imbalance in product structure of Vietnam consumer electronics and
professionalized electronics (80% over 20%). In addition there is an imbalance
between assembling and producing components. The number of enterprises producing
components and material equals one-fourth of those specialized in assembling. The
local content is only at 20-30%, most are wrapping, plastic and mechanic items 20.
d)
Technology: Electronics is one among high tech sector where the high speed
of changes entails short circle of products. Therefore, technology plays a key role for
enterprises operating in this sector. However, for Vietnam electronics enterprises, due
to characteristics of historical background of development as well as operating
mechanism, the role of technology is not always appreciated, especially for local
enterprises. The application of new technology in Vietnams electronics enterprises
could not meet the rapid development of science and technology in the region and the
world. Except for 100% foreign invested enterprises with export orientation, most of
electronics enterprises in Vietnam are small and medium-sized enterprises with limited
financial back up. Therefore, the technology and equipment they own are 10-15 years
behind those in the region and the world. Investment ratio for new technology is also
at a very low level: 0.3-0.5% over turnover. Even in big enterprises, this ratio is more
or less than 1% whereas this ratio is much higher in country in the region, e.g. 5% in
India, 10% in Republic of Korea and 12% in China21. Due to the fact that most of
electronics enterprises in Vietnam are specialized in assembling, their products are of
processing nature, labor-intensive, of low technology and thus get little value-added of
5-10%. Besides limited financial strength, some inadequate policies on science and
technology as well as inappropriate investment by the Government in the sector are
also attributed to the obsolescence in terms of technology of the sector.
e)
Human resource: Based on the estimated statistics, there are approximately
100.000 people working in the electronics sector with the intake rate of 10%/ year 22.
Not taking into account those working in areas of trade and services incidental to
the sector, the rate of working labor in electronics sector are at very low level, account
for 1.8% of total working labor force. Skilled workers accounts for 36-87%, staffs
credited with engineering or bachelors diploma account for 4-64%. At local
enterprises, engineers and bachelors account for a high proportion of 19-64% and are
usually designated to work at positions relating to management, marketing, product
research and development. However, this proportion is rather low at 4-10% in foreigninvested enterprises. Working labors in electronics sector, especially direct labor force,
are highly appraised by foreign investors for their skills, the ability to absorb new
technology. Nonetheless, electronics sector in Vietnam is still lack of leading experts,
20

Report on survey of Vietnamese electronics industry VEIA 6/2006

21

Ministry of Science and Technology 2005

22

Report on survey of Vietnamese electronics industry VEIA 6/2006

53

engineers and product developers who are able to come up with highly value-added
products.

II.2.Competitiveness
It is a commonly accepted comment by economic expert that there is not much
improvement in terms of growth quality (i.e. ability to improve investment
effectiveness and competitiveness) even though Vietnam has maintained high GDP
growth rate in a long time23. According to the scorecard of World Economic Forum
WEF, Vietnam is down in ranking. In 2005, Vietnam was rated by WEF at 84 out of
total 117 countries (4 grades down compared to 2004) in term of national
competitiveness and 80/116 (1 grade down compared to 2004) in term of enterprise
competitiveness. Similar to other enterprises in Vietnam, competitiveness of
electronics enterprises has not been improved in the past few years, despite its high
growth rate for a long period of time. Therefore there has been a long distance between
Vietnams electronics sector and those of ASEAN countries in the region.
Of all factors that determine enterprises competitiveness, there are two basic
factors, i.e. technology and management which are not strength of Vietnam
electronics sector. As mentioned above, the development of electronics sector is 10-15
years behind countries in the region and the world, investment ratio for technology
renovation is not high, at around 0.3-05% over total turnover and is approximately 1%
at some big enterprises. Due to obsolete technology, their products are of processing
nature, labor-intensive, low technology and thus get little value-added of 5-10%. In
addition, research and product development is rather weak and simply follow designs
of foreign countries. There is not many products developed by local expert and as a
results, products has a very low value added and competitiveness. In terms of
management, setting aside foreign-invested enterprises, state-owned enterprises and
private enterprises faces many challenges. SOEs found themselves at a loss in the
transitional process from the command economy to market orientation. The
cumbersome administration system lead to high cost of production and therefore
reduces competitiveness of the enterprises. Whereas, most of private enterprises in the
sector are small and medium-sized enterprises whose developments are derived from
cooperatives, family production unitsthus their management skills are still arbitrary
and limited, which impede the competitiveness of enterprises.
However, in the past time and since 11 January 2007, after Vietnam become a
member of the WTO, decisive factors to competitiveness of enterprises including
technology and management have been and will be further improved. To effectively
put the application of advanced technology into production, capital investment is
indispensable. Equalization has been sped up along with process of listing enterprises
in the stock exchange market to call for more foreign investments to mobilize capital
for technology renovation. Vietnam currently allows Vietnamese enterprises to sell
their shares to foreign investors. This movement does not only entail the inflow of
23

Institute for Vietnam Economic Studies 10/2006

54

capital but also the application of modern management along with the participation of
investors in the operation of enterprises. Being beneficiaries of appropriate and open
polices of the Government, private enterprises in electronics sector will develop both
in terms of quality and quantity. There are more and more private enterprises applying
high technology and advanced management methods. Enhanced management skill
will, in its turn, save cost of production, improve product quality, give more valuedadded to the product and increase competitiveness of enterprises.
Apart from these two decisive factors, some more factors that also determine
competitiveness of enterprises, i.e. ability to comprehend and meet customers
demand, distribution network for goods and services, esp. maintenance and after-sales
services; cheap and large source of young working labours..can also be competitive
edges of Vietnams electronics enterprises in the process of integration.
In addition, electronics sector in Vietnam enjoys favorable conditions compared
to other sectors to a certain extents. That is because starting from 2001 to 1/1/2006,
Vietnam implemented its commitments to reduce the import tariff on electronics
products (under the form of completely built-up-CBU) imported from ASEAN
countries to 0-5% from 40-50%. Of which there are two remarkable milestones, i.e.
1/7/2004 when tariff on CBU was reduced from 40-50% to 15-20% and 1/1/2006
when tariff on CBU was further reduced from 15-20% to 0-5%24. In order to survive
and compete with electronics products imported from ASEAN countries at preferential
low tariffs, many electronics enterprises such as Tan Binh Electronics Co., (VTB),
Bien Hoa Electronics Co., (BELCO), Hanel Electronics Co., Tien Dat Electronics Co.,
CMS Computer Co., FPT Elead Co... try to come up with products bearing their own
trademarks with nice design, good quality and competitive prices. As a results these
companies have won a strong foothold and dominate a big share in domestic market in
the past year when the import tariff on electronics CBU from ASEAN was brought to
0-5% based on AFTA schedule. These companies also built up system proving
maintenance and after-sales services, and thus enhance competitiveness and
effectiveness of doing business. Some enterprises modify their products structures by
producing specialized electronics and components instead of consumer electronics. For
example, Dong Da Electronics Co., moves to produce medical equipments, Binh Hoa
Electronics Co., 25 moves to produce components to supply for domestic assembling
facilities and for exportIn addition, many other electronics enterprises, especially
private enterprises, small and medium-sized enterprises are active in the process of
changing product structures, working out marketing strategies, renewing technology
and management methods to be adaptive to integration process in AFTA. In the
process of regional integration where tariff on electronics in form of CBU were
brought down to 0-5%, the competitiveness of electronics sectors has been improved.
Therefore, it can be said the integration process via AFTA served as a training ground
for Vietnams electronics before Vietnam joins the WTO.

24

ASEAN Common Effective Preferential Tariff Scheme (CEPT)

25

www.viettronics.com.vn; www.viettronics-binhhoa.com

55

III. VIETNAMS COMITTMENTS RELATING TO ELECTRONICS

SECTOR IN WTO
Electronics in fact is a sub sector belonging to industry sector, and thus will be
governed by commitments relating to this sector upon accession to the WTO, which
can be mainly summarized as follows:

III.1. Abolishment of forbidden subsidy according to WTO regulations.

a.
Abolishment of subsidy for import-substitution26: The focus is to abolish
tax policies based on local contents, whereby the higher local content a product has the
lower import tax on remaining components and other type of taxes. This was a very
important incentive given by the government to electronics enterprises in order to
encourage these enterprises to produce equipments, components in domestic market to
replace imported ones.
b.
Abolishment of exports subsidies27: subsidies, which fall under this
category, comprise prize to enterprises based on their export performance and financial
supports for enterprises to participate in trade fairs abroad.
c.
Abolishment of privileges in corporate income tax 28: electronics
enterprises who meet the following criteria: produce industrial products listed in the
list of priority products, use local raw materials to a large part and export more than
30% of their total outputs, operate in areas that are granted investment
incentives...used to receive privileges to pay corporate income tax at 5-15% whereas
the average rate of corporate income tax is at 28%.
d.
No approval of preferential loans and reduction of land rental/ land use
rights: condition to enjoy these privileges are similar to conditions to enjoy corporate
income tax. However, the number of enterprises making use of this privileges are
smaller due to the procedures are more strict.
III.2. Commitments on import tariffs29:
a.
Vietnam agreed to set ceiling rates for its tariff book (10 600 tariff lines),
and committed to reduce tariffs on industrial products from 16.1% from the date of
accession to 12.6% in 5-7 years, which means reduction of 23.9%. Specific
26

Item 3, Policies that impact on trade in goods-Vietnams documents on WTO accession,

National Committee for International Economic Cooperation-Hanoi 2006
27

Item 3, Policies that impact on trade in goods-Vietnams documents on WTO accession, National
Committee for International Economic Cooperation-Hanoi 2006
28

Summary on Vietnams commitments for WTO accession (Ministry of Trade)

29

Summary on Vietnams commitments for WTO accession (Ministry of Trade)

56

commitment is to reduce immediately tariffs on some products whose current tariffs

are more than 20-30%. Of which tariffs on machinery and electronics components are
to be cut with the largest margins.
b.
Commitments to reduce tariff according to some sectoral agreement
under WTO to reduce import tariff to 0% or lower. Even though these are voluntary
sectoral agreements but new members of the WTO are requested to join in some.
Therefore, Vietnam agreed to join Information Technology Agreement (ITA).
Accordingly, upon accession to the WTO, Vietnam has to remove most of import tariff
on ITA products such as computer, external equipment, digital equipments, mobile
phonesThere is only a single list of products subject to tariff reduction applicable to
every member without any exception.

III.3. Other commitments.

Protection of intellectual property rights, especially in software sector 30,

Open the market for services in telecommunication and distribution sectors.
IV. IMLICATIONS
SECTOR

OF

WTO

ACCESSION

TO

ELECTRONICS

In the past few years, being considered by the State as a spearhead economic
sector, electronics sector has been given a lot of privileges and protection, including
import tariff on inputs and subsidies. Privileges in terms of import tariff are one among
main supports by the government to encourage development of the sector. Eligible
enterprises can import electronics equipment and components for production with
import tariff of 0-5% while MFN rate are at 40-60%. Besides, many other subsidies for
electronics sector such as export subsidies, import-substitution subsidies (subsidies
based on local contents), preferential loans, exemption/ reduction in land rental,
reduction in corporate income taxalso play important roles in the development of the
sector in the past time. Therefore, the abolishment of these subsidies and privileges
upon Vietnams accession to WTO will have strong impacts on the development of the
sector.
Before considering impacts of WTO commitment on the sector, we need to bear
in mind some characteristics of Vietnams electronics sector. As mentioned above,
most of electronics enterprises in Vietnam are small and medium-sized, newly
established with limited financial back up and technology. They mainly assemble
consumer electronics to meet demands of local market, and thus have very low
competitiveness. Even though accounting for about a quarter of total electronics
enterprises nationwide, foreign-invested enterprises play a very important role since it

30

Item 2, Part 3: Trade-related issues of intellectual property rights-Vietnams documents on

WTO accession, National Committee for International Economic Cooperation-Hanoi 2006

57

accounts for more than 80% domestic market share and more than 90% of export
turnover.
In order to analyze the impact of WTOs commitments on this sector, various
factors should be taken into consideration, such as applicable entities and scale of
subsidies and real effectiveness of protection via subsidies and privileges as well as the
relationship between subsidies and improvement of effectiveness in enterprises. A
recent survey was conducted by Project on technical support for Vietnams accession
into the WTO funded by Italian Government 31 to find out impacts of all types of
subsidies to business activities of enterprises in 62 electronics enterprises in Hanoi and
Hochiminh City (including four state-owned enterprises (SOEs) under direct
supervision of Government, two SOEs under local governments supervision and 44
foreign-invested enterprises, 6 limited companies and 6 joint-stock companies. Of
which there are 6 enterprises with less than 50 employees, 27 enterprises with around
50-200 employees and 28 enterprises with more than 200 employees. Most of these
enterprises participating in productions of electronics products, of which some are
leading companies. The survey revealed that subsidy played important roles in the
development of electronics sector in the past time. Results are as follows:
-Import tariff: 75% of enterprises are of the view that preferential treatment under
the form of import tariff is very important. 82% of enterprises take this factor into
consideration before making decision on expanding scope of production. 42% of
enterprises think that their enterprises turnover will reduce if privileges in term of
import tariffs are abolished. However, 22% of enterprises are of the views that there
will not be strong impacts on turnover and 15% think there will be no impact at all if
privileges in import tariff are abolished 32.
- Corporate income tax: there are also 75% of enterprises think that preferential
treatment under the form of import tariff is very important. 83% of enterprises are of
the views that the abolishment of incentives on corporate income tax will have impact
on investment decision and expansion of scope of production and 40% of enterprises
think profits will shrink as a result of this withdrawal 33.
-Preferential credit loans and exemption of land rental/ land use rights: Only 30%
of enterprises think this is a very important factor while 60% of enterprises think that
this factor will have impact on investment decision of enterprises and half of
enterprises will cut down their scope of production if there is no more incentives in
terms of preferential credit loans and exemption of land rental/ land use rights 34.
31

Report of Project on technical support for capacity building to facilitate Vietnams accession to the
WTO, Hanoi 04/10/2006
32

Report of Project on technical support for capacity building to facilitate Vietnams accession to the
WTO, Hanoi 04/10/2006
33

Report of Project on technical support for capacity building to facilitate Vietnams accession to the
WTO, Hanoi 04/10/2006
34

Report of Project on technical support for capacity building to facilitate Vietnams accession to the
WTO, Hanoi 04/10/2006

58

- Export subsidy 35:Only 30% of enterprises attach great importance to this type
of subsidy while 49% of enterprises say they will take this factor into consideration if
they intend to expand the scope of production. However, 60% of enterprises say they
can operate as usual given this type of subsidy is lifted.
Enterprises shares common views that privileges in terms of import tariff and
corporate income tax are the most important forms of subsidy. However, according to
this survey, those who gained most from governments subsidies turned out to be
foreign-invested enterprises. Therefore, impacts of lifting of governments subsidies
on Vietnamese electronics enterprises are not as strong as on other sectors such as
textiles and footwearFor examples, starting from 01/01/200636, when import of
electronics CBU from ASEAN countries can enjoy 0-5% tariff according to Vietnams
schedule of commitment, there had not been a flood of electronics products imported
to Vietnam from these countries and many Vietnams electronics enterprises had to
close under low price pressure as result of it as many people anticipated. On the
contrary, the sectors turnover from local and foreign markets is both on the increase
in 2006 compared to 2005.
Currently, most of electronics products in Vietnams market are supplied by local
companies or multinational companies, which also have subsidiaries in ASEAN
countries. Therefore, even though import tariffs are reduced upon Vietnams accession
to the WTO, there is hardly a possibility for a glut of electronics products imported
from countries outside ASEAN. There are only rooms for products that have not been
produced inside the country. For IT products, the tariff reduction following CEPT
scheme has been basically fulfilled with import tariff of almost all products at 0%.
Local market will become more and more diversified with the inflow of electronics
products from EU, U.S and other countries at much reasonable prices due to the
schedule of tariff reduction under Vietnams commitments in the WTO. However,
electronics products from ASEAN countries will still hold important share in
Vietnamese market since they got competitive edges over other countries in terms of
lower transportation costs and import tariffs 37.
Besides impacts of the abolishment of subsidies, the strongest-felt impacts on
electronics sector as a result of WTOs accession are the intensified competition within
the sector. When Vietnam officially became WTO member, its electronics enterprises
with limited competitiveness will have to face foreign competitors, which are much
stronger in terms of competitiveness and enjoy favorable condition when operating in
the market. Strong financial back-up, professional management skills and market
experiences will help foreign enterprises to come up with goods and services with
lower costs and better after-sales services. Therefore, not only local manufacturers of
electronics products but also local distributors of electronics products have to compete
35

Report of Project on technical support for capacity building to facilitate Vietnams accession to the
WTO, Hanoi 04/10/2006
36

ASEAN Common Effective Preferential Tariff Scheme (CEPT)

37

Report on survey of Vietnamese electronics industry VEIA 6/2006

59

strongly with foreign competitors who are ready to come to Vietnam right after
Vietnam officially become WTO member.
When protective measures by the State are no longer in existence, electronics
sector in Vietnam will surely face severe difficulties right at home market if it is not
active in improving competitiveness and quality of products, working out business
strategies appropriate to new circumstance as well as attracting foreign investment and
setting up reasonable distribution networks.
However, WTO accession also has positive impacts on electronics sector in
Vietnam. Firstly, WTO accession will create more opportunities for electronics
enterprises to access various sources of financial loans, modern technology, services
and raw material supply for production. Vietnams electronics sector will have more
opportunities to export its products now that there is no more discrimination as before.
Its enterprises also can take advantage of dispute mechanism in the WTO to find a
solution over disputes with other WTO members, which was used to be hard to arrive
at. Secondly, being a WTO member, Vietnam becomes an attractive destination for
foreign investors in electronics sector. This is clearly exhibited via Intels increasing
its investment capital from USD 600 millions to USD 1 billion to invest in chipmanufacturing factory in Hochiminh City right after the successful conclusion of final
round on Vietnams accession to the WTO. Following Intel, Meiko Corporation
(Japan) invested USD 300 millions into electronics components manufacturing project
in Ha Tay Province and in early 2007 Foxconn Corporation invested USD 5 billions in
high technology zones and projects to produce computer and telecommunication
accessories38. Foreign investors will bring along with them modern technology,
advance management method favorable for the development of electronics sector in
Vietnam. Thirdly, being a WTO member, business environment of Vietnam will be
further improved, policies will become more and more transparent, which work toward
the development of the sector and help to solve problems that differ the development
of the sector for a long period of time. In addition, after Vietnams accession,
electronics sector in Vietnam has to rebuild its strategies on production, marketing,
providing training courses to new staff as well as giving supplementary vocational
training to staffs to be able to keep abreast of current situation.

V.

CONCLUSION AND RECOMMENDATIONS

The accession to the WTO will bring along great benefits to Vietnams economy
in general and electronics sector in particular. Integration process via WTO will help
to boot up foreign investment, technology transfer, expand potential market for export,
enhance competitiveness and help to make Vietnams electronics sector become
spearhead sector in the national economy as expected by the Party and Government in
the past few years. In order to achieve the above targets, as an social-cum professional
association, Association of Vietnam Electronics Enterprises propose herewith some
recommendations:
38

Bureau of Foreign Investment, Ministry of Planning and Investment

60

V.1.For agencies authorized with State management functions:

- Continue to disseminate all information concerning commitments in WTO to
make it known to public and business community so as we can take advantage of
opportunities that WTO bring along as well as to be able to cope with difficulties and
challenges raised from the integration process.
- Be active in improving business environment, completing relevant regulations
relating to integration, especially Enterprises Laws, Investment Laws as well as
working out new laws and speed up administrative reforms.
-Pay more attention to capacity building for new staff, including human resources
for state administration system as well as for enterprises, and provide necessary
supports to enterprises and employees in forms of refresher courses, unemployment
aidconsistent with WTO regulations so that to help them to be able to survive and
develop under new circumstance.

V.2. For Vietnams electronics enterprises:

-Be more active in production and business since it is enterprises that play key
roles in integration process. Enterprises should take their own initiative in exploring
WTO rules; take all relevant commitments relating to the sector under WTO into
consideration so as to understand benefits and challenges after joining WTO
playground. This will serve as a base for enterprises to rebuild their plan of production,
marketing and enhance competitiveness.
- Aiming at improving product competitiveness, electronics enterprises should
modernize technology, improve management method in order to reducing production
cost, promote research on new and brain-intensive product development instead of
assembly production as present.
- Vietnam's enterprises operating in distribution sector should improve
profession, avoid overlapping between distribution and retail as present, and improve
guarantee and customer services, associate together to become big distributors in
domestic market. This is because when foreign services suppliers are permitted to do
business in Vietnam, competiveness will be very taugh in this sector.
- Vietnams electronics enterprises need to be confident and look inside into their
own strength. They should not expects for protection by the Government as they used
to so as they can gain strong foothold in global playground of WTO.

61

PART VII-IMPACT OF WTO ACCESSION ON PHAMARCEUTICAL

SECTOR

I.
CURRENT STATUS
PHAMARCEUTICAL SECTOR

AND

COMPETITIVENESS

OF

I.1. Current status

1.1.1Achievements
Production of Vietnams pharmaceutical sector basically meet demand for
medicines for prevention and treatment of diseases in terms of variety, quantity and
quality. Distribution network has been restructured and expanded nationwide to meet
the demand for pharmaceutical products. Pharmaceutical sector enjoyed rather high
growth rates in the past recent years. As of the end of November 2006, there are 64
pharmaceutical production units credited with GMP- Good Manufacturing Practices
certificate by Ministry of Health, of which 23 units gained GMP certificate credited by
the World Health Organization, 62 trading units credited with Good Supply Practice
(GSP) and 58 units credited with Good Laboratory Practice [GLP] Growth rate of
local production in the sector reaches record high compared to the past 5 years, at
25.4% in 2005 compared to 21% in 2000. Production of fake pharmaceutical products
is basically under control, the ratio of fake pharmaceutical products is on the decrease
from 7.1% (in 1990) to 0.06% (in 2003), 0.03% (in 2004), 0.035% (in 2005). Average
expenditure per capita on pharmaceutical products was approximately 10USD/ person/
year in 2005, i.e. 20 times higher than 1991 and 1.8 times higher that 2000. The
market for pharmaceutical products for disease treatment is basically stabilized and in
lines with market economy rules. Prices of pharmaceutical products are under control.
While consumer price index (CPI) in 2005 and 2004 were almost the same (8.6%
compared to 9.4%), ratio of increase in price of pharmaceutical products in 2005 was
only half of that in 2004 (4.9% compared to 9.1%).
State management system for pharmaceutical products has been reinforcing from
the central to provincial level. Laws relating pharmaceutical products are continuously
modified and enacted to be relevant to the circumstance of transforming the economy
from command economy to market economy with socialist orientation.
Councils for pharmaceutical products and treatment was set up and in operation
at almost all hospitals nationwide and have been very active in their roles of advising
hospitals managers on lists of suitable pharmaceutical products for disease treatment
and prescription. Committee on antibiotic usage under Ministry of Health helps to
enhance public awareness on antibiotic and how to use them in an appropriate manner
via activities such as appraisal, leaflet distribution and media

I.1.2. Limitation and weakness:

62

Legal documents providing guidelines for price control of pharmaceutical

products are not enacted in a systematic manner. Relevant polices and necessary
resources governing prices of pharmaceutical products are not well prepared, which
led to passive reactions of authorized agencies in discharge of their function of
controlling the price of pharmaceutical products.
Pharmaceutical sector cannot yet manage to meet demand for pharmaceutical
products for treatment. As of the end of December 2005, domestic production of
pharmaceutical products can meet 48.3% of demand (based on value) and produce 652
out of 1563 active elements currently available on the market. More than 90% of
material used for production in the sector is imported. Most of pharmaceutical
products made locally are of low value and competitiveness. The import structure is
rather scattered and not in proportion with structure and scale of disease in Vietnam.
Import of pharmaceutical products is focused on highly profitable items, especially via
private supply chain.

There has not been good coordination among relevant ministries and agencies to
work out policies and guidelines in order to supply pharmaceutical products to public
in an appropriate and efficient ways. The supply and usage of medicine in treatment
are not specifically governed, and thus the management of medicine supply for
diagnosis and treatment is not consistent nationwide. There are signs of abuse of
monopoly power where some local companies collude with foreign companies to
control the supply and set too high prices for some medicines to be used for
specialized treatment. In the process of transforming into market economy, the
continuation of medicine supplying system under command economy is no longer
relevant whereas the one similar to the one under market economy is not clearly
shaped and developed.

I.1.3. Causes
In the process of transforming from command economy into market economy,
there is a mismatch between State management system and production and trading
system. There is lack of consistency in modifying, complementing and enacting legal
documents for the effect management of market for medicine.
Strategies for human resource development in pharmaceutical sector are not well
taken care of in order to meet the demand under new circumstances. Expertise and
capabilities of officials-in-charges are inadequate and not up to the demand of an
increasingly diversified market for pharmaceutical products, which needs simplified
and consistent management at both macro and micro levels. The supplement and
control human resources at medical checkpoints are insufficient.
Forecasts of demand for pharmaceutical products have not been done in accurate
and sufficient ways and thus the efficient and righteous supply of medicines cannot be
guaranteed. The Blueprint for the development of local pharmaceutical industry was
63

not worked out in line with the transformation of market for pharmaceutical products.
There has not been clear mechanism to encourage investment in production and usage
of locally produced medicine. Sources of material for local production mostly depend
on foreign sources. Pharmacy-chemistry and antibiotic industry are at initial stage in
Vietnam. Other industries such as petrochemistry, basic chemistry, and
biotechnologyare underdeveloped, which pose great difficulties for the development
of pharmaceutical sector in Vietnam.
There are overlaps in functions of authorized agencies. The operation of council
on pharmaceutical products and treatment at hospital is not up to expectation. Most of
hospital is not fully funded to settle bills for medicines in tender contracts, which
remains as bad loans for a long time between hospitals and trading companies.
However, this is quite a popular situation.
Inspection, regular check and imposition of a penalty on infringement are not
conducted on a regular basis, especially in the implementation of professional
regulations such as hospital regulations, rules on prescription and medicine provision
based on doctors prescription, regulations on conducting private business on medical
and pharmaceutical products. So far, most of the investigation activities are formalistic
without due attention to the effectiveness of market control.

I.2. COMPETITIVENESS ANALYSIS

Due to characteristics of market for pharmaceutical products, which is scattered,
unprompted with a lot of unhealthy competitions, the local industry can guarantee to
supply 652 out of 1563 active elements. According to analysis of the World Heath
Organization ( WHO), Vietnams pharmaceutical sector is at grade of 2.5-3 (in the
scale of 1-4), i.e. Vietnam can wholly produce and export certain types of medicines
only.
Most of enterprises in the sector are specialized in producing medicines for
treatment of popular diseases, which are simple, overlapping, but not yet pay due
attention to production of specialized medicines. The following numbers speaks for
themselves: 51% of production lines is to produce ordinary medicines in tablet, 15% to
produce medicine and cream for external usage, 10% to produce soft folliculated
medicines, 8% to produce liquid medicines, 7% to produce medicines for injection,
5% to produce eyes drops and 4% to produce liquid for transmission.
The structure of local production is not in proportion to the structure of diseases
in Vietnam and focus on production of normal types of medicines following the
stereotype of foreign medicine. This fact has led to the overlapping investment and
price wars in the market. The imbalance is explicitly expressed via pharmacy-physical
group. As of the end of December 2005, out of 9046 types of medicine produced
locally, antibiotic and antiparasitic medicine account for 1752 types (19.4%, vitamins
and supplementary drugs is of 1063 types (11.8%), medicine for heart and artery is of
64

87 types (0.96%), medicine for diuretic purposes is of 16 types (0.001%), anti-caner

medicine is of 1 type (0.0001%).

With that structure, according to analysis by many enterprises in pharmaceutical

sector of Vietnam, price reduction impacts of WTO accession are huge but can be
strongly felt in certain products only. Moreover, for rare medicines, especially those
that can be not produced locally, reduction in prices can only happened if
multinational companies have intention to do so.
As for the implementation of GMP as strongly advised by WHO, there are only
41 production units obtain GMP-ASEAN and 23 enterprises obtain GMP-WHO out of
174 production units in Vietnam. The remaining production units seem to be very slow
in taking up these criteria. In 1996, Vietnam started to apply GMP-ASEAN in
pharmaceutical products with detailed schedule whereby all production units have to
obtain GMP by the end of 2000. However, Ministry of Health has just enacted a new
schedule, whereby enterprises have to obtain GMP-ASEAN by January 2007 and
GMP-WHO by 1/1/2008. Therefore, it can be said that after 10 years of
implementation, enterprises in pharmaceutical sector in Vietnam have not been trying
their best to stand on their own feet. This fact is one more time reaffirmed when
enterprises have recently requested Ministry of Health for 1 or 2 years grace when the
deadline for implementing the above schedule is approaching.

I.
VIETNAMS COMMITMENTS ON
PRODUCTS IN THE WTO

PHARMACEUTICAL

II.1. Commitments on import tariff

Accordingly to Vietnams horizontal commitments upon accession to the WTO,
import tariff imposed on pharmaceutical products will be 0-10% (applied MFN),
average bound rate is 5.2% and final average rate after reduction is 3.9%. However,
the following import tariffs are applicable to the U.S:
Import tariff rates are tentatively applied to all pharmaceutical products at 05% instead of 0-10% as before,
The average rate of import tariff after 5 years since the date of accession will
be 2.5%.

II.2. Commitments on trading rights (to import and export)

Specific commitments on trading rights, especially the rights to participate in
importing pharmaceutical products are as follows:
-Starting from 1/1/2009, foreign enterprises and individuals are allowed to import
to Vietnam in their own names in import dossiers without having to invest in Vietnam.
65

The importer named in the dossiers only need to register with authorized agencies in
Vietnam in order to be able to import pharmaceutical products
-Starting from 1/1/2009, foreign invested enterprises that have investment in
Vietnam will have the same rights to import and export as Vietnamese enterprises do.
-Importer named in the import dossiers and foreign-invested enterprises are
allowed to imported and resell the imported goods to individual and enterprises
credited with distribution rights of that products in Vietnam,
-Rights to imports do not mean to entail rights to distribute products.

II.3. Commitments on opening market for services

Distribution rights of pharmaceutical products (except for complementary
products which are not medicaments under the form of tablet, capsule or flour) are
excluded from the scope of commitments. In other words, the opening market for
distribution services is unbound.

II.4. Other commitments

Besides commitments on import tariffs, trading rights and opening up market for
distribution services, pharmaceutical sector has to follow similar obligations as in
other sectors:
a.

Non-tariff barriers

Remove non-tariff barriers inconsistent to WTO rules such as import prohibition,

import tariff quota.
b.

Technical barriers

Apply technical barriers consistent with WTO rules

c.

Intellectual Property rights

Abide by other regulations under WTO on the implementation of intellectual

property rights as provided for in TRIPs.

d.

Follow basic principles in WTO, including:

-Most favored nation (MFN)

-National Treatment (NT)
-Open market access
-Fair competition

66

II.
ANALYSIS OF THE IMPACTS OF WTOS ACCESSION ON
PHARMACEUTICAL PRODUCTS
II.1. Main benefits
WTO accession will bring along benefits in the long run to the country, including
pharmaceutical products in Vietnam:
- Vietnams enterprises can operate in an open and transparent environment for
business and investment, which provide equal treatment between local and foreign
investors and between different economic components via legal documents newly
enacted by the Government and Congress
- Vietnam enterprises producing pharmaceutical products can be free to choose
materials from more diversified sources at much reasonable price and better quality
- Commitments to reduce import and export taxes in order to guarantee smooth
circulation of goods among member countries
- Enterprises can have access to huge and diversified markets following equal
rules and fair competition, and enjoy favorable conditions to find trading partners and
to get technology transfer. Ministry of Trade has just enacted List of country granting
Vietnam with MFN treatment
- There are more opportunities for market research and development of
distribution network for pharmaceutical products in Vietnam to sell product in the
most efficient and competitive ways.
-Consumers will have opportunities to approach to diversified pharmaceutical
products and supplying sources

II. Challenges upon WTO accession

II.2.1. For enterprises:
Even though WTO accession will bring along benefits to the whole countries,
but domestic enterprises will surely face a lot of difficulties. With the current capacity,
local pharmaceutical products will enter a bigger playground with fairer competition
but not balanced. There are a fact that enterprises are not fully aware of international
market and its rules, lack of management skills and modern technology and thus
cannot be efficient in their production and trading activities. They also lack of
initiatives and still look for Governments protection. There are high chances that
these enterprises will witness their market shares shrunk and lose their positions
right on home playground as a result of competition with foreign competitors whose
are much stronger in terms of financial back-up and modern technology.

- Production: enterprises should invest in improving quality of their products to

make them on par with international standards and be competitive in terms of prices
67

since competition on quality; after-sales services with foreign competitors will become
tougher.
- Import rights: Be prepared when foreign investors are now granted with import
rights since foreign investors usually have more advantages in terms of resources,
credit rating and experiences in import activities in international market as well as the
ability to explore new supplying sources and modern technology.
- Removal of protection of domestic production via tax polices and trade barriers:
this will be a big challenge for infant industry for preparation and material production
of pharmaceutical products
- Strictly abidance by commitments on intellectual property rights: this can
constitute obstacles in applying new achievements in science and technology in
production of pharmaceutical products in Vietnam. Enterprises, when exploring
supplying source in Vietnam will face some difficulties relating to intellectual property
rights of imported products. The liberalization will increase the legal disputes on
intellectual property rights between local and foreign enterprises.
- Reduction on imported tariff on materials for production of pharmaceutical
products: there are 3 tariff liens whose import tariffs will be cut down after Vietnams
accession to the WTO, a decrease of 5% with the time for implementation of 3-5
years. However, before joining the WTO, most of materials already have import tariff
of 0%, there is almost no impacts on production of enterprises who have to import
materials to use as their inputs, but will have great impacts on those which produce
raw materials.
- Reduction of import tariffs on finished medicine: There are 47 tariff lines that
import tariffs will be reduced after Vietnams accession, and currently having tariff
rates of 10-15% with timeline for tariff reductions of 2-5 years (3 years on average)
and reduction of 2-7% (3 % on average). Of which, antibiotic accounts for 18 over 29
tariff lines, vitamin accounts for 4 over 9 tariff lines. The reduction of import tariffs on
some tariff lines will be a challenge for domestics enterprises producing
pharmaceutical products for they have to compete with identical imported products.

III.2.2. For agencies authorized with State management functions

There will be some problems in terms of structure and function of staff in
authorized agencies in the discharge of their services in the first stage after accession,
some officials may not be able to catch up with requirements of integration process
since they may not be fully aware of the necessity of joining the WTO as well as its
opportunities and challenges.

III.

RECOMMENDATIONS

IV.1. For pharmaceutical enterprises to prepare for integration in WTO

68

As in other economic sector, when integrating with the international and regional
economy, Vietnamese enterprises should follow the following principles:
a.

Understand and abide by the rules and regulations on integration

Most of enterprises have little knowledge on regulations on integration, and do

not pay due attention to legal documents. The lack of understanding of legal issues
will be a great disadvantage that may lead to unfavorable results for enterprises in
legal suits. In order to avoid this circumstance, enterprises should:
- Take initiative to study regulations or rules of the game in the WTO relating
to trading activities of enterprises as well as commitments upon accession in order to
understand opportunities and challenges in order to rearrange their operation plan
accordingly and enhance their competitiveness.
- Take into due consideration Vietnams commitments in integration process,
especially commitments on intellectual property rights, which often takes place in
business activities for developing countries in Vietnam.
- Establish intellectual property rights with applicable entities via trademark
registration, protection of patent
- Resort to professional lawyers or legal services since it is very necessary and
can act against bad consequences that legal proceedings in trade disputes can bring
about.

b.

Change mindset for investment

Vietnamese enterprises have not paid due attention to investment in production,

which lead to overlaps among factories themselves. The scale of investment capital is
still small and scattered. Investment structure is focused on production of some simple
types of medicines and of seasonal nature. In order to curb this problem, enterprises
should:
-Take full advantage that WTOs accession can have for a developing country,
i.e. opportunities for enhanced market access and investment attraction for economic
development. Enterprises involved in production should try their best to attract
investment from trading partners from and outside the countries via: contracts,
business cooperation, joint-venture, licensing arrangementsin order to improve the
quality of products and enhance the competitiveness of enterprises in the market.
- Work out long-term strategies for investment in production of pharmaceutical
products and in systematic ways to achieve sustainable development such as
investment in information technology, distribution technology. Avoid chasing after
short-term profits since it may lead to scattered investment and waste of resources and
low economic efficiency.

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-Focus investment on specialized products for special purposes or special types of

preparations that currently have to be imported.

c.

Overcome self-interest

Self-interest mindset, referring to situation where people care for their own but
not the common interest, is one among main hurdles that enterprises in pharmaceutical
sector in Vietnam need to overcome. The consequences are development without
appropriate approaches and unfair competition and constitute loopholes that foreign
companies have taken full advantage of in the past time to press down fees for
distribution services charged by companies. Locally produced pharmaceutical products
and imported ones are always under the condition of stepping on each others feet.
However, toward the trend of economic integration, the above obstacle can be
solved via:
- Working out a common stand for pharmaceutical sector on strategic issues,
which may have horizontal impacts on the existence and development of the sector.
- Conducting frequent communication among pharmaceutical enterprises on
formulation of strategies for products and market development in order to mitigate
adverse impact of foreign partners
- Mitigating to the minimum level possible unhealthy competition among
domestic enterprises and enhance competitiveness of local products.

d.

Strengthen cooperation and joint-ventures

Previously, thanks to national protection policies via trade barriers, enterprises

used to rely on Governments protection. Monopoly power led to weak
competitiveness, especially in distribution services. Ill-defined coordination and
sometimes conflicts among production and distribution phases led to high production
and transaction costs, low efficiency and weakened enterprises. Under the
circumstance of intensified integration and competition, enterprises should enhance
cooperation among themselves by:
-Specialized in one or more production phases or distribution, create close
coordination among enterprises specialized in production and distribution to cut down
cost of production and doing business, improve competitiveness
-Reshuffle in forms of parent-subsidiary company or related companies to
support each other in terms of expertise, technical knowledge, know-how, and capital.
To improve competitiveness
- Set up Corporation for Production and Merchandising of pharmaceutical
products with strong financial capability so as to mobilize domestic synergy to
compete with foreign competitors.
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e.

Enhance capacity for business management

Conduct capacity building for staff both in terms of professional skills and
managerial skills via various forms of trainings, outreach programs, especially on legal
system and Vietnams commitments in the integration process. Enhance their
capability to catch up with developments in international market in order to response
in the right manner and improve their negotiating skills.

f.

Develop human resources

Human resource developments including technical and managerial staffs are

indispensable when acceding to the WTO. Therefore, it is very essential to make staffs
aware of the necessity as well as threats and opportunities in WTO integration.

g.

Explore information

In the process of production and doing business, enterprises should not only focus
on expansion of market share but also pay more attention to keep themselves abreast
of development in the domestic and international markets in order to avoid being at the
losing end.
It is necessary to extract relevant information from material state agencies,
professional associations, local and international trading partners so as to obtain
optimal proficiency.

h.

Diversify product structure and increase market share

Pay more attention to study structure of local and imported products in order to
come up with appropriate product strategies in lines structure and scale of disease in
Vietnam and market demand. Avoid focusing on some products, which may give
short-term profits but may not have long-term development prospect and lead to waste
of investment.
Invest more in new types of preparations or in pharmaceutical products which are
of high demand but can not be produced locally yet, or products which are still within
terms of intellectual property right protection so as to be able to produce these
products right upon termination of their terms.

i.

Change of marketing strategies for products

It is highly advisable that enterprises should come up with marketing propaganda

which aims at enhancing the efficiency and sustainable development of products in
lines with rules on international product marketing, especially moral conducts in
marketing pharmaceutical products to avoid unhealthy and short-sighted competition.
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j.

Develop and enhance trademark

Enterprises should bear in mind that this is related to the existence of their own
enterprises and can be improved via continued improvement of products quality,
reinforcement of credit rating for products and trademarks in local and international
markets.

Enterprises also need to put more effort in propagandize for their trademarks via
participation in domestic and international trade fairs, functional seminars or
conferences.

IV.2. Recommendations for agencies with state management authority on

pharmaceutical products

a.

Reshuffle organization and change management ideology

Agencies with state management authority on pharmaceutical products should

reshuffle their organization and improve the capacity of their official-in-charges,
deepen knowledge on international law and professional skills in order to support
enterprises in the process of implementation of integration commitments.
Find solutions for scattered investment and try to stop investment in nonprofitable projects. Be resolute in closing down seriously loss-making enterprises.
Work out plans to improve capacity building, especially for managerial and
marketing staffs on international rules and professional skills so that they can capture
updated developments in international market and give quick response to that.

b.

Improve legal environment

Construct and complete legal environment based on principles of transparency

and equality between domestic and foreign investors in lines with WTO regulations as
follows:
Review, amend and complement and enact new legal documents
providing guidelines on the implementation of Pharmaceutical Laws such as Decree
No 79/2006/N-CP dated 9 August 2006. Complete and enact legal regulations on the
import and export of pharmaceutical products and its material. Ministry of Heath has
been working toward this direction by recently enacting 26 sub-laws under its
authority.

Work out and enact Standard Operating Procedures (SOP) relating to

licensing procedures such as approval of medicine registration, of business registration
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in the field of pharmaceutical products (for foreign enterprises), or of medicine

marketing information dossiers.

c.

Formulate and promulgate policies

In order to support enterprises to enhance their competitiveness, expand market

share and export market, agencies with state control authority need to work out and
promulgate policies and mechanism to provide supports to enterprises in terms of
financial sources, credit loans, trade promotion, image and capacity building.

d.

Enhance Public Relations

Conduct propaganda, outreaches, trainings and update legal document as well as

Vietnams commitments in the framework of WTO accession on pharmaceutical
sector.

e.

Create more opportunities for cooperation

Strengthen dialogues between enterprises and state material agencies in order to

exchange views on opportunities and challenges in the process of implementation of
commitments in the WTO to arrive at optimal solutions to enterprises.

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