New trade conditions
In a review of the White Book launched in Hanoi on Thursday, EuroCham Chairman Alain Cany said EuroCham believed that to attract more and higher-quality foreign investment, the Vietnamese Government should focus its effort next year on removing all unnecessary restrictions to market access and free trade.
“We have observed over the last year a number of restrictive measures impeding trade,” Cany said in an emailed interview with the Daily before the launch of the fourth edition of its “White Book of Trade/Investment Issues and Recommendations.” Like the prior editions, the new White Book summarizes for the Government the key issues affecting the business climate for European companies in Vietnam.
Cany cited as one of the restrictions Notice 197 of the Ministry of Industry and Trade on the importation of alcoholic beverages, cosmetics and mobile phones that entered into force on June 1, 2011. Accordingly, shipment arrivals of the three imported ‘non-essential items,’ namely mobile phones, cosmetics and liquors, will only be allowed at major ports of HCMC, Danang in central Vietnam and the northern city of Haiphong.
EuroCham expressed its concern that the ministry issued Decision 1380/QD-BCT on March 25 revising the list of “goods discouraged for import” and issued a plan in April to ‘manage’ imports, which include “Strengthening measures for management of importation of non-essential goods and domestically produced goods”. It also noted that the ongoing automatic import license procedures under Circular 24/2010/TT-BCT continue to interfere with the smooth import of goods to Vietnam and authorities’ feedback on these issues has been rather slow.
“EuroCham believes that rather than ‘managing’ the trade deficit by restricting imports, the Vietnamese Government should encourage more imports to boost exports in the long run. Therefore, Notice 197 and Decision 1380 should be repealed,” Cany responded to a question raised by the Daily about the certain efficiency of the measures to narrow trade deficit and address other issues.
Cany agreed restricting the import of luxury goods would not help reduce the trade deficit in the long run. “In the short run, it may well have the desired effect, but in the medium and long term, such measures will fail to tackle the problem as they are not addressing the root causes of the trade deficit. Such restrictions on market access even harm perceptions abroad of Vietnam as a place to do business,” he argued.
Combination of old and new issues
EuroCham said its progress report showed fewer improvements for 2011, which is due to macroeconomic woes and new regulatory burdens in addition to trade restrictions in Vietnam.
EuroCham Executive Director Matthias Dühn said that EuroCham had actually seen some slowdowns, particularly in the area of investment licensing that takes its member companies up to 12 months in some cases. Also, red tape and corruption have increased significantly despite reform efforts to remove administrative burdens and streamline bureaucracy in Vietnam.
Again, the organization representing over 750 European businesses complained about Decree 46/2011/ND-CP on recruitment and management of foreign employees. EuroCham said conditions in this Decree, effective on August 1, have caused a lot of concerns for many of its members as they make life hard for both foreign and local companies when it comes to recruiting foreign employees.
Dühn said the new Decree and implementing Circular 31 in order to extend the work permit for a foreign employee, a company must still enter into an apprenticeship contract with a Vietnamese employee expected to substitute the relevant foreign employee.
EuroCham advocated that employers should be allowed to select the right candidates based on their own discretion and internal processes. “We are unhappy that our recommendations regarding Decree 46 have not been taken into account,” said the chamber. Dühn added that even though Circular 31 now mentions the requirement of a training program as an alternative to substitution, this alternative had not been applied in practice so far.
Bureaucracy, especially in the tax and customs area, remains a fundamental issue to be tackled in Vietnam. EuroCham said its view was supported by the World Bank's latest “Doing Business 2012” Report, according to which the ranking of Vietnam’s business climate has fallen this year as a result of the slow pace of administrative reforms.
“A worsening of conditions was seen in the Report in areas such as starting a business in terms of licensing, registering property, paying taxes and obtaining credit,” EuroCham said.
Therefore, EuroCham assumed that slow progress on many of the issues that were addressed in the White Book 2011 and some new issues were eroding confidence of European companies in the business environment in Vietnam.
“Whilst European companies have been patient and remain hopeful that the business environment in Vietnam will improve, their confidence has been steadily declining since the beginning of 2011, as is evidenced by the quarterly EuroCham Business Climate Index (BCI) survey for Vietnam,” Cany said.
Business confidence falls
EuroCham’s latest BCI released in October unveiled high inflation and other concerns resulted in a decline in confidence and outlook among European businesses in Vietnam for the fourth consecutive quarter. Conducted among 200 EuroCham members in the services, manufacturing, trading and other sectors, the survey showed a drop of 11 points to 52 points compared to the previous survey.
The EuroCham Chairman said the latest BCI reflected a declining confidence in Vietnam as an investment destination though he admitted that global slowdown and macro-economic problems in Vietnam have not caused a serious scale-down or shut-down of operations of its members in the country.
The latest report issued by the Foreign Investment Agency under the Ministry of Planning and Investment indicated US$12.69 billion foreign investment had been pledged for 919 fresh projects as well as additional capital for 423 operational projects in the year to November, down 16% on the same period last year.
The EuroCham BCI found that 38% wanted to maintain their level of investment and 36% were looking to increase their investments in Vietnam, down from 52% last quarter. The result also showed 22% were looking to scale down their overall investment in the country, up from 13% last quarter.
Answering the Daily’s questions about investment before launch of the White Book 2012, the EuroCham Chairman Cany said EuroCham believed that whilst there may be an impact from external factors, such as "imported" inflation and the current Eurozone debt crisis, many of the reasons for European investors’ declining FDI in Vietnam were to be found in the aforesaid structural issues, besides the lower-than-expected performance of State-owned enterprises.
“Overall, we can see that Vietnam’s current woes, combined with a difficult macroeconomic situation in Europe and beyond, have caused many investors to review their predictions of the country's prospects,” EuroCham Executive Director Dühn said. “The long-standing issues mentioned above as well as lack of reforms in the education sector and infrastructure bottlenecks are now being raised and seen as a serious obstacle much more than before. Other ASEAN countries, such as Indonesia, may soon overtake Vietnam in terms of competitiveness if these fundamental issues are not addressed quickly.”
In addition to addressing the issues mentioned above, Dühn said EuroCham also expected that an EU-Vietnam free trade agreement would help increase European investment in both quantity and quality.
“EU enterprises will increasingly perceive Vietnam as their ASEAN hub or even headquarters, from which they can service efficiently both ASEAN markets and neighboring countries like Japan, China and India,” Dühn said.
Such an FTA will enable Vietnam to benefit from high-quality imports and increased technology transfer. Increased high-quality imports will in turn help upgrade the quality of Vietnam’s exports so that Vietnamese enterprises will be able to improve their competitiveness in the long term. But, EuroCham urged efficient enforcement of intellectual property rights protection to encourage companies to transfer their technology and high-tech knowledge to this country.
Therefore, Dühn said EuroCham believed that now is the time to kick off official negotiations to conclude the FTA after more than 20 months since the first talks between the EU and Vietnam. He added EuroCham was ready to advice on specific contents of a future FTA and assist the authorities with the recommendations from the private sector side.
SGT
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