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OECD 2016 Investment Policy Review of Viet Nam

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This presentation outlines the investment policy review process that the government of Viet Nam is undertaking in partnership with the the OECD and ASEAN as part of an active programme of investment policy reforms.

To find out more visit: http://www.oecd.org/daf/inv/investment-policy/viet-nam-investment-policy.htm

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OECD 2016 Investment Policy Review of Viet Nam

  1. 1. Investment policy review of Viet Nam Hanoi, 2016
  2. 2. • Stephen Thomsen, Head of IPRs, OECD Legal investment framework Foreign investment liberalisation & other policy areas Discussion • Alexandre de Crombrugghe, OECD Tax Policies Investment promotion and facilitation Infrastructure connectivity & green growth framework Discussion • Tihana Bule, OECD Responsible business conduct Discussion AGENDA
  3. 3. What is the OECD? 3  34 members, incl. Japan, Korea, Australia and NZ  Close cooperation with non- members on areas of mutual interest  All policies areas, except defence and sports  250 committees, working groups, expert groups  2500 staffBetter policies for better lives
  4. 4. Recent OECD work with Viet Nam
  5. 5. OECD Investment Policy Reviews using the Policy Framework for Investment
  6. 6. OECD Investment Policy Reviews Southeast Asia Forthcoming 2016 • Cambodia • Lao PDR • Viet Nam 2009 2010 2013 2014 2016 Reviews are undertaken jointly by the OECD and the government in partnership with the ASEAN Secretariat and based on the Policy Framework for Investment
  7. 7.  Investment policy (FDI liberalisation & legal framework)  Investment promotion & facilitation  Trade policy  Competition policy  Tax policy  Corporate governance  Policies for enabling responsible business conduct  Developing human resources for investment  Infrastructure investment  Financing investment  Public governance  Investment framework for green growth Areas covered in the OECD Policy Framework for Investment 7
  8. 8. 2015 April OECD mission, PFI presentation to the Taskforce April-June Government prepares answers to PFI questionnaire July Second OECD mission to discuss answers to questionnaire and for further fact-finding August-Feb. 2016 OECD prepares draft report December Viet Nam participates in SEA Regional Policy Network in Paris 2016 April OECD-MPI Seminar with ministries and stakeholders in Hanoi to discuss draft IPR of Viet Nam April-May Government and stakeholders provide written comments June Draft IPR discussed during OECD SEA Regional Forum October Presentation of draft IPR to OECD Investment Committee in Paris November Revised draft IPR circulated for final comments December IPR of Viet Nam launched in Hanoi or in ASEAN region Follow-up Results presented at regional level, other activities IPR of Viet Nam timeline
  9. 9. INVESTMENT TRENDS AND PERFORMANCE
  10. 10. GDP growth rates in ASEAN 4 (Market prices, constant local currency) Viet Nam has experienced strong, steady growth over the past 30 years -15 -10 -5 0 5 10 15 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 VNM IDN THA PHL Source: World Development Indicators
  11. 11. But private, including foreign, investment can further increase its economic contribution 0 10 20 30 40 50 60 70 80 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 SOE Private Foreign Investment by type of ownership (share of total investment) Source: GSO
  12. 12. FDI surged in the 1990s and, as a share of GFKF, has surpassed IDN, PHL and THA in the past decade -20 -10 0 10 20 30 40 50 60 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 VNM THA PHL IDN ASEAN 4 FDI inflows as a share of gross fixed capital formation Source: UNCTAD
  13. 13. Country Number of projects Total registered capital (USD m.) Share Korea 4 190 37 726 14.9% Japan 2 531 37 335 14.8% Singapore 1 367 32 937 13.0% Chinese Taipei 2 387 28 469 11.3% British Virgin Islands 551 17 990 7.1% Hong Kong, China 883 15 603 6.2% United States 725 10 990 4.3% Malaysia 489 10 805 4.3% China, PR 1 102 7 984 3.2% Thailand 379 6 749 2.7% Most registered capital in foreign projects comes from Asia Source: GSO
  14. 14. But export markets are more diversified Europe, 9% N. America, 6% ASEAN, 21% Other Asia, 50% Offshore centres, 10% Other , 3% US, 19% EU, 18% Japan, Korea, 15%ASEAN, 13% Other Asia, 17% Other , 18% Source of FDI Export markets Source: OECD calculations based on GSO data
  15. 15. Sector Projects (number) Total registered capital (USD m.) Share TOTAL 19 611 274 638 Agriculture, forestry & fishing 556 3 858 1% Mining & quarrying 92 3 483 1% Manufacturing 10 480 156 912 57% Electricity, gas, stream & air conditioning supply 104 10 003 4% Water supply, sewerage, waste management 46 1 412 1% Construction 1 288 12 485 5% Wholesale & retail trade; vehicle repair 1 640 4 436 2% Transport & storage 514 3 932 1% Accommodation & food service activities 402 11 688 4% Information & communication 1 255 4 201 2% Financial, banking & insurance activities 85 1 342 0% Real estate activities 497 51 113 19% Professional, scientific & technical activities 1 869 2 076 1% Administrative & support service activities 142 220 0% Education & training 229 897 0% Human health & social work activities 103 2 170 1% Arts, entertainment & recreation 155 3 649 1% Other service activities 154 761 0% Manufacturing is the most important sector for registered capital Source: GSO
  16. 16. Merger & Acquisition markets have also grown dynamically over the past 10 years Source: OECD calculations using Dealogic M&A data M&A deals involving a target firm from Viet Nam, 1995-2015
  17. 17. Cross-border M&As are prominent in finance & insurance, oil & gas, and metal & steel Panel C. Number of deals (as % of total) Panel B. Deal value (bln USD) Panel D. Deal value (as % of total) Panel A. Number of deals 111 88 61 55 50 379 0 50 100 150 200 250 300 350 400 450 500 0 50 100 150 200 250 300 350 400 450 500 Cross border Domestic 15% 12% 8% 7% 7% 51% Finance& Insurance Food & Beverage Computers & Electronics Construction/Building Oil & Gas Other 23% 19% 14% 13% 7% 24% Finance& Insurance Oil & Gas Metal & Steel Food & Beverage Real Estate/Property Other 4.1 3.4 2.5 2.3 1.3 4.4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Cross border Domestic Source: OECD calculations using Dealogic M&A data
  18. 18. LEGAL INVESTMENT FRAMEWORK IN VIET NAM
  19. 19. • Investment legislation revised many times • 2005 unified investment law: a milestone towards a more open and enabling regime • 2014 revision of the investment law: – streamlined entry procedures, – but weakened protection ? • Gradual improvements in the law-making process • Implementation remains a major hurdle Major regulatory improvements achieved over the past 30 years
  20. 20. • Well-balanced guarantee of legal stability • Commitment to ensure consistency across laws • Legal guarantee of non-discrimination • Expropriation provision weaker than in previous law • Less clear definition of investment in 2014 law • Very unclear ISDS provision in 2014 law Current investment protection regime
  21. 21. • Investors favour arbitration mechanisms: – New commercial arbitration law to upgrade the arbitration framework – But enforcement of arbitration awards is too often difficult to obtain • Not an ICSID member • No institutionalised investment dispute grievance mechanism • No ombudsman to prevent escalation of ISDS cases Dispute settlement & contract enforcement
  22. 22. • Major improvement with the 2015 Land law: – further opens access to LUR for foreigners – Provides stronger protection against expropriation • Outdated registrars at provincial level • Full computerisation needed to: – address fraudulent titling – encourage use of LURs as collaterals Access to land and protection of investors’ land rights
  23. 23. • Strong improvements to the IP regime: – New IP law – Capacity-building • But weak enforcement of IP rights • Inconsistent institutional framework: – Overlapping responsibilities of line agencies • Strong governmental will to improve IP protection Protection of Intellectual Property Rights
  24. 24. • 40 bilateral investment treaties • Regional and multilateral trade and investment agreements: – Trans-Pacific Partnership (TPP), – FTA with the EU – Regional Comprehensive Economic Partnership (RCEP) • Increasingly, FTAs facilitate the establishment of new investments • Recent treaties reflect policy innovations: – more specific language on key provisions to better reflect government intent – more detailed regulation of ISDS. Viet Nam’s International Investment Agreements
  25. 25. FOREIGN INVESTMENT LIBERALISATION REFORMS
  26. 26. 1. Streamlined and narrowed the scope of investment registration procedures? • Formerly complex and long for foreign investors • Retained the previous dual-process (ERC + IRC) for foreign and majority foreign- owned investments (similar statutory time frame, but no “silence is consent”) • But simplified the regime for domestic and minority foreign-owned projects, except in conditional sectors (only the ERC apply; if M&A, only the IRC apply) • Narrowed the scope of the screening/approval process (FDI only is subject to the PM’s approval in a few specified sectors) 2. Fewer sectors subject to investment conditions (and a negative list approach) • But does not specify which conditions apply, limiting its transparency 3. Continued commitment to move forward with liberalisation (e.g. liberalisation in 2015 of foreign majority stakes in a public company , with exceptions) The recent FDI reform: the 2014 Law on Investment and Law on Enterprises
  27. 27. FDI restrictions have been gradually removed overtime Source: OECD FDI Regulatory Restrictiveness Index and UNCTAD FDI statistics. 0 10 20 30 40 50 60 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 FDI RR Index FDI Stock (% of GDP)(right axis) OECD FDI Regulatory Restrictiveness Index (open=0; closed=1) Per cent of GDP • Right to establish private enterprises • Law on Foreign Investment amended • WTO accession (gradual liberalisation scheduled) • Foreign acquisitions allowed, subject to conditions • Scope of screening and approval reduced • FIE land use rights expanded • Exports and capital repatriation by foreign-invested enterprises facilitated • Constitution of the Socialist Republic of Vietnam • Foreign investors rights recognised • Land use rights allowed to • Eased capital repatriation • 1st Law on Foreign Investment, 1987 • Removal of remaining restrictions on foreign acquisitions • US-VNM Bilateral trade agreement • Removal of remaining restrictions on foreign acquisitions
  28. 28. Reforms have helped to sustain Viet Nam’s competitiveness vis-à-vis regional peers Source: OECD FDI Regulatory Restrictiveness Index database, http://www.oecd.org/investment/fdiindex.htm. Notes: (¹) Data refer to regulatory restrictions on FDI as of end-2015. For all other countries, data refer to the regulatory regime as of end-2014; (²) ASEAN9 refers to the average scores of the nine ASEAN member states covered. It excludes Brunei Darussalam which is not covered. Data for Lao PDR, Viet Nam, Cambodia, Singapore and Thailand are preliminary; (³) The OECD FDI Regulatory Restrictiveness Index covers only statutory measures discriminating against foreign investors (e.g. foreign equity limits, screening & approval procedures, restriction on key foreign personnel, and other operational measures). Other important aspects of an investment climate (e.g. the implementation of regulations and state monopolies among other) are not considered. All 34 OECD countries and 30 non-OECD countries are covered, including all G20 members. ASEAN9² OECD average Non-OECD average 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 Singapore Cambodia Viet Nam¹ Lao PDR¹ Malaysia Thailand Indonesia Myanmar China Philippines¹ OECD FDI Regulatory Restrictiveness Index (open=0; closed=1)
  29. 29. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 OECD VIET NAM ASEAN9 OECD FDI Regulatory Restrictiveness Index (open=0; closed=1) Nonetheless, some key services sectors remain partly off limits to foreign investors Source: OECD FDI Regulatory Restrictiveness Index database, http://www.oecd.org/investment/fdiindex.htm. Notes: (¹) Data refer to regulatory restrictions on FDI as of end-2015. for Viet Nam, Lao PDR and Philippines. For all other countries, data refer to the regulatory regime as of end-2014; (²) ASEAN9 refers to the average scores of the nine ASEAN member states covered. It excludes Brunei Darussalam which is not covered. Data for Lao PDR, Viet Nam, Cambodia, Singapore and Thailand are preliminary; (³) The OECD FDI Regulatory Restrictiveness Index covers only statutory measures discriminating against foreign investors (e.g. foreign equity limits, screening & approval procedures, restriction on key foreign personnel, and other operational measures). Other important aspects of an investment climate (e.g. the implementation of regulations and state monopolies among other) are not considered. All 34 OECD countries and 30 non-OECD countries are covered, including
  30. 30. OTHER POLICY AREAS AFFECTING MARKET OPPORTUNITIES
  31. 31. • Viet Nam’s corporate governance framework has been reconfigured to account for all firms – public and private, listed and non-listed • The 2014 Law on Enterprises has set high standards – the challenge will be to ensure full compliance • Some SOEs have attracted foreign investors but their equitisation slowed down in the past 10 years and total assets of fully SOEs still account for 74% of GDP • Preferential treatment (e.g. access to finance) that SOEs receive impede level playing field with private firms Improving corporate governance
  32. 32. • Viet Nam Competition Agency and Viet Nam Competition Council are not sufficiently independent • Market shares are used to determine which cases to investigate (good practice), but also their outcomes (could be revised) • Economic realities are not suitably integrated into the analysis (e.g. make market definition more flexible) • Market power are measured only via market shares and are not considering enough other factors (e.g. barriers to entry, countervailing buyer power) Improving competition
  33. 33. TAX POLICIES
  34. 34. • Viet Nam offers tax incentives to attract investment and a low corporate tax rate (20% by 2016) • But tax incentives depend on firms’ business activity, location or size  Non-uniform treatment of investors and variation of effective tax rates • Tax-related issues are dispersed into multiple pieces of legislation (no single Tax Code exists)  complexity and lack of transparency • 173rd on Doing Business for ‘Paying Taxes’ (out of 189 countries) An attractive, but confusing, tax system
  35. 35. • These variations of effective tax rates can lead to tax planning strategies by investors • While the budget deficit is widening and the fiscal position is deteriorating (government receipts experienced a decline of 20% between 2010-14) • At the same time, little analysis is conducted to understand the costs and benefits of incentives  Erosion of tax base and weakening of macro- economic fundamentals Putting pressure on the state’s budget
  36. 36. • Granting of tax incentives not always automatic and rules sometimes inconsistently applied  discretionary decision-making increases risk of corruption and limits predictability for investors • Lack of whole-of-government approach; need more effective coordination, esp. between MPI and MOF • Insufficient human and institutional capacity to analyse the impact of tax reforms and to conduct cost/benefit analysis Supplemented by governance issues
  37. 37. INVESTMENT PROMOTION AND FACILITATION
  38. 38. Investment attraction Ministry of Planning and Investment Business facilitation SME development / skills Co-ordination with other ministries/agencies Linkages promotion Regulatory reforms Co-ordination with Provinces SEZs/IPs Institutional framework for investment promotion and facilitation 38
  39. 39. • Major efforts by central government and provinces to improve the business environment, but challenges remain • Decentralisation of investment-related functions since 2005: reinforced role has been given to provinces • Rapid growth of industrial parks and other types of SEZs (80% of manufacturing FDI; 2.5% of total workforce) • Increasing consultation of the private sector (e.g. VBF) • Emergence of supporting industries but the level of business linkages between MNEs and SMEs remains low • Higher education and vocational training produce basic skills but there is an increasing risk of skills mismatch Overview of investment promotion and facilitation in Viet Nam
  40. 40. • Decentralisation encouraged provinces to become more efficient in investment promotion efforts • But competition leads to duplication and overlap of efforts and does not serve the country’s overall interests • Key role of SEZs in FDI attraction and development but low occupation rate (65%) and risk of land misuse • MPI in charge of overall coordination but not sufficiently • Need to develop a clearer, long-term vision for FDI attraction • FIA needs to focus on targeted promotion and providing support to poorer provinces Investment promotion: decentralised but not sufficiently well-coordinated
  41. 41. • Reforms at central level to improve business environment – Project 30 on administrative simplification and regulatory reform – Simplification of business registration and establishment of ABR – New investment and enterprise laws 2014 • Viet Nam has improved but still ranks at 119th position on Doing Business to ‘start a business’ (out of 189) • Decentralisation was a catalyst for reform in provinces and has helped improve the business environment (illustrated by the Provincial Competitiveness Index) • MPI recognised as a responsive ministry by businesses Investment facilitation: valuable initiatives to improve the business environment
  42. 42. • Competition leads to large differences between rich and poor provinces in terms of investment regulation and services • Affects both investors’ operations and welfare of provinces • Lack of institutional capacities and inadequate funding to implement laws and regulations (e.g. tighter deadlines with new laws) • After the rapid pace of reforms, building strong institutions at central and provincial levels should be a top priority • More aftercare is needed Implementation lags behind: need to support provinces and strengthen institutions
  43. 43. Enhancing the development impact of FDI through business linkages Domestic firms’ characteristicsForeign firms’ characteristics Government policies and institutions Spillover potential FDI spillovers Absorptive capacities Education & training Access to finance SME development Trade policy Labour market regulations Investment policy & promotion IP rights Source: OECD (adapted from Farole and Winkler (2014), and paus and Gallagher (2008))
  44. 44. Local suppliers in Viet Nam and regional peers (ranking out of 140 economies), 2015 Absorptive capacities: linkage creation depends on the availability of domestic SMEs 0 20 40 60 80 100 120 140 Malaysia Korea China Thailand Indonesia Philippines Viet Nam Lao PDR Cambodia Local supplier quantity Local supplier quality
  45. 45. • SMEs have boomed since Doi Moi but their level of competitiveness remains low • Targeted approach to SME development since early 2000s – supporting industries as a priority (Master Plan) • But still few business linkages between MNEs and SMEs • Continue efforts to establish a sound business environment for SMEs and increase SME consultation • Need to further develop industry-specific capacity building • Make educational and training programme more market driven by involving businesses in HRD strategy design Absorptive capacities: SME and skills development at the centre
  46. 46. • Some FDI more likely to generate spillovers and linkages; some foreign investors are more inclined to source locally • SEZs tend to generate few linkages – except if they take a more elaborate cluster focus – Participation of local firms allowed – Focus on SMEs – Involvement of central and/or provincial authorities – Well-coordinated institutional environment • Aftercare can help anchor investors in the local economy • Continue efforts to facilitate information exchanges (matchmaking events, suppliers databases) Spillover potential: implications for FDI attraction
  47. 47. INFRASTRUCTURE CONNECTIVITY
  48. 48. Perceived level of highway congestion in Viet Nam relative to regional peers Source:WorldBank(2014) Overcapacity in the port system 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 China Thailand Indonesia Malaysia India Southern Viet Nam Central Viet Nam Nothern Viet Nam Rating: 1(worst) to 5 (best) VietNamisworseoffVietNamisbetteroff Limited road capacity: high congestion • Intercity truck speeds average 35km/h • Cost of congestion: USD 1.7 billion Railway sector is not competitive • Limited network capacity • Avg. speed of freight trains: 15-20km/h Ports: significant excess capacity • Lack of multimodal planning: poor access sometimes (e.g. congestion) • Insufficient water depth for larger modern vessels Viet Nam has greatly expanded its infrastructure network over time, but quality has not always kept pace (1/2)
  49. 49. Power • Access to electricity has become almost universal • Growth in power demand continues to pressure production • Electricity prices kept at historically low levels hindered the industry's capacity to invest Telecommunications • Infrastructure has expanded rapidly • Investments required to expand broadband access Viet Nam has greatly expanded its infrastructure network over time, but quality has not always kept pace (2/2) Residential Commercial Industrial Low High Low High Low High Brunei Darussalam 3.82 19.11 3.82 15.29 3.82 3.82 Cambodia 8.54 15.85 11.71 15.85 11.71 14.63 Indonesia 4.6 14.74 5.93 12.19 5.38 10.14 Lao PDR 3.34 9.59 8.8 10.36 6.23 7.34 Malaysia 7.26 11.46 9.67 11.1 7.83 10.88 Myanmar 3.09 3.09 6.17 6.17 6.17 6.17 Philippines 21.1 24.83 19.93 22.94 18.15 19.37 Singapore 19.76 19.76 10.95 18.05 10.95 18.05 Thailand 5.98 9.9 5.55 5.75 8.67 9.43 Viet Nam 2.91 9.17 4.38 15.49 2.3 8.32 Electricity tariffs in Viet Nam and ASEAN, 2014 Source: JICA (2014)
  50. 50. The government estimates that USD 170 bi is needed over 2011-2020 for the development of essential infrastructure Source: World Bank (2014) • Prominent on the agenda • Historically, investment has been state-led and high by international standards • Yet, estimated investment needs amount to 10% of GDP 2011-2020 • 10-Year SEDS 2011-2020: need to create economic conditions for PPI • Despite the many attempts in the past, private participation has been limited • Limited interest from foreign investors 0.00 20.00 40.00 60.00 80.00 100.00 120.00 Cumulative investment, 2000-2014,2014 US$, Billion 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 20 40 60 80 100 120 China Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Thailand Vietnam energy telecoms transport water and sanitationand mostly concentrated in the power sectorPrivate participation has been limited… nvestment, 2000-2014,2014 US$, Billion 70% 80% 90% 100% energy telecoms transport water and sanitation Billion 80% 90% 100% telecoms transport water and sanitation 100% water and sanitation 90% 100% transport water and sanitation
  51. 51. • State budget, SOEs, ODA, and government bonds estimated to meet only half of the required investments • But plan should not be grounded on a fiscal motivation: ‒ PPPs will not solve the infrastructure investment gap (users or taxpayers still have to pay) ‒ Moreover, government support will likely continue to be needed to mobilise resources from the private sector ‒ PPI can help to increase the efficiency of infrastructure delivery under appropriately competitive environment ‒ The case for PPP should rely on its ability to generate greater value for money than the public provision alternative ‒ In the past, most projects undertaken without competitive tendering The government expects the private sector to meet nearly half of estimated investment needs
  52. 52. The new Law on Public-Private Partnership: renewed attempt to modernise the regulatory framework for PPI • The new framework consolidates the previous fragmented framework • Brings some key regulatory and institutional improvements: – Clearer procedures for project formulation and implementation – Expanded type and sector scope – PPP steering committee and PPP unit within the MPI (not a guarantee of success, but facilitates bringing necessary resources together) – Project Development Facility (support project preparation and tendering) – Viability Gap Funding (greater flexibility for its use) – International competitive bidding as the rule
  53. 53. • Success of the new PPP framework will depend on its implementation – Clarity needed on principles and rules governing some key issues (e.g. government support, risk allocation, renegotiation and termination) – Need to be addressed in regulations, guidance documents or standard contract model • There is also a need to improve planning and assessment of projects so as to secure value for money in infrastructure delivery – In the past, poor prioritisation led to projects with low economic returns • Continue efforts to bring prices to cost-reflective levels (e.g. electricity) • Mover forward with the SOE reforms to ensure a level playing field – Number of SOEs in infrastructure sectors remains high and corporate governance practices remain deficient sometimes But some remaining challenges may still constitute a deterrent factor to attracting more qualified investors
  54. 54. • The government has taken some key steps to institute a policy environment for green investment (e.g. Green Growth Strategy 2012) • The Power Master Plan VII is the cornerstone of renewable energy development; it provides the legal framework and sets long-term goals for renewable energy investments • But challenges impede clean energy investments: • Difficult access to finance • Lack of competition in electricity markets • Tariff-setting not systematic • Fossil fuel subsidies create a barrier for renewable energies The government is developing a policy framework for green growth
  55. 55. RESPONSIBLE BUSINESS CONDUCT
  56. 56. Scope and importance of RBC Relevance for policy-making Responsible business conduct at the OECD Global developments Opportunities in Viet Nam
  57. 57. • Goes beyond philanthropy • Focuses on addressing environmental and social impacts of business operations • Part of core business and risk management, including in the supply chain and business relationships • Important for all businesses RBC – Focus on Impact ensuring a positive contribution to overall developmentResponsible Business Conduct avoiding and addressing negative impacts 1 2
  58. 58. • Urgent need to address issues in global supply chains • Need for inclusive and sustainable growth • Complex issues not solvable by any one actor alone RBC – Focus on Impact
  59. 59. Clothing exports of selected economies (1990 vs. 2014) % of total world exports (1990 vs. 2014) Data source: World Trade Organisation Mexico Turkey China India Indonesia Bangladesh Viet Nam Pakistan
  60. 60. Textile & Garment Sector Supply Chain Yarn Spinning Weaving, knitting Dyeing, printing, Finishing Garment Manufacturing Brands, Buying houses, Trading companies RetailRaw material production
  61. 61. Textile & Garment Sector Supply Chain Aggravating factors Fast fashion & low prices Short-term contracts Purchasing practices Business models Illegal sub- contracting Use of temporary workers, homeworkers, migrant workers Sumangli scheme Small holder farmers; Use of temporary workers Inflexible delivery dates Business models Forced & bonded labour Child labour Occupational health & safety Excessive working hours Freedom of Association & Collective bargaining Wages Chemical use & water contamination Example salient risks
  62. 62. Multi-stakeholder approach to RBC Improving the business environment Protecting public interest and stakeholder rights Overcoming country risk perceptions Social licence to operate and risk management Compliance/ respecting stakeholder rights Competitiveness and market access Ensuring accountability/ respect of rights Framework to resolve issues proactively and constructively Shared understanding of responsibilities Government Businesses Civil Society
  63. 63. RBC at the OECD • OECD Guidelines for Multinational Enterprises – Clear role for home governments – Accountability – Sector Guidances • RBC in the Policy Framework for Investment and other policy areas – Development policy and co-operation; corporate governance; competition; taxation; finance • Outreach and dialogue
  64. 64. • Most comprehensive government-backed international instrument for promoting responsible business conduct • Recommendations from governments to businesses operating in or from adhering countries • Purpose: to ensure business operations are in harmony with government policies; strengthen the basis of mutual confidence with the society; help improve foreign investment climate; enhance contribution to sustainable development • Unique implementation mechanism • Endorsed by business, trade unions and civil society organizations OECD Guidelines for Multinational Enterprises
  65. 65. Application of the Guidelines
  66. 66. Concepts and Principles General Policies Disclosure Human Rights Employment and Industrial Relations Environment Combating Bribery, Bribe Solicitation and Extortion Consumer Interests Science and Technology Competition Taxation Scope
  67. 67. Implementing the Guidelines: Shared Responsibility Implement the Guidelines and encourage their use by businesses (domestic and foreign) Provide a policy environment that supports and promotes responsible business conduct Set up National Contact Points for the Guidelines Maximise positive impacts, minimise adverse impacts Carry out due diligence to identify, prevent and mitigate actual and potential adverse impacts Cover not only impacts related to own operations; but also in the supply chain and business relationships Responsibilities of Governments Responsibilities of Businesses
  68. 68. • One of the main global non-judicial mechanisms and a significant contribution to improving access to remedy in case RBC principles and standards are not observed • Mandate: – Help resolve practical issues through dialogue and consensus – Promote RBC and actively engage with stakeholders – Identify areas where additional guidance for businesses might be needed (i.e. sectors, regions, etc.) – Report on activities Implementing the Guidelines: National Contact Points
  69. 69. Implementing the Guidelines: National Contact Points 1% 3% 3% 3% 3% 4% 4% 4% 4% 6% 6% 11% 17% 34% Water supply; sewerage, waste management and… Human health and social work activities Accommodation and food service Construction Transportation and storage Other Information and communication Other service activities Electricity, gas, steam and air conditioning supply Agriculture, forestry and fishing Wholesale and retail trade Financial and insurance activities Mining and quarrying Manufacturing Percentage of cases by industry sector 1% 2% 3% 5% 6% 8% 15% 21% 24% 45% 55% Science and technology Taxation Competition Consumer interests Concepts and principles Combating bribery, bribe solicitation and extortion Disclosure Environment Human rights General policies Employment and industrial relations Percentage of cases by theme
  70. 70. Implementing the Guidelines: Guidance for Business OECD Due Diligence Guidance for Responsible Mineral Supply Chains (2011) OECD Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractive Sector OECD-FAO Guidance for Responsible Agricultural Supply Chains OECD Due Diligence Guidance for Responsible Supply Chains in the Garment & Footwear Sector (forthcoming) Responsible Business Conduct in the Financial Sector (forthcoming)
  71. 71. • Unifies and help enterprises observe the OECD Guidelines and other major agriculture standards • Recognition of financial enterprises as part of the value chain • Developed through a multi- stakeholder advisory group • Two main sections: – What - A model enterprise policy – How - A five-step framework for risk-based due diligence Building Responsible Agricultural Supply Chains
  72. 72. What: Model Enterprise Policy
  73. 73. • Establish and maintain, in co-ordination with responsible government agencies and third parties as appropriate, an environmental and social management system appropriate to the nature and scale of operations • Prevent, minimise and remedy pollution and negative impacts on air, land, soil, water, forests and biodiversity, and reduce greenhouse gas emissions • Ensure the sustainable use of natural resources and increase the efficiency of resource use and energy • Hold good-faith, effective and meaningful consultations with communities before initiating operations • Ensure decent wages, benefits and working conditions, that are at least adequate to satisfy the basic needs of workers and their families Some examples
  74. 74. How: Framework for Due Diligence • Identify, assess, mitigate, prevent and address actual and potential adverse impacts Step 1 • Establish strong company management systems Step 2 • Identify, assess and prioritise risks in the supply chain Step 3 • Design and implement a strategy to respond to identified risks Step 4 • Verify supply chain due diligence Step 5 • Report on supply chain due diligence
  75. 75. Production Aggregation Processing Distribution On-farm enterprises Agricultural production and near-farm basic processing Downstream enterprises Aggregation, processing, distribution and marketing of agri-food products Financial enterprises Corporate and institutional investors less directly involved than above but provide them with capital Cross-cutting enterprises Tenure rights Animal welfare Animal welfare Human rights Food security & nutrition Labor rights Health Governance Environmental protection & sustainable use of resources Technology & innovation CROSS- CUTTING RISKS STAGES SPECIFIC RISKS ENTER- PRISES
  76. 76. • Convergence and coherence on RBC since 2011 – OECD Guidelines for Multinational Enterprises – UN Guiding Principles on Business and Human Rights – Core ILO conventions • Sustainable Development Goals and Paris Agreement • Integration in numerous international, regional and domestic commitments: – G7 leaders statement – UNSC Resolutions – Trade agreements and bilateral investment treaties – Market access provisions – EU CSR Strategy and new directives – National strategies: UK Modern Slavery Act, French legislative developments, U.S. regulations/National Action Plan, Dutch agreement on textiles, Chinese guidelines – ASEAN practice differs country to country • Increasing integration of RBC in development finance, by investors, stock exchanges, banks, pension funds, and sovereign wealth funds Attention to RBC Increasing Globally
  77. 77. Promoting and enabling RBC is an opportunity in Viet Nam • Awareness of RBC expectations is not wide-spread; some activities undertaken by private sector/civil society, focus on philanthropy and promotion • Partial alignment with international principles and standards in areas related to RBC • State-of-the-art legislation in some areas, but implementation remains a challenge • Recent international commitments include a reference to and recognition of importance of RBC • Primary responsibility for ensuring that investment contributes to inclusive and sustainable growth and that stakeholder rights are protected rests with the government of Viet Nam • International investors should observe the OECD Guidelines and UN Guiding Principles • Scope for promoting RBC in export-oriented production; RBC expectations are prevalent throughout global value chains • RBC could bring particular advantages as Viet Nam shifts to more value added sectors; improving skills and building local capacity is a part of RBC
  78. 78. stephen.thomsen@oecd.org alexandre.decrombrugghe@oecd.org tihana.bule@oecd.org THANK YOU!

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