VIETNAM - EVALUATION OF THE IMPLEMENTATION OF THE EU-VIETNAM FREE TRADE AGREEMENT AND THE COMPREHENSIVE AND PROGRESSIVE AGREEMENT FOR TRANS-PACIFIC PARTNERSHIP

1. VIETNAM - EVALUATION OF THE IMPLEMENTATION OF THE EU-VIETNAM FREE
TRADE AGREEMENT AND THE COMPREHENSIVE AND PROGRESSIVE AGREEMENT
FOR TRANS-PACIFIC PARTNERSHIP
Globalization, global economic integration and trade liberalization have now become prominent in the
world economy. Following such trend, Vietnam has been taking better steps to integrate into the world
economy. Looking back at the nearly 30-year journey since Vietnam was a closed economy and started to
implement the Doi Moi (Renovation) policy from the Party's sixth national congress when the international
economic integration was simply referred to as an open economy, up to now, Vietnam’s international
integration policy has become much more detailed and complete. The first significant milestone in when
Vietnam officially became the 150th member of the World Trade Organization (WTO) on 11 January 2007,
after 11 years of accession negotiations. From then, a new period began: Vietnam's economy has integrated
more deeply and comprehensively into the world economy.
Vietnam has participated in integration at both regional and international levels and has established
meaningful relationships with major partners. Especially in recent years, Vietnam has actively participated
in negotiations and signed the Free Trade Agreements (FTAs), which is complementary to the goal of
multilateral trade and investment liberalization when such cooperation has been facing many hurdles.
Among 13 Free Trade Agreements that Vienam has signed, the FTA with the European Union (EVFTA)
and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) must be
highlighted. These two agreements are considered new-generation free trade agreements because they
contain unprecedented commitments under the previous FTAs signed by Vietnam. They have encouraged
and accelerated institutional reform in order to improve the legal environment in compliance with Vietnam's
commitments. As a result, they help Vietnam to become a competitive economy, attract foreign investment,
advanced technology and other important resources for development.
However, in order to take advantage of the incentives under these Agreements to attract foreign investment,
in this article, I would like to evaluate the outstanding advantages of EVFTA and CPTPP as well as the
implementation of these two Agreements from the perspective of a foreign investor with regard to: (1)
market access; (2) government procurement; and (3) dispute resolution.
I. ADVANTAGES
1. Market Access
a. EVFTA
Market Access for Goods
Vietnam commits to eliminate import duties on 48.5% of tariff lines, equivalent to 64.5% of EU exports
immediately after the EVFTA comes into effect on 1 August 2020. After 10 years, the elimination rate will
be 99% of the total tariff lines, equal to 99.8% of the EU’s exports respectively. For some products such as
motorcycles over 1,500cc, automobile parts and about half of EU exported medicine products, the tax
reduction mechanism will apply after 7 years from the effective date. For the remaining tariff lines, Vietnam
will have a roadmap of over 10 years or give preferential treatment to the EU on the basis of tariff quotas.
This is considered an unprecedented commitment to deep tax cuts for a developing country like Vietnam,
which has demonstrated the ambition for deep integration and strengthened trade relations with the EU.

2. Market Access for Services
Although Vietnam’s commitments under the WTO are used as a basis for negotiating its commitments
under the EVFTA, Vietnam has not only opened additional sectors/sub-sectors for EU service providers
but also made higher commitments than those outlined in the WTO resulting in EU investors being given
best access to Vietnam’s market. Sectors/sub-sectors that Vietnam is not committed to under the WTO,
but are open for EU investors include, but not limited to: interdisciplinary Research & Development (R&D)
services; nursing services, physiotherapists and para-medical personnel; packaging services; trade fairs and
exhibitions services and building-cleaning services. It is worth noting that the EVFTA includes the most-
favored-nation (MFN) treatment provisions that allow a party to give the other party the highest level of
treatment it is negotiating with any third party in other agreement.
b. CPTPP
Market Access for Goods
Vietnam commits to eliminate nearly 100% of tariff lines, in which: (i) 65.8% of tariff lines have 0% tax
rate after the CPTPP takes effect from 14 January 2019; (ii) 86.5% of tariff lines have a 0% tax rate in the
fourth year after the CPTPP takes effect; (iii) 97.8% of tariff lines have 0% tax rate in the 11th year after
the CPTPP takes effect; (iv) import tax on remaining items shall be abolished in the 16th year or in
accordance with tariff quotas. The CPTPP also covers issues that have never been addressed in the WTO
including import duties, export duties for re-manufactured goods, re-furbished goods, market access for re-
furbished goods, monopolies and goods in transit.
Market Access for Services and Investment
All 11 member-states give consent to a liberalized trade in this area. More sectors are opened under the
CPTPP compared with the WTO, such as telecommunications, distribution and manufacturing sectors.
In addition, besides incorporating basic WTO principles (national treatment (NT), most-favored nation
treatment (MFN), market access, and local presence), the CPTPP takes a negative approach, meaning that
their markets are fully open to service suppliers from other CPTPP Parties, except otherwise indicated in
their commitments (i.e, non-conforming measures). In order to make such reservations, the member state
must prove the necessity of such preservation and negotiate with other member states. If approved, non-
conforming measures must only be limited to such list, except for measures in certain sensitive sectors that
are included in a separate list. Member states are only allowed to adopt policies that are better than what
they commit (ratchet principle). The CPTPP also includes obligations on removal of performance
requirements (i.e., no conditions on local content requirements, export conditions, use of certain technology,
location of the investment project, etc.) and reasonable requirements on senior management and board of
directors. Notably, the CPTPP Chapter on Investment for the first time successfully clarified the MFN
principle- countries operating in multi-state regime must give foreign investors the best investment
conditions in all states, regardless of the location of the state where the investment takes place. Investors
are also allowed to petition against the Government from the investment registration stage.
2. Government Procurement
Vietnam has one of the highest ratios of public investment-to-GDP in the world (39% annually from 1995).
However, until now, Vietnam has not agreed to its government procurement being covered by the
Government Procurement Agreement (GPA) of the WTO. Now, for the first time, Vietnam has undertaken
to do so in the EVFTA and CPTPP. Investors of member states will surely get access to large government
procurement market with many incentives and advantages.

3. a. EVFTA
The Government Procurement Chapter mainly deals with the requirement to treat EU bidders, or domestic
bidders with EU investment capital, equally with Vietnamese bidders when a Government purchases goods
or requests a service worth over the specified threshold. Vietnam undertakes to publish information on
tender in a timely manner, allow sufficient time for bidders to prepare for and submit bids and maintain the
confidentiality of tenders. The EVFTA also requires its Parties to assess bids based on fair and objective
principles, evaluate and award bids only based on criteria set out in notices and tender documents and create
an effective regime for complaints and settling disputes, and so on. These rules require Parties to ensure
that their bidding procedures match the commitments and protect their own interests, thus helping Vietnam
to solve its problem of bids being won by cheap but low-quality service providers.
We also believe that these changes in procedures and laws related to government procurement will allow
EU exporters to access previously closed markets and compete more effectively.
b. CPTPP
The CPTPP makes a list of government entities and agencies whose procurement of particular goods and
services at a particular amount must be subject to public tender. In other words, a bidding package is only
subject to CPTPP if it satisfies all 3 criteria on the subject matter of procurement, type of goods and services,
and procurement threshold. Any negotiation to expand coverage of the Government Procurement chapter,
particularly in relation to state government and local government contracts, will be delayed. Parties will
only initiate talks on this issue at least five years after the date of entry into force of the CPTPP.
This chapter includes NT and MFN principles, removes tender conditions favoring local tenders such as
using local goods or local suppliers, conditions on technology transfer or two-way trade and investment,
etc. These rules require all parties, to reform their bidding procedures and protect their own interests by
disqualifying tenders with poor performance and low capacity.
3. Dispute resolution
a. EVFTA
For any investment-related dispute (i.e. expropriation without compensation, investment discrimination),
an investor is allowed to bring such dispute to the Investment Court for settlement (Investor-state dispute
settlement mechanism- ISDS). The final arbitration award is binding and enforceable without the local
courts’ review of its validity. This is an advantage for European investors as the fact shows that the
percentage of applications for enforcement of foreign arbitral awards being rejected by the
Vietnamese courts is notably high for various reasons.
b. CPTPP
The CPTPP aims at protecting investors and their investment in the host country by introducing
requirements on non-discrimination; fair and equitable treatment; full protection and security; the
prohibition of expropriation that is not for public purpose, without due process, or without compensation;
the free transfer of funds related to investments; and the freedom to appoint senior management positions
regardless of nationality.

4. For the first time investors of a party may sue the Government of the other party for its violation of
investment-related commitments when the investors make investment in that party. However, please note
that under the CPTPP, investors will not be able to sue the Government using ISDS clauses if there is any
dispute in connection with an investment agreement. An investment agreement is a written agreement that
is concluded and takes effect after the date of entry into force of the CPTPP, between an authority at the
central level of government of a Party and a covered investment or an investor of another Party, that creates
an exchange of rights and obligations, binding on both parties under the applicable law. Investment
agreement refers to an agreement in writing, negotiated and executed by both parties, whether in the form
of single or multiple instruments. A unilateral act of an administrative or judicial authority, such as a permit,
license, authorization, certificate, approval, etc. and an administrative or judicial consent decree or order
will not be considered a written agreement.
The CPTPP also includes procedures for arbitration as means of settling disputes between investors and the
host state. It covers new provisions compared with existing agreements such as transparency in arbitral
proceedings, disclosure of filings and arbitral awards, and participation of interested non-disputing parties
to make amicus curiae submissions to a tribunal. Arbitral awards are final, binding and fully enforceable in
CPTPP countries.
II. DIFFICULTIES
1. Market Access
a. Market Access for Goods
As mentioned above, both the EVFTA and CPTPP contain commitments to broad tariff cuts. However,
how enterprises can make full use of these commitments is somewhat closely related to the rules of origin
of goods.
Vietnam’s manufacture sector currently depends on raw materials imported from non-EU member
countries as the value-added amount generated from abroad is higher than in the country. If this situation
does not improve, it will be difficult for Vietnamese goods to meet strict rules of origin in these two
agreements. Therefore, the Government should issue policies to encourage enterprises to participate in the
global value chain, reduction of trade costs, simplification of customs procedures, and transparency in non-
tariff policies.
Besides, regarding the mechanism of certification of origin, when as the EVFTA and Vietnamese law
stipulate that the competent authorities to issue certificates of origin, the CPTPP requires applying a self-
certification of origin mechanism- importers, exporters and manufacturers can make self-certification of
origin. This creates an obstacle for Vietnam because Vietnam only allows a few pilot cases of self-
certification of origin in ASEAN. Furthermore, enterprises themselves are not flexible and proactive in
determining the origin of goods, possibly leading to a delay in tariff preferences under the CPTPP. Because
there are projects where the cost and time spent working with authorities issuing a certification of origin is
in excess of the preferential tariffs granted, some enterprises are hesitant to apply for the certification of
origin under the agreements. As a result, tariff preferences for goods originating from member states are
not used.
Although the CPTPP does not require Vietnam to immediately implement this self-certification mechanism,
some importing countries may have/will apply this mechanism after the CPTPP takes effect. Therefore, the
Vietnamese government should issue regulations on self-certification of origin as soon as possible and
consult with the business community on how to structure enterprises and maximize the benefits of the
CPTPP.
b. Market Access for Services

5. The CPTPP and EVFTA are considered to have created more services sectors than the WTO. However, in
reality, enterprises still meet difficulties when carrying out investment in Vietnam, specifically as follows:
 Enterprise registration: Although the investor has submitted the application for enterprise
registration online, the information technology system of the enterprise registration agency is
somewhat outdated, leading to disruptions and delays in the process. Post-licensing procedures
such as social insurance registration, seal registration, bank account opening, payment of licensing
costs, etc. …are cumbersome and time-consuming for enterprises. The Government should
consider reducing unnecessary steps, or create conditions for enterprises to carry out post-licensing
procedures through a portal.
 Infrastructure for electricity, transport and logistics: Weak infrastructure is a barrier to the
development of Vietnam’s economy. The shortage of power occurs frequently in industrial parks.
Deep-sea ports currently do not meet the high demand for maritime transportation. The
Government should consider development of transportation infrastructure, ensuring that seaports
and airports are accessible to people but not too close to residential areas to avoid congestion.
 High cost of legal compliance: Many overlapping and conflicting documents make it difficult for
enterprises to implement compliance. In particular, in many areas such as taxation, insurance,
enterprises must comply with too many regulations, and many new regulations are regularly
introduced which affect the stable and predictable operation of enterprises. Therefore, the
Government should ensure the stability of policies, especially tax policies to attract more foreign
investments.
 Corruption: Action by the Government has reduced corruption rate in recent years, however,
enterprises still face with petty corruption when they carry out administrative procedures. In order
to prevent this situation, the Government should apply information technology in carrying out
administrative procedures (such as online filing, cameras installation to monitor administrative
officers at check-in counters, etc.) as well as conduct unplanned inspections more often to control
any negative issues.
 Land registration and management: It is difficult for investors to access Vietnam’s land
database. Public and transparent information on real estate is limited. Therefore, investors face with
many difficulties when developing projects, especially projects that need to consume large land
area. In order not to hinder foreign investment in the development of high quality projects, it is
necessary to create favorable conditions for investors to access land information, which can be
charged if necessary.
In addition, a preliminary review indicates that although Vietnam has opened more service sectors under
the EVFTA and CPTPP, domestic laws still set out restrictions that should be removed soon by the
Government to comply with Vietnam’s commitments:
 Accounting, auditing and bookkeeping services (CPC 862): Vietnam economy is fully integrated
under the CPTPP and EVFTA, but Vietnam laws do not allow the establishment of wholly foreign-
owned enterprises operating in accounting and auditing sectors.
 Architectural services (CPC 8671): Vietnam opens this sector under the CPTPP and EVFTA but
Vietnam laws require investment in this area in the form of a joint venture or foreign investors must
use Vietnamese subcontractors.
 Basic telecommunications services: Vietnam law complies with the commitments under the CPTPP
but it is not compatible with the level of accession required under the EVFTA.
 Regarding the list of goods that foreign investors are not permitted to distribute: CPTPP makes a
longer list than that set out in Vietnam laws.

6.  Higher education services (CPC 923), adult education (CPC 924), and other education services
(CPC 929 including foreign language training): Vietnam is committed to fully open these under the
CPTPP and EVFTA (except requirements on foreign teachers’ experience and qualifications).
However, Vietnam law sets out conditions for foreign investors such as conditions on facilities,
number of lecturers, etc.
 Customs clearance/customs brokerage services: Vietnam is committed to fully open these services
under the CPTPP and EVFTA, but Vietnam law provides restrictions.
 Container handling services (CPC 741): Vietnam is committed to fully open these sectors under
the CPTPP, but domestic laws provide restrictions.
2. Government Procurement
Both the CPTPP and EVFTA require the disclosure of bidding information and transparency in the selection
of contractors, however, in fact the bidding period is prolonged, openness and transparency in the bidding
information is limited, many bidding packages are invited only for formality, evaluation of bid documents
are not based on criteria of tender documents. If this situation continues, foreign investors will hesitate to
participate in bidding in Vietnam.
To solve this problem, the Ministry of Planning and Investment has vigorously promoted online bidding.
Online bidding has contributed to the end of “blue army, red army” situation (“quân xanh, quân đỏ”), which
limited transparency in bidding. In addition, template dossiers used for goods procurement, construction
and consultancy are posted on the system, helping investors to fill in information for each step and each
stage. After completion, information will be processed by the system to provide bidding price based on the
bidding unit price and the quantity of goods/services of the bidding package to make the bidding process
take place more quickly and conveniently.
Despite many advantages, the online bidding rate is not high. This is because the bidding network system
is weak, is not regularly upgraded and its interface is not friendly with users. Furthermore, the awareness
of enterprises about the advantages of online bidding is limited, so they are not willing to participate in
electronic bidding packages. In order for online bidding to become popular and further enhance
transparency, the Department of Public Procurement should propagate and train enterprises on online
bidding so that they are willing to participate in more electronic bidding packages in the system.
3. Dispute Resolution
Under the Civil Procedure Code, any judgment or decision (civil) of a foreign jurisdiction is effective in
Vietnam if the competent court of Vietnam recognizes it. The Vietnamese court will recognize any
judgments or decisions issued by the courts of the country with which Vietnam has signed a mutual legal
assistance agreement. In addition, recognition can also be considered on a reciprocal basis without any
mutual legal assistance agreement.
However, under the CPTPP and EVIPA, the arbitral award will be final and binding on the parties and can
be enforced directly without recognition and enforcement mechanism of foreign arbitral awards in Vietnam.
Although Vietnam has reserved the right to fulfill this commitment for 5 years, the Government should
study and revise the domestic laws in this regard right now to ensure they comply with the commitments
under CPTPP and EVIPA. Any amendments of domestic regulations made on timely basis will make
foreign investors feel safe and secured in their investments in case any dispute occurs.
***

7. Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com.
Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory
Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to
members of the NATIONAL ASSEMBLY OF VIETNAM.