Opportunities to see

Prof. Dr. Andreas Stoffers – Country director, Vietnam The Friedrich Naumann Foundation for Freedom

The United Kingdom is an important trading partner of Vietnam. In 2020, trade turnover between the two countries amounted to $6.6 billion. With $5.8 billion in exports, Vietnam’s trade balance was clearly positive, which also underlines the country’s strong interest in reaching an amicable agreement with the UK. In recent years, despite the uncertainties associated with Brexit, the growth of trade relations has been unbroken, averaging 12.1 per cent per annum in 2011-2019.

The trade relations between the EU and Vietnam are naturally greater given the fact that the EU is the world’s largest market. In 2019, the EU was the second-most important overseas market for Vietnamese products with a total trade volume of $56.45 billion, of which Vietnam’s exports accounted for two-thirds ($41.55 billion). This is 16 per cent of the country’s total export volume. In 2020, exports to the EU increased to $34.8 billion, and imports to $14.5 billion.

Vietnam benefits significantly more from bilateral economic relations than the EU. The continuous surplus Vietnam enjoys in its bilateral trade relations with the EU has been instrumental in offsetting Vietnam’s huge trade deficits with China and South Korea.

Vietnam exports mainly electronics, footwear, clothing and textiles, coffee, seafood, and furniture. The most important goods of EU exports to Vietnam are high-tech products including boilers, machinery and mechanical products, electrical machinery and equipment, pharmaceuticals, and a very limited number of motor vehicles. The EVFTA opens many opportunities for producers and traders on both sides, including small- and medium-sized enterprises.

The EVFTA is of course one of the most modern and far-reaching agreements of its kind. It plays an important role in promoting trade liberalisation between Vietnam and the EU.

Combined with the new Law on Investment which entered into force on January 1, and the other FTAs concluded by Vietnam, the Southeast Asian country has set an important course to improve its position as a trading partner and investment destination. From Vietnam’s perspective, the UKVFTA goes in the same direction.

The UK, looking to strike deals in the aftermath of Brexit, used the EVFTA as a template for a Vietnam deal, photo Le Toan

Differences and similarities

“Recognising their longstanding and strong partnership based on common principles and values, and their important economic, trade and investment relationship”. This formula replaces the preamble of the EVFTA in the UKVFTA. If one reads both agreements in parallel, one notices the large overlaps, not only at the beginning, where only some words are replaced by others.

In fact, there are so many similarities between the two FTAs that it is fair to call the UKVFTA a clone of the EVFTA. However, there are some small but subtle differences.

In 14 sectors of the agreement, the UK allows Vietnam to export at zero tax with a certain quota: egg yolks and poultry, garlic, sweetcorn, milled rice, milled rice, tapioca starch, tuna, surimi, sugar and products high in sugar, mushrooms, ethanol, mannitol, sorbitol, Dextrin, and other modified starches.

In the area of banking services, Vietnam agreed to favourably allow UK credit institutions to increase their foreign holdings to 49 per cent of their charter capital in a Vietnamese joint stock commercial bank. Similar to the EVFTA framework, this commitment is only valid for five years (after that, Vietnam will not be bound by this commitment) and not applicable to the four joint stock commercial banks with a dominant government share, BIDV, VietinBank, Vietcombank, and Agribank.

In addition, the implementation of this commitment will be required to fully comply with regulations on procedures for mergers and acquisitions as well as safety and competition conditions, including the applicable shareholding limit. Vietnam allows the EU to raise 49 per cent in two banks while allowing the UK for the equal or even higher treatment of a bank (mostly HSBC and Standard Chartered) to raise their holding to the ceiling.

Within the EVFTA, one of the signing parties may grant subsidies when they are necessary to achieve a public policy objective. The parties acknowledge that certain subsidies have the potential to distort the proper functioning of markets and undermine the benefits of trade liberalisation. In principle, a party should not grant subsidies to enterprises providing goods or services if they negatively affect, or are likely to affect, competition and trade.

As far as the UKVFTA is concerned, the policy is less tolerant. “In principle, a party should not grant subsidies to enterprises providing goods or services if they significantly negatively affect or are likely to significantly negatively affect trade between the two parties.”

In several areas, the EVFTA is more specific than the UKVFTA. There are for instance some notes on fruit and vegetables in accordance with the Common Customs Tariff provided for in Commission Implementing Regulations and successor acts, laying down detailed rules.

Binding Vietnam into more specific rules is a wise strategy to make sure products are high quality and stops sub-standard products entering difficult UK markets.

Global Britain

Following the UK’s decision to leave the EU, the UK faces many challenges. A key one was how to manage trade relations with countries that had previously benefited from the EU’s trade agreements. As a huge trading bloc encompassing 27 European nations the EU is, in terms of trade policy, a power factor that can forcefully assert its interests.

Of course, a medium-sized single country like the UK does not have this power. Therefore, concessions have to be made that a giant like the EU does not have to make. However, the sheer size of the EU means that the individual and sometimes conflicting interests of the individual member states have to be taken into account. As a result, decision-making processes sometimes remain protracted, as can be seen in the decade-long negotiations on the EVFTA.

Accordingly, Great Britain has the advantage of being very agile. This means that FTAs can be launched much more quickly. This is especially true if no major concessions are expected on the part of the contracting partner. In addition, existing agreements – such as the very comprehensive and modern EVFTA – can be used as a model.

“Global Britain” is the British government’s leitmotif for its post-Brexit foreign policy. It was used by Theresa May in her first major speech as prime minister at her party’s conference. It signals that the country would not be inward-looking after Brexit, but on the contrary would have a global perspective that goes beyond Europe.

As stated in the joint agreement between the UK and Vietnam in last December, the UKVFTA is “also a key step towards the UK joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership”. Therefore, the UKVFTA is only one, but an essential building block of the post-Brexit UK’s liberal trade policy. Many more agreements will follow.

In order to reposition Vietnam after the COVID-19 crisis, both the EVFTA and the UKVFTA are an important element on the road to economic recovery. After the pandemic has started to shake the world’s economy, Vietnam has used the time well.

In addition to these two FTAs, there are many other steps to take, above all the new investment law, which helps Vietnam to emerge stronger from the crisis. Vietnam’s goal in repositioning its economy is not reaching a “V-shaped” curve of improvement, as so many other nations hope; rather, it lies in a “square-root recovery” where the pre-crisis level is not only to be reached, but clearly surpassed in order to continue growing at a higher level.

The efforts of the Southeast Asian nation will be crowned with success, and most analysts are bullish about Vietnam’s prospects. The EVFTA and the UKVFTA stand for the open and liberal politics of Vietnam, and they will make Vietnam – especially in conjunction with the new investment law and EU-Vietnam Investment Protection Agreement – more attractive for foreign investors.

The Hanoitimes – The daily turnover in Vietnam’s stock market has been extremely high for the last several months, said the head of independent Finish fund manager Pyn Elite Fund.

Vietnamese listed companies’ first quarter earnings reports in April will indicate strong earnings growth for many businesses in the year 2021.

Petri Derying, portfolio manager of Finland-based Pyn Elite Fund. Source: arvopaperi.fi

Petri Derying, portfolio manager of Finland-based Pyn Elite Fund, wrote in a note, discussing the prospect of Vietnam’s economy this year.

“Covid crisis is still slowing down many economies, but it is likely, that in the year 2021 we will see strong growth globally due to last year’s poor numbers,” said Derying.

According to Derying, there is already evidence of the robust growth in Vietnam’s exports in the first six weeks of the year with a turnover of US$38.57 billion, up 36% year-on-year.

“These numbers indicate very strong growth for the whole year, while the strongest growth was in exports to China,” he said.

Meanwhile, the daily turnover in Vietnam’s stock market has been extremely high for several months already, Derying added.

“The turnover and the spike we’ve seen in VN-index are thanks to the local investors,” he stated, noting in January the foreign investors were net sellers for US$74 million.

However, in February the tide turned and the foreign investors have been net buyers for US$62 million. “We expect this trend to continue,” he concluded.

In early February, Derying stated the year 2021 “looks very good for the Vietnamese stock market”, saying the economy is ready to achieve a record expansion, the listed companies’ earnings growth will surprise on the positive side, and stocks are priced attractively.

Pyn Elite Fund expected the Vn-Index to soon reach 1,800 points, thanks to the companies’ earnings growth forecasts, the strong outlook of the Vietnamese economy and the opportunities presented by the modernization of the stock market.

If the earnings grow as expected, the stock market’s P/E ratio would be in the range of 15–16 to equal index level of 1,800 points. Even thereafter, Vietnam’s economic growth will surely support even higher valuations and index levels, it added.

The Finnish fund believed that the Vietnamese stock market can surprise investors with a “big year” of returns during the 2020–24-time frame.

The Hanoitimes – Hanoi identifies the logistics sector essential to meet the demand of nearly 300,000 enterprises in the city and further support the its socio-economic development process.

Hanoi plans to have a total of 10 logistics centers, and the city has approved investment plans for six, other three are under research and one is looking for investors, according to Vice Chairman of the Hanoi People’s Committee Nguyen Van Suu.

Overview of the dialouge. Photo: Thanh Hai.

With nearly 300,000 operational enterprises, logistics services play a key role for Hanoi’s development, stated Mr. Suu at a high-level panel dialogue in the Vietnam Logistics Forum 2020 held on November 26.

In Hanoi’s annual investment conferences, the city has always been calling for investments for logistics centers, he added.

In addition to the development of inland container depot (ICD), one of Hanoi’s advantages is a network of major rivers, so that the city is planning to build a network of container ports to boost inland waterway transportation, Mr. Suu informed.

Minister of Industry and Trade Tran Tuan Anh said the ministry and Hanoi’s authorities would continue to cooperate to realize the goal of turning Hanoi into a logistics hub of not only Vietnam but also the region.

As the city is pushing for the development of transport infrastructure, logistics services and innovative startups, Mr. Anh said Hanoi could become an example for other provinces and cities in taking logistics as a driving force for socio-economic development.

Overview of the dialouge. Photo: Thanh Hai.

Staying central in new regional supply chains

To further support the development of logistics companies, Deputy Minister of Finance Vu Thi Mai said customs authorities are applying new technologies to save costs and time for the business community, including the recent deployment of GPS positioning seal system to track all import-export shipments transported by containers.

This latest technology would ensure that 100% of shipments are delivered in a right direction and the right time.

Meanwhile, Deputy Minister of Transport Le Dinh Tho said the Ministry of Transport is cooperating with other provinces and cities in boosting connectivity among different transport modes of road, railway, waterway, and aviation.

Mr. Tho suggested by taking advantage of multi-modal transportation network and IT technology in operation, logistics firms could significantly reduce their costs.

In the 2021–2025 period, the Ministry of Transport would focus on upgrading transport infrastructure to meet growing needs of economic development.

World Bank Vietnam’s senior expert Pham Minh Duc said that to be part of a new global supply chain with high resilience, the country should enhance its production capability and strive to become a global hub of production.

In this process, Vietnam should grasp opportunities from the “China plus 1” strategies of multinationals to play a center role in the region’s new supply chains.

The most important factor is that Vietnam should have an attractive business environment, strong production capability and a modern logistics sector.

Nguyen Thanh Nam has been leading tours in Da Nang for more than a decade and he says most tourists cannot help but be amazed at the beautiful nature of Nam O Reef.

“The reefs combine with beautiful sand, clear blue seawater, and green trees to become a must-visit destination for nature lovers when coming to Da Nang,” said Nam.

“During spring, when the tide recedes, rocks of different shapes and sizes reveal they are covered with green moss. They look so beautiful, just like green pearls.”

Born in Da Nang and spending his childhood living near the reef, Nam has been coming to the place since it was just a pristine beach where fishermen in Nam O village made their living.

“The name can be referred to as ‘The beach located in the south of Chau O’, it also means ‘southern gate’,” said the 35-year-old tour guide.

“Nam O Reef is about 500m long jutting out into the sea with a dense layer of rock hidden under the cool blue seawater. There are many rock layers, stacked to form many unique shapes.”

“By lunar January, when the weather warms up, green moss begins to grow on the rocks. The best time to enjoy this moment is dawn when the sun comes up, the tide recedes, beautiful rocks formed in all shapes are revealed, mixed in the sand and covered with a carpet of green moss,” he added.

Visitor Anh Thu from Thanh Khe district of Da Nang said: “Da Nang has many beautiful beaches such as My Khe, Pham Van Dong and Man Thai. However, this is the first time my family has gone to Nam O.”

“The air here is so fresh. At this time of spring, the rocks are covered with a layer of green moss which is so charming.

“This is an opportunity for my whole family to experience the life of fishermen in the coastal fishing village. This place is also an ideal destination for photographers,” said Thu.

Speaking of photography, nearby the reef, Quang Thanh from HCM City was looking the best camera angles for his photos.

“I’m a photographer from Saigon and I come here to capture the beauty of this place. It has to be spring if you want to get the best out of it.

“I took many pictures about the moss season in the central coastal provinces. In Nam O, large and small rocks mix with many different shapes and combine with the dawn light passing through the rocks, creating very vivid and unique photos,” he said.

After getting up in the early morning, you can buy delights from the sea caught by fishermen in the village.

Fresh squid, shrimp, and fish thrashing when being pulled from the sea and the enthusiasm of the local people give tourists an unforgettable experience.

This place is also home to the Nam O fish sauce village which has existed for more than 400 years. Last year, the village was honoured as the National Intangible Cultural Heritage.

Source: VNA

Baker McKenzie’s managing partner Frederick Burke and special counsel Nguyen Thanh Hai

The contents of the decision circulated on January 21 is in draft form, while final contents are subject to further reviews by the Ministry of Industry and Trade (MoIT), and consultations with other relevant ministries before the prime minister’s final signature.

This draft decision would apply the selection mechanism on a long-term basis. Bidding rounds will be conducted based on a so-called Renewable Energy Development Plan formulated by the MoIT for each 5-year period. A more specific plan will be circulated on a biannual basis.

The main investor selection mechanism is a so-called “competitive selection of investors based on project location”, which means that: (i) project location will be chosen/determined by the governmental authorities; and (ii) investors must submit bids to compete for securing the project development right at that pre-selected project location.

Under this draft decision, the bidding mechanism would be conducted at the local level by provincial-level people’s committees, rather than by the MoIT at nationwide level.

As regards power sale/purchase price, the current draft provides that the ceiling price will be subject to a specific pricing framework, which will be prepared and issued by the MoIT on a biannual basis.

In addition, the draft decision proposes detailed regulations on eligibility requirements for investors participating in this mechanism, bidding procedures and requirements for selected investors. Notably, it also makes a reference to a model power purchase agreement (PPA) template, but as the full text of such template has yet to be completed, it remains uncertain as to whether there would be any or significant improvements to the risk allocation and bankability of this proposed template for new renewable energy projects under this reverse auction mechanism.

The prime minister’s draft decision includes a bidding mechanism conducted at the local level rather than by the MoIT at nationwide level, Photo: shutterstock

Recommended considerations

There are specific intentions under this draft which relate to overall legal mechanisms and for renewable projects in Vietnam, such as upcoming regulations related to the solar auction/competitive bidding programme; necessary legal considerations for existing and newly proposed solar farms to best prepare for participation in competitive selection mechanisms; specific selection procedures as proposed under the draft decision; and specific opportunities and challenges, as well as legal and practical solutions for development and investment in greenfield solar power projects in Vietnam.

The investor selection mechanism proposed under this decision applies to all solar power projects directly connected to the national power grid. Under the draft, a solar power project may be approved for development through either competitive selection of investors based on the project’s location, or investor approval.

Most parts provide guidelines for the former method. On the other hand, no specific guidance on the latter method was provided, but as a general rule of law, the method must be subject to the new Law on Investment as well as the investor appointment mechanism under the current bidding regulations.

It is also worth noting that all of these will be subject to more guidelines specific to the solar and renewable energy sector to be provided in the final draft.

Eligibility requirements

The draft decision does not impose any restriction on participation by foreign investors. However, participating investors must be independent from each other. This requirement may limit the number of proposed projects and chance of success in the bids of certain investors.

For example, an investor must not be named in technical proposals for two or more proposed projects whether as an independent investor or as a consortium of multiple investors; and an investor must not own more than 20 per cent capital of another investor participating in the bids.

In addition, the participating investors must submit, together with the bid proposals, certain documents demonstrating their experience and financial capability, such as financial statements in the last two years and evidence of the capability to mobilise investment capital (both equity financing and debt financing).

Power sale tariff

For selected projects, the electricity tariff is set at the rate proposed by the winning investors in the bidding process. Among the investors that have met all eligibility and technical requirements, as a general rule, the investors proposing the lowest power tariff will be selected to sign a PPA with Electricity of Vietnam (EVN).

The applicable tariff will apply for 20 years from commercial operation date (COD) of the project and will be subject to the USD-VND exchange rate fluctuation based on the central exchange rate announced by the State Bank of Vietnam on the invoicing date.

To ensure the feasibility and enforcement of the proposed tariffs, the draft decision requires that the electricity tariff formulated by participating investors must take into account, among other things, project development costs determined in compliance with the construction law and solar power regulations; and grid connection costs.

For selected projects, if the project fails to reach COD as proposed during the bids, under the draft, the electricity tariff under the project PPA will be reduced by a cumulative portion of 4 per cent after each 90-day period of delay/falling behind the originally proposed schedule.

Selection procedures

The draft decision sets out the following key procedures:

– The MoIT prepares/adopts the 5-year renewable energy plan based on (among other things) the power development master plan and the status of the local power grids. This plan specifies a total capacity for each type of renewable energy source for a 5-year period; and a list of transmission lines and substations (with voltages from 220kV) coming into operation during the 5-year period.

– In each 2-year period, based on the 5-year renewable energy plan, the MoIT prepares/adopts a 2-year periodical solar development plan, which specifies the total solar power capacity to be developed in each province/city; and a list of 110kV/220 kV/550 kV transmission lines and substations that are capable of absorbing power generated from renewable energy projects.

– On a biannual basis, provincial people’s committees (PPCs) prepare solar investor selection plans under their local management for the province based on (and no later than six months from issuance of) the MoIT’s 2-year periodical solar development plan. This selection plan must specify the project locations that will be opened to bidding.

– PPCs submit the draft solar investor selection plan to the MoIT and EVN for their appraisal/comments, prior to PPC adoption and publication of their selection plan.

– Participating investors submit proposals to relevant PPCs, with a separate technical proposal and a separate commercial/electricity tariff proposal.

– PPCs evaluate the submitted proposals, select projects, and sign PPAs for selected projects/winning investors.

There are other notable requirements for investors. The draft decision requires a bid guarantee of 0.5 per cent, the total investment capital of the participating project. Forms of bid guarantees to be submitted, as well as conditions for returning bid guarantees have yet to be specified at this stage under the draft.

For selected projects, it also requires investors to sign a “project development commitment letter” based on the contents of the bid proposals. Investors must also deposit an investment project implementing security in the bank accounts of the local authority or other forms in accordance with the new Law on Investment.