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Policy-makers needed to understand the problems and difficulties enterprises were encountering so that they could raise practical policies to help enterprises overcome the difficult time. — VNA/VNS Photo Hoang Nguyen

Policies to support firms to overcome the negative impacts of the COVID-19 pandemic should be more practical to ensure companies really benefit.

According to the Viet Nam Chamber of Commerce and Industry (VCCI), from the outbreak of the virus to the end of last year, about 95 documents were issued to support enterprises and residents with four major packages including VND250 trillion in credit support, VND180 trillion in tax deferrals, VND16 trillion in preferential loans with zero rate and VND62 trillion in social welfare.

However, the efficiency of these policies was not as high as expected due to complicated procedures and requirements which deterred firms from applying for the support policies, some business associations said.

Agreeing it was necessary to launch a so-called second economic stimulus package, Pham Xuan Hoe, former Deputy Director of the Banking Strategy Institute, said that policy-makers must renovate their thinking in raising policies to ensure the support really benefits firms in the new normal.

Policies should aim to simplify criteria and requirements as well as ensuring fairness in access among those who were subjects to the assistance.

Policy-makers needed to understand what were the problems enterprises were encountering so that could raise practical solutions, Hoe said.

Interest rates should also be strongly reduced to support enterprises, Hoe said.

Vinh Phuc Province Enterprise Association proposed further cuts in taxes, specifically value-added tax from 10 per cent to eight per cent over the next three to five years and corporate income tax from 20 per cent to 13-15 per cent.

According to Nguyen Xuan Tot, President of Thai Nguyen Province Association of Small and Medium-Sized Enterprises, the tax deferral policy did not help much as the majority of enterprises suffered from declines in revenue and even losses.

Vu Thi An, Director of C&A Tax Consultancy Company, said the tax support policies remained modest, mainly tax deferral, adding that it was understandable in the context of limited national financial capacity.

An also said that enterprises should not expect too much from tax reduction and exemption policies. The better way to support enterprises would be reducing the number of time-consuming inspections, An said, adding that they should only be carried out when there were signs of violations.

VCCI’s survey found that 87.2 per cent of enterprises were suffering from negative impacts of the pandemic. — VNS

Hanoi has remained firm in the top 10 business-friendly localities in Vietnam while other provinces and cities are pushing hard to stay competitive in the eyes of the business community.

Given Hanoi’s position as Vietnam’s economic hub with the second highest number of enterprises nationwide, the capital city’s ninth ranking in Vietnam’s 2019 provincial competitiveness index (PCI) report with score of 68.8, an increase of 3.40 points from the previous year, is significant.

Top 10 business-friendly localities. Source: PCI 2019.

The report, jointly launched by the Vietnam Chamber of Commerce and Industry (VCCI) and the US Agency for International Development (USAID), has been produced annually since 2005 to assess the ease of doing business, economic governance, and administrative reform efforts by the provincial and city governments in Vietnam in order to promote the development of the private sector.

Hanoi’s weighted PCI over the last 5 years. Source: PCI 2019.

According to the VCCI, as all provinces/cities are pushing hard to stay competitive in the eyes of the business community, the average PCI score in 2019 of 65.13 was the highest since 2005.

While Ho Chi Minh City, despite achieving a higher score than in 2018, has been upstaged by Hai Phong which positioned itself in the 10th place, Hanoi with over 285,000 enterprises has put in strong efforts to keep its place in the top 10.

Hanoi’s 10 PCI subindices. Source: PCI 2019.

Among the 10 PCI sub-indices, Hanoi has the highest score in Entry Costs, which evaluates entry costs for business startups, at 7.98 points out of 10, followed by labor quality to meet firm needs and low time requirements for bureaucratic procedures and inspections.

In 2019, Hanoi had focused on reducing informal charges, creating a fair business environment and improving provincial leadership in solving problems for enterprises.

Amid the Covid-19 crisis, Hanoi considered improvements in the business environment a key solution to boost socio-economic growth. In early April, the municipal People’s Committee issued the action plan No.83 detailing measures to improve the  competitiveness and create favorable environment for the business community.

Following the plan, Hanoi’s leaders requested units and departments to continue simplifying administrative procedures and maintain frequent contact with enterprises for timely support.

The result is reflected in the rate of online business registration which stands at 100%; over 98% of enterprises declaring and paying taxes online; and 100% of tax refund claims processed on time.

Hanoi also targets 100% of administrative procedures in the city to be provided online at advanced stages of 3 and 4, of which at least 30% of the procedures to be handled at stages 3 and 4.

In the first four months of 2020, Hanoi recorded 7,468 newly established enterprises with a combined registered capital of VND118 trillion (US$5.03 billion), up 46.5% in capital year-on-year.

VCCI Chairman Vu Tien Loc said such figure remained in stark contrast with a reduction of 17.9% in the average registered capital nationwide, showcasing huge potential for business startups in Hanoi and its strong attraction to investors.

Loc expected Hanoi to build on this momentum, which is one of the key priorities to boost economic growth during the pandemic.

Needless to say, a huge amount of work remains to be done for Hanoi to meet the actual needs of enterprises, while it is necessary for the city to accelerate its reform pace to gain a higher ranking in the PCI list.

The government remains steadfast in removing obsolete regulations that restrict business operations, while preventing the introduction of new regulations implying higher costs for enterprises.

Vietnam’s Prime Minister Nguyen Xuan Phuc would set up a special working group to accelerate the business environment reform, with an aim to reduce at least 20% of costs of administrative procedure compliance, according to Minister – Chairman of the Government Office Mai Tien Dung.

Overview of the meeting. Source: VGP.

Personnel of the task force would include senior staff from the Government Office, the Ministry of Justice, other ministries and ministerial-level agencies, Dung said at a meeting on January 2 discussing the action plan to simplify business conditions in the 2020 – 2025 period.

Dung said the first government meeting of the year was to discuss the business environment, indicating strong determination of the government to carry out administrative reform.

In 2019, Vietnam’s competitiveness increased by 10 places, but the business environment raking decreased by one notch despite higher score compared to last year.

Dung stressed the government’s stance on removing obsolete regulations that restrict business operations, while preventing the introduction of new regulations implying higher costs for enterprises.

In case such regulations are stipulated in laws, the government would report to the National Assembly for revision, stated Dung.

Dung noted more efforts are needed to supervise the drafting process of circulars, which are considered major sources for business barriers. Circulars in Vietnam are issued by ministries.

Additionally, Dung expected more reform in specialized inspection process for goods and products subject for import/export.

According to Dung, Vietnam would refer to the UK’s experiences in simplifying business conditions. This year, the issuance of a new legal document must come with the abolition of an existing one and for one circular promulgated, two others must be abolished.

On this issue, Vice Director of the Central Institute of Economic Management Phan Duc Hieu said the UK has a concept of smart regulation, focusing on quality rather than quantity.

The government would consider a tool that could calculate costs of administrative procedure compliance for the people and enterprises at a time when a new regulation becomes effective, while ministries and provinces/cities would be ranked for their efforts in improving the business environment.

Ngo Hai Phan, head of the Government Office’s Administrative Procedure Control Agency, said the Government Office is cooperating with IT companies in developing a software capable of analyzing statistically all legal documents related to business operation.

The move is in line with the OECD’s recommendations, said Phan.

In 2020, the target is to deal with 25 overlapping provisions in legal documents recommended by the Vietnam Chamber of Commerce and Industry (VCCI) and list all documents with reference to business conditions.

President of VCCI Vu Tien Loc agreed with the target, saying the move would ensure greater transparency for the legal system.

Loc said Vietnam should learn from good international practices, particularly from the top four business-friendly countries in ASEAN.

Business conditions should be for the sake of public interests, not for government agencies to fulfill their state management responsibilities, said an expert.

Removal of business conditions, not just simplification, would help change the current mindset in state management and speed up the establishment of e-government, according to Nguyen Dinh Cung, former director of the Central Institute for Economic Management (CIEM).

Overview of the workshop. Nguyen Tung.

“For the government, they are instruments for economic management, but for the business community, business conditions are restrictions and barriers to market entry,” said Cung at a workshop discussing the quality of business conditions in Vietnam on February 27.

Business conditions should only be considered means for the state to safeguard national security and public interests, other than that, they are poised to cause unnecessary costs for enterprises, disrupt the market and reduce competitiveness, stressed Cung.

The removal of nonessential business conditions, therefore, would force government agencies to look for other ways of state management, Cung said, adding this is feasible in the current Industry 4.0 era when “technologies could come in handy in collecting information, evaluation and searching for solutions, and the model of e-government naturally becomes the next step forward.”

Meanwhile, the simplification of business conditions means there is no change in the existing mindset, and when the urge for reform cools down, all barriers and restriction would come back in full, Cung raised concern.

Nguyen Minh Thao, head of CIEM’s Business Environment and Competitiveness Department, said with 40 directives on reforming business conditions during the 2017 – 2019 period, the government is giving high priority to this matter.

“In 2018, the government requested the removal of 50% of total business conditions, but the actual figure may only be around 30%,” Thao said. “Some reforms are still limited to simplification of business conditions in form of numerical reductions, meaning almost no substantial changes for the business environment as the business conditions still remain.”

Director of the Legal Department under the Vietnam Chamber of Commerce and Industry (VCCI) Dau Anh Tuan attributed the slow reform process to a lack of a clear definition on business conditions.

“Business conditions should be for the sake of public interests, not for government agencies to fulfill their state management responsibilities,” Tuan added.

Unless the government has clear instructions on setting up business conditions, government agencies would continue to take advantage of such a loophole to protect their interests, Tuan continued.

As the drafting process for the new Law on Enterprises is underway, Tuan suggested the drafters incorporate incentives for market entry and freedom of doing business.

Additionally, during every process of policy making, policymakers should take into account economic benefits of these policies and potential damages to businesses.

Tuan noted there have been signs of major corporations lobbying the government to tighten market entry regulations as a way to maintain their market shares.

“The government must ensure competitiveness of the market and lower requirements for market entry,” Tuan said.

Small and medium enterprises are fully capable of making high quality products and services, in turn bringing great value for customers and society, Tuan asserted.

More importantly, there should be a clear line between policymakers and those enforcing policies afterwards, Tuan stressed.

“This is the only way to ensure the efficiency and fairness of laws. Otherwise, reform efforts would not be sustainable and remain a formality,” Tuan concluded.

The EU-Vietnam Business Council is meant to support the Vietnamese business community to tap into the potential of the EU-Vietnam Free Trade Agreement.

The European Chamber of Commerce (EuroCham) and the Vietnam Chamber of Commerce and Industry (VCCI) announced the establishment of the EU-Vietnam Business Council (EUVBC) on October 22 with the aim of supporting the smooth and successful implementation of the EU-Vietnam Free Trade Agreement (EVFTA).

Chairman of VCCI Vu Tien Loc (left) and Chairman of EuroCham Nicolas Audier sign an agreement to establish the EUVBC

The EUVBC will bring together representatives of the European and Vietnamese business communities to share insights and discuss common challenges in the implementation of this historic free trade agreement.

Jointly led by the presidents of EuroCham and VCCI, the EUVBC board will also include eight other members with four from each chamber of commerce. The council will also establish a number of line-of-business-based working groups, building stronger ties between Vietnamese and European companies and increasing knowledge sharing in specific industries.

The council will publish regular papers on the progress of the implementation of the EVFTA, and meet with high-level representatives of the European Commission in Brussels and the Vietnamese government to share updates from companies on the ground.

Speaking at the event, Dr. Vu Tien Loc, chairman of VCCI, said that the Council will represent the voices of Vietnamese and EU businesses in the EVFTA implementation, and acts as a bridge to forward opinions of businesses to the Government and relevant agencies of both Vietnam and the EU.

“EuroCham is proud to establish this new forum with VCCI, and to reaffirm the strong and effective relationship between our two chambers at the beginning of this new chapter of EU-Vietnam trade and investment relations,” said Chairman of EuroCham Nicolas Audier.

In force since August 1, the EVFTA is the most comprehensive and ambitious free trade agreement ever signed between the EU and a developing nation, and just the second FTA signed with an ASEAN member state.

As the agreement has entered into force, 65% of EU exports to Vietnam are tariff-free, along with 71% of Vietnam’s exports to the European Union. This will rise to almost 99% over the next decade, giving Vietnamese enterprises privileged access to Europe’s large consumer market and EU business better access to Vietnam’s fast-growing sectors and industries.

In one month and a half, the amount of Vietnamese goods and products that benefit from EVFTA’s preferential treatment is equivalent to that of the CPTPP throughout 2019.

The EU – Vietnam Free Trade Agreement (EVFTA) is an important instrument that could help Vietnam realize its ambition of eventually becoming a high-income country by 2045, a target set by the State President Nguyen Phu Trong, according to senior economist Pham Chi Lan.

Overview of the conference. Photo: Nguyen Tung.

“While there have been mixed feelings towards the implementation of previous free trade agreements (FTAs), the timing and all optimism around the deal make us believe this would be a different story,” Mrs. Lan said at a conference discussing the EVFTA on September 24.

Given the fact that the foreign-invested sector currently makes up nearly 70% of Vietnam’s exports, Mrs. Lan said these FTAs have not achieved the purpose of building up the country’s internal strength, the most important factor during the global integration process.

“There would be no sustainable growth by relying on others,” she added.

The EVFTA came at a time when Vietnam was coming up with the next long-term strategy, therefore it would give the country a boost in going forward amid the Covid-19 crisis.

“Both the EVFTA and the Covid-19 pandemic are pressurizing the Vietnamese government and enterprises to change for better,” Mrs. Lan noted.

Chairman of the Vietnam Chamber of Commerce and Industry (VCCI) Vu Tien Loc said the EVFTA is what Vietnam needs most at the moment since it helps Vietnam form closer cooperation with the EU, one of Vietnam’s trusted partners in pursuing sustainable development strategies.

“In a world of escalating trade tensions and growing protectionism, the EVFTA is expected to create a new competitive edge for Vietnamese enterprises and make Vietnam more attractive in the eyes of investors looking to diversify their supply chains,” Mr. Loc said.

“27 in 1”

Nguyen Thi Thu Trang, director of VCCI’s WTO Center and Economic Integration, highlighted the complementarity between Vietnam and the EU’s economies is what sets the deal apart from others.

In Vietnam’s other FTAs, all partners have a similar economic structure or even directly compete with Vietnam. “A win-win situation is more likely in the EVFTA compared to others,” Mrs. Lan said.

More importantly, all 27 EU members have not had a bilateral trade deal with Vietnam, so it could be seen as a 27 in one FTA, she added.

Mrs. Lan also pointed out the fact that the EU is the world’s second largest buyer, making the deal more meaningful for an export-oriented country like Vietnam.

Additionally, while the EU has not been Vietnam’s largest investor, it is the world’s main source of foreign investment. As a result, the EVFTA and the EU – Vietnam Investment Protection Agreement (EVIPA) would make Vietnam more attractive to European investors, Mrs. Lan said.

To go into detail how the deal has performed after having been effective for over a month, Luong Hoang Thai, director general of the Multilateral Trade Policy Department under the Ministry of Industry and Trade, said Vietnam’s exports to the EU in August stood at US$3.78 billion, of which, goods and products worth US$277 million, or 7.3% of the total export turnover, received preferential treatment from the deal.

By mid-September, the figure has risen to nearly US$500 million, which is equal to the total amount of Vietnamese products subject to preferential treatment from the Comprehensive and Progressive Agreement for Trans – Pacific Partnership (CPTPP) for the whole year of 2019, Mr. Thai added.

Textile and garment, Vietnam’s major export items to EU, are still enjoying the EU’s Generalized Scheme of Preferences (GSP- a set of EU rules allowing exporters from developing countries to pay less or no duties on their exports to the European Union), so the actual figure of goods benefiting from EU’s preferential treatment would be much higher, Mr. Thai concluded.