DSpace at VNU: Foreign direct investment in Vietnam - The case of American firms

VNU JOURNAL OF SCIENCE, ECO NO M ICS-LAW T XX, N02, 2004 F O R E IG N D IR E C T IN V E S T M E N T IN V IE T N A M TH E CASE OF A M ERIC AN FIRM S P h u n g X u a n N overseas-based tra ns nati on al corporations In recent years American firms have (TNCs), especially American ones? W h a t rapidly increased their presence among foreign firms in Vietnam By constrains a nd other challenges have the 1999, Vietnamese authorities imposed on American inve stment was a mo ng the top American firms? Have the American firms ten largest in Vietnam By the end of 2003, Vietnam with a total registered capital made bad ju d g m e n t’s or is the Vietnamese business env iro nme nt to blame? From the standpoint of American investors, w t amounting to US$1308 million, accounting advantages are there to invest in Vie tnam9 for 3.54% of the total registered FDI in How Vietnam (MPI report, S e p te m b e r 2003) practices affected their business strategies, However, investors in Vietnam, American investors both a t time of entry and during subsequent operation? These questions not a pp ea r to be very successful and are especially i m p o r ta n t in the context of they went out of the top ten largest in Vietnam by the end of 2003 The ratio of the recently signed bilateral trade agreeme nt between Vietnam and the disbursed to registered capital is very United States small, only about 26%, a n d recently some American firms in Vie tna m have had to The proposed study examines the interactions between Vie tn am ’ FDI regime either withdraw their capital or increase and their capital These p h e n o m e n a indicate investment strategies of American firms It not only a great loss on th e also analyzes weaknesses of there were about 400 American firms in American compared with investors oth er but foreign par t of also a have related government policies and policies the and overseas the strengths and American firms in disadvantage to Vietnam They have had a comparison with other foreign firms in notably negative psychological impact on Vietnam, especially those of Japan other foreign firms and investors who were I V ie tn a m ’s FDI p o lic ie s and o v e r s e a s - b a s e d s tr a t e g ie s o f A m e r ic a n firm s interested in investing in Vietnam The above situation has raised Vietnam's F D Ip o lic ie s impo rtan t questions about th e n a tu re of Viet nam ’s FBI regime an d related policies In line with its bro ader program ol and the evolving strategic responses of economic reform, the National Assembly o] ° D r , Faculty of Economics, Vietnam National University, Hanoi 16 17 F o re ig n d irect in v e s tm e n t in V ietn am the Socialist Republic of Vietnam It has is evident tha t the Foreign Foreign In ve st me nt Law in In v e st m en t Law (1987) is a bre ak through Vietnam (December 29, 1987) The law when compared with the 1977 regulation basically ad dressed the weaknesses of the It reflects the fact t h a t Vietnam has taken 1977 a passed the regulation and provided more more tr a n s p a r e n t, more pragmatic favorable conditions for foreign investors conception about the role of FDI on the in Vietnam At the time of issuance, the development process of national economy law was e val ua ted to be attractive when Nevertheless, compared period, the law has revealed a nu mb er of with similar laws of other after an implementation constraints, causing troubles to foreign regional countries investors For example, the law does not Unlike the 1977 regulation, the 1987 law g u a nte e d not to confiscate and nationalize legally owned a ssets of foreign investors equal It also committed to provide and fair tr e a t m e n t s to foreign investors There are no ma xim um limits on the capital foreign s h ar e investor contributed in the by the form of joint-venture en terprises but the minimum must not be below 30% of the invested capital The law also allowed foreign investors to choose among allow private sector to business cooperation investors Domestic directly enter with foreign investors therefore have to group to become a joint-venture side while foreign investors have to the same thing to become a foreign side The law does not permit to account interests paid on loans as costs Contribution to equity by Vietnamese side is chiefly land use right In addition, other documents supporting the implementation of the law investment forms which are then prevalent regionally and internationally: were not issued adequately in a timely the business cooperation contract (BCC), by the Minister Council which provides joint-venture en terprise (J/V) and 100% detailed instruction on the law was only [foreign capital enterprise Profit tax rates issued 10 months after the other economic are much lower which vary around 15 - laws had been issued, making the foreign 125% invest men t legal framework in Vietnam of the profit Moreover, foreign invested enter pri ses shall be liable to maximum profit tax exemption period of iyears from th a t beginning with profitable ^business, a nd a 50% profit tax reduction during su b se q u e n t years In some cases, profit taxes are even lower (10%) and the periods of profit tax exemption and ma nner For example, the Decree No 139 inconsistent and risky In 1990, the Foreign Inve st me nt Law was revised with im po rt an t changes made Most notable of all are: liabilities limited companies or s re hol de r companies are allowed to cooperate with foreign investors reduction longer (4 years) Furthermore, (excluding some special cases); profit tax the law pe rm its foreign investors to remit privileges accompanies with some specific profit home with the tax rate of to 10% conditions (technology transfer, proportion Tap ( hi Khoa học DHQGHN Kinh t c - Luật, T XX So 2004 P h u n g X u a n N ??o»ds produced for export, volume of V ie tn am adopted the new law on foreign 1;bur etc.); in te re st s inv est me nt are accounted as by basically supplementing tie vised law failed to get rid of such investment 1987 an d its two revisions in lm-titions as: inve st me nt forms not being 1990 a n d 1992 In addition, the National civerified, the absence of the stipulation Assembly s also revised an d adopted tie compensation of the Vietnamese m a n y im p o r ta n t laws such as commercial (0\port processing zones (EPZ) and l'.isn>ss activities in EPZ, the revised law 1^92 s more concrete and focusing in some cfcftuions Particularly, it also provides rgil 'tions on new types of at tra ct in g and C'H rim tin g inv e st m en t capital Since along the course of revising and (>rrpbting laws and oth er documents rgAiling foreign investment in Vietnam, rgilitions on the repatriation of ivfS’m e n t capital or profits tend to be iciei singly strict and complicated As a 1‘Silt worries have been raised among 1viSbrs since 1995-1996, and the number ( )rejects approved went down (»nũ(erably at the end of 1996 law, Key a m e n d m e n t s unsuitable Hence, the National co mpany law on and ijV’.\sment costs Despite these changes, 01 the am en d i n g law foreign oil private made u n d e r this revision include the followings: inve stmen t privileges are orie nt a tio ns linked with developrrrent of the economy, foreign inve stors are allowed to contribute capital in Dong (Vietnamese currency) which has foreign currency origin, Build-OperationT r a n s f e r (ROT) form is diversified with BTC) an d Bui Id- Transfer a u to n o m y given in ve st m en t e n la r g e d (BT); to foreign more enterprises; en co ura ge m e n t areas (hospital, training ); are licensing process is s hort e ne d a n d simplified; state management more on foreign decentralized investment and is concrete regu la tio ns on the a r e a s and fields where foreign inv e st m en t is encouraged; areas and fields w here foreign inve st me nt is restricted; new regulations on the reduction an d exemption of profit tax, for example, profit tax can be exempted for at most 4-8 years; exem ptio n of import duties on m a chi nery and tr a n s p o r t vehicles specified for in v estm en t projects; reduction an d Exemption of re n ts on land, wa ter anc sea ar e a used in inv e st me nt projects undei ỉn o r d e r to solve the above problems the form of BOT, BTO, BT; investmenl the law more attractive, in projects lo^eiiber 1996, the National Assembly of hard-up fie n a k e in mo u nt a in ou s, areas; remote regulations anc or Tap ( hi Khoa hot D HQGHN Kinli rế- Lnậỉ T XX So 200* F o re ig n di reel in vest m e n I in V i e t n a m suitable w ith' legalization of in d u s tr ia l zones; limiting Changes are the use of c on se ns us voting in m a kin g principle, a transform between ime^met decisions diversification of investment forms; international also made prstict on ccnsnss Board of forms, suspending operation and (OSỈÌĨ time for foreign invested enterprises and exp’atM licensing to 60 days of business cooperation contact, allcH’a i o n f Together with these changes, a raft of various funds and reserves, minimisaion f decrees investment procedures Third, the rvisii through Mana ge men t; the re duc in g e valuating a n d and the r e g ula tio n s has been announced to provide specific guidance on also deals with three issues regrdifr the im pl e m e nt a tio n of the law import tax exemption, remittance ofprot abroad and loss transfer However, the> Recently, u n d e r the p re s su re of a s h a r p drop in FDI in Vietnam and of an increasing competition from im p ro ve me n ts of inv e st m en t e n v i r o n m e n t s in regional countries, the foreign investment, law has been revised for the forth time in J u n e , 2000 The l a te s t revision h a s included two have not been any fur ther guiding cii ulas since then Thus, investors are still noimiH interested in investing in Vietnam The traditional worry is t h a t the law is fail’ open and clear, while sub-laws try t< lirr incentives and make it difficult to imp] me the law new articles a n d revised 20 articles in the light of developing and e xp a n d in g In the brief, the legal Í- Vietnan ; stipulation of the prevailing inv e st m en t foreign law The revision mainly deals with thr e e characterized issue distinguishing features: temporary ÍIVOỊ areas regulations Firstly, which it includes help to the minimize investment framework in with inconsistency, fast the variable foIl l , • Việt N a m r ấ t h n chế, chưa xếp vào 10 nước có đầu tư lỏn n h â t (top teì)Ở V ê t nam Thực t r n g đ a n g đ ặ t nhi ều câu hỏi: h n c h ế cản trở từ clính ^ Ị đầu tư Việt N a m h a y b ấ t lợi t h ế cạnh t r a n h công ty Hoa K\ ịOỈC J chiến lược đầu tư họ T r ên sở p h â n tích so sá nh đặc điểm b n clír^ đầu tư nước ngồi Việt N a m với chiến lược đầu tư lợi t h ế cạnh t r a n h cá* lôigi Hoa Ký Việt Nam, viết đưa n hữ ng n h ậ n định quan trọng: sáci nưóc ngồi Việt N a m th ôn g tho án g n h n g ổn định, thiếu minh bạch hiệultc chiến lược đầ u tư cơng ty Hoa Kỳ lại thích hợp với mơi trường clfni ổn định, minh bạch tính hiệu lực cao M ặt khác, công ty Hoa K' thvờx quan t â m đầu tư h ìn h thức 100% vốn đầu tư nước sách đ ầ i tỵ iưngồi Việt N a m lại th iê n k h uy ế n khích hình thức liên doanh, thiờỉgh' dẫn công ty nước C h â u A (đặc biệt N h ậ t Bản) cơng ty cúaH)aK> Thêm vào đó, kh ác biệt lớn văn hoá phương thức q u ả n lý, kinh d(aiha(' công ty Hoa Kỳ đ ã gặp n hiề u rủi ro công ty N h ậ t Bản nướcCiâị t Bài viết đến k ế t luận: sách đ ầ u tư nước Việt N a m ngà}c,nr (/ nhiều Ưu dai thong th oá ng n h n g on định, minh bạch hiẹu lục tiự Ị thấp nên chưa thực h ấ p d ẫ n công ty Hoa Kỳ Ngược lại, so vối nhiều côn ịt' Iư( khác, đặc điểm h oạ t động chiến lược đầu tư công ty Hoa Kỳ (ÌUl )J1_ hợp với mơi trường kinh doanh Việt Nam Tạp ( hí Khoa lụ>( ĐHQGHN, Kinh t ế - Liiật, T.xx, So 2004 ... ta g e s in the high-tech in dustries in Vietnam R EFEREN C ES ^/or /Ae foreign investment in Vietnam , Statistics Publishing House, Hanoi, 2002 ^ e p 1* on the foreign investm ent in Vietnam. .. e r of Iresponded such in Japanese between foreign investors The results of IAmerican investors are trea ted equally, but in term of political the the foreign American Recently, the Vietnam- US... xp a n d in g In the brief, the legal - Vietnan ; stipulation of the prevailing inv e st m en t foreign law The revision mainly deals with thr e e characterized issue distinguishing features: