AmCham Statement regarding Supporting Development for Businesses 2016 – 2020
Especially Reducing Costs for Enterprises, Resolution 35, Chap II, Article 4
Prime Ministerial Conference with Business
May 17, 2017 Hanoi, Vietnam
Your Excellency Prime Minister Nguyen Xuan Phuc, distinguished guests. Good morning and thank you for the opportunity to speak about Resolution 35, Supporting Development for Businesses, 2016-2020.
First, AmCham expresses our appreciation for the intentions and results of the Government’s Resolution No.35/NQ-CP on supporting businesses. This effort, as recently noted by our partners at VCCI, “demonstrates the Government’s commitment to action and integrity in service of business in order to make businesses a real driving force of the economy.”
The American business community is proud of our contributions to the development of Vietnam’s economy. Trade between our two countries passed $52 billion last year, up 16 percent year-over-year. We are confident that the upward growth trend of trade and investment relations between the US and Vietnam will continue, and can strengthen.
A new US President took office recently, and while we regret that the Trans Pacific Partnership Agreement has stalled, AmCham believes there are new paths forward to increase trade and investment between the US and Vietnam.
Among other things, we support a path towards a free trade agreement between our two countries. For an FTA to move forward, it will need to be viewed as fair by all parties. The American business community in Vietnam stands ready to do our part to make this goal a reality. Our first step takes place later this week when AmCham, VCCI and the US Chamber of Commerce will join officials from both governments to emphasize the importance of the US-Vietnam economic relationship and to hold in-depth discussions on ways to further develop trade and investment between our countries.
For Vietnam to maintain competitiveness in the US and other global markets, your Excellency has correctly identified the importance of managing costs of doing business. In order for Vietnam to take full advantage of the markets that are open to it, non-productive red tape must be controlled. Vietnamese and foreign invested businesses alike need a supportive environment to thrive, and as you well know that means their relationship with the administrative agencies should be mutually supportive. You have had great success in the past with Project 30 and other administrative procedure reform initiatives. Our enterprises have appreciated these initiatives and today we would like to urge some specific additional procedural reforms.
AmCham supports the APEC activities in Vietnam this year that also present a great opportunity to highlight Vietnam’s economic progress.
With the few minutes I have this morning, I will point out some key opportunities for improvement which will likely be viewed as positive efforts toward ensuring “fair trade” and will advance US-Vietnam commercial relations.
First, we request the Government to eliminate burdensome and costly technical barriers to trade, which contribute toward the current $32 billion annual trade deficit the US has with Vietnam. A few of the barriers of highest concern include:
• Decree 38 on Food safety – The broad scope and uneven enforcement of Vietnam’s Decree 38 which undermines trade and creates uncertainty for both US exporters and Vietnamese importers.
• “Economic Needs Test” – We request the early elimination of the Economic Needs Test (ENT) which is an opaque and time-consuming procedure that American retailers must pass through before they can sell goods to an end-user in Vietnam. Nearly ten years of experience with the ENT has shown that it serves no other purpose than to slow down the development of US retail enterprises in Vietnam;
• Trading Licenses – The new “Trading License” required by MOIT under Decree 23 restricts the expansion of foreign trade and distribution activities. It is duplicative with the Investment Registration Certificate and Enterprise Registration Certificate; it creates significant delays in the startup process for new businesses; and it imposes costly administrative burdens on companies. These costs filter through to slow down the entire supply chain.
• Circular 19 on ePayments – We remain concerned that requiring all transactions to be routed through NAPAS will significantly impede the security, speed and reliability of the transactions, as well as substantially hinder the competitiveness of foreign payment companies. It is critical that Vietnam maintains a conducive environment that fosters competition among local and foreign players to promote innovation, better cybersecurity and more cost-effective solutions and products.
Second, in the spirit of reducing costs to businesses noted in Article 4 of Resolution 35, we would like to point out a few opportunities for improvement:
• Decree 181/2013/ND-CP guiding the implementation of the Law on Advertisement (Decree 181) requires a Vietnamese entity to only engage a locally licensed advertisement agency, which restricts opportunities for small and medium enterprises (SMEs) from promoting their products and services domestically and internationally when they advertise their products and services on cross border platforms like Google or Facebook. With limited budgets for advertising and marketing, the Vietnamese SMEs find these platforms the easiest and most effective way to promote their products and services. Unlike large enterprises, these SMEs do not need and cannot afford the engagement of advertising agencies for their advertisement and marketing activities.
• Please do not approve the Draft Decree on Automobile Transport Businesses and the Conditions for Automobile Transportation Business in their present forms because, among other things, they require transport business entities to report to the Ministry of Transportation the information of every single trip they make. This onerous reporting requirement will create new and unnecessary administrative burdens that are inconsistent with Resolution 35, Chapter Ii, Section 4, a).
• Maintaining wage competitiveness and improving productivity are crucial for Vietnam’s continued success in international markets. Resolution 35, Chapter II, Section 4 c) directs MOLISA to – To review and adjust the regional wage levels in conformity with the labor productivity, economic growth, competitiveness of enterprises and the labor demand of laborers and to review, propose the social insurance system in a reasonable and harmonious way for the interests of workers, enterprises and society. However, recently the World Bank reported that Vietnam’s minimum wage levels are high, far outstripping productivity growth, which has been practically nil. And MOLISA reported that the 2017 minimum wage adjustment would cause labor-intensive enterprises’ expenditures to increase sharply because it would also push up mandatory contributions to social insurance, health insurance and unemployment insurances, all of which already combine to add a substantial burden to payrolls. The proposal to extend social insurance to foreign personnel working in Vietnam will only exacerbate this situation.
Experts estimate that these social insurance payment increases could result in the loss of 371,000 jobs. These would be mostly workers in foreign invested enterprises, joint ventures, joint stock companies and limited companies. About 110,000 jobs would be cut in textile & garment sector, 105,000 in manufacturing and 59,000 in service sectors. According to Nguyen Viet Cuong, Vice Director of the MDRI (Mekong Development Research Institute), the high required social insurance contribution would lead to employment reduction, product price increase and lower economic growth rate.
° Finally, the WTO Secretariat has estimated that trade costs in Vietnam will be reduced by 20% when the WTO Trade Facilitation Agreement (TFA) commitments are implemented. To reap these benefits, we recommend Vietnam take the following key steps:• Activate the National Committee on Trade Facilitation to assist domestic coordination and implementation of the TFA;
° Conclude a Customs Mutual Assistance Agreement between the General Department of Vietnam Customs (GDVC) and the U.S. Customs and Border Protection (CBP);
° Establish a Vietnam Customs Bond System which will separate the release of goods from final determination of customs duties, taxes, fess, and charges, thereby expediting the movement of goods, and reducing costs.
In conclusion and on a positive note, AmCham fully supports the Government’s commitment to the development of Vietnamese SME’s and their increased participation in global supply chains.
We are dedicated to assisting this effort via our participation – along with VCCI and USAID – in the Vietnam Trade Facilitation Alliance. This Alliance is providing technical assistance related to customs administration, trade facilitation, and food safety. This year, AmCham will also be expanding the very popular Supplier Day program whereby FDI companies meet with Vietnamese enterprises to establish business linkages.
As major investors here, American companies have a sustained interest in Vietnam’s continued success. Our members believe that the business climate can best be helped by actions that increase productivity and reduce the costs and risks of doing business in Vietnam, and smooth the path for the foreign and domestic private sector.
We want Vietnam to succeed and AmCham remains committed to working with our partners in the Government and business to help solve problems and to create a more attractive, transparent, and stable business environment here.
I wish good health, happiness and success to the leaders, distinguished guests, and our members here today, and I thank you for this opportunity to speak this morning.