AmCham Statement at Vietnam Business Forum, Dec 2, 2011 – Key Points

Full Statement(E) Full Statement (V)

Introduction • VBF Objective

The VBF objective is to improve the business environment, so as to attract new FDI, trade, and jobs to Vietnam.

Trade and its related foreign investment brings jobs and income, tax revenues, exports and foreign exchange, and technology transfer, and contributes to Vietnam’s economic and social development (“industrialize, modernize and globalize.”)

FDI representatives are important to the VBF dialogue, since FDI factories represent 42% of Vietnam’s gross industrial production, and 57% of Vietnam’s exports in 2010.

AmCham companies are responsible for more than $ 21 billion in Vietnam-U.S. bilateral trade this year.

Satisfied FDI investors are the best promoters of additional FDI.

Macroeconomic Stability and Trade – Investment Frameworks

In February, the Prime Minister announced that the Government would focus on stability rather than growth (“Resolution 11”).

In October, the Party Secretary said, “We must restructure the economy along with renovating the growth model,” and he laid out three priorities: public investment, finance and state-owned enterprises.

We hope that this is a clear indication that the party, the government and the people have reached a consensus on the needed actions.

Over the past few weeks, Vietnam and U.S. leaders have participated in the APEC and ASEAN/East Asia Summits.

At APEC, the Trans-Pacific Partnership (TPP) countries established the broad outlines of a trade and investment agreement that will create the foundation of a Free Trade Area of the Asia Pacific;

At the ASEAN/East Asia Summit, Leaders adopted the Five-year ASEAN-United States Plan of Action that will build on existing trade facilitation.

Physical Infrastructure • Some Improvements

Infrastructure bottlenecks remain a problem.

However, we would like to recognize improvements, such as the November opening of the Thu Thiem Tunnel. It now takes only 27 minutes from Ben Thanh market to Saigon Hi-Tech Park. It used to take over an hour via the old route.

Administrative Procedures • Some improvement

Administrative procedures are an expensive cost to Vietnam’s economy.

However, one recent “success story.” The Government with AmCham and VCCI recently made a practical solution to business disruptions caused by changes in regulations under the Food Safety Law. (Continued using the old system where MOH approved all products).

The Government should implement commitments made in the BTA and WTO agreements for meaningful consultations with businesses before implementing new laws or regulations.

Industrial Relations (Labour Code)

We have been involved for more than three years with other domestic and foreign business associations, under the leadership of VCCI as the “Employers’ Representative,” in consultations on a revised Labour Code.

We have had more than 30 meetings to discuss details.

The new Labour Code was discussed in the National Assembly last week.

It will have a significant impact on FDI manufacturing investment in Vietnam, and on Vietnam’s participation in the TPP and eligibility for bilateral trade benefits with the United States, such as the Generalized System of Preferences (GSP).

We hope that the Government will continue to consult with and seriously consider the recommendations from business associations and other stakeholders as the Labour Code is finalized.

Example 1 – OVERTIME: 100% of the businesses believe that workers should be offered increased overtime, which fits the current business operation practice in many enterprises, and allows more dynamics in workforce and production management to meet urgent orders.

Most workers also want more overtime than than the current 200 hours/year.

The ILO Standard is summarized by Social Accountability as follows “Working Hours: … normal workweek, not including overtime, shall not exceed 48 hours; 1 day off following every 6 days, with some exceptions; overtime is voluntary, not regular, not more than 12 hours per week; required overtime only if negotiated in a collective bargaining agreement.

Moreover, overtime paid according to the draft revised Labour Code is 200% to 300% of the regular hourly wage. The manufacturing cost of a product is based on a basic wage hourly cost of a worker. If a product needs 30 minutes to finish, then the cost of 30 minutes is based on the average wage plus profit, and that is the selling price to the buyer. For a manufacturer to have to use overtime to finish production in time for delivery increases the labor cost, which means a loss of profit. Therefore, contrary to media or popular belief, employers prefer not to use overtime. However, the influx of unskilled workers into the workforce as all industry sectors were expanding rapidly created a zero increase in productivity for the last few years and an acute labor shortage in high-density industrial provinces. This required employers to relook at the low overtime limits in VN.

In addition, overtime is VOLUNTARY, not mandatory, and an individual worker has the right to accept or not.

Wages depend on productivity to be sustainable and competitive in a global economy.

Although wages in Vietnam have increased dramatically in recent years, industry sectors which generated the highest sectoral share in gross domestic product in 2009 experienced ZERO average annual increase in labor productivity between 2007 and 2009.

Example 2 – MATERNITY LEAVE: currently 4 months, or about 16 weeks, already higher than any of Vietnam’s competitors.

The ILO Standard is “… 14 weeks of maternity benefit … .“

One option in the draft revised Labour Code is for 6 months maternity leave, about 26 weeks.

Can Vietnam be competitive at this rate?

Conclusion

As a World Bank study confirmed in 1998, development assistance by itself does not promote economic growth.

It is FDI and trade that promotes growth:

• FDI factories represent 42% of Vietnam’s gross industrial production,14 and 57% of Vietnam’s exports in 2010.

• AmCham companies are responsible for more than $ 21 billion in Vietnam-U.S. bilateral trade this year.

Vietnam needs good economic policies, a good legal and regulatory system, transparent and efficient government agencies, and good public infrastructure, including transport, electric power, telecommunications, education and healthcare systems, etc., to attract investment and trade, and promotr economic and social development.

Download and view the Full Statement(E) Full Statement (V)

Download a .zip file with VBF Statements of all Chambers and Working Groups (E)

Read more about National Employers’ Conference 2011 • Labour Code Revision, Oct 24, 2011; Báo cáo nghiên cứu VCCI: Đánh gía dự thảo Bộ Luật Lao Động và Đề Xuất Sửa Đổi, Bổ Sung Một Số Điều trong Dự Thảo Bộ Luật Lao Động