Herb Cochran, Executive Director

MOLISA/VCCI Dialogue with Employers: Revised Labour Law, Industrial Relations, and FDI Trends in Vietnam

I would like to thank MOLISA, together with the DOLISAs and FDI promotion authorities for joining us, and especially thank VCCI for its active fulfilment of its role of coordinating between businesses and government, as explained by the representative of Vietnam in the Report of the Working Party on Vietnam’s Accession to the WTO, and ratified by the National Assembly in Resolution 71, Nov 29, 2006.

It is always a pleasure to participate in dialogue meetings organized by VCCI with MOLISA officials, so I am glad to be here at this morning’s session, with the topic “Dialogue with employers on the Revised Labor Law and Industrial Relations in Vietnam.

Remarks by Herb Cochran
Executive Director, AmCham Vietnam (HCM City)
Sheraton Saigon Hotel, Ho Chi Minh City, Mar 26, 2013

Mr. Vice Minister Huan

I would like to thank MOLISA, together with the DOLISAs and FDI promotion authorities for joining us, and especially thank VCCI for its active fulfilment of its role of coordinating between businesses and government, as explained by the representative of Vietnam in the Report of the Working Party on Vietnam’s Accession to the WTO, and ratified by the National Assembly in Resolution 71, Nov 29, 2006.

It is always a pleasure to participate in dialogue meetings organized by VCCI with MOLISA officials, so I am glad to be here at this morning’s session, with the topic “Dialogue with employers on the Revised Labor Law and Industrial Relations in Vietnam.”

I would like to expand on the topic title a bit and add two additional points: “Work Force Development, and How to Attract More and Higher-Value Added FDI to Vietnam.”

Starting with the FDI situation: Vietnam has seen total FDI drop from over $20 billion in 2009 to $13 billion in 2012. New FDI dropped more than 50% over the period, from $16.34 billion in 2009 to $7.85 billion in 2012. Expansion of existing FDI has varied.

In the meantime, FDI in Indonesia increased from about $10 billion in 2010 to about $20 billion in 2011, to $32 billion in 2012.

Although FDI to Vietnam has steadily declined, FDI accounts for 64% of Vietnam’s total exports in 2012 and 52.8% of Vietnam’s imports.

 

2009

2010

2011

2012

New

16.34

17.23

11.559

7.85

Expansion

5.13

1.37

3.137

5.15

Total

21.47

18.60

14.70

13.00

Implemented

10.00

11.00

11.00

10.46

Vietnam has become less attractive compared with its neighbours, as the Foreign Investment Agency numbers above clearly show. In addition, the “2012 FDI Confidence Index” showed that Vietnam dropped from #12 in 2010 to #14 in 2012, while Indonesia jumped from #19 to #9 in the same period, and Malaysia jumped from #20 to #10.

Why? It is caused by a number of factors. Some of them are macroeconomic and structural factors. Vietnam’s low-ranking on “ease of doing business” and failure to implement WTO commitments robustly is another important factor.

Here I would focus only on the “doing business” considerations. Government agencies that interact with FDI, such as MOLISA, Customs, Tax, etc. need to focus on providing better services, and holding meaningful consultations with FDI companies and associations regarding laws and regulations that affect them.

For example, AmCham and all business associations, both Vietnamese and foreign, unanimously proposed to MOLISA at the National Employers’ Conference and the Vietnam Business Forum that provisions in the revised Labour Code for overtime and maternity leave be revised to meet international guidelines, as recommended by the International Labour Organization (ILO), in order to be competitive with neighboring countries that are competing with Vietnam for FDI.  However, the recommendations were not accepted. Instead, overtime would remain generally limited to 200 hours per per year, and maternity leave benefits were increased to six months in the new law from four months in the old law, already the most generous in Asia.

So that the Government is a development partner with businesses, or whether it will continue to be a non-market economy. Vietnam needs to review its commitments agreed to in its WTO Accession, as ratified by the National Assembly, and implement them completely. Just to give one example: Vietnam committed to transparency in developing laws and regulations, to consultations with parties affected, and to provide “no less than 60 days” for consultation on proposed laws and regulations affecting business. This commitment is routinely ignored and agencies often issue regulations without meaningful consultation with businesses.

To attract and retain both FDI and domestic Vietnamese investment, Vietnam needs favorable Industrial Relations, Work Force Development, and good government-business-labour communications and cooperation.

All agencies need to implement robustly Vietnam’s WTO commitments, so that Vietnam will attract FDI in higher value-added “modern manufacturing for export to global markets,” and FDI in services. As a start, implement Vietnam’s WTO commitments for meaningful consultations with businesses on laws and regulations that affect them. To date, the consultations have been mostly “pro forma,” and recommendations have been generally ignored. For example,

Draft Decree on Foreign Employees and work permits – goes against the spirit and the letter of the Bilateral Trade Agreement, Vietnam’s WTO Accession Agreement, the ASEAN Economic Community 2015, which provides for “Free Flow of Skilled Labour,” and the prospective Trans-Pacific Partnership. We in AmCham, not to mention EuroCham and nearly every other Foreign Business Association, have written a number of letters to MOLISA, the Prime Minister about this, but they have all been essentially ignored. AmCham has expressed its views on this issue since about 2003 (Decree 105 Position Paper), 2011 (Decree 46 Letter to the PM), and now in 2012 and 2013 (Decree 46 Comments to MOLISA, supported by EuroCham, AusCham, etc.)

Revised Labour Code. Over four years from 2008 – 2012, we participated in about 40 meetings on this issue, only to see almost all of our recommendations essentially ignored.

Overtime All employers’ representatives recommended an increase in overtime to increase flexibility and manage “hot seasons.” AmCham suggested the ILO Recommendation which is “a normal workweek not exceed 48 hours, one day off after six days, voluntary overtime of not more than 12 hours per week, and not on a regular basis.” However, the Revised Labour Code maintained the limit of not more than 200 hours a year, except in some special cases stipulated by the Government it would be not more than 300 hours per year.

Maternity Benefits Employers’ representatives proposed that maternity benefits be maintained at four months a year, already the most generous in Asia, which ranged from eight weeks in Singapore and Taiwan to 90 days, or 3 months in China, Cambodia, Thailand, Indonesia. Reasons were that an extension to six months would “(1) create labour shortages and (2) place expensive, unbearable burdens on Vietnam’s social insurance system.” However, the revised Labour Code provided for six months maternity benefits. Just a few months later, in August 2012, the ILO forecast Vietnam’s Social Insurance Fund would start incurring deficits from 2020 and be running out by 2029. These figures came on the back of ILO’s sweeping study about Vietnam’s Vietnam’s Social Insurance Fund.” “The scheme will start running deficits from 2020 and the reserves of the fund could be totally depleted by 2029, causing big problems for Viet Nam’s economy,” said ILO Viet Nam Associate Expert Carlos Galian.

Minimum Wage and “Basic Needs Wage” harmonization by 2015 and “Road Map” to 2015

I have not seen the draft decree on wages, but at the Aug 23, 2012 Dialogue Meeting on the Minimum Wage adjustment for 2013, the Vice Minister informed us that there were a number of guidelines for the wages to 2015 and “vision” to 2020.

(1)  Article 56 of the previous Labour Code provides that “when the CPI increases so that the real wages of workers are reduced, then the Government will adjust the MW in order to preserve the real wages;”

(2)  Article 57 provides that MOLISA will set the Minimum Wage, … etc., after consulting with VGCL, the “Workers’ Representative,” and VCCI, the “Employers’ Representative;”

(3)  Party Central Committee Decision 23-KL/TW, May 29, 2012 concerning “Problems regarding salaries, social insurance, … etc.” provides that “Adjust the minimum wage more rapidly in the private sector so that by 2015 the minimum will reach the level of the ‘Basic Needs Wage.’ ”

(4)  Art 92 of the revised Labour Code provides for an advisory National Wages Council , which, like the “Tripartite Council,” will consist of MOLISA, the VGCL, and VCCI, the national level employers’ representatives, and will have its responsibilities, procedures, organization, methods, etc. designated by the Government .

According to my “guesstimate,” the 2013 Region 1 Minimum Wage of 2.35 million vnd/month will reach 4.0 million vnd/month in 2015 and 5.65 million vnd/month in 2017. However, VCCI and leading export industry sector associations proposed on a letter to the Government in Oct 2012 that the Minimum Wage increase be not more than 15% per year in 2013, 2014, 2015. We would appreciate hearing your thoughts about this point and about how the National Wages Council will work.

By the way, economists’ studies of the results of Minimum Wage laws conclude that minimum wage laws reduce employment, especially for low-skilled workers. In the United States, the U.S. Congressional Minimum Wage Study Commission found that a 10 percent increase in the minimum wage reduces low-skilled employment by one to three percent. More than 100 minimum wage studies since the 1990s confirmed this conclusion. In Indonesia, a 2010 World Bank study showed that a 10% increase in the minimum wage reduces formal employment by 1%. Since formal employment is around 44 million workers, a 30% average rise in the minimum wage could reduce formal employment by more than 1.3 million workers.

The costs and competitiveness of many “partner factories” of AmCham members may be very negatively affected by these provisions, leading to a reduction of existing FDI in the lower-technology, lower value added, lower wage industry sectors. These sectors account for about two-thirds of Vietnam’s exports to the U.S., (41% is accounted for by apparel), not to mention millions of workers. AmCham companies that have a substantial amount of their global production in Vietnam, together with their “partner factories” need to be consulted in a meaningful way about these important issues. To date, they have not enjoyed such consultations.

Just a few more points …

I have not seen a draft decree on dispute resolution on the VCCI web site, and the one on the  MOLISA web site can’t be downloaded.

Why does the government subsidize SOEs with a Minimum Wage (1,150,000 vnd/month in 2013) that is less than one-half that of the Private Sector (2.35 million vnd/month in Region 1)?

As the Ministry of Industry and Trade seeks to obtain “Market Economy” status, we should keep in mind that one of the decision factors to consider in an NME decision by the U.S. Department of Commerce is “The extent to which wage rates in the foreign country are determined by free bargaining between labor and management.”

Trade Union Fee.

Once again, I would like to thank the organizers, participants, and wish you all health, happiness and success.


AmCham Statement at National Employers’ Conference re revised Labour Code, Oct 24, 2011 https://www.amchamvietnam.com/5063

https://www.amchamvietnam.com/wp-content/uploads/2013/02/061129-71-2006-QH11-NGÀY-29-THÁNG-11-NĂM-2006-PHÊ-CHUẨN-NGHỊ-ĐỊNH-THƯ-GIA-NHẬP-HIỆP-ĐỊNH-THÀNH-LẬP-TỔ-CHỨC-THƯƠNG-MẠI-THẾ-GIỚI-WTO-VNM.pdf  and attachment

https://www.amchamvietnam.com/wp-content/uploads/2013/02/061129-71-2006-QH11-NGÀY-29-THÁNG-11-NĂM-2006-PHÊ-CHUẨN-NGHỊ-ĐỊNH-THƯ-GIA-NHẬP-HIỆP-ĐỊNH-THÀNH-LẬP-TỔ-CHỨC-THƯƠNG-MẠI-THẾ-GIỚI-WTO-VNM21.pdf

Article 106. Overtime working (Revised Labour Code)

1. Overtime working is the working period besides the normal working hours specified in the law, the collective labor agreement or the labor rule.

2. The employer is entitle to employ the employee to work overtime upon satisfying the following conditions:

a) With the consent of the employee;

b) To ensure that the overtime hours of the employee shall not exceed 50% of the normal working hours in 01 days, in case of application of working regulation on weekly basis, , the total normal working hours and the overtime hours shall not exceed 12 hours in a day, and less than 30 hours in 01 months and the total of not more than 200 hours in 01 year, except for some special cases stipulated by the Government for the overtime working but shall not be more than 300 hours in 01 years;

c) After each time of overtime working with consecutive days in month, the employer must arrange for the employee to take compensatory leave for the time without days-off.

And in similar workshops in 2011, culminating in a National Employers’ Conference on the Revised Labour Code, held in Hanoi on October 24, 2011 and including representatives from the National Assembly and MOLISA, the Employers’ Representative, VCCI, and all the Vietnamese and Foreign Business Associations unanimously agreed that the revised Labour Code should maintain the provisions for Maternity Leave that are in the current Labour Code, which are already more generous than the ILO recommendation of not less than 14 weeks, and also more generous than any other maternity leave benefits in any country in South or Southeast Asia. The reasons cited were extension of maternity leave benefits to 6 months would (1) contribute to labour shortages and (2) place expensive, unbearable burdens on Vietnam’s social insurance system. See pp 31-32 in https://www.amchamvietnam.com/wp-content/uploads/2013/03/1-111024-Employers-Position-Paper-re-revised-Labour-Code-VCCI-Bao-cao-VCCI-ENG.pdf

https://www.amchamvietnam.com/national-employers-conference-2011-labour-code-revision-amcham-statement/

http://www.ilo.org/hanoi/Informationresources/Publicinformation/Pressreleases/WCMS_186259/lang–en/index.htm

Party Central Committee Decision Kết luận số 23-KL/TW, 29-5-2012 (Kết luận Hội nghị lần thứ 5 Ban Chấp hành Trung ương Đảng khoá XI) về “Một số vấn đề về tiền lương, bảo hiểm xã hội, trợ cấp ưu đãi người có cong và định hướng cải cách đến năm 2020”. Sau đây là toàn văn của Kết luận: 2- Định hướng cải cách 2.1- Điều chỉnh mức lương tối thiểu khu vực hưởng lương từ ngân sách nhà nước theo lộ trình tiến tới bảo đảm nhu cầu tối thiểu của người hưởng lương gắn với đổi mới hoạt động sự nghiệp công và phù hợp với khả năng nền kinh tế. Điều chỉnh mức lương tối thiểu khu vực doanh nghiệp nhanh hơn để đến năm 2015 đạt mức nhu cầu tối thiểu. http://thuvienphapluat.vn/archive/Ket-luan-23-KL-TW-van-de-tien-luong-bao-hiem-xa-hoi-tro-cap-uu-dai-nguoi-co-cong-vb150988.aspx