vietnam – major trade pacts – the tpp, evfta and aec – what is in for you?opportunities and...

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AGENDA:

OUTLOOK ON VIETNAMS POLITICAL SITUATION

OVERVIEW OF THE RECENT TRADE PACTS: ASEAN

ECONOMIC COMMUNITY (AEC), EU- VIETNAM

FREE TRADE AGREEMENT (EVFTA) AND THE

TRANS-PACIFIC PARTNERSHIP (TPP)

MARKET ACCESS COMPARISON OF CERTAIN

COMMERCIAL SECTORS IN THE WTO, AEC, EVFTA

AND TPP

CONCLUSION

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Vietnam to be Asias second fastest growing

country

In 2016, Vietnams GDP is expected to grow at 6.9%, higher than the 6.6% forecast, through better construction activity and manufacturing

strength (Standard Chartered Bank)

The second fastest-growing economy in Asia, second only to India.

Progressing for the third year in a row, Vietnam reached the 56th

position in 2015 on the Global Competitiveness Index (GCI) list, a jump

of 12 positions compared to 2014.

Vietnam tops 6 European Union countries on the GCI list

Consumption is likely to remain the biggest growth driver in 2016,

closely followed by investment.

Chinas economic slowdown and the US Federal Reserve increasing

interest rates were driving investor withdrawals from emerging markets.

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OUTLOOK ON VIETNAMS

POLITICAL SITUATION

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Vietnam Quo Vadis

Central Committee of Communist Party Vietnam:

180 official members; 20 alternate members. 104

members are re-elected.

Average age: 53

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Vietnam Quo Vadis (cont.)

The loss of power of Prime Minister Nguyen Tan Dzung

Secretary General Nguyen Phu Trong continues his next 5-year term

PM Dzung is not allowed to perform another term

The Secretary General is pro-China while PM Dzung is pro-America.

Mr. Trong was hesitant to criticize China when it brought Drill 981 to the Paracels in 2014

Mr. Dzung in his capacity of the PM has supervised the foreign investment inflow and

improved relations with top US leaders. He criticized China more strongly than other

members of the Congress of its defiant acts in the East Sea.

.and the fear of Vietnam could move back:

PM Dzung is considered to be better at dealing with foreign investors and more

willing to remove the cover of Marxism ideology of the Congress than Mr. Trong

However: Vietnam was and always is a consensus driven society

No person cult --- No God like figures as Mao in China

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ASEAN ECONOMIC COMMUNITY

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AEC establishment One of the 3 pillars of ASEAN Community, together

with ASEAN Security Community and ASEAN Socio-

Cultural Community

Originated from ASEAN Vision 2020 adopted in 1997

on the 30th anniversary of the Association of Southeast

Asian Nations

The realization of the end goal of economic integration

as espoused in the Vision 2020, which is based on a

convergence of interests of ASEAN member countries

to deepen and broaden economic integration through

existing and new initiatives with clear timelines.

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AEC Market Snapshot Asias main

investment hub

GDP: US$2311.3 billion (2012)

GDP per capita: US$3748.4 (2012)

Population: 620 million, 60% under the age of 35

AEC % of world GDP: ~3.3%

AEC % of world population: 9%

AECs merchandise exports: US$1.2 trillion - ~54% of total

ASEAN GDP and 7% of global exports

If ASEAN were one economy, it would be the 7th largest in

the world 4th largest by 2050 if growth trends continue

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Key characteristics of AEC

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AEC Compliance deadline

AEC Compliance deadline was set on 31 December 2015

Cambodia, Laos, Myanmar and Vietnam have been given

an extended period of time to come into trade reduction

compliance and be fully integrated with the rest of the

union.

31 December 2015 is a milestone in the long path

towards a single coherent market considering diversified

languages, level of development and culture of the AEC

Members.

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EU Vietnam Free Trade Agreement

(EVFTA)

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EVFTA Bilateral negotiations

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Launch of

negotiations

First

round in

Hanoi

15 rounds

alternately

in Vietnam

and

Brussels

Last

round in

Hanoi

Agreement

in

principle

06/2012 10/

2012

Conclusion

of

negotiation

FTA text

released

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EVFTA Comprehensive agreement

Trade in goods

Market access for goods tariffs

Rules of Origin

Export duties

Technical Barriers to Trade (TBT)

Sanitary and Phytosanitary Measures

Customs and Trade Facilitation

Administrative Cooperation in Customs Matters

Services and investment:

National treatment

Liberalisation commitments / market access

Investment to state dispute settlement

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Cross-cutting issues

Dispute Settlement and Investment

Dispute Settlement

Government Procurement

State Owned Enterprises & Subsidies

Intellectual Property Rights

Geographical Indications

Trade and Sustainable Development

Cooperation and Capacity building

Annexes (car; green tech and pharma)

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EVFTA Main features

Symmetrical elimination of nearly all tariffs (over 99%)

Removal of almost all export duties and cap on remaining

ones

Services commitments going beyond GATS

Negotiations on Investment protection and disputes

settlement on-going

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EVFTA Tariff Liberalization

Tariff liberlization:

99% of tariffs both value and number of tariff lines

After 7 years for EU

Vietnam 10 years

Coverage at entry into force:

71% of value of Vietnamese exports / 84% tariff lines

65% value of EU exports / 49% tariff lines

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EVFTA Benefits for Vietnam

Vietnams annual economic expansions rate may grow an additional 15%

every year (said Tomaso Andreatta, representative of the European Business

Association in Vietnam (EuroCham), at the Vietnam Business Forum 2014)

Tariffs for most of Vietnamese export product to the EU will gradually

reduce to 0% and Vietnams export to EU is expected to grow about 35%

for next few years

The real wages of skilled laborers may increase by up to 12% while real

salary of common workers may rise by 13%

The EVFTA is the legal framework for a more stable relationship in bilateral

trade for Vietnam when competing in the international market

The EVFTA will generate greater effects, e.g. increased quality of

investment flows from EU, acceleration of the process of sharing expertise

and transfer of green technology and the creation of more employment

activities

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TRANS-PACIFIC PARTNERSHIP

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History of the TPP

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Trans-pacific Strategic

Economic Partnership

(P4) signed

Scope of negotiation

extended with

participation of other

countries, including the

US Negotiation of the

TPP officially launched First negotiation round in

Melbourne- Australia

with 7 members Other countries such

as Malaysia, Japan,

Canada and Mexico

participated in the

negotiation

Finally agreement reached

in Atlanta negotiation

round

05 Oct. 2015

03 June 2005

Dec 2009

Oct 2010

July 2013

2007

March 2010

Text released on 05 Nov.

2015 and the agreement

was signed on 4 Feb 2016

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How is the TPP Different?

GDP of 12 TPP Members is nearly $28 trillion, 40% of global GDP and

one-third of world trade

The TPP is being touted as a high-standard agreement meaning a

landmark, 21st-century trade agreement, setting a new standard for

global trade and incorporating next-generation issues

So-called "key elements" including the notion of comprehensive

market access, a fully regional agreement, cross-cutting issues

(regulatory coherence, competiveness and business facilitation, small and

medium sized enterprises, and development), new trade challenges

(particularly rules on state owned enterprises); as well as, finally, the

notion of a living agreement.

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TPP Trade in Goods

Tariff and non-tariff barriers on most industrial goods are

eliminated immediately, with tariffs on some sensitive products will

be phased out as agreed by the TPP Parties.

Each TPP Parties provide a tariff schedule covering all goods.

Parties agree not to use performance requirements, such as local

production requirements.

Parties agree not to impose WTO-inconsistent import-export

restrictions and duties. If any, they are required to notify the others

about the procedures to ensure transparency and promote trade

flows.

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Trade in Services

Negative approach, meaning that their markets are fully

opened to service suppliers from other TPP Parties, except

otherwise indicated in their commitments (non-conforming

measures)

In order to make such reservations, the member state must

prove the necessity of such preservation and negotiate with

other member states. If approved, the non-conforming

measures are only limited to such list, except for measures in

certain sensitive sectors which are included in a separate list

Ratchet approach: Member states are only allowed to adopt

policies that are better than what they commit

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Rules of Origin

Originating goods:

Wholly obtained or produced goods;

Produced in and from materials originating from TPP countries; or

Produced in and using material not originating from TPP countries nut

satisfying TPP rules of origin.

Separate rules of origin for each specific type of goods

Separate chapter on rules of origin for textile products

Rules of origin in TPP are predominantly based on a specified shift

in tariff classification, regional value content and production stages

No requirement for certificates of origin under TPP, or third-party

certification of origin but self-certification is sufficient

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Textiles and Apparel

Most tariffs on textiles and apparel will be eliminated

immediately, although tariffs on some sensitive products will

be phased out as agreed by the TPP Parties.

Yarn-forward rule of origin: requires use of yarns and fabrics

from TPP countries in end products qualifying for

preferential treatment under TPP.

Exceptions:

a carefully tailored short supply list (when certain yarns and fabrics

not widely available in the region).

de minimis

1 for 1 rule applied for womens and mens cotton trousers exported

to the US

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Yarn-forward rule: Impact on Vietnams textile industry

Current status and Issues:

Around 6,000 textile companies in Vietnam - ~600,000 machines have to be replaced

60% of imported materials sourced from other non-TPP countries (mainly China)

Domestic production of materials has not met the demand

Yarn production must go together with weaving and dying but environment protection

is currently an issue.

Impacts and what to do next:

More foreign investment in textile industry with investment value of up to USD1

billion.

Sourcing managers are looking for alternatives due to rising costs, labor shortages, strict

compliance and environmental regulations and a move to production of high value

products in China

Establish domestic supply chain

Bring into operation domestic yarn production factories

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Investor-state dispute settlement (ISDS)

Through binding arbitration, including for violations of the investment

and financial services chapters.

ISDS provisions are expected to include protections commonly found in

investment agreements such as non-discrimination; fair and equitable

treatment; full protection and security; the prohibition of expropriation

that is not for public purpose, without due process, or without

compensation; the free transfer of funds related to investments; and the

freedom to appoint senior management positions regardless of

nationality.

Expected new protections in the TPP:

Transparency in arbitral proceedings, disclosure of filings and arbitral awards, and

participation of interested non-disputing parties to make amicus curiae submissions

to a tribunal

Safeguards to ensure governments ability to regulate in the public interest (public

health, safety and the environment)

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WHAT ARE THE LOCAL AND REGIONAL

IMPACTS OF THE TPP?

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How will TPP impact Vietnam?

Vietnam will enjoy strong economic and trade expansion. Vietnams

GDP would add an additional increase of 13.6% to the baseline

scenario.

Vietnam is expected to gain significantly from the TPPs considerable

plans for tariff and duty reduction

Vietnams export will enjoy the agreements great benefits when the

US and Japan are one of the biggest partners of Vietnam, especially

the garment and textiles sector

Export to the US would increase by 13-20% a year until 2017,

fetching total export of US$25-30 billions

The foreign businesses are planning to enter Vietnam in preparation

for a post-TPP business climate.

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How will TPP impact Vietnam?

FDI inflows grow

Improving agricultural yield: maximising yields on

existing lands and utilizing unusable / idle land by

new deployed technology

Reducing power and waters needs that are retarding

growth and GDP plans

More sophisticated joining of separate business

sections to integrate into new profit streams

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TPP and AEC intersection

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Thailand

Malaysia

Brunei

Canada Australia

Cambodia

Indonesia Myanmar

Peru

Philippines

Japan

Laos

Mexico New Zealand

Singapore

The United States

Vietnam

Chile

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ASEAN TPP: Market Access Liberalization as

Consequence of TPP

Indonesia plans to loose restrictions on foreign investment in

nearly 50 sectors, including e-commerce, retail, healthcare,

movie and several other industries

Indonesia prepares for the so-called 'Negative Investment

List, which provides a greater openness to foreign

investment and gets itself ready for the TPP

China, Korea, the Philippines, Indonesia and Thailand are

also keen to join the TPP to overcome the disadvantages

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MARKET ACCESS COMPARISON OF

CERTAIN COMMERCIAL SECTORS IN

THE WTO, AEC, EVFTA AND TPP

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Notes regarding the market access

commitments

The WTO, AEC and EVFTA take a positive approach,

meaning what is open to foreign investment is listed.

The TPP only lists the restrictions, meaning what is not

written therein is fully open (negative approach).

In WTO Market Access Service Sector the principle applies:

Who does not ask and demand might not get the market

access for investment. There is NO Automatic Right for

Market Access for the WTO members in the WTO Services

Sectors in principle.

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Distribution sector

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Distribution of cigarettes and cigars,

publications, precious metals and stones,

pharmaceutical products and drugs, explosives,

processed oil and crude oil by foreign

investors are still prohibited

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Distribution sector WTO / AFAS EVFTA TPP

The establishment of outlets

for retail services (beyond the

first one) shall be allowed on

the basis of an Economic

Needs Test (ENT)

Same as in the WTO / AFAS

but added the following:

In case of establishing an

outlet less than 500m2 within

the area planned for trading

activities and already

completed construction of

infrastructure, ENT is not

required.

5 years from the date of entry

into force of the Agreement,

the requirement of the ENT

will be abolished.

Same as in the EVFTA but

added the following:

The main criteria of the ENT

include the number of existing

service suppliers in a particular

geographic area, the stability

of market and geographic

scale.

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Power/ Energy Sector

Level of commitment in Power / Energy sector

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WTO / AFAS

EVFTA

TPP

N/A Low High

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Power/ Energy Sector WTO /

AFAS

EVFTA TPP

N/A Unbound (meaning no commitment)

regarding:

- Production of electricity; transmission

and distribution of electricity on own

account

- Manufacture of gas; distribution of

gaseous fuels through mains on own

account

- Production of steam and hot water;

distribution of steam and hot water on

own account

Other sub-sectors: not included

(meaning no commitment) in the service

schedule.

Only the following restrictions:

- Foreign investment to own or operate

power transmission facilities in Viet Nam

may not be permitted. EVN (Viet Nam

Electricity Corporation) is currently the

sole authorised owner and operator of

power transmission facilities in Viet Nam.

- Viet Nam reserves the right to adopt or

maintain any measure with respect to

hydroelectricity and nuclear power.

- Services incidental to energy distribution:

Foreign services suppliers are not allowed

to supply the services incidental to energy

distribution. Foreign investment in these

services is not permitted.

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Transport Services

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Maritime Transport

WTO =

AFAS =

TPP

EVFTA

Internal Waterways Transport

WTO =

TPP

AFAS =

EVFTA

Rail Transport

WTO =

EVFTA TPP AFAS TPP

WTO =

EVFTA AFAS

Air Transport

Low High Low High

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Transport

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Insurance Services

Level of commitment in Insurance sector

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EVFTA

WTO / AFAS

TPP

Low Med High

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Insurance Services EVFTA WTO / AFAS TPP

No commitment

regarding cross-border

supply of health

insurance services

Non-life branches of

foreign insurance

enterprises shall be

permitted subject to

prudential regulations. No

specific conditions are

specified, meaning the

Government can adopt

conditions as it wishes to.

No restriction regarding

cross-border supply of

health insurance service

Same as EVFTA

Supply of Cross-border services by foreign insurance company

must be conducted via an insurance broker which has the

license to establish and operate in Vietnam.

Non-life branches of foreign insurance enterprises shall be

permitted.

In order to be granted the license for establishment of non-life

insurance branch in Viet Nam, a foreign non-life insurance

company must satisfy the conditions under Vietnamese law,

including: (a) Operational and financial capacity and branch

management and supervisory capacity in Viet Nam of foreign

non-life insurance company. (b) The cooperation between the

foreign insurance administrative body of the country where the

company head office is located and the Vietnamese insurance

administrative body in managing and supervising the branch of

foreign non-life insurance company in Viet Nam.

The above list of conditions are closed. The Government can

adopt different conditions than what mentioned but must not

be more restricted.

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Banking Services

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WTO = AFAS =

EVFTA TPP

Low High

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Banking services WTO/ AFAS / EVFTA TPP

Mode 1: No commitment, except:

Provision and transfer of financial information, and financial

data processing and related software by suppliers of other

financial services; and

Advisory, intermediation and other auxiliary financial services on

all activities listed in subparagraphs from (a) to (k), including

credit reference and analysis, investment and portfolio research

and advice, advice on acquisitions and on corporate

restructuring and strategy.

Mode 3: Foreign purchase of shares in each Viet Nam's joint-

stock commercial bank may not exceed 30% of the bank's

chartered capital.

A branch of foreign commercial bank is not allowed to open

other transaction points outside its branch office, excluding

ATMs.

Mode 1: No restriction

Mode 3: No other restrictions other than:

A foreign credit institution or a foreign institution engaged in a

banking operation shall only be permitted to establish one

representative office in each province or city under central

authority.

General directors (directors), deputy general directors (deputy

directors), chief accountants, directors of branches and directors

of subsidiary companies and people assuming equivalent

positions must reside in Viet Nam during their term of office

whenever they assume the positions in the Board of Directors of

a credit institution.

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Securities services

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WTO =

AFAS EVFTA TPP

Low High

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Securities services WTO/ AFAS EVFTA TPP

Commitments on 6 sub-sectors

Mode 3:

foreign securities service suppliers

are permitted to establish

representative offices and joint

ventures with maximum foreign

ownership of 49%.

After 5 years from the date of

accession, securities service

suppliers with 100% foreign-

invested capital shall be permitted.

Same commitments in 6 sub-sectors

Commitments on 2 additional

services: Provision and transfer of

financial data processing; and credit

reference and analysis.

Mode 3: Same as the WTO/ AFAS

No restrictions except the following:

The operation and services provided

by branches of foreign securities

company and fund management

company in Viet Nam are subject to

approval of the Government of

Viet Nam, including the imposition

of conditions for the approval.

Foreign participation from above

49% to less than 100% of charter

capital of a securities company, fund

management company in Viet Nam

is subject to approval of the

Government of Viet Nam, including

the imposition of conditions for the

approval.

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Telecommunication Services

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WTO =

AFAS EVFTA TPP

Low High

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Telecommunication Services

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Sub-sectors WTO/ AFAS EVFTA TPP

Non facilities-based services

Other services - Virtual

Private Network (VPN)

Mode 3: Joint venture with

maximum 65% foreign

ownership

Mode 3: Joint venture with

maximum 70% foreign

ownership

Mode 3: Upon entry into force,

Joint venture with maximum

65% foreign ownership



this capital limitation will be

75%.

Mode 3: Upon entry into force,

Joint venture with maximum

70% foreign ownership



this capital limitation will be

75%.

joint venture or purchase of

shares in a Vietnamese

enterprise, with maximum 65%

foreign ownership.

No later than 5 years from the

date of entry into force of the

Agreement, this capital

limitation will be 100%.

joint venture or purchase of

shares in a Vietnamese

enterprise, with maximum 70 %

foreign ownership.

No later than 5 years from the

date of entry into force of the

Agreement, this capital

limitation will be 100%.

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Government Procurement

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Low High

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Government Procurement Criteria EVFTA TPP

Monetary values that determine whether

procurement by central government is

covered under an agreement

130,000 Special Drawing Rights (SDRs) (US$191,000) from 15 years

since the entry into force of the agreement

Initial transitional threshold: 1.5 million SDRs

130,000 Special Drawing Rights (SDRs) (US$191,000)

from 25 years since the entry into force of the agreement

Initial transitional threshold: 2 million SDRs

Procurement of construction services by

central government entities

Initial threshold: 65.2 million SDRs

After 15 years, 8.5 million SDRs

Initial threshold: 40 million SDRs

After 15 years, 5 million SDRs

Entities covered 22 central government bodies (added the Ministry of Public Security)

42 other entities: added two state-owned enterprises (Vietnam

Electricity and Vietnam Railways) and two universities (Vietnam

National University Hanoi and Vietnam National University Ho Chi

Minh City)

Sub-central government coverage: Adds 2 cities: Hanoi and Ho Chi

Minh expansion of the list within 15 years since the entry into force of

the agreement

21 central government bodies

38 other entities

No sub-central government coverage - expansion of the

list within 3 years since the entry into force of the

agreement

Exclusion of preferences for SMEs Broad exclusion applies only to procurement of goods and services whose

value is estimated at 260,000 SDRs or less and may not be

applied to SMEs with more than 500 permanent full-time

employees.

Application of offsets Based on value of a contract Based on the total value of covered procurement 53

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Questions & Answers

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DUANE MORRIS VIETNAM LLC

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HANOI OFFICE HO CHI MINH CITY OFFICE

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Fax: +84 4 3946 1311 Fax: +84 8 3824 0241

Contact email:

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References (1)

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References (2)

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References (3)

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References (4)

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vietnam – major trade pacts – the tpp, evfta and aec – what is in for you?opportunities and...

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