Why Is It Best To Start Preparing For Transactions Now In Vietnam? Oliver Massmann

Vietnam is currently at the final stage of negotiating the Trans-Pacific Partnership (“TPP”) and the EU-

Vietnam Free Trade Agreement (“EVFTA”). Meanwhile, the ASEAN Economic Community, which

Vietnam became a full member in 1995, is to be established by the end of 2015. With such deep

integration into the multilateral and regional economy, Vietnam is expected to be an attractive investment

environment for investors and witness a significant growth in the upcoming years. Samsung Electronics

Company has decided to choose Vietnam as the Number 1 country to put their world largest mobile and

tablet production and invested more than 6 Billion USD after a researching worldwide. Also major

Japanese companies are convinced Vietnam is a top investment destination and become the largest

investors in Vietnam. However, whether foreign investors should wait until the TPP and the EVFTA are

concluded and the AEC has been established to enjoy their benefits then is a big question. The following

section provides an overview of these free trade agreements and the AEC to help investors understand

what is awaiting them ahead and choose the right time for their investment.

TPP

The TPP is one of the largest trade and investment agreements ever to be negotiated, involving some of

the largest nations in the world. Countries participating in the negotiations include those throughout the

Asia- Pacific region, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand,

Peru, Singapore, the United States and Vietnam. The TPP is touted to be the 21st century trade agreement,

set a template for regional and global trade and investment and incorporate next-generation issues.

TPP Market Snapshot

GDP: US$28,136.0 billion (2012)

GDP per capita: US$35,488 (2012)

Population: 792.8 million (2012)

TPP % of world GDP: 39.0% (2012)

TPP % of world population: 11.3% (2012)

TPP % of world trade: 25.8% (2012)

The TPP is being negotiated across thirty chapters with deep focus on 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 and government procurement); as well as, finally, the notion of a living

agreement.

The TPP would expand market access in goods and services among its signatories. The market access

issues include liberalization of trade barriers protecting dairy, sugar, and rice; tariffs and origin rules

affecting textiles, clothing, and footwear; and services trade reforms, especially financial services,

insurance, and labor services. Vietnam would be the largest beneficiary of this trade pact, resulting from

its strong trade ties with the United States, high level of protection against its main exports (i.e., apparel

and footwear), and its highly competitive positions in industries such as manufacturing where China is

gradually losing its competitive advantage. Statistics shows that by participating in the TPP, Vietnam’s

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

Higher income will help Vietnam to invest more and grow more

Vietnam is among the largest income gains in TPP

Recently, President Barack Obama has been grated fast-track authority to negotiate the TPP with other 11

nations. This shows a step closer to its conclusion, hopefully by the end of 2015.

AEC

The AEC originates from the ASEAN Vision 2020, which was adopted in 1997 on the 30th anniversary

of the Association of Southeast Asian Nations, made up of Brunei Darussalam, Myanmar, Cambodia,

Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam (ASEAN). With a population

of more than 600 million and a nominal GDP of about $2.31 trillion, ASEAN is a strong economic

community in Asia and also a driver of global growth.

The AEC encompass the following characteristics: (i) a single market and production base, (ii) a highly

competitive economic region, (iii) a region of equitable economic development, and (iv) a region fully

integrated into the global economy.

The AEC is expected to be an area where goods can circulate freely and in which custom duties on goods

will be gradually reduced to 0%. It will establish ASEAN as a single market and production base, making

ASEAN more dynamic and competitive with new mechanisms and measures to strengthen the

implementation of its existing economic initiatives; accelerating regional integration in the prioritized

sectors; facilitating movement of business persons, skilled labor and talents; and strengthening the

institutional mechanisms of ASEAN.

The free flow of investment will also offer enhanced investment protection to all ASEAN investors and

their investments in other ASEAN member countries, including the settlement mechanism of an investor

state dispute based on a non-discrimination principle when investing in other ASEAN countries. Those

principles play a very important role in providing investor confidence when making cross-border

investment.

Once the AEC is completed, it will be a unified market, a common manufacturing area seeking for more

dynamic and competitive development and to create new opportunities for tariff reductions as well as

other trade incentives.

AEC Market Snapshot

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%

AEC’s 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 – 4

th largest by 2050 if

growth trends continue

EVFTA

It is estimated that Vietnam’s Gross Domestic Products (GDP) could rise by over 15% and that the value

of its exports to the European Union could increase by almost 35% as a result of its entry into force.

In 2013, the EU was Vietnam’s second biggest trade partner with a total value of trade in goods of EUR

24.2 billion. In the same the EU was also Vietnam’s biggest export market with EUR 21 billion,

representing 19% of Vietnam’s total export. Vietnam’s export to EU increased by 28% from 2012 to

2013. In addition, the EU is among the biggest investors in Vietnam, with 1,810 FDI projects in 2013.

The EU committed to continuing to support with the foreseen assistance amount of EUR 400 million in

the coming six years. EU exports to Vietnam are dominated by high-tech products including electrical

machinery and equipment, aircraft, vehicles, and pharmaceutical products. Vietnam’s key export items to

the EU include telephone sets, electronic products, footwear, textiles and clothing, coffee, rice, aqua

products, and furniture.

The two parties have already been cooperating on various subject matters since the conclusion of the EU-

Vietnam Partnership and Cooperation Agreement in June 2012. This cooperation will be brought to the

next level by the conclusion of the FTA, which will tackle issues such as tariff and non-tariff barriers,

regulatory issues, services, public procurement, Intellectual Property Rights, sustainable development,

etc. 2015 will mark the 25th anniversary of EU-Vietnam cooperation, and it is expected to be the year the

EU-VN FTA is concluded.

Conclusion: Why investment in Vietnam now – not after the trade pacts are signed and sealed?

Vietnam ties in first place with Singapore, thus it provides highest possible protection for

investment

Country Limitation of

market access*

Country Limitation of

market access*

Malaysia medium Myanmar high

Indonesia medium Cambodia medium

Philippines medium Laos medium

Singapore low India high

Thailand medium China medium

Brunei high Vietnam low

*Typical restrictions: number of opened sectors, JV requirement, limits on foreign-owned shares,

permission requirement

Vietnam has the fastest growing middle class with a very good demographic situation: about 90

Million people of which about 50 percent are under 30 years old.

Expectations of Vietnam parties might get unreasonable, the same as after Vietnam acceded to

the WTO in 2007 and no projects could be done.

Market opening in certain sectors, for example, media, and there could be more competing

companies from the AEC with better market access to Vietnam. Thus, it is vital that investors

start working on their projects now to position themselves as early as possible before the coming

into effect of the trade pacts and the AEC.

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any

questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: www.vietnamlaws.xyz

THANK YOU VERY MUCH!