To settle FDI consequences, Vietnam needs to amend laws

VietNamNet Bridge – Vietnam now takes the consequence of the period of trying to attract foreign direct investment (FDI) at any cost. However, the legal framework is not clear enough to do this.

Legal loopholes bring bad consequences

Legal loopholes bring bad consequences

The Ministry of Planning and Investment (MPI) has reported that the number of escaped foreign invested enterprises (FIEs) has been increasing sharply in recent years, but the state management agencies don’t know how to deal with the problem.

In principle, state agencies will revoke the investment licenses from the FIEs which no longer operate in Vietnam. However, the current legal framework on foreign investment still does not have the regulations on the issue.

Local authorities cannot come forward and liquidate or dissolve businesses, because under the current regulations, this is the enterprises’ responsibility, while enterprises will get dissolved only if they pay off debts and other duties.

When taking back the land allocated before to enterprises, local authorities may face high risks once enterprises’ owners may accuse them of selling the assets at the prices lower than the market prices.

Meanwhile, it’s impossible to handle with the enterprises’ assets and debts through arbitrators bring the cases to the court, because the investors have run away and the investors’ addresses cannot be found.

A lot of FIEs’ owners have run away when they did not pay off salaries to workers and pay to the social insurance agencies. Workers have got lost jobs and have not received salaries, but they don’t receive any support from the state management agencies because the legal documents don’t show what to do in this case.

Phan Huu Thang, former Director of the Foreign Investment Agency, noted that the figure of 500 business owners running away is really alarming, which shows the FDI mismanagement.

Vietnam believed that it set up a management mechanism tight enough to control FIEs with the decentralization. Local taxation authorities took the responsibility of managing the tax payment, while customs agencies take control over the import and export activities. The Ministry of Industry and Trade keeps an eye on FIEs’ trade activities, while the Ministry of Planning and Investment supervise the investment project licensing, and the Ministry of Labor, War Invalids and Social Affairs takes care about the wage policies.

However, since the ministries did not cooperate in managing FIEs, they lacked information about the FIEs’ operation seriously. Only when businesses “died,” were the agencies informed about that. In most of cases, they could not do anything with the businesses, because the enterprises’ owners have run away.

An expert, who once worked for the Legal Department under MPI, noted that post licensing management has been very problematic. State agencies don’t have updated information about the operation of FIEs after they granted them licenses. They even did not know the enterprises’ addresses, because FIEs did not inform if they moved to other locations.

Vietnam vows to amend laws, tighten supervision

The 1987 Foreign Investment Law stipulated that foreign investors must develop projects in Vietnam with the capital they bring from overseas. The investors could only set up limited companies, while the foreign capital contribution in joint venture must not be higher than 30 percent of the total registered capital.

However, the 2005 Investment Law stipulates that foreign investors are equal with domestic ones in borrowing capital from domestic banks. As a result, a lot of real estate investors came to Vietnam empty handed, planning to seek capital in Vietnam.

Vu Dinh Anh, a well-known economist, believes that there should be a regulation allowing to supervise the capital transmission to Vietnam to implement the registered projects.