With the "opt-out" mechanism officially applied to the Investment Law 2020, foreign investors can have more favorable access to the Vietnamese market.
The Law on Investment 2020, effective from January 1, 2021, provides many new regulations related to business investment activities in general, and business investment activities of foreign investors in particular. One of the most prominent new features which is highly appreciated by the business community is that lawmakers have changed the market access conditions applicable to foreign investors.
From “opt-in” to “opt-out”
According to the Law on Investment 2014 and Decree No. 118/2015 / ND-CP dated November 12, 2015 of the Vietnamese Government (Decree 118), foreign investors must satisfy investment conditions when carrying out their investment activities in sectors and trades subject to conditional investment for foreign investors in accordance with the provisions of laws, ordinances, decrees and international treaties on investment.
Under this “opt-in” approach, foreign investors must satisfy the investment conditions specified in many different documents, including laws, ordinances, decrees and treaties on investment, while the International treaties on investment may regulate differently.
However, in reality, for sectors and sub-sectors that have not yet been committed or are not specified in Vietnam's WTO Schedule of Commitments and other international treaties on investment that are not yet regulated by Vietnamese law on investment conditions for foreign investors, including a bilateral agreement that does not contain a restriction on investment, the investment registration authority must consult the Ministry of Planning and Investment and the Line ministries to consider and decide according to Point dd, Clause 2, Article 10 of Decree No. 118.
To solve this problem, the Law on Investment 2020 adds a provision on the list of industries and trades with conditional market access for foreign investors that is made on an opt-out basis.
This list will be announced by the Government including (i) Business lines that foreign investors are not allowed to access the market; and (ii) Business lines that foreign investors have access to the market under certain conditions. In addition to this list, foreign investors are entitled to the same market access conditions as applicable to domestic investors.
Advantages of the "opt-out" approach
It can be seen that the listing of industries and market access conditions specified in the Schedule of Commitments and the Law on Investment 2014 designed on the opt-in basis has actually somewhat limited foreign investors’ access the market compared to domestic firms.
From management perspective, this mechanism aims to ensure a certain level of protection for the development of many industries, as well as partly to ensure competitive opportunities of Vietnamese enterprises in their home country. However, that the investment registration agency has to consult the Ministry of Planning and Investment and the line ministries in fact prolongs the time and increases the cost of implementing investment procedures for foreign investors.
In some cases, the investment registration authority may refuse the foreign investor's access to the market based on the opinion of the Ministry of Planning and Investment, which is sometimes not quite convincing, affecting foreign investment activities in Vietnam.
New approach that creates momentum for sustainable development and is consistent with the general policy of the Government requires appropriate changes in policies for foreign investment. Accordingly, the foreign-invested economic sector should be encouraged and facilitated for healthy development and competition with other economic sectors.
In order to implement the Politburo's Resolution No. 50-NQ / TW to perfect institutions and policies, and improve the efficiency of foreign investment cooperation, the Investment Law 2020 has been designed on opt-out basis regarding market access conditions for foreign investors.
The effectiveness of this approach will be promoted when the Conditional Market Access Category for foreign investors is specified and clearly defined by the guiding documents.
Source: Vietnam’s law library
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