Vietnam Legal Update November 2003

Transcription

1 Vietnam Legal Update November 2003 Hanoi Branch Office Suite 401, Hanoi Tower 49 Hai Ba Trung Hanoi Vietnam Tel Fax bill.magennis@phillipsfox.com Ho Chi Minh City Branch Office Suite 605, Saigon Tower 29 Le Duan Boulevard District 1, Ho Chi Minh City Vietnam Tel Fax nigel.russell@phillipsfox.com Melbourne Office Level 44, 120 Collins Street Melbourne Australia Tel Fax maureen.mclaughlin@phillipsfox.com Part 1 Selected New Legal Instruments 1.1 Fuel Trading Industrial Property Rights Foreign Lawyers Copyright Insurance Customs Inspection Other 7 Part 2 Features 2.1 Security Transactions Telecoms: US-Vietnam BTA 15 Part 3 Did You Know? 3.1 National Assembly Update Cap on Foreign Employees Commercial Law - Foreign Trading Rights Severance Allowance - Exceptions Competition Update 19 Part 4 Phillips Fox Publications 20 Adelaide Brisbane Canberra Melbourne Perth Sydney Auckland Wellington Hanoi Ho Chi Minh City This publication is copyright. Except as permitted under relevant laws, no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner. Phillips Fox The material contained in Vietnam Legal Update is intended to inform you of recent legal developments in Vietnam. It is not intended, and should not be relied upon, as legal advice. Should you wish further information in relation to any legal instrument or matter mentioned in this issue, please do not hesitate to contact one of our offices. For the most recent issues of Vietnam Legal Update, go to For all past issues of Vietnam Legal Update (since September 1997), go to (a search function will assist you in looking for articles on particular subjects) or

2 2 Part 1 Selected New Legal Instruments 1.1 Petrol and Oil Trading Decision QD-BTM of the Ministry of Trade dated 17 November 2003 issuing Regulations on Petrol and Oil Trading Agents Following Decision QD-TTg of the Prime Minister dated 15 September 2003 issuing Regulations on Management of Trading of Petrol and Oil (summarized in the September 2003 Issue of Vietnam Legal Update), Decision 1505 now introduces detailed regulations governing the activities of petrol and oil trading agents and companies, both wholesale and retail. The term "petrol and oil" as used in Decision 1505 includes petrol for engines (xang dong co), diesel materials (nguyen lieu diesel), petroleum (dau hoa), and mazut (including petroleum produced and processed from imported or local materials). For convenience, we will use the term "fuel" in this summary. The term "petrol and oil supplying company" (cong ty xang dau dau moi) is defined in Decision 1505 as a company which is engaged in petrol and oil import trading and satisfies the following licensing conditions prescribed in article 5 of Decision 187: - Having a specialized quay/wharf for receipt of fuel, which is owned/co-owned or leased by the company for at least 5 years; - Having a warehouse to store/receive the imported fuel directly from the ship; - Owning the capital (not including the value of assets) in order to ensure the business of importing fuel; such capital must be equal to the value of the amount of fuel stored or circulated. (It is not clear whether foreign invested enterprises could satisfy such conditions). For convenience, we will use the term "fuel supplier" in this summary. Decision 1505 requires fuel suppliers to establish a network of fuel agents by (i) establishing a network of "retail agents" and directly signing fuel supply contracts with those retail agents or (ii) signing fuel supply contracts with "general agents" which then contract with retail agents. Fuel suppliers will be jointly responsible for the price, quantity and quality of their fuel. Any petroleum station or retail outlet that does not belong to the network of a fuel supplier (or the general agent of a fuel supplier) is not allowed to sell fuel. A general agent may enter into contracts with more than one fuel supplier, but must organize separate networks for each fuel supplier. A fuel supplier is entitled to prohibit a general agent from entering into contracts with other fuel suppliers and may refuse to sign contracts with a general agent which has already signed with another fuel supplier. At each petroleum station or retail outlet, the general agent or retail agent may only sell fuel supplied by one fuel supplier, and the symbol/logo of that fuel supplier must be indicated at the fuel station or retail outlet and stated in the fuel supply contract. A retail agent may only act for one fuel supplier/general agent and may only sell fuel supplied by one fuel supplier. At its station, the retail agent must display clearly the words "Retail Fuel Agent" and state the name and logo of the fuel supplier for which it acts. A retail agent must not sell fuel from "floating sources" or fuel which does not belong to its network. Decision 1505 also stipulates the reporting regime, regulations on price, remuneration of agents, etc. Decision 1505 will become effective as of 1 January 2004.

3 3 1.2 Industrial Property Circular TT-BKHCN of the Ministry of Science and Technology ("MoST") dated 5 November 2003 Providing Guidelines for Implementation of Procedures for Protection of Industrial Property Rights With Respect to Industrial Designs Circular 29 provides detailed guidelines on: - the contents of an application for a certificate of protection of industrial property ("IP") rights with respect to industrial designs, as well as the procedures for submission of applications; - the procedures for issuance and amendment of certificates of protection; - the suspension and revocation of certificates of protection; - the fees payable for certificates of protection. Procedures for application for a certificate of protection are carried out at the National Office of Industrial Property ("NOIP") under the MoST. The owner of IP rights may either carry out the procedures directly at the NOIP or may authorize another organization or individual to do so. The time-limit for issuance of certificates of protection in regular cases has been reduced from 12 months to 7 months under Circular 29. Circular 29 will become effective 15 days after the date of its publication in the Official Gazette of Vietnam, so is expected to become effective as of mid-december 2003, at which time it will repeal the corresponding provisions of Circular 3055-TT-SHCN of the former Ministry of Science, Technology and Environment dated 31 December Circular TT-BKHCN of the MoST dated 5 November 2003 Providing Guidelines for Implementation of Procedures for Protection of IP Rights With Respect to Inventions and Utility Solutions Circular 30 provides detailed guidelines on: - the contents of an application for a certificate of protection of an exclusive patent for an invention or utility solution, as well as the procedures for submission and verification of applications; - the procedures for issuance, amendment and re-issuance of certificates of protection; - the suspension and revocation of certificates of protection; - the fees payable for certificates of protection. Procedures for application for a certificate of protection are carried out at the NOIP. Circular 30 also clarifies the definitions of inventions and technical solutions, as well as the methods of evaluation of applicable capacity and creativity of technical solutions and the method of evaluation of new application of technical solutions. The time-limit for issuance of certificates of protection in regular cases has been reduced from 18 months to 13 months under Circular 30. Circular 30 will become effective 15 days after the date of its publication in the Official Gazette of Vietnam, so is expected to become effective as of mid-december 2003, at which time it will repeal the corresponding provisions of Circular 3055-TT-SHCN of the former Ministry of Science, Technology and Environment dated 31 December 1996.

4 4 1.3 Foreign Lawyers Circular TT-BTP of the Ministry of Justice ("MoJ") dated 29 October 2003 Providing Guidelines on a Number of Provisions of Decree ND-CP of the Government dated 22 July 2003 on Practice of Foreign Lawyer Organizations and Foreign Lawyers in Vietnam Decree 87 substantially reformed the regulatory framework for the operations of foreign law practices and foreign lawyers in Vietnam, effective as of 1 September In particular, the conditions for offshore foreign law firms to be licensed to operate in Vietnam have been relaxed and the forms of operation have been expanded. Offshore foreign law firms have the option to establish branch offices (as before) and now also the options to establish an onshore foreign law firm or a foreign-vietnamese law partnership. All types of foreign law practices in Vietnam may now employ Vietnamese lawyers. Significantly, foreign law practices in Vietnam are no longer restricted to advising on foreign and international law but may now also advise on Vietnamese law where the foreign law practice employs a Vietnamese lawyer or employs a foreign lawyer with a Vietnamese law degree and satisfying all requirements applicable to a Vietnamese lawyer. Foreign law practices remain prohibited from representing clients in court proceedings in Vietnam. (For a detailed summary of Decree 87, see the July 2003 Issue of Vietnam Legal Update.) Circular 06 includes implementing guidelines with respect to: - Documentation to be submitted as part of an application to establish a foreign law practice in Vietnam, and authorization to sign such documentation; - Mandatory elements of the name of any foreign law practice in Vietnam; - Procedures for issuance and amendment of licences for foreign law practices in Vietnam; - Establishment and registration of branches of onshore foreign law firms and foreign-vietnamese law partnerships; - Consolidation and merger of onshore foreign law firms; - Temporary suspension of foreign law practices in Vietnam (the maximum duration of any one period of voluntary temporary suspension is 1 year, with the possibility of discretionary extension for 1 extra year); - Vietnamese trainee lawyers; - Foreign lawyers advising on Vietnamese law; - Inspection of and reporting by foreign law practices in Vietnam. Standard form applications, licences and certificates have also been issued with Circular 06. Aspects of Circular 06 which are of particular interest include: Circular 06 clarifies that an offshore foreign law firm may establish any number of branch offices subject to the following provisos: - approval application procedures must be carried out separately for each branch office; - only one branch office may be opened in each province or city under central authority. (The previous regime limited the number of branches to 2.) Circular 06 gives Vietnamese citizens who permanently reside in Vietnam and have a foreign legal practising certificate the option to practise as a foreign lawyer in Vietnam provided that they comply with Decree 87's requirements. In order to be permitted to advise on Vietnamese law, Circular 06 requires a foreign lawyer (i) to have been issued with a certificate to practise in Vietnam, (ii) to have a Vietnamese university law degree and also (iii) to be issued with a "certificate of satisfaction of conditions for providing consultancy on Vietnamese laws". Circular 06 prescribes the contents of the application file and the procedures for issuance of (iii). Circular 06 fails to clarify how Vietnamese law advice is actually issued by a foreign law practice in Vietnam which employs a foreign lawyer certified as permitted to advise on Vietnamese law (as discussed immediately above) or a Vietnamese lawyer. Decree 87 is unclear on this issue but implies that only the individual foreign or Vietnamese lawyer may sign a letter of advice on Vietnamese law (and an official from the Ministry of Justice has informally confirmed that this is the intended

5 interpretation). This is contrary to standard international practice - law firms (not individual lawyers) advise their clients, hence all advice emanating from a law firm is issued in the name of the law firm (although the advice is commonly signed by the individual lawyer preparing it, but for reference only) - and it is the law firm that is liable for its advice (not the individual lawyer preparing the advice). Circular 06's failure to clarify this issue is regrettable, in particular because it means the scope of permitted activities of foreign law practices in Vietnam remains unclear - this is significant because a foreign law practice in Vietnam operating beyond the scope of its permitted activities may be subject to a fine from VND10-20 million (and also, where aggravating circumstances, revocation of its license). Circular 06 confirms that branches of offshore foreign law firms currently operating in Vietnam may continue to operate as such until expiry of their licenses, after which they must apply for licensing under Decree 87. Alternatively, existing branches may apply prior to expiry of their licences for conversion into an onshore foreign law firm. Circular 06 prescribes the contents of the application file for conversion and the procedures for approval and registration thereof. Circular 06 is silent as to issuance of new practising certificates to foreign lawyers currently practising in Vietnam (required under Decree 87 to be done by 1 November 2003). Circular 06 will become effective 15 days after the date of its publication in the Official Gazette of Vietnam, so is expected to become effective by early December 2003, at which time it will repeal Circular TT-BTP of the MoJ dated 13 February 1999 providing guidelines for implementation of a number of provisions of Decree ND-CP of the Government dated 10 November 1998 on legal consultancy practices of offshore foreign law firms in Vietnam and Circular TT-BTP of the MoJ dated 23 March 2000 providing guidelines for procedures for termination of operations of branches of offshore foreign law firms in Vietnam. 5

6 6 1.4 Copyright Joint Circular TTLT-BVHTT-BTC of the Ministry of Culture and Information and the Ministry of Finance dated 17 October 2003 Providing Guidelines on Protection of Copyright at Customs Offices with Respect to Imports and Exports Circular 58 provides for registration for protection of any goods subject to copyright, except humanitarian aid goods, temporary imports for re-export, goods in transit and goods being gifts which are duty free according to customs law. Any organizations or individuals with registered goods are entitled to request customs offices to seize any imported or exported goods which are suspected of copyright violation. Circular 58 prescribes in detail the procedures for registration for protection and for requests for seizure and other enforcement measures. Circular 58 will become effective 15 days after the date of its publication in the Official Gazette of Vietnam, so is expected to be effective by early December Insurance Decree ND-CP of the Government dated 13 October 2003 on Dealing with Administrative Offences in Insurance Business Under Decree 118, administrative offences in the insurance sector include breaches of licensing provisions, unauthorized assignment of insurance contracts, unlawful competitive acts (such as providing false information about insurance conditions; obstructing, enticing, bribing, or threatening staff or clients of other insurers, insurance agents or insurance brokers; unlawful promotions; agreements in restraint of competition causing loss to insurance purchasers), forcing persons to buy insurance or to use insurance or reinsurance broking services, breaches of mandatory capital, security deposit and reserve requirements, and breaches of capital investment restrictions and solvency requirements. Insurance businesses may be fined up to VND20 million for unlawful competitive acts, up to VND5 million for forcing persons to buy insurance, and up to VND30 million for breaches of capital investment restrictions and solvency requirements. A fine of up to VND70 million may be imposed on any insurer which fails to maintain solvency at any time during its operation. Decree 118 became effective as of 2 November Post-Customs Clearance Inspection Circular TT-BTC of the Ministry of Finance dated 10 October 2003 Providing Guidelines on Implementation of Decree ND-CP of the Government dated 31 December 2001 Making Detailed Provisions on Inspection of Imports and Exports After Customs Clearance Circular 96 entitles customs offices to inspect documentation relating to imports and exports for up to 5 years (60 months) after customs clearance in cases where there is evidence of a breach of customs laws, tax laws or import-export management policy. Circular 96 lists the types of documentation which may be subject to post-customs clearance inspection. Such documentation may be in the possession of the actual customs declarants, their customs agents, agents trading the imported and exported goods, or entities holding or using the imported and exported goods. Circular 96 became effective as of 2 November 2003 and repealed Decision QD-TCHQ of the General Department of Customs dated 28 December 2001.

7 7 1.7 Other selected legislation issued or effective in November 2003 Effective as of Decree ND-CP of the Government ("GVT") dated 14 November 2003 making detailed provisions for implementation of a number of articles of the Ordinance on Dealing with Administrative Offences Decision QD-NHNN of the State Bank of Vietnam ("SBV") dated 14 November 2003 issuing Regulations on Lending by the SBV to State Commercial Banks with Collateral of Pledged Special Bonds (Replaces Decision QD- NHNN of the SBV dated 4 September 2003) Circular TT-BLDTB&XH of the Ministry of Labour, War Invalids and Social Affairs ("MOLISA") dated 10 November 2003 Providing Guidelines on Method for Calculating the Number of Permanent Employees and Formulating Plan for Use of Employees Upon Re-Organization in Accordance with Decree ND-CP of the GVT dated 19 March 2003 on Amendment of Decree ND-CP of the GVT dated 31 July 2000 Making Detailed Provisions for the Implementation of the Law on Foreign Investment Decision QD-TTg of the GVT dated 7 November 2003 on Establishment of the GVT's Website Decree ND-CP of the GVT dated 6 November 2003 on Adjustment of Administrative Boundaries to Establish Long Bien, Hoang Mai Districts; Establish Wards under Long Bien and Hoang Mai Districts of Hanoi Decision QD-NHNN of the SBV dated 29 October 2003 issuing Tariff for Credit Information Services Decision QD-BBCVT of the Ministry of Posts and Telecommunications ("MOPT") dated 29 October 2003 Approving the Departments Appointed by the Participating Parties to the Agreement on Mutual Acceptance with Vietnam in Terms of Evaluation of Conformity with Standards of Telecommunications Equipment Decision QD-BBCVT of the MOPT dated 29 October 2003 Providing for Appointment of Departments for Measurement and Inspection of Telecommunications Equipment Circular TT-BTP of the Ministry of Justice dated 28 October 2003 Providing Guidelines on a Number of Provisions of Decree ND-CP of the GVT dated 11 June 2003 on Organization and Operation of Domestic Legal Consultancy Services Decision QD-TTg of the GVT dated 28 October 2003 on Approval of the Master Plan for Re-arrangement and Reform of State Owned Enterprises under EVN (Electricity Vietnam) up to 2005 Decision QD-TTg of the Prime Minister dated 28 October 2003 on Responsibilities, Duties, Powers and Organizational Structure of the General Department of Taxation under the Ministry of Finance ("MOF") Decision QD-TTg of the GVT dated 27 October 2003 on Management of Charges for Posts and Telecommunications Services Circular TT-BTC of the MOF dated 24 October 2003 Providing Guidelines on Management, Allocation, Payment and Finalization of Investment Capital Sourced from Government Bonds (Not yet published in Official Gazette) (Not yet published in Official Gazette) (Not yet published in Official Gazette) (Not yet published in Official Gazette) (Not yet published in Official Gazette) 1 January November November November November November November November 2003

8 8 Decision QD-BTM of the Ministry of Trade dated 22 October 2003 issuing List of Focal Goods and Markets for National Trade Promotion in 2004 Decision QD-TTg of the GVT dated 21 October 2003 on List of State Top Secrets in the Field of Natural Resources and Environment Directive CT-NHNN of the SBV dated 21 October 2003 on Strengthening Supervision of Liquidation of People's Credit Funds Decision QD-NHNN of the SBV dated 20 October 2003 issuing Regulations on Banking Code System Used in Payment Transactions Via SBV Decision QD-BGTVT of the Ministry of Transport dated 15 October 2003 Promulgating Regulations on Issuance of Permits for Operation of Airports Circular TT-BTC of the MOF dated 14 October 2003 Providing Guidelines on Management and Use of Budget for Management of Investment Projects Funded by State Budget Circular TT-BLDTBXH of the MOLISA dated 13 October 2003 Providing Guidelines on Implementation of a Number of Articles of Decree ND-CP of the GVT dated 17 July 2003 Providing Detailed Guidelines on Implementation of the Labour Code on Sending Vietnamese Abroad for Working Decision QD-BXD of the Ministry of Construction ("MOC") dated 11 September 2003 Promulgating Regulations on Management of Collection, Payment and Use of Fees for Investment Evaluation Conducted by the MOC 10 November November November January November November November November 2003

9 9 Part 2 Features 2.1 Security Transactions - Use by Foreign Invested Enterprises of Assets to Secure Loan Repayment Obligations A network of laws in Vietnam permit joint venture enterprises and 100% foreign owned enterprises, together referred to as foreign invested enterprises ("FIEs"), to put up their assets as security for the performance of civil obligations, including the repayment of loans. With the commencement of operation of the National Office for Registration of Security Transactions ("NORST") in Hanoi in March 2002, Vietnam now has a system whereby securities can be registered and the interest and priority of secured parties protected. Whilst the laws permit securities to be given in a variety of situations by different types of organizations for the benefit of a range of beneficiaries, this report focuses on securities given to fulfill obligations to repay loans. It also concentrates on FIEs as the providers of the securities, although the law also permits other types of enterprises, both within and outside Vietnam, to use their property as security for obligations and this report touches briefly on some of those. Who can receive securities from FIEs in Vietnam? Under the laws relating to loans and credit institutions, a FIE may seek financing from either Vietnamese ("domestic") credit institutions (which includes foreign banks licensed to do business in Vietnam) or non- Vietnamese ("offshore") lenders. Common to financing arrangements throughout the world, lenders will often ask a borrower to provide some form of security for a loan, to secure the borrower's obligation to repay it. The law in Vietnam enables a FIE to provide security to either domestic or offshore lenders to secure repayment obligations of its own, or to secure the repayment obligations of another party. However, not all types of security structures are available in each type of arrangement. The availability of each type of security is discussed below. Types of securities available in Vietnam for securing a FIE's own obligations A FIE can provide security in the form of a pledge or a mortgage to secure its own obligations. Pledges and mortgages are undertakings by one party to give property to another party in lieu of the first party fulfilling an obligation it owes to the second party. A pledge is given over moveable assets (generally, anything other than land use rights ("LURs") and assets fixed to land). A FIE may pledge its moveable assets in favour of domestic or offshore lenders. A mortgage is given over immoveable assets (being LURs and assets attached to the land). Due to land law restrictions aimed at preserving Vietnamese national interests, offshore lenders are not allowed to be the recipient of mortgages of LURs from FIEs. They are also probably not allowed to take mortgages of immoveable assets attached to land when they are mortgaged separately from the LURs. This restriction does not apply to domestic lenders, which are allowed to take mortgages of both LURs and immoveable assets whether they are mortgaged together or separately. For this reason, the practice has been that mortgages of LURs and other immoveable assets to offshore lenders are usually structured through a domestic bank. However, this arrangement may carry legal uncertainties if not done carefully.

10 The table below sets out the types of assets that may be used as security for project financing of FIEs to secure their own obligations, including any possible restriction or limitation. 10 Type of asset Land use rights Immoveable assets Appropriate type of security Mortgage Mortgage Are offshore lenders permitted to receive this security from FIEs? NOT PERMITTED The ability for FIEs to mortgage property is limited by the Land Law of Vietnam and the Law on Foreign Investment to credit institutions permitted to operate in Vietnam, the definition of which fails to include offshore lenders. NOTES: A proposal to allow FIEs to mortgage LURs to offshore lenders was submitted by the State Bank of Vietnam and approved by the Government in November It was widely anticipated that this reform would be introduced during the scheduled revision of the Land Law at the October- November 2003 Session of the National Assembly. The Ministry of Planning & Investment had also planned to provide for this reform by amendment of the foreign investment laws. However, the revised Land Law as passed at the October-November 2003 Session of the National Assembly does not provide for the use of LURs as security for offshore loans. Reportedly, the Government is now considering allowing a trial of use of LURs as security for offshore loans by selected FIEs. PROBABLY NOT PERMITTED NOTES: Legislation that suggests that it is possible to separate immoveable assets from the land on which they are located seems to be outweighed by legislation suggesting to the contrary. Are domestic lenders permitted to receive this security from FIEs? PERMITTED - under Article 3.1(a) of Decree ND-CP of the Government dated 29 December 1999 on Security for Loans obtained from Credit Institutions ("Decree 178"); - under Article 92 of Decree ND- CP providing detailed regulations on the implementation of the Law on Offshore Investment in Vietnam of the Government dated 31 July 2000 ("Decree 24") NOTES: Article 92 of Decree 24 only permits mortgages for the purpose of "borrowing capital for business". PERMITTED WHERE MORTGAGED IN CONJUNCTION WITH LURS - under Article 3.1(a) and Article 6.5 of Decree 178, as amended by Article 1.7 of Decree ND-CP of the Government dated 25 October 2002 amending Decree 178 ("Decree 85"); PROBABLY PERMITTED WHERE MORTGAGED SEPARATELY FROM LURS - under Article 6.5 of Decree 178, as amended by Article 1.7 of Decree 85. NOTES: Registration of mortgages of immoveable assets is conducted at the Department of Land Administration pursuant to Articles 2 and 8.1(d) and 8.2(d) of Decree ND-CP of the Government dated 10 March 2000 on Registration of Security Transactions ("Decree 08").

11 11 Type of asset Moveable assets Appropriate type of security Pledge Are offshore lenders permitted to receive this security from FIEs? PERMITTED - under Article 4.1 of Decree ND-CP of the Government dated 19 November 1999 on Security Transactions ("Decree 165") NOTES: Registration is conducted at NORST pursuant to Article 2 of Decree 08. Are domestic lenders permitted to receive this security from FIEs? PERMITTED - under Article 3.1(a) of Decree 178 NOTES: Registration is conducted at NORST pursuant to Article 2 of Decree 08. Decree 165 definitions: Immoveable property: Residential houses, construction works attached to land, including property attached to such residential houses or construction works and other property attached to the land; benefits, income, insurance proceeds, and all rights arising from mortgaged immoveable property shall form part of the mortgaged property, if so agreed by the parties or stipulated by law; where an entire immoveable property which has auxiliary objects is mortgaged, such auxiliary objects shall also form part of the mortgaged property; where a portion of immoveable property which has auxiliary objects is mortgaged, such auxiliary objects shall only form part of the mortgaged property if so agreed by the parties; sea-going vessels under the Maritime Code of Vietnam and aircraft under the Law on Civil Aviation of Vietnam, where able to be mortgaged; all other property as provided by law. Moveable property: Machinery, equipment, raw materials, fuel, supplies, consumer goods, precious metals and gemstones; Vietnamese currency; foreign currency; bonds, shares, bills, promissory notes, certificates of deposit, negotiable instruments and other valuable papers; property rights derived from the rights of authors, industrial property rights; the right to reclaim a debt, the right to receive insurance proceeds, and other property rights derived from a contract or other legal bases; rights with respect to a share of capital contribution in an enterprise, including a FIE; rights to exploit natural resources in accordance with law; sea-going vessels under the Maritime Code of Vietnam and aircraft under the Law on Civil Aviation of Vietnam, where able to be pledged; income and rights arising from the pledged property; all other property as provided by law. Types of securities available to secure the obligations of another In addition to using assets to secure its own obligations, there is scope under the law for FIEs to put up their assets as security for the obligations of another party. Importantly, before a FIE provides security for a third party, there are threshold questions of whether that particular FIE has the capacity to secure the obligations of someone else under the terms of its investment licence. Whilst this issue is not addressed in this article, it is an important one which a FIE and the parties potentially receiving the security would need to consider. This report outlines the security options available, assuming that a FIE has the capacity to provide security for another's obligations. The first option is for the FIE to provide a guarantee that it will personally fulfil the obligations of the third party, if that third party fails to do so. Article 366 of the Civil Code of Vietnam permits such guarantees to be given and they are prevalent in the banking industry. A guarantee, whereby the FIE promises to fulfil the obligations of another, does not attach to certain assets. Rather, it is a promise by the FIE to step into the shoes of the other party and fulfil those obligations, doing whatever needs to be done and using whatever property is necessary to perform the obligation. The guarantee can, however, be limited to a monetary value, if the parties agree. A guarantee can be given by a FIE to both domestic and offshore lenders, but note that there is no way of registering guarantees in Vietnam.

12 The second option is to use a security known as a guarantee by property. Note that this is different from a "personal" guarantee as described above, as it can only be given to the extent that the guarantor is able to use specified property to fulfil the obligation; it is a unique creature under Vietnamese law. A guarantee by property in the financing context is defined in Article 2.6 of Decree 178 as amended by Article 3 of Decree 85 as follows: "Guarantee by property of a third party (the third party is hereinafter referred to as guarantor) means an undertaking made by a guarantor to the credit institution to use property owned by such guarantor or the value of its LURs, or property under the management or use of a State owned enterprise in the case of a guarantor being a State owned enterprise, to perform the obligation to repay the debt on behalf of the borrower if the borrower fails to perform properly the obligation to repay the debt when it falls due." (emphasis added) A guarantee by property can be given for any assets that may be mortgaged or pledged (see above). A guarantee by property can be given by a FIE to domestic lenders (permitted under Article 3(1)(b) of Decree 178) and to offshore lenders (permitted under Article 4(1) of Decree 165). For more information on guarantees by property, see our feature in the May 2003 Issue of Vietnam Legal Update. Whilst this report concentrates on the ability of FIEs to use their assets as security, it is worth noting that a common use of the guarantee by property structure is for an offshore company (often the parent foreign investor in the FIE) to provide security to a lender by way of a guarantee by property for a loan taken out by the FIE. Registering securities with the National Office for Registration of Security Transactions Some of the forms of security described above must be registered with NORST; others can be registered if the parties agree; for others still, there are no provisions enabling registration. The point and benefit of registration is that the security receiver's priority to access a particular asset belonging to the security provider is noted with an official body and therefore is better recognized. The right is protected and can be enforced with the evidence recorded by the registry. In addition, for those securities for which registration is compulsory, the registration perfects the security and without it, a court may not recognize that the security in fact exists. There are a number of standard forms that are used to register, amend and de-register securities with NORST. These standard forms are attachments to Circular TT-BTP of the Ministry of Justice ("MOJ") dated 9 January 2002 Providing Guidelines on a Number of Issues in Relation to Authority, Process and Procedures for Registration, Supply of Information on Security Transactions at the National Department for Registration of Security Transactions under the MOJ and at its Branches ("Circular 01"). Registration of pledges and mortgages Pursuant to Decree 08, it is compulsory to register the following transactions: Pledge or mortgage of property where the law provides that ownership of such property must be registered; Pledge or mortgage of property where the parties agree that the pledgor, the mortgagor or a third party will retain the property; Pledge or mortgage of a single item of property as security for multiple obligations; Written notice of dealing with security property; Where otherwise required by law (currently, this includes finance leased assets as prescribed in Article 19 of Decree ND-CP of the Government dated 2 May 2001). Currently, Circular 01 has limited effect in that it only permits NORST to accept registration of pledges and guarantees by property, not mortgages. In the absence of implementing guidelines for mortgages, the correct practice at the moment is to register them with the Department of Natural Resources and Environment using Form 1 attached to Circular TTLT-BTP-BTNMT of the MOJ and the Ministry of Natural Resources and Environment ("MONRE") dated 4 July 2003 providing Guidelines on Realization of Security Property for 12

13 13 Loans in order to Recover Debts ("Circular 03"). Registration of guarantees by property Also under Article 2 of Decree 08, guarantees by property may be registered with NORST, upon request by the parties. Registration of guarantees There is no provision under the law in Vietnam for the registration of guarantees. Future of registration Recognizing the need to improve the registration process in Vietnam, the Prime Minister has recently issued Directive CT-TTg dated 2 October 2003 on Strengthening Work of Registration of Security Transactions. The directive instructs various government instrumentalities to undertake tasks to improve the system. Importantly, this initiative requires the MOJ to work with the MoNRE to formulate a plan for a central registration system, including for mortgages and guarantees by property using LURs and immoveable assets. For a detailed summary of this Directive, see the October 2003 Issue of Vietnam Legal Update. In addition, the MOJ has been asked to draft an Ordinance on Registration of Security Transactions and a Law on Registration of Real Property. Drafts can be expected in To be useful, these new procedures and laws will need to address the current anomalies and shortfalls in the registration process. From experience in dealing with the system, desirable reforms include: Enabling guidelines to permit a single body (most logically, NORST) to accept all types of securities in a uniform manner; Clarifying the rights to mortgage immoveable assets that are attached to land separately from the associated LURs; Further consideration and clearer regulations on the role of guarantees in the securities framework; Consolidation of the provisions contained in various laws on enforcement of securities; Education of authorities on the different types of securities and when the law enables them to apply. Enforcement of mortgages, pledges and guarantees by property When an event occurs that gives a right for the pledgee/mortgagee/beneficiary ("security receiver") to enforce 1 a pledge, mortgage or guarantee by property ("event permitting enforcement"), then the law prescribes a process for enforcement to be followed. There may also be additional requirements agreed upon by the parties to the pledge or guarantee by property contract, such as notice provisions. The key laws are Decree 165, Circular 01 and Circular 03. These laws require an enforcement notice to be issued to the pledgor/mortgagor/guarantor ("security provider") with a copy to the relevant authority. Unless the security receiver determines that a different time limit is prescribed under the laws of Vietnam, under Circular 01, no further action may be taken until the expiry of 7 days after registration of the notice. Once the registration with NORST has occurred and the 7 day period has expired, the security receiver may: sell, transfer, assign or otherwise dispose of any or all of the secured assets 9disposal of the secured assets may be by public or private sale); take over the secured assets; take other action under the law of Vietnam - as the law stands there are no relevant additional remedies available to the security receiver. 1 Note: The term "realize" is often used in Vietnam.

14 Promptly after service of an enforcement notice, the security provider must deliver the secured assets to the security receiver or comply with instructions given by the security receiver, concerning storage of the secured assets. Failure of the security provider to comply with these requirements allows the security receiver itself to locate and seize the secured assets. If the secured assets are worth more that the value of the default (for example, the balance of the loan owing) the security receiver must refund the difference to the security provider. If the secured assets are worth less than the value of the default, the security provider must continue to perform the obligations for which the security was given. After realizing the secured assets, the security receiver must lodge with the NORST a notice of de-registration of the security (Form 06 attached to Decree 08). Conclusion The ability of securities to be given and registered in Vietnam assists in attracting investment to the country, as it provides protection for investors and their lenders. However, it is important for FIEs to choose appropriate security structures for their needs and to register them where required. The need to improve the registration process in Vietnam has now been recognized by the Government. Hopefully, reform of the registration process will be followed by reform of the fundamental legislation enabling the securities discussed above in order to resolve current anomalies and deficiencies. Greater certainty and flexibility will be welcomed by investors and their lenders. 14

15 Vietnam's Telecoms Sector: US-Vietnam Bilateral Trade Agreement Currently, under Vietnam's foreign investment laws (specifically, Decree 24 of the Government dated 31 July 2000, as amended 19 March 2003), foreign investment in the "establishment of public telecommunications networks" and the "provision of telecommunications services" will only be licensed in the form of a business co-operation contract ("BCC") with a Vietnamese entity that is itself licensed to conduct business in the telecoms sector. Under the US-Vietnam Bilateral Trade Agreement ("BTA") which became effective as of 10 December 2001, Vietnam has undertaken to open up gradually its telecommunications sector to investment by US companies. As is apparent from its name, the BTA is an agreement effective between the United States and Vietnam alone and, as such, confers no rights or obligations in respect of other countries. Nonetheless, until recently, the expectation has been that the reforms scheduled in the BTA will be introduced in a manner to benefit not only US companies but foreign investors in general. This expectation is now somewhat in question, however, as Vietnam has recently favored US banks in reliance on the BTA. Further, Vietnam's current proposals to the World Trade Organization with respect to banking and telecommunications are reportedly not as advantageous as those already granted to the US. Vietnam's commitments under the BTA in relation to telecommunications services are divided into three separate sub-sectors as follows: Value-added telecommunications services: * This sub-sector includes electronic mail; voice mail; on-line information and database retrieval; electronic data interchange; enhance/value-added facsimile services, including store and retrieve; code and protocol conversion; on-line information and data processing. * Market access limitations in this sub-sector comprise: - Cross-border: The provision of value-added telecommunications services is only permitted through business contracts with Vietnamese gateway operators. - Commercial presence: Initially, in accordance with current foreign investment laws (as noted above), US service providers may establish a commercial presence in Vietnam only through a BCC with a Vietnamese entity that is itself licensed to provide telecommunications services. Two years after the BTA becomes effective (10 December 2003) - three years in the case of internet services (10 December 2004) - US service providers may establish a joint venture enterprise ("JVE") with a Vietnamese partner, subject to the following restrictions: (i) foreign investment licensing, (ii) US equity in the JVE may not exceed 50%, (iii) the Vietnamese joint venture partner must be itself licensed to provide telecommunications services, and (iv) the JVE will not be permitted to construct its own long-distance and international circuits, but must lease them from Vietnamese operators. Basic telecommunications services: * This sub-sector includes packet-switch and circuit-switch data transmission services; telex services; telegraph services; facsimile; private leased circuit services; radio based services, including cellular, mobile and satellite. * Market access limitations in this sub-sector comprise: - Cross-border: The provision of basic telecommunications services is only permitted through business contracts with Vietnamese gateway operators.

16 - Commercial presence: Initially, in accordance with current foreign investment laws, US service providers may establish a commercial presence in Vietnam only through a BCC with a Vietnamese entity that is itself licensed to provide telecommunications services. Voice telephone services: Four years after the BTA becomes effectives (10 December 2005), US service providers may establish a JVE with a Vietnamese partner, subject to the following restrictions: (i) foreign investment licensing, (ii) US equity in the JVE may not exceed 49%, (iii) the Vietnamese joint venture partner must be itself licensed to provide telecommunications services, and (iv) the JVE will not be permitted to construct its own long-distance and international circuits, but must lease them from Vietnamese operators. * This sub-sector includes local, long distance and international services. * Market access limitations in this sub-sector comprise: - Cross-border: The provision of voice telephone services is only permitted through business contracts with Vietnamese gateway operators. - Commercial presence: Initially, in accordance with current foreign investment laws, US service providers may establish a commercial presence in Vietnam only through a BCC with a Vietnamese entity that is itself licensed to provide telecommunications services. Six years after the BTA becomes effectives (10 December 2007), US service providers may establish a JVE with a Vietnamese partner, subject to the following restrictions: (i) foreign investment licensing, (ii) US equity in the JVE may not exceed 49%, and (iii) the Vietnamese joint venture partner must be itself licensed to provide telecommunications services. In order to implement Vietnam's various commitments under the BTA (those relating to telecommunications and others), appropriate domestic Vietnamese legislation must be issued. However, as the first telecommunications commitment deadline (10 December 2003) rapidly approaches, there is still no sign of the necessary enabling legislation. 16

17 17 Part 3 Did You Know? 3.1 National Assembly Update The 4 th Session of Legislature XI of the National Assembly ("NA") closed on 26 November 2003, 2 days earlier than scheduled. The NA passed the following 9 laws: - Law on Organization of People's Committees and People's Councils (passed on 5 November); - Law on Election of Representatives of People's Councils (passed on 5 November); - Law on Land (As Amended) (passed on 6 November); - Law on State Owned Enterprises (As Amended) (passed on 7 November); - Law on Emulation and Rewards (passed on 7 November); - Law on Construction (passed on 11 November); - Law on Aquatic Products (passed on 11 November); - Law on Amendment of the Law on Co-operatives (passed on 17 November); - Law on Criminal Prosecution (As Amended) (passed on 18 November). The official numbers of the above laws will be assigned during the first week of December. The official text of the above laws will be released in the following weeks. The NA considered the following 5 draft laws: - Law on Inspections; - Civil Procedure Code; - Amendments of Law on Business Bankruptcy; - Amendments of Law on Credit Institutions; - Law on Inland Waterway Transportation. The above draft laws will be revised in light of NA comments and re-submitted at the next NA Session in May The NA's 2004 legislative program was settled and passed. At its first Session for 2004 (to be held in May 2005), in addition to the above 5 laws, the NA is scheduled to pass amendments to the Law on Protection, Care and Education of Children, to the Law on Complaints and Denunciations and to the Working Regulations of the NA's Standing Committee, Ethnics Council and other Committees. It is also scheduled to consider the following 8 draft laws: Law on Electricity, Competition Law, Law on Promulgation of Legal Documents of People's Councils and People's Committees, Amended Law on Publications, Law on Land Use Tax, Amended Law on Forest Protection and Development, Amended Law on Education and Law on National Security. The NA's 2004 legislative program provides for a total of 17 laws and 16 ordinances to be passed in 2004, including in relation to anti-subsidies, anti-dumping, execution of judgments, requisition of citizens' assets, associations, housing and electronic transactions. The official text of the NA's 2004 legislative program will not be released until the first week of December at the earliest.

18 Cap on Foreign Employees Effective as of 7 October 2003, under Decree ND-CP of the Government dated 17 September 2003 providing guidelines on recruitment and management of foreign employees working in Vietnam, a maximum limit has been imposed on the number of foreign employees who may be employed by Vietnamese enterprises operating under the Law on Enterprises, by State owned enterprises and by foreign invested enterprises. No more than 3% of the total number of employees may be foreign employees - up to a maximum of 50 foreign employees. Other employers in Vietnam (including foreign representative and branch offices) are not subject to this maximum limit but the approval of the chairman of the relevant people's committee is required for the employment of foreigners. (For a detailed summary of Decree 105, see the September 2003 Issue of Vietnam Legal Update.) This cap on foreign employees has been widely criticized as draconian and counter-productive to Vietnam's efforts to encourage foreign investment and improve the management experience of Vietnamese employees. But it looks like the cap is here to stay. The Ministry of Labour, War Invalids and Social Affairs will soon issue a circular providing further guidelines on how to calculate the maximum cap. 3.3 Commercial Law Amendments - Foreign Trading Rights On 4 and 5 of November, a Workshop on International Experience on Constructing Commercial Law was held in Hanoi by the Ministry of Trade ("MoT") in conjunction with the UNDP and Star VN Project. Speakers included international experts who shared their experiences in the development of commercial laws in continental and common law countries and the amendments required to Vietnam's Commercial Law for WTO accession, as well as experts from Vietnamese ministries who shared their comments on the problems related to Vietnam's Commercial Law and the path forward. The MoT has read widely in its preparations for amendment of the Commercial Law, having considered the commercial codes of the US, Germany, France, Switzerland, Philippines and Japan and the contract laws/principles of the EU, US, Switzerland, China, Indonesia and Thailand. However, debate continues as to the structure and scope of the revised Commercial Law and its interrelationship with Vietnam's Civil Code. Of particular interest, how the commercial presence of foreign companies in Vietnam will be dealt with has still not been resolved. Presently, there is no Vietnamese law which generally enables foreign companies not investing in production to establish a commercial presence in Vietnam for the sole purpose of trading for profitmaking purposes. The importance of inclusion of enabling provisions in the Commercial Law is clearly recognized - but the scope of such provisions is the subject of vigorous debate. As a result, it is expected that the revised Commercial Law will only include a simple provision and the more contentious issues will not be resolved until the Government issues implementing regulations, as below: (MoT's Rough Draft #6 of the revised Commercial Law dated 15 November 2003) Article 12 Rights of foreign businesses to conduct commercial activities in Vietnam 1. Foreign businesses shall be entitled to engage in commercial activities in Vietnam in accordance with the law of Vietnam or international treaties to which Vietnam is a signatory or a participant. 2. The Government shall make specific provisions permitting the establishment of commercial presence in Vietnam of foreign businesses to conduct activities in the fields of export, import, distribution and other specific commercial services consistently with international treaties to which Vietnam is a signatory or a participant. The proposed implementing regulations of the Government have not yet been drafted - in fact, they have not progressed from the MoT "sketch" submitted to the Office of Government in 2001 (featured in the August 2002 Issue of Vietnam Legal Update). However, drafting of the regulations is expected to commence shortly, now that the Vietnam-Japan Bilateral Trade Agreement has been signed. The first "real" draft (as opposed to "rough") of the revised Commercial Law is also due to be prepared shortly.