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02 September 2020
Vietnam’s National Assembly has ratified the EU-Vietnam Free Trade Agreement (EVFTA) which entered into force on August 1, 2020.
EVFTA will eventually take away almost 99 percent of customs duties on goods, thus expanding trade between the two sides. The agreement also provides European firms with bigger chances for investments in Vietnam.
Moreover, new advance IP standards under the EVFTA will be incorporated into the amended Vietnam IP Law to be issued in 2021.
“The EVFTA sets up a protection mechanism for both the appearance of the product as a whole as well as the appearance of its separable or inseparable parts. Such amendments, as soon as these take effect, will raise the attractiveness of and provide better support for not only the Vietnam business environment, but also the rights and interests of the FDI investors,” said Tran Manh Hung, country managing partner of BMVN International, a member firm of Baker McKenzie, in Hanoi.
In this age of the novel coronavirus Covid-19 where a global economic meltdown is happening, Vietnam is among the countries that stand out.
In its Asian Development Outlook 2020 report, the ADB said Vietnam’s economic growth will fall to 4.8 percent in 2020. However, ADB sees the economy getting back on its toes up to 6.8 percent in 2021 if the pandemic is contained. It reported that the country is one of the fastest-growing economies in Southeast Asia.
Meanwhile, the World Bank said Vietnam’s economy has exhibited resiliency amidst the pandemic.
Several companies have signified interest to move their supply chains from China to Vietnam. These are electronic, car assembly, high-tech, footwear, garment and textile businesses from the United States, EU and Japan. Among them are Apple and Samsung which plans to build a major R&D laboratory in addition to manufacturing plants.
“Even before the impact of the US - China trade war, Vietnam’s capabilities have been proven by multinational companies,” said Dang The Duc, founder of and managing partner at Indochine Counsel in Ho Chi Minh. “As global supply chains have been disrupted by the COVID-19 pandemic, Vietnam has turned into an appealing alternative to China due to the country’s young and comparatively low-cost labour force, stable government and business-friendly environment.”
Does this business-friendly environment include a strong and reliable infrastructure for IP protection? Indeed, can Vietnam’s IP system handle this influx?
Tran said the expected shift of business operations to China presents a huge challenge.
For one, an increasing number of foreign businesses are adopting the models of franchising, licensing or technology transfer so their subsidiaries in Vietnam may use and exploit their intangible assets. Yet, to be enforceable, most of these agreements, in particular licensing agreements for industrial properties except trademark and technology transfer agreements must be registered at a competent state authority in Vietnam. The same requirement is also arguably imposed on franchise agreements, said Tran.
“Therefore, with the increasing number of agreements seeking registration in Vietnam, state registrars are facing extremely heavy backlog, which in turn has been largely delaying the FDI companies' legitimate exploitation of their parent companies' scientific and technical innovations,” said Tran.
He also cited the issue of taxes payable from these agreements. A clear and detailed regime for declaration and payment of contractor tax and guidelines in evaluating intangible assets are lacking.
Problems exist in enforcement as well, with strict requirements for requesting administrative actions and inefficient court actions.
“The ultimate aim is to upskill Vietnam’s technological labour force in preparation for upgrading the business environment and receiving a large influx of supply chain orders,” said Dang. “Other improvements needed include structural reforms and business competitiveness to efficiently implement all of its new-generation free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EVFTA.”
Still, Tran believes that despite these gaps, the country’s legislation framework is attractive enough to inspire this influx of businesses as shown by global manufacturing companies which have successfully set up operations in Vietnam.
And with the approval of the EVFTA and CPTPP, Tran added that the amended IP law is worth waiting for.
“Furthermore, it is anticipated that Vietnam’s economy will have exceptional growth after becoming a part of the Quadrilateral Security Dialogue on combating Covid-19 and reviving the economy post-pandemic,” said Dang.
According to tradingeconomics.com, FDIs in Vietnam from January to August 2020 plummeted to US$11.35 billion, a 5.1 percent decrease from last year. Meanwhile, FDI pledges for the year amounted to US$19.54 billion, a decrease of 13.7 percent from last year.
Espie Angelica A. de Leon
