Businesses, both domestic and foreign, are complaining about their losses following the sudden scrapping of many investment incentives after Vietnam joined the World Trade Organization.
Dang Xuan Quang, Deputy Director of the Foreign Investment Agency, and Tran Hao Hung, Deputy Director of the Legal Department - both under the Ministry of Planning and Investment – admitted to being surprised at one such complaint they heard at a recent meeting between the Ministry and the center for WTO integration in Ho Chi Minh City.
Five years ago the city People’s Committee had offered firms hiring rehabilitated drug users incentives like free or cheap land and interest-free credit.
Nguyen Thi My Linh said at the meeting that she set up a company, Minh Chau Company, in the Nhi Xuan Industrial Zone to take advantage of the incentives.
With a 10-year loan, the company began to make garments for export, hiring 300 former drug users.
But in February 2009 Linh received a notice saying the investment incentives have been scrapped.
The company began to face huge problems. “We have been advised to shift to other businesses. But how can we raise capital?” Linh asked, pointing out she has been working in the garment industry for 25 years.
Since it opened its doors to the world two decades ago, Vietnam began offering incentives to attract investors, a policy that has enabled it to expand exports and speed up modernization.
However, many of the incentives are prohibited under WTO rules, especially those related to land, tax, and credit.
When negotiating for WTO membership, Vietnam promised to scrap all such incentives upon accession.
The WTO allows Vietnam to keep the incentives introduced before January 2007 - when it joined WTO -- for five years, though not for the garment industry.
The sudden scrapping of the incentives has also jolted investor confidence.
“Many Japanese investors came to Vietnam in the 1990s, when it was still facing big difficulties, because they were encouraged by tax incentives,” Hirota Nakanishi of the Japan External Trade Organization (JETRO)’s office in HCMC said.
“What will foreign investors think if the commitments are broken? We think the government needs to find solutions to this problem.”
Measures to support businesses that have lost the incentives are not ready yet though government agencies have spelled out the main requirements.
Quang said the best way now is for government agencies and businesses to sit together and discuss support measures, and it would be better if “businesses could suggest the solutions.”
Tran Anh Tuan, Deputy Director of the Ministry of Justice’s International Law Department, said there are many support measures that are not prohibited under WTO rules, but they are not applied in Vietnam just because authorities do not understand them but are fearful of violations.