Legal changes bolster market economy reform_Dec 2013

The National Assembly concluded a busy year which included the ratification of a revised Constitution, the Land Law and the Law on Public Procurement. It is expected the new laws will help develop a more liberal economy.

Le Net at LNT & Partners law firm takes a look at the developments and their anticipated effects.

Revised and Restated Constitution

The 1992 Constitution was revised after more than 20 years of Vietnam’s economic reform process. Once again, it underlines the leading role of the Communist Party, the state sector as the foundation of the economy and the notion that land belongs to the whole nation and is administered by the state. The new constitution states that private and foreign-invested sectors are granted equal rights to set up and run their businesses. The state sector is supported and maintained only in core industries.

The Constitution allocated more powers to the National Assembly and president. The National Assembly is now vested with the right to decide on national fiscal and monetary policy. The president has the power to appoint deputy prime ministers or ministers as proposed by the National Assembly, appoint high-ranking officials and high court judges. The Constitution also clarifies the power of the People’s Procuracy and establishes the State Auditing Agency.

The Constitution stipulates that any “unconstitutional” acts shall be resolved. The Constitution can be seen as a positive move towards the constitutional rule of law.

Three major legal changes should help liberalise the economy further

New Land Law

The new Land Law, which replaces the 2003 legislation, addressed concepts of landed property and compulsory purchases or seizures – a huge source of dispute in the last decade – particularly after notorious cases in Haiphong and Hung Yen. The new Land Law specifies the instances in which such compulsory seizures may occur, which mainly relate to ODA projects, infrastructure development or social housing projects. Moreover, the land price or land pricing method shall be decided by the state with an aim to limit its affect on the real estate market. In addition to land prices and compensation, the new Land Law reduces the scope for amended land zoning planning. The law clearly states that once zoning has been approved, it cannot be changed except under special cases. It is hoped that this strict rule will avoid unplanned urbanisation and the exploitation of those that control land allocations before real investors with fiancial capacity have an opportunity to invest.

The law introduces two concepts: a land price table and particular land price. While the land price table is introduced once every five years, the particular land price will be determined on a case-by-case basis, by a land valuation committee based on the land price table and market price. The land price table is used to calculate land compensation and land use fees for individuals or households, whereas the particular land price is used for land compensation and land use fees for economic organisations or foreign-invested enterprises.

An important part of the Land Law is devoted to land compensation payments and clearances. The law allows provincial people’s committees to determine land prices for compensation and provides a timeline for voluntary land compensation in the case of land recovery, following which the state could apply for a forced land clearance. The compensation is prioritised in the form of land compensation and, only when there is no land available, would monetary compensation be applied. The law also requires the land developer to propose a relocation project before implementing land compensation.

Foreigners and overseas Vietnamese are now allowed to receive land use right certificates if they are allowed to buy houses or apartments adjacent to land pursuant to the Law on Housing. It does not affect the right of foreign-invested enterprises to obtain land use right certificates for industrial land or residential land projects. The new law also maintains the status quo for projects that have already been granted freehold or leasehold status before the introduction of the new law on July 1, 2014.

New Public Procurement Law

The Law of Public Procurement, also effective from July 1, 2014, is introduced with the aim of reducing waste and corruption in public procurement, as well as encouraging private-public partnerships. The new law supplements new methods in the assessment of bids, including bidding concentration and tendering in specialist industries such as pharmaceuticals and medical equipment. Bid concentration is a new feature of this Law on Public Procurement, which authorises the project owner to organise bids for a single professional purchaser instead of multiple suppliers. This process may expedite the public procurement process while maintaining control over cost over-runs and co-ordination among the suppliers. The law implements and combines widely recognised international public procurement principles with local experience in relation to public procurement issues.

To enhance the efficiency of public procurement, the law hands bid appointments down to ministries or provincial people’s committees, rather than the prime minister. The decision-maker will also have to answer to supervisory authorities, to the public, and project owners.

To reduce the price adjustments or project cost over-run problems, the Law on Public Procurement prioritises fixed price methods. If other methods are used, such as lump sum unit price or adjusted unit price, then the bid decision-maker must explain why the selected method of public procurement is preferred vis-à-vis fixed price contracts.

In short, the three laws earmarked by the National Assembly mark a bold step towards stronger reforms to confer more supervisory powers and reduce the abuse of power, waste and corruption, while recognising the importance of professional and uniform executors.

All eyes are now on how the new laws will be implemented.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com

Insuring the insurance market gets in order

On February 15, 2012, new regulations on insurance sector business activities came into effect under Decree No.123/2011/ND-CP (“Decree 123”) detailing the Law on Amendments to the Law on Insurance Business being effective from July 2011.

It is our opinion the modifications brought forth by the regulation will result in significant changes to the Vietnamese insurance market.

The Law on the Insurance Business promulgated in 2000 (“the Law on Insurance Business”) only stipulates two types of insurance specialties – non-life insurance and life insurance. In general, insurance enterprises (which can be collectively referred to as “insurers” or “insurance providers”) were not allowed to concurrently provide both types of insurance under the law. As a result, health insurance products were tacitly brought under the scope of non-life insurers, leaving life insurance providers without the option of tapping into this potential market.

More recently, the Law on Amendments to the Law on Insurance Business of 2011 separated the non-life insurance and health insurance specialities, allowing Decree 123 to officially open the health insurance sector to life insurance providers. As a result, after February15, three types of insurance providers will be permitted to operate in the country – (i) life insurance providers, (ii) non-life insurance providers and (iii) health insurance providers.

With considerable diversity among insurers, policyholders will have more to choose from among health insurance products. In the current market, policyholders may maintain concerns with their insurance policy, particularly lifetime or long-term policies, as the fate of their insurance premiums or payments may be unclear if their provider goes bankrupt or loses its capacity to pay on insurance claims. Under Decree 123, policyholders can have peace of mind with the establishment of a Protection Fund for the Insured (or, more accurately, a Protection Fund for policyholders).

The fund, which is financed by insurers and Vietnamese branches of foreign non-life insurers, requires applicable businesses to provide an annual amount to the fund. The amount will be promulgated by the Ministry of Finance (MoF) and may not exceed 0.3 per cent of revenue from annual premiums.

These annual payments will be collected until the size of the fund reaches a certain percentage of the total assets of insurance providers in the country (specifically, 5 per cent with regard to non-life insurers and branches of non-life insurers and three percent with regard to life insurers). It may be of note that the fund will be managed by the Vietnam Insurance Association and paid out under the direction and supervision of the MoF. The question remains as to how such a large sum will be effectively managed by both the association and the MoF. As a result, this requirement may also be considered an additional responsibility, which insurance providers in Vietnam will have to bear.

Cross-border insurance services

Beyond opening the health insurance market in Vietnam, Decree 123 also allows for the provision of cross-border insurance and insurance brokerage services in Vietnam (i.e. the direct provision of services from other countries into Vietnam without an established commercial presence in the country).

The legality of this insurance service has been unclear since Vietnam joined the World Trade Organization (WTO), as under Section 7A of Vietnam’s Service Commitments, the Vietnamese government committed not to limit the provision of cross-border insurance services. At the same time, applicable legal documents failed to set forth specific regulations on cross-border services, leaving insurance providers confused as to how to implement the WTO Commitments.

This ambiguity was resolved, however, with the issuance of Decree 123, which will allow for the seamless application of previous requirements. That being said, the decree sets forth an array of limitations on cross-border services among providers and policyholders. Specifically, insurance providers must fulfill a number of conditions before offering crossborder services in Vietnam.

Foreign providers may only offer cross-border insurance services through an insurance brokerage legally established and operational in Vietnam. Foreign insurance brokerages specialising in cross-border insurance services can only work on behalf of insurance providers or branches of foreign non-life insurance providers legally established and operational in Vietnam.

The scope of purchasers of cross-border insurance products is also limited.

Only foreigners working in Vietnam or enterprises established in Vietnam with at least 49 per cent foreign capital may utilise cross-border insurance services. Further, life insurance and health insurance products are not included among the insurance products, which may be offered through such cross-border services.

A new operational model – branches of foreign non-life insurance providers

Under the decree, foreign non-life insurers are offered an additional option to establish operations in Vietnam, as branches may be established for insurance companies that are not yet present in Vietnam. The conditions for such operations remain relatively strict, covering requirements for foreign non-life insurers looking to establish a branch in Vietnam with the aim of opening the market to reliable insurance providers.

Regardless of the severity of the requirements, branch establishment procedures may be considered relatively uncomplicated, as investors are not required to complete an in-principle approval stage, which can be fraught with difficulties for investors interested in obtaining a provider license in Vietnam.

The only limitation to this form of business is that operating branches of foreign providers may not establish sub-branches in Vietnam. However, established branches are permitted to engage in most of the operational matters provided to insurance providers, with lower statutory capital requirements (branches must have a statutory capital of VND200 billion, where non-life insurers must maintain statutory capital of VND300 billion).

On the basis of administrative procedures and capital requirements, establishing a branch in Vietnam under Decree 123 may be a preferred option for foreign insurance providers strongly considering investment in Vietnam.

Continuing on from Decree 123, we will continue to update readers on new regulations issued under the MoF to implement the Decree.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com