August 23, 2014
The investment certificate is believed to be instrumental in State management of investment activities, thereby investors’ violations, if any, against the regulations in the investment certificate and the Investment Law could be easily detected.
However, the investment certificate may also suffer from some disadvantages. Firstly, during the licensing process for an investment project, it is customary for the State to base only on investors’ profile. Authorities find it hard to determine the investor’s actual capability. Reality has shown that an investment certificates might be granted to some incompetent investors, which leads to rent-seeking. That means those coming first may apply for investment certificates only to occupy locations that should be otherwise assign to others. The “late-comers” then have to purchase projects from the former. The State fails to gain budget while rent-seekers see it as a lucrative business.
Secondly, as regards investors who are late in developing their projects, the State still hesitates to revoke their investment certificates – a situation which may be interpreted as a bad impact on the investment environment. In the context that Vietnam is on verge of taking part in the International Center for Settlement of Investment Disputes (ICSID), and has signed 63 agreements on encouragement and reciprocal protection of investments and some multilateral agreements on investment, inappropriate revocation of investment certificates may result in litigation initiated by investors.
Thirdly, even when an investment certificate is not revoked, incentives or business rights stipulated in it can hardly be adjusted (in case tax incentives in the investment certificate are incorrect) because these can only be amended upon investors’ request.
As far as investors are concerned, the attachment of business establishment to an investment certificates may be an inconvenience. In such a case, investors must bring along a project when doing business in Vietnam. If they do not have any legal status, they cannot negotiate to repurchase any projects. Such a classic “chicken and egg” situation has hindered the progress of many projects.
As a result, investment certificates should only be granted really necessary cases and only when its benefits are bigger than risks; for instance, projects requiring vast areas of land or having adverse impacts on the environment, or projects eligible for investment incentives.
Vietnam can learn China’s lessons in business licensing. Firstly, China clearly distinguishes the issuance of investment licenses for production and infrastructure construction projects (group 1) from service projects (group 2). Secondly, there is differentiation in the service group depending on the importance of the service and it takes time for approval.
As for group 1, the biggest concern relates to land use, environmental protection, water and electricity consumption and labor demand. Therefore, it is compulsory to have technical and economic evaluation or an environmental impact assessment report (except for investment in industrial parks).
Regarding group 2, licensing agencies coordinate with the ministry of trade in checking and approving projects relevant to the World Trade Organization’s commitments (group 2A); except for specialized services (such as legal and auditing) or social infrastructure (finance, telecom, education, health care, media, and sea and air transport) (group 2B) that must be approved by related ministries, and there must feasibility projects and no commitment to the assessing time. The time needed must not exceed five working days while the Ministry of Trade must not request other documents. Obviously, for the sake of effective control, a license can only be granted with a five-year term.
Experience gained in Indonesia in business licensing shows that the supervision only focuses on restricting the ownership of foreigners in some industries (also known as negative list). In all cases, Indonesia allows foreign investors to establish enterprises first, and apply for business licenses later. To avert embarrassing cases in which foreign investors invest in this negative list, Indonesia has made use of the operation license mechanism. If a foreign investor invests in a domestic company which has 10 business scopes and foreign investment is restricted in three of them, there is no need to amend the business license. However, but the three operation licenses will be revoked.
(By Le Net)