Vietnam’s mining industry is still largely undeveloped. The mining industry is working inefficiently and mining processes are destructive for the environment. But still, Vietnam has a big amount of undiscovered mineral resources.
Due to insufficient Foreign Direct Investment (FDI), Vietnam is losing opportunity of gaining knowledge and technology from foreign countries. More FDI could lead to environmentally responsible and efficient operation with targeting advantages for both, consumers and the government.
In 2016, the Prime Minister issued Resolution No. 35-2016/NQ-CP on addressing issues in mining industry. Therefore, the infrastructure has to be developed, especially in rural areas. In addition, the environmental protection has to be promoted and the process of economic restructuring has to be implemented on basis of modern technology to ensure growth of the industry.
- General Issues
Vietnam has big mineral resources but only less than 10% of the useful metal is discovered yet. The reason is the usage of old mining methods, so that, mining industry in Vietnam is not using modem methods for mining in deeper areas. The mining industry mostly owned by the Vietnamese State, basically has only focused on mining coal, iron, bauxite and bulk commodities that you can find near the surface.
The technology development is lacking due to reluctant foreign investments as a reason of inconsistent regulations in the mining industry. Furthermore, taxes, royalty rates and tariffs in mining industry in Vietnam are among the highest worldwide. These are crucial disadvantages for foreign investors investing in Vietnamese mining industry because they are able to do the same process elsewhere with higher profits.
- Issues of government’s mining policies
The Vietnamese legislators intended to earn high amounts of tax revenues due to high tariffs and taxes. Instead, the opposite is happening. There is a big lack of modem mining operations in Vietnam because the high duties make projects unprofitable. The lack of modem mining in Vietnam is causing serious destruction of the environment. Thus, the mining operations in Vietnam are wasteful and outdated. As result, the government’s policy is a total failure. These issues are leading to the complete opposite to what was intended. Amendments on existing regulations have to be made. They will lead to better tax revenue for the state, more foreign investments, technology transfer and more safety for workers and the environment.
- Issues on mining and environmental protection
Vietnam provides strong regulations and laws to protect the environment but the enforcement of those laws is strongly lacking. As mentioned above, these lacks lead to wasteful and outdated operations and dangerous conditions for workers. In addition, illegal mining is a big issue in Vietnam. This is another reason for the government to attract more FDI to bring modern technology and modem mining methods to Vietnam. Therefore, the government needs to enroll incentives for foreign investors such as tax reduction among others.
- Issues on mining and poverty alleviation and infrastructure development
Mining is often conducted in rural but mostly in remote areas. In those areas, infrastructure development is a certain issue, but still, one of the most important issues that have to be addressed to ensure overall development in the mining industry. On the other hand, mining industry can be a very effective driver for improvement of infrastructure. Furthermore, modem mining operations require well-developed infrastructure and communications. In addition, poverty mostly occurs in remote areas, same in Vietnam. Therefore, development of the infrastructure can also help to promote poverty alleviation.
Vietnam still has to discover there mineral resources on large scale. One necessary driver for development of the mining industry in Vietnam is foreign direct investment. To ensure this, the government has to set incentives for foreign investors to make investments in mining sector more attractive in Vietnam. With royalty rates of 10 – 17%, there will be no investment be attracted. Thus, the government should focus on amending regulations, like reducing duties, royalty rates and taxes to make Vietnam a preferable country for investments in mining sector. This will also improve the competition and grant advantages for government and investors. Furthermore, to ensure better safety for workers and to protect environment, the mining industry has to be restructured regarding mining methods but also, the law enforcement has to be improved for reducing illegal mining and wasteful and dangerous operations. Lastly, the government has to promote the development of infrastructure in remote countries to boost the mining industry, but also to address the widespread poverty in remote areas in Vietnam.
- OUTLOOK ON MAJOR TRADE AGREEMENTS TPP 11 AND EUVNFTA
In January 2017, US President Donald Trump decided to withdraw from the US’ participation in the TPP. In November 2017, the remaining TPP members met at the APEC meetings and concluded about pushing forward the now called CPTPP (TPP 11) without the USA. The agreement shall be signed by all member states by the first quarter of 2018. After that, it has to be ratified in each member state before taking effect.
The effects of the TPP 11 could bring great benefits to the mining sector in Vietnam. The TPP 11 is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. The TPP could bring needed FDI to the mining sector in Vietnam. In addition, new modem mining methods will be adopted from the mining industry, thus, protection of environment will be provided. To be able to benefit from the TPP 11, Vietnam has to amend its mining regulations, particularly, tariffs, taxes and royalty rates must be reduced.
One another notable major trade agreement is the EUVNFTA between the European Union and Vietnam. The EUVNFTA offers great opportunity to access new markets for both, the EU and Vietnam. It will help to bring more capital into Vietnam. In addition, the EUVNFTA will boost the most economic sectors in Vietnam. As impact of implementation of the EUVNFTA, new foreign invested enterprises will be established. This will boost the technology transfer because FIEs in mining sector import more than the half of all input from other countries.
Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability and protection for investors. We alert investors to make use of these standards! We can advise how to best do that! It is going to be applied under the TPP 11 and the EUVNFTA. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. In relation to the TPP, the scope of the ISDS was reduced by removing references to “investment agreements” and “investment authorization” as result of the discussion about the TPP’s future on the APEC meetings on 10th and 11th November 2017.
Further securities come with the Government Procurement Agreement (GPA) which is going to be part of the TPP 11 and the EUVNFTA.
The GPA in both agreements mainly deals with the requirement to treat bidders or domestic bidders with investment capital and Vietnamese bidders equally when a government buys goods or requests for a service worth over the specified threshold. Vietnam undertakes to timely publish information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain confidentiality of tenders. The GPA in both agreements also requires its Parties assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation, create an effective regime for complaints and settling disputes, etc. The GPA is very important, especially for the mining sector because many Chinese, now, are contractors in this sector and known for less good quality work and bad conditions for workers. The government procurement will help to tender mining projects on a public base to allocate the chance for investment in a fair way and to improve the quality of implemented projects in the mining sector in Vietnam.
This instrument will ensure a fair competition and projects of quality and efficient developing processes.
If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under email@example.com . Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.