Korean enterprise shed tears on overstated provincial promotion policies

The Korea Chamber of Commerce in Vietnam (Kocham) at the midterm Vietnam Business Forum 2019 has expressed their concern over cases in which FDI companies have made their investment relied entirely on the industrial park (IP) or industrial zone development plans issued by provinces. Yet things would get ugly when these plans change without any advance notice.

Kocham took the 100 per-cent Korean-owned ESTec Phu Tho Co., Ltd., which located in Phu Tho province, as one of the outstanding cases. In June 2016, the company decided to make an investment of $8 million to build a new factory to produce earphones for export in an area that was designated to be an IP as per the investment promotion materials published by the authority of Phu Tho province in late 2015.

The province however unexpectedly changed its IP development plan afterward and the area where the ESTec Phu Tho constructed its new factory then became an industrial cluster rather than the designated IP.

ESTec Phu Tho has thus faced serious difficulties in its business operations as the company is not allowed to apply for an export processing enterprise (EPE) under the existing Decree No. 82/2018/ND-CP.

According to Article 2, Clause 10 of the decree, EPE means a company that is established and operated within an export processing zone, or an enterprise specialising in manufacturing exported products that is located within an IP or economic zone.

Article 1, Clause 2 of Decree No. 114/2015/ND-CP, meanwhile, specifies EPE as those separated from other areas with fence and wall systems, which have entry and exit gates and doors to ensure conditions for the inspection, supervision and control by customs and relevant functional agencies.

EPE is created to provide FDI companies with incentives and advantages, particularly those related to customs clearance procedures.

Kocham said this is a typical case where credibility of the provincial foreign investment promotion policies and promotional materials is conspicuously undermined.

As competition for attracting foreign investment between provinces is increasing, we are afraid to see more similar cases coming up in the future, Kocham stressed.

Under the current regulation, development plan for IP proposed by provinces must be prepared and submitted to the central government. Foreign investors would therefore heavily rely on the information and promotional materials provided by the provincial bodies at the outset of their investment.

Kocham suggested that it is necessary to strengthen the central government-level guidance and supervision on the provincial government’s foreign investment promotion activities, in order to increase the credibility of and confidence in the foreign investment policies of Vietnam.

Meanwhile, appropriate remedies must be offered to foreign investors who have been affected by such misleading information and materials.

In the case of ESTec Phu Tho, Kocham proposes that an EPE license to be granted as an exceptional case even if the company is not located in an IP, or at least Phu Tho province should begin its planning for the area to become an IP.

However, since many FDI companies are not located in the IPs themselves, they are not eligible for the EPE license. This therefore poses as a major obstacle to the expansion of their business and further investment.

Kocham suggested that the EPE requirements should be eased. For example, if an FDI company meets the conditions set out in the Article 1, Clause 2 of Decree 114, it should be allowed to apply for EPE license after completing an on-site inspection by the relevant authorities, even if it is not located in the industrial park.