Will threat to pull out of Vietnam give more power to corporate lobby?

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Analysts fear foreign companies could twist policymakers' arms to ensure their profits get priority over people's interest

Factory workers change shifts at the Thang Long Industrial Park outside of Hanoi. Foreign executives have said Vietnam's minimum wage hikes and new restrictions on overtime are their major concerns. But consumer advocacy nonprofit groups dismiss such claims, saying foreign companies will always argue that more protections for workers, families, or the environment unfairly harm them and threaten to push them to locate investment elsewhere. PHOTO: BLOOMBERG

To shore up the sagging confidence of foreign investors, Prime Minister Nguyen Tan Dung has pledged to forge ahead with overhauling Vietnam's business climate.

Dung's message came at a recent trade fair in China that brought together regional leaders and foreign investors. At an investment conference in Ho Chi Minh City on August 29, investment officials had also promised to apprise the government about all the difficulties expressed by foreign firms.

The government is in fact working on a circular to guide relevant ministries on simplifying the licensing process and eliminating superfluous formalities (*).

Clearly, in a bid to resuscitate an economy that grew at its slowest rate in 13 years last year, Vietnamese leaders are taking serious note of foreign businesses' threats to pull out of the country or scale down and go to other countries with a better business climate.

Analysts concede it is reasonable for any government that wants to be seen as business-friendly to consult businesses on issues affecting them.

But with the corporate sector becoming a stakeholder in the lawmaking process in Vietnam in recent years, they raise two important questions: Which laws and in what directions are Vietnamese laws being amended to improve the investment environment? Are the people being taken into confidence and involved in the debate?

"If laws and regulations critical to defending public health, environment, food security, incomes, or rights will be weakened, this is cause for worry and should be challenged," Shalmali Guttal, a senior researcher at the Bangkok-based NGO Focus on the Global South, says.

"If the Vietnamese government itself is weakening its regulatory regimes in order to attract foreign investment, then there is no point in blaming foreign companies," she adds, however.  

Corporate benefit vs public health

In June 2012 the National Assembly, Vietnam's legislature, resisted pressure from the US embassy and American formula companies and amended a law to prohibit the advertising of formula products for children under two. The law had earlier set the age limit at one year.

But it was a close-run thing.

In a letter to Vietnamese lawmakers that was leaked to the media, the US embassy in Hanoi had said: "Several US companies have contacted the US Embassy regarding their serious concerns about this proposed prohibition on advertising of formula milk products, which could have a significant negative impact on their business in Vietnam.

"We ask that the National Assembly fully consider the implications of any changes to the draft [law] and engage in a full decision with affected stakeholders before making any such changes."

The pressure seemed to have worked, with a lawmaker admitting to Vietweek that the drafters of the bill decided not to table it until as late as the night before the vote.

"But thanks to strong advocacy [by health groups], the house did a U-turn," he said on condition of anonymity, citing the "sensitivity" of the issue.

Also in June last year the house passed Vietnam's first comprehensive tobacco control laws, which health groups called a "big win for public health."

But another lawmaker said the people who drafted the law had come under huge pressure from the tobacco industry.

"So its final text was not as strong as expected," he said, also declining to be named.

"˜Doesn't make sense'

At the HCMC conference on August 29, Mark Gillin, chairman of the American Chamber of Commerce in Vietnam (AmCham), said there should have been "detailed discussion" of the consequences of extending maternity leave from four to six months.

By the time the change took effect in May the government had in fact solicited feedback from foreign business groups for three years. Most of them had wanted it kept at four months.

"The maternity leave provision is not likely to determine an investment decision. [But] businesses feel comfortable investing in places where policies make sense and this one doesn't," Gillin told Vietweek.

The United Nations saw it differently, saying the law "will"¦promote breastfeeding and better safeguard the wellbeing of mothers and children" in Vietnam.

UNICEF has warned of a major decline in breastfeeding rates across East Asia, with the rate of Vietnamese mothers exclusively breastfeeding for the first six months declining to less than 20 percent last year.

According to the General Nutrition Survey, one in every three children in Vietnam is stunted and health experts have said one of the major factors responsible is insufficient exclusive breastfeeding.

Many Vietnamese mothers blame their failure to exclusively breastfeed babies on inadequate maternity leave, saying the need to get back to work forces them to wean their babies early.

UNICEF says there is clear evidence that exclusive breastfeeding for the first six months of a baby's life not only improves their future growth and educational achievements, but also significantly reduces national health costs and helps prevent chronic malnutrition.

"Six months' maternity leave is very progressive - far more than what we get in the US," Zachary Abuza, a Washington-based South East Asia analyst, told Vietweek.

"I do not disagree with [the] central premise that economic development does lead to better child's health overall, but growth has to be sustainable and cannot come at short-term public health costs," he said.

Legitimate concerns, but whose?

But the analysts also say what Vietnam needs is not more laws but to address its infamously erratic ones. Laws often differ from province to province, paving the way for corruption.

"Vietnam already has enough laws. The bottom line is how we enforce them to ensure transparency and a level playing field [for all investors]," Nguyen Minh Thuyet, an outspoken lawmaker who retired in 2011, said.

At the HCMC conference, Nicola Connolly, deputy chairwoman of the European Chamber of Commerce in Vietnam (EuroCham), said 20 percent of European firms had considered shifting to other Southeast Asian countries, saying they are better business destinations than Vietnam.

She said besides the human resources shortage that bedevils both foreign and local companies, "with the added burden of additional government insurances, trade union fee, and increase in the minimum wage, investors add up all these costs and compare with other countries such as Thailand and Malaysia.

"To invest in Vietnam, companies are weighing up all factors and then deciding if the risk is worth it."

Other foreign executives had more complaints.

One said businesses were hit this year when the minimum wage was raised. He also slammed new environmental regulations for forcing foreign investors to call off new projects or scale back operations.

Another warned that one more wage hike that is proposed next year could perhaps have the greatest impact on Vietnam's competitiveness in the near term, adding it needs to be considered "very carefully." 

The Vietnam General Federation of Labor wants the minimum wage hiked by a third next year to cover 75-84 percent of workers' basic living needs.

The federation expects that to increase next year to VND2.435-4.113 million, and has put two alternative proposals to the National Wage Council hike the minimum wage by either 24-36 percent or by 21-32 percent.

The minimum wage is now VND1.65-2.35 million (US$78-111.13) a month, depending on the location.

But the average cost of living is estimated to be VND1.928 million for individuals and VND3.278 million for those with children, according to data compiled by the federation.

At the conference, the foreign executives also said new restrictions on overtime are another major concern.

A recent change to the Labor Code reduces the maximum number of hours a worker can do overtime in a year from 400 to 200 300.

Foreign investors have demanded that this be increased to 800.

Robert Weissman, president of the Washington-based consumer advocacy nonprofit group Public Citizen, dismisses such claims, saying: "Foreign companies will always argue that more protections for workers, families, or the environment unfairly harm them and threaten to push them to locate investment elsewhere."

"Vietnam and all countries must reject this line of argument, [which] would prevent Vietnam and other countries from ever elevating their living standards," Weissman says.

At the end of the day, analysts say the corporate sector does not need the Vietnamese government to protect it.

But the other hand, many studies have shown that grassroots people are always ignored in the consultation processes for major projects that take away their lands or damage their environment.

"A lot of preferential polices we roll out for foreign investors have not helped the country or the people much," Thuyet, the ex-lawmaker, says.

"All corporations try to have laws in their favor, including Vietnamese companies. It is the lawmakers that need to take stock of any laws they are going to vote on."

Experts warn that Vietnam's laws could face even more challenges if it becomes a member of the Trans-Pacific Partnership, an ambitious free trade agreement also involving the US, Japan, Canada, Mexico, Chile, Peru, Australia, New Zealand, Malaysia, Singapore, and Brunei. Washington hopes to wrap up the deal by the end of this year.

"As constructed, the TPP would be a corporate rights agreement," Weissman says.

"It would also empower foreign companies to directly sue the Vietnamese government before international arbitration panels with no accountability to the Vietnamese people on the grounds that Vietnamese law unfairly interferes with the companies' expected future profits."

(*) See relevant story here

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