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Official Gazette

Tuesday, March 31, 2020

Codification

Updated: 10:32’ - 11/02/2010

Phan Vinh Quang and John Bentley[1]

The transition to a market economy has yielded excellent results for Vietnam’s people. GDP per capita went from USD 99 in 1991 to 1,000 in 2008. These results are attributable to appropriate policies which have been supported by parallel developments in the legal system-e.g., increased foreign investment is coupled with the Foreign Investment Law, liberalizing the private sector’s right to do business, with the Enterprise Law, etc. Vietnam is in the WTO today, because the National Assembly and the Government worked extremely hard to conform Vietnam’s laws and regulations to WTO standards.

Despite increased economic growth and GDP, Vietnam’s competitiveness is declining per the World Economic Forum, Doing Business of the World Bank Group and Provincial Competitiveness Index. A key reason cited for this is the upsurge in regulations. This is consistent with the increased pace of production of legal documents in Vietnam since 2005 shown in Figure 1 below. 

In Vietnam, people often complain about the “jungle of legal documents” where “even the experts get lost, let alone people and investors”[2]. In this jungle, only a few “well-connected” people find paths through the undergrowth[3]. According to the Central Institute of Economic Management (CIEM) research, Vietnam’s legal system is not “complete, clear, synchronous, transparent, predictable, reasonable, efficient nor effective” (often cited as the “9 No’s”)[4]. With these features, it also falls short of meeting WTO-BTA requirements for a transparent, predictable and equitable legal system where rules are “no more burdensome than necessary to serve a legitimate regulatory interest”[5]. Thus, there are 10 problems of Vietnam’s legal document jungle.

Obviously, these problems make doing business in Vietnam more costly and risky and waste huge public resources that could be better used for, e.g., building much needed infrastructure, schools and hospitals to raise living standards and attract investment. These problems also seriously hinder the development of the rule of law and the justice sector in Vietnam.

Figure 1: Number of Legal Documents Issued by Central Authorities

Source: www.luatvietnam.vn (accessed on September 23, 2009)

Figure 1 above shows that the legal document jungle has grown much more rapidly since 2005 than before. (In this paper,  “legal documents” means both legal normative documents (LNDs) as defined in the 2008 Law on Promulgation of LNDs (“Law on Laws” or the “Law”) and official letters and other documents that are not LNDs, but contain legal norms - i.e., rules and procedures of general application. In the 4 years during 2005-2008, Vietnam issued 17,164 legal documents which is more than the total number of legal documents (14,641) issued during the previous 18 years (1987-2004). More troubling in Figure 1, however, is that the number of official letters and the likes containing legal norms as reported by www.vietnamlaw.vn experienced an even sharper increase[6]: During 2005-2008, Vietnam issued 9,470 official letters containing legal norms which is more than 3 times higher than those issued in the previous 18 years (1987-2004). Before 2004 on average, there were 19 official letters out of 100 legal documents (i.e., 81 were LNDs). This ratio has increased to 55 official letters out of 100 legal documents (i.e., the other 45 were LNDs). The pervasive use of non-transparent official letters is a major reason for the problems of the jungle of legal document listed above.

While the increase in legal documents issued in the last four years reflects the need for developing the legal system to administer a more open and developed market economy, it is undeniable that the jungle has become more overgrown, impenetrable and difficult to navigate. At the current pace of growth (about 4,400 LNDs and official letters/year), the problems are rapidly becoming much more serious than ever before. It is like a cancer which will grow as fast, or even faster, as the body grows.  A remedy is needed urgently, before it is too late.

The “jungle of legal documents” is the product of the way in which the legal system has developed. Agencies issue regulations discretely without full knowledge about and due regard to provisions in other laws and regulations. Until recently, many ended with the phrase “any provisions that are inconsistent with this document are hereby abolished”. In addition, amending regulations often amend only “certain articles” in the original document leaving the original document to contain invalid provisions. Sometimes LNDs are amended by unpublished official letters making it difficult or impossible for ordinary people to find out about the amendments. These practices result in conflicting and overlapping provisions in different laws and regulations and have led to many situations where nobody in Vietnam knows which legal provisions are currently valid and which are not. 

The problems are complicated by the so-called framework laws that are very general and leave important details to implementing guidelines. Implementing guidelines are often not timely issued nor sufficiently clear which leads officials to issue “guidelines” in official letters that supplement or even amend rules and procedures in the original LND[7]. Often people find that implementing regulations are not consistent with the laws under which they were issued.[8] These practices are all too common in Vietnam and largely explain the 10 problems of the jungle mentioned above.

Deforestation or Gardening?

The U.S. in the mid-1930s faced a similar situation. Many new agencies created at that time to deal with the Great Depression issued a blizzard of regulations in uncoordinated manner and did not publish their regulations in a centralized official gazette, making it impossible for judges and people to find them and to know which regulations were valid and which were invalid. This came to a head in a US Supreme Court case called “the U.S. versus Smith - Hot Oil Case” where the regulation at issue had actually been repealed prior to the defendant’s prosecution. But the parties to the case, including the US Government, and the judges in the courts below were all ignorant of this crucial fact, which was not discovered until the case reached Supreme Court, when a very embarrassed US Assistant Attorney General revealed it to the Court.

In order to fix these problems, in 1935, the U.S. Congress passed the Federal Register Act requiring federal agencies: (1) to publish new regulations in an official gazette, called the “Federal Register” before they could become effective and enforceable; and (2) to submit to the Federal Register a “compilation” of all existing and currently valid regulations. The compilation effort failed because the compilations were so bulky and unreadable that nobody could comprehend them. This in turn was because the compilations contained both amending and amended regulations and were filled with needless, extraneous material such as headings, preambles, transitional provisions, signature blocks and provisions that had been repealed by the amending documents.

In June 1937, Congress amended the Federal Register Act to scrape compilation and instead required the agencies to submit codifications of their permanent, general and currently valid regulations by July 1, 1938-one year later. The amended Act also established a Codification Board to supervise codification by the agencies and authorized issuance of regulations on codification. Signed by President Franklin Roosevelt, the regulations instructed the agencies on how to organize themselves and codify their regulations. Under the regulations, codification chiefs were appointed within the agencies to be responsible for their codifications and to be liaison officers with the Codification Board. In carrying out codification, at a minimum, agencies were required to consolidate amending documents into amended ones and remove all extraneous material and invalid provisions. If time permitted, regulations could be amended, and overlapping and conflicting provisions rationalized by consolidation/removal. All agencies met the deadline and submitted codifications of their regulations by July 1, 1938. The first Code of Federal Regulations (CFR) was published in 1939 in 15 volumes under 50 major subject matter titles. 

Thereafter, people did not need to look anywhere but the CFR for all currently valid federal regulations. After the CFR became effective, every new regulation issued by a Federal Agency has been required to be an amendment to the CFR by way of amending, repealing or adding provisions. This ensures that the CFR is maintained in a manner that it always contains all currently valid and existing regulatory provisions issued by Federal Agencies and only such provisions. Today the CFR is still organized under 50 titles but some of the titles have been changed to reflect new circumstances and the number of volumes has increased from 15 to well over 200. The e-CFR is now available at http://www.gpoaccess.gov/cfr/ with powerful search functions to enable users to navigate easily through all of the titles.

The CFR has solved the problem of the legal document jungle for the U.S. The CFR makes the U.S. regulatory system much more

-    systematic and user-friendly as rules are organized by subject matter and issuing agencies, making them easy to find.

-    transparent and comprehensive as ALL currently valid and enforced provisions are found in one place;

-    more clear and certain as the CFR contains ONLY valid provisions because invalid and repealed provisions are continually removed;

-    consistent as conflicting and overlapping provisions are rationalized;

-    stable as the CFR provides a stable foundation for future development;

-    easy to follow and amend; and

-    efficient and effective.

The codification experience of the CFR contrasts with that of the U.S. Code (USC) of laws of 50 titles passed by the U.S. Congress in 1926. Instead of rapid, comprehensive codification like the CFR, the U.S. Code is codified one title at time replacing the original law(s) so that Code Title itself is the law.  Today, after 83 years, 26 of the 50 USC titles have been completed[9]. The remaining 24 are an “editorial arrangement” awaiting completion with the original laws still in effect. The difference between the CFR and the USC is the way of codifying. The CFR was completed with a dedicated central command and involvement of all agencies with a clear deadline, whereas the USC Code Titles are prepared one at a time without any deadline by the Office of the Law Revision Counsel at the House of Representative for approval by Congress.[10]

France also uses codification to solve the issue of legal uncertainty. The first French attempt at codification was to codify legal provisions into five codes- Civil (1804), Civil Procedure (1806), Commercial (1807, Penal (1810) and Criminal Procedure (1810) Codes. This codification program was often referred to as “substantive codification” as it was legislation that requires approval of the French National Assembly. Many civil law countries adopted this system of codification. However, as economic and market activities grow, there is a need for a more flexible approach and this means of codification is considered “an incomplete process that cannot be completed”[11].

Consequently, France and some civil law countries have switched to “formal codification” which is reorganization of legal provisions into codes by subject matter without changing the substantive provisions similar to the U.S. approach. This effort started in 1986 and is coordinated by a Superior Commission of Codification headed by the Prime Minister. Ministries codify the laws and regulations under their jurisdiction and submit the resulting codes to the Commission for approval. As a Government agency, the Commission can only approve government regulations and must submit codified provisions of laws to the National Assembly for approval. There is no deadline for completion and so far after 23 years, only 13 codes have been completed[12].

Pruning the jungle

It appears from international experience that Vietnam is not alone in facing the legal document jungle. This challenge reflects the level of development of the market economy in Vietnam and requires a new approach to fix it before it is too late.

The National Assembly and the Government seem to be aware of the problems. The 2008 Law on Laws introduces excellent measures. These include reduction of types of LNDs, a requirement to post all draft LNDs for public comment for a minimum 60 days, and requiring regulatory impact assessment for draft laws, ordinances and decrees and proposed law and decree-making programs. These new practices should improve the quality of LNDs in Vietnam, once fully implemented. The designers of the Law on Laws also had the vision to fix the systemic problems of the legal document jungle analyzed above with codification in Article 93.2 which mandates that “Legal norms must be reviewed, collected and arranged into codes for each subject.”

The question now is how best Vietnam should codify to transform the jungle into a well-organized, well-landscaped, productive garden that is easy to navigate. As a newcomer to this work, Vietnam can learn from prior successes and failures. Based on international experience and the situation in Vietnam we offer the following recommendations for successful codification in Vietnam:

First, for codification in Vietnam to be effective, its scope must extend to ALL legal norms currently being enforced in Vietnam - i.e., not only those in LNDs such as laws, ordinances, decrees, PM Decisions and circulars, but also those in official letters and other documents that are not LNDs. Although both Decree 161/2005/ND-CP implementing the prior Law on Laws and Decree 24/2009/ND-CP implementing the 2008 Law state or imply that using official letters to issue legal norms is prohibited, the fact is that large numbers of official letters and similar non-LND documents are constantly being used to issue legal norms. Some of these, while purporting to offer “guidance” or “opinions” on implementing LNDs in fact supplement those LNDs with new, additional legal norms[13] or even amend the subject LND to change the legal norms promulgated therein[14]. If only LNDs are codified, agencies, individuals and organizations cannot know all of the legal norms that are being enforced unless those contained in official letters and similar documents are also codified with related LND provisions. 

Second, the Code should have legal force and be the place to find all legal norms currently being enforced in Vietnam. The Code should replace the underlying documents - i.e., LNDs, official letters and other documents containing the legal norms - that have been codified. Upon coming into force, the officially printed and online Code should be the sole authoritative source of Vietnam’s currently enforced legal norms. Thereafter, any change should be made to the Code instead of to the provisions in LNDs and other documents that have been codified into the Code. In this regard, after the Code comes into effect, every amendment of the Code must be by an LND-i.e., no more amendments by official letters or other documents that are not LNDs-and every new LND must be in the form of an amendment to the Code. These rules are critical if codification is to help Vietnam solve the 10 problems of the legal document jungle.

Third, Vietnam should consider a unified system of codification so that a single Code contains both laws and ordinances approved by the National Assembly and related regulations of the Government, ministries and other agencies given the unity of the all branches in Vietnam and the fact that regulation issuing agencies are also normally the drafting agencies for laws, ordinances, decrees and Prime Ministerial decisions on the same subjects. In our view, a single, unified system will be a lot easier for users of laws and regulations and reduces the potential for conflicting provisions between laws and regulations. By having one process for screening both laws and regulations, codifiers will be more able to review and make laws and regulations consistent with each other in the Code.

Fourth, leadership is crucial to successful codification. In France, the Prime Minister chairs the Superior Commission of Codification. In the U.S. President Roosevelt played an essential leadership role in creating the CFR[15] by approving the regulations on codification and ordering publication of the CFR as a special edition of the Federal Register. We believe that this kind of leadership is present in Vietnam as evidenced by the requirement for codification in the Law on Laws. But mobilizing the agencies to carry out codification successfully will require the active intervention of the Nation’s leaders including the Politburo, the Chairman of the NA, the State President, the Prime Minister, the Ministers and the leadership of all other issuing and drafting agencies. 

Fifth, centralization of command and expertise has been extremely important for successful codification in the U.S. and France. A strong center of command like the French Superior Commission of Codification and the U.S. Codification Board and a center expertise like the U.S. Federal Register is needed to drive the codification effort vigorously and distribute the technical expertise throughout the system. Vietnam may want to consider having a high-level National Steering Committee for Codification with high ranking members from the National Assembly, Government, Supreme People’s Court and Procuracy to oversee codification. Equally important, consideration should be given to having a Codification Agency by assigning an existing agency or establishing a new one. The agency should be staffed by the best codification experts in Vietnam.

Sixth, delegation of codifying authority to all issuing agencies is critical. There is no way that the CFR could have been completed in one year in the U.S. without energetic participation of all federal agencies. The agencies know best the laws that they are implementing and their own regulations, and they should codify their parts of the Code and keep these parts updated in the future with Codification Agency assistance. France also delegates the task of codification to the issuing agencies.

Seventh, setting a strict deadline and sticking to it is vitally important to achieving successful, rapid, comprehensive codification as in the case of the CFR. Because central level legal documents are being produced at a pace of around 4,400 legal documents every year, it is essential that codification be done in a short period of time-probably no more than a year. Every year’s delay means that 4,400 more legal documents are issued, and they must be codified in addition to keep the Code up to date. The sooner that codification is completed, the fewer documents will have to be codified for the first Code. The first edition of the CFR in 1939 consisted of 15 volumes of Federal Regulations. Today, 70 years later, the current CFR comprises well over 200 volumes. The objective should be rapid, comprehensive and simultaneous codification. The Code may not be perfect at first, but it should be as complete as possible. Then, over time it can be refined to improve organization by grouping more provisions on similar topics together and identifying and eliminating inconsistencies, duplicate provisions, gaps in coverage by issuing amending LNDs as needed.  

Eighth, sufficient financial and human resources should be allocated to codification. On the financial side, according to a research paper supported by MOJ, UNDP and USAID, the cost of codification accounts for less than 1% of the benefit[16]. Vietnam would save around USD 160 million/years if the CFR approach is used to codify both laws and regulations in Vietnam. The savings is greater than the value of the Vietnamese annual tea exports and equivalent to about 30% of the total personal income tax collected in Vietnam in 2008[17]. There is probably no other public investment that can yield such a high rate of return. Successful codification also requires sufficient human resources-i.e., a National Steering Committee, a Codification Agency, ministry and agency codification chiefs, and sufficient ministry and agency staff intensively doing the codification work. The time and effort taken up in doing codification, however, will be repaid many times by the vast increase in the legal security and user-friendliness of the legal system for all stakeholders.

 The legal document jungle needs to be cleared up and transformed not just by codification but also by other efforts and techniques. Implementation of Project 30 on simplification of administrative procedures is expected to cut a number of bad trees in the jungle. The e-registry of procedures and their LNDs resulting from Project 30 may be a useful tool for codification. Once codified, it is a lot easier to identify and cut bad trees in the garden.

The regulatory impact assessment, if implemented successfully, should make sure that new regulations make sense. Probably the analogy is that RIA will help Vietnam plant good trees. Good trees will do their best in a sunny, well watered, well-organized garden rather than being overshadowed by big bad trees in the jungle.

Final words

It took Vietnam 17 years to move from a per capita GDP of USD 100 (1991) to USD 1,000 (2008). The next jump from USD 1,000 to USD 10,000 will require a much stronger engine of growth.  Korea did it in 23 years (1977-2000). The current slowdown in growth and competitiveness indicates that the Vietnam needs a new wave of reforms to energize stronger development and productivity. 

Experiences around the world have repeatedly shown that the quality of the regulatory and legal environment is probably the most important element for development. Efforts to improve the system the last five years have actually made the jungle more difficult to navigate, despite many good trees having been planted. It is now high time to take a new look at the system and ponder a new approach to transform the jungle into a nice garden. 

It is our hope that the visionary leadership of Vietnam, who planted the seed of codification in the Law on Laws, will do its best to realize their idea to its fullest in order to bestow on later generations of Vietnamese a nice garden of legal documents rather than a jungle. President Roosevelt and his team did it for the Americans with the CFR. The system he created has been an important part of the engine of growth for the U.S. We hope that Vietnam will be able to benefit from strong growth as a result of a successful codification program in a near future.-



[1] Phan Vinh Quang and John Bentley are the Deputy Project Director and Chief Legal Advisor of the USAID-funded STAR-Vietnam Project. Views expressed herein are those of the authors and do not necessarily reflect views of the U.S. Government or USAID/STAR-Vietnam or the Vietnamese Government.

[2] Dan Thanh, “Lost … in the Jungle of Law”, An Ninh Thu Do, May 27, 2008, accessed on August 18 at http://www.antd.vn/Tianyon/Index.aspx?ArticleID=24726&ChannelID=103.

[3] Id.

[4] Id.

[5] Vietnam has complied with many WTO-BTA requirements by amending many laws and regulations. Overall, however, the legal system in Vietnam as described has yet to meet the WTO and BTA requirements for transparency, predictability and impartiality, as well as specific commitments to ensure that official letters containing legal norms are either invalidated or meet the WTO-BTA fundamental requirements of publication in an official journal before the measures contained in them can become effective or be enforced. See Paragraph 517 of the “Report of the Working Party on the Accession of Viet Nam” dated October 26, 2006, (the “VN-WTO Working Party Report”).

[6] www.luatvietnam.vn is a subscription service which collects and publishes documents containing rules of general applications including official letters. If these official letters do not have rules of general application for businesses they would be unlikely to be posted in the webpage.

[7] For an example, see Footnote 16 and the accompanying discussion below. 

[8] See Dan Thanh, “Lost… in the Jungle of Law” cited above.

[9] The U.S. Code has a long history of development. The first completed Code was passed by Congress in 1874. However, it was not kept updated by requiring that new bills would be made as amendment/addition to the Code but as independent statutes. As a result, a new Code had to be developed in mid-1920s and passed by Congress in 1926, but provided that the Code could only be evidence of the law: Thus, in the event of a conflict, the underlying statutes would prevail. Accordingly, it was agreed that the Code would be enacted as “positive law” that replaced the underlying statutes one title at a time. These lessons learnt and avoided in the CFR.

[10] In the U.S. some codes were developed by the legal profession such as the UCC which become law upon adoption by various states. As noted in Wikipedia, “The Code, in one or another of its several revisions, has been enacted in all of the 50 states, as well as in the District of Columbia, the Commonwealth of Puerto Rico, Guam and the U.S. Virgin Islands. Louisiana has enacted most provisions of the UCC with the exception of Article 2, preferring to maintain its own civil law tradition for governing the sale of goods.” This is a typical example of efficient socialization of legislation. More information on the UCC can be found at http://en.wikipedia.org/wiki/Uniform_Commercial_Code

[11] See: Yves Robineau, ‘Limitations of codification do not change the contents of documents’, Legal Information Journal – Law on Administration on 20/9/1997 (Translation version of Maison du Droit).

[12] See http://www.legifrance.gouv.fr/ . European countries and Civil Law countries in South America also follows the practice in France to combine both substantive and formal codification. See for example: Maria Luisa Murillo, The Evolution of Codification in the Civil Law Legal System: Toward Decodification and Recodification, Journal of Transnational Laws and Policies, Volume 11.1. and Wim Voermans et al, Codification And Consolidation In Europe As Means To Untie Red Tape, Oxford University Press, Oxford Journals, Statute Law Review, August 29, 2008.

[13] In Official Letter No. 2484-TCT-TNCN dated July 13, 2006, the General Department of Taxation (GDT) responded to a query by the Ho Chi Minh City Department of Taxation by promulgating a new legal norm requiring a new formula to deal with a situation apparently not dealt with in any of the relevant governing LNDs - namely: calculating the total income generated in Vietnam by a non-resident foreigner in the case where the income resulting from work in Vietnam can not be separately calculated from income earned by the non-resident foreigner outside of Vietnam. The formula is as follows:

Total income generated
in Vietnam

=

Number of working days in Vietnam
--------------------------------------------------------------------------
Number of working days in a year(*)

x

Salary, fees before tax

+

Other taxable income (income before tax) generated in Vietnam

(*) The total working days in a year shall be determined in accordance with the provisions of the Labor Code.

[14] See Office of the Government Official Letter No. 1697-VPCP-KG, dated March 30, 2007, which actually retroactively amended Government Decree 89/2006/ND-CP by continuing the effectiveness of the Regulations on Labeling of Goods promulgated by Prime Minister Decision 178/1999/QD-TTg that had been repealed by the Decree “for a further six months as from March 13, 2007”.

[15] President Franklin Roosevelt is considered by many historians as one of the three greatest Presidents of the United State together with George Washington and Abraham Lincoln.

[16] Scott Jacobs et al, Regulatory Impact Analysis of the Draft Law on Promulgation of Legal Normative Documents, MOJ, UNDP and USAID Report, March 2008.

[17] According to Vietnam’s General Department of Customs, the value of tea exports in 2008 was USD 147 million.  The collection of personal income tax in 2008 was VND 9,960 billion (approximately USD 550 million).

VNL_KH1 

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