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Official Gazette

Sunday, November 19, 2017

Removing the legal bottleneck for stronger market economy

Updated: 11:53’ - 25/05/2015

Vietnam is facing a series of institutional bottlenecks which hinder or slow down its economic reform progress, according to a research conducted by the Central Institute for Economic Management (CIEM).

Renewal of the mindset and removal of institutional bottlenecks to shift Vietnam’s economy into a full, modern market economy is the title of the research report, which was brought up at the 2015 Spring Economic Forum held last month.

One of these bottlenecks relates to policies and laws that are frequently changed, unstable and unpredictable and lack transparency and fairness, says the report.

Both domestic and foreign business communities have for long complained that the policies and laws in Vietnam are unstable and often changed toward creating disadvantages for enterprises. According to a recent survey of the Vietnam Chamber of Commerce and Industry (VCCI), only 11 percent of enterprises that can anticipate changes in policies issued by the ministries and central agencies and only about 7 percent of businesses can anticipate changes in policies issued by local authorities.

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The construction site of an underground station of metro line No. 1 from Ben Thanh to Suoi Tien (Ho Chi Minh City) __Photo: Hoang Hai/VNA

In addition, the domestic business community said that local authorities often prioritize solving problems for foreign firms than domestic ones, and state agencies often prioritize and grant more “rights” to state-owned enterprises (SOEs) than domestic private enterprises. The business community also said that they face unfair competition from the businesses that have friendly connection with a number of officials and civil servants at all levels and from the SOEs’ managers and ownership representatives.

Among many reasons for the above-mentioned situation, according to the report, there is one concerning the lawmaking method, the quality of laws and implementing documents, and enforcement work. Research results show that annually the National Assembly only passes about 20 laws, including those that are amended. The Government issues about 100 decrees, and the Prime Minister issues approximately 100 decisions. However, the ministries and agencies issues as many as 600-700 circulars and decisions. In addition, there are a number of legal documents issued by provincial-level People’s Committees and People’s Councils. There are also thousands of executing documents. The number of executing documents that are published on the website of the Government (http://chinhphu.vn) is up to 3,500 to 4,000 every year.

The above situation has led the researchers to the following conclusions:

Firstly, in order to understand and implement the laws in Vietnam, it is necessary to gather, study and “codify” not only laws, but also decrees guiding the implementation of laws, and circulars and decisions guiding the implementation of decrees.

Secondly, the number of guiding documents (decrees, circulars and decisions) is much higher than the number of the legal documents that need to be guided for implementation (laws).

Thirdly, the ministries almost control and decide on the contents of relevant legal documents, especially guiding documents. Typically, in drafting a law, all issues that are unclear or receive different comments will be left for decrees and circulars guiding their implementation; and often are guided under the views of the managing ministry and the drafting agency. The contents of ministerial circulars or decisions guiding a decree’s implementation naturally reflect the view, position, role and interests of the concerned ministry. At the same time, the ministries are also agencies that directly involve in the preparation of executing documents or official letters guiding the handling of specific and particular cases during the implementation of laws, decrees and circulars.
 
Thus, according to the CIEM researchers, the implementation of the entire content of a law in reality is dominated by the relevant ministry’s   understanding and assessment of the concerned issues as well as its role, functions and interests. Consequently, in many cases, the contents of the documents guiding the implementation of a law are different from, incompatible with, or even contrary to the law, creating unstable, inconsistent, even contradictory contents between the law “on paper” and the law in practice. In addition, says the report, the use of official letters or executing documents as a tool to guide the implementation of the policies and laws applicable to each specific case has created an “asking-giving” mechanism in the implementation of policies and laws and worsed the inconsistency and lack of fairness and equality in the application of policies and laws to investors and businesses.

The lack of an effective mechanism to supervise the ministries in the issuance of regulations also increases their power and extent of discretion in guiding and implementing laws and policies, says the report. In the period of  four years from 2009 to 2012, the Ministry of Justice examined 8,779 legal documents of which 2,473 documents were found to have signs of law violation. However, the Ministry only recommended competent authorities to cancel 106 documents with contents violating the applicable laws, and sent notices of other 207 documents that showed signs of law violation in competence and content, asking the relevant ministries to self-address them[1].

The CIEM report continues by pointing out that the ways of guiding and organizing the implementation of law as presented above are favorable to the relevant ministries and government agencies. The ministries usually reserve “favorable” conditions for themselves and push “difficulties” and risks to businesses and people. Therefore, the law compliance is often found hard and costly by the people and businesses; and in many cases, they rather choose not to comply with the provisions of law[2]. The business actitivites become “informal” and inconsistent with the law, thus exacerbating the risks for enterprises and investors in doing business. Also, these ways of guiding  and organizing the implementation of law are just a top-down administrative measure, restrict and narrow down the horizontal relations and market relations among business entities.

The unstablity, inconsistency, non-transparency and unpredictability in both content and enforcement of the legislation, have created several disadvantages, says the report.

This has posed a huge legal risk for investment and business and can distort all calculations, business plans, investment and development plans of businesses. It is certainly one of the reasons why businesses, especially small- and medium-sized ones, do not want to and can not make large investment in the long term, the report stresses.

The common implementation of the asking-giving mechanism has created a breeding ground for bribery and corruption, and caused injustices and inequalities in access to business opportunities and development resources. It also falsifies the social values and market signals. All of these lead to bias in the allocation and wasteful and inefficient use of resources.

Last but not least, the above problems have not only narrowed down the scope of the development and operation of various types of market, especially the market for factors of production, but also increased the bias and distortion of the market in terms of size and level, thus exacerbating the market failure and the government failure.

To address the existing legal bottleneck, the CIEM researchers have made several recommendations, including: (i) to ensure transparency, consistency, predictability of laws; (ii) to directly apply the provisions of the Constitution, laws and ordinances; (iii) to minimize risks toward people and enterprises; and (iv) to enhance people and enterprises’ trust in laws and policies.

To realize those above recommendations, according to the report, it is necessary to amend the Law on Promulgation of Legal Documents into the Law on Promulgation and Guidance for the Application of Legal Documents, in which the contents regulating the competence to promulgate legal documents and apply laws and ordinances should be revised in the following direction:

- Stipulating the direct application of the articles and clauses of the Constitution, laws and ordinances. The Government only has authority to issue appropriate decrees guiding the implementation of laws and ordinances within the contents stipulated by such laws and ordinances;

- In case of different ways of interpretation and application of any provision of any law, ordinance or decree, people and enterprises are entitled to pick up the way of application that is most beneficial to them; and such actions are not considered illegal;

- The Prime Minister issues decisions to (i) perform duties and tasks under the competence of the Government as stipulated by law; (ii) administer activities of the Government and the state administrative system from the central to local levels, regulate the work regime of the Government and its members, local authorities and other issues under the competence of the Prime Minister; (iii) implement measures for directing and coordinating activities of members of the Government; supervise activities of the ministries, ministerial-level agencies, governmental agencies and local administrations in performing the functions and duties stipulated by the laws applicable to these state agencies; and (iv) implement treaties to which the Socialist Republic of Vietnam is a member;

- Scaling down the scope and competence of the ministries and ministerial-level agencies in the issuance of circulars. Specifically, the ministers and heads of the ministerial-level agencies are allowed to issue circulars only to (i) stipulate technical standards and economic-technical norms  of their respective sectors as stipulated by law; (ii) provide guidance on documents, sequence and procedures for implementation of any articles that, as requested by the corresponding decrees, need additional guidance. A circular must specify the titles and numbers of the articles of the decree that it guides. Circulars must not have any normative contents. Any non-compliance with circulars by enterprises and people is not considered law violation. Responsible government officials and civil servants are obliged to guide people and businesses to conform with those regulations;

- Abrogating administrative directives of superior agencies toward their subordinates in the implementation of provisions of laws, ordinances and decrees. Instead, it is suggested to conduct studies, summarize practical experience and compile handbooks for explaining related contents, meanings and application procedures for the provisions of the laws;

- Resolutions of provincial-level People’s Councils are issued to enforce the laws and policies of the central government; and deal with issues under their jurisdiction.

The research report concludes by saying that the essence of the bottlenecks resides in the state. The second wave of renovation should continue to narrow the scope while renewing the role, functions and organizational structure and enhancing capacity of the state apparatus. Though the second wave of renovation is much more challenging than the first wave of renovation launched 30 years ago, it has become imperative.- (VLLF)



[1] As reported by the Ministry of Justice on the preliminary assessment of the 5-year implementation of the Resolution of the 6th Plenum of the Xth Central Committee of the Communist Party about completing the socialist-oriented market economy mechanism.
[2] In many cases, for the people and enterprises, incompliance with law in short term is more or much more beneficial than compliance with law.

VNL_KH1 

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