Draft law to globalise logistics areas

Vietnam might, for the first time, allow 100 per cent foreign-invested firms in three logistics service areas, paving the way for an influx of foreign investment capital in the sector.

According to the Vietnam Logistics Business Association (VLBA), the government is getting comments from ministries and agencies for a draft decree which will replace Decree No.140/2017/ND-CP, regulating the conditions for logistics services.

The highlight of this draft is permitting 100 per cent foreign investment in trade forwarding, warehousing, and fast delivery services. This means that foreign investors will be able to establish wholly-owned entities in three service areas that up till now are banned under Decree 140.

“This is a big improvement. If approved, this is a good signal for foreign investment in logistics services. This permission is in line with Vietnam’s World Trade Organization (WTO) commitments,” Nguyen Tuong, deputy general secretary of  VLBA, told VIR.

The other important change is the removal of unnecessary technical conditions. For example, in Decree 140, investors have to have warehouses, but under the new draft they can outsource this need.

Decree 140 was supposed to implement the WTO commitments into national rules, but it is inconsistent with the WTO commitments in some areas, including the establishment of foreign logistics firms in Vietnam.

In Vietnam’s accession to WTO, it agreed to grant foreign investors access to its logistics markets in several steps, reaching the final stage in January 2014. This means that by this time, foreign logistics investors should be allowed to set up 100 per cent foreign-owned entities in cargo transportation services.

Seemingly running counter to these commitments, Decree 140 has for years caused confusion for foreign investors regarding legal set-up in Vietnam.

Do Thu Thuy, chairman of EuroCham’s Transportation and Logistics Subcommittee, has proposed that the government allow 100 per cent foreign ownership altogether in cases where there is no minimum legal requirement for a local ownership share.

She also pointed out concerns that in some cases, ministries will take inconsistent approaches. For example, the Ministry of Transport accepts 100 per cent foreign ownership for warehousing services, transportation agency services, and other logistics services, while the Ministry of Industry and Trade (MoIT) rejects 100 per cent foreign ownership in these cases. The Ministry of Planning and Investment accepts 100 per cent foreign ownership for freight transport agency services, but not for customs clearance services.

“The new decree will clarify a minimum threshold for the Vietnamese partner in case of mandatory joint ventures for foreign investors and establishment of 100 per cent foreign-invested entities,” said Tran Thanh Hai, deputy director of MoIT’s Import-Export Department.

Vietnam’s logistics sector has become a magnet to foreign investors, especially those from Japan and northern Europe, many of which had come to the country with designs on establishing 100 per cent foreign-owned entities. Many others have expanded in Vietnam through the formation of joint ventures in anticipation of trade volume increases due to free trade agreements.

Tuong forecasts that the great potential of the sector – especially in prime ministerial Decision 200 to develop logistics by 2020, with a vision to 2030 – Vietnam will witness more mergers and acquisitions in the industry in the coming months.

Vietnam is home to over 1,300 logistics service providers, with global logistics developers including Denmark’s Maersk Line, Singapore’s APL Logistics, Germany’s Hapag-Lloyd, and Japan’s NYK Line.

By Bich Thuy / VIR