Vietnam New Commercial Law: MORE INTEGRATION INTO THE WORLD ECONOMY

In an effort to comply with international legal practice and prepare for the upcoming accession to WTO, the National Assembly of Vietnam enacted on June 14, 2005 its new commercial law. The so-called “2006 Commercial Law” will come into force from January 1st, 2006 and will replace the 1997 Commercial Law.

To date, the adoption of the Commercial law in 1997 marked a milestone in the country’s economic and legal reform agenda. The law provided a comprehensive legal framework for business relations in Vietnam and gave unprecedented legal support to private mechants to form economic contracts. For the last seven years, it has taken an important role in socio-economic development of Vietnam, gradually driving commercial activities in proper order, encouraging and enhancing legal commercial activities.

However the 7 years old law now lags behind the rapidly evolving requirements of Vietnam’s dynamic integration process and fast growing econmy. Comprehensive amendments are therefore a necessity and are aimed at narrowing inconsistencies between Vietnamese and international commercial laws and creating an open, vibrant and balanced playing field for all involved in commercial activity in Vietnam.

The main features of the law are as follows:

The governing scope of the 2006 Commercial Law is broadened to cover more than 14 commercial activities provided in 1997 Commercial Law. The commercial activities are defined by the new law as all activities for profit-making purposes, including not only transactions involving the sale or purchase of goods and other related activities but also those relating to the provision of services, investment, trade promotion and other commercial activities.

The 2006 Commercial Law governs not only commercial activities conducted within Vietnam but also deals with transactions performed abroad. Parties to such transactions may agree to choose whether they will apply this Vietnamese law, a foreign commercial law or an international treaty of which Vietnam is a member.

In addition, those that are not considered as traders will be able to choose either the Civil Code or the new commercial law to govern their non-profit making transactions which currently do not fall into the governing scope of the 1997 Commercial Law.

A major obstacle to the effectiveness of the 1997 Commercial Law is its complex relationship to others laws, in particular the Economic Contract Ordinance and the Civil Code. This has caused difficulties to judicial bodies as well as the parties in determining which law governs their transaction. The 2006 Commercial Law resolves the overlap by providing that:

The 2006 Commercial Law will repeal the Ordinance on Economic Contracts when it takes effect on January 1, 2006.

Under the 1997 Commercial Law, goods are defined as consisting of machinery, equipment, raw materials, fuel, materials, consumer goods, other movable properties in circulation in the market place, residential houses which are used for leases, sales or purchases or other business purposes. The concept of goods under the new law is extended to cover all types of movable assets including future assets and all things attached to land.

The concept of commercial services has been extended to include all services that are not prohibited by law. Under the 1997 Commercial Law, they have been limited to those directly related to the sale and purchase.

The 1997 Commercial Law allows foreign bussinesses to set up no other business entities than representative offices and branches to conduct their commercial activities. The new commercial law gives them more options by permiting to set up foreign invested enterprises (both joint ventures and 100% foreign owned enterprises) in Vietnam.

Franchising is very common in international trade practice. However, this is the first time Vietnamese commercial laws deal with this issue. Under the 2006 Commercial Law, franchising is regarded as commercial activity in which a franchisee is permitted to carry out the sale and purchase of goods or provision of services under the business manner and method as stipulated by a franchisor and the franchisee is entitled to use trademark, trade name, know-how, logo, etc. licensed by the franchisor. The franchisor may control and assist the franchisee to carry out this commercial activity. This activity must be made in writing and registered at the Ministry of Trade.

At present, franchising is considered as a type of technology transfer and governed by Decree N° 11/2005/ND-CP of the Government dated February 2nd, 2005. According to it, a franchise agreement is protected for only 7 years (or 10 years in very special cases). As this limitation is not stipulated in the 2006 Commercial Law, parties to a franchise agreement may fixe themselves the duration.

In comparison with 1997 Commercial Law, the new law provides two more types of remedies including suspension of performance of contract and temporary suspension of the performance of contract. In addition, the new law also accepts agreement of the parties in selecting other types of penalties in accordance with the law.