25

# **Resolution of Disputes**

Viet-Nam's Foreign Investment Law allows parties to joint ventures or business cooperation contracts to choose the Vietnamese Arbitration Authority or any other arbitration system as mutually agreeable for the resolution of disputes among themselves (Article 25). Recognizing the weakness inherent in the courts and the traditional arbitration system, the government recently created a special "International Arbitration Commission" associated with the Viet-Nam Chamber of Commerce & Industry to handle disputes arising under the Foreign Investment Law. The commission is headed by a reputed attorney from the South, trained in the French legal tradition and presumably familiar with commercial practice in a market economy. This new institution is too new to provide any evidence that it will work better than the existing arbitrator office or the People's Court system. Regarding disputes between foreign investors and the state, Viet-Nam began to enter bilateral agreements with some capital-exporting countries to set out the mechanism for settlement. As project implementation has been very slow, there have been no major disputes which can test the effectiveness of the system. One or two recent disputes over taxation and transfer of profits earned in some small profitable projects were not brought to formal arbitration but are still in the process of negotiation for an amicable settlement. In general, despite government efforts to improve the credibility of Viet-Nam legal institutions, foreign investors still have little confidence in the system.

# **Other Issues and Recommendations for Further Reform**

Viet-Nam's current legal framework for FDI is a legal island of special incentives and rules created to govern only FDI. In the short run, this enclave-type legal framework may be useful as transitional instruments to attract foreign investment, but it should be phased out over time. For long-term development, a generally good investment climate with a stable legal framework should replace the enclaves.

A recent sample survey (done as part of the Financial Sector Study) indicated that the **five** most important obstacles to investment as perceived by foreign investors are by order of importance: 1) legal framework, 2) bureaucratic process and corruption, 3) investment climate, 4) inconvenience in financing, and 5) labor management. Despite government efforts to facilitate FDI, several legal and regulatory issues still constrain foreign investors' decisions to invest in Viet-Nam or to implement their already approved projects. Interestingly, notoriously poor infrastructure in Viet-Nam is considered a major problem but not as difficult as policy/legal impediments.

Corporate Governance. Regulations on corporate control and monitoring for FDI enterprises are in the Foreign Investment Law, although this law sometimes refers to the Company Law. The form of management of an FDI enterprise is broadly in line with the provision of the Company Law to include Board of Management (or Board of Directors), Director General, etc., but their prerogatives do not reflect proportionally shareholders rights. Significant differences exist with respect to rules of decision making and other