Businesses reeling as incentives cut in WTO period

Businesses have complained that they have been facing a lot of difficulties since previous investment incentives have been suddenly cut after Vietnam joined WTO.

Businesses shocked

Five years ago, the HCM City People’s Committee set up a new policy, offering investment incentives to the enterprises using workers who have undergone drug detoxification. These enterprises could enjoy the land leasing fee exemptions or reductions, and the 100 percent interest rate subsidy.

Nguyen Thi My Linh, Director of Minh Chau Company, said that at that time, she decided to set up a factory in Nhi Xuan Industrial Zone to take advantage of the investment incentives. With the preferential loans for 10 years, the company built a garment factory in the industrial zone to make products for export. In order to arrange enough capital for the investment deal, Linh had to mortgage her assets to borrow 34 billion dong, or two million dollars. The factory has become operational and created 300 jobs hiring workers who had undergone the detoxification.

However, in February 2009, Linh unexpectedly received a notice that the investment incentives would be cut.

Linh said that the company fell into big difficulties, because the business plan completely failed. “We have been advised to shift to other kinds of business. But how can we arrange capital to do this?” Linh said, stressing that she had been working in the garment sector for 25 years.

Both Dang Xuan Quang, Deputy Director of the Foreign Investment Agency and Tran Hao Hung, Deputy Director of the Legal Department under the Ministry of Planning and Investment were surprised by the case.

In the past two decades, since Vietnam opened its doors to the world, it had been offering a lot of incentives in order to attract investors. The policies pushed the production and export and help speed up the modernization of the country. However, the problem is that many of the policies are prohibited in accordance with WTO rules, especially the preferences in land, tax and credit.

When negotiating with WTO, Vietnam committed to remove all the prohibited preferences immediately after it joined the organization. However, WTO has allowed Vietnam to preserve the incentives introduced before January 2007 (when Vietnam officially joined WTO) for five years. However, the rule does not apply to garment companies.

What to do?

The sudden cuts of investment incentives also badly affect investors’ confidence. “Many Japanese investors came to Vietnam in the 1990s when Vietnam was still in big difficulties, because they were encouraged by tax incentives. What will foreign investors think if the commitments are broken? We think that the Government needs to find solutions to this problem,” says Hirota Nakanishi from JETRO in HCM City.

It seems that the support measures for businesses which suffer from incentives cuts are not ready yet, though management agencies have already specified their main stipulations.

Quang says that the only solution for now is that government agencies and businesses sit together to discuss possible support measures, and it would be better if “businesses could suggest the solutions”.

Meanwhile, Tran Anh Tuan, Deputy Director of the International Law Department under the Ministry of Justice, complains that there are many support measures which are not prohibited by WTO , but they have not been applied in local authorities, because local authorities, which do not understand the rules and the commitments, fear that these measures will violate WTO rules.- Thoi bao Kinh te Saigon