EVFTA set to benefit EU investors in public procurement

As of early next year, it is expected that EU investors and businesses will, for the first time, be able to tender for many types of public infrastructure projects in Vietnam, under EU-Vietnam Free Trade Agreement commitments.

EU investors can partake in many construction projects in Vietnam thanks to the EVFTA
EU investors can partake in many construction projects in Vietnam thanks to the EVFTA

The European Commission adopted the EU-Vietnam trade and investment agreements on October 17, 2018, paving the way for their signature and conclusion.

The agreements include the EU-Vietnam Free Trade Agreement (EVFTA) and the EU-Vietnam Investment Protection Agreement.

Currently the commission is now submitting the proposals to the European Council for the signature and conclusion of both agreements. Once authorised by the council, the agreements will be signed and presented to the European Parliament for consent. Once the European Parliament has given its consent, the trade agreement can then be concluded by the council and enter into force. The investment protection agreement with Vietnam will be ratified by the member states according to their respective internal procedures.

Notably, in terms of public procurement under the EVFTA, EU companies will benefit from a level of access to Vietnamese procurement markets that companies from any other country cannot.

Specifically, EU companies will be able to bid for public contracts with Vietnamese ministries and important state-owned enterprises, as well as the two biggest Vietnamese cities, Hanoi and Ho Chi Minh City (see box for further details).

At present, EU firms cannot engage in bidding activities in government-funded projects because Vietnam does not allow them to do so.

“The agreement is fully in line with the rules of the WTO Government Procurement Agreement, thus achieving a degree of transparency and procedural fairness comparable to other EU trade agreements with developed countries and more advanced developing countries,” said a European Commission fact sheet on the EVFTA.

Public procurement concerns how public authorities spend public money when buying goods, works or services. This can range from buying IT equipment or providing water, gas and electricity, to building a hospital or a road.

According to an expert from the EU Delegation to Vietnam, EU businesses and investors want to participate in government procurement contracts in Vietnam because these contracts can bring them many opportunities.

“Each year, the government invests billions of US dollars into infrastructure projects, many of which must be put out to tender,” the expert said. “The EVFTA will open the doors wider to EU companies.”

In late 2017, representatives of 20 Slovak firms came to Vietnam with an aim to expand their multi-sectoral presence in Vietnam, to take advantage of the country’s rising demands and forthcoming tariff cuts for EU-sourced items under the EVFTA.

They met with ministries and a number of government agencies to seek possibilities to join bidding packages to be offered by Vietnamese government in public-funded infrastructure projects. They expected that the EVFTA would enable them to enter the government procurement sector in Vietnam more easily.

Currently EU investors are also expressing great interest in the Long Thanh Airport project, which requires total investment of approximately US$16 billion. The 5,000-hectare project is located in the southern province of Dong Nai, 40 km east of Ho Chi Minh City. When it is completed in 2025 as scheduled, it will become the biggest airport in Vietnam.

Minister of Transport, Nguyen Van The, said that in 2019, this project will be reported to the National Assembly comprehensively, from site clearance, investment capital, and other issues.

The government has also asked the Ministry of Transport to conduct international bidding in order to select consultants to make a master plan for the project.

It is expected that in 2019, the investor - Aviation Corporation of Vietnam will select the main constructor for the project.

According to a recently released guide to the EVFTA, Vietnam is one of the countries with the highest ratio of public investment to GDP in the world. Since 1995, this ratio has been maintained at over 39% annually with a large part invested in infrastructure projects. Last year, the ratio was 35.7% (US$26.45 billion) of the total development investment capital.

However, Vietnam has not agreed to coverage of their government procurement by the Government Procurement Agreement of the WTO (GPA). Indeed, Vietnam has undertaken to do so in the EVFTA for the first time.

“This market has become very attractive to many foreign investors,” said the guide.

According to Manfred Otto, senior associate of law firm Duane Morris Vietnam LLC, the government procurement provisions in the EVFTA are a big step for Vietnam. Vietnamese suppliers will have access to the EU’s US$500 billion public procurement market. For Vietnam and its people, the EVFTA’s government procurement provisions should, over time, improve access to high-quality goods and services from EU suppliers.

Improvements are especially expected in the healthcare and life sciences sectors, as Vietnam’s public procurement in these sectors takes up 67% of the total market value.

Vietnam has committed to giving EU suppliers the right to bid for up to 50% of the pharmaceutical purchases by the Ministry of Health and many of the hospitals under its control, as well as major research facilities. Even so, this is a very gradual process that will occur over a period of 15 years after the FTA comes into effect.

Currently Chinese companies profit the most from Vietnam’s procurement market. Some 90% of power, mining, manufacturing, ferrous and chemical projects of state-owned companies in Vietnam are awarded to Chinese contractors.

The entities in which EU firms will be able to bid for public procurement contracts:

• All Vietnamese ministries at the central level including infrastructure such as roads and ports and two other entities equivalent to ministries (Committee on Ethnic Minority Affairs and Government Inspectorate).
• Two key utility-related state owned enterprises (meaning the branches of Electricity of Vietnam (EVN) and Vietnam National Railway).
• Thirty-four public hospitals directly under the control of the Ministry of Health. All pharmaceuticals purchased by the Ministry of Health, the departments of health of Hanoi and Ho Chi Minh City and of the 34 hospitals are included as well. Two major universities and two major research institutes.
• Entities in Hanoi and Ho Chi Minh City which stand for 50% of procurement conducted at sub-central level.