RESTRUCTURING SOEs IN LINE WITH NEW GENERATION FREE TRADE AGREEMENTS OF VIETNAM THE CASE OF CPTPP AND EVFTA

MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY

MASTER THESIS

RESTRUCTURING SOEs IN LINE WITH NEW
GENERATION FREE TRADE AGREEMENTS OF
VIETNAM: THE CASE OF CPTPP AND EVFTA

Specialization: International Trade Policy and Law

FULL NAME: PHAM THI THANH HONG

Hanoi – 2020


MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY

MASTER THESIS

RESTRUCTURING SOEs IN LINE WITH NEW
GENERATION FREE TRADE AGREEMENTS OF

VIETNAM: THE CASE OF CPTPP AND EVFTA
Major: International Economics
Specialization: International Trade Policy and Law
Code: 1706060005

Full name: Pham Thi Thanh Hong
Supervisor: Assoc. Prof., Dr. Nguyen Thi Tuong Anh

Hanoi - 2020


STATEMENT OF ORIGINAL AUTHORSHIP
I hereby declare that this master thesis is my own scientific research which is
made under the guidance of my supervisor, Assoc. Prof., Dr. Nguyen Thi Tuong Anh.
The contents and results of this research are completely honest. The information, data
and documents which are collected from various sources for analysis and evaluation
have been fully cited in the main content and in the references list of this master thesis
as well.

Student,
Pham Thi Thanh Hong

iii


CONTENTS

LIST OF BOXES, FIGURES, TABLES................................................................. i
ACKNOWLEDGMENTS.................................................................................. ii
LIST OF ABBREVIATIONS............................................................................iii
ABSTRACT........................................................................................................ iv
INTRODUCTION...............................................................................................1
1. Research rationale........................................................................................... 1
2. Literature review............................................................................................. 2
2.1. Evaluating implementation of SOEs’ restructuring................................ 2
2.2. Measures of SOEs’ restructuring............................................................ 3
2.3. Restructuring SOEs in line with the NGFTAs......................................... 4

3. Research objectives.........................................................................................6
4. The scope of the research................................................................................6
5. Research approach and methodology..............................................................6
5.1. Approach................................................................................................. 6
5.2. Research methodology.............................................................................7
6. Structure of the thesis......................................................................................7
CHAPTER 1. OVERVIEW OF RESTRUCTURING SOEs IN LINE WITH
THE NGFTAs...................................................................................................... 8
1.1. Overview of NGFTAs.................................................................................. 8
1.1.1. Definition of NGFTAs...........................................................................8
1.1.2. Characteristics of NGFTAs.................................................................. 8
1.1.3. Roles of NGFTAs................................................................................ 10
1.2. Overview of SOEs......................................................................................11
1.2.1. Definition of SOEs..............................................................................11
1.2.2. Characteristics of SOEs..................................................................... 12
1.2.3. Rationales of SOEs’ rule on NGFTAs................................................ 12
1.3. Impacts of NGFTA on SOE....................................................................... 14
1.3.1. Positive impacts..................................................................................14
1.3.2. Negative impacts................................................................................ 16
1.4. Restructuring SOEs in line with NGFTAs................................................. 17


1.4.1. Definition of SOEs’ restructuring.......................................................17
1.4.2. Goals of SOEs’ restructuring in line with NGFTAs........................... 17
1.4.3. Measures of SOEs’ restructuring in line with NGFTAs..................... 18
1.4.4. Factors affecting SOEs’ restructuring in line with NGFTAs..............24
CHAPTER 2. CURRENT SITUATION OF RESTRUCTURING SOEs IN
LINE WITH VIETNAM’S NGFTAs: THE CASE OF CPTPP AND EVFTA26

2.1. Overview of Vietnam’s NGFTAs............................................................... 26

2.1.1. Overview of CPTPP........................................................................... 26
2.1.2. Overview of EVFTA............................................................................27
2.1.3. Obligations under the CPTPP and EVFTA Agreements pertaining to
SOEs restructuring in Vietnam
28
2.2. Overview of SOEs in Vietnam currently....................................................33
2.2.1. Definition of SOEs on Vietnam's legislation.......................................33
2.2.2. Performance of SOEs in the period of 2011-2020..............................34
2.3. Implementation of SOEs’ restructuring in the period of 2011-2020..........39
2.3.1. Restructuring economic institutions and corporate governance of SOEs
...................................................................................................................... 39
2.3.2. Restructuring SOEs' ownership structure.......................................... 44
2.3.3. Restructuring the monitoring of owner’s representative agency........47
2.4. Evaluating SOEs’ restructuring in line with CPTPP and EVFTA.............51
2.4.1. Achievements...................................................................................... 51
2.4.2. Limitations and Causes...................................................................... 54
2.5. Some experience from restructuring SOEs in line with CPTPP and EVFTA
in the period of 2011-2020......................................................................... 72
CHAPTER 3. RECOMMENDATION FOR VIETNAM IN THE
IMPLEMENTATION OF RESTRUCTURING SOEs IN LINE WITH
NGFTAs FOR THE PERIOD OF 2021-2030................................................. 74
3.1. Context, oppotunities and challenges.........................................................74
3.1.1. Context................................................................................................74
3.1.2. Opportunities and challenges.............................................................75
3.2. International experiences in restructuring SOEs in line with NGFTA

77

3.2.1. China.................................................................................................. 77

3.2.2. Singapore............................................................................................79
3.2.3. Lessons learned for Vietnam.............................................................. 81
3.3. Objectives and task orientations of SOEs' restructuring in line with
CPTPP and EVFTA for the period of 2021-2030..................................... 82
3.3.1. Objectives to 2030.............................................................................. 82
3.3.2. Task orientations of SOEs' restructuring to 2030...............................83
3.4. Solutions to restructure SOEs in line with CPTPP and EVFTA for the
period of 2021-2030...................................................................................85
3.4.1. Solutions to restructure economic institutions and corporate
governance of SOEs
85
3.4.2. Solutions to restructure SOEs' ownership structure...........................90
3.4.3. Solutions to restructure the monitoring of owner’s representative
agency
91
CONCLUSION..................................................................................................93
LIST OF REFERENCES................................................................................. 94
ANNEX.............................................................................................................100
Annex 1. EVFTA and CPTPP: SOEs’ Application and Exemptions................100
Annex 2. List of legal documment on restructuring SOEs 2011 - 2020...........103
Annex 3. Preliminary comparison of the OECD Guidelines on Corporate
Governance of SOEs (2015) and situation of Corporate Governance of SOEs in
Vietnam............................................................................................................. 109
Annex 4. Performance of SOEs in the period of 2011-2020.............................123


LIST OF BOXES, FIGURES, TABLES

BOXES

Box 2.1. Impact of maintaining state ownership in investment attraction
results: Compare 2 equitization cases under the Ministry of Construction
Box 3.1. European Commission report on SOEs in 2016
FIGURES
Figure 1.1. Measures of SOEs’ restructuring
Figure 1.2. Monitoring of SOEs’ performance
Figure 2.1. Number of equitized SOEs
Figure 2.2. SOEs’ supervision subjects
Figure 2.3. Adjustment to reduce number of industries, sectors that the
State holds 100% authorized capital or dominant stock
Figure 2.4. The compliance status of regulation on SOEs’ information
disclosure
TABLES
Table 1.1. Methods and objectives of SOEs’ privatization
Table 2.1. Financial development index of enterprises in 2010-2017
period
Table 2.2. IPO results of equitized enterprises in the period of 2011-2016

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ACKNOWLEDGMENTS
In order to complete this master thesis, I have been received enthusiastic
guidance and support from my lectures, family and friends. From the bottom of my
heart, I would like to express my thanks to them.
Firstly, I would like to express the sincerest thanks to my supervisor, Assoc.
Prof., Dr. Nguyen Thi Tuong Anh who has supported, guided and encouraged me
during the completion of this master thesis from choosing the topic, outlining the
main ideas, turning those ideas into this thesis to editing this paper. Without his
enthusiastic and excellent guidance and support, I could not have completed this
master thesis.
Also, I would like to express my special thanks to all lectures of the Master of
International Policy and Law program, Foreign Trade University as well as World
Trade Institute who gave me the chance to broaden my humble horizon in the field
of economics and laws.
Last but not least, I would like to express my warm thanks to my family, my
colleagues and my friends who never stop supporting, encouraging and giving me
the favorable conditions to complete this master thesis.


LIST OF ABBREVIATIONS
BCC

Business Cooperation Contracts

CMSC

Committee for Management of State Capital at Enterprises
Comprehensive and Progressive Agreement for Trans-Pacific
Partnership

CPTPP
EU

European Union

EVFTA

EU-Vietnam Free Trade Agreement

GATT

General Agreement on Tariffs and Trade

IMF

International Monetary Fund

NCA

Non-commercial assistance

NGFTAs

New generation free trade agreements

POE

Privately Owned Enterprise

ROE

Return on equity

SASAC

State-owned Asset Supervision and Administration Commission

SCIC

State Capital and Investment Corporation

SOBs

State-owned banks

SOEs

State-owned enterprises

WTO

World Trade Organization

ABSTRACT
New generation free trade agreement (NGFTA) is an inevitable tendency for
members to deeply cooperate in a variety of areas, including SOEs. Joining
NGFTAs, Vietnam is not out of that tendency, therefore, Vietnam has to fully
comply with commitments regulated in NGFTAs. With the topic “Restructuring
SOEs in line with the new generation Free Trade Agreements of Vietnam: the case
of CPTPP and EVFTA”, the thesis focuses on Vietnam's legislation, implementation
of SOEs’ restructuring and Vietnam's NGFTAs in order to point out the dispositions
on restructuring SOEs. Not limited to this, the thesis analyzes Vietnam’s policy on
restructuring SOEs compared to SOEs' obligation stated in NGFTAs.
Following that, the thesis mainly focuses on several issues and gains some
achievements as below. Firstly, the thesis comprehensively analyzes regulations on
restructuring SOEs in Vietnam and NGFTAs of Vietnam. As a result, the similarities
and differences between them are stated. Based on that, the thesis reveals that there
is an incompatibility of the SOEs' definition and disclosure obligations for SOEs
under the CPTPP, but not SOEs under Vietnamese law, some information relating to
the subsidies for SOEs is still missing (such as the total value of the subsidy, the
impact assessment of the subsidy on trade). This is a "gap" that Vietnam must
complete to ensure the obligation to enforce regulations on SOEs in the CPTPP and
EVFTA.
Secondly, the thesis details measures of SOEs’ restructuring that Vietnam
implemented from 2011 to 2020, including: (i) Restructuring economic institutions
and corporate governance of SOEs; (ii) Restructuring SOEs' ownership structure;
(iii) Restructuring the monitoring of owner’s representative agency.
Thirdly, based on the analysis above, the thesis recommends solutions for
SOEs’ restructuring in line with CPTPP and EVFTA in the coming period,
contributing to perfecting the market economy institution, improving the
performance of businesses, the efficiency of using social resources, efficiency and
competitiveness of the economy, avoiding risks of violating commitments in
NGFTAs.

INTRODUCTION
1. Research rationale
State-owned enterprise (SOE) is a specific kind of enterprise with specific
characteristics and inherent competitive advantages. It often exists for several reasons,
including a mixture of social, economic and strategic interests. Contrary to what might
be expected, SOEs still play a role in twenty-first-century trade. More importantly, the
(possibly) competition distortive behavior of SOEs is no longer only affecting the
domestic markets but has expanded to international trade. While fewer economies are
relying on SOEs to provide goods and services, those SOEs that still exist increasingly
affect international trade. Because of global value chains, globalization, and the
opening up of WTO Members’ markets, the possible trade and investment distorting
effects of SOEs participation in international trade have entered the limelight.
In the context of globalization, countries tend to extensively and
comprehensively cooperate in a variety of areas, therefore, the number of NGFTAs has
increased significantly and gradually replaced traditional free trade agreements
(FTAs). NGFTA is an inevitable tendency for members to deeply cooperate in a variety of
areas, including SOEs. Joining NGFTAs, Vietnam is not out of that tendency, therefore,
has to fully comply with commitments regulated in NGFTAs. EVFTA and CPTPP are
two of the largest NGFTAs that Vietnam's largest-ever negotiated. Not only containing
traditional market access issues in goods, trade services, and investment, both
agreements also cover new areas either not covered by or going much deeper than the
WTO. Moreover, the new agreements set international rules that will have stronger
impacts on Vietnam’s domestic policies and institutions than any FTAs in the past. The
country’s enthusiasm for these agreements has been motivated by the fact that while
Vietnam has gained much from trade liberalization and international integration, there
remains a long way to go. Participation in the CPTPP and EVFTA provides Vietnam an
opportunity to continue its rapid growth and to enhance national competitiveness.
However, these agreements also carry significant risks that need to be mitigated. The

integration and implementation of international commitments require constant
innovation in the structure of the economy. Restructuring SOEs will help to free up
resources and economic space for the private sector.
In Vietnam, the practice has shown that the resource utilization efficiency of
SOEs is still low and they reduce the efficiency and overall competitiveness of the
economy. Many SOEs become a burden to society and the cost is much higher than the
SOEs maintenance benefit. Therefore, restructuring the SOEs is both a requirement to
improve the SOEs’ performance, promote the development of market economy,
improve efficiency and overall competitiveness of a transition economy as well as
compliance with signed international commitments.

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Many SOEs’ reforms have been implemented in Vietnam since the late 1980s
such as reorganization, organizational restructuring, equitization, sale, delivery,
transfer of

12


enterprises, the innovation of management mechanism, etc. Through the
implementation stages, besides the positive results, restructuring SOEs revealed many
limitations, it is necessary to have new solutions or new ways to achieve better goals
and higher efficiency. In addition, the new context requires a more comprehensive and
in-depth assessment of policies and practices of SOEs’ restructuring in Vietnam in line
with NGFTAs.
For the reasons mentioned above, the topic “Restructuring SOEs in line with
the new generation Free Trade Agreements of Vietnam: the case of CPTPP and
EVFTA" is chosen to evaluate SOE's restructuring process from 2011 to 2020 and

propose solutions for the period of 2021-2030.
2. Literature review
2.1. Evaluating implementation of SOEs’ restructuring
From 2011 to 2019, many doctoral theses were published related to restructuring
SOEs. Some studies analyzed a specific solution of SOEs’ restructuring. And some
theses recommended comprehensive solutions of SOEs’ restructuring on the scope of
specific localities or sectors.
Nguyen Dinh Cung (2014) reviewed the SOEs’ restructuring measures
implemented in the world before 2013 and said that Vietnam implemented all of them,
however, the mode of implementation is "cautious", at a slow pace, not yet reaching
the goals and requirements.
For the state agency, the Government's Report (2011, 2012, 2013, 2014, 2015,
2016, 2017, 2018 and 2019) which was chaired by the Ministry of Finance, evaluated
the annual implementation results of restructuring, innovating and improving the
efficiency of SOEs, pointed out the achievements and limitations according to the Socioeconomic Development Plans and proposed solutions for the following year.
CIEM (2017) evaluated the results of SOEs’ restructuring associated with the
restructuring of the economy on the principle of resource allocation under the market
mechanism. The research identified that in order to implement SOEs’ restructuring, it
is necessary to determine correctly the role of state capital and the function of SOEs in
the overall renovation of the role of the State by the requirements of developing the
market economy, thereby conducting synchronous solutions: i) Restructuring list of
state- invested assets by centering on equitisation and divestment; ii) SOEs’
governance restructuring by centering on renovating mechanism of the state asset
management; iii) Restructuring technology, products and services of SOEs to improve
their efficiency and competitiveness.
World Bank (2012) assessed that “Vietnam’s state sector has become smaller but
is still relatively large and inefficient”, and clarified the reasons for reforming the
SOEs, including: (i) SOEs are less efficient than nonstate and foreign firms; (ii)
Equitization has been good for SOEs; (iii) Industrial policy can be carried out without

the presence of a large SOEs’ sector; (iv) SOEs have become too big to fail and too
big to save; (v)


The role of the state in the economy has been changing and an inefficient and weak
SOEs’ sector gives a bad name to the state; (vi) A large SOEs’ sector is the source of
an uneven playing field; (vii) SOEs have been slow to embrace modern corporate
governance and transparency; (viii) The corporate framework for SOEs remain weak
and incomplete; (ix) There is lack of vision and clarity regarding the role of SOEs in
development; (x) The SOEs' reforms can be leveraged to develop a healthier private
sector. World Bank (2012) recommended 5 key solutions to restructure SOEs called
D- R-E-A-M: Disclose; Regulate; Equitize; Accountable and Monitor.
Regarding the reasonable size of SOEs in the economy, the paper of Nguyen
Minh Phong (2013) compared Vietnam's situation with the international situation and
made recommendations: In the outlook, it is possible and necessary to reduce the
proportion of SOEs in GDP from the current level of about 30% of GDP to about 1015% of GDP. According to world statistics, the Government only holds 20% of capital
in SOEs and the SOEs sector only accounts for 5-20% of GDP.
Kunmin Kim and Nguyen Anh Tru (2019) aimed to examine the reform of SOEs
in Viet Nam. It found that the net revenue positively affects the profit before taxes of
SOEs, while sales expenses exerted a negative impact on the profit before taxes. The
article recommended policies to the government and SOEs to enhance performance
and fostered the achievement of the reform, including the enhancement of the roles of
the state in SOEs, the transparency procedure of the reform, the improvement of the
government’s control and inspection in the equitization and divestment of SOEs, the
selection of appropriate methods for equitization and divestment, the exact assessment
of SOEs’ value, and the consideration of the particular characteristics of different
sectors.
2.2. Measures of SOEs’ restructuring
World Bank (1996) listed the basic and specific measure groups of SOEs

restructuring in the late 1980s and early 1990s. Basic content included: (i)
Corporatization and restructuring of SOEs governance; (ii) Dissolution, bankruptcy of
SOEs; (iii) Divestment and sale of SOEs. Specific contents include: (i) Identifying
owner functions with SOEs management functions; (ii) Identifying the economic and
social goals of SOEs such as separating the social security system, ensuring employee
benefits through various tools, not investing directly from the state budget for SOEs;
(iii) Employing members of the Board of Directors other than civil servants and public
employees; (iv) Hiring a CEO to operate under the market mechanism; (v) Operating a
market mechanism on wages and salaries; (vi) Restricting companies holding large
scale capital; (vii) Developing a competitive market; (viii) Strengthening financial
discipline, operating hard budget constraint mechanism; (ix) Valuation of share
market of SOEs;
(x) Labor market development; (xi) Reforming policy framework, bankruptcy mechanism,
applying independent audit, etc.


UNIDO (2003) proposed actions to address the problems of SOEs, including:
privatization; external reforms of SOEs; corporate governance reforms; change of
SOEs’ structure; liquidation.
2.3. Restructuring SOEs in line with the NGFTAs
Prof. Jacques Pelkmans, Dr. Weinian Hu, Federica Mustilli, Mattia Di Salvo
(2016) provided an in-depth contribution to the status of bilateral economic exchanges
and persistent trade barriers that exist between the European Union and China. The
study analyzed the SOEs’ problem in China, reviewed SOEs reform process, barriers
to market access and distortion caused by SOEs. After decades of SOEs’ reforms,
China still exists discriminatory policy and easy access to bank loans with preferential
rates and terms leading towards a distorted market, with an unlevel playing field and
diminished effects of principles in international trade agreements, such as national
treatment, most-favored-nation treatment and transparency. China’s Government
established a State-owned Asset Supervision and Administration Commission

(SASAC) to implement the function of state owner at the enterprise and supervise state
assets. The study offers many lessons for SOEs’ governance reform.
World Bank (2016) synthesized many studies on: i) Willingness among all
stakeholders to embrace the CPTPP and EVFTA can only be translated to readiness if
efforts are made to improve the regulatory framework, strengthen institutions, and
streamline administrative and organizational processes; ii) Capacity building,
including human resource development, and the provision of support services should
help progressive restructuring of supply chains to capture more value-added; iii)
Levelling the playing field between SOEs and private enterprises through major
reforms and better trade facilitation of trade should motivate entrepreneurship and
create the needed environment for Vietnamese businesses to compete under the
Agreements; iv) Measures to minimize the risks associated with the implementation of
these Agreements are needed. These risks include adverse impacts on inclusive
growth, degradation of social protection and environmental damage; v) Other risks like
dispute settlement challenges and protecting intellectual property rights need to be
dealt with through accelerating domestic reforms.
Furthermore, World Bank (2016) explained why SOEs are problematic in the
international trade context. A state distorting the market to benefit its SOEs to the
detriment of its competitors, the argument goes, is unfair and sub-optimal. The notion
of so-called “competitive neutrality” has formed the undercurrent of the movement
toward SOEs’ reform and/or regulation. The proponents of a new rule have largely
focused on the benefits and preferential treatment that the SOEs receive and,
consequentially, the uneven playing field that their privately-owned competitors face.
An oft-quoted list of this preferential treatment includes: outright subsidization,
concessionary financing and guarantees by the government and/or governmental
financial institutions, preferential treatment in the application of regulations,


monopolies and advantages of incumbency, captive equity, exemption from
bankruptcy rules, and information advantages. The CPTPP’s new SOEs’ rule is an

understandable but incomplete response to the rise of visible hands. It reflects both the
qualitative transformation of the SOEs’ issue in the context of international
transactions and the frustration with the pre-existing rule. It intends to supplement the
latter, mainly by introducing a bright-line definition of SOEs as well as updating the
legal obligations to be attached. This prophylactic approach in effect breathes new life
into the rules that could have regulated the SOEs but had largely remained dormant for
the past few decades. The rule is intended to enhance the enforceability and
administration of the legal framework. It is also structured to increase the cost
associated with establishing and maintaining SOEs, affecting the parties’ incentive
structure to abide by their policy preference for SOEs.
Topic on “Restructuring SOEs” has been researched by many domestic and
international agencies, academics, experts and organizations. These studies have
basically clarified the methodology and situation of SOEs’ restructuring and have
proposed solutions to promote SOEs’ restructuring according to international practice.
and based on the unique view of each study.
To conclude, there are several points which are not mentioned in the previous
papers. Firstly, there are papers on obligations under the CPTPP and EVFTA
agreements pertaining to SOEs restructuring in Vietnam, and there is no paper deeply
conducting the compliance of Vietnam’s legislation with SOEs provisions regulated by
two NGFTAs of Vietnam (CPTPP and EVFTA). Secondly, papers only focus on
general situation of SOEs’ restructuring in Vietnam. It lacks of papers which analyze
and synthesize whether restructuring SOE in Vietnam has been in line with the
NGFTAs or not, specifically CPTPP and EVFTA. Thirdly, it lacks paper on detailed
recommendations for Vietnam in the implementation of SOEs restructuring in line
with NGFTAs.
As a result, surplus above mentioned reasons, this paper will solve those issues.
For the first issue, all provisions of SOE chapter of two NGFTAs of Vietnam (CPTPP
and EVFTA) will be comprehensively analyzed and compared with economic
institutions on SOEs restructuring of Vietnam including: institutions on corporate
governance of SOEs, on restructuring SOEs' ownership structure and on the

monitoring of owner's representative agency. For the second issue, current situation of
SOEs restructuring of Vietnam in line with CPTPP and EVFTA, international and
domestic contexts, international experiences in restructuring SOEs in line with
NGFTAs will be evaluated so as to synthesize the level of compliance of Vietnam’s
legislation with SOEs commitments in CPTPP and EVFTA. Based on all analysis
above, the third issue will be addressed with the detailed recommendations for
Vietnam in the implementation of SOEs restructuring in line with CPTPP and EVFTA
for the period of 2021 - 2030, including but not limited to objectives and task
orientations for SOEs restructuring to 2030.


3. Research objectives
- The general objective of the paper is to propose solutions to restructure
Vietnam’s SOEs in line with NGFTA's commitments for the period of 2021-2030,
contributing to perfecting the market economy institution, improve the performance of
businesses, the efficiency of using social resources, efficiency and competitiveness of
the economy, avoiding risks of violating commitments in NGFTA.
- Specific objectives are to:
(i) Clarify obligations under the CPTPP and EVFTA agreements pertaining to SOEs
restructuring in Vietnam.
(ii) Analyze overview of SOEs in Vietnam currently and implementation of SOEs'
restructuring in the period of 2011-2020
(iii)
Evaluate achievements, limitations and draw some experience from SOE's
restructuring in line with CPTPP and EVFTA in the period of 2011-2020
(iv)
Propose recommendations for Vietnam in the implementation of
restructuring SOEs in line with CPTPP and EVFTA for the period of 2021-2030
4. The scope of the research
- In terms of space: Vietnam's entire economy, SOEs reform experience of Eastern

European countries, China, Singapore
- Time: The assement of restructuring SOEs in Vietnam in line with NGFTAs is limited
to the period from 2011 to 2020. Proposal of viewpoints, objectives and solutions for
restructuring SOEs in line with NGFTAs is applied for the period of 2021-2030.
5. Research approach and methodology
5.1. Approach
- In order to clarify the research objectives above, this research reveals the research
question:
• How could restructuring SOEs be implemented in line with commitments in
CPTPP and EVFTA?
- With the research questions mentioned above, the thesis approaches to the research
problem from the following angles:
+ Approach from the theoretical basis for restructuring SOEs mainly under
perspective of the institutional economics, property rights theory.
+ Approach from reality, studying documents on the situation of restructuring
SOEs in line with NGFTA in Vietnam and in the world under the perspective of
economic institutions, including research on guidelines and policies, laws,
implementing organizations, commitments on NGFTAs and related entities.
+ Approach from the orientations, objectives, viewpoints, policies and laws of
the Party and the State on restructuring SOEs in Vietnam in the coming period under
the perspective of inheritance and development.


5.2. Research methodology
During the research of this thesis, different research methods are applied.
The thesis performs research methods including: collection, review, synthesis,
statistics, comparison, description, analysis of information and data sources for
theoretical basis, international experience and situation of SOEs restructuring in
Vietnam for the period of 2011-2020.
Sources for theoretical basis and international experience are extracted from the

book and syllabus of the training institutions; Reports and publications have been
published or posted on the website of State agencies and related international
organizations such as the World Bank, OECD, UNIDO, ADBI, etc.
Sources for the situation of SOEs’ restructuring in Vietnam for the period of
2011- 2020, commitments on SOEs in NGFTAs, specially CPTPP and EVFTA are
mainly compiled from published reports and official data systems of state agencies
(National Assembly, Government, ministries, People's Committees at all levels,
General Statistics Office).
6. Structure of the thesis
Besides introduction, conclusion and list of references, the thesis consists of three
chapters as follow:
Chapter 1: Overview of restructuring SOEs in line with NGFTAs
Chapter 2: Current situation of restructuring SOEs in line with Vietnam’s
NGFTAs: the case of CPTPP and EVFTA
Chapter 3: Recommendation for Vietnam in the implementation of restructuring
SOEs in line with NGFTAs for the period of 2021-2030


CHAPTER 1. OVERVIEW OF RESTRUCTURING SOEs IN LINE WITH THE
NGFTAs
1.1. Overview of NGFTAs
1.1.1. Definition of NGFTAs
About the concept of traditional FTAs, the term FTA is firstly shown in GATT
1947. In detail, the definition of free trade area has been revealed that “A free – trade
area shall be understood to mean a group of two or more customs territories in which
the duties and other restrictive regulations of commerce […] are eliminated on
substantially all the trade between the constituent territories in products originating in
such territories”. Also, GATT 1947 states that “the provisions of this agreement shall
not prevent the formation of a customs union or of a free – trade area or the adoption
of an interim agreement necessary for the formation of a customs union or of a free

trade area”. In general, Article XXIV of GATT 1947 only shows the definition of free
trade area, but through that definition, the GATT 1947’s concept about FTAs could be
seen as follows.
Firstly, contracting parties join FTAs to reduce tariff and other trade regulations.
Secondly, the goods originated from contracting parties receive benefits from tariff and
trade regulation reduction. Thirdly, the concept of traditional FTAs is suitable with the
time of GATT 1947 when contracting parties mainly traded with each other in tangible
goods, so that GATT 1947 focuses on trade in goods. To conclude, the concept of
traditional FTAs is mainly about trade in goods. The level of commitment between
parties is about reduction of duty and trade regulations.
Regarding the concept of NGFTAs, since 1990s, the concept of traditional
FTAs is not suitable with the development of economic integration. NGFTAs with broad
scope of commitments and high level of liberalization with commitments being beyond
the trade in tangible goods gradually replace traditional FTAs. NGFTAs include not
only tariff reduction but also other issues under GATT/WTO and new issues which are
beyond the WTO’s regulation. Compared to traditional FTAs, NGFTAs cover new
issues like labor, sustainable development and the environment. It also covers some
other issues such as human rights, counter – terrorism and democracy.
To sum up, NGFTAs are treaties between contracting parties that agree on not
only tariff reduction but also other issues such as labor, the environment, human rights
and democracy. NGFTAs have broader scope of commitments and higher level of
liberalization than traditional FTAs.
1.1.2. Characteristics of NGFTAs
With development of international trade, scope of commitments and level of
liberalization of traditional FTAs seem not to be suitable. Therefore, traditional FTAs
are gradually replaced by NGFTAs which differ from traditional FTAs in some
characteristics.


1.1.2.1. High level of liberalization

NGFTAs have higher level of liberalization than traditional FTAs. The main
purpose of traditional FTAs is tariff and trade regulations reduction on goods traded,
but tariff and trade regulations reduction is applied for some lines of products only,
while NGFTAs, which have higher level of liberalization, have tariff reduction on
most lines of goods. According to NGFTAs, tariff on about 95 percent of lines of
products is eliminated immediately after FTAs come into force (Vietnamese Logistics
Association, 2015). As a result, goods are more freely and easily traded between
members in free trade area.
Also, NGFTAs include trade not only in goods but also in services. Most types of
services in NGFTAs are under commitments between members. It means that based on
NGFTAs, members open up most types of services. In summary, NGFTAs have higher
level of liberalization than traditional FTAs because NGFTAs allow members to cut
down tariff for most lines of goods and open up most types of services.
1.1.2.2. Broad scope of commitments with strict requirements
The main difference between traditional FTAs and NGFTAs is that NGFTAs
have broad scope of commitments which are not limited by trade in goods. Compared
to traditional FTAs which cover trade in goods and mainly focus on tariff reduction,
NGFTAs mention not only trade in goods but also other areas such as labor,
sustainable development and environment (Nguyen Thanh Tam, 2016). Also, NGFTAs
cover some other issues such as human rights, counter – terrorism and democracy.
In the context of globalization, requirements of members about all areas are
higher, especially in subjects like the environment, human health and life and
sustainable development. Therefore, most members pay attention to those areas
because besides economic growth, members, especially developed ones mainly focus
on sustainable development. Although NGFTAs have broad scope of commitments
than traditional FTAs, they have strict technical requirements and high standards in
implementing the commitments (Vu Van Ha, 2017).
1.1.2.3. Flexible schedule to comply with commitments
Although NGFTAs have broad scope of commitments and depth of liberalization,
this is not a barrier for developing or least developed members. Compared to

traditional FTAs, timeline to apply commitments in NGFTAs is flexible but within the
limits provided by WTO. It means that NGFTAs create opportunities for developing
members and least developed ones to adapt the commitments in NGFTAs. The
timeline depends on the level of development and regulatory capacity of each member
(O’Callaghan and Nicolas, 2008), but it is within the limits provided by WTO.
1.1.2.4. More impacts on domestic law


Traditional FTAs mainly focus on trade in goods, therefore, they have effects on
the border issues like tariff polices. Unlike traditional FTAs, NGFTAs have
commitments on other issues such as labor and the environment which are issues after
border. So NGFTAs have more impacts on domestic law and policies of members (Vu
Van Ha, 2017).
NGFTAs require each member to review its legal system, not only tariff policy,
but also policy in other areas like trade facilitation, government procurement,
competition policy, non – tariff measures, investment, dispute settlement mechanism,
intellectual property rights, services, labor and the environment. Therefore, for
example, in investment aspect, foreign and domestic investors are protected from
unlawful interferences because of the transparent investment environment.
1.1.2.5. Contracting parties of NGFTAs with high level of economic development
Compared to traditional FTAs, NGFTAs have the participation of contracting
parties with high level of economic development (Vu Van Ha, 2017). For example, the
ASEAN Free Trade Area (AFTA), which is a traditional FTA, includes developing
parties, while in some NGFTAs which Vietnam has recently signed, the partner is
developed parties such as Korea (Vietnam – Korea FTA); EU members (Vietnam – EU
FTA) or Australia, Canada, Japan, Mexico, New Zealand, Peru, Singapore (CPTPP).
The participation of developed members in NGFTAs is a driving force for cooperation
and extensive commitments within NGFTAs.
1.1.3. Roles of NGFTAs
1.1.3.1. Boosting trade liberalization

NGFTAs are an alternative strategy for members if they want to cooperate in
trade and other areas. WTO has so many members and each member has its own
strategy, therefore, WTO negotiation rounds are difficult to come to final agreement.
As analyzed, the characteristics of NGFTAs are depth of liberalization and broad
scope of commitments, so NGFTAs boost trade liberalization and contribute to the
economic growth of members.
NGFTAs significantly affect each member’s economy. Firstly, when members
sign NGFTAs, they take advantages from tariff reduction and elimination. It boosts
regional trade among them. Compared to traditional FTAs, NGFTAs have tariff
elimination in most lines of products. When tariff on goods dramatically decreases, price
of imported products is lower than before because it does not include import tax in the
final price. As a result, trade grows significantly and trade turnover among members
also increases.
Secondly, each member in free trade area could specialize in the production of
goods which it has a comparative advantage due to tariff reduction and the free
movement of goods among members. Thus, each member can take advantage of
efficiencies created from economic scales and increased output (Vu Van Ha, 2017).


Also, each member’s specialization in one area, which it has comparative advantage,
results in lower average cost and increase in productivity. In other words, NGFTAs
could lead to each member’s increased production.
Thirdly, NGFTAs with high level of liberalization and broad scope of
commitments bring about production efficiencies. On the one hand, high level of
liberalization improves the efficiency of resource allocation between members, which
leads to higher productivity and the increase in the total domestic output of goods and
services. On the other hand, NGFTAs with liberalization increase the competition
among producers, not only within one member, but also within the free trade area.
Competition could encourage domestic producers use innovative methods and new
technology to increase productivity. This could improve the quality of goods and bring

advantages to customers. Customers have a greater variety of goods, services with
high standard and lower price. In other words, NGFTAs lead to the rising living
standard, rising real income and higher rates of economic growth for each member.
1.2. Overview of SOEs
1.2.1. Definition of SOEs
In the world, SOEs have many different names 1 and definitions. However, in
terms of corporate governance, SOEs are entities controlled by the State rather than by
private actors.
According to OECD (2015), SOEs are business enterprises where the
government or state has significant control through full, majority, or significant
minority ownership Control is ownership of majority of voting share. Control is
ownership of majority of voting share or implementing an equivalent level of control.
Equivalent levels of control include cases in which the law or the charter of the
enterprise provides for continued state control over an enterprise or its board of
directors. The World Bank defines SOEs as government-owned or governmentcontrolled economic entities that generate the bulk of their revenues from selling
goods and services (Mary Shirley, 1995).
At the national level, according to Subsection 83 of Financial Administration
Act of Canada's government, SOE is a corporation that is wholly owned, directly or
indirectly, by the government. It tends to operate under a private-sector model but has
both commercial and public policy objectives, such as providing essential goods or
services to Canadian consumers that would otherwise be unavailable or undersupplied
(alcohol) and developing certain types of industries or regions. In contrast, the term
SOEs is not used in United States law. However, a range of entities linked to the
federal government exists with varying degrees of government ownership, control and
participation in governance and funding (OECD, 2009). There are federal government
1

State owned enterprise, government-owned corporation, state-owned company, state-owned entity, state
enterprise, publicly owned corporation, etc.

enterprises, including federal government corporations as government agencies that
are established by Congress to provide a market-oriented product or service and to
produce revenues that meet or approximate its expenditures. In the United States,
Section 103, Chapter 1, Part 1, Title 5 of the United States Code states that
“Government corporation” means a corporation owned or controlled by the
Government of the United States. In the Federal Republic of Germany, the Regulation
on SOE Governance defines SOEs as enterprises with the most voting rights by the
Government. According to Article 5 of Law of the People's Republic of China on the
State-Owned Assets of Enterprises, “state- invested enterprise” is a wholly SOE or
company with the state being the sole investor, or a company in which the state has a
stake, whether controlling or non-controlling.
1.2.2. Characteristics of SOEs
Three main differences in characteristics between SOEs and POEs can be
identified. Firstly, POEs and SOEs often have different guiding objectives. Where
private companies are mainly focused on profit maximization, state ownership is seen
as a way of correcting market failures. Governments depart from the principle of
competitive neutrality with the purpose of remedying market failures. Examples can be
found in cases where natural monopolies exist or where SOEs are used as agents for
developmental policies. Secondly, SOEs are characterized by their inherent
competitive advantages. As will be explained below, the need for specific rules is
created by the competitive advantages that are enjoyed by enterprises solely because of
their state ownership, financial participation by the state, government control through
rules or practices on the functioning of the enterprise, or because they are a
government- designated monopoly. As a last element in this comparison, reference can
be made to the differences in decision-making and regarding accountability. SOEs,
especially those that are uncorporatized, are often burdened with unincentivized top
management, with very limited accountability but with decision-making concentrated
in a limited amount of hands. However, it should be taken into account that SOEs exist
in a wide range of different corporate forms and with different characteristics and that

especially this last characteristic can vary immensely between different types of SOE,
influencing the potential for trade distortion.
These characteristics help explain why SOEs often inhibit a competitively neutral
market. Where governments pursue their objectives through SOEs, trade and
investment can be significantly impaired. Therefore, the need for specific rules is
created, in order for SOEs to exist without distorting international trade.
1.2.3. Rationales of SOEs’ rule on NGFTAs
Special rules with regard to SOEs are necessary because of the inherent differences
between SOEs and POEs. Especially the different guiding objectives of SOEs warrant
for specific disciplines. This can be illustrated by the fact that the rules of the GATT
1994 are enacted on the assumption that they apply to enterprises that are driven by


economic incentives, arguably not covering several activities of SOEs.The GATT and
the WTO have succeeded greatly at reducing tariff barriers in both developed and
developing countries. Therefore, the barriers to trade are increasingly situated behind
the border, some of them related to state ownership. All of the above elements help to
explain the inadequacy of the current rules with regard to SOEs in the GATT 1994.
Because Article XVII GATT 1994 was enacted in a time where the focus of trade
liberalization lay elsewhere (lowering of tariffs), the rules no longer suffice, taking into
account the position of SOEs in our globalized world. Trade distortions through SOEs
on the international market entail a higher welfare cost than distortions caused by
SOEs in a closed domestic market. Evidently, firms that are exposed to international
competition are often more efficient, cost-effective, and advanced.
Moreover, it is important to ensure competitive neutrality in order for enhanced
allocative efficiency in the economy. When different players in the market do not
operate under the same competitive terms, goods and services may no longer be
produced by those that are most efficient at it, ultimately to the detriment of the
consumer. The competitive advantages of SOEs allow for a distortion of trade and
investment. It is, therefore, deemed necessary to ensure a level playing field through

specific legislation.
However, this need for specific disciplines must be nuanced in various ways: SOEs
exist in a wide spectrum of government involvement. On the one hand, there are the
enterprises fully owned and controlled by the government, and on the other hand, there
are enterprises that seem to act completely separately and distinctly from the
government. Additionally, the corporate form of SOEs differs widely across countries
and sectors. This will significantly impact their characteristics. For example, a listed
company that has the state as its majority shareholder will have much less scope to
pursue non-commercial objectives than a fully state-owned enterprise that is not listed
on the stock exchange. The ‘corporatization of SOEs’ in some (OECD) countries has
already led to more competitive neutrality (Capobianco and Christiansen, 2011).
Moreover, only where SOEs compete (or potentially compete, if competition is being
prevented through regulation or restrictive business practices of the SOE itself) with
POEs, does the issue of competitive neutrality come into play. It is not the existence of
SOEs in themselves that causes the call for more specific regulation, but rather their
distortive practices when engaging in commercial competition. Regarding the
performance of both POEs and SOEs, ownership does not matter as long as the trading
happens in competitive environments (Mohammed Omran, 2004).
Trade negotiations are concerned with trade and investment distorting effects of
SOEs, not with their motives or guiding objectives. It is, however, the behavior of the
government that enables the competitive advantages of SOEs, mostly through
(indirect) subsidization. Therefore, international, intergovernmental, plurilateral
regulation of these matters does make sense. In order to regulate SOEs sensibly, five