luận văn thạc sĩ 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

i


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
ii


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 EVFTA 26

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
iii

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

iv


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

Page
61
74

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

19
23
45
49
52

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

22
37

68

46

i


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.

ii

BCC

LIST OF ABBREVIATIONS
Business Cooperation Contracts

CMSC

Committee for Management of State Capital at Enterprises

CPTPP
EU

Comprehensive and Progressive Agreement for Trans-Pacific
Partnership
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

iii


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.

iv


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.
Many SOEs’ reforms have been implemented in Vietnam since the late 1980s such
as reorganization, organizational restructuring, equitization, sale, delivery, transfer of
1


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
Socio-economic 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)
2


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 DR-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.
3


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,
4

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.
5


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.
6


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

7


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.
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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

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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).
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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
1

In the world, SOEs have many different names 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.
11


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, “stateinvested 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
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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 main elements must be
reflected in the provisions: (i) a clear definition and well-defined scope; (ii)
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clear general obligations and rights; (iii) specific disciplines on trade-distortive practices
by SOEs and specific exceptions; (iv) provisions to improve transparency; and (v) rules
regarding enforceability and dispute settlement. Existing rules on SOEs in international
economic law will be examined, taking into account these five elements.

1.3. Impacts of NGFTA on SOE
1.3.1. Positive impacts
The NGFTAs will almost immediately open the market for foreign businesses to
enter the certain market but are also considered as a "pass ticket" for enterprises to go
deeper into the big markets. NGFTAs membership will allow access to a vast market
conducive to investment in technological renovation to increase productivity and
reduce cost. It helps attract foreign investment, import advanced technologies,
restructure production, take advantage of scientific and technological advances and
information resources to narrow the gap with developed countries. Given the
indispensable trend of international economic integration, early accession to the
NGFTA requires urgent restructuring of the SOEs if they are to improve and establish
their strong foothold in the global competitive environment.
As market access increases and tariff commitments come into effect, industries
such as textiles, footwear, electronics, and equipment have an opportunity to increase
their exports to the member countries. As exports increase and the industries expand,

the income growth generated from domestic production will continue to grow, leading
to an increase in overall demand. However, with strict rules of origin conditions,
domestic firms and investors will have to develop the sourcing industries to benefit
from the free trade agreement.
In addition to exports, NGFTAs can also lead to an increase in FDI. It’s not only the
domestic sector which needs to reform under the NGFTAs, but also the government
institutions and administrative systems. The non-tariff measures of NGFTAs focus on
market reforms, transparency, and labor reforms, and countries has an opportunity to make
institutional changes to further align itself with member countries.
The NGFTAs could support the creation of a more competitive and innovative
economy. Over the longer term, it is not just the growth rate of exports that matters, but
also the composition of exports, and in particular the level of technology they embody.
The NGFTAs could strongly motivate and accelerate domestic reforms, which go
beyond the scope of the “trade” issues in the agreement. The NGFTAs reflects the
contents: competition, cooperation, and capacity building; services, including financial
services, telecommunications, and temporary entry of service providers; customs; ecommerce; environment; government procurement; intellectual property; investment;
labor standards; legal issues; market access for goods; rules of origin; non-tariff measures
including sanitary and phytosanitary and Technical Barriers to Trade measures; and trade
remedies. The SOE’s rule under the NGFTAs is expected to sustain structural adjustments
toward perfecting a market-based economy and a level playing
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field. The NGFTAs would see the powers of state enterprises reduced, and improve
efficiency and transparency in the activities of SOEs. The cost is that in areas in which
SOEs are supposed to provide public goods, they may come up against foreign
competition, and the government control over these SOEs would be loosened because
adjudication is outside countries. Many NGFTAs will also stimulate institutional
reforms to strengthen and standardize rules and transparency and support the creation
of modern institutions. That means the operation of SOEs will have to be more

transparent. In addition, SOEs can meet conflicts or gap between treaty provisions and
domestic legislation.
NGFTAs aim to ensure a level playing field between state-owned or controlled
companies engaged in commercial activities and their private competitors. It does this by
addressing the potentially distortive effect that preferential treatment for SOEs can have
on international trade and investment. SOEs from all over the world increasingly compete
internationally with private firms, through exports of goods and services, through
investment in other markets, and in competition with private companies in their domestic
markets. The NGFTAs consider it necessary to negotiate rules regarding SOEs, designated
monopolies (public and private) and enterprises granted special rights or privileges. Such
rules are needed in order to ensure that trade liberalization achieved by the Agreement is
not undermined by the unfair behavior of such companies.
The objective of these rules is to put private enterprises on an equal footing with
enterprises where the governments are involved. The trade-distorting activities of SOEs
and monopolies are already addressed to some extent through existing international trade
rules and through provisions in NGFTAs. This is mainly through rules that do not
distinguish between state-owned and private entities, such as the requirements not to
discriminate against overseas imports and traders, and to regulate impartially.
The NGFTA provisions build on these existing rules and focus more specifically
on SOEs and monopolies. SOEs under the application scope of NGFTA must comply
with the following rules:

Commercial considerations: SOEs are to act in accordance with
commercial considerations except when providing a public service. This rule would
only apply when the SOE is engaged in commercial activities. SOEs would be taken
into account in the commercial decisions of a privately owned at price, quality,
availability, marketability, transportation, or other factors and other terms and
conditions of purchase or sale as enterprises in the relevant business or industry.

Non-discrimination: SOEs are to buy and sell goods and services in a nondiscriminatory manner. This rule would apply only when the SOEs are engaged in

commercial activities which an enterprise undertakes with an orientation toward profitmaking and which result in the production of a good or supply of a service that will be
sold to a consumer in the relevant market in quantities and at prices determined by the
enterprise.
15