Following the successful ratification of six ASEAN members (Brunei, Cambodia, Laos, Singapore, Thailand and Vietnam) and their four partners (Australia, China, Japan and New Zealand), the Regional Comprehensive Economic Partnership Agreement (“RCEP” or “Agreement”) comes into force on January 1, 2022. Covering a market of approximately 30% of the world population and 30% of the value of world trade, the RCEP is expected to support the establishment of the world’s largest free trade area. That said, Vietnam’s specific commitments regarding the opening of its service sectors to foreign investment in accordance with the RCEP are not strengthened compared to other FTAs of which Vietnam is a member (i.e. the level of Vietnam’s commitments on services after entering RCEP are equivalent to the ASEAN + FTA, but lower than the intra-ASEAN FTA, EVFTA and CPTPP). However, due to the harmonization of rules of origin within RCEP, investment and trade in Vietnam and with Vietnam, as a ratified member of RCEP, can be significantly changed by RCEP if its measures are ‘prove to be effective. Accordingly, the following are key RCEP legal points that an investor in the Vietnamese market should consider:
- Harmonized rules of origin;
- Vietnam’s participation in new intellectual property treaties;
- Data Protection Regulation; and
- Impact of RCEP on Vietnam’s post-pandemic economic recovery.
Harmonized rules of origin (“ROO”) will facilitate supply chains
Although the Agreement does not introduce any obvious tariff reductions, the harmonized rules of origin are widely seen as the most important benefits of RCEP. Indeed, Vietnam is not extending its reach to any new export market because it has already concluded free trade agreements with all RCEP members in advance; however, the relaxation of rules of origin is expected to increase the scale and types of goods exported and facilitate supply chains.
ROOs are governed by Chapter 3 of the RCEP. In this regard, a product is considered as originating in Vietnam if it is “wholly obtained or produced in a Party” (within the meaning of RCEP), “produced in a Party exclusively from materials originating in one or more of the Parties. ”, Or“ produced in a Party using non-originating materials, provided that the product meets the applicable requirements of Annex 3A ”(Article 3.2). If the good falls under the third originating good classification, the regional value content (RVC), tariff classification change (CTC) and chemical reaction rule (CR) will be applied. Especially,
- the RVC rate in the RCEP is maintained at 40 percent, which is relatively low and stable for all applicable goods, and
- Even if the good does not meet a CTC requirement of Annex 3A, it can still be treated as originating if it meets all other requirements of Chapter 3 and the value of the non-originating materials used in the production of a product classified in Chapters 01 to 97 of the HS Code not undergoing the CTC does not exceed 10 percent of the FOB value of the goods, or the weight of the non-originating materials used in the production of a product classified in the Chapters 50 to 63 of the HS Code does not exceed 10 percent of the total weight of the goods (Article 3.7).
It is interesting to note that the procedures for accepting certificates of origin are harmonized between the Parties. The Agreement applies a single, fixed rule, and one of the following documents will be accepted as proof of origin:
- A certificate of origin issued by an issuing body of an exporting Party, or
- A declaration of origin issued by an approved exporter (approved by each Party), or
- A declaration of origin issued by an exporter or producer, which must be applied after 10 years from January 1, 2022 for Vietnam.
In order to fulfill its commitments, the Vietnamese Ministry of Industry and Trade is drafting a circular promulgating the rules of origin under the RCEP.
Vietnam joins new intellectual property treaties following entry into force of RCEP
From the point of view of intellectual property (IP), article 11.9 of the RCEP requires each of its members to ratify or adhere to the following treaties:
- Paris Convention for the Protection of Industrial Property,
- Berne Convention for the Protection of Literary and Artistic Works,
- Patent Cooperation Treaty,
- Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks,
- WIPO Copyright Treaty (“WCT”),
- WIPO Performances on Phonograms Treaty (“WPPT”), and
- Marrakesh Treaty aimed at facilitating access to published works for people who are blind, visually impaired or unable to read printed matter.
As a result, Vietnam has become a new member of the WCT and WPPT, which collectively strengthen the country’s copyright and performing rights protection.
In addition, Vietnam recently discussed amendments to its intellectual property law to reflect the high standards of intellectual property rights protection under newly signed treaties, such as the CPTPP and EVFTA. These modifications are compatible with the application of RCEP.
Data regulations in national laws may be affected by the application of RCEP
It wasn’t until after the RCEP came into effect that Vietnam carefully reviewed its data regulations.
Over the past three years, Vietnam has intended to adapt the data localization requirements for businesses in certain specific sectors in accordance with several legal instruments (for example, the Cyber Security Law and its draft guidelines, etc.), on which there were round-trip comments. between the governing authority and the business community. However, under Article 12.14 of the RCEP, a party is not permitted to require an investor to use or locate its computer facilities in its territory as a commercial condition, and this will only be permitted for “legitimate public policy objectives” and “essential security interests”. The requirement will oblige Vietnam after five years from January 1, 2022. As a result, since the RCEP is enforceable, the RCEP could push Vietnam to recalibrate the data location requirements it is drafting.
In addition, a very controversial draft decree on the protection of personal data could also be amended as soon as the RCEP comes into force. In the current draft published in February 2021, any cross-border transfer of personal information must be approved by the competent authority. In this regard, Article 12.15 of the RCEP prohibits the country from preventing the cross-border transfer of information if it concerns the conduct of business, with the exception of “legitimate public order objectives” and ” essential security interests ”. The ban takes effect for Vietnam after five years from January 1, 2022.
While it may not be easy to determine what constitutes “legitimate public policy objectives” or “essential security interests”, RCEP can provide support by lobbying one of the relevant regulations. data from Vietnam, for the sole purpose of achieving its reasonable objectives.
RCEP effect will boost post-pandemic economic recovery
The pandemic has slowed down the opportunities for economic integration among all countries over the past two years. From time to time, countries have closed their borders physically and commercially to prevent the spread of COVID-19 and its variants. ASEAN and its partners are no exception. As an agreement that comes into effect in the midst of this situation, there is great hope that the agreement will bring the following motivation and opportunities for the economic recovery of all parties, of which Vietnam is a part.
First, the benefits of the newly adapted ROOs will soon help Vietnam keep up with suspended supply chains. In addition to accessing the larger markets of ASEAN and its partners, Vietnamese companies could easily reach a wider range of suppliers and customers with the help of ROOs. Foreign investors would naturally consider entering the dynamic Vietnamese market to sell their products directly or indirectly to customers within Parties to the Agreement and in other countries, thereby benefiting Vietnam.
Second, RCEP is expected to make a great contribution to the emergence of a digital economy in the country. Vietnam is increasingly rapidly building up its digital economy, which currently accounts for around 8.2% of national GDP.1 In turn, the state has drafted and published regulations to govern its business activities, with an emphasis on the new amendments to the decree on E-commerce, the draft amendment to the decree on Internet activities and the draft regulation relating to the protection of personal data and cybersecurity. Going forward, RCEP, through its separate Chapter 12 on Electronic Commerce, will not only ensure online protection of its subjects, but will also facilitate commerce by preventing Vietnam from taking unreasonable measures against businesses. .
Third, RCEP will encourage small and medium-sized enterprises (SMEs) and microenterprises to recover more quickly. Representing more than 90% of the total number of enterprises2, national and FDI SMEs and micro-enterprises are among the group of subjects who have suffered the most significant negative effects of the pandemic. 3 With the cooperation of the parties under Chapter 14 of the RCEP, Vietnam can expect these companies to cooperate with foreign players on economic and technical platforms to help their post-pandemic recovery. By analogy, these companies could access a common market of 30% of the world’s population and benefit from supply chain facilitation through uniformed ROOs and an electronic system for transactions.4
Economic cooperation is a force that plays an undeniable role in helping Vietnam and any other country to recover from the post-pandemic era. With the RCEP which has just entered into force, investors who wish to ride the waves of development in Vietnam should quickly prepare to take advantage of the myriad opportunities.
Prepare for the new large and active free trade region.