03 notes on the abolition of Vietnam’s economic needs test under EVFTA, CPTPP and UKVFTA

Notes relating to ENT removal from international treaties

Vietnam’s market opening is demonstrated through international commitments and distribution services that increase expansion and create economic efficiency in terms of competition and development. Based on the general principles of international trade, an economic needs test (“ENT”), a tool with a legitimate and reasonable protectionist nature, has been maintained. However, this is considered a technical barrier that restricts foreign investors from entering the Vietnamese market and protects the domestic retail industry.

In this article, BLawyers Vietnam summarizes the provisions of Vietnamese law on ENT and provides 03 notes on the abolition of ENT when Vietnam signs trade agreements.

1. How does Vietnam apply the economic needs test?

The economic needs test (“ENT”) is a procedure used by regulatory agencies to consider the needs and capabilities of the domestic market before deciding to provide a license to a foreign investor (“Investor”) that wants to establish another retail outlet after the establishment of its first retail outlet.

The ENT does not apply to retail outlets with an area of less than 500 square meters or to those set up in commercial centers. It also does not apply to convenience stores or mini supermarkets.

2. What are the criteria used to consider an economic needs test?

Vietnam considers the following economic needs test criteria:

  1. The size of the geographic market area affected when the retail outlet operates;
  2. Number of retailers operating in the geographic market area;
  3. The impact of retailers on the stability of the market and the business activities of traditional retailers and markets in the geographic market area;
  4. Effects of the retail outlet on traffic density, environmental sanitation, and fire prevention and fighting in the geographic market area; and
  5. The ability of the retail outlet to contribute to socio-economic development of the geographic market area, including the creation of jobs for domestic workers; contributions to development and modernity that would diversify the retail industry in the geographic market area; improvements to the environment and living conditions of the population in the geographic market area; and the extent of its contributions to the state budget.
3. What should foreign investors pay attention to regarding the abolition of ENT in Vietnam under the 03 mentioned trade agreements?

Firstly, the time when Vietnam will officially abolish the ENT is as follows:

  • For countries participating in the European Union–Vietnam Free Trade Agreement (“EVFTA”), the ENT will take effect from 01 August 2025.
  • For countries participating in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”), the abolition of the ENT will take effect from 14 January 2024.
  • For countries participating in the Vietnam – UK Free Trade Agreement (“UKVFTA”), the ENT will take effect from 01 August 2025.

Secondly, the services that Vietnam aims for when the FCA is abolished include:

  • In the EVFTA, Vietnam commits to opening the wholesale and retail industry more broadly than its commitments in the WTO in the procedures for opening a retail store other than the first retail store. Accordingly, within 05 years from the effective date of EVFTA, investors will not be required to carry out ENT procedures when opening a retail establishment with an area of less than 500 square meters; and from the 5th year from the effective date of EVFTA, the ENT procedure will be eliminated.
  • In UKVFTA, the provisions of the EVFTA agreement will be integrated and become part of this agreement. Therefore, the services that UKVFTA aims at will be those in the EVFTA.

The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. We would love to hear from you.

Date: 27 February 2024

Writer: Minh Truong

blawyersvn-cta-image

Request a consultation

To schedule a meeting with BLawyers Vietnam’s attorneys, please call us or complete the intake form below. We will respond within 24 hours.

This field is for validation purposes and should be left unchanged.