Introduction

From 14 January 2019, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) became effective for Vietnam. Perhaps the most important distinct of the CPTPP, making it a “new generation” free trade agreement, is the use of the so-called negative-list approach.

Now, as the CPTPP has entered the fifth year of implementation, we’ve got enough distance and experiences to view this distinction clearly, particularly in relation to Vietnam’s market openings.

The negative-list approach

By means of negative-list-approach, foreign investors should be entitled to access all sectors as if they were local ones, except for those restricted in a list (negative list). In the CPTPP, these carve-outs are specifically detailed in the lists of non-confirming measures (NCM Lists) found in Annex I (NCM-I) and Annex II (NCM-II). For those free trade agreements concluded before the CPTPP, the way Vietnam’s market openings go is to show the specific concessions that Vietnam has made (i.e. agreeing) for foreign investors to access to Vietnam’s market, namely, the positive-list-approach. So, generally, compared to the conventional positive list approach, the negative-list-approach brings about greater openness for foreign investors.

Carve-outs limited by specific obligations

Of note, NCM Lists not only set out the carve-outs to a country’s commitment for market access, but also encompass other obligations, such as national treatment (NT), most-favoured nation treatment (MFN), and local presence (LP).

Attention: the negative aspects in Vietnam’s negative-list-approach

Under NCM-II-VN-36 of the CPTPP, for all sectors, in respect of market access to foreign investors coming from other CPTPP members: ‍

  “Vietnam reserves the right to adopt or maintain any measure that is not inconsistent with Vietnam’s obligation under Article XVI of GATS.

  For the purpose of this entry, Vietnam’s Schedule of Specific Commitments [WTO Commitments] is modified as set out in Appendix II-A.”

With the above reservation, it appeared that NCM-II-VN-36 allows Vietnam to not expand market access beyond the levels specified in its WTO Commitments, except where Appendix II-A of the CPTPP provides otherwise. Appendix II-A sets out a list of sectors with improved market access compared to the WTO Commitments. So, by virtue of this reservation, Vietnam's market access commitments under the CPTPP can be seen as a "WTO-plus" approach, with the "plus" denoting those sectors with a higher level of market access as detailed in Appendix II-A.

An example of the negative aspects

Let’s take sugar distribution as an example, to examine how negative the negative-list-approach can be.

Under the WTO Commitments, sugar distribution is not opened to foreign investors. Yet, under NCM-I-VN-4 within the CPTPP, there is a carve-out presenting a list of goods restricted from distribution but excluding sugar. This exclusion suggests that, in accordance with the negative-list-approach principle, foreign investors from the CPTPP members should be allowed to engage in sugar distribution.

However, from Appendix II-A of the CPTPP, there are no improved market access commitment regarding sugar distribution. So, the level of market access for sugar distribution in the CPTPP only mirrors what is set out in the WTO Commitments. Consequently, foreign investors from CPTPP members are no any better than foreign investors from WTO member nations: they all are not allowed to engage in sugar distribution.

A hope from domestic laws

As the negative-list-approach has been reflected in Vietnamese investment regulations being Decree 31/2021/ND-CP, in principle, there may still be market openings for foreign investors engaging in services that are not bound by either the WTO Commitments or Appendix II-2 of the CPTPP and concurrently remaining accessible to foreign investors under the Vietnamese domestic laws.

How to play efficiently by different market opening rules? Some key takeaways

From the above, if a sector is neither bound by the WTO Commitments nor included in Appendix II-A of the CPTPP, foreign investors from the CPTPP members may still not be able to access it, despite the CPTPP’s adoption of negative-list-approach. In other words, NCM-II-VN-36 may nullify the advantages associated with the negative-list-approach that the CPTPP foreign investors may otherwise enjoy for better market access.

Vietnam seemed to have achieved the reservation strong enough so as to, when necessary, nullify the greater market openings which would otherwise be brought to foreign investors by way of the negative-list-approach. In this situation, the market openings under the relevant rules, international and domestics ones, needed to be considered and structured carefully, to help achieve the investors’ commercial purposes.

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*The authors would like to thank Ms La Phuong Uyen for her valuable research contributions.

*Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For legal advice, please contact our Partners.