Heading north, Heading south

Vietnam's lawyers are in a holding pattern, recovering from the excessive optimism of the past decade and waiting for the payoff of market reforms and international trade agreements to materialise. A handful of firms are positioning themselves well for the expected windfall

In early June, after nearly five months of hearings, a court in Ho Chi Minh City found mafia kingpin Truong Van Cam guilty of murder, bribery and five other crimes. Over 150 other people were tried alongside the mafia boss, including the former deputy police minister, Bui Quoc Huy, and former deputy state prosecutor Pham Sy Chien. Several judges were also implicated.

Regardless of how fair or thorough the trial may have been, it is unquestionably a telling sign of just how far Vietnam has come in creating a functioning framework of laws.

Vietnam only took its first baby steps out of socialism in 1986, formally adopting a mandate to establish rule-by-law, as opposed to rule-by-bureaucracy, six years later. In a game of catch-up, the legal system has been hurriedly re-tooled to keep pace with galloping economic growth, which has been holding steady at roughly 7%. The race may have turned a corner, however.

Reviewing reforms
In April of last year, Vietnam's Ministry of Justice, together with a group of the largest international donor agencies, drew up a list of legal reforms to tackle. Lawyers universally praised the list as straightforward and detailed.

The review found that the courts were not independent and information about the law was not readily available. The government still needed to put in some hard work on both the laws themselves and the relevant institutions, and provide legal training for both professionals and laymen. After all, a law isn't much use if the ordinary person doesn't even know it exists.

But the report also acknowledged the legal system's recent advances. Each year, a sizeable batch of fresh law graduates enters the market. Laws are no longer simply announced by the Communist Party, rather hammered out by Vietnam's parliament the National Assembly. And international treaties, many of which Vietnam has signed, are increasingly referenced in day-to-day business.

Not too bad, considering the state of affairs just a few years ago. A review conducted in 1998, for example, found that of nearly 400,000 legal documents originating from the Ministry of Justice, only 19% were valid. The rest had to be modified or cancelled.

"There are not as many grey areas as before," says Anna Craven, an associate at Freshfields. "Bits and pieces are still missing from laws. Some contradictions remain, but it's easy to work with the ministries. You can call officials easily and they will call you and tell you what's really going on."

The Vietnamese Business Forum is one of the best events for firms to talk to the government. Organised by the Vietnamese Chamber of Commerce, this semi-annual pow-wow brings together local entrepreneurs, ministers and officials from the state sector, with foreign investors and lawyers. "Unlike three or four years ago, people say what they want to say," Craven says.

Nigel Russell, head of Australian-firm Phillips Fox's Ho Chi Minh City office, agrees: "The government does call for feedback from business groups. The foreign sector is giving feedback."

Others add a qualifying note to their praise of recent reform efforts. They say that in its eagerness to step into the global marketplace, the government is sometimes merely presenting a facade of complying with international conventions, without first putting down the roots to actually make them effective. They don't characterise it as deception, rather just naivety.

"We are seeing the officials at the municipal level pushing the central government for reform," says one foreign lawyer. "And while at the top levels they are all saying 'yes', what you often get handed down as legal reform is simply too vague."

He points to intellectual property as an example. Recently, the government published a new set of IP laws that were essentially no different from the Paris Convention guidelines.

"What in other jurisdictions are taken as general goals are here used as the letter of the law," he says. "They are trying to say they have compliance, but the details aren't there. So we work with them and explain, 'OK, here's how you do it'."

Economic advances
As with China, Vietnam's SOEs and the state bank's associated NPL burdens continue to drag the economy. However, the World Bank is working for reform. It is in the midst of a US$3bn assistance plan over 2003-2006 to assist Vietnam's transition to a market economy.

So far, roughly half Vietnam's SOEs have undergone some degree of privatisation, though the state is maintaining its grip on the more lucrative sectors oil, gas and coal. Vietnam Airlines, one of the best-run companies in the country, is also likely to remain under government control.

Some of the highest profile work so far has been on the Phu My power generation project. In the late 1980s, a consortium of international companies - most notably British Petroleum - embarked on an exploration of the Nam Con Son basin, 360km off Vietnam's southern coast.

When huge gas reserves were found, the government decided to build the country's biggest gas-power-nitrogenous fertiliser complex in the coastal area of Phu My, the project requiring combined investment capital of over US$2.62bn.

Five gas-fuelled power plants form the core of the complex. Phu My 1, 1.2 and 2.1 power plants are already in operation. The financial arrangements for 2.2 were finalised in December 2002, and for Phu My 3 just last month. Plans for phase four are in the works.

All told, the plants will form the country's biggest power complex, with a combined capacity of 3600MW or a third of the country's total electricity output. Although nearly every international law firm has, at some stage, advised on the projects, Lucy Wayne & Associates, Baker & McKenzie and Phillips Fox have led the pack.

Another large project is Ho Chi Minh City's Franco-Vietnamese Hospital, which opened in March. The six-level, 230-bed hospital cost US$39m, 65% of which came from the World Bank's investment arm, International Finance Corporation, and the remainder from a group of French doctors. Freehills and Lucy Wayne were the most significant advisors on this project.

"The significance for the rest of the world is that the IFC doesn't fund deals like this," says Wayne. "[It] doesn't finance projects without assets behind it and with no parent-company guarantee. They did it because of a mixture of the people involved and because I was able to structure it so it might be financial viable."

Changing perceptions
But such massive deals are scarce and the bread-and-butter work remains low-level commercial and corporate work on applications, licenses and compliance. Many believe part of the problem lies in the under-developed domestic market. The Vietnamese generally remain reluctant to spend money on legal advice. They still carry around the perception that attorneys belong in government ministries or in court representing accused criminals. When they do hire lawyers, they often bargain hard, pushing for a package deal on fees.

Although more than 30 international firms had set up shop in Vietnam by 1996, over the past decade the legal services market has contracted dramatically. Today, only a handful of firms remain committed to its future growth with a physical presence in the country.

"The enthusiasm of the mid-90s was the result of foreign investors," says Mark Fraser, managing partner for Freehills in Vietnam. "But cautious optimism is returning. We are seeing steady increases in trade volumes, though it remains to be seen how long it will take to top previous levels."

James Harris, a Singapore-based partner at Lovells, agrees that times have been tough lately. "We were one of the first international law firms to get a license in 1994," he says. "As most firms did, we built a reasonable-sized presence in the early days, in expectation of significant work on the back of the lifting of the US embargo in 1993. But like all players, over the long-haul, things did not turn out as hoped."

Standing firm
The consensus is that the key players in Vietnam today are Baker & McKenzie (one resident partner), Phillips Fox (two), Freehills (two) and Freshfields (one). Some lawyers narrow the top-band even further citing Phillips Fox and Freshfields as the most significant. Below that sit Deacons, Gide Loyrette Nouel, Johnson Stokes & Master, Lovells, Lucy Wayne, and Russin & Vecchi.

Only Vietnamese lawyers are allowed to sign-off on advice, and a few local firms are gaining a reputation beyond their local clients.

Fraser says: "A number of Vietnamese firms have been established and are starting to do well, primarily on cost-focused clients. Vilaf [-Hong Duc] and YKVN are the names we hear."

While foreign law firms are still not allowed to sign-off on legal advice, in practice the 'Chinese walls' separating a foreign firm from its international associate is in some cases nothing more than a door.

"From a legal perspective, they are completely independent," points out one lawyer. "From a reality perspective, every foreign law firm has Vietnamese lawyers who sign off on the work."

As more foreign investors do business with Vietnamese companies, the idea of hiring a lawyer for commercial or corporate advice in situ will gain acceptance. But the bulk of income for the international firms remains with foreign investors or the civil sector.

Many expect the US-Vietnam Bilateral Trade Agreement, which came into effect in December 2001, to introduce more work. The economy is expected to surge on the back of the US and Chinese export markets with Vietnam taking advantage of the lowering of US tariffs on Vietnamese manufactured exports and of China's growing import demands from southeast Asian countries, including Vietnam. All things considered, the big American firms look likely to return to Vietnam.