TPP Procurement: Vietnam’s Commitments

Under the Trans-Pacific Partnership (TPP), the United States will gain rights to participate in Vietnam’s government procurement, and Vietnam will be obligated to conduct its procurement in accordance with the Agreement’s international standards. The TPP will facilitate Vietnam’s first-time opening of its procurement market by providing the most extensive transitional measures found in any U.S. FTA. This post describes Vietnam’s commitments under the TPP, as well as the transitional and other special measures that it will be permitted to apply.

Covered Entities: For its coverage of central government entities, Vietnam lists 18 ministries, the Vietnam Social Security, Government Inspectorate and Committee on Ethnic Minority Affairs, with the scope of coverage of each limited to their departments and other subordinate entities that are listed in the Agreement. In the Other Entities category, Vietnam covers 38 entities: the Vietnam News Agency (excluding procurement related to news and documentary production), three national academies and 34 national hospitals. It does not cover any sub-central entities.

Vietnam takes several ministry-specific exceptions. It limits the goods covered by its defense ministry to those that it lists, which is consistent with the practices of other TPP parties. In addition, the Ministry of Public Security’s procurement commitments only extend to goods, not services or construction services; and the Ministry of Transport will not open any construction services.

Coverage of Goods: Vietnam covers all of the goods purchased by its covered entities, except for a list of excluded goods, such as transmission, radar and other apparatus. In addition, Vietnam will apply special provisions, including varying thresholds and set-asides in purchasing pharmaceutical products.

Vietnam’s national hospitals will apply three different thresholds to determine whether a procurement of pharmaceuticals will be opened to TPP suppliers: (i) for a consolidated pharmaceutical contract that lasts at least one year for each hospital, or a centralized contract conducted by the Ministry of Health on behalf of the hospitals, the threshold will start at 3,000,000 Special Drawing Rights (SDRs) and be reduced to 2,000,000 SDRs after five years; (ii) for a contract of less than one year, the threshold will be 500,000 SDRs; and (iii) for a contract for a single pharmaceutical product, it will be 180,000 SDRs.

In addition, Vietnam will be able to set aside annually a portion of its procurement of pharmaceutical products from the TPP’s obligations, as follows: 100% of the value of pharmaceutical contracts during the first three years of the Agreement; 65% of the total value in the next seven years, 60% in years 11 to 15, and then 50% from the 16th year. To fulfill the share of pharmaceuticals that are covered by the TPP each year, Vietnam will begin with innovative (patented) pharmaceuticals and then move through five categories of generics, as classified by the Ministry of Health, beginning with Category 1, until it reaches the annual share that it is opening.

In addition, Vietnam excludes the procurement of distribution services of pharmaceutical products from its coverage obligations. When such services are included in a procurement contract, the supplier, including foreign-invested enterprises, must choose a licensed pharmaceutical distributor in Vietnam to deliver their pharmaceutical products to covered entities.

The Ministry of Public Security will apply the same provisions to its procurement of pharmaceuticals.

Coverage of Services: Vietnam’s coverage of services is limited to a relatively modest list of services. The list includes data network services, electronic message and information services, and computer and related services, but subject to the condition that the TPP supplier must be established and operate in Vietnam under its laws or must be a Vietnam national.

Vietnam covers all construction services with a few exceptions, including dredging and construction of ministerial-level headquarters.

Transitional Measures: As described in an earlier assessment, Vietnam may apply higher thresholds during lengthy transitional periods, ranging from five years to 25 years. In addition, it is permitted to apply offsets and delay implementation of several TPP obligations.

Offsets: The TPP prohibits the use of offsets, except as transitional measures for developing countries. It will permit Vietnam, as a developing country, to impose offsets of any form, including a price preference, for 25 years after it implements the TPP. Its offset level will be set at 40% of the annual value of total covered procurement for the first 10 years and will decrease to 30% for the next 15 years. There will be no limit on the amount of offsets that Vietnam may request on any specific contract, as long as it does not exceed its annual percentage of total covered procurement. Typically, offsets can be fulfilled in a number of ways, such as subcontracting to local companies, investment in local industry, technology transfer and purchase of domestic goods or services.

Delayed Implementation: Until Vietnam’s e-procurement system is operational and it has issued a legal measure requiring use of that system by the central government entities covered under the TPP, Vietnam may: (i) charge a fee for access to its notices of intended procurement when those notices are accessible by electronic means; (ii) omit any conditions for participation of suppliers and limitations on the number of qualified suppliers invited to tender from its notices, but must include such information in its tender documentation; (iii) allow only 25 days (rather than 40 days) for the submission of tenders (this provision will apply for only seven years, even if the e-procurement system is not operational); and (iv) omit the justification for the use of limited tendering from its post award notices, but it must provide such information to another TPP party on request.

Vietnam will be allowed three years to implement the TPP’s domestic review procedures, which include establishing an impartial domestic review authority. In the interim, suppliers may take their procurement complaints to the procuring entity, as provided for in its Public Procurement Law. Vietnam will also not be subject to the TPP’s dispute settlement process with respect to government procurement for five years after it implements the Agreement.

Jean Heilman Grier

December 8, 2015

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