The constitution was amended in 1992 with the addition of the new article 57, which simply stated that any “citizen has the right to do business freely, pursuant to applicable laws”.
The article was unprecedented in the country’s legal system, showing a breakthrough in government perceptions of individual citizens rights.
The spirit of the article, however, was confined to the paper it was written on, despite being described clearly in the constitution, which is the basic lattice upon which the nation’s legal system hangs.
At that time, and despite the fresh air doi moi had blown in six years earlier, Vietnam was still severely affected by the well established, centrally controlled and subsidised economy, where state-owned enterprises held a monopolistic role.
Lessons historically learnt included capital and private business reclamation in the North in the 1950s and 60s, and commercial and industrial reform in South Vietnam post 1975, and more modern measures aimed at hurting private traders, left the public shy of the new article.
As a consequence, the private sector was almost non-existent in the early 1990s, leaving the national economy exposed to be hit hard by the collapse of the Soviet Union and the Eastern European bloc.
Even then, the handful of private business owners were often depicted in films and newspapers as ugly, exploitive and cheating characters.
One perception that prevailed in the public eye was that the government and state agencies were there simply to rule, rather than to serve the people.
A vivid example of this was the business licencing procedure, which involved ministries, departments and other state agencies at central level, as well as people’s committees and affiliates at a local level, thus flexing mighty state muscle over any person wishing to conduct private business operations.
Business licences extended to any field one could imagine, from secretarial services to dog breeding, to piano tuning. Every private trader, no matter what they were doing, was required to obtain state approval via a business licence.
Business licences themselves came in a number of formats, and were still the main tool employed by state authorities to ensure “enterprises only do what is allowed by the government”.
In 1999, a group of economists estimated that just 400 business licences had been granted in all sectors.
In order to establish a company, the owner had to gather 35 signatures and 32 stamps from respective authorities. Investors speak of waiting nine years to get a business licence, which in many instances were only valid for three months.
Nguyen Dinh Cung, an economist at the Central Institute for Economic Management (CIEM) said: “Business licences were almost an obsession for business operators, and the single most binding constraint for citizen freedom in business.”

A hard struggle against conservatism
Although individual freedoms to do business were outlined in Article 57 of the amended constitution, such freedoms were not demonstrated in other business laws prior to 1999.
Cung recognised this when he returned to Vietnam after his economic legal studies in Europe in the early 1990s. The existing corporate law and private business law, although thinner compared to those in Europe, still contained many constraints for businesses.
He believed the two laws should be combined. In late 1998, Cung shared his views with his superiors, Le Dang Doanh, CIEM head and Minister of Planning and Investment Tran Xuan Gia, who were at that time, the country’s leading reformists.
Doanh, Gia and other reformists had found encouragement in the communist party’s new slogan “to mobilise all internal powers and resources”, which the party hoped would mitigate the consequences of the Asian economic crisis, which was having clear impact on Vietnam.
With assistance from the United Nations Development Programme, a research team was formed in 1998, to examine and interpret 18 corporate laws applied in regional and developed countries around the world, to formulate a modern business law for Vietnam.
Tran Xuan Gia, the team leader recalled, “We found one important and recurring point in international laws – that was to control businesses after they are licensed, while Vietnam was trying to control them before.”
“We tried to design a legal corridor in which private citizens could trade in fields not prohibited by law. It was a breakthrough approach,” Gia said.
The required shift in legal drafting concepts meant an end to business licencing, which in turn stripped power from many relevant government bodies.
In 1998 and 1999, Prime Minister Phan Van Khai demanded ministries and provincial people’s committees review all business licences under their jurisdiction and revoke redundant licenses.
Despite this belt tightening, little result was gained with ministries and provincial people’s committees failing to take stock of business licenses they had granted, and none were revoked.
Few government agencies had a full and comprehensive list of licenses they had granted, and therefore could not exercise control over their local business environment.
At the same time, serious debate was being raised between the legal development team and other government agencies, which were trying to ensure the system remained unchanged to maintain their power.
“The debates were severe between conservative and reformists. Our team, especially minister Gia, were criticized in a cruel manner,” Doanh recalled recently.
When the fifth draft enterprise law was completed in early 1999, with assistance from leading economists from the US, Germany, Canada and New Zealand, CIEM, in charge of the legal development, coordinated with the Vietnam Chamber of Commerce and Industry to hold a series of conferences in Hanoi, Ho Chi Minh City, Danang and other large urban centres.
The conferences drew special attention from government agencies and the business community.
“There were two very different opinions. Businesses strongly supported the law while government agencies were concerned that the law was undermining their management role,” Cung recalled.
But such debate was only an initial challenge for the draft law. Major obstacles were still ahead, particularly when the document was put before the National Assembly in May 1999 for approval.
Deputies got hung up on an article in the new draft law that did not require business owners to declare legal capital in their application for business licence. This caused serious dispute.
One deputy asked minister Gia, “If one is not required to register legal capital, then he could generate 1,000 businesses overnight. What would such businesses do, other than be used for illegal purposes?”
“This regulation is not designed to stop businesses from illegal activities, but it does not facilitate the situation you suggest. Many international corporations began trading with just a handful of dollars,” Gia replied.
“In addition, it is business partners who should evaluate corporate fairness. The government is not here to fret over business matters,” he added.
One deputy, who was also People’s Committee chairman of a central province was concerned about the law’s business registration article, which he considered too loose.
“I had to curtail construction of new hotels in my province for three years because there were simply too many. Under the new law, anybody can build a hotel. It will be a huge waste,” he said.
Another deputy, who was also a provincial People’s Committee chairwoman, asked, “Why do I, a provincial People’s Committee chairwoman have no right to decide what businesses can be established in my province? I only allow good people to do business.
“My authority is taken away by the new law. Who will take responsibility if a business in my province operates illegally?”
Many more hard questions of this kind were directed at Gia.
“It was pathetic that a provincial people’s committee chairman considered himself to have the right to ban the freedom of individual citizens to do business, as stated in the constitution,” Gia said.
“Yet, this was the reality of the times,” he said.
Despite the outcry, the law was ratified by the National Assembly on May 29, 1999 following Gia’s long testimony for its necessity.
A month later, the enterprise law was announced by the President, becoming effective on January 1, 2000, paving the way for unprecedented impetus for new business development.

The legal footprint
While it took almost a decade for the law to become effective, the freedom it brought to the nation is well worth mentioning - the law put an end to the perverted perception of private business operators so deeply rooted in social conscience since the communist party took power.
When the law came into effect, 114 of the 400 business licenses listed in 1999 were revoked, while 46 more were fenced in by conditional operations over the following two years.
The most important reform brought in by the enterprise law is citizen freedom to carry out business operations in any field not directly prohibited by law.
The law has helped to liberalise entrepreneurial activities, harness Vietnam’s economic potential and remove the constraints which previously hindered innovation and creativity in business.
The law has resulted in a shift in society’s attitude towards enterprises and entrepreneurs. As a result, the social status of businessmen and entrepreneurs has risen to a much higher level.
In particular, the law has revitalised entrepreneurs and has strengthened the trust of investors and entrepreneurs in the reforms and policies initiated by the government.
Statistics from the Agency for Small and Medium Enterprise Development showed that 160,672 enterprises were registered during the 2000–2005 period.
This is three times the total number of enterprises registered from 1991–1999. The average number of enterprises registered annually is six times that in the 1991–1999 period. Accumulated capital registered by new enterprises amounts to nearly $20
billion.
On July 1 this year the enterprise law of 1999 will be replaced by a revised version. Cung said that the new law is one of the most fundamental reforms in business law, which is based on widely recognised successes of the 1999 version, toeing the domestic business environment in line with world practices.

Source: VIR, No. 767/June 26-July 2, 2006