In some cases, companies, here and overseas, use the system to get paid for goods they know do not measure up exactly to the goods specified in documents.

This explains why 17 out of a total of 30 trade lawsuits handled by the Viet Nam International Arbitration Centre (VIAC) last year, involved Vietnamese companies dealing with foreign enterprises, the centre’s chairman Nguyen Minh Chi said on Thursday.

These included five disputes with US companies and two each with Chinese, Malaysian and South Korean firms.

According to Arbitration Centre statistics, up to 82 per cent of the plaintiffs were Vietnamese firms.

"Vietnamese firms lacked knowledge when signing contracts," said Chi. Most disputes were due to firms not opening letters of credit (L/C) on schedule, not paying for the goods and delivering the goods exactly as specified in the L/C. (Letters of credit are a common method of paying for goods internationally and involve a letter from the buyer’s bank being presented to the seller’s bank as soon as the goods have been certified as having been shipped by air or sea.)

The situation often arose where [foreign] defendants had unclear contact addresses, making the L/C untenable, said Chi. "This shows Vietnamese enterprises have quite vague information about partners when doing business with foreign companies," he said.

"Local enterprises continuously made mistakes related to foreign trade techniques – and even little mistakes can create big problems."

Chi also said that Vietnamese companies’ knowledge about national and international laws was also limited.

The Foreign Exchange Ordinance 2005 states that payment in import-export activities must be made through banks. "But in many disputes, firms still paid directly [in cash], which led to problems that should not have occurred," he said.

Le Hong Hanh, deputy head of the Justice Ministry’s Institute for Legal Sciences, agreed. He added that local firms were not used to using the law in their business activities and the problems they incurred all related to legal documents here and overseas.

Hanh said the use of tricks to complete a transaction and get the money led to many disputes and harmed the development of long-term partnerships.

"Only when enterprises improve competition capacity and pay attention to developing stable long-term partnerships can they reduce lawsuits," he said.

Arbitration is being used more and more to solve trade disputes, said Pham Quoc Anh, chairman of the Viet Nam Association of Lawyers. But the Arbitration Ordinance, which came into effect in 2003, hasn’t caught up with the present situation.

A draft law to revise the arbitration is expected to go to the National Assembly in May next year and to be adopted in October next year.

Source: VNS