Sourcing from Vietnam: Settling trade disputes

This article is an excerpt from Sourcing From: Vietnam, a series of reports that provides buyers sourcing information from alternative manufacturing hubs in Asia. To read the entire article, click here.

The Sourcing From series is produced by the Hinrich Foundation, a development organization that aims to promote sustainable global trade by, among others, helping create jobs in emerging Asia. It also produces industry-specific sourcing reports through Online Developing Country Sourcing.

Vietnam is in the midst of a strong development and integration period with an influx of fast growing trade and business. Unfortunately, disputes in business and trade, especially international contracts, are also significantly increasing in terms of case number and commodities. In 2011 to 2012, for example, trade disputes increased from 8,418 cases to 11,995 cases, representing a growth of 42 percent.

The nature of trade disputes is also becoming more diverse and complicated with issues relating to contracts for international sales of goods, service contracts, transport contracts, agent contracts, insurance contracts, etc.

Methods for settling disputes

In Vietnam, mediation is preferred to settle disputes. As such, parties in the contract commonly agree to solve any conflicts through negotiation, mediation and conciliation. It is estimated that approximately 50 percent of total economic disputes are resolved by conciliation and mediation.

If a resolution cannot be reached through mediation, economic tribunals or arbitration is the next option. A majority of trade disputes are solved in the economic tribunal under the people's court.

In addition to the economic tribunal, there are seven independent Arbitration Centers available in Vietnam for trade dispute settlement. Of these, Vietnam International Arbitration Centre is considered the most trustworthy. It is typically the first choice among the seven centers for resolving disputes.

Causes of trade disputes

There are many causes of trade disputes. The most common reasons include:

• Outdated legal systems - Vietnam's legal system is considered by some to be incomplete and inconsistent. Some laws are considered to be outdated and can cause conflicts in implementation and result in disputes.
• Faulty contracts - Some contracts do not fully specify the rights and obligations of the parties.
• Applicable laws excluded from contract - Up to 80 percent of the disputes involved with import and export contracts from Vietnamese enterprises did not specify the applicable law. Accordingly, when a dispute arises, the parties, the court, or arbitration can have difficulty determining the law to solve the dispute.

Tips to avoid trade disputes

• Thoroughly understand partners - Understanding should include as much detailed information on the counterpart as possible, including, but not limited to, registered address, financial situation, reputation, etc.
• Specify applicable law in the contract - Identification of applicable laws plays a critical role in settling trade disputes. Comparing sources of law to analyze the pros and cons, as well as selecting the most advantageous for inclusion in contracts for each specific case, is important.
• Draft full contract - Aside from the clause of governing law, other terms and conditions also need to be specified while drafting a contract, especially basic clauses involving payment, shipment/delivery, product specification and packaging. Standard contracts for international sales are offered by the International Trade Center.