July 1995 Private (especially foreign) investors find Vietnam's legal framework the most serious impediment to investment. Policy changes to reverse the former command system may be enough to initiate the transition. But without an appropriate legal framework, they will be insufficient for long-term development. A major objective of Vietnam's transition to a market economy has been to reactivate the private sector in a mixed economy. Several new laws have been introduced in the past five years to implement this policy and to create an enabling environment for the private sector. Thuyet reviews some of the more important laws and regulations that affect Viet Nam's private sector activities, including laws on real property, intellectual property, companies, domestic investment, foreign investment, bankruptcy, contracts, and dispute resolution. Anti-monopoly law has not yet been introduced in Vietnam. The issue of competition is addressed in the context of trade law, the relative roles of the state and private sector, and restrictions in company law. These areas all establish the foundation of a legal framework for a market economy. Among Thuyet's conclusions: * Vietnam's legal framework, like China's, is still influenced by ideology, which causes problems in such areas as private ownership of real property and with such fundamental legal concepts as due process of law. * The private sector is constrained by the lack of an independent judiciary, the absence of private land ownership, other uncertainties in property law that limit the development of financial markets, and the inherent bias of the system in favor of the state sector (and collective ownership). * A law-abiding attitude, equally important to development, has been slow to develop. * Vietnam's foreign investment process is too complicated, and its company law too restrictive. A first priority should be to streamline regulations. Vietnam has been slow to privatize its state enterprises, another step essential for development. Trade policy also needs to be liberalized. * Export processing zones may be a useful interim instrument to attract foreign investment but should be phased out over time. More important in the long term is a good investment climate resting on a strong legal foundation. This paper--a product of the Transition Economics Division, Policy Research Department--is part of a larger effort in the department to understand the legal and institutional requirements for transition from socialism to a market economy.