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VietNamNet Bridge – The nation’s WTO commitments require it to open goods importing and exporting as well as domestic distribution of goods to foreign investors. To effect this, the Government issued Decree No. 23/2007/ND-CP back on February 12.
However, a number of applications for an investment licence have been refused due to the lack of specific guidelines in the decree.
To alleviate the situation, after five months of floundering, the Ministry of Trade issued the long-awaited Circular No 09/2007/TT-BTM on July 17. It’s hoped that the new regulations will clear the way to foreign participation in an area of considerable commercial interest.
Vietnam is committed to grant the right to import and export (so-called 'trading rights') to foreign investors in the form of 100-per-cent foreign-invested enterprises.
The right to export enables a foreign investor to purchase goods in Vietnam for export, including the right to be the exporter of record of any product that is authorised to be exported from Vietnam. The right to import allows foreign investors to import goods into Vietnam for sale to business entities which have the right to distribute such goods in Vietnam, including the right to be the importer of record. These trading rights do not, however, include the right to establish outlets to purchase goods for export or to distribute the imports.
Circular No 09 restricts the right to export more explicitly than Decree No 23. A foreign-invested company is not authorised to purchase goods for export from any individual or entity in Vietnam but must purchase from business entities registered to engage in the sale or distribution of goods. Thus, foreign investors may not be able to purchase goods directly from their producers but must go through a domestic middleman.
Even tighter restrictions are imposed on the right to import. The foreign-invested company is allowed to sell each group of goods to only a single customer in Vietnam and must register the same with the competent licensing authority.
Each group of goods consists of items belonging to one group in the Nomenclature of Import Tariffs so, in theory, they will need to appoint 97 distributors! No guidance on the procedure for such registration is provided in Circular 09, either. It is also silent on whether a change to an appointed distributor is possible and, if so, what are the conditions and required procedures.
These are all interim restrictions, admitted Minister of Trade Truong Dinh Tuyen, aimed at protecting existing domestic small businesses during a transitional period. Full foreign competition in this sector, he noted, would take place starting in 2009.
Until then, foreign investors should seek legal advice and consult with relevant authorities before embarking on an import business with a domestic partner.
Distribution of goods
WTO commitments define distribution services as such activities as wholesaling, retailing, agency for sale purchase of goods, and franchising.
Joint ventures with domestic partners are currently the only form in which foreign investors may participate in distribution services, at least until January 1, 2009 - although no restriction on foreign equity in the joint venture will be applicable from the beginning of 2008.
As it stands, foreign investors from countries or territories which have signed an international agreement with Vietnam on market access may participate in a joint venture in this area, and there is a 49% cap imposed on the foreign investor’s share of ownership.
The distribution right is associated with the setting up of an initial retail outlet. The establishment of outlets beyond the first one shall be approved on the basis of the so-called Economic Needs Test (ENT).
The foreign invested company must apply for a licence for each subsequent outlet, with approvals made on a case-by-case basis based on three criteria: the number of existing service suppliers in a particular geographic area; the stability of market; and geographic scale.
The aim is to control the rapid spread of foreign retail franchises, such as 7-Eleven stores, which are ubiquitous in nearby Asian nations.
Therefore, Circular 09 introduces even stricter criteria for opening additional retail outlets, requiring authorities to examine not only the number of existing outlets in a particular geographic area, but also the population density in such area and the conformity of the investment project with the planning of that area.
All this makes it extremely difficult for foreign investors to satisfy the ENT, not only because of the subjective nature of the criteria, but also due to the competency of the agencies which apply the criteria.
Currently, the power is vested in the provincial People’s Committee and the Ministry of Trade. Without proper coordination, it is feared that the Ministry of Trade will have a decisive voice in an area in which it is not well informed.
(Source: Viet Nam News)

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