Position Paper: Concerns re WTO Commitments: Trading Rights and Distribution Rights

Tiếng Việt – Vietnamese

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Position Paper: Concerns re WTO Implementation: Trading and Distribution Rights

The Issue

The American Chamber of Commerce in Vietnam (AmCham) strongly supported Vietnam’s effort to join the World Trade Organization (“WTO”) for over a decade, but recently the entry into effect of a Circular regulating trading and distribution activities has raised serious concerns about Vietnam’s implementation of its BTA and WTO commitments. Circular No. 9/2007/TT-BTM, 17 Jul 2007 (“Circular No. 9”), Guiding the Implementation of Decree No. 23/2007/ND-CP, 12 Feb 2007 (“Decree No. 23”), imposes new market access obstacles for American providers of goods and service, some of which are inconsistent with Vietnam’s BTA and WTO commitments.

Position

Single Licensed Distributor
Circular No. 9, Article 3 1 d) restricts foreign invested importers to selling to one single Vietnamese distributor for any given HS Chapter category of goods. This is inconsistent with Vietnam’s WTO commitments on trading rights, as expressly stated in Paragraph 147 of the Working Party Report. The new single-distributor restriction in Circular No. 9 also violates the national treatment principle since the same restriction does not apply to Vietnamese importers.

Definition of “Retailing” and “Retail sales outlet”
Decree 23 and Circular No. 9 stretch the ENT concept, which is supposed to be applied to retail sales outlets selling to individual consumers, to cover ALL sales operations/outlets by foreign-invested enterprises, even industrial/commercial sales to business end users of products such as chemicals, equipment and raw materials for production. These kinds of operations are not what the WTO definitions, as set out in the Central Product Classification (CPC) lists, contemplate when they define “retail services,” so this element of Decree 23 / Circular No. 9 is inconsistent with Vietnam’s WTO commitments.

Economic Needs Test (ENT) Non-objective Criterion
In addition, Circular No. 9 adds a new and subjective standard to the “Economic Needs Test” that is contrary to the principle of transparency in the investment licensing process1. Specifically, Article 4.3 a) of Chapter I states: “The establishment of retail outlets outside the first retail outlet shall be considered case-by-casethe sustainability of the investment project to the plans of the province or city.”

Recommendations

AmCham recommends that the Government of Vietnam revise Decree 23 and Circular No. 9 promptly to clarify that

1. Foreign invested importers may sell to the “… distributor or distributors of their choice provided that such distributor or distributors had the right to distribute the respective product(s) in the customs territory of Viet Nam,” as provided for by Paragraph 147 of the Working Party Report and Article 3-4 of Decree No. 23.

2. “Retailing” and “Retail sales outlet” (“cơ sở bán lẻ”) should be defined more accurately2, in accordance with WTO definitions used in Vietnam’s WTO Schedule of Specific Commitments in Services. Specifically, Decree 23, Article 3, para 8 should be revised as follows: “Retailing is the activity of selling merchandise for personal or household consumption including services incidental to the sale of the goods – retailing services3.”

3. The Economic Needs Test criteria should be limited to “… pre-established publicly available procedures, and approval … based on objective criteria. The main criteria of the ENT include the number of existing service suppliers in a particular geographic area, the stability of market and geographic scale,” as provided in the Working Party Report4.

Footnotes

1. Memorandum dated July 5, 2007, p. 7.

2. Decree 23, Article 3, para 8 defines “Retailing” as “the activity of selling goods to the final consumer.”

3. http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=9&Lg=1&Co=6

4. Footnote 24, WT/ACC/VNM/48, p. 38.

Background Information and references

1. THE SINGLE DISTRIBUTOR RESTRICTION

Where foreign invested enterprises can obtain a license to import goods for resale in Vietnam, Circular No. 9 limits sales of each type of imported product to only one distributor already licensed to distribute that product. Specifically, Article 3-1 d5 of Circular No. 9 states that “ are allowed to sell each group of imported goods to one trader who has registered the business of purchasing and selling or has the right to distribute that group of goods.”

1.1. Violation of the WTO and BTA Commitments

This quantitative restriction to a single reseller or distributor is a clear breach of Vietnam’s WTO commitments. Paragraph 147 of the Working Party Report6 states that enterprises granted import rights are entitled to choose more than one distributor:
“The representative of Viet Nam confirmed that, without prejudice to Viet Nam’s Schedule of Specific Commitments in Services, any foreign firm or individual (including foreign-invested firms) registered to engage in import activities would be free to select a distributor or distributors of their choice provided that such distributor or distributors had the right to distribute the respective product(s) in the customs territory of Viet Nam. Viet Nam would not apply any restrictions on the choice of the distributor or distributors, including in relation to the type of enterprise or nationality of the distributor. The representative of Viet Nam noted that compliance with its trading rights obligations would not, in any case, automatically grant importers the right to distribute goods in Viet Nam. The Working Party took note of this commitment.”

This paragraph clearly states that foreign-invested firms are entitled to freely choose their distributors, including more than one distributor.

The new single-distributor restriction in Circular No 9 is much more restrictive than the commitment in the Working Party Report, and it also violates the national treatment principle insofar as the same restriction does not apply to local importers.

1.2. Adverse Commercial Implications

Apart from the legal issues under the WTO commitments, Circular No. 9’s “single distributor” restriction does not reflect the realities of international business practice and it will undermine Vietnam’s competitiveness in export markets.

A product may reach an end-user in any variety of ways, and to ensure the level of efficiency that will enhance competitiveness, Vietnam needs to allow for a variety of distribution solutions. While some importers may be content with using a single licensed distributor for all categories of customers throughout the entire country, there are certainly many who require more flexible distribution arrangements.

Additionally, the impact of Circular No. 9 on existing businesses in Vietnam that are currently operating through multiple distributors is uncertain. Some have been told they must immediately restructure their sales relationships to consolidate distribution into a single distributor. The single distributor restriction may destabilize the market by pushing the foreign enterprises to terminate contracts with Vietnamese distributors, with whom they may have developed strong business relationships. It will also restrict competition by forcing the creation of a sub-distributor network dependent upon the one licensed distributor, and it will raise costs for the customers because in the end they will be paying for this superfluous step.

A market economy can only compete if businesses have the freedom to choose their business partners and modes of distribution. We therefore suggest that this anti-competitive and WTO-inconsistent restriction in Circular No. 9 be abolished.

2. WEAKENING THE RETAILING SERVICES COMMITMENTS

2.1. WTO and the Economic Needs Test

Vietnam’s WTO Accession documents, in the Schedule of Specific Commitments in Services (“the Schedule on Services”), allow Vietnam to introduce an Economic Needs Test (ENT) for the establishment of retail outlets beyond the first one7.

This concession to Vietnam was a very unusual exception to the General Agreement on Trade in Services (“GATS”), which prohibits any form of economic needs test as a criteria for licensing foreign service suppliers. GATS Article XIV on Market Access stipulates that:

“In sectors where market-access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as:

(a) limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test (…)”. .

The negotiators tried to prevent the abuse that is typically associated with ENTs by adding language to Vietnam’s WTO commitments that provided that the ENT must be based on objective criteria. Specifically, as stated in Vietnam’s Schedule on Services:

“Applications to establish more than one outlet shall be subject to pre-established publicly available procedures, and approval shall be based on objective criteria. The main criteria of the ENT include the number of existing service suppliers in a particular geographic area, the stability of market and geographic scale8.” .

Decree No. 23 remains silent on this issue, relying on implementing regulations to define the test.

2.2. Circular No. 9 Fails to Properly Determine the ENT

There are three problems with the ENT as provided for in Circular No. 9. First, Circular No. 9 does nothing to implement the obligation to provide “objective criteria”. On the contrary, it adds two new criteria in its “definition” of the Economic Needs Test, or ENT9.

Specifically, Article 4.3 a) of Chapter I states: “The establishment of retail outlets outside the primary retail outlet shall be considered case-by-case on the basis of the number or retail outlets, the market stability, the population density in the province or city where the retail outlet is located; the sustainability of the investment project to the plans of the province or city10.”

There are two key differences between this language and the WTO commitments. First, Circular No. 9 rules out the possibility that criteria for some forms of retail services could be granted automatically on a multiple shop basis. The WTO agreements did not rule this out, but Circular No. 9 requires that every single shop beyond the first shop must be approved separately. Recent experience with applications for retail shops, which still seem to require the Minister of Industry and Trade’s personal signature on each and every license, means that this will be a barrier to trade in practice.

Second, the reference to a new requirement, being “the sustainability of the investment project to the plans of the province or city” is not in the WTO commitment and would therefore seem to be in violation of it as an additional restrictive criteria. We acknowledge that city zoning requirements, environmental regulations, and other rules that apply to both foreign and domestic retailers equally should be a factor in determining where retail sales outlet can operate. Moreover, such plans need to be published and publicly available.

In addition, even if “market stability” and “population density” can be considered objective criteria, Circular No. 9 does not provide guidelines on how the conditions to open a second retail outlet will be determined and by whom. In other words, the determination of “market stability” is a very complex operation, requiring specific trade expertise in many different fields. Who can – in the same ministry- possibly analyze accurately the market stability in the cosmetics, shoes, automotive and telecoms sectors? And if the test is extended to the sale of industrial intermediate products to commercial end users (which it should not be, but apparently is), the situation becomes worse. Circular No. 9 does not clearly state the procedure(s) by which the ENT will be evaluated. Nor does it make any provision for a right to appeal the decision of the administrative body denying the right to establish a second retail outlet.

2.3 Definition of “Retail”

The concept of “retail sales” in Circular No. 9 (“cơ sở bán lẻ”) has been interpreted more widely than in the WTO agreements, so that it catches even industrial sales to end users of products such as chemicals, equipment and raw materials for production. This means that an industrial company that supplies Vietnamese business customers in different parts of the country needs to pass the ENT to set up sales and service branches in different parts of the country.

These kinds of sales operations are not what the GATS definitions, as set out in the Central Product Classification (CPC) lists11, contemplate when they define “retail services”.

In its explanatory note, the United Nations Statistic Division provides a definition of retailing services as “selling merchandise for personal or household consumption including services incidental to the sale of the goods (retailing services).” As opposed to “selling merchandise to retailers, to industrial, commercial, institutional or other professional business users, or to other wholesalers, or acting as agent or broker (wholesaling services)”. This definition of retailing services vs. wholesaling services is also confirmed and adopted by the WTO Secretariat13.

Furthermore, the CPC lists under the section 63 (Retail Trade Services) only cover retail sales of food, beverages and tobacco14, and retail of non-food retailing services15, but no industrial products.

In view of the above, the sale of industrial products to commercial users are out of the scope of retailing services, and therefore not subject to the ENT requirement, only applicable to retailing.

Moreover, the ENT will clearly complicate the process of setting up such sales operations, and will hurt the end users and make Vietnam less efficient and competitive in global markets.

2.4 Retroactive Application

AmCham is also concerned that the Government of Vietnam will apply the ENT retroactively to existing sales outlets of foreign invested enterprises. Article 4.3 b) of Circular No. 916 requires all foreign invested enterprises that have more than one sales outlet to re-register each and every such outlet. Again, this seems at least unnecessarily burdensome in terms of paperwork, and at worst it threatens to shut down existing, legal sales operations.

2.5 Recommendations

In view of the foregoing, we suggest that the following amendments be considered to Circular No. 9.

First, the criteria of “existing service suppliers in a particular geographic area, the stability of market and geographic scale” should be spelled out in transparent detail so that the ratios of retail service suppliers for various types of geographic areas can be understood and applied by the relevant officials.

Second, the Vietnamese language definition of “retailing” and “retail sales outlet” (cơ sở bán lẻ) should be narrowed so that it does not violate the WTO concept by catching industrial/commercial sales to business end-users rather than individual/personal sales to individuals and families. Specifically, Decree 23, Article 3, para 8 should be revised as follows: “Retailing is the activity of selling merchandise for personal or household consumption including services incidental to the sale of the goods – retailing services17.”

Third, the reference to municipal plans should be deleted or clarified that so it does not violate the WTO commitments, and must be applied on a non-discriminatory basis.

Fourth and last, the applicants’ rights of appeal should be clearly spelled our or referred to other relevant procedural law.

3. OTHER MARKET ACCESS OBSTACLES IN CIRCULAR NO. 9

There are three other issues in Circular No. 9, each of which threatens to undermine Vietnam’s competitiveness.

3.1 “No Establishment” Restriction

First, Article 3.2 of Circular No. 9 states that “(f)oreign-invested enterprises which have been granted import licences are not allowed to set up establishments to distribute imported goods”. A similar provision governs the exercise of export rights: Article 2.2 provides that “(f)oreign-invested enterprises which have been granted export licences are not allowed to set up establishment to purchase goods for export”.

These provisions raise concerns regarding the definition of the term “establishment.” Should the article refer to a commercial presence, it will be in breach with the WTO commitments which grant right to foreign investors to pursue trade and distribution activities, provided they respect phase-in periods for certain products and to operate through joint ventures with Vietnamese partners until 2009. The Government of Vietnam should clarify the purpose of Articles 2.2 and 3.2. to avoid introducing a new restriction violating its market access commitments.

On the other hand, should the term “establishment” mean a physical warehouse, Articles 2.2. and 3.2 will create a situation in which a foreign-invested enterprise granted trading rights will be unable to warehouse their own products. This will not make sense from a business point of view, especially since:

  • Article 2.1.(c) provides that exporters are allowed to directly purchase goods and Article 2.1.(d) states that “(traders) are allowed to directly complete export procedures at the customs authorities”.
  • Article 3.1.(c) allows a foreign-invested company to complete import procedures at the customs authorities.

In between these two activities (purchase-export/import-selling) the warehousing is a fundamental step.

Here there seems to be a misunderstanding on the application of the Schedule on Commitments on Services, which applies to service providers, i.e. a company of which the main business activity is to warehouse a third party’s products. The regimes provided by the Schedule are not intended to apply to a company warehousing its own products (including those of its affiliates).

Therefore, foreign-invested enterprises with import rights should be permitted to warehouse and store their products (including those of their affiliates) because these activities are not separate services to third parties as understood in the GATS.

3.1 Registration of Distributor

Finally, the new requirement that the foreign invested enterprise conducting the import must register its distributor with the competent licensing authorities appears an unnecessary burden conflicting with the requirement of Article 4-4 A (i) (b) of Chapter III (Trade in Services) of the BTA:

“The Party shall not apply licensing and qualification requirements and technical standards that nullify or impair such specific commitments in a manner which does not comply with the following criteria: (…)

(b) such requirements or standards shall not be more burdensome than necessary to ensure the quality of the service.” (Emphasis added)

There seems to be no reasonable linkage between this registration requirement and the need to ensure the quality of the service. Therefore, this registration requirement should be dropped.

Conclusion

We respectfully request that the Government of Vietnam consider the concerns discussed above and bring Decree No. 23 and Circular No. 9 promptly into compliance with BTA and WTO commitments. This will correct Decree 23 / Circular No. 9’s negative impact on the ongoing and future operations of businesses in Vietnam and avoid undermining Vietnam’s competitiveness with unnecessary obstacles to trade.

Additional Footnotes

5. 3. Thực hiện quyền nhập khẩu
3.1. Doanh nghiệp có vốn đầu tư nước ngoài đã được cấp phép thực hiện quyền nhập khẩu, thực hiện quyền nhập khẩu như sau: d) Được bán mỗi nhóm hàng nhập khẩu cho một thương nhân có đăng ký kinh doanh mua bán hoặc có quyền phân phối nhóm hàng đó. Thương nhân này do doanh nghiệp có vốn đầu tư nước ngoài tự lựa chọn và đăng ký với cơ quan cấp phép có thẩm quyền. Mỗi nhóm hàng bao gồm các mặt hàng thuộc một Chương của Biểu thuế nhập khẩu.

6. WT/ACC/VNM/48, p. 38. In addition, paragraphs 136-147, pages 35-38, of the Working Party Report are replete with statements from Vietnam committing to full trading rights upon accession. For example: Vietnam would “ … grant all foreign individuals and enterprises (including foreign-owned enterprises) full trading rights no later than 1 January 2007 … . The full trading rights accorded to such individuals and enterprises would include the right to sell the imported product to any individual or enterprise having the right to distribute such product in Viet Nam.” ; and “…from the date of accession, all foreign firms and individuals (including foreign-invested firms) would be able to engage in importation and exportation … as importers or exporters of record, subject only to the obligation to register such activity with the relevant Vietnamese authorities. … would be permitted to sell or otherwise provide the imported product to individuals and firms in Viet Nam that have the right to distribute such product in Vietnam.” . Paragraphs 136-147 are provided for reference at Attachment 1.

7. Schedule on Service, WT/ACC/VNM/48/ Add. 2, p. 33.

8. Footnote 24, WT/ACC/VNM/48, p. 38.

9. Memorandum dated July 5, 2007, p. 7.

10. 4. Thực hiện quyền phân phối
4.1. Doanh nghiệp có vốn đầu tư nước ngoài đã được cấp phép thực hiện quyền phân phối, thực hiện quyền phân phối như sau: 4.3. Lập cơ sở bán lẻ ngoài cơ sở bán lẻ thứ nhất
a) Việc lập cơ sở bán lẻ ngoài cơ sở bán lẻ thứ nhất được xem xét từng trường hợp cụ thể căn cứ vào số lượng các cơ sở bán lẻ, sự ổn định của thị trường, mật độ dân cư trên địa bàn tỉnh, thành phố nơi đặt cơ sở bán lẻ; sự phù hợp của dự án đầu tư với quy hoạch của tỉnh, thành phố đó;

11. Classification of the United Nations Statistics Division: http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=16
12. http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=9&Lg=1&Co=6. While some have said that the WTO Secretariat’s guidance on definitions of “retail” and other services is not binding on WTO Members or Panels, nevertheless it is the most authoritative source of law available on the subject. Moreover, in the Schedule of Specific Commitments in Services, Working Party on the Accession of Viet Nam, Schedule CLX – Vietnam (WT/ACC/VNM/48/Add.2, 27 Oct 2006), these definitions are used to define the service sectors, for example: Retailing services (CPC 631 , +632 , 6112 , 6113 , 6121 ) . See Attachment 2 for reference and additional detail.

13. See WTO Secretariat, Guide to the GATS- An Overview of Issues for Further Liberalization of Trade in Services, Kluwer Law International, The Hague, 2001, p. 194. Furthermore, the Services Sectoral Classification List Document of the WTO (MTN.GNS/W/120) developed during the Uruguay Round and the basis of GATS negotiations, is largely based on the United Nations Provisional Central Product Classification.

14. Fruit and vegetables, dairy products and eggs, meat (incl. poultry) and meat products, fish and other seafoods, bread and flour confectionery, sugar confectionery, beverages not consumed on the spot, tobacco products. http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=9&Lg=1&Co=6310

15. Pharmaceutical and medical goods and cosmetics; textiles, clothing, footwear and leather goods; household appliances, articles and equipment; hardware, paints, varnishes and lacquers, glass, construction materials and do-it-yourself materials and equipment; office equipment, books, newspapers and stationery and photographic, optical and precision equipment. http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=9&Lg=1&Co=632

16. b) Doanh nghiệp có vốn đầu tư nước ngoài đã được cấp Giấy phép đầu tư, Giấy chứng nhận đầu tư có nội dung thành lập cơ sở bán lẻ ngoài cơ sở bán lẻ thứ nhất nhưng chưa được cấp Giấy phép lập cơ sở bán lẻ theo quy định tại Nghị định số 23/2007/NĐ-CP phải làm thủ tục cấp Giấy phép lập cơ sở bán lẻ theo hướng dẫn tại điểm d khoản 4 Mục II Thông tư này.

17. http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=9&Lg=1&Co=6. See Attachment 2.

Attachments (to provide ready access to information referred to in footnotes 6, 12, and 17)

1. WTO Working Party on the Accession of Viet Nam WT/ACC/VNM/48, 27 Oct 2007, Policies affecting trade in goods, Trading rights (the right to import and export) – pp 35-38, paragraphs 136-147..

2. WTO Definition of “Retailing” and “Retail Services” from UN Central Product Classification.

Attachment 1 (see footnote 6 above)

Excerpt from: WTO Working Party on the Accession of Viet Nam WT/ACC/VNM/48, 27 Oct 2006
Policies affecting trade in goods Trading rights (the right to import and export)
pp 35-38, paragraphs 136-147

“136. Members sought a commitment from Viet Nam that from the date of accession, any natural or legal person, domestic or foreign, would have the right to be the importer or exporter of record of any product allowed to be imported into or exported from Viet Nam, and in the case of importation, would have the right to sell or otherwise provide those products to any legal or natural person, domestic or foreign, having the right to distribute them. A Member noted that currently the right to import required investment in Viet Nam. A Member also sought confirmation that trading rights would be administered in conformity with all relevant WTO provisions by the time of Viet Nam’s accession. Several Members also sought a commitment from Viet Nam that Viet Nam would grant trading rights for all goods subject to State-trading by a specific date and would ensure that State-owned, State-controlled and enterprises with special or exclusive benefits observe commercial considerations and the principles of non-discrimination.

“137. In response, the representative of Viet Nam observed that Vietnamese individuals and enterprises had been granted full trading rights, with the exception of certain products required to be imported through specific enterprises (set out in Table 8©). Individuals were required to register as traders pursuant to the Decree No. 88/2006/ND-CP of 29 August 2006 on Business Registration in order to engage in importation and exportation. He said that time was required to merge the import trading rights systems for foreign and domestic legal persons, promulgate the necessary regulations, and strengthen the management/administrative capacity of the government agencies involved. For these reasons, his Government proposed to grant all foreign individuals and enterprises (including foreign-invested enterprises) full trading rights no later than 1 January 2007, except for some products subject to “State-trading” set out in Table 8©, and requested that Members grant Viet Nam a transition period until 1 January 2009 for the right of foreign individuals and enterprises to import certain products set out in Table 8(a) and until 1 January 2011 for the right to export rice (Table 8(b)). The full trading rights accorded such individuals and enterprises would include the right to sell the imported product to any individual or enterprise having the right to distribute such product in Viet Nam.

“138. He confirmed that, during the transition periods, the goods listed in Tables 8(a) and 8(b) could be imported and exported by any wholly Vietnamese-invested enterprise, while the products in Table 8© could be traded only by the designated enterprises. He further confirmed that Viet Nam would ensure that these enterprises complied with WTO rules.

“139. He noted that the right to import required no minimum investment in Viet Nam other than registration (mainly for administrative purposes) of the individual or firm seeking to be the importer of record. He confirmed, in addition, that Viet Nam’s commitments on trading rights would be applied to all WTO Members on an MFN basis. He further expressed his understanding that the granting of trading rights would not affect the rights of the Government of Viet Nam to adopt or enforce WTO-consistent requirements for customs and fiscal purposes; or to adopt or enforce regulations that were consistent with relevant provisions of the WTO Agreement and with Viet Nam’s WTO commitments, such as those relating to import licensing, State-trading, technical barriers to trade or sanitary and phytosanitary measures. Decrees on the right to import and export guiding the implementation of the amended Commercial Law were being drafted. These Decrees would be applied in a transparent, uniform and non-discriminatory manner, in compliance with WTO rules and Viet Nam’s commitments on trading rights. The Working Party took note of these commitments.

“140. A Member requested additional information on the registration requirement for importers of record, in particular, on the nature and form of this registration. This Member also inquired as to what legal normative document(s) set out the details of this registration process and, in this respect, what relevance, if any, the recent Decree on International Sales and Purchases of Goods (Decree No. 12/2006-ND-CP) held for registration and the right to import/export.

“141. Some Members stated that foreign-invested firms did not have the same rights to import, import for resale, or export as Vietnamese firms. Foreign-invested enterprises could not import goods of the same kind as the goods they produced under their investment licence unless they applied for a new investment licence. This system granted a preference to national companies over foreign ones and denied imported goods national treatment as required by Article III of the GATT 1994. Restricting importation to items specified in the investment licence or the Business Registration Certificates could be seen as a non-tariff barrier to importation prohibited by GATT Article XI. These Members insisted that Viet Nam should eliminate this discriminatory system, thus allowing domestic and foreign individuals and firms to import inputs and finished goods for resale, and to export consistent with WTO requirements. The process should be completed prior to or by the time of accession to the WTO, as national treatment was a basic requirement of the WTO. Viet Nam should provide additional information to the Working Party on its plans to ensure national treatment in this regard.

“142. In response, the representative of Viet Nam said that his Government had reviewed its legislation with a view to harmonizing investment/registration procedures for foreign-invested and domestic enterprises. New Laws on Enterprises and Investment had been adopted to this effect in November 2005. Under the new Laws, domestic investors wishing to import or export were required to hold a Business Registration Certificate and foreign investors an investment certificate. With respect to Vietnamese investors, procedures for business registration were set out in the 2005 Enterprise Law and Government Decree No. 88/2006/ND-CP of 29 August 2006 on Business Registration. Domestic investors, whether enterprises or individual business households, were free to register any business line, except those prohibited under Vietnamese law (see paragraph 33). Registration of some business lines was subject to specific conditions. His Government did not limit or otherwise intervene in the scope of business chosen by Vietnamese enterprises and, except in the prohibited sectors and some business lines that was subject to specific conditions, wholly Vietnamese-owned enterprises were entitled to determine their scope of business at their own discretion (see Tables 1 and 2 for lists of prohibited sectors and business lines subject to specific conditions). He noted that, although previously domestic investors could only import goods listed in their Business Registration Certificate, this restriction was no longer in force by virtue of Article 3 of Decree No. 12 2006 ND CP on International Purchases and Sales of Goods.

“143. With respect to foreign investors, procedures for issuing investment certificates were described in the 2005 Investment Law and Government Decree No. 108/2006/ND-CP of 22 September 2006 providing for implementation of this Law. Foreign investors already holding an investment certificate and wishing to carry out a new investment project could either apply for a new certificate or request that their certificate be amended. Investment certificates also served as business registration certificates. Foreign investors would not be limited to importing goods related to their business lines or specified in their investment certificate, nor would they be prohibited from importing goods on the basis that these goods were of the same kind as those produced under the investment licence. He confirmed that, in his view, procedures for importation of goods by foreign-invested companies were not more restrictive than those applicable to wholly domestic enterprises.

144. Having reviewed the new Commercial Law enacted by the National Assembly on 14 June 2005 and its implementing Decree, a Member noted that the draft Decree suggested that only existing foreign-invested enterprises with investors from countries with which Viet Nam had reciprocal MFN status would be permitted to import products for sale into the Vietnamese market. Such a provision would appear to be in contradiction with Article III of the GATT 1994. The Decree also seemed to impose conditions on existing foreign-invested enterprises such as minimum capital investment. This Member asked Viet Nam to commit, upon accession, not to apply any limitation on granting investment licenses for local manufacturing, importing and marketing of any product, except those for which limitations were indicated either in the schedule of specific commitments on trade in services or in the lists concerning trading rights or import limitations and prohibitions.

“145. In response, the representative of Viet Nam said that pursuant to Article 2, paragraph 3 of the latest draft, the Minister of Trade decided, in the case of businesses from countries or territories with which Viet Nam had no international commitments on market access with respect to commercial activities, whether or not to permit the establishment of foreign-invested enterprises in accordance with the Prime Minister’s instructions. He added that Article 5 of the draft Decree abolished minimum capital investment requirements.

“146. The representative from Viet Nam confirmed that Viet Nam would ensure that its laws and regulations relating to the right to trade in goods and all fees, charges or taxes levied on such rights would be in conformity with its WTO obligations, including Articles VIII:1(a), XI:1 and III:2 and 4 of the GATT 1994 and its commitments in its Schedule on Specific Commitments in Services. In particular, he confirmed that, from the date of accession, all foreign firms and individuals (including foreign-invested firms) would be able to engage in importation and exportation of products other than as set out in Tables 8(a)-(c), as importers or exporters of record, subject only to the obligation to register such activity with the relevant Vietnamese authorities. There would be no requirement for foreign firms and individuals without physical presence in Viet Nam to invest in Viet Nam. In addition, without prejudice to Viet Nam’s Schedule of Specific Commitments in Services, importers of record would be permitted to sell or otherwise provide the imported product to individuals and firms in Viet Nam that have the right to distribute such product in Viet Nam. The representative of Viet Nam noted that compliance with its trading rights obligations would not, in any case, automatically grant importers the right to distribute goods in Viet Nam. He further observed that, under Vietnamese law, Viet Nam’s Protocol of Accession would serve as the legal basis for the Government to issue a decree codifying the trading rights of individuals and firms without physical presence in Viet Nam; accordingly, he confirmed that this decree would be issued promptly upon Viet Nam’s ratification of the Protocol of Accession, and in any event, before the 30th day following such ratification. These rights would also accrue with respect to importation and exportation of other products in accordance with the timetable in Tables 8(a) and 8(b). The Working Party took note of these commitments.

“147. The representative of Viet Nam confirmed that, without prejudice to Viet Nam’s Schedule of Specific Commitments in Services, any foreign firm or individual (including foreign-invested firms) registered to engage in import activities would be free to select a distributor or distributors of their choice provided that such distributor or distributors had the right to distribute the respective product(s) in the customs territory of Viet Nam. Viet Nam would not apply any restrictions on the choice of the distributor or distributors, including in relation to the type of enterprise or nationality of the distributor. The representative of Viet Nam noted that compliance with its trading rights obligations would not, in any case, automatically grant importers the right to distribute goods in Viet Nam. The Working Party took note of this commitment. ”

Attachment 2

Definition of “Retailing” and “Retail Services” (see footnote 12 above)

http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=9&Lg=1&Co=6

While some have said that the WTO Secretariat’s guidance on definitions of “retail” and other services is not binding on WTO Members or Panels, nevertheless it is the most authoritative source of law available on the subject. Moreover, in the Schedule of Specific Commitments in Services, Working Party on the Accession of Viet Nam, Schedlue CLX – Vietnam (WT/ACC/VNM/48/Add.2, 27 Oct 2006), these definitions are used to define the service sectors (see below).

Vietnam''s Specific Commitments on Services Excerpt

Tiếng Việt – Vietnamese