As one of the efforts to implement the Vietnam – US Bilateral Trade Agreement (BTA) which was signed in July 13, 2000 and took effects on December 10, 2001, the Ministry of Trade recently submitted its proposal to the Government for opening up import and domestic distribution services market to foreign companies.

Under the BTA, Vietnam agreed that 3 years after the entry into force of the BTA, it would allow joint ventures with 49% US equity limit involved in wholesale distribution, and this limitation would be abolished after 6 years. For retail services, one outlet will be automatically allowed, and beyond that, on case-by-case basis.

Vietnam currently has not completed legal framework to effect its commitments. The Ministry of Trade is assigned to rapidly draft regulations to follow the stipulated timetable as agreed in the BTA.

Current Status

Under the Foreign Investment Law (FIL) and its implementing regulations, foreign invested enterprises (FIEs) established in Vietnam are allowed and encouraged to purchase any goods and products other than those specified in the investment licences, for exporting, except for certain items prohibited by the Government. However, in a reverse way, FIEs are not licensed to be involved in import and domestic distribution services which are still reserved for local companies. While Government Decree No. 24/2000/ND-CP dated July 31, 2000 guiding the FIL contains a provision that reads "investment projects in import and domestic distribution services shall be implemented under the regulations of the Prime Minister", Article 1 of this Decree makes it clear that "international credit activities, trading activities and other forms of indirect investment" are not covered by the Decree. Given this restriction, many foreign companies wishing to involve in import and domestic distribution services are not yet licensed for the time being.

In another Government decree, foreign companies may establish branch offices in Vietnam to conduct trading activities in the country, subject to quite tough restrictions. Under Decree No. 45/2000/ND-CP dated September 6, 2000 providing the regulations on representative offices, branches of foreign merchants and foreign tourism businesses in Vietnam ("Decree 45"), foreign merchants meeting certain conditions may set up their branches in Vietnam for importing goods into and exporting from Vietnam. Nevertheless, Decree 45 provides a list that limit foreign company branches to import and export certain commodities. Generally, for import services, foreign company branches may import into Vietnam machinery, equipment and input materials for production of drugs, fertilizers only. The list of items they can export is much broader. However, for importing goods into Vietnam for sales, one condition existing under the Government that foreign company branches hardly meet is that they must use foreign currencies gained from the export of goods for importing limited items for local sale, and that the import value shall not exceed the export value. Because of this, a few foreign company branches are established now in Vietnam.

Proposed Regulations

Under its proposal, the Ministry of Trade recommends that the Trade Law should be revised to include new subjects involved in import and domestic services, which include FIEs licensed to conduct import and domestic distribution services, for the fact that trading activities fall under the ambit of the Trade Law. The Ministry of Trade is now drafting a law on amendments of and additions to the Trade Law. In more details, the Ministry proposes that the revised Trade Law should contain a general provision that allows FIEs to be involved in import and local distribution services, and based upon that, the Government will issue a separate decree regulating this matter.

Though the shape is not yet defined, some major contents of the proposed decree have been outlined by the Ministry of Trade. Accordingly, the subjects covered by the decree are foreign companies set up in Vietnam for trading activities, FIEs licensed import and domestic distribution services and manufacturing FIEs which are allowed to conduct import and domestic services. However, the decree should exclude FIEs in certain sectors such as hotels, office & apartment buildings, trading, accounting and consulting; export processing FIEs; and business cooperation contract projects. For those foreign companies and FIEs licensed in import and domestic distribution services, they may import and distribute commodities except for those prohibited or subject to restrictions in accordance with the investment licence or business registration. With respect to FIEs in manufacturing industries, they will be allowed to import and locally distribute those commodities compatible with their permitted scope of business under investment licences.

In accordance with the schedule for Vietnam to open distribution services to FIEs with US stake, the Ministry of Trade also proposes that the decree on FIEs involved in import and domestic distribution services should be issued by the end of 2004.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.