Despite media reports to the contrary, Vietnam's new logistics regulation does not further open up the market to foreign investment but newly requires compliance with e-commerce regulations.
On 20 February 2018, Government Decree No. 163/2017/ND-CP on logistics services will replace the old Decree 140/2007/ND-CP. Many foreign investors had hoped for further clarification and market access in the logistics sector. The new Decree 163 does not grant new rights to foreign investors, at least on paper, and may even introduce new uncertainties in practice. While the most interesting new provision could turn out to affect the digitalization of logistics processes.
Issued in 2007, just when Vietnam acceded to the WTO, Decree 140 is ancient for Vietnamese law standards. The law has moved on since then, as Vietnam opened most service sectors to foreign investors, including many (but not all) business activities in the logistics sector. A few points of Decree 163 are outlined below.
I. "Logistics" redefined
Foreign investors (and Vietnamese businesses seeking foreign investment) must closely review each business activity they plan to conduct in Vietnam to see if foreign ownership limitations and other conditions apply. The old Decree 140 defined "logistics" with reference to Article 233 of the Commercial Law 2005. Article 3 of the new Decree 163 defines a few "logistics services" broadly in line with descriptions of Vietnam's WTO Service Sector Commitments (WTOSSC). Decree 163 regulates the following logistics services:
Logistics services under Article 3 of Decree 163
- Container handling services, except for provision of such services at airports.
- Container warehousing services as part of maritime transport support services.
- Warehousing services as part of support services for all modes of transport.
- Delivery services.
- Freight transport agency services.
- Customs brokerage services (including customs clearance services).
- Other services including the following activities: bill of lading inspection, freight brokerage services, cargo inspection, sampling and weighing services; goods receipt and acceptance services; and transport documentation preparation services.
- Wholesaling support services and retailing support services including activities being management of goods in storage, collection, sorting and classification of goods, and goods delivery.
- Freight transport services as part of maritime transport services.
- Freight transport services as part of inland waterway transport services.
- Freight transport services as part of rail transport services.
- Freight transport services as part of road transport services.
- Air transport services.
- Multimodal transport services.
- Technical analysis and testing services.
- Other transport support services.
- Other services provided by logistics service providers and as agreed with their clients in accordance with the basic principles of the Commercial Law.
"Delivery services" and "other transport services" are not further defined in Article 3. The lawmakers probably intended that one refer to the Vietnam Standard Industrial Classification System (VSIC), which is comparable to the United Nation's Central Product Classification (CPC) codes. For example, "delivery services" under VSIC 5230 include delivery of mail and parcels not covered by "freight transportation services." VSIC 5320 is similar to WTOSSC's "courier services" (CPC 7512), which includes "express delivery services." There is no foreign ownership limit in Decree 163 for "delivery services," nor for "courier services" under the WTOSSC – that's good news for foreign courier services providers.
II. No changes to foreign ownership limitations (FOL)
WTOSSC and Decree 140 already defined FOL and their respective schedules. Decree 163 does not change anything. Decree 163 addresses FOL of various freight related services but is silent on passenger transportation services.
The below chart summarized the main foreign ownership caps in the logistics sector. It is a simplified chart, and additional conditions apply to those business lines. Further conditions apply to foreign investors. For example, maritime freight transport companies with up to 49% foreign ownership may register ships in Vietnam and fly the Vietnamese flag, but only up to one third of the crew members may be non-Vietnamese; the captain and the first officer must be Vietnamese citizens. Like other conditions in Decree 163, this is nothing new and was already set forth in the WTOSSC.
Vietnam: Foreign Ownership Limitations (FOL) in the Logistics Sector
|742||Storage and Warehouse||100%|
|748||Freight transport agency (incl. freight forwarding services)||100%|
|749||Bill auditing; freight brokerage; freight inspection, weighing and sampling; freight receiving and acceptance; transportation document preparation on behalf of cargo owners||99%||99%|
|7211||Maritime transport (Passengers; less cabotage)||49%|
|7212||(a) Maritime transport (Freight; less cabotage) – joint-venture fleet flying Vietnamese flag||49%||49%|
|7212||(b) Maritime transport (Freight; less cabotage) – foreign fleet||100%||100%|
|7221||Internal waterways transport (Passengers)||49%|
|7222||Internal waterways transport (Freight)||49%||49%|
|7111||Rail transport (Passengers)||Unbound|
|7112||Rail transport (Freight)||49%|
|7121 + 7122||Road transport (Passengers)||49%|
|7123||Road transport (Freight)||51%||51%|
|No CPC||Custom clearance||99%|
|No CPC||Container station and depot||100%|
|7411||Container handling (except at airports)||50%||50%|
|621, 61111, 6113, 6121, 622, 631 + 632||Distribution (import/export, commission agents, wholesale, retail)||100%|
III. New e-commerce provision – digitalization of logistics services
One thing that is new in Decree 163 is its express requirement to comply with Vietnam's e-commerce regulations. Article 4.2 provides that a logistics business conducting part of or its entire business electronically over the Internet, mobile or other "open networks" must comply with e-commerce regulations. Vietnam's main e-commerce regulation is Decree 52/2013/ND-CP. Decree 52 requires e-commerce service providers to either notify or register with the Ministry of Industry and Trade. E-commerce providers must also protect personal information and consumer interest in accordance with Decree 52 and other laws and regulations. Arguably, though, these e-commerce requirements were already applicable to logistics services that conducted e-commerce activities before Decree 163.
Article 4.2 is very broad and could obviously apply to any business communications over e-mail, messaging apps, web-conferencing, company websites, and social media sites – just to name few. The question is whether Article 4.2 will also apply to new internal, digital enterprise processes, such as digital supply chain and smart warehousing technologies that utilize "open networks." Vietnamese law does not define "open networks," and various literature about the topic is inconclusive as to what it actually means. For instance, one tech article concludes that today "open network" means "user choice" – which is not very helpful from a legal perspective. If IT specialists disagree on the meaning of "open networks," the various Vietnamese authorities involved in regulating and licensing logistics activities are likely to be confused as well and could interpret Article 4.2 in various, uncertain ways.
Bottom line: The new Decree 163 does not expand market access rights of foreign investors in Vietnam's logistics sector, but it introduces an explicit requirement to comply with e-commerce regulations.
For more information, please contact Manfred Otto at MOtto@duanemorris.com or any other lawyer you are regularly communicating with at Duane Morris.
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