Written by lawyers of VILAF – Hong Duc

Many foreign enterprises are keen to invest in import/export trade or in wholesale and retail in Viet Nam. The nation faces an obligation to open up some of these areas to foreign participation pursuant to commitments it has made to the WTO and in other international agreements.

To that end, the Government recently issued Decree No 23/2007 implementing the Commercial Law to establish a legal framework for foreign-invested enterprises wishing to engage in trade or distribution in Viet Nam.

As part of its WTO accession package, Viet Nam committed to grant trading rights (the right to import and export goods) to all foreign individuals and organizations no later than January 1, 2007, with the exception of certain products reserved to State trading, e.g., tobacco products, crude oil and petroleum, books, and pharmaceuticals, for some of which the right of foreign investors to import/export will be phased in through January 1, 2009. The right to export rice will not be granted until January 1, 2011.

Viet Nam has also committed to allow steadily increasing foreign participation in distribution according to a particular timetable. From the date of Viet Nam’s accession to the WTO, foreign investors from WTO member states have been allowed to establish enterprises providing distribution services in the form of a joint venture with a domestic investor with the foreign investor holding no more than 49 per cent equity.

By January 1 of next year, there will be no limit on the foreign investor’s equity in such a joint venture, and by January 1, 2009, foreign investors may establish a 100 per cent foreign-owned enterprise to engage in distribution.

Foreign invested enterprises will be permitted to distribute all legally imported and domestically produced goods, apart from certain products which are reserved to State distribution, e.g., tobacco, books, precious metals and stones, pharmaceuticals, refined and crude oil, rice, and cane and beet sugar.

Certain other products, e.g., cars, motorbikes and tractors, may only be distributed from January 2009, while cement and clinker, tyres, paper, iron and steel, audiovisual devices, wines and spirits and fertilisers may only be distributed from January 2010.

Licensing requirements

Under Decree 23, foreign-invested enterprises involved in trading and/or distribution activities require a separate business license in addition to the investment license.

For existing enterprises, Article 5.1 provides that provincial People’s Committees can issue business licenses after receiving written certification from the Ministry of Trade that the application meets the conditions agreed to by Viet Nam in its international commitments.

For newly-established foreign enterprises, the investor must submit an application dossier for investment with the "State administrative body for investment." This body must obtain the written approval of the Ministry of Trade before issuing an "investment certificate" for the enterprise to engage in import/export or distribution. It remains unclear, however, whether these new enterprises would be granted both an investment certificate and a business license, or an investment certificate alone.

For foreign enterprises that only want to engage in import/export of goods, without engaging in domestic distribution, the "State administrative body for investment" may issue the business licence by reference to Viet Nam’s commitments in international agreements without written approval from the Ministry of Trade. This is a welcome provision that should facilitate the growth of foreign involvement in import/export trade.

Decree 23 does not resolve whether a foreign enterprise involved in import/export or distribution must also amend its investment licence to include the new line of business.

According to Article 2, Decree 23 applies only to "enterprises with foreign-owned capital conducting business in the activities of purchase and sale of goods and activities directly relating to the purchase and sale of goods in Viet Nam."

However, under WTO commitments, Viet Nam has pledged to allow foreign organisations and individuals without any investment or business registration in Viet Nam to apply for trading rights. Investors eagerly await the issuance of legal documents codifying the trading rights of individuals and firms without a physical presence in Viet Nam.

Keeping out the 7-Elevens

Under its WTO commitments, Viet Nam is allowed to impose an economic needs test on the establishment of subsequent retail outlets after the first one, a measure for controlling the proliferation of franchise or chain stores.

Consistent with this, Decree 23 requires foreign enterprises to apply for a separate licence for each retail outlets, subject to the approval of the Ministry of Trade and the local People’s Committee. However, the decree does not specify any criteria for applying the economic needs test. Investors have no idea how the test will be applied in practice, giving authorities essentially unlimited discretion to grant or refuse licences.