MoT move may bite into investors’ rights

Circular 09/2007/TT-BTM issued in mid-July by the Ministry of Trade (MoT) seeks to guide the implementation of Decree 23/2007/ND-CP on foreign firms’ trade and distribution rights in Vietnam. Most notably it resumes the licencing of foreign firms’ trading activities after a five-month suspension.
However, it would still make it difficult for foreign businesses to trade and distribute goods in Vietnam, say lawyers.
Le Hong Phong, a Bizconsult lawyer, said several trade rights already provided to foreign-invested companies have been narrowed in the circular, particularly those relating to import rights and the establishment of secondary retail outlets.
Phong said Decree 23 provided foreign companies with the right to import goods and commodities and the right sell them to businesses. However, under Circular 09, each category of imports could only be sold to one trader who must already have the right to trade or distribute that commodity. Furthermore, importers would be required to register their selected traders with relevant authorities.
“The import tariff nomenclature has 97 chapters covering 97 categories. Because foreign firms often import a number of categories [of goods], they will indeed have to work with many different traders, a complicated and tiring process,” said Phong.
He also pointed out unclear provisions in the circular on the selection and registration of traders, particularly as it failed to clarify when foreign firms must register their traders, how long the registration would remain valid and whether foreign firms could change traders.
Circular 09 has also set new barriers for foreign companies interested in opening more than one retail outlet, said Phong. He referred to related provisions in Decision 10/2007/QD-BTM which detailed conditions for foreign investment in the trade sec
foreign investment in the trade sector.
“Decision 10 addresses only three conditions [for opening a retail outlet], including the number of service providers in a geographical area, market stability and the size of the area,” Phong said.
“However, [Circular 09] added three more conditions, namely the number of retail sale outlets, population density and compatibility with a city or province’s investment plans.”
MoT Minister Truong Dinh Tuyen told Vietnam Investment Review that Circular 09 only permitted foreign firms to sell imports to a qualified trader by category in a bid to prevent firms from establishing an unofficial distribution system.
“If we give foreign companies the right to sell [a category of] goods and commodities to any number of traders, we help them set up a distribution system unintentionally,” he said.
Tuyen noted that such a system would make it easy for importers to manipulate the domestic market, particularly as there are few Vietnamese distributors.
However, he admitted that creating a clearer criteria on the establishment of secondary retail outlets remained a complex issue.
“The MoT is studying this. It will take some time,” he said.
Dang Trong Hieu, a lawyer with Vision & Associates, said Tuyen’s explanation was reasonable. However, he shared Le Hong Phong’s concerns about the draft.
Citing the time needed for domestic distributors to be able to compete with foreign firms, Hieu expressed concern about how the economy would develop if its businesses were pushed to the edge of bankruptcy.
He said he also supports the creation of WTO-approved criteria to help Vietnam screen large foreign distributors to allow small domestic businesses to gradually catch up with international firms.
The government issued Decree 23/2007/ND-CP on the implementation of the Commercial Law on February 12. At that point, the import, export and distribution licencing for foreign companies was halted until a guiding circular could be issued.