Lack of retailers’ buy-in

Many retailers are unsure where they stand due to cloudy regulations - Photo: Duc Thanh

The Ministry of Industry and Trade has just released the Circular 08/2013/TT-BCT providing guidelines on the import, export, and distribution of goods by foreign-invested enterprises (FIEs) in Vietnam.

The new circular revises the Economic Needs Test (ENT)  criteria used to determine whether an additional retail outlet is permissible. The rules were initially outlined in the ministry’s Circular 09/2007/TT-BTM dated July 17, 2007, stating that foreign retailers who wanted to set up more than one retail outlet would be required to pass the ENT, which would involve applying for a licence.

However, the Circular 08 narrows the geographic scope of ENT analysis to the district, in which the additional outlet will be located, rather than the city or province. Previously the ENT in the Circular 09 required a case-by-case analysis of the number of retail outlets, market stability and population density in the province or city where the retail outlet was to be located. The other factors of the test outlined in Circular 09 remain unchanged.

This is one of the new regulations given in the Circular 08 that will come into force on June 7.

“The prescriptive requirements and processes described in the Circular 08 can be seen as onerous but are likely to be regarded as a positive development by many foreign investors and stakeholders familiar with the Vietnamese legal system,” explained Bui Khanh Linh, senior associate of international law firm Allens, with offices throughout Australia and Asia. “This is because the lack of details in the Circular 09 often resulted in practical difficulties in obtaining the necessary regulatory approvals and licences for investments in this industry, as the process was not transparent to foreign investors.”

Under the Circular 08, an Economic Needs Assessment Committee (ENAC) will be established by the licencing body to determine whether the additional outlet meets the ENT criteria.

“The main concern arising from the above process is that there is no indication of timing for the recommendation by the ENAC and preliminary approval at the municipal and provincial people’s committee level,” said Chi Ha, Allens’ lawyer.

The Circular 08 also incorporates an exemption from the ENT criteria. The additional retail outlet will not be subject to ENT analysis if it satisfies the following conditions: The area of the retail outlet is less than 500 square metres, the retail outlet is situated in a location planned for retail by the city or province  and the construction of the infrastructure of the location planned for retail has been completed.

Once implemented, this exemption is likely to stir up foreign investments in the retail sector, as foreign invested enterprises may be able to embrace a more aggressive expansion or market penetration plan. Foreign investors are advised to remain vigilant and monitor any development in relation to the actual application of this provision by the regulators in the coming period.

However, foreign retailers said specific criteria for the ENT was to prevent local authorities from making arbitrary decisions when considering the application for a new retail outlet.

A BigC representative pointed out the vagueness of the reference to the “suitability of the project within the cities planning.” Data regarding  total supply and demand and population density should be available.

“How can investors prove that their projects are in accordance with municipal and provincial planning if the city or province does not have a retail planning system in place?” the Big C representative added.

Some business entities have suggested the Vietnamese government should give more specific and transparent guidelines on the ENT, including definition, scope of application, criteria for the ENT and procedure and duration for each criterion.

Despite the poor demand in the context of the current economic difficulties, Vietnam’s retail and distribution market last year witnessed the vigorous growth of existing foreign retailers and newcomers such as Big C, Lotte,  E-Mart and Aeon in the country.