INTERNATIONAL AGREEMENTS ON TRADE AND INVESTMENT

This Chapter briefly introduces several international agreements relating to trade and investment to which Vietnam is a signatory.


INTERNATIONAL AGREEMENTS ON TRADE AND INVESTMENT

(April 2007 Update)



This Chapter briefly introduces several international agreements relating to trade and investment to which Vietnam is a signatory.

1. Vietnam and ASEAN

Vietnam joined ASEAN on 28 July 1995. The current ASEAN members are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. The objectives of ASEAN are to:

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promote economic, social and cultural development of the ASEAN region through co-operative efforts;
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maintain economic and government stability of the ASEAN region; and
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serve as a forum for the peaceful and co-operative resolution of regional disputes.

1.1 Tariff Reduction

Under the 1992 Economic Cooperation Framework Agreement, all ASEAN members agreed to establish and participate in the AFTA. The main mechanism for the AFTA is the CEPT. Under CEPT, all members were required to reduce tariffs on products traded between themselves to between 0%-5% by 2003. Products subject to CEPT are products with at least 40% of contents originating from an ASEAN member.

The tariff reductions were effected on either the "fast" or "normal" track. Tariffs on goods in the fast track were required to be reduced to 0-5% by 2000. Tariffs on goods in the normal track were required to be reduced to this level by 2003. About 81% of ASEAN's tariff lines are covered by either the fast or normal track.

ASEAN members may exclude products from CEPT in three cases:

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temporary exclusions;
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sensitive agricultural products;
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general exceptions.

Temporary exclusions include products in the plastics, vehicles, and chemicals sectors. A small number of sensitive agricultural products received an extended deadline of 2010. General exceptions refer to products which a country deems necessary for the protection of national security, public morals, the protection of human, animal or plant life and health, and protection of articles of artistic, historic, or archaeological value. This category represents approximately one percent of ASEAN tariff lines.

Vietnam and several other members, as less developed countries, are given more time to comply with the CEPT requirements. Vietnam had to apply tariff rates of 0%-5% as of 1 January 2006.

1.2 Removal of non-tariff barriers

Vietnam has removed all NTBs, in accordance with the AFTA requirements. NTBs are defined as "measures other than tariffs which effectively prohibit or restrict the import or export of products within Member States." Examples of NTBs are quotas, import licensing, import prohibitions, local content rules, customs procedures, and testing procedures.

2. Vietnam and the WTO

2.1 General

Vietnam joined the WTO as its 150th member on 11 January 2007, concluding a 12 year negotiation process. Joining the WTO is seen as a significant step for Vietnam as it marks the country’s entrance to the global club of trading nations.

The two fundamental principles embodied in the WTO treaties are MFN and National Treatment. MFN requires each WTO member country to give other investors from other member countries treatment no less favourable than that accorded to any third country. MFN does not prevent countries from granting extra privileges to certain countries under separate agreements (eg ASEAN), as long as such agreements have substantial sectoral coverage and provide for the absence or elimination of trade discrimination between the parties to such an agreement. National Treatment requires each country give to nationals and companies of the other treatment no less favourable than that which is given to its own nationals and companies.

The WTO agreements address trade and investment in three primary areas: trade in goods, protection of intellectual property rights and trade in services. The basic requirements for these areas are as follows:

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Trade in goods: Vietnam agrees to lower tariffs and non-tariff barriers and to extend MFN treatment in terms of tariff levels to all WTO member countries. In return, Vietnamese goods will also be subject to MFN tariff rates upon import to other WTO member countries. WTO agreements also specify standards in applying customs, import licensing, state trading, and sanitary measures.
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Intellectual property rights: Vietnam agreed to adopt the TRIPs standards for intellectual property rights.
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Trade in services: Vietnam allowed individuals and companies from WTO member states to enter into the financial services, telecommunications, distribution, audio visual, legal, accounting, engineering, computer, market research, construction, education, health and tourism sectors, among others. Vietnam has certain market access limitations on legal entity and foreign capital equity ratios in those sectors.

2.2 Major Changes

The following are the major changes resulting from the WTO:

(i) Effect of MFN on trade of goods

WTO rules require Vietnam, from the date of its accession to the WTO (i.e. by 11 January 2007), to extend equal treatment to goods from all WTO member countries (apart from some preferential treatment for goods from ASEAN countries as discussed above). Vietnam committed to significant tariff reductions in agricultural and industrial goods. In return, exported Vietnamese goods will also enjoy the same treatment as goods from other WTO member countries. Importantly, this means that the US has abolished the quota system that previously applied to textile and apparel imports from Vietnam. The US passed legislation approving permanent extension of normal trade relations (PNTR) with Vietnam in December 2006.

(ii) Trade in services

The WTO accession package requires Vietnam to open a wide scope of service sectors for companies from WTO member countries. A non-exhaustive selection of commitment on services is illustrated in Exhibit 2.

Exhibit 2: Schedule for service sectors - Commercial Presence



Sectors and Sub-sectors


Market Access Limitations on Legal Entity and Equity

Advertising


BCC or JVC with 51% foreign owned equity from accession and no limit on foreign equity in JVC from 1 January 2009.

Market research




JVC with 51% foreign owned equity from accession and 100% FOC from 1 January 2009.

Management consulting


No restriction. Branching permitted from January 2010.

Distribution


JVC with 49% foreign ownership from accession. No limit on foreign equity in JVC from 1 January 2008. 100% FOC from 1 January 2009.

Telecommunications (Value Added Services)


BCC and JVC with 51% foreign equity limit from accession, rising to 65% from January 2010 (for non facilities-based services). For facilities-based services, foreign equity ownership capped at 50%.

Telecommunications (Basic Services)


Non facilities-based: BCC and JVC with 51% foreign owned equity limit from accession, rising to 65% from January 2010. Facilities-based: BCC and JVC with maximum 49% foreign equity ownership.

Audio-visual services


BCC and JVC with no more than 51% foreign owned equity from accession.

Education


JVC and 100% FOC from 1 January 2009.

Health care


BCC, JVC or 100% FOC.

Insurance




100% FOC allowed from accession, although 100% FOC may not engage in statutory insurance business until 1 January 2008. Branching allowed from January 2012.

Banking


Branches, JVC and 100% FOC allowed.

Finance leasing


JVC or 100% FOC

Other services such as accounting, architecture, Engineering, IT, and Construction


No limitation on foreign ownership but other conditions may apply on branching, customers etc.

(iii) Investment

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Under WTO rules, Vietnam must extend national treatment to the projects of investors from WTO member countries. This means that Vietnamese and foreign invested projects should be treated equally. This principle is reflected in the IL and the Government is reviewing a range of legislation to ensure that national treatment extends to all business regulations.

3. Other investment treaties

Prior to joining the WTO, Vietnam entered into bilateral investment treaties with a number of partners, including the US, Japan, Singapore and the European Union. The provisions in these bilateral treaties have largely been superseded by Vietnam’s commitments upon acceding to the WTO. However, the full text of some of these treaties has not been publicised and there may be ongoing obligations in certain cases. Investors from countries with bilateral investment agreements with Vietnam may wish to contact their country’s embassy in Vietnam to determine whether any special privileges apply.
Last Updated ( Monday, 12 January 2009 )