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| September 9, 2000 | atimes.com | ||
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Special Reports
Vietnam: Trading on more investment CHAPTER 2: VIETNAM/US PACT Vietnam/US trade pact After five years of negotiations, Vietnam signed a Bilateral Trade Agreement (BTA) with the United States in July 2000, to be implemented over the next few years. Relations between the two countries have been overshadowed for years time by the Vietnam War and by some fundamental political differences. Political and diplomatic relations were only established quite recently, with the lifting by the US of its trade embargo against Vietnam in 1994, and the establishment of diplomatic missions the following year. The next step in the normalization process occurred in 1998, when President Bill Clinton waived for the first time the so-called Jackson-Vanik amendment. This amendment (a section of the US Trade Act) prevents the US from normalizing trade relations with selected socialist countries that restrict emigration. Vietnam abolished its "exit visa" requirements for Vietnamese citizens in late 1997. Under the BTA, Vietnam will enjoy normal trade relations (NTR) with the US, more commonly known in the past as most favored nation (MFN), and vice versa. Only a small number of countries do not enjoy NTR with the US, such as North Korea, Cuba and Afghanistan. The final step in the normalization process will occur when the US and Vietnam agree on the terms of permanent normal trading relations (PNTR) between them. The US and China agreed on PNTR in May of this year. The World Bank has estimated that Vietnam's exports to the US (mostly footwear, coffee, seafood and oil) will increase to US$800 million (more than double 1999 levels) in the first year the BTA comes into effect. Most of the growth will come from footwear and textile exports, since coffee and seafood are already exempt from US import duties. The BTA will operate on two main fronts. First, each country will grant the other NTR (or MFN) status with respect to trade in goods, trade in services and investment. This means, for instance, that the average US rate of duty on imports from Vietnam will drop from 40 percent to three percent. Second, the BTA obliges Vietnam to phase in a wide range of market-oriented reforms designed to pry open Vietnam's domestic market to foreign investment and competition. The signing of the BTA should also bring Vietnam closer to receiving additional trade benefits offered by the US to developing countries under its Generalized System of Preferences (GSP). The process of negotiating and implementing the BTA, and gaining some measure of support from the US, should also bolster Vietnam's prospects of joining the WTO within the next few years. Once the BTA comes into effect, it will remain so for only three years, but will automatically be extended for successive terms of three years unless terminated by either party at least 30 days before the end of a term. Third country manufacturers in Vietnam of products in respect of which the US has lowered import duties will benefit from greater access to the US market. Vietnam has undertaken to implement the World Trade Organization's (WTO) Agreement on Trade-Related Intellectual Property Rights (TRIPs) over 18 months, and to protect satellite signals within 30 months. Vietnam is to introduce procedures for effective action against infringement of intellectual property, and laws for protecting trade secrets. Vietnam undertakes to implement a registration regime for investment licensing: (1) within two years for projects in industrial zones and export processing zones, or which export at least 50 percent of their products, or which have an investment capital of under US$5million; (2) within six years for all manufacturing projects with an investment capital of under US$20million; and (3) within nine years for all other projects, except selected areas (which include broadcasting, publishing, transportation, banking, insurance, construction and power projects). Vietnam will be required to publish regularly and promptly all laws. At present, there is no central primary source for Vietnamese laws. Furthermore, Vietnam is required to allow persons engaged in commercial activity to become acquainted with and comment on new laws before they come into effect. Vietnam is required to remove all trade-related investment measures (TRIMs) which are inconsistent with the WTO's requirements. Local content requirements for manufacturers, and export obligations must be eliminated immediately. Other TRIMs must be phased-out within five years, except that Vietnam may continue to require investors in certain sectors, (including cement, ceramics, PVC, footwear, clothing, alcohol, tobacco and paper) to export 80 percent of production for up to seven years. When transferring its interest in a joint venture, a US company will still be required to give a first right of refusal to its Vietnamese partner (and vice versa). Either the General Director or First Deputy General Director of a joint venture enterprise must still be a Vietnamese citizen, but such person is no longer required to be "a representative of the Vietnamese party". Services Vietnam is required to give US service providers NTR status (i.e., treatment no less favorable than Vietnam gives to service providers from any third country), and also, in the sectors listed below, market access (e.g., no restriction on number of US service providers) and national treatment (i.e., treatment no less favorable than Vietnam gives to domestic service providers). Legal services: 100 percent foreign-owned enterprises, joint venture enterprises and branches will be allowed (at present, only branches are permitted). Such offices may consult on Vietnamese laws "if the consulting lawyer has graduated from a Vietnamese law college and satisfies requirements applied to like Vietnamese law practitioners." Accounting: 100 percent foreign-owned enterprises (and joint ventures) will be allowed. For three years from the date on which the BTA comes into effect, Vietnam may restrict the number of foreign accounting firms, and for the first two years such firms will only be permitted to supply services to foreign invested enterprises and foreign funded projects in Vietnam. Architectural and engineering services: 100 percent foreign-owned enterprises (and joint ventures) will be allowed. For two years from establishment, such enterprises may only provide services to foreign invested enterprises in Vietnam. Computer related services: Same as for architectural and engineering services. Advertising (excluding spirits and cigarettes): Only joint ventures (or business co-operation contracts) will be permitted. Initially, the US side's capital contribution may not exceed 49 percent. After five years, this limit will be lifted to 51 percent, and after seven years, there will be no limit (except that the business must remain a joint venture). Market research: Same as for advertising, except that 100% foreign-owned enterprises will be permitted after seven years. Management consultancy: Initially, only joint ventures will be allowed, but 100 percent foreign-owned enterprises will be permitted after five years. Telecommunications: Vietnam has agreed to the WTO's Telecommunications Reference Paper, and has agreed to introduce a pro-competitive regulatory regime and cost-based interconnection fees. For most value-added services (such as email and online data retrieval), Vietnam will permit joint ventures after two years, with a 50% cap on US participation (for Internet, the phase-in period is three years). Joint ventures are not permitted to construct their own international circuits; they must lease them from Vietnamese operators. For basic telecommunication services (such as facsimile, mobile phone networks and satellite services), joint ventures are only permitted after four years, with US companies limited to a 49 percent stake. Audio-visual services: Joint ventures will be allowed with Vietnamese companies which are legally permitted to provide such services. Initially, the US side's equity will be capped at 49 percent, then this cap will be lifted to 51 percent after five years. Construction services: 100 percent foreign-owned enterprises will be allowed, but for first three years of operations, such businesses may only serve foreign invested enterprises. Distribution services (wholesale/retail, agency, and franchising, except oil, alcohol, cigarettes and some other products): Subject to restrictions on distribution rights for various sensitive products, such those on cement, US companies may enter into distribution joint ventures with Vietnamese partners after three years, capped at 49 percent equity. No limit will apply after six years. Educational services: Initially, only joint ventures will be permitted, but 100 percent foreign equity will be allowed seven years from the effective date. Insurance: In mandatory sectors (e.g. vehicle and construction-related insurance), Vietnam will allow US companies to form joint ventures after three years, with no limit on US equity share. After six years, 100 percent subsidiaries will be permitted. For life and general insurance in non-mandatory sectors, after three years joint ventures will be permitted, with a limit of 50 percent equity. After five years, 100 percent subsidiaries will be allowed. Financial services: Initially, US financial service providers may set up bank branches, joint venture banks, with US equity between 30% and 49%, and joint venture and 100 percent foreign-owned financial leasing companies. After nine years, 100 percent subsidiaries of US banks will be permitted. For the first eight years, Vietnam may continue to limit the right of US bank branches to accept dong deposits. Such branches may not place ATMs at locations other than the offices of such banks until Vietnamese banks are permitted to do so. Financial institutions with US invested capital will be permitted to issue credit cards on the same basis as Vietnamese banks after eight years. Health services: 100 percent foreign-owned enterprises (or joint ventures or business co-operation contracts) will be permitted for hospitals and clinics serving US companies. Minimum investment for a hospital is US$20million, and for a clinic it is $2million. Tourism and related services: 100 percent foreign-owned enterprises (or joint ventures or business co-operation contracts) will be permitted for services provided to US companies, but only in parallel with investment in a hotel. Stock market The Securities Trading Center (STC) officially opened its doors in Ho Chi Minh City on July 21, 2000. Preparations for the first stock market date to the early 1990s. More than 400 Vietnamese State-owned enterprises and joint stock companies have been equitized, with roughly 50 of them meeting the basic criteria to list on the exchange. By the end of 2000, there could be 15 to 20 companies on the bourse. The Ministry of Finance plans to issue government bonds on the bourse with the first batch valued at $21.4 million. The ministry is discussing with the State Securities Commission - the watchdog of Vietnam's stock market - a plan to auction government bonds, an activity that should become normal practice for mobilizing capital. The first six securities companies were:
Foreign investors have been luke warm at best to the market. Foreign investors can purchase no more than 20 percent of the shares in any one company's sahres or investment certificates listed by an investment fund. The sale of shares issued by equitized State-owned enterprises and joint stock companies to foreigners cannot exceed 30 percent of the company's total registered capital. Where the number of shares wanted by foreigners exceeds 30 percent, a share auction must be opened. Foreign investor shares can be converted, or on-sold, after one year. This is limited to three years if the foreign investor is a part of the issuing company s management board. Decision No 228/QDNH5 issued by the governor of the State Bank of Vietnam in December 1993 was the first regulation allowing foreigners to invest in the country in the form of stock purchases. Under the decision, stocks owned by foreign shareholders were fixed at a maximum of 30 percent, while individual foreign shareholders could buy 10 percent of a company's total shares. It also stipulated that foreign investor shares could only be on-sold after five years. Chapter 3 (Special to Asia Times Online) |
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