CHAPTER VI: TRADE REGULATIONS AND STANDARDS
A. Trade Barriers
1. Trade Regime: Vietnam has maintained a more open trading system since it introduced market-oriented reforms. Imports and exports are expanding rapidly. However, concern over the trade deficit, combined with a policy tendency towards import substitution, has raised concern that high trade barriers will be maintained to protect certain sectors. At the same time, export industry production is becoming a higher priority in the government's economic development plans. It remains to be seen how these seemingly contradictory development strategies will be reconciled. Moreover, formal rules in many areas of the trading system have not been defined; while in others, the measures and their practical interpretation are frequently changing. Companies are advised to seek current and specific information about the issues discussed below in planning their market entry approaches.
2. Tariff Code: Import and export duties are based on the Law on Export and Import Duties, issued in December 1991 and amended twice thereafter. In 1994, the Ministry of Trade assumed the responsibility to initiate changes in tariffs, which are then considered by the Ministry of Finance as to whether proposed changes should be submitted for the Prime Minister's approval. As the government reviews revenue sources on a quarterly basis, tariff rates are often adjusted to accommodate the current balance of payments situation.
3. Formal Tariffs: Import duties are levied on most items. Rates are specified in the "Export and Import Tariff for Commercial Goods," which is subject to frequent revisions. In January 1996, rates on a list of goods under the Common Effective Preferential Tariffs (CEPT) scheme were lowered to below 60%. The highest rates are levied on consumer goods, especially products considered as luxury items (e.g. liquor, cigarettes, cars). Capital goods and materials are granted low or zero duties. Tariffs on 857 imports from ASEAN are 5% or below, of which over half are commodities, machinery and equipment. According to one estimate, the average tariff is between 15% to 20%, while two-fifths of imports pay tariffs that are 40% or higher. Exemptions are granted for certain goods, including non-refundable aid, goods in transit and temporary imports and re-exports for exhibitions. Goods brought in for foreign-invested projects may qualify for exemption if they fall under three categories: 1) goods and technology transfer considered as capital contribution by the foreign partner; 2) goods and materials for use in export production; and 3) goods used for capital construction or as fixed assets for business cooperation contracts.
4. Excise Taxes: Other taxes include the special sales tax on the import of cigarettes, alcohol and spirits, firecrackers, automobiles and all kinds of gasoline. Importers pay the special sales tax upon importation, ranging from 15% to 100%. The tax is calculated on the basis of applying the applicable tax rate to the CIF value of the good. The excise taxes were introduced around the time that recent reductions were made on formal tariffs and were justified by the government as a measure to protect "infant industries" in Vietnam.
5. Import Quotas: The Ministry of Trade (MOT), in consultation with the Government Price Board (GPB) and the relevant ministries (e.g. Ministry of Agriculture and Food industry and Ministry of Construction), set formal import quotas on cement, fertilizers, petroleum products, steel, sugar, and various other materials and commodities. Also, some products are subject to less formal and temporary "quantitative targets" that MOT regulates to complement economic goals. For example, import quotas are placed on motorcycles and automobiles (finished and CKD kits) in an effort to encourage a long-term strategy for the "localization" of automobile parts production. Import quotas are often administered through the import licensing system managed by MOT and are mainly granted to state-owned enterprises. Information about the allocation procedures for import quotas and how the process is enforced is not made available.
6. Trade Regime Developments: Streamlining the tariff structure is one remaining key trade liberalization issue. However, some of the government's major obstacles stem from pressures to protect domestic industries and the potential loss of significant tax revenues. Nevertheless, Vietnam is committed to reducing or eliminating tariffs and other trade restrictions, since it is a requirement of its membership in the ASEAN Free Trade Area (AFTA) and if it is to realize its hopes for membership in the World Trade Organization (WTO). The United States is engaged in a bilateral trade agreement with Vietnam, a prerequisite to Vietnam gaining Most Favored Nation (MFN) status. This bilateral trade agreement will address market access considerations.
B. Customs Valuation
1. General Customs Department: The General Customs Department with local offices throughout the provinces is responsible for inspecting and supervising goods and collecting export and import taxes.
2. Basis of Customs Valuation: Customs valuation of imported products may be based on the C.I.F. prices declared by the importers or on reference prices established by the administration authorities. In practice, customs valuation remains non-transparent and is highly discretionary. Although in principle, reference prices are used to counteract the practice of under-invoicing, the system is not responsive to world market price fluctuations. In the household electrical appliances sector, for example, the higher taxes paid on components have translated to a higher price on the finished product, as much as a 20% inflation over Thailand, Malaysia and Singapore.
3. Customs Procedures: The formal rules on customs declaration require that an application be lodged at the local office of the General Department of Customs for each permitted consignment of imported or exported goods. For imports, it appears that a declaration must be made within 30 days upon the arrival of the goods in Vietnam. Customs is required to respond within 1 day, and any duty must be paid within 30 days of receiving the custom's notification. In the case of exports, duty must be paid within 15 days of receiving notification.
C. Import Licenses
1. Authorized Importers: The Ministry of Trade (MOT) issues import licenses, which are required for all imports. However, only certain enterprises are authorized by MOT to engage in direct import and export activities. Although once reserved for a small number of state-owned enterprises, direct import rights are now accessible to a larger number of companies. In 1995, about 1250 import-export companies (including production enterprises and private firms) have temporary or permanent trading rights to import or export directly. Approximately nine percent of these companies are non-state owned enterprises. As part of the foreign investment license, joint ventures and 100% foreign owned enterprises are granted import rights for materials or goods as specified in their licenses.
2. Import Licensing System: In general, authorized enterprises will have an import allocation, which is typically valid for a period of 6 to 12 months, and an import license, which may cover several shipments. Effective February 1, 1996, the Ministry of Trade abolished the requirement for an export or import permit for each consignment. For those companies, including foreign firms, that do not have import or export rights, these companies must do so through an authorized import-export company. The average transaction costs for the service is about 2-3% of the value of the consignment of goods.
D. Export Controls
1. Permits and Licenses: Under the current policy, companies with prospects for receiving an export order will be granted the permits or licenses to export the goods as well as import the inputs required for export production. Although each shipment requires an export license, this is done basically as a record-keeping mechanism.
2. Taxes: Export duties are levied on mostly natural resources and commodities, with a maximum rate of 45%. Manufactured goods for exports are exempt from export duty. The government has recently increased export duties on many raw materials as part of a strategy to stimulate more value-added processing in the country.
3. Quotas and Restrictions: Prohibited exports include antiques of high value, logs, timber, rattan canes, and precious or rare plants and animals. Three commodities -- rice, oil and wood products -- are subject to government imposed quantitative restrictions or targets and are administered through export quotas.
E. Import/Export Documentation
Generally, the Vietnamese importer (agent, distributor, import-export company or joint-venture partner) handles the preparation of the documentation and licenses. Shipping documents include commercial invoices, pro forma invoice, bills of lading, packing lists, certificate of origin, insurance certificate, and import licenses.
F. Temporary Entry
Goods which are exported or imported as samples or for the purpose of advertising are subject to export or import duty. Exemption from duty is granted to goods which are permitted to be temporarily exported or imported for exhibitions. At the end of the exhibition, they must be re-imported into Vietnam in the case of temporary exports, or re-exported from Vietnam in the case of temporary imports. Documents required for exemption for exhibitions include a notification of or invitation to the exhibition and an export or import license from the Ministry of Trade.
G. Labeling, Marking Requirements
The Ministry of Trade recently issued Decision 636-TM-QLCL to regulate product labels. Effective January 1, 1997, all products distributed in Vietnam should have labels with the following information: name of product, name and addresses of manufacturer, quantity, composition, quality, instructions for use or maintenance, date of manufacture and expiration dates. The label should be positioned parallel to the bottom of the package. The size of words and numbers, as well as spaces between words, numbers and lines, should be sufficiently positioned and occupy a reasonable portion of the label for easy reading. Labels should be in Vietnamese. If other foreign languages are used, the word size should be smaller. Other information such as nutritional values are encouraged. To avoid confusion, dates should follow the Vietnamese pattern: day/month/year. The relevant authorities should be alerted to any changes in the products packaging or labeling. Because of the rampant problem posed by imitation products and poor quality goods, inspectors may see the change in packaging as a potential contraband and prolong customs clearance.
H. Prohibited Imports
The import of firearms, ammunition, explosives and military equipment; drugs and toxic chemicals, dangerous and unhealthy cultural products; materials for making cigarettes; second-hand consumer goods (except motorcycles and cars under 12 seats); and used equipment are prohibited, with certain exceptions. As certain products are often placed on temporary bans, current advice should be sought. Regulations following Decision 1762-QD-PTCN on the importation of used equipment were issued in December 1995. Used equipment can be imported in certain sectors if it meets technical requirements pertaining to age, technical capacity, and the rate of wear and tear. Used equipment prohibited from importation includes equipment employed in oil and gas processing, electricity, cement production, mineral refinery, metallurgy, base chemicals, fertilizers and pesticides; food processing and pharmaceutical manufacturing; measurement, experimentation and testing for telecommunication networks; equipment with high safety requirements; and equipment which might affect a large area of the environment.
Specific information by product or by standard may be provided by the importing organization or sought from the relevant ministry or the government's management body with overall responsibility, General Department of Standards, Weights, Measures and Quality (STAMEQ) of the Ministry of Science, Technology and Environment (MOSTE). Vietnam is currently adopting several international standards. Assistance has come from Japan and the EU. Also, Vietnam is seeking a closer dialog with the US. Vietnam's weight and measurement standard is based on the metric system. The electric current is A.C. 50 cycles, 223/380 and 127/220 volts. The electric utility system of Vietnam is to be standardized at 3 phase, 220/330 volts, 4 wires.
J. Free Trade Zones/Warehouses
1. EPZ and IZ: Companies may choose to produce within an Export Processing Zone (EPZ) in order to take advantage of the exemptions from customs duties for equipment, raw materials and commodities imported into the zones, for finished goods and products exported from the zones subject to specific provisions regulating EPZ (discussed in detail in Chapter VII.M). All of the production within the EPZ must be exported. Lately, Industrial Zones (Izs) have been developed which offer tax advantages for establishing a factory within the zone. Companies can produce within the IZ for the domestic market or for export. The company will pay no duties when importing raw materials, if the materials are exported.
2. Bonded Warehouses: The operation of customs warehouses was approved in 1994. The location and number of bonded warehouses are Ho Chi Minh City (3), Vung Tau (1), Hai Phong (4), Quang Ninh (2) and Danang (2). Entities permitted to lease customs bonded warehouses are foreign enterprises, individuals and overseas Vietnamese; Vietnamese import-export licenses companies; and foreign invested enterprises licensed to carry import-export activities. Most goods pending import and domestic goods pending export can be deposited in bonded warehouse under the supervision of the provincial customs office. The exceptions are goods prohibited from import or export, Vietnamese made goods with fraudulent trademarks or labels or goods of unknown origin; and goods dangerous or harmful to the public or environment. The lease contract must be registered with the customs bond unit at least 24 hours prior to the arrival of the goods at the port. Documents required are a notarized copy of authorization of the holder to receive the goods; a notarized copy of the warehouse lease contract; the bill of lading; a certificate of origin; a packing list; and customs declaration forms. Owners of the goods pay import or export tax when the goods are removed from bonded warehouse. Customs warehouse keeper can provide transportation services and act as distributors for the goods deposited. Additional services relating to customs declaration, appraisal, insurance, re-processing or packaging require the approval of the provincial customs office. In practice, the level of service needs improvement. The time involved for clearance and delivery is often poor and unreliable.
K. Membership In Free Trade Arrangements
1. AFTA: In July 1995, Vietnam became the newest member of the Association of Southeast Asian Nations (ASEAN). As part of the ASEAN Free Trade Agreement (AFTA), ASEAN members -- including Brunei, Philippines, Indonesia, Malaysia, Singapore and Thailand -- are committed to making this region the most competitive trading area. Under the harmonization process called CEPT -- the Common Effective Preferential Tariff Scheme -- intra-regional tariffs, especially for manufactured goods, would be reduced to a level of between zero to five percent by year 2003. Vietnam has been granted an extension until 2006.
2. WTO: Vietnam has initiated the application process for membership in the World Trade Organization (WTO). Signatories to WTO must reduce tariffs to a level below 10% within 15 to 20 years.
Last update: March 1997 by VACETS