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What Impact Vietnam’s New WTO Membership Will Have 

and What Vietnam Has Committed 

- Source: WTO

 

The A to Z as to what impact Vietnam’s new WTO membership will have by sector

Below is a very short synopsis about the impact of WTO membership on individual sectors of Vietnam’s economy.

Agriculture: Products for domestic use can still receive up to 10% State subsidies of overall product consumption while subsidies for export products must be removed. Average tariffs for agricultural products will be cut to 20.9% from 23.5% now. Vietnam will be able to maintain an import quota system for several agricultural products including sugar, eggs, cigarettes, and salt. There will be no more state awards on coffee exports. Before WTO membership, coffee exporters could receive several dollars for each ton of exported coffee as a state award and this caused major problems for other coffee exporters. State-owned enterprises will lose their monopoly in rice exports after 2009 as part of the WTO commitments.

Banking: Foreign firms and individuals are allowed to purchase up to 30% of shares in banks. Vietnam also allows foreign banks to establish wholly foreign-owned subsidiary banks. Foreign banks are allowed to set up branches in Vietnam but those branches will not be allowed to establish sub-branches and are subject to limits in raising deposits from Vietnamese entities within five years of Vietnam’s accession. Foreign banks will be able to offer more services including credit cards and deposits in foreign currencies.

Brokerages: Vietnam will allow the establishment of 100% foreign owned brokerage and branches within 5 years of WTO accession.

Cars and motorbikes: Import tariffs on cars will be reduced to between 47%-70% depending on vehicle engine sizes from 90% now. Vietnam has 11 years to complete the tariffs reduction program. The new tariffs will be for an engine less than 1.5 liters, 47%: 1.5-2.0 liters, 52%; 2.0 liters under 3.0 liters, 58%; 3.0 liters and more, 70%. Vietnam will allow the import of motorbikes with a capacity of more than 175 cubic centimeters on July 31, 2007.

Distribution services: Vietnam will not open the distribution service sector for retail sales to foreign companies for goods such as gasoline, pharmaceuticals, magazines, books, DVD, tobacco, rice, sugar, precious metals, newspapers, processed oil and crude oil. The distribution of products such as steel and cement will be opened to foreign firms within three years of accession.

Energy: the much expected opening of the gasoline retail industry is not covered by the WTO agreements. State-owned enterprises will keep their monopoly in importing and distributing.

Import duties: Overall, duties will be cut to 13.4% within five to seven years of joining the WTO from average 17.4%. About 1/3 of all 10,600 tariffs, mainly those with tax rates of more than 20% will be reduced or removed.

Industry: Industrial subsidies will be scrapped within 5 years of accession to the WTO.

            Information Technology: Vietnam has also signed the “plurilateral” Agreement on Information Technology (“plurilateral meaning only some WTO members have signed). For these products, Vietnam has agreed to allow imports duty-free. In some cases, the zero duty will apply immediately; in others it will be achieved gradually over periods ending in 2010 to 2014.

Insurance: At accession, 100% foreign invested insurance enterprises will not be allowed to engage in statutory insurance business, including motor vehicle third party liability, insurance in construction and installation, insurance for oil and gas projects, and insurance for projects and construction works of high danger to public security and the environment. As of January 1, 2008, this limitation shall be abolished. After 5 years from the date of accession, non-life branches of foreign insurance enterprises shall be permitted.

Media: WTO accession for Vietnam will not affect the closed nature of Vietnam’s publishing and printing sector

Securities: upon accession, foreign securities service suppliers can establish representative offices and joint ventures with Vietnamese partners with foreign capital contribution not exceeding 49%. After 5 years from the date of accession, 100% foreign invested securities service suppliers will be permitted.

Services: schedule of Specific Commitments on Trade in Services. Vietnam has made commitments on a range of services. In some cases Vietnam reserves the right to limit foreign ownership of service companies operating in Vietnam – for example in some telecoms services the eventual limits can be 49% or 65%, depending on the service. In a few cases, permitted foreign ownership is phased in to reach 100% after a few years (for example express delivery courier services after 5 years).

As is normal in this sector, the effect of the commitments depends also on complex relationship with domestic regulations – for example in the first 2 years, 100%-foreign-owned architectural firms can only serve foreign companies. The commitments and some of the regulations are in the ‘schedule’ (lists) of commitments; other information on the regulations is in the working party report.

Telecoms: Vietnam allows telecom join ventures with foreign partners holding majority shares to provide telecom services related to network infrastructure. These services include telephone services, packet-switched data transmission services, circuit-switched data transmission services, telex services, telegraph services, facsimile services, and private leased circuit services. For non facilities-based services, foreign capital contribution to these joint ventures shall not exceed 51% of legal capital. Three years after accession, joint venture will be allowed without limitation on the choice of partner. Foreign capital contribution can exceed 65% of legal capital. For facilities-bases services, joint ventures with telecommunications service suppliers duly license in Vietnam will be allowed. Foreign capital contribution will exceed 49% of legal capital. 51% gives management control of the joint venture. In the telecoms sector, foreign investment in business cooperation contracts will have the possibility to new current arrangements or to convert them into another foreign establishment with conditions no less favorable than those that currently enjoy.

Textiles/Garments: Garments and textiles will have some of the largest reductions. Removal of government subsidies was a requirement of WTO membership. Vietnam’s textile and garment industry, one of the country’s biggest export earners, will no longer be subject to quota from its biggest customer, the United States, and other countries.

What Vietnam has committed:

  • Vietnam’s commitments on goods – the 560-page list for “schedule” of tariffs, quotas and ceilings on agricultural subsidies, and in some cases the timetable for phasing in the cuts.

Here are some key provisions:

For the majority of agricultural and non-agricultural goods, Vietnam is promising ceilings (or “bound” rates) on duties ranging between 0 – 35%. Some of these involve reductions phased over periods up to 2014, the precise end date varying from product to product.

Among products with higher ceilings are: alcoholic drinks, tobacco products, instant coffee and some related products, new and used motor vehicles and components, and roof tiles. Used vehicles less than 5 years old can be charged additional flat-rate duties up to specified limits. These “bound” rates are legal ceilings. The actual duties that Vietnam can charge (the “applied” rates) can be lower than the committed rates. Among the details of Vietnam’s commitments is a promise not to charge higher applied rates on rapeseed (also known as canola) and derived meal, oil and other products than the duties actually charged on soy products – allowing the oilseed products to complete with soy.

In the separate working party report, Vietnam has also reserved the right to charge applied duties in the in the form of specific duties (e.g. dollars per ton) instead of percentages of the price (“ad valorem”) so long as the result stays below the committed ceilings.

A handful of products are going to be protected with tariff quotas (higher duties for quantities outside the quotas, and lower duties for quantities within the quotas): eggs, tobacco, sugar, and salt (which Vietnam says is the main income source for 100,000 poor farmers in coastal areas).  But Vietnam will expand the quotas until they disappear according to an agreed timetable.

In agriculture, Vietnam has promised not to subsidize exports. It will be allowed to support its farmers domestically with trade-distorting supports (“Amber Box” or “Aggregate Measurement of Support”, i.e. supports that have a direct impact on prices or quantities produced) of up to 3,961.5 billion VND (currently about $246 million USD) in addition to the usual allowance for developing countries (known as ‘deminimis’) of up to 10$ of the value of domestic agricultural production. As with all WTO members, Vietnam can also spend unlimited amounts on supports that do not distort trade (‘Green Box’ supports).

  • Vietnam’s commitments on services – the 60-page document (also a schedule) describing in which services it is giving access to foreign-service providers and any additional conditions, including limits on foreign ownership.

The working party report outlines the economic context, and the institutional and legal framework. It includes Vietnam’s commitments to undertake reforms or to preserve reforms that have been introduced in order to secure membership. Among the commitments are:

Excise duties: the different duties charged on alcoholic drink attracted particular attention in the negotiations. Vietnam has agreed to simplify the structure within 3 years by applying a single rate for forms of beer and a single rate for all spirits containing 20% alcohol or more. This has allayed concerns from some countries that the previous structure might discriminate against imported beers that have different packaging, or against imported spirits with higher alcohol content.

Export restrictions: Vietnam maintains export controls on some products such as rice, and some wood products and minerals (to prevent illegal exploitation). It is pledging to apply controls on these products in a way that conforms to WTO agreements.

Government procurement: Vietnam will consider signing the Government Procurement Agreement after it has become a WTO member.

Foreign exchange:  Vietnam will abide by IMF and WTO rules.

Intellectual property: almost 33 pages of the report descried in detail the administrative and legal set up in the country. Vietnam will comply with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement immediately, without any transition period.

Pricing and price controls: Vietnam will comply with WTO agreements and notify the WTO of actions it takes to control prices.

Policy-making and enforcing framework: a number of administrative and legal structures have been introduced or strengthened that WTO provisions are applied, including the possibility of investigation and judicial review to deal with complaints about this.

Quantitative and other restrictions: quotas, bans, and other restrictions will be abolished, including import bans on cigarette, cigars, and used vehicles, or only applied according to WTO rules.

Standards: Vietnam will apply the Technical Barriers to Trader and Sanitary and Phytosanitary Measures agreements without a transition period.

State enterprises: commercial business (i.e. except for supplying the government) will be conducted on commercial terms without interference from the government. A number of products are listed as subject to state trading enterprises because of consumption restrictions, for cultural and moral reasons, or because they are ‘natural monopolies’: tobacco products, petroleum, cultural products such as newspapers, journals and audio-visual materials, and aircraft

State Enterprise Privatization and Equitization: this will be handled transparently, with Vietnam supplying annual reports while the program lasts.

Trading rights (the right to import and export): this was a subject of tough negations partly because of different registration procedures for foreign and domestic traders. A new law has now harmonized the procedure for both.

Among the many additional details are a commitment that foreign firms and individuals will be able to engage in importing and exporting as importers/exporters “of record” so long as they register and importers will be able to choose their domestic distributors.

WTO agreements dealing with rules: Vietnam will comply with the Customs Valuation, Rules of Origin, Pre-shipment Inspection, Antitrust dumping, Safeguards, Subsidies, and Trade-Related Investment Measures agreements, with some provisions phases in over a period

 

 

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