Foreign-invested enterprises’ frustration over the “one single-licenced distributor” issue is set to end. The Ministry of Industry and Trade (MoIT) last week issued Circular 05 to amend the troublesome Circular 09.
Circular 05/2008/TT-BCT, issued on April 14, will allow foreign-invested enterprises to sell their imports to traders instead of the single-licenced trader/distributors stated in Circular 09/2007/TT/BTM (Circular 09) who have the right to distribute such imports. The new circular also said that foreign-invested companies that import, but have no distribution rights, must send quarterly reports on traders who had purchased the imports to relevant authorities before the 15th day of the first month of the following quarter.
Circular 09 provided guidance for the implementation of Decree 23 regarding trade and distribution activities by foreign invested enterprises (FIEs) in Vietnam, had been seen to impose new market access obstacles. Article 3.1 of Circular 09 restricted FIEs to one single-licenced distributor for each category of imported products in one chapter of the import tariffs list. Foreign legal companies said that this restriction was inconsistent with the right of FIE’s to exercise their trading rights by selling imported products to “one or more licenced Vietnamese distributors”, as stated in Article 147 of the Working Party Report.
“I greatly appreciate the amendments in Circular 05, particularly the regulation that allows foreign invested enterprises to sell their imported products to multiple distributors,” said Nguyen Dang Viet, Bizconsult Law Firm’s Partner. He said that the revision was not only compliant with Vietnam’s World Trade Organization commitments but also useful and beneficial to both FIEs and consumers. He pointed out that Circular 09’s regulation on “one single-licenced distributor” had caused higher costs for imported products.
“In Vietnam, it is quite difficult to find distributors who have a distribution system in many parts of the country,” said Viet, adding that prior to the issuance of Circular 09, for many products, FIEs used to set up different distributors for different parts of the country to save on transportation costs. However, because Circular 09 allowed FIEs to select only one distributor for each category, companies had to pay more for their single-licenced distributors to transport goods from one place to another, raising the price of imported goods. Viet also said that the “one single-licenced distributor” regulation had led to distribution monopolies.
Dang Trong Hieu, a lawyer from Vision & Associates, spoke highly of Circular 05, which lifted the restriction on the number of distributors. In addition, he said that the circular also removed Circular 09’s requirement that FIEs register their selected traders/distributors to responsible authorities.
“According to Circular 05, FIEs will only have to send quarterly reports on their distributors instead of going through the registration procedures stated in Circular 09,” said Hieu. He explained that registration procedures often took time waiting for the approval of government authorities.
Despite the good comments on Circular 05, lawyers also pointed out its shortcomings. Viet said that he did not completely agree with the requirement of FIEs to send quarterly reports on their distributors to relevant authorities.
“I understand that this regulation is a monitoring tool for the government to prevent importers from establishing camouflaged distribution systems. However, this could cause problems for enterprises if their business secrets are leaked,” said Viet. He also said that Circular 05 would require FIEs to report four types of information related to the distributor’s name, business licence number, tax code and category of goods.
“Even though the circular doesn’t require detailed information, the four categories could still be helpful to competitors,” said Viet. He suggested that the MoIT should remove this report mechanism and strengthen the supervision and post-deal examination of taxation and market management bodies.
Hieu said he was a little disappointed because Circular 05 only dealt with the “one single-licenced distributor” issue, not with specified criteria on the establishment of a second retail outlet. He said this was information that domestic and foreign distributors were waiting for, seeing as the Vietnamese distribution market would be completely open beginning January 1, 2009 from this time, foreign investors will be allowed to establish 100 per cent foreign-owned distribution enterprises.
Vo Van Quyen, deputy director of the MoIT’s Domestic Market Department and one of the main authors of Circular 05, said that the circular did not include detailed criteria on the establishment of a second retail outlet beyond the first because putting forward the criteria would be quite a difficult task that required serious study and discussion.
“However, we’ll try to deal with this before January 1, 2009, in order to meet distributors’ information demands, and to ensure policy transparency,” said Quyen. He also said that the reporting mechanism would be set up in order to lay the basis for the government’s post-deal examination. And according to current laws, relevant authorities would have the responsibility to retain all business secrets.