NON TARIFF MEASURES FACING ASIA PACIFIC EXPORTERS: CASE OF VIETNAM

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1 NON TARIFF MEASURES FACING ASIA PACIFIC EXPORTERS: CASE OF VIETNAM 1. General Assessment Export restrictions are classical area in trade in goods, sometimes considered as export controls imposed by exporting countries to supervise export flows. While reducing tariff as commitment of trade agreements, countries may impose export related measures which is in various context such as export prohibitions, quantitative restrictions, export quotas, and export duties. Beside these export restriction, countries may provide export incentive measures as export subsidies, duty and tax drawback, export awards, export finance, insurance, and other export promotion measures. The basic definition of non-tariff barriers (NTBs) is provided by the OECD (1997, p.69) as those border measure other than tariffs that may be used by countries to prohibit or restrict import or export of products. Similarly, the UNCTAD Trade Analysis and Information System (TRAINS) database includes mainly only border measures. This approach largely ignores export-related measures and internal measures as local content requirement, subsidies, discriminatory government procurement and anti-competitive practices. Consequently, UNCTAD provide possibly the only comprehensive definition of NTMs which is widely used for researches. Another set is The ASEAN working defination on NTBs colsely reflects the UNCTAD classification (see Annex 1). There are, some ommission in the ASEAN definition as some finance and price control measures, as well as quantity control and internal policy measures. However, it is worth mentioning since Vietnam yet to have full membership of WTO and currently used many ASEAN definition. NTBs should not be considered the same as NTMs, but as a sub-set of NTMs. In other words, not all NTMs are NTBs. Measures that promote exports are not barriers to trade are viewed as NTMs. Further, it is difficult to characterise the non-binding quotas as barriers. On the other hand, an incentive that government give to some enterprises could make a unfair-competion environment to others. Therefore, the NTMs in this context will be seen as NTBs which affect export performance of enterprises. The nature of NTMs, then are in three forms: - Quantitative restriction: means prohibitions or restrictions on trade with other members, through quotas, licenses, administrative measures and requirements. - Technical Barriers to Trade: means application of technical regulations on products, including SPS - Foreign Exchange Restriction: means measures in form of restriction and other administrative procedures in foreign exchange which have the effect of restricting trade. 1

2 Barriers to export can be viewed in two categories as internal and external barriers. Internal barriers are considered as obstacles that a company and its management have direct control over as lack of information, inability to identify export opportunities, obtain international market data, incapability to process basic export document and some cases, lack of financial assistance. These barriers can typically be overcome by hiring new staff, training current staff, or finding assistance from a third party. External barriers are more macro in scope. These barriers, generally, originate from government policy or international law. These can be in numertous forms as quotas, VER, subsidies, domestic content requirements, high cost of tranportation, issues related to customs and competition from neighbors. In general, barriers of all types can be found in all countries in companies of all sizes. Expectedly, the larger company would tend to identify external barriers having a greater impact on their ability to export. Another body of literature draws heavily on case studies, the mafority of which forcus on NTMs in the most important export destinations for Asian-Pacific countries: the US, EU, Japan. Main exports of the region are labour-intensive products. The NTMs applied most frequently to these products by high-income markets are import quotas under MFA; contigency measures of protections (especially AD actions and safegourding measures); technical standards and regulations, including conformity testing requirements; quarantine ans SPS NTBs face by exporters in some asian countries NTB Exports Export Markets MFA quota Textile, garments US, Ca, EU, Child Labor Law Garments US, Sanitary regulation Shrimp, poultry, aquatic US, EU, others products, fruits, meat, fish Technical Barriers to trade many Many Antidumping measures Agricultural products US, EU, others Safeguard quotas Footwear, textile products, US, EU, Japan, others tableware Packaging and labelling Fabric, textile, apparel US Technical standards Leather goods, coffe, tea, US, EU electrical machinery Testing inspection and Meat, coffee, tea, oils, nuts, Japan, EU quartantine requirement seeds, kernels Licensing Fish, fist products, cofee, EU, Australia Tea, wood, fruits Tariff quota Textiles and garments US, EU Bilateral quotas Textiles and garments US, EU Textile and garment US, EU Import inspection Wood, china 2

3 Souce: OECD, 2005 It is the importing countries argue that export restrictions by dominant producing countries discriminate against foreign buyers by raising the level of export prices and creating difficulties for these buyers in obtaining essential raw materials and competing internationally. For economic reasons, in certain case, government exempt export restrictions (e.g. exemptions of licensing requirement in an export process zone) to promote foreign direct investment in export industries particularly in developing countries. (OECD, 2003) Table 1. Export Restrictions according to rationales 1. Export restriction for non economic reason: security - the UN Security Council Resolutions (e.g., sanctions against particular countries) - The Convention on Chemical Weapons - The Treaty on Nuclear Non-Proliferation - Multilateral export control arrangement 2. Export restrictions for non economic reason: other international treaties or arrangements, and life, public health, safety, social and religious reason - The Basel Convention on the Transboundary Movement of Hazardous Waste and their Disposal - The Convention on International Trade in Endangered Species of Fauna and Flora (CITES) - The Montreal Protocol on Sunstances that Deplete the Ozone Layer 3. Export restrictions for economic reason but in accordance with international or bilateral agreements or arrangements - the Agreement of Textile and Clothing - International commodities agreements on sugar, coffee, and petroleum - GSP and other preferential treatment related arrangements - In the process of counteract to countervailing duties of an importing country 4. Export restrictions for food security reason (prevention of critical shortage) - Staple products such as maize coping with drought in particular in LDCs (including seasonal regulations) 5. Export restrictions for environmental reason: for conservation of exhaustible natural resources, for maintain of adequate supply of essential products, or for promotion of downstream industries (those could be either non-economic or economic) - Forestry products (such as log, timber) - Fishery products (including seansonable restraint for a biological rest period of fish) - Mineral products, metals, precious stones - Hides and skins and leather - Other agricultural products (seasonal measures are introduced in some cases) 6. Export restrictions for quality controls and regulatory aspects - Patent or copyright infringing products - Sanitary quality controls or standards assurance to meet importer s demand or to keep international reputations (e.g., SPS quality of foods, quality of diamonds, 3

4 etc) 7. Export restrictions: others - Gold (financial security) - Exchange control related - Heritage goods (to protect national treasures) - Statistical and monitoring purposes Source: OECD, A brief survey of other research about Vietnam s NTBs Currently, it is unfortunate that there is very few applied researches into identifying and measuring the impact of NTMs in Vietnam, especially for exporters. Among those, the most compehensive survey was done by McCarty in A survey of NTB (McCarty, 1999) found that NTBs and NTMs in Vietnam are strong and numerous. The general direction of trade reforms is unclear, but possibly increasingly protectionist. The logic behind Vietnam s trade policies and legacy of central planning. Vietnam is still an economy in transition and a developing economy. Consequently, policy making is largely Ministry-specific and unfocused, an excessive number of policy objectives exist for each policy instrument, many policy instruments are changed frequently for finetuning purposes, the language of legal documents remains unclear, and not all legal documents are systemtically collected and published. Another work done by Mc Carty found out that in general Vietnam does not use technical measures to serve as non tariff barriers (McCarty, 2000). This seems to be similar with conclusion from Vietnam Standards (TCVN) that Vietnamese standards are used as technical criteria for certification of conformity, quality registration and quality control for imported and exported goods. Up to now, more than 7000 TCVNs have been developed and issued of which 4,400 are current, of which 100 are mandatory related to environmental hygiene, safety and to products important to national economy (TCVN, 2000) Further, governmental agencies are empowered to announce the mandatory standards applying to specific products within their areas of management. Other technical requirements, such as labeling, can be demanding but, nevertheless, do not appear designed as barriers to trade. And there are no standards developed by trade organizations. (McCarty, 2000) There has been a little research about Vietnam s trade policy aside from general reviews of the economic development and trade policy reform process. However, in fact, there is a common view that Vietnam is now at cross-road to decide which strategy she should have. In the export-related context, strategy of import substitution creates inefficient production and high costs. The weakened competitiveness of such import substituting industries imposes additional costs on exporters. 4

5 Vietnam s trade and investment policies can be characterised as export-led protectionism, whereby import substitution is encouraged with trade promotion, and export industries promoted by providing subsidies to countervail the high relative costs of intermediary products. This should not be interpreted as simply some South Korean model but rather central planning monopoly-based protectionsm paired with a crude interpretation of export-led development. However, exports of coffee, unprocessed cashwe nuts and rubber have charged (customs surcharge) as part of a price stabilization fund process. The surcharges seem mostly designed to extract windfall revenue gains for the government from international price fluctuations at the expense of Vietnamese consumers and export producers. VATs are applied for exported unprocessed minerals. Crude oil and rice are subject to minimum export prices. Garment export quota arrangments are utilised. Despite the lack of detailed research, there have been some attempts to gauge the relative important of some of Vietnam s NTMs through surveys of foreign and local business. This approach can be seen as general method for this study and to determine if the are of concern to businesses. A survey done by JICA in export/import production inspection (JICA, 1997) shows that mandatory inspection system is designed to prevent exports and imports of products that do not conform to specific standards. Specific standards are not limited to TCVNs mandatory standards, but include standards and ordinances of other ministries and foreign standards.inspection is requested by an individual manufacturer, exporter or importer to an accredited inspection organization. Any export or import product subject to the mandatory inspection must be accompanied with a certificate issued by the inspection organization to authorise customs clearance. Note that no marking is made on products after inspection. Any export product bearing the VN mark by receiving product certification A or B is exempted from this category. The report from ISG in 2001 (ISG, 2001), provide more insight in broader context, of such NTMs as due to the low level of development, Vietnam for the time being alsmot does not use technical barriers to protect its (agricultural) domestic production. Before 1998, Government did not award any direct subsidy from State budget. Since 1998, due to financial crisis, the world price of agricultural commodities have sharply fallen, affeting production and life of farmers. Government has been forced to increase its subsidy. Level of export subsidy is very low. However, the trend to rise export subsidy in term of both commodities and volume subsidized is existing. Mainly SOEs are granted export subsidy. This fact is not apporpriate in term of equality between enterprises. Vietnam export subsidy is only on short term basis. Regarding to issues related to customs, there were several assessments have been taken. Administrative rigidities and delays in the Customs administration have continued to remain important NTBs. Firms have to spend long time on clearing Customs procedures. This is well documented in various studies. Rigidities and delays in customs procedures 5

6 have naturally given rise to widespread use of unofficial customs fee, which is widely held to disproportionately hurt private firms by raising opportunity costs and making customs transactions more time consuming and cumbersome. (Nguyen Thang, 2004) Based on interviews with managers of footwear exporting companies, Boye (2002) reports that the following standard unofficial fees are required to process incoming shipments: US$20 for clearing a 20 foot container, US$40 for a 40 foot container, US$100 late inspection fee (Boye 2002, p. 27) Although the government has resorted to various tax exceptions for exporters, there are generally no direct export subsidies in Vietnam. However, some rewards currently provided to exporters for penetrating into new markets may not inconsistent with the WTO. In term of exception of the VAT rebate, all other tax concessions are based on criteria that offer a wide range of reasons for preferential treatment and therefore leave space for discretionary decisions through tax authorities. Some firms, particularly SOEs can negotiate with the state about the amount of tax they will pay in a particular year. More importantly, new firms (particularly small firms) are likely to be disadvantaged when it comes to settling tax payments because their negotiation power is likely to be small (Nguyen Thang, 2004) Summary of Vietnam Non Tariff Barriers (McCarty, 1999) Para-Tariff Measures Customs Surcharges Additional taxes and charges (not many) Special sale tax, value-added tax Decreed customs valuations (not significant) Price Control Measures Administrative pricing of import prices (minimum export prices) Anti-dumping measures (Vietnam contemplating) Countervailing measures (Vietnam contemplating) Finance Measures Advance payment requirements Restrictive official foreign exchange allocation Surrender requirement (decree 173, 80 percent rule???) Quantity Control Measures Non-automatic licensing Quotas (global quotas, seasonal quotas as rice exports, quotas linked with local production capacity as strategic products ) Prohibitions Export Restraints Arrangements (export restraint arrangements on textiles outside MFA, mostly EU) 6

7 Enterprise specific restrictions Monopolistic Measures Single or limited number of channels for imports Technical Measures Technical Regulations (many but mostly reasonable, except pharmaceuticals Customs formlities Special formalities (stamping) Customs efficiency Corruption (a problem) Internal Measures Export promotion (soft credit) Industrial Policy Taxation concession (exemptions) Procurement The measures come under revelations that Vnese businesses are suffering too many fees and charges. Just bringing a container to port, businesses must pay VND 300,00-450,000 for packing, VND150,000 for vouchers, VND600, ,000 for transport, VND 300,000 for custom fees and VND200, ,000 for others. ( 05/2005) As far as importing countries concerned, Vietnam faced several forms of trade actions against its export as labeling barrier by calling their export basa and tra as catfish case and then catfish is not catfish, and then antidumping duties; recently shrimp case is of this form. Exports of agricultural cash crops are also subject to some special surcharges, which change frequently. Some small private sector rice traders were given a small allocation of rice exports quotas. Part of garment export quotas to EU and US were auctioned. Highly strict sanitary concerns act as a NTB. For example, EU has adopted a policy of zero tolerance to fishery product containing residual antibiotics chloramphenicol (CAP). The standard set hasn been so strict that this has led to a radical plummeting of shrimp exports to the EU from Vietnam, affecting livelihoods of thousands of rural exporters. Absence of strict food safety guidelines at home means that standards of the richest importing markets as EU, US and Japan are applied to imports from poorer countries. (Lam Quoc Tuan, 2003) 3. Toward An Understanding NTMs for Vietnamese exporters. Will be done after survey and data pooling. 7

8 Reference Boye, G (2002). The Footwear Industry in Vietnam: Trade Policy and Market Opportunities. Report Prepared for World Bank s Export Study ISG (2001), General Report on Analysis of Vietnam Agricultural Policy Under the Context of WTO JICA (1997), Study on Development of Industrial Standardization, Metrology, Testing and Quality Management in the Social Republic of Vietnam. Interim Report I, Japan International Cooperation Agency, Tokyo. Lam Quoc Tuan (2003). Country case study: Trade in Fisheries and Human Development Vietnam. UNDP, Hanoi McCarty (1999). Vietnam s Integration with ASEAN: Survey of non-tariff measures affecting trade. UNDP Project (VIE 95/015), Hanoi McCarty (2000). Standards, Regulatory Reform and Development in APEC: Case Studies of Vietnam and Thailand. WB Conference, Singapore, Sept. Nguyen Thang (2004). The Poverty Impact of Doha: Vietnam. Oversea Development Institute, London OECD (1997), Indicators of Tariff and Non-tariff Trade Barriers. OECD, Paris. OECD (2003). Analysis of non-tariff measures: the case of export restrictions, OECD (2005). Analysis of Non-Tariff Barriers of Concern to Developing Countries Annexes. TD/TC/WP(2004)47/REV1 TCVN (2000) Working party of the Trade Committee, TD/TC/WP(2003)7/FINAL 8

9 Annex 1 NON-TARIFF MEASURES IN ASEAN UNDER CEPT/AFTA PARA-TARIFF MEASURES Other measures that increase the cost of imports in a manner similar to tariff measures, i.e. by a fixed percentage or by a fixed amount, calculated respectively on the basis of the value and the quantity, are known as para-tariff measures. Four groups are distinguished: customs surcharges; additional charges; internal taxes and charges levied on imports; and decreed customs valuation. Customs surcharges/import surcharges The customs surcharge, also called surtax or additional duty, is an ad hoc trade policy instrument to raise fiscal revenue or to protect domestic industry. Additional charges Additional charges, which are levied on imported goods in addition to customs duties and surcharges and which have no internal equivalent, comprise various taxes and fees. The category of additional charges includes the tax on foreign exchange transactions, stamp tax, airport license fee, consular invoice fee, statistical tax, tax on transport facilities and charges for sensitive product categories. Various other taxes. such as the export promotion fund tax, taxes for the special funds, the municipal tax, registration fee on imported motor vehicles, customs formality tax, etc., are classified as additional charges, n.e.s. It should be noted that Article VIII of GATT states that fees and charges other than customs duties and internal taxes shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes. Decreed customs valuation Customs duties and other charges on selected airports can be levied on the basis of a decreed value of goods (the so called "valeur mercuriale" in French). This practice is presented as a means to avoid fraud or to protect domestic industry. The decreed value de facto transforms an ad valorem duty into a specific duty. PRICE CONTROL MEASURES Measures intended to control the prices of imported articles for the following reasons : (i) to sustain domestic prices of certain products when the import price is inferior to the sustained price; (ii) to establish the domestic price of certain products because of price fluctuation in the domestic market or price instability in the foreign market; and (iii) to counteract the damage caused by the application of unfair practices of foreign trade. Most of these measures affect the cost of airports in a variable amount calculated on the basis of the existing difference between two prices of the same product. compared for control purposes. The measures initially adopted can be administrative fixing of prices and voluntary restriction of the minimum price level of exports or investigation of prices, to subsequently arrive at one of the following adjustment mechanisms; suspension of airport licenses; application of variable charges, anti-dumping measures or countervailing duties. Administrative price fixing of import prices By administrative price fixing, the authorities of the importing country take into account the domestic prices of the producer or consumer establish floor and ceiling price limits; or revert to determined international market values. Various terms are used, depending on the country or sector, to denominate the different administrative price fixing methods, such as official prices, minimum import prices or basic import prices. 9

10 Voluntary export price restraint A restraint arrangement in which the exporter agrees to keep the price of his goods above a certain level. Variable charges Variable charges bring the market prices of imported agricultural and food products close to those of corresponding domestic products, in advance, for a given period of time, and for a preestablished price. These prices, are known as reference prices, threshold prices or trigger prices. Primary commodities may be charged per total weight, while charges on processed foodstuffs can be levied in proportion to the primary product contents in the final product. In the case of the EU, the charges applied to primary products as such are called variable levies and those as part of a processed product, variable components. FINANCE MEASURES Measures that regulate the access to and cost of foreign exchange for imports and define the terms of payment. They may increase the airport cost in a fashion similar to tariff measures. Advance payment requirements Advance payment of the value of the import transaction an /or related imported taxes, whichis required at the moment of the application for, or the issuance of, the import license. Advance import deposits Obligation to deposit a percentage of the value of the import transaction for a given time period in advance of the imports, with no allowance for interest to be accrued on the deposit. Cash margin requirement Obligation to deposit the total amount corresponding to the transaction value, or a specified part of it, in a commercial bank, before the opening of a letter of credit; payment be required in foreign currency. Advance payment of customs duties Advance payment of the totally or a part of customs duties, with no allowance for interest to be accrued. Refundable deposits for sensitive product categories The deposit refunds are charges which are refunded when the used products or its containers are returned to a collection system. Regulations concerning terms of payment for imports Special regulations regarding the terms of payment of imports and the obtaining and use of credit (foreign or domestic) to finance imports. Transfer delays, queuing Minimum permitted delays between the date of delivery of goods and that of final settlement of the import transaction (usually 90, 180 or 360 days for consumer goods and industrial inputs and two to five years for capital goods). Queuing takes place when the prescribed delays cannot be observed because of foreign exchange shortage, and transactions are settled successively after a longer waiting period. MONOPOLISTIC MEASURES 10

11 Measures which create a monopolistic situation., by giving exclusive rights to one or a limited group of economic operators. for earlier social, fiscal or economic reasons. Single channel for imports All imports or imports of selected commodities have to be channelled through state-owned agencies or state-controlled enterprises. Sometimes the private sector may also be granted exclusive import rights. Compulsory national services Government-sanctioned exclusive rights of national insurance and shipping companies on all or a specified share of imports. TECHNICAL MEASURES Measures referring to product characteristics such as quality, safety or dimensions, including the applicable administrative provisions, terminology symbols, testing and test methods, packaging, marking and labelling requirements as they apply to a product. The implementation of these measures by sensitive product categories can result in the application of one of the measures listed under codes ending in 71 to 79. Technical regulations Regulations that provide technical requirements, either directly or by referring to or incorporating the content of a standard, technical specification or code of practice, in order to protect human life or health or to protect animal life or health (sanitary regulation); to protect plant health (phytosanitary regulation); to protect the environment and to protect wildlife; to ensure human safety; to ensure national security; to prevent deceptive practices. The regulation may be supplemented by technical guidance that outlines some means of compliance with the requirements of the regulation, including administrative provisions for customs clearance, such as prior registration of the importer or obligation to present a certificate issued by relevant governmental services in the country of origin of the goods. In certain cases, a prior recognition of the exporter or certificate issuing service by the importing country is also required. Product characteristics requirements Technical specifications prescribing technical requirements to be fulfilled by a product. Marking requirements Measures defining the information for transport and customs, that the packaging of goods should carry (country of origin, weight, special symbols for dangerous substances, etc.) Labelling requirements Measures regulating the kind and size of printing on packages and labels and defining the information that may or should be provided to the consumer. Packaging requirements Measures regulating the mode in which goods must be or cannot be packed, in conformity with the importing country handling equipment or for other reasons, and defining the packaging materials to be used. Testing, inspection and quarantine requirements Compulsory testing of product samples by a designated laboratory in the importing country, inspection of goods by health authorities prior to release from customs or a quarantine requirement in respect of live animals and plants. 11

12 Pre-shipment inspection Compulsory quality, quantity and price control of goods prior to shipment from the exporting country, effected by an inspecting agency mandated by the authorities of the importing country. Price control is intended to avoid under invoicing and over invoicing, so that customs duties are not evaded or foreign exchange is not being drained. Special customs formalities Formalities which are not clearly related to the administration of any measure applied by the given importing country such as the obligation to submit more detailed product information than normally required on the basis of a customs declaration, the requirement to use specific points of entry, etc. 12