Opening Distribution Sectors of Vietnam. A Move to Global Playground. Oliver Massmann Partner Duane Morris Vietnam LLC

Transcription

1 Opening Distribution Sectors of Vietnam A Move to Global Playground Oliver Massmann Partner Duane Morris Vietnam LLC 2007 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP. Duane Morris Firm and Affiliate Offices New York London Singapore Los Angeles Chicago Houston Philadelphia San Diego San Francisco Baltimore Boston Washington, D.C. Las Vegas Atlanta Miami Pittsburgh Newark Wilmington Princeton Lake Tahoe Duane Morris LLP A Delaware limited liability partnership

2 WHAT ARE DISTRIBUTION SECTORS? Distribution sectors are often interpreted to include (i) Trading Rights and (ii) Distribution Services Trading Rights: The rights to directly import and export goods without having to go through another entity such as State-owned enterprises (SOEs) or local companies and sell the same to licensed distributors. Distribution Services: The rights to establish a distribution network to sell goods (either imported or locally made) to end users on demand. Distribution Services include whole sale services; retail services; agency; and franchising.

3 WHAT ARE DISTRIBUTION SECTORS? As Vietnamese law stands, a company licensed to distribute goods may not need to separately apply for trading rights This is because the law systematically characterizes distribution rights to include trading rights, but not vice versa

4 WHY IS IT SO IMPORTANT? Because With its population of nearly 90 mil, Vietnam is considered a promising consumption heaven. Moreover, Vietnamese people keen to buy goods xịn regardless of how expensive it is. There is a lack of professional and effective retail and supply systems throughout the country. Until now, foreign investment in this sector is quite modest as a result of restrictive investment policies.

5 A DISTRIBUTION LEGAL FRAMEWORK Generally, the legal framework for foreign investment in distribution sectors is considered legally sufficient from Vietnamese authorities point of view. It has been subject to debate whether Vietnam needs new regulations/guidelines on top of the current ones, especially guidelines on unifying administrative interpretation and handling of applications by Vietnamese authorities. In practice there are big differences all over Vietnam s provinces. In particular Vietnam s WTO Commitments: Stating Vietnam s commitments to international community on opening up of its distribution sectors. Investment Law dated 29 November 2005: Providing general ground for investment in distribution sectors. Decree 23 dated 12 February 2007: Specifying conditions for foreign investment in distribution sectors.

6 A DISTRIBUTION LEGAL FRAMEWORK MOF s Circular 09 and 05 dated 17 July 2007 and 14 April 2008 respectively: Detailing procedures and conditions for investment in distribution sectors. For example, distributor must come from a WTO member, goods must be permissible to trade in Vietnam, distribution methods (retailing, wholesale) must be complied with market access of Vietnam s WTO Commitments. MOF s Decision 10 dated 21 May 2007: Listing specific goods subjecting to restriction (e.g.- petroleum based products like lubes) or prohibition (e.g. - movies, gasoline, etc.) from distribution. from distribution

7 A DISTRIBUTION LEGAL FRAMEWORK Despite the above, some licensing authorities often refer to the long-awaited WTO guiding decree to delay the licensing process in practice. There is also an inconsistency in the application of laws by authorities. Some authorities do not acquire HS-code definitions and limit the scope of the license to those and some others do allow unlimited scope. It remains to be seen when the WTO guiding decree is issued to clean up the last investment barriers in distribution investment though Vietnam became official member of WTO from January 2007

8 Opportunities OPPORTUNITIES Good market: A population of 90 million (ranks 13 th of the populous countries); A rapid growing consumer demand (According to 2008 report by AT Kearny: Vietnam ranks No.1 in retail investment attractiveness); Shopping habit: Vietnamese tends to purchase expensive products if they are able to afford; Low barriers for market entry (at least in theory) and the Government s determination in honoring its WTO commitments.

9 WHAT VIETNAM COMMIT TO DISTRIBUTION SECTOR AND HOW? Trading Rights: Offshore investors and FIEs may exercise Trading Rights (i.e. - directly import (also export) goods and sell the same to one or more licensed distributors) from 1 January 2007, Vietnam s WTO accession date. Initially, the Ministry of Industry and Trade (MOIT) only allowed the FIEs to sell goods to one licensed distributor in avoidance of disguised distribution. Until recently, this restriction has been removed by MOIT with the involvement of more than one distributors

10 WHAT VIETNAM COMMIT TO DISTRIBUTION SECTOR AND HOW? Retailing Services Western-style shopping malls are attractive to high-end retailer from U.S and Europe. All foreign investor licensed to distribution business are automatically set up the FIRST retails outlet. The establishment of the second retails outlet toward is subject to permanent Economic Need Tests (ENT) by the licensing authority, which is often seen as the most troublesome issue.

11 WHAT VIETNAM COMMIT TO DISTRIBUTION SECTOR AND HOW? Distribution Services From 11 January 2009: Only Joint Venture Companies (JVC) with local partners holding more than 49% is allowed From 1 January 2008: JVC with 99% foreign ownership may enter into the market; From 1 January 2009: Wholly Foreign Owned Companies are entitled to distribution services

12 WHAT VIETNAM COMMIT TO DISTRIBUTION SECTOR AND HOW? Exceptions: Restricted Goods: FIEs cannot import/export or distribute goods either legally prohibited from circulation or subject to State monopoly (e.g. - movies, gasoline, etc.) or open only to local companies (e.g.- petroleum based products like lubs) Scheduled Goods: FIEs cannot import/export or distribute certain categories of goods until either 1 January 2009 or 1 January 2010 such as motors, etc.

13 OPENING OF DISTRIBUTION SECTORS A PRACTICE Vietnamese law is unclear on criteria for the establishment of retail sale outlets of FIEs. This means the licensing authority may decide at their own discretion and on case by case basis. The licensing practice appears for foreign invested distribution companies to be unreasonably complicated and timeconsuming. Substantial differences still exists between local enterprises and FIEs with respect to licensing procedure, categories of goods to be traded, etc.

14 HOW TO USE THE LAW purchase (nearly) all shares in a local company having had a system of retail outlets to avoid current restrictions on establishment of retail outlet. Similarly, acquire equity of a Vietnamese company already registered to trade and distribute in restricted goods enter into implicit agreements with the local partners who are willing to act as a silent partner in the company. BUT: Waiver of voting rights possible? Enforceability?

15 QUESTIONS??? THANK YOU! AND

16 Contact Oliver Massmann Partner Duane Morris Vietnam LLC Pacific Place, Unit V1308, 13th Floor 83B Ly Thuong Kiet Street, Hoan Kiem District Hanoi, Cell: Fixed line: DID: Fax: