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Legal Update

New Circular on Activities for the Purchase and Sale of Goods and Activities Directly by Foreign Owned Capital Enterprises in Vietnam

7 July 2008
Mayer Brown JSM Legal Update


The Ministry of Industry and Trade (the "MoIT") on 14 April 2008 issued Circular No. 05/2008/TT-BCT ("Circular 05"), which amended Circular No. 09/2007/TT-BTM ("Circular 09") of the MoIT dated 17 July 2007. Circular 09  guided the implementation of Decree 23/2007/ND-CP ("Decree 23") of the Government dated 12 February 2007, which regulated Commercial Law regarding activities of foreign invested enterprises ("FIEs") and their purchase and sale of goods and activities in Vietnam.

The new Circular is significant in that it abolishes the requirement that FIEs which import goods into Vietnam can only sell such goods through one distributor. This restriction was seen as contrary to Vietnam's WTO commitments and its subsequent removal demonstrates Vietnam's efforts to comply with its WTO commitments. 
Full Update 
1.  Circular 05, which was issued by the MoIT, amended some troublesome provisions of Circular 09:
(a)  FIEs may sell their imported products to one or more distributors who obtain rights to distribute such imported products (pursuant to Point 3.1.dd of Section I of Circular 05);
(b)  With respect to lines of goods on the list of goods subject to specialized industry management (Appendix 3 of Decree No.12/2006/ND-CP), FIEs must conduct import in accordance with the specialized industry management regulations (pursuant to Point 3.1.b of Section I of Circular 05);
(c)  FIEs which have been licensed to exercise import rights but which do not yet have distribution rights are not permitted to set up an establishment [outlet] in order to distribute imported goods (pursuant to Point 3.2 of Section I of Circular 05);
(d)  FIEs, which have been licensed to exercise import rights but which do not yet have distribution rights, must quarterly, prior to the 15th day of the first month of the next quarter, prepare a report on standard Form BC1 issued with Circular 05 regarding the business entities purchasing imported goods, and send the report to the competent licensing authority (pursuant to point 2 of Section III of Circular 05).
2.  Circular 05 also permits:
(a)  Circular 09 restricted FIEs to one single-licensed distributor for each category of imported products in one chapter of the import tariffs list. By way of lifting such restriction, Circular 05 makes it more favorable for FIEs to access and distribute their imported goods in the Vietnamese market, which is in line with WTO commitments.

(b)  Under Circular 05, FIEs have to send only quarterly reports on their distributors instead of the registration procedures stated in Circular 09. As a result, one of the administrative burdens imposed by Circular 09 is removed. However, the quarterly report requires FIEs to report information about  the category of imported goods. Even though detailed information on the goods is not required, such information about the category of imported goods may be useful for FIEs' competitors if they are disclosed.
(c)  It should be noted that in Vietnam the right to import is different from the right to distribute. Therefore, if FIEs want to distribute their imported goods, they must follow the procedures set out in Decree 23.

(d)  Even though Circular 05 lifted the "one single-licensed distributor" obstacle, it does not set criteria on the establishment of a second retail outlet. Under Vietnam's WTO commitments, the Vietnamese distribution market would be completely open to Vietnam investment beginning 1 January 2009. From that time, foreign investors will be allowed to establish 100 per cent foreign-owned distribution enterprises. It is expected that further guidelines will be issued in this regard.
This Circular takes effect as of 10 May 2008.
For further information, please contact:
Dao Nguyen ( );
Ephraim N. Wittman ( ); or
Hanh Bui ( )
Learn more about our Vietnam offices and Corporate practice.

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