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Policy digest November 2013
The Ministry of Finance (MOF) has proposed increase in import duty rates for 462 product lines, especially those which can be produced domestically, in a move that could provide a considerable boost to domestic production and rein in the country’s trade deficit.

* Import tariffs to be raised in line with WTO commitments: The Ministry of Finance (MOF) has proposed increase in import duty rates for 462 product lines, especially those which can be produced domestically, in a move that could provide a considerable boost to domestic production and rein in the country’s trade deficit.

Tariffs on the remaining 2,963 product lines, including agriculture, forest and fisheries products, will not change.

Duty rates applicable to imported materials which are domestically available will increase slightly 2-3 percent.

The MOF also intended to raise import duty rates from zero to 3 percent for some crude minerals which are imported for immediate re-export, and to promote onshore processing and use of domestic minerals.

Duty rates below the ceiling rates stipulated in the country’s WTO commitments will also be adjusted between 0.5 and 1 percent, while duties for products on the import quota list will be increased 5-10 percent.

As commented by the MOF, the changes would not affect business activities in Vietnam and would help the country meet its WTO commitments by 2014, once they are applied from early next year.

* Social insurance expected to reach expatriate workers: Deputy Minister of Labor, War Invalids and Social Affairs Pham Minh Huan recently informed that social insurance under Vietnamese law would be soon expanded to cover foreign workers in Vietnam and Vietnamese guest workers and this would serve as a ground for conclusion of mutual agreements on social insurance benefits between Vietnam and other countries, with a view to raising pensions for retired domestic and foreign workers and assure equality in social insurance regimes.

At present, foreign workers who are employed and seconded by foreign companies to work in Vietnam are only in intra-company transfer and may only pay insurance costs and enjoy insurance benefits in accordance with laws of countries of origin. Only foreign employees of Vietnamese firms are likely to be governed by Vietnamese labor and social insurance laws.

Once applied, Vietnamese social insurance for expatriate workers and Vietnamese guest workers would help increase state budget revenues from insurance premiums, avoid double insurance premium payment, and facilitate safe migration and repatriation of overseas Vietnamese to work in their home country.

* More flexible regulations suggested for promotion of border trade: At a briefing conference organized on November 26 in Hanoi by the Border Trade Steering Committee of the Ministry of Industry of Trade (MOIT), many participants pointed out reasons for border trade underdevelopment and urged revision of relevant legal documents, which were referred to as “soft infrastructure” for the field, in addition to physical infrastructure facilities.

They suggested revision of Government Decree No. 107/2002/ND-CP, which permits temporary import of goods for re-export only through certain border gates, in order to facilitate flexible change of border gates of importation at any time to meet demands of businesses, especially for temporarily imported frozen and perishable goods.

Vietnam’s border trade policies should also be revised in response to changes in those of bordering countries, they said.

Dam Van Bong, vice chairperson of the People’s Committee of Ha Giang province, suggested that provisions of Government Decree No. 32/2005/ND-CP and Prime Minister Decision No. 254/2006/QD-TTg, which allow only border inhabitants and their vehicles and goods to travel across auxiliary border gates, be revised in consistency with Joint Circular No. 01/2008/TTLT-BCT-BTC-BGTVT-BNNPTNT-BYT-NHNN, which allow people, vehicles and goods from non-border areas with the MOIT’s and local administrations’ permission to travel across auxiliary border gates.

For auxiliary border gates where all three specialized forces (customs, border guard and quarantine) are available, all types of imports and exports should be customs-cleared as soon as possible, regardless of trade forms prescribed in Decree No. 12/2006/ND-CP.

He also proposed local administrations to be empowered to manage and retain a percentage of collected border trade-related taxes for building local infrastructure and set tax rates equal to or lower than those set by the central government for the same goods items.

A representative of Quang Ninh province suggested adoption of specific management mechanisms and more preferential procedural conditions for border trade goods, especially goods traded in small quantities not subject to permission, instead of the general import and export management mechanism designed according to international practices.

* Twenty six commodity, service groups free from value-added tax: The MOF is drawing up a list of 26 commodity and service groups which are exempt from value-added tax (VAT).

Accordingly, from January 1, 2014, the groups of life, health, student and other insurance services related to humans; domestic animal, plant and other agriculture insurance services; insurance for ships, boats, equipment and other necessary fishing gears; and re-insurance services will not be liable to VAT.

The group of financial and banking services not liable to VAT will include lending; discount or rediscount of negotiable instruments and other valuable papers; guarantee; financial leasing; issuance of credit cards; domestic and international factoring; sale of loan security assets, etc.

* The nation gets ready for TPP accession: Fiercer competition, social impacts, higher requirements for legal framework improvement and imperative administration and management reforms would be facing Vietnam once it officially joins the Trans-Pacific Strategic Economic Partnership Agreement (TPP) by the year end, following other 11 nations.

According to legal experts, the beneficial aspect of TPP, which primarily aims at reducing tariffs and barriers to trade in goods and services, is that the country may increase its exports of garment, footwear and some specialties into large markets, especially the US market, without having to compete with other TPP members; and get opportunities to join government-to-government consultations on anti-dumping and anti-subsidy safeguards and lawsuits with other members.

In order to avoid trade disputes, the country may use TPP commitments regarding technical barriers and sanitary measures as advantages over TPP non-members.

TPP will also facilitate Vietnamese businesses’ offshore investment and import of materials from other member states at low prices.

In the course of realizing TPP general commitments, Vietnamese businesses may have more opportunities to join transparent and public bidding upon the opening of the public procurement market, better protect the environment and employees, improve import restriction measures, etc.

However, TPP would also come with many challenges, including lowering of the tariff barrier with the current average level of 11.7 percent, enhanced protection of IP rights holders and/or reduction of conditions for recognizing protection under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement of pharmaceuticals, agro-chemical products, geographical indications, inventions and copyrights, improvement of the legal framework to allow foreign investors to provide new financial services in the market, etc.

Vietnamese businesses that wish to get the best of TPP should constantly raise their exports’ quality and competitiveness, strive to satisfy conditions to prove that materials for production of their exports have been made in the country or TPP member states, quickly increase localization rates of their products and investment in material zones, thus reducing dependence on foreign suppliers, and adopt strategies for cooperation among member states to create large production chains within TPP.

* Shares of state companies to be sold at below par value: Legal experts have recently pointed out the necessity to revise the Regulation promulgated together with Government Decree No. 59/2011/ND-CP of July 18, 2011, on conversion of wholly state-owned enterprises into joint-stock companies, which requires these companies’ shares to be sold at above par value, to be consistent with Decree No. 151/2013/ND-CP of November 1, 2013, which allows the State Capital Investment Corporation (SCIC) to sell stakes in state joint-stock companies suffering losses and unable to find purchasers at below par value from December 20.

Phung Van Hung, standing member of the National Assembly’s Economic Committee, considered this Regulation an obstacle in the state enterprise restructuring process, particularly equitization and divestment of state capital from non-business lines.

Vinacomin chairman Tran Xuan Hoa said that 50 percent of the stock market’s total share volumes were being traded below VND 10,000 per share, making it virtually impossible to sell state equities. At present, foreign investors are hoping to get involved with share issues, as long as they are below book/par value.

They all agreed that selling state company shares under par value would help raise capital for investment in more efficient sectors that do not need state control.

* Credit institutions urged to mull non-performing loan mess: Based on Prime Minister Decision No. 843/QD-TTg of May 31, 2013, approving the projects “Dealing with non-performing loans (NPLs) in the system of credit institutions” and “Establishing Vietnam Asset Management Company”, the State Bank of Vietnam (SBV) Governor has recently issued a plan to implement relevant provisions (Document No. 8421/NHNN-TTGSNH) calling on credit institutions to work out plans to settle NPLs and raise credit quality during 2013-15, as part of the overall plan to restructure credit institutions.

The Governor urged banks to assess NPLs and credit quality in 2011, 2012 and the first half of 2013 and classify NPLs according to collateral value and risk provisions, excluding NPLs defined in SBV Governor’s Decision No. 780/QD-NHNN of April 23, 2012, or Circular No. 02/2013/TT-NHNN of January 21, 2013.

Credit institutions should devise solutions to record and deal with every NPL of their subsidiaries and branches; propose changes in their internal control rules and procedures for inspection conducted before, during and after the credit appraisal and approval process as well as internal audit of credit quality; and create mechanisms to prevent provision of loans which show the risk of becoming NPLs.

They should also estimate quantities of NPLs to be sold to Vietnam Asset Management Company every year.

* Preferential duty rate cuts proposed for imported automobiles: In a draft circular to promulgate the Preferential Import and Export Tariffs according to the list of dutiable commodity items, the Ministry of Finance proposed reduction of preferential import duty rates for 170 goods lines from January 1, 2014.

Specifically, the preferential import duty rate of zero percent will replace the current rate of 2 percent applicable to such commodities as wired telephone sets with cordless handsets, microphones of a frequency bandwidth of 300-3,400 Hz, loudspeakers without housing and of a frequency bandwidth of 300-3,400 Hz.

Other preferential import duty rate reductions are also proposed for freshwater salmon, Atlantic salmon and sardine (from current 12 to 10 percent); butter (from 14 to 13 percent), cosmetic products including hair dressing preparations and hairspray (from 17 to 15 percent), automobiles (from 74 to 70 percent or from 62 to 59 percent, depending on cylinder and seating capacity), etc.-

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