All the three Vietnam-based branches of foreign cigarette firms, BBT, Philip Morris and JTI, are operating under Trade Ministry licenses which are valid through June 30, 2008 (as approved by the Prime Minister). After this date, can these branches still operate in Vietnam?
LE THI THU THUY, LL.D
Law Faculty, Hanoi National University
All the three Vietnam-based branches of foreign cigarette firms, BBT, Philip Morris and JTI, are operating under Trade Ministry licenses which are valid through June 30, 2008 (as approved by the Prime Minister). After this date, can these branches still operate in Vietnam? Will their operation licenses be extended or revoked? These questions remain unanswered. Vietnam’s current legal provisions governing the operation of foreign cigarette firms’ branches remain unclear, directly affecting the benefits of these branches.
Operations of Vietnam-based branches of foreign traders are classified as extraordinary commercial activities under Clause 4, Article 2, and Clause 2, Article 31, of Government Decree No. 72/2006/ND-CP of July 25, 2006, detailing the Commercial Law regarding representative offices and branches of Vietnam-based foreign traders. Clause 2, Article 31 of Decree No. 72 stipulates that foreign cigarette firms’ branches set up before the effective date of this Decree shall operate under separate regulations of the Prime Minister. However, after the issuance of Decree No. 72 and while those branches are operating under the former Trade Ministry’s licenses, competent state agencies have forgotten submitting to the Prime Minister regulations on the operation of Vietnam-based branches of foreign traders, or foreign cigarette firms in particular. That means the operation of foreign cigarette firms’ branches has not yet been legalized, and the extension of their operation duration as well as the extension order, duration and procedures fall entirely under the Prime Minister’s competence and are not governed by Decree No. 72 (except Clause 2 of Article 31). In addition, current investment and enterprise laws contain no provisions on the licensing of operation of Vietnam-based branches of foreign traders. For this reason, the Vietnam-based branches of foreign cigarette firms do not know what they can “rely on” to continue their operation. This is a loophole in Vietnam’s current law.
In overall, foreign cigarette firms’ branches currently operating in Vietnam have strictly observed national laws and made certain contributions to the state budget, job creation and reduction of smuggled cigarettes, not to mention other social contributions.
However, these branches are implementing programs on introducing and marketing their products directly to consumers in restaurants, bars and other service places, though they are not allowed to do so. Under the 2005 Commercial Law, tobacco advertisement is banned (Article 109). Article 102 defines that “Commercial advertisement means traders’ trade promotion activities for introducing their goods and service trading activities to customers.” Accordingly, all traders, including cigarette firms’ branches, are not allowed to introduce cigarettes to customers.
Under WTO regulations and international practice, Vietnam-based branches of foreign cigarette firms may operate under the former Trade Ministry’s licenses until June 30, 2008. In Vietnam’s WTO negotiations, the import and distribution of foreign cigarettes will be conducted under the State’s trade mechanism by the Vietnam National Tobacco Corporation (Vinataba). Vietnam will not allow foreign companies to participate in distributing cigarettes in the country. Under Government Decree No. 119/2007/ND-CP of July 18, 2007, on cigarette production and trading, and Prime Minister Decision No. 88/2007/QD-TTg of June 13, 2007, approving the master strategy on Vietnam’s tobacco industry up to 2010 with a vision to 2020, production of foreign-label cigarettes must be conducted by a joint venture with a licensed cigarette producer in which the State holds dominant shares. It is necessary to consolidate and reorganize the distribution system, closely supervise the wholesale market and proceed to controlling the retail system by building and managing fixed sale places. On May 21, 2007, the former Ministry of Trade issued Decision No. 10/2007/QD-BTM, on roadmaps for carrying out goods trading and directly related activities, which clearly stipulates that cigarette distribution will not be re-opened for foreign investment. Therefore, it is irrational in both state management work and stability of the operation of enterprises that foreign cigarette firms’ branches must operate under separate regulations of the Prime Minister from July 1, 2008, which, in fact, are not yet promulgated, causing instability to foreign investment and the entire tobacco industry.
Recommendations
Under WTO regulations and the Ordinance on the Most Favored Nation status, Vietnam has no right to discriminate foreign and domestic cigarette producers.
So, foreign cigarette firms without Vietnam-based branches may, in principle, propose the setting up of such branches to the Prime Minister for approval. Then, Vietnam’s efforts in WTO negotiations to protect the distribution right of domestic cigarette producers will become meaningless. Foreign cigarette firms, which are prestigious and financially strong, will be able to dominate the domestic cigarette distribution system and, in the long term, make the tobacco industry depend on them. Meanwhile, cigarette trading is restricted under Decree No. 59/2006/ND-CP of June 12, 2006, guiding the Commercial Law regarding goods and services banned or restricted from trading or subject to conditional trading.
For this reason, if the Government does not allow foreign cigarette firms’ branches to continue operating for a long term in Vietnam, the Ministry of Industry and Trade will not extend (or will revoke) their operation licenses. This is compliant with current Vietnamese law and international commitments. However, such revocation should be carefully considered because these firms have operated in Vietnam for long with their products occupying a large market share in the tobacco industry, not to mention their contributions to the state budget and foreign relations.
Contrarily, if the Government allows foreign cigarette firms’ branches to continue operating in Vietnam, their operation should not be subject to separate regulations of the Prime Minister but comply with law. This poses the need for revision of Decree No. 72 and more relaxed policies compared to those under Vietnam’s WTO commitments. At the same time, if foreign cigarette firms wish to continue investment in Vietnam, they must not operate in the form of branch but in the form of joint venture with domestic cigarette producer(s) in which the State holds dominant shares under Decree No. 119/2007/ND-CP. In reality, a joint venture has been set up by Vinataba and the People’s Committee of Da Nang city in cooperation with the Imperial group. Joint ventures of this kind may produce and distribute foreign-label cigarettes under relevant current regulations of Vietnam. However, the transformation of foreign cigarette firms into joint ventures would take 2-3 years and must be decided by the Prime Minister. The question is that after June 30, 2008, how will these branches operate without the Prime Minister’s permission for their operation extension? Pending such permission, the Ministry of Industry and Trade should notify the permission for temporary operation of these branches because it is impossible that they will illegally operate or have their licenses revoked without proper notice.-