LLM Nguyen Thi Van Anh
Lecturer of Economic Law Faculty
Hanoi Law University
The Commercial Law was passed on May 10, 1997 by the National Assembly and took effect as from January 1, 1998. Its emergence has contributed to the creation of synchronous legal institutions on the market economy in Vietnam and also helped expand and promote domestic as well as international commercial exchanges for the cause of national industrialization and modernization and international economic integration.
However, after more than six years’ implementation, the Commercial Law has revealed many shortcomings and inadequacies, such as narrow scope of regulation, incomplete provisions on traders, commercial penalties and commercial disputes, provisions of which are contradictory to, or overlapping with, the provisions of other legal documents, thus affecting the development and scope of commercial activities in Vietnam.
Here we would like to point out some limitations and give some ideas on the perfection of a very important institution of the current Commercial Law – the institution on traders.
1. Just like commercial laws of other countries in the world, Vietnam’s 1997 Commercial Law defines that subjects of commercial relations are traders. Article 2 of the Law says the Commercial Law governs are traders conducting commercial activities in Vietnam. Hawkers and vendors having little business capital, low turnovers and incomes are governed by separate Governmental regulations in line with the basic principles of the Law. In Clause 6 of Article 5, it prescribes: “Traders include individuals, legal persons, cooperative groups and households having business registrations for commercial activities carried out independently and regularly.”
According to the above provisions, traders must show all the following five basic signs:
- Traders must exist in the form of individuals (natural persons), legal persons, cooperative groups or households;
- Traders must carry out commercial activities;
- Traders must carry out their commercial activities independently;
- Traders must carry out their commercial activities regularly;
- Traders must have business registrations.
By listing different types of subjects and their legal identities, the current Commercial Law has determined in a relatively specific manner the structure as well as characteristics of traders. Yet, in the course of implementation, the above provisions have revealed some limitations.
First, the Commercial Law has failed to fully cover the existing subjects which should have been regarded as traders.
According to the provisions of the 1999 Enterprise Law, enterprises are economic organizations having business registrations, and conducting activities of producing and/or consuming products or providing services on the market for profit-making purposes. But not all enterprises shall be considered traders according to the signs of traders prescribed in Clause 6, Article 5 of the Commercial Law, because all the laws on enterprises prescribe that all enterprises have business registration certificates but not all of them have business registration certificates for commercial activities according to the provisions of the Commercial Law. For example, an enterprise which is granted a business registration certificate for operation in the construction field shall not be considered a trader for the reason that construction is not a commercial activity under the 1997 Commercial Law. Its business transactions, therefore, fall beyond the regulation scope of the Commercial Law. Consequently, it can be said that the Commercial Law’s provisions on traders are incompatible and cannot be harmonized with the Enterprise Law’s and the State Enterprise Law’s provisions on enterprises.
Second, the provisions on the conditions to become a trader and cases of non-recognition as traders (Articles 17 and 18 of the 1997 Commercial Law) remain incompatible with, and contrary to, provisions of other legal documents. Article 17 just stops short at prescribing the conditions on subjects to become a trader but fails to prescribe other specific conditions. The Commercial Law provides that traders must be subjects having registered for independent and regular commercial activities but fails to clearly define what are independent activities and what are regular activities. This makes it very difficult to precisely and fully identify subjects considered to be traders.
Article 18 of the Commercial Law also prescribes three cases where persons shall not be recognized as traders, including: Persons who lack full civil act capacity, have lost civil act capacity, or have restricted civil act capacity; persons who are being examined for penal liability or are serving imprisonment sentences; persons who are being deprived of the profession-practicing right by courts for having committed offences of smuggling, speculation, trading in banned goods, manufacturing and trading in fake goods, conducting illegal business activities, evading taxes, deceiving customers or other offences prescribed by law. So, only cases where individuals cannot become traders are prescribed in the Law, which does not mention any case of non-recognition as traders for other entities. Besides, even in cases of individual traders conducting business in form of private enterprises, such provisions are still inconsistent with the provisions on the right to establish enterprises (including private enterprises).
Article 9 of the 1999 Enterprise Law, apart from prescribing the cases where persons cannot become traders prescribed in the Commercial Law, specifies the following four cases where individuals shall not be allowed to establish private enterprises, or in other words, cannot become traders in form of private enterprises:
- They are State officials or employees as prescribed by the legislation on State employees;
- They are officers, non-commissioned officers, professional servicemen, defense workers in agencies or units of the People’s Army; officers, professional non-commissioned officers in agencies or units of the People’s Police;
- They are leading officials, professional management personnel in State enterprises, except for those appointed as representatives to manage the State’s contributed capital portions in other enterprises;
- They are owners of private enterprises, partners of partnerships, directors (general directors), chairmen or members of the Managing Boards or Members’ Councils of enterprises which have been declared bankrupt, who are not allowed to establish enterprises for between one and three years from the date of bankruptcy declaration.
Third, some subjects that have business registrations and conduct commercial activities but cannot become traders under the current Commercial Law.
Some argue that partnerships (one of the four types of enterprises governed by the 1999 Enterprise Law, including private enterprises, partnerships, limited liability companies and joint-stock companies) are not traders according to the signs of traders prescribed in Clause 5, Article 6 of the Commercial Law, because they are neither individuals, cooperative groups, households nor legal persons. As a result, since January 1, 2000, partnerships, though having business registrations for conducting one or more than one commercial act prescribed in Article 45 of the Commercial Law, have not been considered traders in order to be treated as traders.
Consequently, partnerships, under the Commercial Law, cannot act as commercial subjects to participate in commercial intermediary activities, such as representatives for traders, goods purchase and sale agents, etc., since the Commercial Law prescribes that subjects participating in such commercial activities must be traders (Articles 83 and 112).
Under the above-said arguments, if a party to a contract on trader representation or a contract on goods purchase and sale agency is a partnership, such contractual relation shall not be subject to the Commercial Law but to the Civil Code (if the other contractual party is not a legal person) or the Ordinance on Economic Contracts (if the other party is a legal person).
Therefore, it can be said that in this case the Commercial Law’s provisions have failed to keep pace with the development of diversified business forms in the market economy.
Fourth, cooperative groups cannot become traders under the current law, too.
According to Clause 6, Article 5 of the Commercial Law, cooperative groups constitute one of the subjects that can become traders, or in other words, subjects of commercial law relations. But it is also prescribed by that very Article that cooperative groups must register their commercial activities before being recognized as traders. Article 17 of the Commercial Law prescribes: “An individual aged full 18 years or older and having full civil act capacity, a legal person, cooperative group or household satisfying the conditions prescribed by law for conducting commercial activities, if wishing to conduct commercial activities, shall be granted business registration certificate by competent State agencies and become a trader.” The Commercial Law does not prescribe where such subjects must register their commercial activities. However, according to the provisions of other legal documents, individuals being owners of private enterprises or individual business households, and legal persons being enterprises of all types, such as State-owned enterprises, limited liability companies, joint-stock companies and cooperatives shall make business registration at competent business registration agencies. Meanwhile, there still exist no law provisions on where cooperative groups can make business registration. In fact, cooperative groups do not make such business registration before commencing their operation.
So, cooperative groups, though constituting one type of trader according to Clause 6, Article 5, are ineligible to become traders under Article 17 of the Commercial Law despite the reality that they can still conduct commercial activities and become a subject governed by the Commercial Law. This situation shows that the said provisions of the Commercial Law have negated each other.
Fifth, the Commercial Law’s prescriptions on the business registrations of traders prove unnecessary and overlapping with other legal documents (Article 20 on contents of business registration, Article 21 on granting of business registration certificates, Article 22 on announcement of business registration contents and Article 23 on the right to request the supply of information on business registration contents). These provisions have not applied in practice because the business registration of business subjects has already been prescribed much more specifically in other legal documents such as the Cooperative Law (for the registration of establishment of cooperatives), the Enterprise Law (for the registration of establishment of private enterprises, joint-stock companies, limited liability companies and partnerships), the State Enterprise Law (for the establishment of State companies), etc.
At present, after business subjects have been granted business registration certificates under the laws on enterprises and conducted one or more than one commercial activity prescribed in Article 45 of the Commercial Law, they shall automatically become traders without having to make business registration as required by the Commercial Law. So, the Commercial Law’s provisions on business registration for traders are unnecessary and may cause contradictions if such business registration is considered identical to business registration (registration of enterprise establishment) under the law provisions on enterprises. Or it would be troublesome or impractical to argue that the business registration to become traders is different from that under other laws on enterprises because it is impossible for two types of business registration to exist simultaneously. Besides, the business registration under the Commercial Law’s provisions has not been effected in reality.
2. The provisions on foreign traders conducting commercial activities in Vietnam (Articles 37 thru 44 of the Commercial Law) also have the following noteworthy points:
Under the current Commercial Law, foreign traders may set up their representative offices or open their branches in Vietnam to trade in the types of goods permitted by the Vietnamese Government in each period; and under the Government’s Decree No. 45/2000/ND-CP of September 6, 2000, foreign traders are permitted to deal in only a number of types of goods for export and a number of types of goods imported for sale on the Vietnamese market according to the list of goods and services issued together with such Decree. This prescription seems to be contrary to the Law on Foreign Investment in Vietnam, which prescribes that foreign investors (foreign traders) may invest and do business in Vietnam in any of three forms: business cooperation contracts, joint-ventures or enterprises with 100% foreign-owned capital.
If foreign traders, in the capacity as foreign investors, establish or join Vietnamese parties in establishing enterprises with 100% foreign-owned capital or joint-ventures, such foreign-invested enterprises will be recognized as Vietnamese enterprises having the legal person status after they are granted investment licenses. But even if they invest in Vietnam under business cooperation contracts, they still do business in the capacity as independent foreign traders and are, therefore, rarely banned from certain business lines by the legislation on foreign investment.
This means there exist many business lines and goods items foreign traders (foreign investors) are permitted to deal in under the legislation on foreign investment but are banned under the Commercial Law and Decree No. 45/2000/ND-CP. For example, the trading (sale and purchase of) in industrial products in service of production, or the purchase of goods in Vietnam for sale in the domestic market.
3. From the above analysis, we would like to suggest the re-examination and amendment to the following concepts and provisions:
First, the concept of traders should be redefined, avoiding the listing of specific subjects. Such listing has made the prescription on traders narrow in scope, rigid and inflexible for application, thus failing to cover new subjects or keep pace with new circumstances occurring in the market business.
The words “independently and regularly” also makes the prescription more complicated because these concepts require definitions. And furthermore, such concepts themselves narrow the application scope of the Commercial Law.
Besides, the prescription that traders must have registrations for commercial business still remains unreasonable. In order to avoid controversies and create uniformity in the law application, the law should provide for a wider and clearer definition of traders, who are mostly characterized by the performance of commercial activities.
Second, the concept of commercial activities should also be redefined. The way we understand commercial activities according to the current Commercial Law (restricted only to goods sale and purchase and related services) is too narrow and incompatible with the international commercial law, thus limiting business subjects that can become traders.
Third, if the concept of commerce is understood in a wider sense, it shall cover not only commodity commerce, service commerce but also commerce in investment and intellectual property, and all lawful business subjects (having business registrations) shall be considered traders. Therefore, the provisions of Article 17 (conditions to become traders) and Article 18 (cases of non-recognition as traders) should be cancelled.
Fourth, the provisions on business registration for traders (in Articles 19 thru 23 of the Commercial Law) should be removed for their unfeasibility for enforcement. In realities, traders are all business subjects and there already exist many other legal documents prescribing the business registration for each type of subject as analyzed above.
Fifth, the forms of commercial presence of foreign traders in Vietnam should be expanded in compliance with the Law on Foreign Investment in Vietnam. Specifically, foreign traders (investors) may conduct commercial activities in Vietnam in form of companies with 100% foreign-owned capital, joint-venture enterprises, branches or representative offices of foreign traders, or under casual contracts.
Sixth, the regulations on the list of goods and services which foreign traders are permitted to deal in should be unified and made compatible with the legislation on foreign investment, thus ending the above-analyzed contradictions and creating favorable conditions for and encouraging foreign traders to invest and do business in Vietnam.-