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Official Gazette

Tuesday, June 6, 2023

Taking out the guesswork: Making administrative procedures consistent and predictable

Updated: 14:21’ - 27/11/2007

Professor LE HONG HANH
Jurisprudence Institute, Ministry of Justice

With Vietnam’s accession to the WTO, its rules have become binding on Vietnamese individuals and organizations, save exceptions and reservations which Vietnam is allowed to enjoy in the capacity as a developing country with a transitional economy. Most WTO agreements are related to enterprises, especially GATT, GATS, TRIP, TRIM and SPS, and contain principles governing the powers of state agencies in the administration of trade relations, including the principles of non-discrimination and predictability and transparency in relation to administrative procedures.

WTO rules and procedural reform

Vietnam’s legal institutions and administrative procedures are greatly influenced by the non-discrimination principle, which is embodied in the most-favored nation treatment and national treatment provisions included in various agreements such as GATT, GATS, TRIPS and TRIM. Under these provisions, any discriminatory acts in trade administration of governments and government agencies, central or local, are regarded as violations of WTO rules.

Predictability and transparency principles are closely related to administrative procedures and risks of enterprises and entrepreneurs. In the trend of trade liberalization, commitments to refrain from erecting trade barriers in the future are as important as those to remove existing ones. Enterprises need assurances that that they will not face any future trade barriers which might upset their carefully devised business plans. Enterprises also need sufficient information for predicting trade restriction measures to be applied by governments in the future. Therefore, WTO agreements require Vietnam to create a stable and predictable environment for enterprises. Tax-related commitments often take the form of ceiling tax tariffs. WTO negotiation rounds are aimed at reaching agreements on ceiling tax tariffs for most types of goods and services. In agriculture, agreement has been reached on the application of ceiling tax tariffs for 100% of farm products. These ceiling tariffs greatly benefit enterprises as they ensure stability and predictability. Enterprises can conduct trade based on these ceiling tariffs which are guaranteed not to be changed. When wishing to adjust ceiling tariffs, Vietnam must negotiate with concerned nations and indemnify for damage caused by these adjustments. All WTO rules aim to abolish quantitative restrictions on imports and, therefore, require all member states to publish their trade laws and policies.

The impacts of the non-discrimination, predictability and transparency principles on administrative procedures are great because trade law and policy, especially on deployment of technical barriers, are implemented mostly through administrative procedures. In Vietnam, tax, customs, market supervision and competition administration regulations all involve various administrative procedures requiring the use of numerous forms of declaration and application, official letters and guidelines. This paperwork has in reality caused a lot of difficulties and increased risks for enterprises. Prolonged storage of goods at ports is not a rare occurrence in Vietnam when customs and tax offices cannot reach agreement with enterprises on the identification of categories and prices of imported goods subject to duties. This risk is attributed to the lack of transparency and predictability of administrative procedures. As administrative procedures may easily cause obstacles or discrimination for enterprises, including foreign and private enterprises, when issuing regulations on administrative procedures, Vietnam should pay attention to the following requirements:

First, administrative procedures must not create discrimination, direct or indirect, between enterprises of different economic sectors and between domestic and foreign enterprises. This requirement poses a real and great challenge to Vietnam. Under current administrative systems, ministries and localities are managing enterprises that produce the same product or provide the same service according to different administrative procedures and guidelines, causing discrimination. An example is that mobile phone enterprises under the Ministry of Defense and the Ministry of Information and Communication might be observing inconsistent guidelines related to policies on trade in services.

Second, administrative procedures must comply with WTO rules or be within exceptions granted by the WTO to transitional or developing economies. Since administrative procedures are imposed by state agencies and, according to WTO rules, any acts of state officials at any level related to trade policy or activities are considered acts of the State, review of administrative procedures to ensure their compliance with WTO rules is very important because it assures that Vietnam will not be charged with violating treatment principles, subjecting Vietnamese enterprises to possible retaliatory measures in other markets.

Third, laws and administrative procedures related to the implemen-tation of trade policies must be promptly publicized by all means to all WTO member countries and their enterprises.

Risk and unpredictability

Enterprises face risks when administrative procedures are complex, bureaucratic and not development-oriented. When engaged in trade in goods, trade in services or investment, enterprises must comply with many administrative procedures and, therefore, face risks.

Enterprise may be confronted with many business obstacles and pay high costs due to the lack of transparency and publicity of administrative procedures related to business registration, certification of satisfaction of business conditions, establishment of head offices and branches, customs procedures, tax tariffs and the method of customs valuation. A typical example is related to the import of vans. In 2001, importing enterprises had 1,000 imported vans kept in customs warehouses because of non-transparency and inconsistency in the assessment of customs and registry offices. Customs authorities regarded these vehicles as tourist vans while registry offices made no decision. The vans were released only in 2007, when the General Department of Customs finally issued Official Letter No. 2012/TCHQ-GSQL, guiding the imposition of duties on vans. Six years’ storage of theses vans in customs warehouses caused enormous losses to enterprises.

Another risk from administrative procedures is barriers in the form of requirements and business conditions imposed in documents issued or drafted by ministries. Take an example of a number of requirements or conditions on passenger transportation imposed by the Ministry of Transport, which require that privately owned cars must not be used for passenger transportation business and transportation enterprises must have their own parking lots and issue financial invoices to taxi passengers. These conditions are hardly met by enterprises. Whether a car is owned by an individual or the enterprise should not constitute a business condition. Enterprises may hire cars for their business activities. Vietnam Airlines does not own many aircraft but still conducts passenger flights. An enterprise can lease a parking lot without having to build one on its own. Obviously, these administrative procedure-related requirements cause difficulties to enterprises while their management effectiveness is almost zero. Another example is the provision of the Real Estate Business Law stipulating that house purchase and sale contracts must be performed through trading floors. Pursuant to this provision, notary offices refuse to notarize these contracts after January 1, 2007, the date on which the Law took effect. Meanwhile, no such trading floor exists, nor regulations on these floors. This provision has placed housing enterprises in a dilemma. Like securities transactions, real estate transactions may be conducted through a formal trading floor or not. Therefore, this provision of the Real Estate Business Law and its ensuing notarization requirement constitute a risk to enterprises.

Due to their non-transparency and non-predictability, administrative procedures increase business costs. For example, as planning and land management are performed by two different agencies, enterprises must satisfy many requirements and conditions set by these agencies in order to obtain approval of architectural designs, land use rights certificates and construction permits. Satisfaction of any condition would surely be a cost for enterprises. In localities where transparency of administrative procedures is not ensured, enterprises may rely on their ties with competent agencies to take advantage of the setting of land price frames and the application of prices based on land price frames. For a land plot, for instance, situated between two streets, each having its own price frame, the competent agency may impose a tax or rent rate of the smaller street with a lower price or vice versa. In this case, administrative procedures have created discriminatory treatment. Land use coefficients are also a risky procedural requirement for enterprises unless they are made public and ensure equality among enterprises.

Business licenses and certificates of satisfaction of business conditions may also become barriers to trade. Although nearly 400 have been recently scrapped by the Government, many forms of business license exist. Meanwhile, many other licenses have re-emerged in the form of specific requirements set by ministries and localities. Normally, enterprises have to draw up dossiers of application for certification of satisfaction of business conditions. This is not an easy task when enterprises lack information and guidelines from administrative agencies. In many cases, such certification is a time-consuming process that takes business opportunities away from enterprises. Compilation of dossiers and transfer of dossiers among different agencies also cost enterprises, which affects the competitiveness of enterprises upon market entry.

In the interest of enterprises

Many of Vietnam’s institutional commitments to the WTO are related to reform of administrative procedures, which are expressed in the Report of the Working Party on the Accession of Vietnam. In paragraph 517 of the Report, Vietnam confirmed that official letters would not be used as legal normative documents and would be used in a manner consistent with WTO rules on transparency. In paragraph 518, Vietnam also confirmed that all laws, regulations, decrees, judicial decisions and administrative rulings of general application affecting or pertaining to customs issues, trade in goods, trade in services, intellectual property and the control of foreign exchange would be promptly published in an official journal. These laws, regulations and decisions could not be enacted before they are made public. With these commitments, reform of administrative procedures has been regarded as a priority by the Government. In the reform process, administrative procedures related to enterprises should receive special attention:

(i) These administrative procedures affect the economy more greatly than administrative procedures related to other entities. Delayed market access and high market access costs and transaction costs are factors that reduce the competitiveness of enterprises and the economy as a whole. These consequences are great in the light of trade globalization.

(ii) Discriminatory administrative procedures could easily make Vietnamese enterprises or government vulnerable to lawsuits of their trade partners.

Administrative procedures related to enterprises are found in the establishment and registration of enterprises; market access; trade autonomy; and market exit. Administrative procedures can pose risks in any of these areas. Therefore, in order to reduce risks for enterprises, administrative procedures must be established and implemented for the sake of development of enterprises. In our opinion, administrative procedures should be reformed thoroughly in the following respects:

First, duties and functions of administrative agencies that carry out administrative procedures related to enterprises should be reformed. At present, these duties and functions rest with different agencies. For example, the grant of land use rights certificates to enterprises involves the provincial-level People’s Committee; provincial-level Science and Technology Service; Planning and Investment Service; Finance Service; Natural Resources and Environment Service; Urban Planning Service; and district-level and commune-level People’s Committees of the locality in which exists the land in question. The participation of so many agencies has resulted in complicated processes and procedures. The best solution is to identify a key issue and assign it to an agency capable of handling it well. This solution has been applied in the field of land through the “clean” land bidding mechanism to settle existing administrative procedure problems related to the land access rights of enterprises. Some programs, including the modernization program currently implemented by the customs service and the one-stop shop program introduced by other agencies, are being implemented in this direction.

Second, time limit is an important factor. Quick or slow performance of administrative procedures depends on set time limits and their strict observance. There are many time limits which have been improperly prescribed, leaving opportunities for officials to delay their response to enterprises’ requests. A detailed study is needed to calculate time limits that meet requirements of enterprises when they carry out compulsory administrative procedures for market access and trading activities.

Third, it is necessary to link the observance of time limits for performing administrative procedures with the individual responsibility of administrative officials. The 2005 Bidding Law offers a good solution to this requirement. Under current regulations on administrative procedures, material, disciplinary or administrative liabilities of administrative officials who violate regulations on time limits, thereby causing damage to enterprises, are hard to identify.

In summary, administrative reform remains a burning issue to enterprises. It is necessary to establish administrative procedures in the interest of enterprises in order to improve the competitiveness of enterprises and the economy as a whole, and promote national development.-


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