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Sunday, September 20, 2020

Vietnam’s legal framework for meeting WTO commitments on services

Updated: 16:09’ - 24/08/2007

By Pham Ho Huong, LL.M
Ministry of Justice

Trade in services is one of the three main pillars besides trade in goods and intellectual property governed by World Trade Organization (WTO) rules. In this area, Vietnam has made commitments in relation to 11 out of the 12 sectors identified by the WTO.

Vietnam’s regulations on trade in services are found scattered in different legal documents while its WTO commitments are very specific. Trade in services also relates to different sectors managed by various ministries and branches. The legal system governing trade in services is complex in terms of both validity and scope of regulation. It would take a lot of time to draw a big picture of the Vietnamese legal framework in relation to its WTO commitments on trade in services. This article provides an outline of it.

Laws on trade in services

The 2005 Commercial Law is not specific on trade in services but gives a definition of service supply in Article 3.9, which provides that service supply is a trading activity with one party providing service(s) for the other for payment (the service supplier) while the service user (the client) is responsible for paying the supplier and uses the service as agreed upon.

Article 75 provides for service supply and use, classified into two categories:

- Supply and use of services inside Vietnam.

- Supply and use of services outside Vietnam.

The suppliers and users of service can be resident or non-resident in Vietnam.

Although the Commercial Law does not define the four modes of service supply laid out in the General Agreement on Trade in Services (GATS), it provides a concept of commercial service supply. While the Commercial Law does not, other legal documents such as the Investment Law and the Labor Code do mention other modes of service supply as in the GATS, including commercial presence and presence of natural persons. One should be clearly aware that giving a legal definition of trade in services is not an obligation set out in the GATS. But such a definition facilitates understanding and a consistent implementation of regulations on trade in services.

Most-favored nation (MFN) status

The Ordinance on Most Favored Nation and National Treatment provides definitions and a scope of application for MFN.

Article 4.2 of the Investment Law provides that “the State treats equally before law investors of any economic sector, domestic and foreign investment, and encourages and creates every favorable condition for investment activities.”

The reference to MFN is not only in these two but also in other legal documents in different areas and they all state that Vietnam grants MFN treatment to foreign service suppliers.

However, they are not specific enough to be put into practice as there is no provision guiding the grant of “partial” or “full” MFN treatment. There is also no provision stating the cases in which the Government will decide on MFN exemptions (Clause 5, Article 10). Meanwhile, as committed to the WTO, Vietnam may only maintain exemptions on the List of GATS Article II (MFN) exemptions.

Transparency

Among the legal documents relating to transparency are the Law on Promulgation of Legal Documents and documents guiding its implementation. The Law on the Conclusion, Accession to and Implementation of Treaties also deals with transparency when it makes it compulsory to publicize all treaties. Basically, these documents meet the WTO’s requirements on transparency.

Regarding the WTO requirement to publicize the list of agencies and common procedures of licensing, it is a practice in Vietnam that measures and procedures of licensing in various service sectors are provided in legal documents governing each specific service sector. These legal documents are publicized to ensure transparency as required for any legal document. So, though there is no separate law offering a list of agencies and procedures of licensing, the WTO requirement is still substantively satisfied.

As for the GATS requirement to establish inquiry points for trade in services, nothing like this has ever established in Vietnam. The reason is that this requirement relates to so many ministries and branches that it cannot be realized without coordination among them. These ministries and branches are still working on a proposal to the Government that a single agency be appointed to take charge of this.

Legislation facilitating commitments

This is presented in different Vietnamese legal documents currently in force.

There are several laws regulating the resolution of administrative complaints generally and of complaints about administrative decisions concerning trade in services. The Law on Complaints and Denunciations and its amendments (the latest one is Law No. 58/2005/QH11 of November 29, 2005, Amending a Number of Articles of the Law on Complaints and Denunciations) and the Ordinance on Procedures of Settlement of Administrative Cases and its amendments (the latest one is Ordinance No. 29/2006/PL-UBTVQH of April 5, 2006, Amending a Number of Articles of the Ordinance on Procedures of Settlement of Administrative Cases). The Law on Complaints and Denunciations stipulates that organizations and individuals with responsibility for receiving complainants and denunciators must take on and settle complaints and denunciations on time in accordance with law. Violators will be severely punished. These organizations and individuals must take measures to ensure observance of their handling decisions and be responsible for their decisions. Amendments to the Law on Complaints and Denunciations specify the procedures and time limits for settling complaints and denunciations. It allows complainants and denunciators to lodge an appeal to higher-level authorities or bring their the cases to court.

There are also regulations on qualifications, procedures, technical standards and licensing included in various legal documents on each sector. For instance, the Law on Lawyers provides in detail the procedures and qualifications for a foreign lawyer to practice in Vietnam. Finance Ministry Circular No. 64/2004/TT-BTC of June 29, 2004, on independent audit, and Decision No. 59/2004/QD-BTC of July 9, 2004, on the Regulation on Inspection and Grant of Permits to Accountants, specify qualifications required of auditors and accountants. These legal documents have been publicized in line with the Law on Promulgation of Legal Documents.

Article 6 of the Commercial Law further stipulates that the State holds monopoly in some areas to be listed by the Government. This list, however, is not yet available.

In December 2004, the National Assembly passed the Competition Law which is applicable to all businesses from state-owned to private and foreign-invested, and trade associations (Article 2). Since then, the Government has delivered a number of documents in this regard such as Decree No. 6/2006/ND-CP on the functions, responsibilities, powers and organizational structure of the Competition Administration Department; Decree No. 5/2006/ND-CP on the establishment of the Competition Commission and its functions, responsibilities, powers and organizational structure; Decree No. 120/2005/ND-CP on the handling of unlawful activities in competition; and Decree No. 116/2005/ND-CP guiding the implementation of a number of articles of the Competition Law.

The Competition Law prohibits abuse of the monopoly of state-owned businesses. On one hand, it recognizes the businesses’ right to fair competition and provides protection of this right. On the other, it outlaws anti-competitive acts (Article 8) or acts of unfair competition (Chapter III).

The 2005 Ordinance on Foreign Exchange provides that Vietnam does not restrict the volume of payment and money transfer in current personal accounts.

For foreign exchange transactions of legal entities, the Ordinance does not restrict what currency is used so long as the transactions are lawful and carried out through financial institution(s) in Vietnam.

More importantly, the Ordinance asserts that Vietnam’s foreign exchange policy complies with its international economic integration commitments (Article 3). As a member of the IMF, its fore policy also comes in line with IMF practices.

Horizontal commitments

1. Commercial presence

a/ Forms of establishment

The 2005 Investment Law provides for different forms of investment in Vietnam. Foreign investors may carry out direct foreign investment activities in Vietnam in the following forms:

- Businesses with 100% of domestic or foreign capital.

- Joint ventures between domestic and foreign investors.

- BCC, BOT, BTO and BT contracts.

- Business development investment.

- Buys-in or capital contributions.

- Mergers and acquisitions.

- Other forms of direct investment.

Foreign investors are, in addition, allowed to make indirect investment in Vietnam through buying shares of Vietnamese enterprises.

b/ Forms of ownership

The 2005 Investment Law allows foreign service suppliers to make direct and indirect investment in Vietnam.

For direct investment, it sets no limit on the percentage of ownership of a Vietnamese business by a foreign investor.

For indirect investment, the law leaves it up to the Vietnamese Government to decide on specific percentages.

c/ Land lease

Article 36 of the 2005 Investment Law caps the land use term of an investment project at 50 years. The term can be extended to 70 years for projects with large investment but trickling return over a long period and projects in areas with poor socio-economic conditions. However, when the land lease term expires the investor who has properly observed the land law and wishes to continue using the land can renew the contract provided that the contractual timing of the land lease is consistent with the life of the project as stipulated in Article 52 of the Law.

2. Presence of natural persons

For foreign investment, the Investment Law restricts the stay of foreign investors, experts and engineers working for foreign-invested enterprises and their family members in Vietnam at 5 years.

However, there is no specific provision on the stay of foreign service sellers, persons responsible for establishing commercial presence and contractual service suppliers so when it comes to their entry and stay in Vietnam, general provisions on entry and exit will apply, meaning a foreigner entering Vietnam without an invitation from a Vietnamese agency or organization is allowed to stay in the country for a maximum of 15 days.

Meanwhile, the Ordinance on Immigration and Residence of Foreigners in Vietnam stipulates that a foreigner (including those working for foreign-invested projects) is allowed to enter Vietnam for 12 months. It goes without saying that the Investment Law conflicts with this Ordinance.

Specific commitments

1. Market access

In this area, Vietnam is highly committed to the WTO in Mode 1 (cross border supply) and Mode 2 (consumption abroad). Accordingly, most service sectors and sub-sectors will be opened up except for some in technical analysis and testing, telecommunications, broadcasting, recording, environmental management, construction and related engineering, financial, recreational, cultural, sport and transportation services.

Currently, Vietnamese law covering these modes remains insufficient. In fact, it seems impossible to inventory all legal documents that directly or indirectly govern trade in services. To make matters worse, these documents are unspecific.

Regarding Mode 3 (presence of natural persons) Vietnam’s WTO commitments see limitations in most service sectors.

Compared to the six market access barriers identified by the WTO, there are many barriers of different extents in most service sectors in Vietnam and they are scattered throughout various legal documents.

2. National treatment

Although, in its specific commitments to the WTO, Vietnam makes no limitations in any of the three modes, there remains in reality different treatment between foreign and domestic service suppliers in terms of licensing procedures and time limits, requirements of experience, duration of operation and so on.

It is obvious that many of the Vietnamese regulations on national treatment conflict with WTO requirements. Fortunately, as these are sub-law documents, namely government decrees and ministerial circulars, it may not be so difficult to fix them.

Meeting WTO commitments on services

The Vietnamese legal framework in relation to the nation’s WTO commitments in trade in services is rather complex in terms of both validity and scope of regulations.

On validity, the legislation on trade in services covers legal documents at various levels, from laws and ordinances promulgated by the National Assembly and the National Assembly Standing Committee, to decrees and decisions by the Government and Prime Minister and circulars and decisions by ministries and branches.

On scope of regulation, these legal documents vary from general documents which also govern other matters such as the Law on Investment, the Law on Complaints and Denunciations, the Competition Law and the Ordinance on Immigration to those covering only specific domains such as the Law on Insurance Business and its guiding documents, the Ordinance on Post and Telecommunications and its guiding documents, the Accounting Law, the Tourism Law and government decrees on the establishment and operation of businesses in specific service sectors.

In general, Vietnamese law on trade in services in many sectors are in line with general WTO’s rules, especially those revised, modified or promulgated since Vietnam signed the Vietnam-US Bilateral Trade Agreement or those covered by the legislative program specifically designed for the WTO negotiation and entry process in the areas of legal services, post and telecommunications, and insurance and banking services, to name a few.

However, many current provisions of Vietnamese law remain inconsistent with the country’s WTO commitments while some commitments in the recreational, environmental and hunting services sectors have not yet been addressed in Vietnamese law. Others are found scattered or merely in general terms in various legal documents. Tax consulting, management consulting, computing and market survey services are just some illustrative examples.

No legal document classifies service sectors and sub-sectors, which sometimes leads to the situation that no one knows what authority controls which area. For instance, computing services could come under the control of either the Ministry of Post and Telematics or the Ministry of Science and Technology.

As the provisions concerning trade in services are scattered throughout a great number of regulations relating to professional qualifications, conditions for setting up commercial presence in Vietnam, licensing, etc., it is advisable that the ministries in charge of the service sectors in question revise existing legal documents or issue new ones to catch up with the nation’s commitments to open up these sectors.

In the existing regulations on trade in services, it is not uncommon to see the existence of exclusive provisions applicable to domestic or foreign traders, particularly in licensing procedures, qualifications and experience, showing discrimination against domestic or foreign service suppliers. The practice should be eliminated pursuant to national treatment and other commitments.

Finally, it is stipulated in most regulations that in the event that Vietnamese law has no provision concerning the matter in question or has provisions which conflict with international commitments, the international commitments will prevail. In light of this, some ministries and departments have bypassed domestic law to go straight to international practices, leaving the domestic legal documents unrevised. However, such a view should only be temporary and not be abused. In the long run, regulations must be revised to ensure the integrity of the law and the consistency between the law and the nation’s WTO commitments.-

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