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Official Gazette

Friday, October 7, 2022

WTO: A progress report

Updated: 16:00’ - 25/05/2009

WTO: a progress report

Nguyen Van Tuan, M.A.
International Law Department
Ministry of Justice

 

The World Trade Organization (WTO) was established on January 1, 1995, after the end of the Uruguay Round negotiations with a view to developing a multilateral trading system governing trade in goods and services, trade-related aspects of intellectual property rights and settlement of disputes among members[1]. WTO agreements which directly or indirectly govern investment relations include the Agreement on Trade-Related Investment Measures (TRIMs), the Agreement on Subsidies and Countervailing Measures (SCM Agreement), the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

On January 11, 2007, Vietnam became a member of the WTO, and, therefore, became obliged to comply with these agreements. However, apart from investment-related obligations specified in these agreement, Vietnam also has the obligations to implement investment commitments stated in the Report of the Working Party on Vietnam’s Accession to the WTO (Working Party Report), which are also called additional commitments.

Vietnam, before its accession to the WTO, had already amended fundamental laws governing investment activities. In 2005, the Investment Law was issued on the basis of unifying the Domestic Investment Promotion Law and the Law on Foreign Investment in Vietnam and the Enterprise Law was adopted by consolidating the 1999 Enterprise Law and the State Enterprises Law. The promulgation of a common Investment Law and unified Enterprise Law prior to WTO accession showed Vietnam’s determination to improve its investment and business laws so as to create a transparent, stable and predictable investment environment with no discrimination between domestic and foreign investors and between state-owned and private enterprises. Foreign investors were free to choose forms of investment and enterprises suitable to their conditions and capacities. The concept of investment was expanded to cover both direct and indirect investment, allowing investors to contribute capital to, or purchase shares from, Vietnamese businesses with or without participation in business governance. Investment domains were expanded along a roadmap under these international commitments. Licensing authority was decentralized to local governments with simplified and more transparent procedures in order to create favorable conditions for foreign investors.

In parallel with this formulation and improvement of the investment and business laws, Vietnam also adjusted and promulgated many laws on the business environment, especially those regulating trade in services such as the 2005 Civil Code, the 2005 Maritime Code, the 2005 Commercial Law, the 2005 Bidding Law, the 2005 Housing Law, the 2005 Intellectual Property Law, the 2005 Law on Negotiable Instruments, the 2005 Railway Law, the 2005 Tourism Law, the 2006 Law on Technology Transfer, the 2006 Law on Real Estate Business, the 2006 Cinematography Law, the 2006 Law on Lawyers, the 2006 Securities Law, and the 2006 Law on Civil Aviation. With these efforts, Vietnam’s investment laws were perfected to meet WTO commitments.

Before the 2005 Investment Law, foreign-invested enterprises were required to export products at a fixed percentage[2] or reach a certain localization rate[3]. Since the 2005 Investment Law was issued, Vietnam has implemented its obligations as specified in TRIMs. Under Article 8 of the Investment Law, Vietnam does not compel investors[4], including foreign-invested enterprises, to prioritize the purchase or use of domestic goods or services or to purchase goods or services from designated domestic producers or providers; to export goods or services at a fixed percentage; to restrict the quantity, value and categories of goods and services exported or produced or supplied domestically; to import goods of the same quantity and value as goods exported; to balance foreign currencies from export sources so as to meet import demands; to reach a given localization rate in goods production; or to attain a given level or value in domestic research and development efforts. Vietnam, arguably, has met commitments specified in TRIMs.

Intellectual property

Obligations related to intellectual property (IP) rights are specified in TRIPs and Paragraphs 403, 465 and 471 of the Working Party Report.

To comply with TRIPs obligations, Vietnam issued the IP Law in 2005 and the Law on Technology Transfer in 2006. The IP Law was designed with two main parts like TRIPs. The first part set standards and conditions for the protection and establishment of IP rights over objects defined in TRIPs, e.g., copyright and related rights; industrial property rights; and rights to plant varieties. The second part dwelt on civil, administrative and criminal measures for handling infringements of IP rights. However, while the law specified civil and administrative measures, it also invoked the penal law for the application of criminal measures (Article 212 of the IP Law). The Penal Code contained provisions on crimes of infringing upon IP rights and criminal handling of such crimes as infringing upon copyright (Article 131), producing or trading in counterfeit goods (Articles 156 thru 158), fraud (Article 162), false advertisement (Article 168) and infringing upon industrial property rights (Article 171).

With a view to meeting requirements on the use of lawful computer software (Paragraph 403 of the Working Party Report), the Prime Minister issued Directive No. 04/2007/CT-TTg on February 22, 2007, on enhancing the protection of copyright for computer programs, requesting central and local agencies to adopt specific measures to protect copyright in computer software, estimate annual budget funds for software licensing, and work out a plan to incrementally replace illegal software currently in use.

As for the criminal liability for commercial-scale copyright piracy (Paragraph 465 of the Working Party Report), on February 29, 2008, the  Supreme People’s Court, Supreme People’s Procuracy, Ministry of Public Security and Ministry of Justice issued Joint Circular No. 01/2008/TTLT-TANDTC-VKSTC-BCA-BTP guiding the prosecution and penal liability for infringements of IP rights. This Circular laid down specific criteria for determining the commercial scale of infringements upon copyright and industrial property rights in compliance with Paragraph 465 of the Working Party Report. In addition, the process of revision of the Penal Code was launched with the determination of the commercial scale of infringements of IP rights considered an issue of primary concern.

While Vietnam’s IP law conforms to WTO commitments, limitations can still be seen in the handling of infringements of IP rights, whether by civil, administrative or criminal measures.

Subsidies

Before its accession to the WTO, Vietnam provided several subsides banned under WTO regulations, e.g., tax incentives according to the localization rate for products and parts of mechanical-electric-electronic industries (Joint Circular No. 167/1998/TTLT-BTC-BCN-TCHQ), preferential import duties based on the localization rate for motorbikes and parts, and investment incentives  associated with the localization rate under the foreign investment law (Decree No. 24/2000/ND-CP), as well as development investment credit incentives and export supports[5]. After joining the WTO, Vietnam abolished these subsidies. Specifically, tax incentives related to the localization rate for products of mechanical-electric-electronic industries were abandoned under Finance Ministry Decision No. 43/2006/QD-BTC while investment subsidies under Decree No. 24/2000/ND-CP were removed pursuant to the 2005 Investment Law and Decree No. 108/2006/ND-CP. Export credit incentives were changed in the direction that interest rates on export credit loans would be determined according to market principles (Article 25 of Government Decree No. 151/2006/ND-CP on State investment credit and export credit).

At present, Vietnam grants subsidies as investment incentives for certain sectors and geographical areas prescribed by the Government under the Investment Law. In addition, tax exemptions or reductions are also offered on projects for developing new production chains, expanding production scope, renewing technologies, improving the environment or raising production capacity (Decree No. 24/2007/ND-CP).

For some economic zones, namely Chu Lai, Lao Bao, Moc Bai and Van Phong, their operation regulations as issued by the Prime Minister stipulate that investors in these economic zones are entitled to corporate income tax (CIT) exemption or reduction or a low CIT rate of 10%. For instance, Article 20 of the Regulation on the Lao Bao special economic zone issued together with Prime Minister’s Decision No. 11/2005/QD-TTg prescribes that investment projects in Lao Bao special economic zone are eligible for CIT exemption for four years from the date of generation of taxable income; a 50% reduction of payable CIT for the subsequent nine years and a CIT rate of 10% for subsequent years. Article 26 of this Regulation provides for land incentives as follows: “Organizations and individuals having investment projects in Lao Bao special economic zone are entitled to land rent exemption for the first 11 years after the date of signing land rent contracts and enjoy a rent rate equal to 30% of the rate applicable in the mountainous province of Quang Tri from the 12th year on.”

Apart from incentives for economic zones, under the 2008 Law on High Technology, investors in hi-tech applications, research and development are entitled to the highest incentives with respect to land, value-added tax, export duty and import duty.

The analysis and assessment of Vietnam’s legal system as well as the comparison of its provisions with the SCM Agreement and the Working Party Report show that Vietnam has eliminated several types of subsidies banned within the WTO but maintains subsidies to projects in some economic zones and hi-tech parks for five years as prescribed in the Investment Law. However, some local administrations, in order to lure investment, still offer additional investment incentives, including tax exemption or reduction, land incentives or financial incentives, which may violate WTO subsidy regulations.

Trade in services

Trade in services constitutes a complex issue in the WTO, involving almost all legal documents, not only those concerning investment and business but also such specialized laws as those on credit institutions, insurance, telecommunications, civil aviation and maritime navigation. The system of specialized legal documents may include documents issued by the National Assembly, the National Assembly Standing Committee, the Government, the Prime Minister and ministries and other agencies.

A general comment can be drawn that Vietnam’s current laws govern almost all service sectors in the GATS (general obligations) and the Schedule of Specific Commitments in Services (specific commitments) and conform to these commitments.

Regarding general obligations, the 2005 Investment Law allows foreign investors to make investment in Vietnam in the forms of wholly foreign-owned enterprises, joint ventures and business cooperation contracts in all domains, except those which are banned or subject to investment restriction (Article 21), while the Enterprise Law permitted the establishment of businesses in either of two forms: limited liability company and joint stock company. These two laws also switched a green light for investors to contribute capital to, purchase shares from, and participate in the governance of, Vietnamese businesses (Article 25 of the Investment Law and Article 10 of the Enterprise Law). Investors may also set up branches or representative offices in Vietnam (Article 16 of the Commercial Law). The licensing of investment projects prescribed in the Investment Law and Decree No. 108/2006/ND-CP detailing the implementation of the Investment Law is compliant with commitments in Paragraph 507 of the Working Party Report, ensuring transparency in the licensing process. Regarding the decision-making process of enterprises, National Assembly Resolution No. 71/2006/QH11 of November 29, 2006, approving the Protocol on Vietnam’s Accession to the WTO, provided for the direct application of commitments in Paragraphs 502 and 503 of the Working Party Report.

As for specific obligations, it is very difficult to assess and analyze each specific service sector as commitments in trade in services are numerous and concern legal documents of different levels. Generally, there are no legal documents governing some service sectors, including entertainment, environmental and hunting services. Meanwhile, legal documents on other sectors, e.g. tax consultancy, management consultancy and market research and surveys, remain too general, making them difficult to enforce.

While it can be concluded that Vietnam’s current laws on trade in services are basically in conformance with WTO commitments, except for a few areas not yet governed by legal documents or specified in too general a manner, Vietnam still lacks a document on the classification of service sectors or sub-sectors according to criteria of the United Nations or the WTO, leading to difficulties in the enforcement of commitments.

Since WTO accession, Vietnam has been perfecting its legal system in order to meet its investment commitments to the WTO. The fulfillment of WTO commitments plays a very important role as it helps Vietnam not only avoid lawsuits against application of non-conforming investment-related measures but also improve its investment environment relative to other regional countries. However, non-conformity with WTO commitments still exists in the investment law and must be remedied through simultaneous application of the following solutions:

First, it is necessary to continue reviewing legal documents issued by central and local agencies on the basis of assessing and comparing them with Vietnam’s WTO commitments on investment so as to detect unsuitable provisions and make adjustment;

Second, violations of IP rights should be resolutely handled through civil, administrative and criminal measures so as to create a fair and stable investment environment and ensure the enforcement of IP laws;

Third, investment incentives offered by local administrations, especially those on tax exemptions or reductions and support for enterprises, should be modified so as to ensure their conformity with the law and WTO commitments. In the coming years, it will be necessary to change two subsidy programs which are currently implemented into permitted subsidies so as to comply with the five-year commitment within the WTO; and,

Finally, it is necessary to study and promulgate legal documents on service sectors not yet specified but committed for implementation by Vietnam or study a mechanism enabling direct application[6] of international commitments in service sectors so as to ensure prompt implementation compliance.-



[1] Article II of the Marrakesh Agreement on the establishment of the World Trade Organization (WTO Agreement) on the scope of the WTO stipulates that the WTO shall provide the common institutional framework for the conduct of trade relations among its members in matters included in the Annexes to the Agreement. These annexes include agreements governing such areas as trade in goods, trade in services, intellectual property and dispute settlement.

[2] See Ministry of Planning and Investment Official Letter No. 3815/BKH-CN of June 27, 1997, on the percentage of products for export of foreign invested projects. This Official Letter stipulated that investment licenses must clearly state export rates of some categories of consumer goods such as footwear and ready-made clothes and other goods the demand for which can be relatively satisfied by domestic production such as ceramic sanitation wares, enamel tiles, electric cables, accumulators, detergents, chemicals and cosmetics, pesticides and family-use plastics. The export rate must reach at least 80%, for the above-listed goods, and 50%, for others.

[3] For example, Decision No. 28/2004/QD-BKHCN of October 1, 2004, of the Ministry of Science and Technology, on methods for determining the localization rate of automobiles.

[4] Under Clause 4, Article 3, of the Investment Law, investors means organizations and individuals conducting investment activities under Vietnam law, including (i) enterprises of all economic sectors established under the Enterprise Law; (ii) cooperatives and unions of cooperatives established under the Cooperative Law; (iii) foreign-invested enterprises established before the effective date of the Law; (iv) business households and individuals; (v) foreign organizations and individuals, overseas Vietnamese, and foreigners permanently residing in Vietnam; and (vi) other organizations as prescribed by law. 

[5] See Paragraph 272 of the Working Party Report.

[6] Clause 3, Article 6 of the Law on Conclusion of, Accession to, and Implementation of Treaties stipulates that: “Pursuant to the requirements, contents and nature of a treaty, the National Assembly, President or Government may decide to approve the binding of  that treaty and, at the same time, decide to directly apply all or a part of that treaty to relevant agencies, organizations and individuals if the treaty contains clear and detailed provisions for implementation; and decide or propose the amendment, supplementation, annulment or promulgation of legal documents for the implementation of that treaty.

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