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Distribution Services: Vietnam Case

Distribution Services: Vietnam Case. Dang Nhu Van Hanoi 23-27 May 2005. Outline. Overview Vietnam Case: Legal Framework & existing regulations Vietnam: Sector profile Benefit of liberalization. Overview - GATS Classification. Distribution Services Include: Commissioned Agent Wholesale

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Distribution Services: Vietnam Case

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  1. Distribution Services: Vietnam Case Dang Nhu Van Hanoi 23-27 May 2005

  2. Outline • Overview • Vietnam Case: Legal Framework & existing regulations • Vietnam: Sector profile • Benefit of liberalization

  3. Overview - GATS Classification Distribution Services Include: • Commissioned Agent • Wholesale • Retail • Franchise

  4. Overview – Role of distribution • Link between producers & consumers • Facilitate trade in goods (e.g. promote export of goods) and other services • Contribute to competitiveness of other sectors • Create jobs • Integrated part of the domestic/global value/supply chain

  5. Overview – Common barriers to trade in distribution services • Economic needs test • Forms of investment • Trading rights (e.g. import for domestic sale) • Types of goods to be distributed • Using domestic suppliers & services • Advertisement regulations & restrictions • Zoning and location restrictions • Foreign ownership restrictions • Regulations on shop opening hours • Rules of competition and trademark protection • Restrictions in goods trade (e.g. customs, TBT, parallel imports, etc.) due to close link

  6. Vietnam Case: Legal Framework and existing regulations Regulations on distribution services and foreign service suppliers are scattered in different laws and sub-law decrees: • commercial code, • foreign investment law, • decree on export and import, • price control, • restriction on exports and imports by foreign companies’ branches and representative offices, • negative list of goods.

  7. Vietnam Case - Legal Framework and existing regulations Regulations by mode of supply: Mode 1: - Only regulations on trade in goods, export and imports are found. - VN-US BTA commitments: unbound

  8. Legal Framework and existing regulations Mode 2: • No direct restriction on consumption abroad, • But there are foreign exchange control regulations • BTA commitment: none, but existing regulations are inconsistent with BTA/GATS rules.

  9. Legal Framework and existing regulations Mode 3: • Subject to Prime Minister decision or competent authority on ad hoc basis • Trade balance requirements and restrictions of export and import items for branches or rep office • Foreign commissioned agents are not allowed • Trading rights are provided in the licence on the case by case basis • Conditionality: investment in own store facilities • Inconsistency between regulations, practice, and international commitments: • No wholly foreign owned firm is allowed by regulations. • Metro is German wholly owned. • BTA: jointventure allowed from 2004, 49% by 2007, and 100% by 2008. WTO: case-by-case approval • Foreign distributors are not allowed to buy goods in Vietnam to sell in Vietnam (Metro is doing this).

  10. Legal Framework and existing regulations Mode 4: General regulations on expatriates applied across the board.

  11. Vietnam case - Sector Profile • A market of $20 billion of private consumption in 2004 • Retail sales growth of 30% in big cities • 10% accounted for by supermarkets • Inefficiency – producers distribute own products, rather than outsourcing • Foreign distributors show big interest in enterring. • Poor statistics

  12. Vietnam case – Foreign presence Very limited compared to the region Existing • Metro Cash & Carry (Germany) • Big C - Bourbon (France) • Seiyu (Japanese) • Parkson (Malaysia) Coming soon • Dairy Farm (Hong Kong)

  13. Vietnam Case – Metro Cash & Carry, a link between service and goods trade • Lisenced foreign wholesaler, 100% foreign ownership (Mode 3) • Lisenced as pilot for distribution service liberalization • 90% of goods supplied to Metro supermarkets are sourced from Vietnam (exception to the rule) • Export agricultural and fishery products from Vietnam: buying directly from farmers to sell globally through its supermarket chain

  14. Benefit of liberalization • Higher efficiency thanks to competition, rationalization, economies of scale • Facilitating trade in goods (e.g. agricultural product export by global distributors) • Poverty reduction by connecting poor farmers with world market • Liberalization on MFN basis would avoid market concentration and power by a few large foreign firms

  15. Challenges of liberalization • Social impacts of displacement of small traders • IPR enforcement, especially in franchising and commisioned agents • Institutional capacity in regulating health, environment, and preventing fraud (abuse of direct selling).

  16. Thank you for your attention

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