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U.S.-Vietnam Bilateral Trade Agreement Summary of Key Provisions

by Joseph Damond

Board Member, U.S.-Vietnam Trade CouncilU.S. Chief Negotiator, U.S.-Vietnam Bilateral Trade Agreement

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Chapter 1: Trade In Goods

(Industrial and Agricultural)

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Trading Rights Vietnam has agreed to open up the right to import and export for the first time. It will allow: 1) all Vietnamese companies the right to trade immediately; 2) all U.S. invested companies the right to trade, in connection with their operations, immediately; 3) U.S. invested companies the right to trade any products (subject to some exceptions) in 3 years; 4) U.S. persons to form joint ventures for the purpose of trading, in three years, with a maximum 49% share; in six years, the maximum U.S. share is 51%. There are limited product exceptions to these rights, where the phase-in period for trading rights is longer.

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MFN Treatment

Vietnam commits to Most Favored Nation tariff treatment on all U.S. imports (it imposes a 50% tariff surcharge on countries with whom it does not have MFN relations).

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Tariff Cuts

Vietnam has agreed to cut tariffs (typical cut is by one-third to one-half) on a broad range of products of interest to U.S. exporters, including toiletries, film, air conditioners and refrigerators, electrical motors, valves, mobile phones, pagers, video games, lamb, cheese, potatoes, tomatoes, onions, garlic, other vegetables, grapes, apples and pears, other fresh fruits, certain flours, soybeans, vegetable oils, prepared meats and fish, pasta, fruit juices. Phase-in period is 3 years.

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Non-tariff Measures

Vietnam has agreed to eliminate all quantitative restrictions on a range of industrial and agricultural products (e.g., auto parts, citrus, beef), over a period of 3-7 years, depending on the product.

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Import Licensing

Vietnam will eliminate all discretionary import licensing, in accordance with the WTO agreement.

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Customs Valuation and Customs Fees

Vietnam shall comply with WTO rules – using transactions value for customs valuation, and limiting customs fees to cost of services rendered – in 2 years.

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Technical Standards and Sanitary and Phytosanitary Measures

In accordance with the WTO standard, technical regulations and sanitary and phytosanitary measures must be applied on a national treatment basis, and be applied only to the extent necessary to fulfill legitimate objectives (e.g., to protect human, animal or plant life).

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State Trading

Must be carried out in accordance with WTO rules (e.g., state trading enterprises make any sales and purchases only in accordance with commercial considerations).

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Chapter 2:

Intellectual Property Rights

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Vietnam agrees to full TRIPs compliance in all areas in short time frame, including:

 TRIPs-level Patent and Trademark protection – comply in 12 months

  TRIPs-level Copyright and Trade Secrets Protection – comply in 18 months Vietnam agrees to “TRIPs plus” treatment in several areas, including encrypted satellite signals, patent protection for plants and animals, protection of confidential test data submitted to governments. In the case of satellite signal protection, phase in period is 30 months.

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Chapter 3:

Trade In Services

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General (“Horizontal”) Commitments

GATS framework of rules (including disciplines on domestic regulation)

Existing licenses protected by a Grandfather provision

Foreign companies may lease land

Top managers and sales people allowed to enter and work

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Sectors

Legal Services100% US equity allowed, including branches; branches receive 5 year, renewable license, and;

May consult on Vietnamese laws

   

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Accounting

100% US equity allowed;

Licenses granted on case-by-case basis for 3 years, no limits thereafter

May provide services to foreign invested firms for first 2 years, no limits thereafter

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    Architectural

100% US equity allowed; May provide services to foreign invested companies for first 2

years, no limits thereafter

    Engineering100% US equity allowed; May provide services to foreign invested companies for first 2

years, no limits thereafter

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Computer and related100% US equity allowed; May provide services to foreign invested companies for first 2

years, no limits thereafter    

AdvertisingJoint ventures allowed, with initial limit on US equity share at 49%. In 5 years, limit on US equity increases to 51%; in 7 years, no limit on US equity in JV.

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Market ResearchJoint ventures allowed, with initial limit on US equity share at 49%. In 5 years, limit on US equity increases to 51%; in 7 years, 100% US equity allowed.    

Management Consulting    Joint ventures allowed (no limits on US equity in JV); in 5 years, 100% US equity allowed

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Telecommunications

WTO Basic Telecom Reference paper (requiring pro-competitive regulatory regime) agreed to

Value-added Telecom:      Joint ventures allowed after 2 years (3 years for Internet

services), with 50% limit on US equity;

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Basic Telecom (including mobile cellular and satellite)      Joint ventures allowed after 4 years, with 49% US equity limit;

Voice Telephone services    Joint ventures allowed after 6 years, with 49% US equity limit;

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Audio Visual Joint ventures, with 49% US equity limit allowed; in 5 years, limit raised to 51%

Includes film production and distribution, and motion picture projection services

    Construction and related100% equity allowed;

May provide services to foreign invested companies for first 3 years, no limits thereafter

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Distribution

Wholesale distribution: Joint ventures allowed after 3 years, with 49% US equity limit. After 6 years, no limit on US equity in JV’s. Longer phase-ins for limited list of sensitive items

Retail: One outlet automatically allowed for each retailer; beyond

that, on a case by case basis.

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    EducationalJoint ventures allowed, no limits on US equity; in 7

years, schools with 100% US capital allowed

     

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Financial Services

GATS financial services annex (includes prudential carve-out) agreed to:

Insurance

Life and other “non-mandatory” sectors: Joint ventures, with 50% US equity limit, allowed after 3 years; after 5 years 100% US equity allowed

“Mandatory” sectors (motor vehicle, construction related): Joint ventures allowed after 3 years (no limit on US equity share), 100% US equity allowed after 6 years

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          Banking and related financial services

Non-bank and leasing company providers: Joint ventures allowed (no US equity limit); in 3 years, 100% US equity allowed

Banks: US branches allowed. Joint ventures allowed with US equity between 30% and 49%; after 9 years, 100% US subsidiary banks allowed. US equity in privatized Vietnamese banks allowed at same level as participation allowed to Vietnamese investors.

Minimum capital requirements: $15 million for branch of US bank; $10 million for joint ventures or 100% subsidiary banks

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Mortgage holding rights: After 3 years, financial institutions with 100% US equity may take mortgage interest in land use rights of foreign invested firms; in case of default of such, may acquire and use mortgages for purposes of liquidation.

100% US equity financial leasing companies, or joint ventures allowed. Investors must have three consecutive profit making years and legal capital of at least $5 million

In three years, will provide national treatment with respect to central bank discounting, swap, and forward facilities by US financial service providers.

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Ability to take local currency (“dong”) deposits by US bank branches:

For legal entities with whom bank does not has a credit relationship: may accept deposits, up to 50% of bank’s legal capital in first year, increasing according to agreed schedule to full national treatment in 8 years (for legal entities with a credit relationship, no limits on dong deposits).

For natural persons with whom the bank does not have credit relationship, may accept deposits up to 50% of banks legal capital in first year, increasing according to agreed schedule, to full national treatment in

10 years. For other natural persons, no limits on dong deposits.

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In 8 years, US financial institutions may issue credit cards on a national treatment basis.

US banks may place ATM machines at locations other than branches when Vietnamese banks are allowed to do so.

Securities-related services

Representative offices allowed.

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Health and related social services

100% US equity allowed; Minimum investment for hospital: $20 million; minimum for clinic: $2 million; minimum for specialty unit:

$1 million

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Tourism and travel related

Hotel and restaurants: 100% equity allowed, in parallel with investment to build a hotel.

Travel agencies & tour operators: Joint ventures allowed, with 49% U.S. equity limit; in 3 years, equity limit is 51%; in 5 years, no limit

on US equity in joint ventures.

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Chapter 4: Investment

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General Commitments: 

Grants Expropriation Protection for U.S. investments in Vietnam

Right to investor-state dispute settlement, right to choose top managerial personnel.

Provisions allowing for free transfer of currency on a national treatment basis (N.B.: Vietnamese currency not fully convertible)

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Trade-Related Investment Measures (TRIMs)

Vietnam will phase out all WTO inconsistent TRIMs (e.g., local content requirements) in 5 years, and other TRIMs like practices (export performance requirements) over a similar timeframe.

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National Treatment

Vietnam makes a general national treatment commitment, with some exceptions.

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Investment screening

Will be totally phased out for most sectors over a 2, 6 or 9 year period (depending on the type of sector, e.g, investment in industrial zones or in the manufacturing sector), but Vietnam reserves the right to apply screening in certain excepted sectors.

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Eliminates capital contribution limits in Joint Ventures

Current requirement that US share of a JV must be at least 30% is eliminated in 3 years, eliminates requirement to sell US share in the JV to the Vietnamese partner and replaces it with right of first refusal.

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Functioning of Joint-Ventures

Eliminates requirement that certain board members be Vietnamese in three years, and sharply limits the types of issues on which board “consensus” must be reached (i.e., on which Vietnamese members have veto power).

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Discriminatory Pricing

Phases out all discriminatory pricing to U.S. investors or persons (utilities, transportation fees, rents, etc.), immediately or over 2-4 year period depending on type of fee.

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Chapter V:

Business Facilitation

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Ensures that U.S. persons can conduct routine business practices, such as setting up offices, import products for office use, advertise, and conduct market studies.

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Chapter VI: Transparency and Right

to Appeal

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Extensive transparency provisions, requiring Vietnam provide advance notice of all laws, regulations and other administrative procedures relating to any matter covered in the agreement, and requiring their publication, and an indication therein of effective dates and government contact points.

Requires all laws governing issues covered in the agreement which have not been published to be made public and readily available.

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Requires designation of an official journal where all such measures will be published.

Requires uniform, impartial and reasonable application of all laws, regulations and administrative procedures.

Requires formation of administrative or judicial tribunals for review and correction (at the request of an affected person) of all matters covered in the agreement, and affords the right to appeal the relevant decisions. Notice of decisions upon appeal and reasons for decisions appealed shall be provided in writing.