Distribution Services: Vietnam Case

Dang Nhu Van

Hanoi 23-27 May 2005

Outline

OverviewVietnam Case: Legal Framework

& existing regulationsVietnam: Sector profileBenefit of liberalization

Overview - GATS Classification

Distribution Services Include:

1. Commissioned Agent

2. Wholesale

3. Retail

4. Franchise

Overview – Role of distribution

Link between producers & consumersFacilitate trade in goods (e.g. promote

export of goods) and other servicesContribute to competitiveness of other

sectorsCreate jobsIntegrated part of the domestic/global

value/supply chain

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

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.

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

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.

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).

Legal Framework and existing regulations

Mode 4: General regulations on expatriates applied across the board.

Vietnam case - Sector Profile

A market of $20 billion of private consumption in 2004

Retail sales growth of 30% in big cities10% accounted for by supermarketsInefficiency – producers distribute own

products, rather than outsourcingForeign distributors show big interest in

enterring.Poor statistics

Vietnam case – Foreign presence

Very limited compared to the regionExistingMetro Cash & Carry (Germany)Big C - Bourbon (France)Seiyu (Japanese)Parkson (Malaysia)Coming soonDairy Farm (Hong Kong)

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

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

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).

Thank you for your attention