Docstoc

nov

Document Sample
nov Powered By Docstoc
					                                                CATALOG OF LEGAL UPDATES:
                                             VIETNAM TRADE POLICY REGIME
                                                                     15 November 2005

                                                                                     by the
                                 U.S.- Vietnam Trade Council Education Forum
                                                                          with support from




The U.S.-Vietnam Trade Council has worked to promote economic and political
normalization between the two countries since its founding in 1989. Its affiliate, the U.S.-
Vietnam Trade Council Education Forum, provides technical assistance to Vietnam on
issues relating to the BTA, WTO, and international economic integration. This document
is compiled by our in-country technical assistance team, with support from Phillips Fox
Lawyers. For additional information, please visit our website at http://www.usvtc.org.
                    VIETNAM TRADE POLICY REGIME
The U.S.-Vietnam Trade Council Education Forum has since July 2000 worked to catalog legislation
and regulatory efforts made by Vietnam in areas affecting its international trade policy regime,
including commitments made under the U.S.-Vietnam Bilateral Trade Agreement (BTA) and related
WTO disciplines. This is a working document, updated monthly, with new items identified in the
margins.

                              NOVEMBER 2005 HIGHLIGHTS
           Updates on the proposed new law on investment
           Updates on the cap on foreign participation in the Vietnamese securities market
           Updates on foreign exchange controls
           Updates on foreign loan controls
           Guidelines on organizations and the operations of securities investment funds and fund
           management companies
           Updates on the cap on foreign employees


Commonly used abbreviations

BCC            business co-operation contract
BTA            U.S.-Vietnam Bilateral Trade Agreement
FIE            foreign invested enterprise
IP             intellectual property
JVE            joint venture enterprise
100% FOE       100% foreign owned enterprise
MoC            Ministry of Construction
MoCI           Ministry of Culture & Information
MoF            Ministry of Finance
MoI            Ministry of Industry
MoJ            Ministry of Justice
MoNRE          Ministry of Natural Resources & Environment
MoPT           Ministry of Posts & Telecommunications
MoST           Ministry of Science & Technology (formerly Ministry of Science, Technology &
               Environment
MoT            Ministry of Trade
MPI            Ministry of Planning & Investment
NA             National Assembly
SBV            State Bank of Vietnam
SOE            State owned enterprise
USD            United States dollar
VND            Vietnamese dong
                                                 TABLE OF CONTENTS

VIETNAM TRADE POLICY REGIME
VIETNAM TRADE POLICY REGIME ................................................................................................... 2
1. Status of Vietnam’s WTO Accession ............................................................................................. 6
    1.1     WTO Accession – Multilateral Negotiations: ..................................................................... 6
    1.2     WTO Accession – U.S. Bilateral Negotiations:.................................................................. 7
    1.3     WTO Accession - EU Bilateral Negotiations:.................................................................... 8
    1.4     WTO Accession – Concluded Bilateral Agreements: ........................................................ 8
    1.5     WTO Approval of Vietnam's Accession:............................................................................ 8
    1.6     Vietnam Ratification of WTO Accession – Necessary Action by Vietnam: ........................ 9
    1.7     U.S. Ratification of WTO Accession – Permanent NTR for Vietnam: ................................ 9
2. Status of U.S.-Vietnam Bilateral Trade Agreement (BTA) ........................................................... 10
    2.1     Ratification: ..................................................................................................................... 10
    2.2     Consultations: ................................................................................................................. 10
    2.3     Annual NTR Status Renewal: ......................................................................................... 10
    2.4     Duration of the BTA: ....................................................................................................... 11
3. General and Legislative Action Plans for Implementation of BTA and WTO Accession .............. 11
    3.1     Overall Action Plan for Implementation of the BTA: ........................................................ 11
    3.2     Legislative Plan for Implementation of the BTA:.............................................................. 12
    3.3     Legislative Action Plan for WTO Accession: ................................................................... 12
4. Legislative Developments 2002 - 2007........................................................................................ 14
    4.1     Legislative Developments in 2002: ................................................................................. 14
    4.2     Legislative Program 2002 - 2007: ................................................................................... 14
    4.3     Legislative Developments in 2003: ................................................................................. 15
    4.4     Legislative Developments in 2004: ................................................................................. 16
    4.5     Legislative Developments in 2005: ................................................................................. 18
5. Trade in Goods ........................................................................................................................... 24
    5.1     Most-Favored-Nation Status: .......................................................................................... 24
    5.2     National Treatment: ........................................................................................................ 25
    5.3     Tariffs:............................................................................................................................. 25
            MFN Tariffs ..................................................................................................................... 25
            AFTA Tariffs.................................................................................................................... 26
    5.4     Application of Internal Taxes on Imported Goods ........................................................... 28
    5.5     Customs: ........................................................................................................................ 29
            Customs Valuation.......................................................................................................... 30
            Other… ........................................................................................................................... 34
    5.6     Non-Tariff Barriers: ......................................................................................................... 34
    5.7     Tariff Rate Quotas / Quantitative Restrictions: ................................................................ 34
            Domestic Enterprises – Trading Rights........................................................................... 35
            Foreign Enterprises – Trading Rights.............................................................................. 35
    5.9     Import Licensing: ............................................................................................................ 39
    5.10    Sanitary and Phytosanitary (SPS) Measures: ................................................................. 39
            Animal Health ................................................................................................................. 40
            Food Safety .................................................................................................................... 41
            Enquiry Point / Notification Point..................................................................................... 42
    5.11    Standards and Technical Barriers to Trade (TBT):.......................................................... 42
            TBT Enquiry Point / Notification Point ............................................................................. 42
            Product Safety ................................................................................................................ 44
            Recognition..................................................................................................................... 44
    5.12    Export Subsidies: ............................................................................................................ 45
    5.13    Domestic Support: .......................................................................................................... 45
    5.14    Trade Remedies: ............................................................................................................ 46
            Safeguard Measures....................................................................................................... 46
            Anti-Dumping Measures ................................................................................................. 47
6. Intellectual Property Rights.......................................................................................................... 49
    6.1     Intellectual Property Rights Regime: ............................................................................... 49


                                                                                                                                                  3
             International IP Conventions ........................................................................................... 49
             Legal Framework ............................................................................................................ 50
     6.2     MFN and National Treatment:......................................................................................... 50
     6.3     Copyright: ....................................................................................................................... 50
             Registration..................................................................................................................... 51
             Royalties ......................................................................................................................... 51
     6.4     Industrial Property:.......................................................................................................... 51
             Patents. .......................................................................................................................... 51
             Compulsory Licensing..................................................................................................... 52
             Trademarks..................................................................................................................... 52
             Geographical Indications ................................................................................................ 53
             Industrial Designs ........................................................................................................... 53
             Inventions and Utility Solutions ....................................................................................... 54
             Layout Designs of Integrated Circuits ............................................................................. 54
             Plant Varieties................................................................................................................. 55
     6.5     Enforcement of Intellectual Property Rights: ................................................................... 55
             Administrative Measures................................................................................................. 56
             Criminal Procedures ....................................................................................................... 57
             Border Measures ............................................................................................................ 58
7.   Trade in Services ........................................................................................................................ 59
     7.1     MFN and National Treatment:......................................................................................... 59
     7.2     Legal Services (CPC861): .............................................................................................. 60
             Market Access and Commercial Presence ..................................................................... 60
             Domestic Regulation....................................................................................................... 60
     7.3     Accounting and Auditing Services (CPC 862): ................................................................ 62
             Domestic Regulation....................................................................................................... 62
             Accounting Standards..................................................................................................... 65
             Auditing Standards.......................................................................................................... 66
     7.4     Advertising Services (CPC 871):..................................................................................... 66
     7.5     Communication Services: ............................................................................................... 68
     7.6     Construction Services (CPC 511, 512,513, 514, 515, 516, 517, 518) ............................. 71
     7.7     Distribution Services (CPC621, 622, 631, and 632)........................................................ 72
             Franchise Services ......................................................................................................... 72
     7.8     Educational Services (CPC 923)..................................................................................... 74
     7.9     Financial Services........................................................................................................... 77
             Insurance ........................................................................................................................ 77
             Banking........................................................................................................................... 80
             Non-Banking Financial Services ..................................................................................... 92
             Securities ........................................................................................................................ 95
     7.10    Transport and Delivery Services ................................................................................... 101
8.   Investment................................................................................................................................. 102
     8.1     MFN:............................................................................................................................. 102
     8.2     National Treatment: ...................................................................................................... 102
     8.3     Trade Related Investment Measures (TRIMS):............................................................. 104
     8.4     Bilateral Investment Treaties......................................................................................... 105
     8.5     Profit Repatriation: ........................................................................................................ 105
     8.6     Investor-State Arbitration and other forms of dispute settlement:.................................. 106
     8.7     Investment Registration: ............................................................................................... 107
     8.8     Legal Entity Restrictions: .............................................................................................. 109
     8.9     Technology Transfer Issues.......................................................................................... 114
     8.10    Land Use and Leasing Rights: ...................................................................................... 116
     8.11    Equity Investment ......................................................................................................... 118
     8.12    Grandfathering.............................................................................................................. 119
     8.13    Investment/Export Incentives in Industrial, Export Processing and High-Tech Zones: .. 120
     8.14    Foreign Contractors: ..................................................................................................... 121
9.    Transparency ........................................................................................................................... 122
     9.1     Publication of Laws: ...................................................................................................... 122
     9.2     Official Gazette: ............................................................................................................ 123
     9.3     Public Commentary:...................................................................................................... 124
     9.4     Formulation of Laws:..................................................................................................... 125



                                                                                                                                                  4
    9.5      Judicial Reform: ............................................................................................................ 126
    9.6      Enforcement of Civil Judgments: .................................................................................. 127
    9.7      Administrative Appeals: ................................................................................................ 127
10. Other ......................................................................................................................................... 127
    10.1     Textiles: ........................................................................................................................ 127
    10.2     Competition and Monopoly Pricing: .............................................................................. 130
    10.3     Tendering:..................................................................................................................... 132
    10.4     Labor: ........................................................................................................................... 134
    10.5     Environmental Standards:............................................................................................. 135
    10.6     Taxation: ....................................................................................................................... 135
    10.7     Commercial Arbitration: ................................................................................................ 136
    10.8     Secured Transactions: .................................................................................................. 138
    10.9     Printing and Publishing: ................................................................................................ 138
    10.12 Electronic Commerce:................................................................................................... 142
    10.13 General Fees and Charges:.......................................................................................... 142
    10.14 Penalties and Fines: ..................................................................................................... 142
    10.15 Constitutional Amendments: ......................................................................................... 143
    10.16 Anti-Corruption Measures ............................................................................................. 143




                                                                                                                                                     5
1.    Status of Vietnam’s WTO Accession
      Vietnam applied for WTO membership in January 1995 and is currently among 25 countries
      (including Saudi Arabia, Russia, and Ukraine) seeking WTO accession.

      148 countries are currently members of the WTO. WTO accession for Vietnam involves
      agreement by Vietnam to accept the WTO rules through multilateral negotiations, and to
      conclude bilateral negotiations with interested Members on market access for goods and
      services. Through its Bilateral Trade Agreement (BTA) with the U.S., Vietnam has already
      accepted many core WTO principles such as Most-Favored Nation (MFN), national treatment,
      and transparency, thereby providing a solid basis for its accession. Under the BTA, Vietnam
      has also committed to a substantial portion of multilateral WTO disciplines, including the WTO
      disciplines on trade in goods, Trade-Related Investment Measures (TRIMS), Trade-Related
      Aspects of Intellectual Property Rights (TRIPS), General Agreement on Trade in Services
      (GATS), and the WTO’s Basic Telecom Reference Paper. These commitments are likely to be
      multilateralized as a requirement for accession, in addition to other commitments being added.
      For a comparison produced by the Trade Council of BTA commitments to the commitments of
      other recently acceding country, click on:
      http://www.usvtc.org/Documents/USVTC%20TA/WTO%20Charts/trade%20commitments%20ch
      art%203Feb04.pdf

1.1   WTO Accession – Multilateral Negotiations:
      In October 2003, Vietnam submitted materials, including its applied tariff schedule, and a new
      services offer to its WTO Working Party. Action plans, including a general legislative action
      plan, were also submitted on the implementation of the WTO Agreement on Customs Valuation
      (CVA), WTO Agreement on Import Licensing, Agreement on Sanitary and Phytosanitary
      Measures (SPS), Agreement on Technical Barriers to Trade (TBT), Agreement on Trade
      Related Investment Measures (TRIMS), and Agreement on Trade-Related Aspects of
      Intellectual Property (TRIPS).

      On 10-11 December 2003 at its 7th Working Party Meeting in Geneva, Working Party Members
      continued to discuss issues relating to Vietnam’s general application of MFN, phase-in periods
      relating to its CVA, SPS and TBT Action Plans, and whether or not to move towards drafting the
      Elements of a Final Report. While noting progress overall, Working Party Members reiterated
      the importance of improved goods and services offers, and commitments to achieve full
      implementation of WTO multilateral disciplines upon accession. Bilateral talks also took place
      with Argentina, Brazil, India, Japan, Canada, EU, Norway, Switzerland, Paraguay, New Zealand,
      Australia, Korea, and the United States.

      In late April 2004, Vietnam submitted to its Working Party new paperwork including revised
      goods and services offers. Its new tariff offer binds close to 100% of its tariffs in agricultural and
      non-agricultural goods. Vietnam’s new services offer now includes many commitments equal to
      what Vietnam has committed to in the U.S.-Vietnam Bilateral Trade Agreement (BTA), as well
      as commitments in service areas not committed to in the BTA. In addition, revised action plans
      for implementing overall legislation, and the Agreements on Customs Valuation, SPS, TBT, and
      TRIPS were submitted.

      On 15 June 2004, Vietnam had its 8th Working Party meeting in Geneva, with plurilateral
      discussions on Agriculture held the day prior. As next steps, Members agreed to produce a
      Draft Working Party Report and hold the 9th Working Party session in early-December 2004.
      Members were expected to submit new questions by the end of July, and Vietnam will circulate
      replies by the end of September. Bilateral negotiations were also conducted with the EU,
      Australia, the U.S., and other Working Party members during this time. Vietnam closed its first
      market access bilateral with Cuba.



                                                                                                          6
                                                                                th
      In late August 2004 Vietnam received follow-up questions from the 8 Working Party and a new
      round of paperwork was submitted in response to the Working Party in October 2004.

      Vietnam’s 9th Working Party meeting was held in Geneva on 15 December 2004. The meeting
      moved Vietnam’s accession process towards an initial draft report while examining new
      documents and legislation submitted. Of significance, Vietnam committed to the implementation
      of the SPS Agreement upon accession and pledged to speed up the passage of pending bills for
      accession in 2005.

      An informal Working Party meeting was held on 20 May 2005. At this meeting, new Working
      Party Chairman Eirik Glenne urged Vietnam to complete bilaterals in the “next couple of months”
      if it were to hope for accession in December 2005. Eight new commitments and developments
      were presented by the Vietnamese side, including a proposed revision of excise duties to end
      discrimination against imported motor vehicles; a similar proposal for excise duty on beer; the
      elimination of export performance subsidies; a commitment to require supported products made
      in free zones to be subject to normal customs formalities when entering Vietnam; the
      establishment of TBT and SPS enquiry points; the extension of trading rights with exceptions for
      sensitive products, such as petroleum, pharmaceuticals, sugar, tobacco, salt, fertilizers, rice and
      cultural products; and the streamlining of import licensing procedures. The Secretariat also
      received a series of draft laws, including drafts of Commercial Law, Law on Amendments to Law
      on Customs, and Law on Conclusion of, Accession to and Implementation of International
      Treaties as well as a document comparing the draft Law on Export and Import Duties
      (Amended) against the existing Law (all of these draft Laws were subsequently promulgated at
      the May-June 2005 Session of Vietnam's National Assembly, see Section 4.5 below). Drafts of
      Law on E-Transactions, Law on Investment, Part VI of Law on Intellectual Property Rights (all of
      these draft Laws are scheduled to be promulgated at the October-November 2005 Session of
      Vietnam's National Assembly, see Section 4.5 below) and Law on Technology Transfer (not
      scheduled for promulgation in 2005) were also provided.

      Vietnam’s 10th Working Party was held in Geneva on 15th September 2005 during which in
      depth discussions were held on Vietnam’s policies towards state trading enterprises, subsidies,
      investment incentives, and tax policies. Positive developments include a new offer on trading
      rights, with Vietnam committing to provide full trading rights to foreign companies and individuals
      no later than 1 January 2007. Reports also indicate that Vietnam’s latest offer on goods include
      commitments to cut tariffs to an average of about 18% (a 4% improvement over the previous
      offer). Issues remain with regard to industrial subsidies for export related industries,
      discriminatory taxation on distilled spirits and farm goods, tariff rate quotas, and import bans on
      certain chemicals and second-hand goods.

      Vietnam is still in negotiations with Australia, the Dominican Republic, Honduras, Mexico, New
      Zealand, and the U.S.

      The WTO will hold its next Ministerial in mid-December 2005 in Hong Kong.

1.2   WTO Accession – U.S. Bilateral Negotiations:
      In March 2002, USTR issued a request for comment by interested U.S. parties on pending WTO
      accessions, including Vietnam’s accession. This notice was published in the Federal Register:
      http://www.usvtc.org/WTO/Fed%20Reg%20Notice%20-%20march%202002.pdf

      In July 2004, informal WTO bilateral negotiations with the U.S. were conducted during a visit to
      Hanoi led by Deputy USTR Josette Shiner to discuss issues relating to the implementation of
      the BTA. A new offer was submitted to the U.S. in September 2004.

      A second round of bilateral negotiations with the U.S. was held in Washington DC on 26-28
      October 2004. Led by chief negotiator Vice Trade Minister Luong Van Tu, the delegation held
      intensive discussions with key counterpart Dorothy Dwoskin, Assistant U.S. Trade
      Representative for WTO and Multilateral Affairs. The two sides discussed the same offer
      presented by Vietnam to the U.S. in May 2004 but held greater in-depth discussions on specific
      issues including agricultural subsidies, industrial subsidies, sectoral initiatives, tariff-rate quotas,



                                                                                                            7
      TRIMS, TRIPS, and specific service sectors such as insurance, banking, audio-visual, express
      delivery, and distribution.

      Vietnam and the US conducted another round of discussions in Washington, DC 14 – 15 March
      2005 at which an improved services offer was presented to the U.S. The two sides reportedly
      discussed issues relating to telecom services, express-delivery services, and tariffs among other
      key areas. Follow-up discussions were also held in Hanoi in mid-April 2005.

      The U.S. and Vietnam conducted another round of negotiations from 13-17 June 2005 in
      Washington, D.C. Vietnam’s negotiations were led by Vice Minister of Trade Luong Van Tu,
      with Deputy Prime Minister Vu Khoan making high level visits. In the lead up to the visit to the
      U.S. of Vietnamese Prime Minister Phan Van Khai, both sides worked intensively on agricultural
      and industrial tariffs, non-tariff barriers, services, and Vietnam’s multilateral obligations, to
      narrow the gap and remaining issues left to be discussed.

      Both sides met for another round of negotiations on 16 September 2005 at Vietnam’s WTO
      Working Party meeting in Geneva. On the bilateral front, the U.S. continues to have issues with
      about 100+ tariff line items and with market access for key services of interest to the U.S.

1.3   WTO Accession - EU Bilateral Negotiations:
      Vietnam and the EU have concluded bilateral negotiations. On 9 October 2004, EU Trade
      Commissioner Pascal Lamy and Vietnam Trade Minister Truong Dinh Tuyen announced the
      successful conclusion of an agreement including agreement to reduce tariffs for agricultural,
      fisheries and industrial products to an average of 24%, 22%, and 16% respectively. Reportedly,
      the EU obtained fewer concessions from Vietnam than they had hoped for in sensitive areas
      such as telecommunications, banking, insurance and tourism. The agreement however is a
      significant step towards the conclusion of bilateral negotiations with Vietnam’s other major
      trading partners.

      The EU’s bilateral agreement with Vietnam includes an “early harvest agreement” which came
      into force in January 2005, with some commitments due end of March 2005, and others during
      2005 through 2006. In exchange for quota free access on textile and clothing to the EU,
      Vietnam has reportedly committed to granting companies of EU origin reduced tariffs on yarns,
      clothing, fabrics and made-up articles, fibers, beverages, motorbikes or scooters. Vietnam
      committed to increase market access for service providers in the telecom, cement and clinker
      production, construction, computer, engineering, integrated engineering, architecture, and urban
      planning service sectors. Further market access has also been granted to service providers in
      the life insurance, distribution, shipping, computer reservation system, environmental, and real
      estate service sectors. Significant concessions were also extended to the pharmaceutical
      sector including licenses for toll manufacturers and a reduction in the number of prohibited
      molecules allowed for importation into Vietnam.

1.4   WTO Accession – Concluded Bilateral Agreements:
      Vietnam has to date concluded bilateral negotiations with the EU (October 2004), Chile
      (November 2004), Argentina (November 2004), Brazil (November 2004), Singapore (December
      2004), Uruguay (April 2005), Korea (June 2005), Japan (June 2005), Canada (June 2005),
      China (July 2005), Columbia (July 2005), South Korea (July 2005), Iceland (August 2005), and
      Norway (August 2005), Switzerland (August 2005), Paraguay (September). Negotiations with
      Cuba, Kyrgystan, India, Turkey, Bulgaria and EI Salvador have also been concluded. Vietnam
      has yet to conclude with Australia, the Dominican Republic, Honduras, Mexico, New Zealand,
      and the U.S.

1.5   WTO Approval of Vietnam's Accession:
      Once the Working Party process and the bilateral negotiations conclude, the Working Party will
      adopt Vietnam's accession package, which includes the Working Party Report, the Draft
      Protocol of Accession (incorporating Vietnam's commitments on market access, services, and
      agriculture), and a Draft Decision inviting Vietnam to accede as a member of the WTO. If a two-
      thirds majority of WTO Members agree, either at a WTO Ministerial Conference or at a meeting
      of the WTO General Council, Vietnam's accession package will be adopted.




                                                                                                     8
1.6   Vietnam Ratification of WTO Accession – Necessary Action by Vietnam:
      To complete the process, as with the BTA, Vietnam's National Assembly ("NA", Vietnam's
      highest legislative body) will be expected to pass legislation implementing Vietnam’s
      commitments made “upon accession”, ratify the WTO accession package and enact the
      remaining requisite legislation possibly through an omnibus package. The Ministry of Justice
      and other key Ministries work to revise and update the list of the laws and regulations, the list of
      draft laws and ordinances, including those adopted in the last May-June 2005 Session and
      those to be adopted in the October-November 2005 Session of the National Assembly. They
      have also prepared a chart to match the laws and regulations with the relevant WTO
      commitments. Over 200 laws and decress have been submitted.

      The full NA typically meets twice a year, with May and November sessions, but Vietnam has
      committed to hold additional sessions if necessary. Once Vietnam completes its domestic
      ratification procedures, it can become a WTO Member 30 days after depositing its "acceptance"
      with the WTO Director General.

      Vietnam's NA passed the Law on Conclusion of, Accession to and Implementation of
      International Treaties on 14 June 2005. Effective as of 1 January 2006, this Law will govern the
      process of Vietnam's ratification of the WTO accession package and the enactment of
      implementing legislation, as well as clarifying the hierarchical order of treaties in the legal
      system of Vietnam.

1.7   U.S. Ratification of WTO Accession – Permanent NTR for Vietnam:
      As noted in Section 1.3 above, Vietnam does not currently have unconditional normal trade
      relations (NTR) status (also known as permanent normal trade relations (PNTR) status) with the
      United States. Unconditional NTR is enjoyed by virtually all U.S. trading partners who are
      members of WTO. As a Member of the WTO, the U.S. is obligated to grant on a reciprocal
      basis immediate and unconditional most-favored-nation treatment to the products of all other
      WTO Members. Therefore, upon Vietnam’s accession to the WTO, the U.S. must grant Vietnam
      unconditional NTR status, unless the U.S. invokes the “non-application” clause of Article XIII of
      the WTO Agreement before Vietnam's accession. If the “non-application” clause is invoked,
      however, Vietnam will have the right to withhold from the U.S. the benefits of its WTO accession
      commitments (i.e., those that go beyond the BTA), denying to the US market access gains
      which would otherwise have been afforded to U.S. goods and services and that all other WTO
      Members will enjoy.

      The U.S. can extend PNTR status to Vietnam by the enactment of a statute authorizing the U.S.
      President to terminate the application of Title IV of the Trade Act of 1974 with respect to
      Vietnam and to extend PNTR status to it. This procedure was used to grant PNTR status to
      Albania, Bulgaria, China, Czech Republic, Estonia, Georgia, Hungary, Kyrgyzstan, Latvia,
      Lithuania, Mongolia, Romania and Slovakia. The legislation moves through Congress under
      normal procedures - there are no special or “fast track” procedures for a bill to terminate the
      application of Title IV of the Trade Act of 1974. Upon introduction in the House and the Senate,
      the bill is referred to the House Ways & Means Committee and Senate Finance Committee for
      consideration. The bill is open to amendments and Congressional rules that typically govern
      any ordinary bill would apply. Upon enactment of the statute, the U.S. President would
      implement the extension of PNTR status by a Presidential proclamation.

      To date, the following six Jackson-Vanik countries have become full members of the WTO prior
      to the U.S. Congress granting them PNTR status: Romania (original GATT member), Mongolia
      (1997), Kyrgyz Republic (1998), Georgia (2000), Moldova (2001), and Armenia (2003). In the
      most recent case of Armenia, it closed bilateral negotiations with the U.S. in June 1999, was
      approved by the WTO General Council in 10 December 2002, and became a full member on 5
      February 2003. PNTR was not granted to Armenia until 3 December 2004. In all these cases,
      the U.S. invoked its “non-application” clause. In contrast to those six countries, in the case of
      China, PNTR status was granted prior to WTO accession. U.S. bilateral negotiations closed on
      15 November 1999; a PNTR bill (HR 4444) was introduced in the House on 15 May 2000; the
      PNTR bill was passed by the House on 24 May 2000 and the Senate on 14 September 2000;
      and China became a full WTO member on 10 December 2001.



                                                                                                        9
      For more information on PNTR for Vietnam and its accession to the WTO, the U.S.-Vietnam
      Trade Council issued an updated memo which addresses U.S. legal obligations, Congressional
      procedures, and past practices with regard to extending PNTR to Jackson-Vanik countries,
      available at http://www.usvtc.org/trade/wto/PNTRandWTOFAQs12sep05.pdf.


2.    Status of U.S.-Vietnam Bilateral Trade Agreement (BTA)
2.1   Ratification:
      Vietnam’s NA (its highest legislative body) ratified the BTA on 28 November 2001. Resolution
      48-2001-NQ-QH10 of the National Assembly on Ratification of Vietnam-U.S. Bilateral Trade
      Agreement dated 28 November 2001 passed by a vote of 278-85, with 17 absentees. The
      United States acted by granting Vietnam Normal Trade Relations (NTR) status through a voice
      vote in the U.S. House of Representatives on 6 September 2001 and in the U.S. Senate by a
      vote of 88-12 on 3 October 2001. As discussed below, under the Trade Act of 1974, NTR status
      is subject to an annual Presidential renewal. The U.S. and Vietnam exchanged letters in
      Washington, DC, bringing the BTA into force on 10 December 2001.

      A Summary of the BTA – prepared for the Trade Council by Sidley Austin Brown and Wood LLP
      in cooperation with Vietnam's Ministry of Trade, the U.S. Trade Representative, and the U.S.-
      Vietnam Trade Council Education Forum is available at:
      http://www.usvtc.org/Documents/BTA%20Summary%20and%20FAQs/BTA%20description%20
      page.htm. In addition, as a useful starting point for identifying areas to examine in assessing
      required changes and possible areas for further technical assistance, in March 2001 the U.S.-
      Vietnam Trade Council prepared, at the conclusion of BTA negotiations, a Roadmap for BTA
      Implementation,                                   available                                  at:
      http://www.usvtc.org/BTA/Roadmaps/Roadmap%20Descriptions.htm.

2.2   Consultations:
      The Joint Committee on Development of Economic and Trade Relations - a bilateral committee
      established under the BTA - provides a forum for the discussion and review of BTA compliance
      issues and for promotion of trade between Vietnam and the U.S. Decision 53-2002-QD-TTg of
      the Government dated 23 April 2002 formally establishes Vietnam's Joint Committee on
      Development of Economic and Trade Relations. Chaired by Deputy Minister of Trade Luong
      Van Tu, Vietnam's standing members include officials from the Office of Government, Ministry
      of Trade ("MoT"), Ministry of Foreign Affairs, Ministry of Planning & Investment ("MPI"), Ministry
      of Finance ("MoF"), Ministry of Justice ("MoJ"), Ministry of Culture & Information ("MoCI"), and
      Ministry of Science & Technology ("MoST"). The Office of the U.S. Trade Representative
      (USTR) chairs the interagency committee on the U.S. side. Deputy USTR Ambassador Jon
      Huntsman visited Hanoi from 6-7 May 2002 for the first official meeting. The second annual joint
      committee meeting was held from 4-10 March 2003. In 2004, joint committee meeting took
      place from 17 – 21 May 2004 in Washington, DC. Bilateral discussion and consultation were
      again held during a visit to Hanoi led by Deputy USTR Josette Shiner July 21-23, 2004.

2.3   Annual NTR Status Renewal:
      Under U.S. trade law, Vietnam currently has conditional normal trade relations (NTR) status
      which must be renewed annually. The underlying key condition is Vietnam’s compliance with
      the freedom-of-emigration requirement of the Jackson-Vanik amendment, a provision of Title IV
      of the Trade Act of 1974. Under this statute, based on freedom of emigration criteria, the
      President can grant a one-year extension of NTR, EXIM, OPIC and USAID operations for
      Vietnam. The President’s decision goes forward unless both Houses of Congress pass a joint
      resolution of disapproval by 1 September each year.

      On 3 June 2004, the President sent his recommendation to U.S. Congress that the Jackson-
      Vanik Amendment for Vietnam be waived allowing for the renewal of NTR status for another
      year. Congress took no additional action.

      In 1998 the House voted for the first time 260 – 163 in favor of the Jackson-Vanik waiver, in
      1999 the House voted 297-130 in favor of the Jackson-Vanik renewal, in 2000 the vote was




                                                                                                     10
      332-91 in favor, in 2001 the vote was 324-91 in favor, in 2002 the vote was 338-91 in favor, in
      2003 and 2004 no vote was held, therefore renewal continued.

      Further information is available at http://www.usvtc.org/Jackson_Vanik/usvtc_jv_info.htm

2.4   Duration of the BTA:
      According to Chapter VII, Article 8 of the BTA, the Agreement remains in force for 3 years (until
      10 December 2004) and is renewable for successive 3 year terms if neither the United States
      nor Vietnam notifies the other of its intent to terminate the BTA at least 30 days before the
      expiration of any 3-year term. The continuation in force of the agreement is also subject to the
      requirement in Section 405(b)(1)(B) of the Trade Act of 1974 (19 U.S.C. 2435(b)(1)(B), which
      applies to any trade agreement concluded under Title IV with a Non-Market Economy (NME).
      Under that provision, the agreement is renewed triennially if a satisfactory balance of
      concessions has been maintained during the life of the agreement and the President determines
      “that actual and foreseeable reductions in United States tariff and non-tariff barriers…are
      satisfactorily reciprocated by [Vietnam].”

      On 10 December 2004, President Bush renewed the BTA “having determined that actual or
      foreseeable reductions in U.S. tariffs and non-tariff barriers to trade resulting from multilateral
      negotiations are being satisfactorily reciprocated by Vietnam”, and that “satisfactory balance of
      concessions in trade and services has been maintained during the life of the Agreement on
      Trade Relations between the United States of America and the Socialist Republic of Vietnam.”

      The legal effect of specific BTA provisions after Vietnam accedes to the WTO will depend on the
      particular BTA provision at issue. Specifically:
        BTA provisions that incorporate WTO agreements in full (e.g., WTO Customs Valuation and
        Import Licensing Agreements) or in part (e.g., WTO SPS and TBT Agreements) would remain
        in effect; however, the Parties would most likely address problems and enforce their legal
        rights through the WTO, where binding dispute settlement is available.
        BTA provisions that go beyond current WTO obligations (e.g., the investment chapter as well
        as certain sections of the intellectual property and transparency chapters) would remain in
        effect.
        Many of the BTA’s specific tariff and services commitments will be superseded by any new
        more favorable commitments negotiated as part of Vietnam’s WTO accession. For instance,
        because of the MFN obligation, the United States will automatically receive any tariff and
        services commitments arising out Vietnam’s WTO accession that are more extensive than
        those contained in the BTA.


3.    General and Legislative Action Plans for Implementation of BTA and WTO
      Accession
3.1   Overall Action Plan for Implementation of the BTA:
      Resolution 48-2001-NQ-QH10 of the National Assembly on the Ratification of Vietnam-U.S.
      Bilateral Trade Agreement dated 28 November 2001 (clause 4) calls for the NA's Standing
      Committee, the Government and agencies to formulate concrete and comprehensive action
      plans to amend and supplement legal documents according to the BTA schedule, to strengthen
      the legal system, to finalize policies, to enhance human resources training and to create
      favorable conditions for businesses. Decision 35-2002-QD-TTg of the Government dated 12
      March 2002 outlines Vietnam’s overall plan for implementing the BTA, including calling for: 1)
      public awareness through dissemination via public media, public education of ministries,
      universities and businesses; 2) legal review of Vietnamese law; 3) preparation for and
      evaluation of increased competition by government agencies and businesses, and plans for
      increasing foreign direct investment; 4) preparation for the protection of IP rights; 5) preparation
      for promoting trade, investment and tourism in the U.S. market; 6) preparatory plans by relevant
      ministries in areas that affect national security in Vietnam; 7) training of the labor force; and 8)
      overall organizational issues by the joint bilateral committee, various ministries, agencies, and
      People’s Committees.




                                                                                                       11
      As a useful starting point for identifying areas requiring changes and possible areas for further
      technical assistance, the U.S.-Vietnam Trade Council prepared at the conclusion of BTA
      negotiations      a      Roadmap          for     BTA       Implementation,    available       at:
      http://www.usvtc.org/BTA/Roadmaps/Roadmap%20Descriptions.htm.

3.2   Legislative Plan for Implementation of the BTA:
      In December 2001, the Prime Minister approved the initial review by the MoJ of legal
      instruments that need to be amended in order to comply with Vietnam's international
      undertakings, including under the BTA. Official Letter 6172-VPCP-TCQT of the Office of
      Government dated 18 December 2001 instructs ministries, branches and people's committees
      to continue to check the legal instruments within the sectors for which they are responsible and
      the instruments issued by them. The MoJ has the specific tasks of “commencing work with the
      NA and the Government to prepare the program for drafting laws for the year 2002-2003, aimed
      at complying with Vietnam's international undertakings, including the BTA; [presiding] over
      drafting a Government program for submission to the NA on amending the legal system for the
      whole period of the 10th Session NA 2002-2003, giving priority to the need to implement the BTA
      and to be able to provide undertakings when Vietnam joins the WTO; [reviewing] and [providing]
      statistics on the number of international treaties in which Vietnam participates and the number of
      new ones that Vietnam must sign during the process of integration into the international
      economy; [taking] charge of co-ordination with ministries, branches and people's committees to
      strengthen step by step the legal systems of ministries, branches and enterprises; and
      [providing] legal training for staff of ministries, branches, localities and enterprises, in order to
      satisfy the requirements for providing undertakings during the process of integration into the
      international economy”.

      On 8 April 2002, the Minister of Justice reported that the first stage of review of all laws issued
      by ministries and central bodies had been completed and that amendments to 150 legal
      instruments are required. It then conducted the second stage of reviewing laws issued by
      administrative bodies, in particular for the major cities of Hanoi, Ho Chi Minh City, Da Nang and
      Hai Phong.

3.3   Legislative Action Plan for WTO Accession:
      In October 2003, the MoJ completed its review of 265 items of legislation and identified the
      legislative reforms required for WTO accession, including 94 items of legislation identified as
      requiring amendment or formulation (which included 24 Laws and 15 Ordinances).               As
      instructed by Official Letter 1273-CP-QHQT of the Government dated 19 September 2003, a
      legislative action plan was submitted to the WTO Working Party. This action plan outlines
      timelines for the amendment and promulgation of laws including: the Law on National Security,
      Law on Competition, Law on Conclusion of, Accession to and Implementation of International
      Treaties, Law on Enterprises, Article 8 of the Law on Value Added Tax (Amended), Article 7 and
      Article 16 of the Law on Excise Tax (Amended), Ordinance on Foreign Exchange, Law on
      Foreign Investment in Vietnam, Law on Domestic Investment Promotion, Ordinance on Anti-
      Dumping Measures, Ordinance on Countervailing Measures, Commercial Law (Amended),
      Ordinance on State Auditing, Law on Maritime (Amended), Law on Civil Aviation (Amended),
      Law on Construction, Law on Tourism, Law on Railways, Law on Credit Institutions (Amended),
      Ordinance on E-Commerce, Law on Securities, Law on Lawyers, Article 7 of Law on Import-
      Export Duties (Amended), Ordinance on Procedures for Settlement of Administrative Cases
      (Amended), Law on Complaints and Denunciations (Amendments), Code on Civil Proceedings,
      Law on Customs (Amended), Ordinance on Standardization, Civil Code (Amended), Law on
      Implementation of Civil Judgments, and Law on Fisheries. A number of these laws have now
      been promulgated, and many are expected to be expedited to meet Vietnam’s “upon accession”
      commitments, see Section 4.4 and Section 4.5 below on legislative developments in 2004 and
      2005.

      With the assistance of various ministries, the MoJ has now formulated a revised action plan. In
      response to Official Letter 139-TB-VPCP of the Office of Government dated 22 July 2004
      requesting plans for formulating laws to assist with WTO negotiations, the MoJ issued Official
      Letter 30-TP-ASEAN-WTO dated 17 August 2004 proposing a program for formulating laws
      servicing negotiations for WTO accession.           Many of these proposals include the
      recommendation for laws and implementing documents to be promulgated in the 2005-2006



                                                                                                        12
timeframe (see updates on the laws to be promulgated, considered and drafted in Section 4.5
below).

To accelerate the schedule for drafting laws, Vietnam’s Ministry of Trade (MoT) issued Official
Letter 4447-TM-DB dated 10 September 2004 to suggest that MoJ separate out two different
lists of legal instruments – those that are requirements for Vietnam’s WTO accession; and those
that would be amended or drafted depending on the results of the negotiations for WTO
accession. The former would need to be issued in 2005, or in the first half of 2006 at the latest
as legal instruments within the promulgating jurisdiction of the Government or of the Prime
Minister. The latter list would include legal instruments in the service sectors the details of
which would depend on the outcome of negotiations. The MoT also suggested that the MoJ
coordinate with other ministries and branches to continue review of current legal instruments
against WTO regulations based on the results of the check in 2003, while accelerating the
speed of drafting, paying special attention to the contents of legal instruments to make sure they
would conform with WTO regulations, and accelerating the drafting of the Law on
Implementation of Undertakings on WTO Accession.

In an attempt to meet Vietnam’s goal of WTO accession before the end of 2005, a request by
the Government for the adjustment of the 2005 NA legislative agenda was proposed during the
26th session of the NA’s Standing Committee in early March 2005. The proposed adjustments
included simplifying the procedures for consideration of drafts; extending the two 2005 sessions
of the full NA to allow more time for promulgation of laws; and adding an extra session of the full
NA in 2005 devoted only to laws and ordinances which will service WTO negotiations. The NA’s
Standing Committee approved unanimously the adjustments in order to expedite the passage of
26 laws and 4 ordinances to satisfy the request of WTO Working Party members for Vietnam’s
laws to be in place upon its accession to the WTO.

To implement the early March 2005 mandate of the NA's Standing Committee, Deputy Prime
Minister Vu Khoan issued Official Letter 231-TTg-QHQT instructing the MoJ and the MoT to
submit proposals on behalf of the Government on the required legislative program for Vietnam’s
accession to the WTO. As anticipated under Official Letter 231, Directive 08-2005-Ct-TTg of the
Prime Minister dated 4 April 2005 was issued to implement the Government’s policy to expedite
the process of and improve the quality of draft laws and ordinances in 2005 (including legal
instruments issued by local authorities) in support of WTO negotiations and accession. To that
end, issues that are of greatest importance in support of the WTO negotiation process should be
focused on and the MoJ must verify draft laws prior to submitting them to the Government.
Coordination between the MoJ, MoT, MoF, Office of Government, other ministries, branches
and relevant bodies is required for active and consistent drafting of, amendment of or addition to
laws and ordinances. Ministries and branches must take the lead in translating draft laws and
ordinances into English and send them to the National Committee for International Economic
Cooperation ("NCIEC") for submission to WTO upon request of negotiating parties. NCIEC is
responsible for co-operating with the MoFA and MoT to ensure the quality of translated versions
of draft laws submitted to the WTO. The Office of the Prime Minister is responsible for
monitoring and reminding ministries and branches to ensure timely completion of tasks and for
regular reporting to the Prime Minister.

At its May-June 2005 Session, the NA voted to expedite its 2005 legislative program in an
attempt to achieve the promulgation in 2005 of important laws necessary to support Vietnam's
bid for WTO accession by the end of 2005 (see Section 4.5 below). The following Laws have
been added for promulgation in 2005: Law on Enterprise, Law on Investment, Law on
Amendment of Law on Value Added Tax and Law on Special Sales Tax, Law on Amendment of
Law on Denunciations and Complaints and Law on Practising Thrift to Reduce Expenditure.
Laws now added for consideration in 2005 include: Law on Lawyers and Law on Prevention of
HIV/AIDS Viral Infection.




                                                                                                13
4.    Legislative Developments 2002 - 2007
4.1   Legislative Developments in 2002:
      As scheduled under Resolution 52-2001-QH10 of the National Assembly dated 25 December
      2001 on the Program for Formulation of Laws and Ordinances in 2002, the following legislation
      was promulgated in 2002:

                    Legislation                Promulgated     Effective                Notes
       Ordinance 40-2002-PL-UBTVQH10           26 April 2002   1 July 2002       See Section 10.2
       on Prices                                                                 on “Competition &
                                                                                 Monopoly Pricing”
       Ordinance 41-2002-PL-UBTVQH10           25 May 2002     1 October         See Sections 5.1,
       on MFN and National Treatment                           2002              5.2, 6.2, 7.1, 8.1
                                                                                 and 8.2 on “MFN”
                                                                                 and “National
                                                                                 Treatment”
       Ordinance 42-2002-PL-UBTVQH10           25 May 2002     1 September       See Section 5.14
       on Self-Protection in Import of                         2002              on “Trade
       Foreign Goods into Vietnam                                                Remedies”
       Ordinance 43-2002-PL-UBTVQH10           25 May 2002     1 October         See Section 7.5 on
       on Post & Telecommunications                            2002              “Communication
                                                                                 Services”
       Ordinance 44-2002-PL-UBTVQH10           2 July 2002     1 October         See Section 10.14
       on Dealing with Administrative                          2002              on “Penalties &
       Offences                                                                  Fines”
       Law 01-2002-QH11 on State Budget        16 December
       (Amended)                               2002
       Law 02-2002-QH11 on Amendment           16 December                       See Section 9.1 on
       of Law on Promulgation of Legal         2002                              “Publication of
       Instruments                                                               Laws”

4.2   Legislative Program 2002 - 2007:
      On 16 December 2002, the NA passed Resolution 12-2002-QH11 on the Program for
      Formulation of Laws and Ordinances by the National Assembly during Legislature XI (2002 –
      2007) and for 2003. On 26 November 2003, the NA passed Resolution 21-2003-QH11 on the
      Program for Formulation of Laws and Ordinances in 2004. On 25 November 2004, the NA
      passed Resolution 35-2004-QH11 on the Program for Formulation of Laws and Ordinances in
      2005. Together Resolutions 12, 21 and 35 provide for the passage of a total of 154 laws,
      ordinances and resolutions by the NA in the 2002-2007 period, including the legislation listed in
      Sections 4.3 and 4.4 below. At its May 2005 Session, the NA voted to expedite its legislative
      program in an attempt to achieve the promulgation in 2005 of important laws necessary to
      support Vietnam's bid for WTO accession by the end of 2005. Details of the expedited
      legislative program have not yet been released.




                                                                                                      14
4.3   Legislative Developments in 2003:
      As scheduled under Resolution 12, the following legislation was promulgated in 2003:


                    Legislation                Promulgated     Effective             Notes

       Ordinance 07-2003-PL-UBTVQH11           25 Feb 2003     1 June         Replaces 1993
       on Private Medical and                                  2003           predecessor
       Pharmaceutical Practice

       Ordinance 08-2003-PL-UBTVQH11           25 Feb 2003     1 July 2003    See Section 10.7 on
       on Commercial Arbitration                                              “Commercial
                                                                              Arbitration”

       Ordinance 09-2003-PL-UBTVQH11           25 Feb 2003     1 July 2003
       on Industrial Mobilization

       Law 03-2003-QH11 on Accounting          17 June 2003    1 Jan 2004     See Section 7.3 on
                                                                              “Accounting        &
                                                                              Auditing Services”

       Law 04-2003-QH11 on Statistics          17 June 2003    1 Jan 2004     See Section 7.3 on
                                                                              “Accounting        &
                                                                              Auditing Services”

       Law 05-2003-QH11 on Supervisory         17 June 2003    1 Aug 2003
       Activities of the National Assembly

       Law 06-2003-QH11 on National            17 June 2003
       Border

       Law 07-2003-QH11 on Amendment           17 June 2003    1 Jan 2004
       of Law on Value Added Tax

       Law 08-2003-QH11 on Amendment           17 June 2003    1 Jan 2004
       of Law on Special Sales Tax

       Law 09-2003-QH11 on Corporate           17 June 2003    1 Jan 2004     See Section 10.6 on
       Income Tax (Amended)                                                   “Taxation”

       Law 10-2003-QH11 on Amendment           17 June 2003    1 Aug 2003
       of Law on State Bank of Vietnam

       Ordinance 23-2003-PL-UBTVQH11           26 July 2003    1 Nov 2003     See Section 5.10 on
       on Food Safety and Hygiene                                             “SPS”

       Law 11-2003-QH11 on Organization        26 Nov 2003
       of People's Committees and People's
       Councils

       Law 12-2003-QH11 on Election of         26 Nov 2003
       Representatives of People's Councils

       Law 13-2003-QH11 on Land                26 Nov 2003     1 July 2004    See Sections 7.9 on
       (Amended)                                                              “Financial Services –
                                                                              Banking” & 8.10 on



                                                                                                  15
                                                                             “Land Use Rights”

       Law 14-2003-QH11 on State Owned        26 Nov 2003      1 July 2004
       Enterprises (Amended)

       Law 15-2003-QH11 on                    26 Nov 2003      1 July 2004
       Commendation and Rewards

       Law 16-2003-QH11 on Construction       26 Nov 2003      1 July 2004

       Law 17-2003-QH11 on Aquatic            26 Nov 2003      1 July 2004
       Products

       Law 18-2003-QH11 on Amendment          26 Nov 2003      1 Jan 2004
       of Law on Co-Operatives

       Law 19-2003-QH11 on Criminal           26 Nov 2003      1 July 2004   See Section 6.5 on
       Prosecution (Amended)                                                 “IPR Enforcement”


4.4   Legislative Developments in 2004:
      As scheduled under Resolutions 12 and 21, legislation promulgated in 2004 includes:


       Legislation                            Promulgated      Effective     Notes

       Ordinance 14-2004-PL-UBTVQH11          24 March         1 July 2004   See Section 10.6 on
       on Amendment of and Addition to        2004                           "Taxation"
       Ordinance on Income Tax on High
       Income Earners

       Ordinance 15-2004-PL-UBTVQH on         24 March         1 July 2004   See Section 6.4 on
       Protection of Domestically Developed   2004                           "Industrial Property"
       New Plant Varieties

       Ordinance 16-2004-PL-UBTVQH11          24 March         1 July 2004
       on Livestock Breeds                    2004

       Ordinance 18-2004-PL-UBTVQH11          29 April 2004    1 October     See Section 5.10 on
       on Veterinary Medicine (Amended)                        2004          “SPS Measures”

       Ordinance 20-2004-PL-UBTVQH11          29 April 2004    1 October     See Section 5.14 on
       Against Dumping of Imported Goods                       2004          “Trade Remedies”
       Into Vietnam

       Law 20-2004-QH11 on Amendment          15 June 2004     1 October     See Section 7.9 on
       of Law on Credit Institutions                           2004          "Financial Services"

       Law 21-2004-QH11 on Bankruptcy         15 June 2004     15 October    Replaces 1993 Law
                                                               2004          on Business
                                                                             Bankruptcy

       Law 22-2004-QH11 on Inspection         15 June 2004     1 October     Replaces 1990
                                                               2004          Ordinance on
                                                                             Inspections




                                                                                                     16
Law 23-2004-QH11 on           Inland   15 June 2004    1 January
Waterway Transportation                                2005

Civil Procedure Code 24-2004-QH11      15 June 2004    1 January     Consolidates     the
                                                       2005          procedures for all
                                                                     types of civil legal
                                                                     proceedings
                                                                     (including marriage
                                                                     and family matters,
                                                                     economic        and
                                                                     commercial matters,
                                                                     and labor matters).
                                                                     See Section 6.5
                                                                     "Enforcement of IP
                                                                     Rights."

Law 25-2004-QH11 on Amendment          15 June 2004    1 January     Replaces 1991 Law
of and Addition to the Law on                          2005          on Protection, Care
Protection, Care and Education of                                    and Education of
Children                                                             Children

Law 26-2004-QH11 on Amendment          15 June 2004    1 October
of and Addition to Law on Complaints                   2004
and Denunciations

Ordinance 21-2004-PL-UBTVQH11          18 June 2004
on Religion

Ordinance 22-2004-PL-UBTVQH11          20     August   1 January     See Section 5.14 on
on Measures Against Subsidized         2004            2005          “Trade Remedies”
Goods Imported into Vietnam

Ordinance 23-2004-PL-UBTVQH11          20     August   1 October     Replaces         1989
on     Organization of Criminal        2004            2004          Ordinance          on
Investigations                                                       Organization        of
                                                                     Criminal
                                                                     Investigations

Ordinance on Judicial Assessment       28 September    1 January
                                       2004            2005

Law 27-2004-QH11 on Competition        3 December      1 July 2005   See Section 10.2 on
                                       2004                          “Competition and
                                                                     Monopoly Pricing”

Law 28-2004-QH11 on Electricity        3 December      1 July 2005   For the first time,
                                       2004                          provides for
                                                                     "competitive
                                                                     electricity market" in
                                                                     Vietnam

Law 29-2004-QH11 on          Forest    3 December      1 April       Provides for
Protection and Development             2004            2005          management,
                                                                     protection,
                                                                     development and
                                                                     exploitation of forests




                                                                                              17
       Law 30-2004-QH11 on Publishing         3 December      1 July 2005   See Section 10.9 on
                                              2004                          “Printing &
                                                                            Publication”

       Law 31-2004-QH11 on Promulgation       3 December      1 April
       of Legal Instruments of People’s       2004            2005
       Councils and People’s Committees

       Law 32-2004-QH11       on   National   3 December      1 July 2005
       Security                               2004

4.5   Legislative Developments in 2005:
      The NA Legislature XI’s 7th Session ran from 5 May to 14 June 2005. In addition to approving
      11 laws as scheduled, the NA approved 4 extra laws, as follows:

       Legislation                            Promulgated     Effective     Notes
       Law 33-2005-QH11 Civil Code            14 June 2005    1 January     Abolishes the
       (Amended)                                              2006          distinction between
                                                                            pledges and
                                                                            mortgages on the
                                                                            basis of whether the
                                                                            security assets are
                                                                            moveable or
                                                                            immoveable.
                                                                            Introduces new basic
                                                                            civil rights relating to
                                                                            human organ and
                                                                            corpse donation and
                                                                            sex change.
                                                                            Reforms existing
                                                                            provisions on land-
                                                                            use, IP rights,
                                                                            technology transfer.
       Law 34-2005-QH11 on Pharmacy           14 June 2005    1 October
                                                              2005
       Law 35-2005-QH11 on Railways of        14 June 2005    1 January
       Vietnam                                                2006
       Law 36-2005-QH11 Commercial Law        14 June 2005    1 January     See Sections 5.8,
       (Amended)                                              2006          10.10, and 10.11 on
                                                                            “Trading Rights”,
                                                                            “Commercial
                                                                            Contracts”, and
                                                                            “Business
                                                                            Registration &
                                                                            Commercial Rights”
       Law 37-2005-QH11 on State Auditing     14 June 2005    1 January     Requires publication
                                                              2006          of the State Auditor's
                                                                            annual audit report
                                                                            after its submission
                                                                            to the NA
       Law 38-2005-QH11 on Education          14 June 2005    1 January     See Section 7.8 on
       (Amended)                                              2006          “Educational
                                                                            Services”
       Law 39-2005-QH11 on National           14 June 2005    1 January
       Defense                                                2006



                                                                                                   18
Law 40-2005-QH11 Maritime Code of          14 June 2005   1 January
Vietnam (Amended)                                         2006
Law 41-2005-QH11 on Conclusion             14 June 2005   1 January   See Section 1.10 on
of, Accession to and Implementation                       2006        “Vietnam Ratification
of International Treaties                                             of WTO Accession –
                                                                      Necessary Action"
Law 42-2005-QH11 on Amendment              14 June 2005   1 January   See Section 5.5 on
of the Law on Customs                                     2006        “Customs”
Law 43-2005-QH11 on Amendment              14 June 2005   1 January
of Law on Compulsory Military                             2006
Service
Law 44-2005-QH11 on Tourism***             14 June 2005   1 January   Will replace 1999
                                                          2006        Ordinance            on
                                                                      Tourism.      Includes
*** These 3 Laws were only scheduled for
consideration at the May 2005 Session,                                new stipulations on
but were also approved at that Session.                               international    travel
                                                                      business           and
                                                                      policies to attract
                                                                      investment into the
                                                                      hospitality industry.
                                                                      Retains requirement
                                                                      (under            1999
                                                                      Ordinance) for a
                                                                      deposit      to      be
                                                                      payable     by     tour
                                                                      companies to ensure
                                                                      funds are available
                                                                      to cover unexpected
                                                                      contingencies      and
                                                                      cancellation of tours.
Law 45-2005-QH11 on Export and             14 June 2005   1 January   See Section 5.5 on
Import Duties (Amended)***                                2006        "Customs"
Law 46-2005-QH11 on Amendment              14 June 2005   1 October   Enshrines          new
of Law on Minerals***                                     2005        policies for conduct
                                                                      of mineral activities
                                                                      (e.g.      preferential
                                                                      treatment to mining
                                                                      projects with on-site
                                                                      processing;
                                                                      restriction on export
                                                                      of      crude      raw
                                                                      materials    or     ore
                                                                      concentrate)       and
                                                                      new              State
                                                                      administrative
                                                                      hierarchy (MoNRE,
                                                                      MoI,     MoC,     local
                                                                      people's committees)
                                                                      A complete review of
                                                                      the Mineral Law has
                                                                      been deferred until
                                                                      NA Legislature XII
                                                                      (2008-2013).




                                                                                            19
Law 47-2005-QH11 on Merits               14 June 2005      To       be     Had     not    been
(Revised)                                                  confirmed.      scheduled        for
                                                           Not stated      promulgation,
                                                           in text of      consideration     or
                                                           Law or in       even preparation in
                                                           the    State    2005.
                                                           President's
                                                           order    on
                                                           promulgatio
                                                           n dated 27
                                                           June 2005.

At its 7th Session, the NA also voted to expedite its legislative program for the rest of 2005 in
support of Vietnam's attempt to achieve the promulgation in 2005 of important laws necessary
to support its bid for WTO accession by the end of the year. Resolution 42-2005-NQ-QH of the
National Assembly dated 14 June 2005 on Adjustment of the Program for Formulation of Laws
and Ordinances in 2005 provides for five items of legislation to be added to the 2005 program
(see laws marked with ** below). Now, a total of 14 laws will be considered and passed at the
NA's 8th Session, which commenced on 18 October and is scheduled to run until 30 November
2005, as follows:

Legislation                                    Notes
Law on Intellectual Property*                  See Section 6.1 on “Intellectual Property
                                               Rights Regime”
Law on Protection of the Environment           See Section 10.5 on “Environmental
(Amended)                                      Standards”
Law on Bills of Exchange                       To replace 1999 Ordinance on Commercial
                                               Papers. Aims to create a legal framework for
                                               securing financial and banking transactions
                                               relating to credit bills, debit bills and cheques.
                                               Scope of Law expected to be limited to bills of
                                               exchange, cheques and promissory notes (will
                                               not cover certificates of deposit). Expected to
                                               provide for individuals to issue bills of
                                               exchange (not just enterprises, as currently).
                                               In early August 2005, title of draft Law was
                                               settled (no longer Law on Negotiable
                                               Instruments in Banking)
Law on Electronic Transactions                 To recognize the legal validity of electronic
                                               transactions, of data messages and of
                                               electronic signatures; protects the lawful
                                               interests of organizations and individuals, of
                                               the State and of the public; and ensures
                                               equality and safety in electronic trading. Much
                                               of the content of the draft has been agreed,
                                               however there is general recognition that this is
                                               a new sector in Vietnam, where IT
                                               infrastructure remains undeveloped and
                                               citizens' IT knowledge remains poor.
Law on Residential Housing                     Expected to permit organizations and
                                               individuals from all economic sectors to
                                               participate (in varying degrees) in investment
                                               in development and business of residential
                                               housing; to expand range of offshore entities
                                               permitted to purchase/lease housing; to
                                               provide for management of housing



                                                                                                    20
                                                complexes; to provide for certification of
                                                ownership of buildings separately from
                                                certification of land use rights (see Section
                                                8.10 on "Land use and leasing rights").
        Law on Youth
        Law on the People’s Police
        Anti-Corruption Law*                    See Section 10.16 on “Anti-Corruption
                                                Measures"
        Law on Practising Thrift to Reduce      This Law will replace the Ordinance on Thrift to
        Expenditure**                           Reduce Expenditure. As a result, the
                                                Ordinance on Amendment of the Ordinance on
                                                Thrift to Reduce Expenditure (scheduled for
                                                promulgation in 2005) is no longer on the NA's
                                                legislative agenda.
        Law on Investment**                     Aim of Law on Investment is to introduce a
                                                common regime for domestic and foreign
                                                investment in Vietnam (see Section 8.2 on
                                                “National Treatment”). Under Resolution 35,
                                                this Law was scheduled to be considered
                                                (only) in October-November 2005 and
                                                expected to be passed in May 2006. Now, this
                                                Law has been brought forward for
                                                consideration and promulgation in October-
                                                November 2005. Draft 16 of the Law was
                                                approved by the Government and the NA's
                                                Standing Committee at the end of September
                                                2005. Foreign delegations have criticized Draft
NEW!!                                           16 and recommended substantial and
                                                fundamental changes. Vietnamese press have
                                                reported vigorous debate of Draft 16 by NA
                                                delegates. It is possible that the promulgation
                                                of this Law will be postponed to allow further
                                                consideration of the proposed new investment
                                                regime.
        Law on Enterprises**                    Aim of Law on Enterprises is to introduce a
                                                unified 'company law' for domestic and foreign
                                                invested enterprises (see Section 8.2 on
                                                “National Treatment”) in tandem with new Law
                                                on Investment. Under Resolution 35, the Law
                                                on Enterprises was scheduled to be
                                                considered (only) in October-November 2005
                                                and expected to be passed in May 2006. Now,
                                                this Law has been brought forward for
                                                consideration and promulgation in October-
                                                November 2005. Due to uncertainty as to
                                                whether Law on Investment will be
                                                promulgated, there is some uncertainty as to
                                                whether Law on Enterprises can be
                                                promulgated alone.
        Law on Amendment of Law on Value        Not previously on the legislative agenda for
        Added Tax and Law on Special Sales      2005. The first time in Vietnam that a single
        Tax**                                   law will cover amendments to two existing
                                                laws.
        Law on Amendment of Law on Complaints   Added to the legislative agenda for 2002-2007
        and Denunciations*                      by Resolution 35. Now scheduled under
                                                Resolution 42. Will further amend the 1998


                                                                                                21
                                            Law on Complaints and Denunciations
                                            following the first round of amendments in
                                            2004 (see Section 4.4 above).
 Law on Tendering                           Originally scheduled to be an Ordinance and
                                            expected to be promulgated in the first half of
                                            2005. The proposed Law will consolidate the
                                            current three decrees on tendering. It is hoped
                                            that the new Law will streamline Vietnamese
                                            tendering requirements. See Section 10.3 on
                                            "Tendering".

Under Resolution 35 and Resolution 42, the following 11 Laws are scheduled to be considered
(only) at the NA's 8th Session in October – November 2005 (and expected to be passed at its
May–June 2006 Session):

 Legislation                                Notes
 Code on Enforcement of Judgments           See Section 9.6 on “Enforcement of Civil
                                            Judgments”.
 Law on Lawyers**                           To replace 2001 Ordinance on Lawyers.
                                            Scheduled for preparation (only) in 2005 by
                                            Resolution 35. Under Directive 08, this Law
                                            was proposed for consideration in October-
                                            November 2005. Resolution 42 adopted this
                                            proposal. See Section 7.2 on "Legal Services"
 Law on Prevention of HIV/AIDS**            Added to the legislative agenda for 2002-2007
                                            and scheduled for consideration in October-
                                            November 2005 under Resolution 42. This
                                            Law will replace the Ordinance on Prevention
                                            of HIV/AIDS. As a result, the Ordinance on
                                            Prevention of HIV/AIDS (Amended) (scheduled
                                            for promulgation in 2005 by Resolution 35) is
                                            no longer on the NA's legislative agenda.
 Law on Civil Aviation of Vietnam           Aims include to improve State administration
 (Amended)                                  and to standardize regulations on professional
                                            qualifications of, health requirements for and
                                            liability of aircraft pilots, flight controllers, etc
 Law on Social Insurance                    See Section 10.4 on “Labor”
 Law on Real Estate Business                The current draft of this Law governs the
                                            following real estate: houses, apartments,
                                            certain land use rights, and other construction
                                            works (see also Section 8.10 on Land Use and
                                            Leasing Rights)
 Law on Information Technology
 Law on Cinematography
 Law on Registration of Immoveable Assets




                                                                                                    22
Under Resolution 35, 16 Ordinances were originally scheduled to be promulgated by the
Standing Committee of the NA in 2005. 2 of those Ordinances have now been elevated to Law
status. Further, under Resolution 42, in order to facilitate WTO accession, an additional 3
Ordinances will be promulgated in 2005. The 17 Ordinances to be promulgated in 2005
include:

 Legislation                                 Notes
 Ordinance on Guards                         Promulgated on 2 April 2005. Effective as of 1
                                             October 2005.
 Ordinance on Conclusion and                 Not previously in 2005 legislative program.
 Implementation of International
 Agreements**
 Ordinance on Standardization**              Scheduled for preparation (only) in 2005 by
                                             Resolution 35. Now scheduled for
                                             promulgation (also) by Resolution 42.
                                             Promulgation expected by end of 2005
 Ordinance on Foreign Exchange**             Added to 2005 legislative program and
                                             scheduled for preparation (only) in 2005 by
                                             Resolution 35. Now scheduled for
                                             promulgation (also) by Resolution 42.
                                             Promulgation expected by end of 2005. See
                                             Section 7.9 on “Banking”
 Ordinance on Legal Aid
 Ordinance on Amendment of Ordinance on
 Resolution of Administrative Cases
 Ordinance on Procedures for Resolution of
 Strikes

Under Resolution 35, 16 Laws and 8 Ordinances were scheduled to be prepared in 2005. 1 of
those Laws is now due to be drafted and considered in 2005 (see above). 2 of those
Ordinances are now due to be drafted and also promulgated in 2005 (see above). As a result,
now, only 15 Laws and 6 Ordinances are due to be prepared (only) in 2005, including:

 Legislation                                 Notes
 Law on Personal Income Tax                  As at start of October 2005, this Law was still in
                                             survey stage, with a draft not expected until
                                             2006; and the Law is not anticipated to become
                                             effective until 2007 or even 2008. The Law will
                                             narrow the difference between the tax tariff for
                                             foreigners and Vietnamese (with foreigners
                                             paying more tax and Vietnamese paying less).
 Law on Securities                           The State Securities Commission ("SSC") has
                                             released Draft 3 of the Law. Amongst other
                                             things, Draft 3 provides that securities may only
                                             be sold or offered for sale to the public where
                                             purchasers have received a prospectus; and
                                             prohibits the SSC from expressing any opinion
                                             on the quality of any type of securities.
 Code on Dealing with Administrative         To replace 2002 Ordinance on Dealing with
 Offences                                    Administrative Offences
 Law on Permanent Residence
 Law on Equality of the Sexes




                                                                                              23
       Law on Transfer of Technology*
       Law on Occupational Training*
       Ordinance on Registration of Security
       Transactions

       (* New addition under Resolution 35 to 2002-2007 Legislative Program issued with Resolution 12)
       (**New addition under Resolution 42 to 2005 Legislative Program issued with Resolution 35)



5.    Trade in Goods
5.1   Most-Favored-Nation Status:
      On 25 May 2002, the Standing Committee of the NA approved Ordinance 41-2002-PL-
      UBTVQH10 on MFN and National Treatment in International Commerce, codifying important
      principles in the BTA and Vietnam’s other bilateral trade obligations.

      Ordinance 41 introduces the concept of MFN, applicable to imports and exports, services and
      foreign-service providers, investment and foreign investors, and foreign holders of IP rights.
      MFN is applicable: 1) where Vietnamese law requires that it is applicable; 2) where Vietnam has
      signed an international treaty requiring that MFN be granted; 3) to countries that Vietnam has
      reciprocal MFN arrangements; and 4) in other cases as determined by the Government.
      Ordinance 41 lists exceptions for the application for MFN in trade in goods, including 1) in cases
      where Vietnam is member to international treaties granting preferential treatment; 2) in cases
      where Vietnam extends preferential treatment with countries sharing territorial borders; 3) in
      cases of preferential treatment afforded to developing or under-developed countries; and 4) in
      cases where Vietnam is member to an international treaty for transit of goods.

      Under Ordinance 41, the application of MFN extends to 1) taxes, fees and other charges
      relating to imports, exports or anything relevant to import/export; 2) payment methods and
      payment transfers for import/export; 3) regulations and procedures relating to import/export; 4)
      taxes, direct and indirect charges for imports; 5) quantitative restrictions and import/export
      licenses; 6) other legal regulations affecting orders, purchases, transportation, distribution, and
      warehousing in Vietnam.

      The MoT is the State body responsible for State administration of MFN and National Treatment,
      with responsibilities for promulgation and implementation of legal documents; decisions on
      application or non-application; signing, participation and implementation of international treaties
      concerning MFN and National Treatment; establishment of implementing policies; gathering and
      provision of information; inspection of activities enforcing MFN and National Treatment; and
      resolution of any complaints and related violations. Ordinance 41 became effective as of 1
      September 2002. Detailed implementing regulations are yet to be issued by the Government.

      MFN for the EU
      Official Letter 250-VPCP-QHQT of the Office of Government dated 15 January 2002 on MFN
      between EU and American enterprises in economic and trade cooperation confirms that
      Vietnam will not discriminate against EU companies and will treat companies of EU origin no
      less favorably than US companies. While European companies may be able to attain similar
      tariff levels for goods entering Vietnam through MFN stipulated through bilateral agreements
      with individual European states, the enforceability of Official Letter 250 remains uncertain for
      European companies seeking market access in the areas of investment and services.

      Under the “Early Harvest Agreement” between EU and Vietnam signed in December 2004 (see
      Section 1.3 above), Vietnam committed to provide treatment no less favorable to EU companies
      than that provided to US and Japanese companies on the basis of the BTA and the Japan-
      Vietnam Bilateral Investment Agreement.




                                                                                                         24
              (In the area of banking services, the rights of EU bank branches in Vietnam have been brought
              into line with the rights of US bank branches with respect to access to VND deposits. See
              Section 7.9 on “Financial Services - Banking Services.”)

        5.2   National Treatment:
              Ordinance 41-2002-PL-UBTVQH10 on MFN and National Treatment in International Commerce
              introduces the concept of national treatment, applicable to imports and exports, services and
              foreign-service providers, investment and foreign investors, and foreign holders of IP rights. The
              provision of national treatment in international commerce is defined as the provision of treatment
              no less favorable than that provided to domestic goods. The provision of national treatment in
              general is subject to the following exceptions including: 1) procurement conducted by the
              Government of Vietnam; 2) Government subsidies and supports provided to domestic
              manufacturers and their use of domestic content products; 3) time allotment restrictions on
              broadcasting and television production and 4) domestic transportation costs calculated on the
              basis of commercial activities of transportation.

        5.3   Tariffs:
              Vietnam adopted the Harmonized System for classification of tariffs on 1 January 2000.

              MFN Tariffs
              In July 2003, the MoF released the new MFN tariff schedule under Decision 110-2003-QD-BTC
              dated 22 July 2003, listing 10,721 items. Decision 110 replaced Decision 1803-1998-QD-BTC
              of the Ministry of Finance dated 11 December 1998. Table I of the new list came into effect on 1
              September 2003, with a few select tariff lines in Table II coming into effect on 1 January 2004.
              The tariff based on version HS 2002 by the World Customs Organization and the ASEAN
              Harmonized Tariff Nomenclature (AHTN). Vietnam’s current simple average tariff rates are
              approximately schedule is 29.37% for agricultural goods and 17.03% for non-agricultural goods.
              This is Vietnam’s applied tariff schedule and will be the basis for the classification of export-
              import categories and national statistics on foreign trade. The schedule was submitted to
              Vietnam’s WTO Working Party in October 2003 as the basis for market access negotiations
              (WT/ACC/SPEC/VNM/1/Rev. 2).

              Tariffs for U.S. goods will be reduced from 35% to 26% for approximately 244 bound items,
              phased in over a period of 3 years from entry into force of the BTA. 80% of these tariff items are
              for agricultural goods while 20% are for industrial goods. To implement the tariff reductions due
              by 10 December 2004, the MoF has issued Decision 90-2004-QD-BT dated 25 November 2004
              regulating import duties applicable to certain commodities. Of note, the tariffs imposed on scent
              products and perfume will decrease to 30% from the current 50%, while cosmetic imports will go
              down to 20-30% from 50%. The new tariff levied on cameras will be 20%, down from 30%.
              Refrigerators with a capacity less than 900 liters will face import tariffs of 20-40%, down from
              current 30- 50%. These import tariffs will apply to commodities that have certificates of origins
              (C/O) from the US as well as other countries that have MFN status.

              On 21 February 2005, the MoT issued Official Letter 0765-TM-PC to clarify the regulations
              governing issuance of certificates of origin for the purpose of enjoying preferential import duty
              and the list of countries which enjoy MFN status and special preferences in their trade
              relationship with Vietnam. To date, eighty nine countries and territories enjoy MFN status with
              Vietnam.

              The MOF issued Decision 69-2005-QD-BTC dated 13 October 2005 promulgating a list of
              amended preferential rates of import duty applicable to a number of goods in the preferential
NEW!!         import tariffs. Effective as of 10 November 2005, Decision 69 replaces the duty rates of some
              products stipulated in Decision 110-2003-QD-BTC dated 25 July 2003 above, Decision 71-
              2004-QD-BTC dated 31 August 2004 and Decision 90-2004-QD-BTC dated 25 November 2004.
              These include production materials such as iron and non-alloy steel, chemicals, food
              preparations, vehicles for transporting goods, and air-conditioners for cars. These are
              applicable to all declarations registered with the customs office from its effective date.




                                                                                                             25
AFTA Tariffs
In accordance with Vietnam’s obligations under the ASEAN Free Trade Agreement ("AFTA")
Common Effective Preferential Tariff (CEPT) Scheme, tariff rates since 2000 have been reduced
for 4230 categories of products. Tax cuts have been applied since then to a further 1,900
categories. In an effort to accelerate on its commitments related to AFTA, Vietnam has also
further increased the number of goods under which tariffs are to be reduced to 0-5% by 2003.
This brings into force 80% of Vietnam’s tariff reductions under AFTA. By July 2003 it will
additionally reduce import tariffs on 2,250 commodities, including 750 that had been on the
Temporary Exclusion List. Such commodities include cement, paper, electronics, engineering
products and construction materials. Vietnam has also committed to lowering the duty on 6,130
categories to 0-5% by 2006 and on nearly all commodities to 0% by 2015.

To implement Vietnam’s AFTA commitments, the Government issued Decree 78-2003-ND-CP
reducing import tariffs for 1,416 products to under 20% beginning on 1 July 2003. The MoF
estimates that average rate of CEPT will fall to 9.3 per cent in 2003 and 3.0 per cent in 2006.

On 24 December 2004, the Government issued Decree 213-2004-ND-CP adding 19 items for
the period 2004-2006 to Vietnam's list of goods and tariff rates under Decree 78 above. Duties
on 19 imports, including tires, engines and other automobile, motorcycle and bicycle parts, will
be cut to 20% in 2004 to 10% and 15% in 2005 and to 0% and 5 % in 2006. Currently, the
country imposes a tariff of 30 - 100% on such items on countries for which it has MFN. The duty
reduction will be available retrospectively for registered imports from 1 January 2004.

ASEAN countries have supplementary explanatory notes ("SEN") for a number of unique goods
items with detailed specifications and illustrating pictures. Vietnam's SEN are issued under
Circular 85-2003-TT-BTC of the Ministry of Finance dated 29 August 2003.

Effective as of 27 August 2004, Decree 151-2004-ND-CP of the Government dated 5 August
2004 amends the import duty rate for cements, polymers and carboxylic acids (HS 2523, 3904,
2917) under Vietnam’s list of goods and tariff rates to implement ASEAN CEPT program issued
with Decree 78 for the period of 2004-2006.

Under Decision 81-2004-QD-BTC of the Ministry of Finance dated 15 October 2004, import
duties for 37 items will be zero while that of 53 others will be lowered. The duty free imports
comprise buckwheat, barley, oat, PVC powder, lactic acid, and PVC in other forms, transmitter
devices for TV, some television and broadcasting equipment, camera, digital camera, internet-
based conference equipments, transmitter devices for telephone, telegram, television,
specialized devices for television such as decoding box. Among the 53 imports for which tariffs
are to be reduced are: hand-phones tariffs (reduced to 5% from 10%), reactive dish of parabolic
antenna applied for multi-media TV and accessories (reduced to 10%). Decision 81 will replace
Decision 17-1999-QD-BVGCP dated 3 April 1999 and Decision 03-2000-QD-BT dated 7
January 2000.

On 27 January 2005, the MoT issued Decision 0151-2005-QD-BTM to amend and add to the
regulations on issuance of C/Os in order to enjoy preferences in accordance with AFTA's CEPT
Scheme. On 3 February 2005, the Government issued Decree 13-2005-ND-CP on Amendment
of and Addition to List of Goods and Import Tariff of Vietnam to Implement the ASEAN CEPT
Scheme for Period 2005-2013. Decree 13 amends and adds to Decree 78, Decree 151 and
Decree 213 above. Accordingly, 20 groups of goods will be subject to different preferential tariff
rates beginning 1 January 2005. Of these groups, it is noted that import duty for ethylic alcohol
will be levied at an import duty reduction from 20% in 2005 to 5% in 2006 and to 0% in 2007.
Duties on sausage and meat-based commodities will be reduced from 50% in 2005 to 10% in
2012, and 5% in 2013.

Decrees 78, 151, 213 and 13 above are supplemented by Circular 45-2005-TT-BTC of the
Ministry of Finance dated 6 June 2005. According to Circular 45, goods from ASEAN countries
must have a Certificate of Origin (Model ‘D’). Further, if the existing MFN import duty rate is
lower than the CEPT rate, the MFN rate applies. Imported items for production and assembly of
mechanical, electrical, and electronic products that meet both CEPT and MFN conditions will be
levied the lower of the two rates.



                                                                                               26
Tariffs - Automobiles
Under Decision 177-2004-QD-TTg dated 5 October 2004, the Government has approved the
plan for the development of the automobile industry to 2010-2020. Under this plan, a new tariff
schedule has been issued for automobiles and a new system introduced. Accordingly, tariffs will
be applied on the basis of individual imported parts, components, instead of the current system
based on CKD and IKD packages as regulated under Decision 110-2003-QD-BTC dated 25 July
2003.

Effective as of 5 October 2004, Decision 177 provides for the following preferential taxation
treatment: components set in the form of CKD and IKD will not be subject to import duties;
components and parts imported for domestic manufacture will be subject to import duty in
accordance with the tariff schedule; trial products will be exempted from CIT for one year of its
presence on the market. Preferential treatment will be enjoyed by foreign invested projects in
supporting industries, such as the manufacture of engines and parts, and by projects of large-
scale manufacture of products facilitating the increase in localization and exports.

Vietnam has reduced tariffs on motorcycle imports from the EU under Decision 05-2005-QD-
BTC of the Ministry of Finance dated 18 January 2005. Duties on the import of 3,500 complete
built unit (CBU) motorbikes have been reduced from 100% to 70%.

Import duty rates of some automobiles will be reduced from 1 January 2006 under Decision 57-
2005-QD-BTC dated 10 August 2005. Decision 57 regulates that business are allowed to chose
application of preferential import duty rates levied on CKD component sets or preferential import
duty rates based on different automobile components from 1 January to 31 December 2006.
Separate automobile components will be subject to the four tax rates of 5%, 10%, 15% or 20%,
instead of 20-30% as currently. Any businesses which are ready to follow regulations on
preferential import duty rates applicable for different automobile components enclosed with
Decision 57 are allowed to apply the above preferential import duty rates on a trial basis. In
addition, from 1 January 2007, the above import duty rates will be applied for all kinds of
automobile components, thereby removing import duty rates applicable for CKD and IKD
automobile components.

Preferential Tariffs for Wine from the EU
On 12 February 2004, the Ministry of Finance issued Decision 17-2004-QD-BTC providing
preferential tariff rates on wines & spirits (HS 2204, 2005, 2008) and CKD scooters (HS 8711) of
EU origin entering Vietnam. Effective 1 January 2004, these preferential tariff rates are
according to the Decision, pursuant to the Agreement on Revising the Textiles and Clothing
Agreement between the EU and Vietnam of 15 February 2003. Such action has however
instigated Vietnam’s trading partners to raise questions on its general MFN obligations. After
several weeks of consideration, Vietnam has agreed to provide similar products from the U.S.
and Australia with the same preferential tariff rate. Under Official Letter 5327-TC-CST of the
Ministry of Finance dated 19 May 2004, wine commodities belonging to the groups 2204, 2205,
2206, 2208 of the Import Incentive List that are imported from U.S. and Australia are subject to a
tariff rate of 80% as from 1 May 2004. This is the same tariff rate applied to wine imported from
the EU as stipulated in Decision 17-2004-QD-BTC dated 12 February 2004.

Following a bilateral market access agreement signed between the two sides last December
under the WTO framework, Vietnam has reduced tariffs on wine imports from the EU. Through
Decision 04-2005-QD-BTC of the Ministry of Finance dated 18 January 2005, duties on
imported wine (HS2204, 2205, 2206, 2208) from the EU have been reduced from 80% to 65%.
This reduction is applicable as of 1 January 2005. Tax refunds are available for the retroactive
period. These preferences have also been extended to wines from the U.S. and Australia and
other countries with which Vietnam has committed to provide MFN treatment.

Tariffs – Electronic Components:
Vietnam’s Ministry of Finance is currently considering an overall strategy for the development of
the electronic components sector, including the reduction of import tariffs and the re-
categorization of electronic groups. Specifically, it is considering the maintenance of 5% for the
groups of electronic products having the current MFN rate of 5% or less (including springs, IC,



                                                                                               27
      rheostats, some kinds of capacitors, resistance, transistors, optical lens). It is also proposing
      the division into smaller groups for groups of electronic products that currently have the MFN
      rate of more than 5%. These include domestically produced components (such as speakers,
      micro, conductor wires). The Ministry of Finance is also considering the maintenance of current
      tariff levels for electronic groups with the import duty rate of 15-30%. Finished electronic goods
      are currently levied at 30-50%.

      On 17 March 2005, the MoF issued Decision 15-2005-QD-BTC modifying preferential import
      duties applied to some electronic components and spare parts. Among products subject to the
      tariff cut are TV antennas, CD and VCD players, digital cameras, mobile phone beepers, and
      transformers etc. Of note, preferential import duties applied to some electronic commodities
      belonging to the groups HS8502, HS8504, HS8529, HS8532, HS8534, HS8540, HS8541 and
      other relevant will be on average reduced by up to 73%. There are other electronic commodities
      whose preferential import duties will be drastically reduced, such as fly-back transformers
      (reduced from 30% down to 5%), ready-assembled electronic circuit board (from 20% down to
      5%), satellite antennae, bipolar antennae and rabbit antennae used for television and radio
      (reduced from 30% to 20%), aerial filters and separators (reduced from 20% to 10%). A number
      of items will have their import duty rate reduced to 0%. These include: pick-up cartridges for
      special use in cinematographic, television broadcasting and other; audio or video tape decks.

5.4   Application of Internal Taxes on Imported Goods

      Excise Taxes
      The application of excise taxes is currently governed by Law 05-1998-QH10 on Special Sales
      Tax dated 20 May 1998 (as amended by Law 08-2003-QH11 dated 17 June 2003). Vietnam
      currently applies discriminatory excise taxes on a number of imports including automobiles.
      Article 16 of the Law on Special Sales Tax (As Amended 2003) stipulates that excise tax
      exemption and reduction for car assembling enterprises are subject to a phasing out schedule
      until 31 December 2006 as follows: exemption and reduction for domestic automobile
      enterprises shall be 70%, 50%, 30% and 0% in 2004, 2005, 2006 and 2007 respectively.

      In accordance with article 16 of the Law on Special Sales Tax (As Amended 2003), by Official
      Letter 195-TCT-DNNN of the Ministry of Finance dated 17 January 2005, special sales tax
      applicable to locally manufactured and/or assembled automobiles in 2005 has been reduced by
      50%. From 1 January 2005 to 31 December 2005, the special sales tax rate will be 40%, 25%,
      and 12.5% for locally manufactured and/or assembled automobiles of 5 seats or less, 6 to 15
      seats, and from 16 to less than 24 seats respectively.

      On 8 March 2005, the MoF issued Circular 18-2005-TT-BTC on amendment of and addition to a
      number of its guidelines on special sales tax issued under Circular 119-2003-TT-BTC dated 12
      November 2003. The excise tax of 25% now applies to automobiles from 16 to less than 24
      seats, irrespective of whether they are imported or locally made. Exporters which buy goods for
      export but then sell them domestically must declare and pay excise tax in full on behalf of the
      goods manufacturer within 5 days of local sale of the goods. The sale price subject to excise
      tax in this case is the net price without excise tax or VAT. Where the exporter declares a sale
      price (included VAT and excise tax) 10% or more lower than the market selling price, the price
      will be fixed by the tax office. Circular 118 became effective as of 31 March 2005.

      Excise taxes are also applied on imported tobacco products ranging from 25% to 65%
      depending on filter or without filter, and use of imported or domestic materials.

      In order to facilitate WTO accession, all discriminatory excise taxes are expected to be phased
      out. Reportedly, the Vietnamese Government is considering lowering the special sales tax for
      imported complete built unit cars to 40-50% from the present 100%. The rate would be effective
      as soon as Vietnam gets full WTO membership to make it possible to apply the uniform tax rates
      for imported and domestically produced automobiles in full compliance with Article II of the
      GATT 1994 upon accession. The excise tax rates on different types of beer are also expected
      to be submitted to the NA for approval to equalize them from the date of WTO accession.
      These reforms are expected to be introduced by way of a second round of amendments to the
      1998 Law on Special Sales Tax (As Amended 2003). For the first time in Vietnam, these



                                                                                                     28
      amendments will be issued together with amendments to the Law on Value Added Tax in a
      single law. A Law on Amendment of the Law on Value Added Tax and Law on Special Sales
      Tax has been added to the NA's legislative program and is being considered and will be
      promulgated at the NA's current 8th Session in October-November 2005 (see Section 4.5
      above).

5.5   Customs:
      In June 2001, Vietnam’s NA passed a new Law on Customs introducing several GATT based
      policies and measures including customs valuation based on transaction pricing. At its May
      2005 Session, the NA passed a new Law on Amendments to the Law on Customs, to become
      effective as of 1 January 2006. The amending Law will bring Vietnamese customs law in line
      with WTO standards, providing for implementation of obligations under the WTO Customs
      Valuation Agreement, Agreement on Pre-Shipment Inspection, Agreement on Rules of Origin,
      Agreement on Trade Related Aspects of Intellectual Property Rights, and other international
      laws. The amending Law provides for modernization of Customs administration, in particular
      providing for e-transactions and e-customs clearance procedures (now expressly encouraged).
      The amending Law provides for transition to a system of minimized customs inspection and
      increased reliance on post-entry auditing. Of particular note, the amending Law enshrines the
      principle that customs procedures (in particular customs inspection) are to be conducted on the
      basis of an analysis of information and an assessment of compliance with law by the goods
      owner and the level of risk of a breach of the law on customs. Time-limits for making customs
      declaration and their validity for purpose of customs clearance have been extended: for
      imported goods, customs declaration may now be made prior to arrival of the goods at a border-
      gate (up to 15 days in advance of customs clearance) as well as up to 30 days after arrival of
      goods (and the customs declaration remains valid for customs clearance procedures for 15 days
      after registration); for exported goods, customs declaration may now be made up to 15 days
      prior to export but (as before) no later than eight hours prior to the departure of the means of
      transportation. The amending Law also imposes strict prohibitions on smuggling, commercial
      fraud, bribery on both customs declarers and State customs officers (in the case of the latter,
      they are expressly prohibited from causing inconvenience or creating difficulties during customs
      clearance procedures). In an important step forward for transparency in the customs sector,
      customs declarers now have the right to request the customs office to provide written verification
      of any requirement to present or add to a customs file or to provide documents other than those
      required by the laws on customs.

      As part of its bid for WTO accession by the end of 2005, Vietnam is targeting full implementation
      of the Agreements on Customs Valuation, Import Licensing, Pre-shipment Inspection and Rules
      of Origin before the end of 2005 and in time for the entry into force of the Law on Customs (As
      Amended 2005).

      Law 45-2005-QH11 on Export and Import Duties (Amended) was considered and approved at
      the National Assembly’s May-June 2005 Session (not held over until the October-November
      2005 for approval as previously scheduled, see Section 4.5 above). Of significance is the shift
      to a single method of duty calculation based on valuation as provided for under the WTO
      Agreement on Customs Valuation. This replaces current rules which allow several methods of
      duty calculation based on contract values or minimum price tables. Also, the new Law
      enshrines the principle of conducting tax declarations in parallel with customs procedures and
      removes the State imposition of taxes payable by businesses through tax notices. Instead,
      businesses will bear responsibility for declaring, calculating and paying taxes on their own. In
      order to create a more level playing field for domestic and foreign businesses, the new Law
      unifies all regulations on tax exemption and reduction currently found in the Law on Foreign
      Investment, Law on Domestic Investment, Petroleum Law, Law on Science and Technology,
      and other Laws. The new Law also provides regulations on late payment of taxes and fines. In
      the case of a late tax refund to businesses due to the fault of State authorities, interest will be
      paid on the amount of the late payment. This is intended to provide fair treatment to both tax
      offices and businesses. The new Law also contains new provisions on tax on cross-border
      exchange of goods and protective measures against dumping or discrimination against different
      kinds of imports. The new Law on Import and Export Duties (Amended) will become effective as
      of 1 January 2006.




                                                                                                      29
Customs Valuation
Vietnam is currently transitioning from valuation of imports based on reference or minimum
pricing to valuation based on transaction pricing as required under the WTO Agreement on
Customs Valuation (CVA). Prior to mid-2001, Vietnamese law provided for all imported goods to
be subject to reference pricing or “check pricing” if the declared value is 70% less than what is
referenced. Under Decision 164-2000-QD-BTC dated 10 October 2000, Vietnam also maintains
minimum prices for a list of seven items including (1) Assorted drinks (alcoholic beverages);
(2)Tires, pneumatics inner tubes and fenders of various kinds (used for automobiles,
motorcycles & bicycles); (3) Walling and flooring tiles, sanitary ware (toilet sinks, urinals, wash
basins, bathtubs); (4) Flat glass, white, colored, light reflecting mirrors and glass, water flasks
(non-electric), vacuum inner flasks; (5) Motors, generators (other than used for automobiles,
motorbikes and other special-use vehicles such as bulldozers, crane trucks); (6) Electric fans
(except industrial fans under sub-heading 84 14 59 00; 7) Motorcycles. By Decision 136-2001-
QD-BTC dated 18 December 2001, tobacco was added to the minimum price list.

To implement the 2001 Law with respect to customs valuation based on transaction pricing, the
Government issued Decree 60-2002-ND-CP on Determination of Dutiable Price for Imported
Goods Subject to Import Duties in conformity with Principle of the Agreement on Implementation
of Article 7 of the GATT dated 6 June 2002. To meet the BTA’s two year deadline for Vietnam’s
commitment to provide for customs valuation based on transaction pricing, the MoF issued
guidelines for implementation of Decree 60 under Circular 118-2003-TT-BTC dated 8 December
2003. Effective as of 28 December 2003, customs valuation based on transaction pricing
applies to goods of U.S. and ASEAN origin entering Vietnam. Circular 118 is supplemented by
the following legal instruments of the MoF and GDC: Decision 1723-TCHQ-QD dated 22
December 2003 on dutiable price for imported goods and guidance for customs declaration,
Decision 1774-TCHQ-QD-KTTT dated 29 December 2003 on verification and determination of
dutiable price by customs agencies, Official Letter 192-TCHQ-CV dated 13 January 2004
providing guidance for scope of application of Circular 118, Official Letter 35-TCHQ-KTTT dated
2 January 2004, and Official Letter 191-2003-TCHQ-CV dated 13 January 2004 providing
guidance on dutiable price on declaration forms. Effective 1 August 2004, Decision 733-2004-
TCHQ-QD-KTTT of the General Department of Customs dated 19 July 2004 provides revised
regulations on verification and determination of dutiable price of imports under Circular 118
(repealing Decision 1774 above) and also provides regulations on customs clearance and
inspection of declaration forms.

Pursuant to Decision 164 and Decision 136 above, Vietnam had maintained eight exceptions to
the application of transaction pricing. By Decision 1291-TCHQ-KTTT dated 25 March 2004, the
MoF clarified that customs valuation for such 8 products was to be determined according to
Circular 118, thereby abolishing all exceptions to the CVA for goods of U.S. and ASEAN origin.
By Circular 87-2004-TT-BTC dated 31 August 2004 providing guidelines on implementation of
the Law on Export and Import Duties, the MoF has abolished the calculation of import duties
according to the minimum price list. The MoF and the GDC are reportedly drafting guidelines
with respect to price fraud by importers. Systems for keeping customs authorities up-to-date
with world commodity prices are also being considered.

In addition to goods of U.S. and of ASEAN origin, Vietnam has extended the application of
transaction pricing for valuation of imports to countries with which it has committed to provide
MFN treatment and also to countries that have offered reciprocal treatment of Vietnamese
imports, in particular to:
-     Pakistan, India, South Africa, and Turkey (Official Letter 1644-TM-XNH dated 6 April
      2004)
-     Australia (Official Letter 5326-TC-CST dated 19 May 2004, effective 1 May 2004)
-     New Zealand, Spain, Taiwan, Portugal, Hong Kong, Sweden, Mongolia, UK, Norway,
      Italia, Ukraine, Poland, Austria, Czech, Belgium, Estonia, Denmark, Lithuania, Finland,
      Latvia, France, Hungary, Greece, Slovakia, Holland, Slovenia, Ireland, Malta,
      Luxemburg, Cyprus and Germany (Official Letter 5312-TC-CST, effective 6 May 2004)
-     China, Japan and South Korea (Official Letter 6047-TC-CST dated 4 June 2004,
      effective 19 May 2004)
-     Bangladesh and Peru (Official Letter 6646-TC-CST dated 16 June 2004)




                                                                                                30
-      Brazil, Argentina, and Mexico (Official Letter 8380-TC-CST dated 29 July 2004, effective
       15 July 2004)
-      Columbia (Official Letter 9669-TC-CST dated 31 August 2004, effective 23 August 2004)
-      Belarus (Official Letter 2932-TC-CST dated 15 March 2005)
-      Israel (Official Letter 6302-TC-CST dated 25 May 2005, effective 13 May 2005)

To provide guidelines for Decree 60 above, the GDC issued Decision 5783-QD-TCHQ-KTTT
dated 29 November 2004 providing price data and Decision 1361-2004-TCHQ-QD-KTTT dated
25 November 2004 issuing Regulations on Review of Dutiable Prices in accordance with WTO
Customs Valuation Methods. Under Decision 1361, review shall be conducted if the declared
dutiable prices of imported goods are lower than one of the following five declared dutiable
prices:
   -    Declared value is lower than 90% of the public offer price on the internet or the public
        quotation, or of the total expenses of main materials used for production of imported
        goods (raw materials, components and spare parts imported or publicly offered);
   -    Declared value is lower than 90% of the sale price to the third country;
   -    Declared value is lower than the transaction value of similar or identical imported goods
        to be exported within 60 days (prior to or after the export date of the consignment that
        has been inspected);
   -    Declared value is lower than the local sale price, after deducting taxes and other
        reasonable expenses arising after importing goods (normally it is not exceeding 30% of
        local sale price);
   -    Declared value is lower than 90% of the inspection price provided in the current price
        data of the GDC.

The authorities entitled to review the dutiable prices of imported goods are the pricing division or
the professional division under customs departments and local customs departments (for
imported goods subject to preferential import duty rate of 10% or less).

As mentioned above and of great significant, amendments made in the recently ratified Law 45-
2005-QH11 on Export and Import Duties (Amended) have in line with Vietnam’s international
obligations shifted to a single method of duty calculation based on valuation as provided for
under the WTO Agreement on Customs Valuation. This replaces current rules which allow
several methods of duty calculation based on contract values or minimum price tables.

Inspection
A more streamlined customs inspection process was introduced under the Law on Customs
2001. Details of the new streamlined customs clearance process were provided in Decree 101-
ND-CP and Decree 102-ND-CP of the Government dated 31 December 2001 and a number of
provisional decisions of the GDC (those provisional decisions have now been replaced by
subsequent circulars). Circular 32-2003-TT-BTC of the Ministry of Finance dated 16 April 2003
provides guidelines on customs procedures specifying preferential exemption from on-the-spot
customs checks for prescribed importers (importers of equipment, machinery, fresh food, goods
needing special care, goods to be stored in bonded warehouses and goods to be imported into
export processing zones, provided that they have not violated any customs regulations for 2
years) and exporters (exporters of farm produce, aquatic products, garments, footwear, latex,
fresh and processed food and goods needing special care, provided that they have not violated
any customs regulations for 1 year, and those who have been engaged in export activities but
whose exports are on the list of preferential treatment). Persons involved in import activities
who have not violated any custom regulations after a number of on-the-spot checks will be
entitled to random cargo checks.

Effective as of 1 January 2006, under the Law on Customs 2001 (As Amended 2005), Vietnam
will move to a system of minimized customs inspection, where inspection will be conducted on
the basis of an analysis of information and an assessment of compliance with law by the goods
owner and the level of risk of a breach of the law on customs. Reliance on post-entry auditing
will increase. Imports and exports will be exempt from actual inspection if they fall within one of
the following categories goods being exported, except goods being exported which were
manufactured from imported raw materials and goods being exported subject to conditions
(previously, only exported agricultural or aquatic products were exempt from inspection); goods



                                                                                                  31
from overseas brought into free commercial zones, transit ports and customs bond warehouses
(as previously); goods in transit; emergency relief goods; specialized use goods directly
servicing national defence and security; humanitarian aid goods; and goods temporarily
imported for re-export within a specified time; and goods being imported which are machinery
and equipment to form fixed assets and which are tax exempt as part of an investment project.
In addition, as previously, goods being imported or exported of goods owners with good
observance of the law of customs and goods in other special categories pursuant to a decision
of the Prime Minister will also be exempt from inspection of actual goods. Where there are
indications of a breach of the law of customs (either with respect to goods of a goods owner who
has breached the law of customs on a number of occasions or goods exempt from inspection),
an inspection of actual goods will occur. Otherwise, actual inspection will only be conducted
where an analysis of information from the database processing system and from a
reconnaissance by Customs and information from bodies, organizations, individuals and
Customs in other countries establishes that there is a possibility of a breach of the law of
customs. Importantly, although the former requirement for random inspection of 10% of any
consignment which is not otherwise exempt from inspection appears to be abolished, the
amending Law provides for the Government to "issue specific regulations on the level of
inspection" of goods subject to actual inspection.

Effective as of mid-July 2005, the provisions of Decree 101 relating to customs clearance agents
have been replaced (see below on “Customs Agents”).

E-Customs
To eradicate paper-based customs services and cut down on the costs and time needed for
customs clearance procedures, Vietnam will pilot new electronic customs services, following the
conclusion of a successful two-year pilot program on customs e-declarations. According to
Decision 149-2005-QD-TTg of the Prime Minister dated 20 June 2005, the new e-customs
system will be implemented in three stages from 2005 to 2007 in accordance with regional and
international modern customs standards. The first stage is to be carried out in 2005 in the Ho
Chi Minh City and Hai Phong city customs departments. In the second stage, some other local
customs departments will be selected to implement the pilot e-customs should they satisfy
specified conditions. The final phase - trial reporting and reviewing - will last from September
2006 to February 2007. The MoF will release lists of selected enterprises and import and export
goods that are eligible for the trial program of filing applications with customs offices online.
Enterprises will be required to retain their e-customs documents for five years after
import/export. The contents of pilot e-customs include (i) customs procedures are carried out by
electronic devices through electronic data processing system of the customs offices, (ii) e-
customs dossiers shall be in full, in standard format and have the legal value equal to paper
ones, and (iii) implementation of the regulation on self-assessment of tax and other fees by
declarers. Customs fees will be settled on monthly basis. Three types of documents will be
able to be submitted and processed electronically to expedite customs clearance: applications
for exemptions, pre-customs clearance documents, and pre-customs clearance inspections.
Businesses will be allowed to declare and pay duties and other payable amounts electronically.
Customs clearance and inspection procedures will be conducted based on the e-customs
declaration submitted by businesses and on a data analysis from the customs database and
other sources.

Guidelines to implement Decision 149 have been issued under Decision 50-2005-QD-BTC of
the Ministry of Finance dated 19 July 2005 providing regulations on the pilot implementation of
electronic customs procedures for imported and exported goods. Decision 50 promulgates a
number of forms for e-customs registration, e-customs declarations forms and annexes, and
inspection results. The pilot e-customs service is available to enterprises of various economic
sectors and applicable to imported and exported goods via the Ho Chi Minh City and Hai Phong
customs departments and other local customs departments approved by the MOF for the pilot
electronic customs. To implement Decision 149, the MoF has submitted to the Government a
draft Decree on Electronic Customs Clearance which will authorize agents or enterprises to
implement customs procedures online.




                                                                                              32
The move to e-customs clearance procedures is provided for throughout (and expressly
encouraged in) the Law on Customs 2001 (As Amended 2005), to become effective as of 1
January 2006.

On 27 April 2005, the General Department of Customs issued Decision 652-TCHQ-QD-GSQL
issuing Regulations on e-customs declaration and customs examination procedures applied to
imported and exported goods and articles that are sent through express transfer services.
Accordingly, from 12 May 2005, every business will be permitted to make e-customs declaration
and examination procedures for their imported and exported goods and articles through express
transfer services if they can meet such requirements as having computer networks connected
with any foreign express transfer organization and with authorized customs agencies where they
make customs procedures. Or they have enough equipment for checking and classifying
imported and exported goods and articles into three goods customs lanes including green
customs lane for documentary materials and commercial vouchers, duty-free or duty exempted
goods under the current regulations; yellow customs lane for taxable goods; red customs lane
for goods under sector management.

Customs Agents
Effective as of mid-July 2005, Decree 79-2005-ND-CP of the Government dated 16 June 2005
on Conditions for Registration and Operation of Agents for Customs Clearance Procedures
replaces the provisions of Decree 101 (referred to above) relating to customs agents. To act as
an agent for customs clearance procedures and represent importers and exporters of goods in
the completion of customs clearance procedures, a business entity must satisfy all the following
conditions: (i) have lawful business registration; (ii) have the business line of import and export
goods handling services or customs declaration services stated in the business registration
certificate; (iii) have at least one staff member who is a customs agent; and (iv) satisfy the
conditions for electronic linking to customs offices in order to conduct e-customs clearance
procedures. The last two conditions are new. Prior to commencing operation, a customs
agency must register prescribed documents with the provincial customs division in the place
where it has its head office (or where the customs agency will regularly operate). Only
Vietnamese citizens may be customs agency staff members. A number of conditions
(prescribed in Decree 79) must be satisfied for the issuance of customs agent identity cards by
the Customs office. Of note, customs agencies are responsible for verifying that customs
agency staff members satisfy these conditions. Customs agencies may conduct clearance
procedures and other authorized work. Customs agencies are subject to inspection and
supervision by Customs offices. Decree 79 requires Customs offices to provide assistance
(free-of-charge) in electronic linkages to customs offices, advice on applicable customs
procedures and duty rates, and updates and training on new customs regulations. Guidelines to
implement Decree 79 have been issued under Circular 73-2005-TT-BTC of the Ministry of
Finance dated 5 September 2005. Circular 73 provides guidelines on conditions for registration
and operation of customs agencies and their staff, including necessary training and
examinations.

Post-Entry Audit
To facilitate customs clearance, the GDC is gradually introducing and phasing-in post-entry
audit procedures for importers. Circular 96-2003-TT-BTC dated 10 October 2003 provides
guidelines for the implementation of Decree 102-2001-ND-CP of the Government dated 31
December 2001 making detailed provisions on inspection with respect to imports and exports
after customs clearance. Circular 96 entitles customs offices to inspect documentation relating
to imports and exports for up to 5 years (60 months) after customs clearance in cases where
there is evidence of a breach of customs laws, tax laws or import-export management policy.
Circular 96 also lists the types of documentation which may be subject to post-customs
clearance inspection. Such documentation may be in the possession of the actual customs
declarations, their customs agents, agents trading the imported and exported goods, or entities
holding or using the imported and exported goods. Circular 96 became effective as of 2
November 2003 and repealed Decision 1558-QD-TCHQ of the General Department of Customs
dated 28 December 2001.




                                                                                                33
      Effective as of 1 January 2006, under the Law on Customs 2001 (As Amended 2005), Vietnam
      will move to a system of minimized customs inspection and increased reliance on post-entry
      auditing.

      Other
      In an attempt to speed up procedures for claiming duty exemptions, reductions and refunds for
      importer and exporters, the MoF has increased the authority of Customs Offices. Under
      Decision 140-2003-QD-BTC, the GDC is now responsible for deciding the eligibility of
      businesses for preference duties. Previously, the General Department of Taxation approved
      import and export duty exemptions, reductions and refunds. Decision 140 also now allows
      businesses to receive refunds immediately, therefore clearing a significant backlog of duty
      applications at Customs Offices. Decision 140 became effective as of 1 September 2003 and
      repeals Decision 70-1999-QD-BTC of the Ministry of Finance dated 6 July 1999. Duty
      exemptions, reductions and refunds apply to businesses that import materials for processing
      exports, import goods temporarily for re-export, and import goods for sale at duty-free shops.

      Under Decree 106-2003-ND-CP of the Government dated 23 September 2003 Providing
      Guidelines for Dealing with Administrative Offences in Charges and Fees, administrative
      offences committed by responsible authorities in the process of collection of fees and charges
      may attract fines between VND20-50 million. Guidelines for implementation of Decree 106-
      2003-ND-CP were issued under Circular 06-2004-TT-BTC of the Ministry of Finance dated 4
      February 2004 (and corrected by Official Letter 1571-TC-VP dated 18 February 2004).

      To address customs violations by importers and exporters in the area of import declarations,
      Vietnam has issued Decree 138-2004-ND-CP dated 17 June 2004 applicable to organizations
      and individuals that commit administrative violations in the customs domain. Accordingly, such
      organizations and individuals are to be subject to warning, fines, and possible additional
      sanctions such as revocation of permits and confiscation of material evidence. Reportedly,
      depending on the seriousness of the violations in customs, parties may be fined from 50,000 to
      70 million VND. More guidelines were introduced under Circular 14-2005-TC-BTC of the
      Ministry of Finance dated 16 February 2005.

      To promote effective implementation and increase trade facilitation, the MoF issued Decision
      3597-QD-BTC dated 4 November 2004 encouraging taxation and customs authorities to
      conduct regular dialogue with business taxpayers and customs declarers. Decision 3597
      authorizes businesses to send proposals and petitions for the adjustment and supplementation
      of tax and customs related policies, reforms of tax and customs procedures etc.

5.6   Non-Tariff Barriers:
      Decision 46-2001-QD-TTg of the Government dated 4 April 2001 effectively eliminated non-tariff
      barriers and quantitative restrictions for most products by 2003. While restrictions on some key
      products remain, Decision 46 seeks to streamline Vietnam’s trading regime through the general
      elimination of non-tariff barriers, import and export licensing, and quantitative restrictions.
      Currently, 7 items - petrol, glass, iron, vegetable oil, sugar, motorbike and nine-seat motorized
      vehicles – remain on the mandatory import license list.

5.7   Tariff Rate Quotas / Quantitative Restrictions:
      In 2004, Vietnam will apply tariff rate quotas on the following seven items: raw tobacco, salt,
      cotton, condensed milk, non-condensed milk, maize seed, and chicken eggs.

      On 10 July 2003, the MoT issued Circular 04-2003-TT-BTM Providing Guidelines for
      Implementation of Decision 91-2003-QD-TTg of the Government dated 9 May 2003 on
      Application of Customs Quotas With Respect to Imports into Vietnam. According to Circular 04,
      import quotas will be applied to the following 3 commodities from 1 August 2003: salt, cotton,
      and tobacco. On 7 August 2003, the MoF issued Decision 126-2003-QD-BTC imposing a 60%
      tariff on extra-salt imports including unprocessed rock, refined and industrial salt. This Decision
      came into effect on 5 September 2003. The salt import quotas, granted by the MoT in
      November each year, will be based on domestic consumption and production and a 30% import
      duty will be charged on such quotas.




                                                                                                      34
              On 15 December 2003, the MoT extended application of import quotas to four additional
              commodities under Circular 09-2003-TT-BTM Providing Guidelines for Implementation of
              Decision 91-2003-QD-TTg of the Government dated 9 May 2003 on Application of Customs
              Quotas With Respect to Imports into Vietnam for 2004. Under Circular 09, from 1 January 2004,
              revised import quotas will apply to 7 commodities in total - raw tobacco, salt, cotton, condensed
              milk, non-condensed milk, maize seed, and chicken eggs. The MoT will grant permits to traders
              authorized to import the above commodities. When carrying out import procedures, traders are
              required to present permits to the customs offices. Traders granted import permits may entrust
              the import to other traders but the sale, purchase or transfer of quotas is strictly prohibited.
              Traders importing according to the MoT’s import volumes must pay usual import duties.

              Regulations governing import quotas applicable to the above 7 commodities (mentioned above)
              have been issued under Circular 10-2004-TT-BTM of the Ministry of Trade dated 27 December
              2004 providing guidelines for the implementation of Decision 91-2003-QD-TTg of the
              Government dated 9 May 2003 on Application of Customs Quotas With Respect to Imports into
              Vietnam. The MoT remains in charge of issuing import permits for commodities subject to
              import quotas. Circular 10 allows a corporation to register and receive import quota for its
              subsidiaries.

              In response to discussions on non-tariff measures in Vietnam’s WTO accession process, the
              MoT has issued Circular 04-2005-TT-BTM dated 24 March 2005 amending and supplementing
              Circular 10 above and modifying the list of imported goods subject to import quotas in 2005. Of
              note, import quotas applicable to three raw materials (including maize (HS1005), cotton
              (HS5201, 5202 & 5203) and milk (non-condensed raw milk – HS0401, condensed raw milk –
              HS0402)) have been abolished as of 1 April 2005. Commodities including eggs (HS0407),
              tobacco raw materials (HS2401, quantity - 29,774 tonnes), and salt (HS2501, quantity - 200,000
              tonnes) remain subject to 2005 import quotas.

        5.8   Trading Rights:
              For the purposes of this section, trading rights is extended when a company is granted the right
              to directly import and export goods, without having to go through a state-owned or local trading
              company. Trading rights permit the import and export of goods only and do not cover the ability
              to distribute goods once they are imported. The distribution of goods is subject to GATS
              distribution services commitments, or in the case of the BTA, Annex G.

              In the WTO Working Party meeting in Geneva on 20 May 2005, Vietnam committed to expand
              trading rights for foreign enterprises and individuals to be able to export and import goods,
              except a very small number of sensitive goods or goods falling within the category of State
              trading (such as petroleum, pharmaceuticals, sugar, tobacco, salt, fertilizers, rice, cultural
              products, etc.). This would be in addition to the removal of import prohibition on second hand
              automobiles, etc.

NEW!!         During Vietnam’s most recent WTO Working Party meeting in September 2005, member
              countries welcomed Vietnam's offer to provide full trading rights to foreign entities by 1 January
              2007. The offer was submitted with requests for short transition periods for a small item of
              sensitive goods which would still be subject to state trading. Of note, Vietnam's commitments
              under the BTA with respect to foreign trading rights (see below) provide for an earlier opening of
              this sector to U.S investors than to investors from other WTO member countries.

              Domestic Enterprises – Trading Rights
              The Law on Enterprises dated 12 June 1999 governs companies’ commercial rights and in its
              application extended both trading and distribution rights to all Vietnamese enterprises
              (previously restricted to only State trading entities). This Law is currently under review and
              scheduled to be replaced by a new Law on Enterprises which will unify the "company law"
              regime for domestic and foreign invested enterprises (see Section 10.11 on “Business
              Registration and Commercial Rights” for domestic enterprises).

              Foreign Enterprises – Trading Rights
              Foreign enterprises currently do not have full trading and distribution rights, although licenses
              have occasionally been granted on a case by case basis. Under the BTA, Vietnam has



                                                                                                              35
committed to open its trading (import-export) sector to non-state and U.S. companies in
accordance with the following timetable. The BTA requires Vietnam to extend trading rights to
all domestic enterprises upon entry into force (already introduced, as noted above) and phases-
in such rights for U.S. firms over a period of three to seven years. U.S.-invested JVEs and U.S.
invested manufacturers may engage in trading activities in most products beginning in
December 2004 provided that U.S. ownership is limited to 49%. 100% U.S.-invested companies
may be established to engage in import/export activities beginning in December 2008. To date,
Vietnam has not codified into domestic law its commitments under the BTA.

Current law: Under Decree 24-2000-ND-CP of the Government dated 31 July 2000, foreign
direct investment in the import and distribution sector is subject to the condition that it must be
implemented in accordance with separate regulations issued by the Prime Minister. No such
separate regulations have yet been issued. As a result, a legal vacuum confronts investment
projects in import and distribution services - they are not prohibited but there is no enabling
legislation (as confirmed in Official Letter 3067-TM-DT of the Ministry of Trade dated 7 August
2002). This continues to be the case under Decree 27-2003-ND-CP of the Government dated
19 March 2003 amending Decree 24.

To a very limited extent, Vietnamese law provides for foreign commercial branch offices.
Decree 45-2000-ND-CP of the Government dated 6 September 2000 and Joint Circular 20-
2000-TTLT-BTM-TCDL of the Ministry of Trade and General Department of Tourism dated 20
October 2000 stipulate the regime for licensing and operation of foreign commercial branch
offices. The commercial activities of foreign commercial branch offices are limited to exporting 5
categories of goods and importing (under permit) 3 categories of goods for sale in the
Vietnamese market only and subject to the restriction that turnover from import may not exceed
turnover from export. Foreign commercial branch offices are not permitted to purchase goods in
Vietnam for resale in Vietnam.

The MoT, in co-ordination with the MPI and the MoJ, was charged (under Official Letter 2630-
VPCP-KKTH of the Office of Government dated 20 May 2002) with the task of preparing the
necessary laws to address BTA and WTO obligations and to progress towards less discretionary
and wider licensing of foreign participation in the import and distribution sector. Under Official
Letter 2177-TM-DT of the Ministry of Trade dated 5 June 2002, the MoT proposed the following
mechanism to achieve Vietnam's obligations:
-        First, the scope of applicability of the 1997 Commercial Law would be expanded to
         provide for establishment of new foreign invested enterprises ("FIEs") and foreign
         branch offices to conduct commercial activities solely and for existing FIEs in the
         manufacturing sector to engage additionally in commercial activities; and
 -      Second, the Government would issue a decree on implementation of the Commercial
        Law with respect to commercial activities of FIEs and foreign branch offices in Vietnam
        ("implementing decree").

As of 1 January 2006: The 2005 Commercial Law (Amended) was passed by the NA on 14
June 2005 and will become effective as of 1 January 2006. The 2005 Law contains only a brief
section on foreign trading rights. It enables foreign branch offices and FIEs to be licensed to
engage in "commercial activities" only (i.e. not invest in production but solely conduct
commercial activities) and enables existing FIEs in the manufacturing sector to engage in
"commercial activities". Of note, there is no specific reference to "import/export" or "distribution"
in the 2005 Law's definition of "commercial activities". However, the MoT has informally advised
that the general catch-all "other activities for profit making purposes" is expected to be
interpreted to encompass import-export and distribution activities. Of interest, the 2005 Law
provides for a separate regulatory framework for FIEs "specializing" in import and distribution
activities (i.e. where no manufacturing is undertaken) under the control of the MoT (similar to
foreign credit institutions in Vietnam which are governed by a separate regulatory framework
from the Law on Foreign Investment and under the control of the SBV.) FIEs undertaking
commercial activities in addition to manufacturing will remain under the control of the MPI. As
currently, foreign branch offices remain under the control of the MoT.

In early April 2005, the MoT released (for the first time) a draft of the proposed legislation to
implement the 2005 Commercial Law with respect to foreign trading and distribution rights



                                                                                                  36
("implementing decree"). The draft implementing decree provided for foreign business entities
to set up representative offices, branches and commercial FIEs to conduct commercial activities
in Vietnam (including trading and distribution of goods), subject to various restrictions stated in
the implementing decree as well as Vietnam's commitments under bilateral treaties. This
suggested that Vietnam intended to discriminate in favor of applicant companies incorporated in
countries with which Vietnam had signed a bilateral agreement with commitments in the area of
import and distribution rights (currently US, EU and Japan) and that Vietnam would only issue
licenses in accordance with the timing scheduled in those agreements.

In mid-August 2005, the MoT released its latest draft of the proposed legislation to implement
the 2005 Commercial Law with respect to foreign trading and distribution rights. The MoT has
split the implementing decree into two decrees as follows:
-        a decree providing detailed guidelines for implementation of the Commercial Law with
         respect to representative offices and branch offices of foreign business entities in
         Vietnam (“draft decree on branch offices”);
-        a decree providing detailed guidelines for implementation of the Commercial Law with
         respect to commercial activities of FIEs in Vietnam (“draft decree on commercial
         activities of FIEs”).

The draft decree on branch offices will replace Decree 45. It allows foreign business entities to
establish branch offices in order to conduct commercial activities, being import-export and
“supporting” activities. Of note, the earlier single draft decree of the MOT had “encouraged”
foreign business entities to establish commercial FIEs in order to conduct commercial activities
on a permanent basis in Vietnam, in preference to branch offices. This provision has not
survived in either of the August 2005 draft decrees. However, it may remain policy – the scope
of commercial activities of branch offices may well remain limited to import-export and exclude
distribution. Under this draft decree, branches will be permitted to export all types of goods,
except petroleum, petroleum products, gas, fertilizer, insecticide, beer and spirits, cigarettes,
medicine, precious metals and stones, explosives, rice wheat flour, and other goods the export
of which is prohibited. But the goods that may be imported by branch offices will remain
restricted. Imports are limited to machinery and equipment, and raw materials and supplies
used for production and construction. The licensed duration of a branch office is limited to 5
years but is extendable (currently unlimited under Decree 45). The Prime Minister will decide on
the continuation of existing, licensed branch offices which engage in commercial activities
beyond the above limited range of goods. New branch offices will be licensed by the MoT.

Under the draft decree on commercial activities of FIEs, commercial FIEs may be established in
the forms of JVE or 100% FOE. They may conduct the following activities: (i) wholesale of
goods, (ii) retail of goods, (iii) agency for buying and selling goods and/or services, (iv)
commercial franchising, and (v) import and export of goods. The range of goods in which
commercial FIEs may conduct activities is restricted. First, restrictions on goods under
international treaties (eg., Annexes B, C and D of the BTA will apply). Second, the following
goods are excluded: petroleum, petroleum products, gas, fertilizer, insecticide, beer and spirits,
cigarettes, medicine, precious metals and stones, explosives, rice and wheat flour, and other
goods the export of which is prohibited. Of significance, the draft decree now provides for
licensing of commercial FIEs in accordance with the terms of and timetable for Vietnam’s
commitments under international treaties (not bilateral treaties, as proposed in the April draft of
the implementing decree). This will allow investors from WTO member countries with which
Vietnam has not signed a bilateral agreement with respect to trading and distribution rights to
access this sector in accordance with the terms of Vietnam's WTO accession.

Under the draft decree on commercial activities of FIEs, the Prime Minister’s approval will be
required for the licensing of commercial FIEs where the foreign business entity is incorporated in
a country with which Vietnam has not made a treaty commitment with respect to trading and
distribution rights. In other cases, licensing is within the authority of the MoT. The draft decree
also provides for existing, licensed FIEs to engage in the activities (i) to (v) above subject to
amendment of their investment license. It is expected that the amendment of their investment
licenses will be restricted by the corresponding terms and timetable for introduction of new
commercial FIEs. The draft decree is not clear but is anticipated that the amendment of
investment licenses of existing FIEs so that they may conduct distribution (as well as their



                                                                                                37
licensed activities) will be performed by a foreign investment licensing body. It is also unclear
whether approval from the MOT is required before the amendment of investment licenses. This
overlapping of authority is confusing.

Under the draft decree on commercial activities of FIEs, conditions apply to licensing of
commercial FIEs. Some conditions are objective, such as mandatory legal capital level
(stipulated by law). Other conditions are subjective, such as requirement to have "normal"
financial status. Foreign investors must apply for licensing and the MoT must obtain opinions
from relevant ministries, branches and provincial people's committees before licensing - the
draft decree does not provide for automatic registration (see Section 8.7 below on "Investment
Registration"). Applications must include a list of total assets and annual financial statements
for the 2 immediately preceding years certified by an auditor. This excludes new companies
from establishing commercial FIEs in Vietnam. A licensing fee of VND15million (approx
USD945) is payable.

The draft decree imposes various restrictions on the operations of commercial FIEs, including:
-      the maximum licensed duration will be 50 years (there is provision for extension, but no
       details);
-      the director and deputy directors of the commercial FIE must be registered at the local
       Department of Trade or industrial zone management board;
-      any change in the following must be approved in writing: name of FIE; charter capital;
       location of head office, representative office, branch or retail sales outlet; operational
       contents and duration of operation; assignment of shareholding or capital contribution
       amounting to 10%or more of the charter capital; change of chairman of the board of
       management or of the general director (director); division, demerger, merger,
       consolidation, dissolution or conversion of form of enterprise.

Commercial FIEs may open representative offices in other provinces or overseas (no restriction
on number), subject to MoT approval. However, commercial FIEs may only open one branch
office or one retail sales outlet (being a supermarket, shop, fixed retail sales outlets, vending
machine, or other location for the receipt of orders). The timing and terms of a commercial
FIE's entitlement to open a branch office or a retail sales outlet will depend on Vietnam's
commitments under international treaties, ass determined on a case-by-case basis by the MoT.
There is no limit on the number of overseas branch offices which may be opened, subject to
MoT approval.

The draft decree prescribes penalties for breaches, including fines as high as VND50-70million
for signing a contract for the purchase and sale of goods or for the provision of services which
is inconsistent with the operational contents of the FIE; dealing in goods or services outside the
list of goods and services in which a commercial FIE is permitted to conduct business in
Vietnam; opening a branch or retail sales outlet in Vietnam without prior approval.

The above two draft decrees are expected to be promulgated soon and to come into force on 1
January 2006, at the same time as the 2005 Commercial Law.

As an interim measure, pending 1 January 2006, the MoT has issued a Diplomatic Note dated
28 July 2005 re-asserting Vietnam’s trading rights commitments (as stipulated in Chapter I,
Article 2, Section 7, Paragraph B, C, D; and Chapter III, Annex G of the BTA) and as agreed to
during the BTA Joint Committee session on 17 June 2005 in Washington DC. The Diplomatic
Note also provides the following point of contact for US companies seeking to import and
distribute their products in Vietnam:

      Ms. Hoang Tuyet Hoa, Department for Investment and Planning, Ministry of Trade
      31 Trang Tien Street, Hanoi, Viet Nam
      Tel: 84-4-826 5826
      Fax: 84-4-826 4696
      E-mail : hoanghoa@mot.gov.vn




                                                                                               38
      It is not yet known whether the restrictions proposed in the draft decree on commercial activities
      of FIEs will be imposed on US investors seeking to import and distribute their products in
      Vietnam.

5.9   Import Licensing:
      Vietnamese enterprises registered under the Law on Enterprises are entitled to import in
      accordance with the business line(s) prescribed in their business registration certificates. They
      are not required to apply for an import license, except where the imported goods are prescribed
      by the MoT as requiring a non-automatic import license.

      Import licensing procedures and regulations for FIEs are governed separately by the Law on
      Foreign Investment and its implementing regulations, and in detail in Circular 22-2000-TT-BTM
      of the Ministry of Trade dated 15 December 2000 (as amended 4 December 2001) on Export
      and Import Activities and Other Commercial Activities of Enterprises with Foreign Owned
      Capital. According to Circular 22, FIEs are only permitted to import the following: (1) goods for
      the purposes of adding to their fixed assets, including equipment, machinery, means of
      transportation, and materials for their initial investment, to expand their production, or to replace
      or renew technology; and (2) raw materials for production and business, subject to the approval
      of an import plan.

      As required for Vietnam’s accession to the WTO and to implement Vietnam's commitments
      made under the BTA, the Prime Minister issued Decision 41-2005-QD-TTg dated 2 March 2005
      which simplifies import licensing procedures and levels the playing field for importers of goods
      subject to management by way of non-automatic import license. Effective as of 1 September
      2005, Decision 41 will regulate the basic principles, forms and procedures for issuance of import
      licenses. One of the basic principles is transparency of import licensing procedures. Any
      regulations on issuance of import licenses will be required to be published in the Official Gazette
      at least 21 days before such regulations become effective and will be required to be posted on
      the MoT's website as well as posted at import license-issuing bodies. Any exceptions or
      changes to licensing regulations will be required to published in the same manner and within the
      same time-limit. With respect to submission of license applications (for both initial licenses and
      license extensions), Decision 41 only allows for applications to be submitted at one authority
      (with the license applicant limited to contacting a maximum of three authorities). Import license-
      issuing bodies will not be allowed to refuse license applications because of small errors in
      information which do not alter the basic fundamental content of application documents. In the
      case of license refusal, the license-issuing body will be required to announce its reasons for
      refusal. Refusal of custom clearance for licensed import goods will not be permitted merely due
      to small differences in the real value, quantity and weight of goods from the data in the license
      arising from changes in the process of delivery, separation of goods loading and unloading and
      other small differences in accordance with normal trading practices. Decision 41 provides for 2
      forms of licensing: self-regulating import licensing and non self-regulating import licensing. In
      the case of self-regulating import licensing, the time-limit for licensing will be 10 working days
      from the date of receipt of lawful documents; in the case of non self-regulating import licensing,
      the time-limit will be 30 working days. Foreign exchange controls for imported goods will be
      applied equally irrespective of whether the goods are under management by import licensing or
      not. Decision 41 requires the MoT to provide information on import licensing to the WTO's
      Import Licensing Committee and to WTO members when Vietnam becomes a WTO member.

      The revised Commercial Law (see Section 5.8 above) and its implementing regulations are
      expected to address more formally import licensing issues as provided in the WTO Agreement
      on Import Licensing Procedures. Fees associated with obtaining an import license, if any, (as
      per the Ordinance of Fees and Charges, see Section 10.12 on “General Fees & Charges”) are
      reportedly equivalent to the costs of services rendered.

5.10 Sanitary and Phytosanitary (SPS) Measures:
     Vietnam is currently working on the establishment of an SPS regime based on international
     standards, guidelines and recommendations. Its current regime is based on CODEX and
     FAO/WHO standards, the standards of regional or developed countries, or national standards.
     It has recently committed to the full implementation of the SPS Agreement upon accession.




                                                                                                        39
Plant Health
The plant quarantine system in Vietnam is under the management of the Plant Protection
Department (PPD), which has the overall responsibility to monitor the performance of plant
quarantine tasks at the national level and to formulate plant quarantine policies and standards.
There are 9 Regional Plant Quarantine Sub-departments (PQSD) and a Post Entry Quarantine
Center located in different areas within Vietnam and responsible for inspection of cross-border
plant commodities. These PQSDs maintain the operation of 50 Plant Quarantine Stations at sea
ports, airports and along land borders with China, Lao PDR and Cambodia. The National Plant
Quarantine Laboratory under PPD handles technical issues such as pest identification, PRA and
quarantine treatment. Plant quarantine activities include inspecting plant commodities for import
and export, issuing phytosanitary certificates for the export of commodities, supervising
phytosanitary treatments of plant commodities either for import or export, carrying out domestic
and post entry quarantine procedures, and conducting research and development activities with
regard to plant quarantine.

Vietnam is currently undergoing a review of its regulations relating to plant quarantine. To
supplement existing national standards, PPD has adopted international standards such as the
Glossary of Phytosanitary Terms, Plant Quarantine Principles related to International Trade, and
Guidelines for Pest Risk Analysis.

SPS measures for plant protection were first written in February 1993 but are now regulated
under Ordinance 36-2001-PL-UBTVQH10 on Plant Protection and Quarantine dated 25 July
2001 (which replaced the 1993 Ordinance). Revised detailed regulations on plant protection
and quarantine and management of plant protection medicines were issued under Decree 58-
2002-ND-CP of the Government dated 3 June 2002 (which replaced the 1993 Regulations).
Administrative offences in plant protection and quarantine are now governed by Decree 26-
2003-ND-CP of the Government dated 19 March 2003 (which replaced the 1996 Decree) and
Circular 71-2003-TT-BNN of the Ministry of Agriculture and Rural Development dated 25 June
2003 (which replaced the 1997 Circular).

Vietnam is also in the process of reviewing and amending its subsidiary legislation (such as
Decision 118-2000-QD-BNN of the Ministry of Agriculture and Rural Development dated 20
November 2000 on Procedures for Plant Quarantine Inspection of Regulated Articles and
Recording; Decree 07-CP of the Government dated 5 February 1996 on Plant Seed
Management, Decree 78-CP of the Government dated 29 November 1996 on Dealing with
Administrative Offences in the Field of Plant Protection and Quarantine) to ensure consistency
with the amended Ordinance and the new implementing regulations. The review is also
focusing on Vietnam’s WTO Accession, in particular legislation on phytosanitary measures in
the light of the WTO SPS Agreement, the IPPC and other international standards to harmonize
phytosanitary measures. To date, the Ministry of Agriculture and Rural Development has issued
Decision 84-2002-QD-BNN dated 24 September 2002 on State Management of Fumigation of
Regulated Articles and Decision 89-2002-QD-BNN dated 8 October 2002 on Importation of
Plant Varieties and Beneficial Organisms.

Animal Health
Animal inspection policies and procedures are now governed by the new Ordinance 18-2004-
PL-UBTVQH11 on Veterinary Medicine (Amended) dated 29 April 2004, effective as of 1
October 2004. Ordinance 18 introduced improved inspection procedures for veterinary hygiene
and food safety and for veterinary medicines and vaccines. Ordinance 18 replaced the
Ordinance on Veterinary Medicine dated 15 February 1993.

On 15 March 2004, the Government issued Decree 33-2005-ND-CP to implement a number of
articles of Ordinance 18. Decree 33 introduces new detailed regulations on the prevention of
epidemics for animals, quarantine tasks, phytosanitary controls, control of poultry slaughtering,
veterinary sanitation examination, administration of veterinary medicines. It also provides some
specific regulations on the organizational system of State agencies permitted to operate in the
veterinary sector. Decree 33 replaces Decree 93-1993-ND-CP of the Government dated 27
November 1993.




                                                                                              40
        Food Safety
        Issues relating to food safety are regulated by the Ordinance on Food Safety and Hygiene,
        passed by the NA on 26 July 2003, effective 1 November 2003. The Ordinance is aimed at
        ensuring the safety and hygiene of foodstuffs during the process of their manufacture and
        trading and the prevention and remedy of poisonous foodstuffs and contagion via foodstuffs. All
        Vietnamese and foreign organizations and individuals must satisfy the business conditions
        prescribed in the Ordinance for manufacturing and selling fresh and raw foodstuffs, processing
        foodstuffs, storing and transporting foodstuffs, and importing and exporting foodstuffs in
        Vietnam. For "high-risk" foodstuffs, State certification of satisfaction of business conditions is
        required. The Ordinance also regulates the proclamation of food standards and the advertising
        and labeling of foodstuffs.

        Decree 163-2004-ND-CP of the Government dated 7 September 2004 (effective 29 September
        2004) provides detailed regulations for implementation of the Ordinance. Decree 163
        specifically identifies and regulates in detail ten food products vulnerable to breaches of food
        safety and hygiene standards. Decree 163 includes detailed provisions on the conditions for
        manufacture and trading of foodstuffs and import of foodstuffs, as well as the State
        management responsibilities of ministries, branches and people’s committees for the
        implementation of foodstuff hygiene, safety standards and inspection of safety and hygiene
        practices, as well as the prevention of poisonous foodstuffs and contagions. Decree 163 also
        details the authority and procedures for the issuance of certificates of satisfaction for foodstuffs
        hygiene and safety. Of interest, foodstuffs may not be imported into Vietnam if the remaining
        period of use is less than 66.6% of the period of use stamped on the label. Unprocessed
        foodstuffs derived from animals and vegetables must be granted a certificate of quarantine by
        competent State agencies. All materials and chemicals used in processing of foodstuff,
        packaging directly touching foodstuffs, imported additive foodstuffs and imported foodstuffs must
        be inspected. Foodstuffs which are not subject to inspection include: foodstuffs accompanying
        people for personal use; foodstuffs which are gifts or diplomatic/consular bags, foodstuffs re-
        exported after being temporarily imported, foodstuffs in transit, and foodstuffs being kept in
        bonded warehouses. All Vietnamese and foreign organizations and individuals manufacturing,
        importing and/or trading foodstuffs within the territory of Vietnam must comply with the
        Ordinance and Decree 163.

        An inter-ministerial steering board for food hygiene and safety has been established by the
        Prime Minister under Decision 48-2005-QD-TTg dated 8 March 2005. The board will have the
        tasks to study and propose to the Prime Minister policies, measures, and regulations on State
        management of food hygiene and safety, to assist the Prime Minister to manage operations of
        relevant ministries and bodies in resolving matters related to food hygiene and safety.

        Decree 126-2005-ND-CP of the Government dated 10 October 2005 stipulates the penalties for
NEW!!   administrative offences in relation to the measurement and quality of goods. Under Decree 126,
        penalties will be imposed on individuals and organizations when they intentionally or
        unintentionally commit an administrative offence relating to the measurement and quality of
        goods (not otherwise amounting to a criminal offence). The limitation period for imposing
        penalties is 1 year from the offence (except in the case of the offence of trading in imports and
        exports on the list of goods for which a quality test is compulsory, where is the limitation period
        is 2 years). The penalties under Decree 126 are higher than under previous legislation in order
        to deter the commission of offences and to encourage organizations and individuals to comply
        seriously with goods measurement and quality regulations. In addition, a number of new
        offences are prescribed, such as the offence of failure to apply initial quarantine regime for
        imported measurement devices before putting them into circulation and the offence of importing
        measurement devices without permission from State administrative authorities in charge of
        measurement.

        Thus far, Vietnam has adopted about 60% of CODEX standards relating to food and foodstuff
        and is planning to adopt all remaining CODEX standards. Vietnam is also currently drafting a
        decree on safety management of Genetically Modified Organisms (GMO) Labeling designed to
        formulate compulsory standards for products using GMO technology based on specific evidence
        or labeling as "products using GMO technology."



                                                                                                         41
     Enquiry Point / Notification Point
     The Ministry of Agriculture and Rural Development currently serves as a general enquiry point
     for information on sanitary and phytosanitary requirements. Responsibility for sanitary and
     phytosanitary control, plant and animal quarantine, health quarantine and fisheries inspection is
     further assigned to various Ministries and agencies.

     Vietnam has now officially established a national sanitary and phytosanitary notification authority
     and enquiry point – “SPS Vietnam” - to provide services that meet WTO requirements. Under
     Decision 99-2005-QD-TTg of the Prime Minister dated 9 May 2005, “SPS Vietnam’s” task will be
     to co-ordinate the implementation of the WTO Agreement on Sanitary and Phytosanitary
     Measures on behalf of the Ministry of Agriculture and Rural Development. It will also obtain
     information about the inspection procedures, risk evaluation and the other sanitary and
     quarantine requirements of WTO member countries. This enquiry and notification point will be
     responsible for notice and comment procedures as required by Annex B of the WTO Agreement
     on Sanitary and Phytosanitary Measures.

     Vietnam's SPS Notification Authority and Enquiry Point has been established at:

           SPS Vietnam, Ministry of Agriculture and Rural Development (MARD)
           2 Ngoc Ha, Ba Dinh, Hanoi, Viet Nam
           Tel: 84-4-845 9672
           Fax: 84-4-733 0752
           E-mail : htqtmard@fpt.vn

     SPS related legal documents           are   accessible   through:   http://www.mard.gov.vn     and
     http://www.ppd.gov.vn

5.11 Standards and Technical Barriers to Trade (TBT):
     Vietnam has committed to the full implementation of the WTO TBT Agreement upon accession
     to WTO and without a transition period.

     On 26 May 2005, the Prime Minister issued Decision 444-2005-QD-TTg ratifying the project for
     implementation of the TBT Agreement. According to Decision 444, the aim of the project is to
     ensure Vietnam fulfils all its obligations under the TBT Agreement after joining the WTO,
     develops trade with WTO member countries and obtains national targets in socio-economic
     development and international economic integration. Decision 444 requires the implementation
     of the TBT Agreement, including technical regulations and standards as well as assessment
     procedures, to be in line with Vietnamese laws and to meet the basic principles of the TBT
     Agreement, including the principles of non-discriminatory treatment, removing obstacles to
     trade, and transparency. Additionally, the Prime Minister directed agencies and ministries to
     build and recheck Vietnamese Standards (TCVN) and Sector Standards (TCN) in accordance
     with international standards in order to ensure socio-economic interests and promote the
     competitive capacity of Vietnamese businesses when Vietnam becomes a full member of the
     WTO. The Prime Minister also defined the duties, measures and pace of implementation, and
     funding for the project. Decision 444 became effective as of 17 June 2005.

     TBT Enquiry Point / Notification Point
     On 25 March 2003, Vietnam's TBT Enquiry and Notification Point was formally established
     (Decision 356-QD-BKHCN of the Ministry of Science & Technology) in the offices of the
     STAMEQ under the MoST. The TBT Enquiry and Notification Point is the national desk that
     receives enquiries about and gives notification of technical regulations, standards and
     conformity assessment procedures concerning TBT under the guidance of the WTO.

           Viet Nam WTO/TBT Office
           Address: 70 Tran Hung Dao St., Hanoi, Viet Nam
           Tel: 84 4 942 6087
           Fax: 84 4 942 6087
           E-mail: vptbt@fpt.vn
           Website: http://www.tcvn.gov.vn/wtovn




                                                                                                     42
Under Decision 114-2005-QD-TTg of the Prime Minister dated 26 May 2005, Vietnam’s TBT
network will include a National Notification Agency and Enquiry Point (NA & EP) on
measurement and quality (the Vietnam TBT Office) within STAMEQ under the MoST. The
Vietnam TBT Office is the key agency in the network. Its obligations are to notify and answer all
enquiries on technical regulations, standards and conformity assessment procedures and other
TBT issues. In particular, it must notify other WTO members through the Secretariat about
technical regulations, conformity assessment procedures which may obstruct trade with WTO
members, and to receive notifications sent by TBT NAs of ministries and localities, and to
process these notifications before sending out. The Vietnam TBT Office will also provide upon
request technical regulations, standards, conformity assessment procedures being applied and
to be applied in Vietnam to other WTO members and interested WTO members and agencies in
the country, and to coordinate activities and provide assistance in notification and enquiry skills
to other NAs & EPs in the network.

NAs and EPs will also be established within the Ministries of Trade, Industry, Construction,
Transportation, Post and Telecommunications, Natural Resources and Environment, Labour,
Health, Agriculture and Rural Development, Fishery, Culture and Information. (NAs & EPs at the
ministerial level are titled: TBT-abbreviation of ministry.) These NA&EPs have notification and
enquiry obligations with respect to technical regulations and conformity assessment procedures
relating to issues which are under the management of the particular ministries. They must notify
the Vietnam TBT Office of agreements signed with respect to technical regulations, conformity
assessment procedures within the management of their ministries. NAs and EPs at the level of
provinces and cities under central authority will be located with the Department of Science and
Technology (NAs & EPs at the provincial level are titled: TBT–abbreviation of province.) These
NAs and EPs are responsible for notifications and enquiries within the scope of their localities,
under the supervision of the Vietnam TBT Office.

For the purpose of commentary on draft standards, STAMEQ has since 2002 posted its annual
standards preparation program on the Internet. This program lists the names of standards
scheduled to be issued, its basis of preparation standard, the names of committees and sub-
committees involved, and scheduled times of issuance. Interested parties may ask for draft
standards for consideration and comment if necessary.

Product Standards & Inspection
On 24 December 1999, the NA passed Ordinance 18-1999-PL-UBTVQH10 on Quality of Goods
to replace the predecessor Ordinance on Quality of Goods dated 27 December 1990. Effective
as of 1 July 2000, Ordinance 18 governs (i) promulgation and application of goods quality
standards, (ii) goods quality certification, (iii) recognition of quality control systems, (iv)
inspection of goods quality. Under Ordinance 18, three types of quality standards are applicable
in Vietnam, including Vietnamese standards, Industry standards and Basic standards.
Ordinance 18 also provides for the voluntary application of foreign and international standards
which are consistent with Vietnamese law and international treaties to which Vietnam is a
signatory or party. Quality certification under Ordinance 18 includes goods quality certification
and certification of quality control system in compliance with Vietnamese standards. Ordinance
18 also encourages all producers and traders to implement quality control systems and to seek
goods quality certification and certification of quality control systems, on a voluntary basis.
Goods producers and traders are responsible for the quality of their goods, must publish goods
quality standards and must ensure that such standards are met by way of internal goods quality
inspections, and ensure the truthfulness and accuracy of any information and advertising
provided by them with respect to the quality of their goods. The goods quality should be clearly
recorded on the labels of goods, with the particular characteristics and use of the goods. The
condition for use of goods, their expiry date, any warranty details and goods user instructions for
customers should be also published. The MoST in coordination with the MoT and other
ministries and Government bodies is responsible for unified state management of goods quality.

Vietnam is currently drafting an Ordinance on Standardization due for promulgation by the
National Assembly’s Standing Committee in 2005 (not 2006 as previously expected) in
anticipation of WTO accession.




                                                                                                43
Under Decision 140-2004-QD-TTg of the Government dated 5 August 2004, the Department for
Standards & Quality (“STAMEQ”) under the Ministry of Science & Technology ("MoST") has
responsibility for administration of standards, measurement and quality of commodities and
products.

Imported and exported commodities subject to mandatory quality inspection are listed on
STAMEQ’s website (http://www.tcvn.gov.vn). The most recent list contained in Decision 117-
2000-QD-KHCNMT dated 26 January 2000 is currently undergoing revision. Mandatory
registration of product quality was abolished in early 2001. In addition, inspection procedures
for imported and exported goods have been simplified by moving towards a system of type
testing. The requirement to inspect each individual consignment can be waived for companies
with a proven track record of quality. This principle of simplified inspection procedures
applicable to imported and exported goods is embodied Decision 1091-1999-QD-BKHCNMT
dated 22 June 1999. The detailed conditions under which simplified inspection procedures can
be applied are specified in regulations issued by STAMEQ and line management Ministries for
each type of goods.

To implement Ordinance 18, the Government issued Decree 179-2004-ND-CP dated 21
October 2004 on State management of quality of goods and services during production and
circulation in the domestic market as well as export and import. Decree 179 provides that the
State will focus management on improving the quality of goods and on ensuring that they
comply with international standards. Goods under State scrutiny include food products and
goods related to safety, hygiene, health and environment. The list of goods and services
subject to quality standards will be considered, drafted and issued on an annual basis by the
MoST in partnership with other relevant ministries. Various goods will be subject to mandatory
certification of quality and every lot must be inspected and certified prior to circulation. For other
goods, after they have been certified as in conformity with prescribed quality standards, they will
be exempt from inspection, but remain subject to random inspection in cases where offences
are indicated (based on inspection results, State authorities will decide whether to revoke or
continue the inspection exemption for such goods). Decree 179 provides for certification in
Vietnam and recognition of overseas certification (ie certification by a qualified quality inspector
or having a quality assurance certificate or medal granted by the exporting country and
acceptable to the Vietnamese Government). Of note, Decree 179 encourages and offers
favourable conditions to regional and international organizations to join in certification and
recognition activities in Vietnam as well as to join their Vietnamese counterparts in mutually
recognizing standards. In addition, Decree 179 details the responsibilities of the MoST and
other relevant Ministries and branches with respect to goods quality inspection; the
responsibilities of quality certification bodies; and offences with respect to goods quality.

Product Safety
Safety certification is currently being developed, including type testing and post-certification
surveillance in the market or at the production site. Fees for testing, verification and related
administrative formalities have yet to be determined, but the MoF would, in principle, calculate
the fees on the basis of the costs of the services rendered.

Decision 2424-2000-QD-BKHCNMT dated 12 December 2000 and Decision 2425-2000-QD-
BKHCNMT dated 12 December 2000 currently govern procedures related to safety certification.
Decision 2425 introduced the provisional system of declaration of goods quality standards as of
1 January 2001. Decision 2424 introduced the provisional system of declaration of compliance
with declared standards after self-evaluation (following testing) or third party certification.

Recognition
Vietnam currently allows for many forms of acceptance of quality testing results or quality
certification by foreign organizations, including:
-      Bilateral and multilateral mutual recognition agreements between Vietnam and exporting
       countries;
-      Unilateral acceptance by Vietnam of foreign laboratories or certifying organizations;
-      Import quality inspection (without doubt or complaint).




                                                                                                   44
5.12 Export Subsidies:
     Government programs are currently made available to exporters in the form of direct tax
     reductions or exemptions; tax deductions on interest rates incurred from bank loans; direct
     financial support (particularly to first-time exporters) for exports to new markets, or goods
     subjects to major price fluctuations; and export bonuses (as stipulated in Decision 02-2002-QD-
     BTM dated 2 January 2002 promulgating a regime of export awards). An Export Support Fund
     is also available to assist, encourage and promote exportation. Export-import enterprises,
     manufacturing enterprises exporting their own goods directly, and other enterprises as decided
     by the Prime Minister are eligible. Export support is also available in the form of support to
     cover losses for enterprises exporting rice, pork, coffee, canned vegetables, canned fruit, and
     ceramics as applied in accordance with the MoF.

     The Prime Minister approved a strategy to develop the export market in 2004-05. According to
     Decision 266-2003-QD-TTg dated 17 December 2003, to raise the competitiveness of exports,
     various policies on finance, credit, investment, fees and charges are to be amended or
     expanded, with the focus on long-term credit for investment to raise production capacity,
     especially for industries turning out raw materials for the production of exports. In addition,
     commercial credit guarantees are to be expanded with attention being paid to investment
     projects on new technologies for exports, and to export contracts with high efficiency; credit will
     also be provided gradually to those importing large amounts of Vietnamese goods regularly for
     the regional market. According to Decision 266, items entitled to export preferences shall be
     reduced, along with rewards for focus on highly competitive key commodity lines and those
     using local raw materials and supplies in large volumes. Direct financial support is also to be
     limited and replaced with support for suppliers of raw materials, and technological, scientific and
     technical solutions for improving production of exports.

     In the working party meeting in Geneva in 20 May 2005, Vietnam committed to eliminate export
     subsidies in the form of direct payment from the State budget contingent upon export
     performance upon accession.

5.13 Domestic Support:
     Vietnam is currently deliberating the various types of subsidies and domestic support, including
     how long it will need to phase out WTO-inconsistent industrial subsidies. Draft 16 of the Law on
     Investment - currently scheduled for consideration and promulgation by the NA at its October-
     November 2005 Session - addresses, amongst other issues, the topic of domestic support for
     both domestic and foreign investors, including investment incentives, tax incentives, exemptions
     from import duties, credit support, technology transfer incentives, and export incentives in export
     processing zones and hi-tech zones. For more information on export incentives in export
     processing zones and hi-tech zones, see Section 8.13.

     Domestic support programs are currently available in the form of import duty reductions,
     investment incentives, development assistance, assistance channelled through a Development
     Assistance Fund, and investment assistance. Domestic and FIEs producing or assembling
     mechanical, electric or electronic products and/or parts of these products are eligible for import
     duty reductions contingent upon the use of local content.

     Investment incentives are provided in the form of exemption or reduction of land rental and land
     use tax, and extended corporate income tax exemption and reduction, preferential tax rates, and
     exemption of import duties. Eligible applicants include labor-intensive enterprises, domestic and
     FIEs employing a large number of female employees, export oriented FIEs, domestic
     enterprises producing goods for exports, foreign invested and domestic firms operating in
     certain business fields and sectors of national development priority, and enterprises operating in
     socio-economic disadvantaged areas. Decree 24-2000-ND-CP of the Government dated 31
     July 2000 (as amended by Decree 27-2003-ND-CP dated 19 March 2003) lists investment areas
     in which FIEs are entitled to incentives such as preferential corporate income tax rates,
     corporate income tax exemptions or reductions, import duty exemption and preferential
     remittance tax rates (this last is no longer applicable, see 8.5). Domestic firms operating in
     prescribed areas can benefit from exemption or reduction in land use payment, land rental, and
     land use tax; preferential corporate income tax rates and exemptions and reductions; exemption



                                                                                                     45
     or reduction of the corporate income tax payable on the income attributable to expansion and/or
     enhancement investments; exemption from supplementary corporate income tax and personal
     income tax; and import duty exemption on equipment and machinery constituting an enterprise's
     fixed assets.

     Support is also provided to enterprises implementing projects to promote the development of
     priority industrial products. These include enterprises producing the following products including
     sea-going vessels of 11,500 tonnes, internal combustion engines under 30 horsepower, and
     color TVs. Under Decision 37 and Circular 02-2000-TT-BCN of the Ministry of Industry dated 31
     May 2000, assistance provided is in the form of import duty exemptions, preferential corporate
     income tax, preferential access to the State's development investment credits, and reduction of
     land rentals. Support was extended to enterprises producing computers under Decision 19-
     2001-QD-TTg and Circular 04-2002-TT-BCN of the Ministry of Industry dated 6 June 2001.
     However, Circular 86-2000-TT-BTC dated 16 August 2000 provides for the State's programs
     providing tax assistance to end on 31 December 2003.

     A Development Assistance Fund was established in 1999 (pursuant to Decree 50-1999-ND-CP
     of the Government dated 8 July 1999 and Decision 231-1999-QD-TTg of the Government dated
     17 December 1999) to assist in the implementation of important economic projects and the
     development of disadvantaged areas. Benefits granted include preferential investment credits,
     post-investment interest-rate support, and investment credit guarantees. Program assistance is
     provided in the form of preferential credits, corporate income tax exemption or reduction,
     exemption from export duties, and import duty exemption on components, accessories,
     materials and equipment. Enterprises manufacturing bicycles, electric fans, small-size power
     engines, and maritime ships facing difficulties in raising capital to upgrade the technology used
     in production are eligible.

     Newly-established or expanding Vietnamese enterprises and those moving to mountainous,
     island and other disadvantaged areas are entitled to exemption and reduction in corporate
     income tax. Corporate income tax holidays are also granted to domestic enterprises engaged in
     scientific research; technical services related to agriculture; vocational training for disabled
     persons, ethnic minority people, and children from families in difficulties; production, training or
     services to households earning less than the minimum salary of State employees; and
     enterprises employing disabled persons.

5.14 Trade Remedies:
     The trilogy of Ordinance 42 of May 2002, Ordinance 20 of April 2004 and Ordinance 22 of
     August 2004 represent a new limb of Vietnam's developing legal framework to regulate imports
     in anticipation of the opening of its markets under the terms of the BTA and its WTO accession.
     An Ordinance on Countervailing Measures was expected to be added to the trilogy, but is not
     scheduled to be passed by the NA's Standing Committee in 2005.

     Safeguard Measures
     Regulations and procedures on trade remedies through safeguards are governed by Ordinance
     42-2002-PL-UBTVQH10 on Self-Protection in Import of Foreign Goods into Vietnam dated 25
     May 2002 and its implementing Decree 150-2003-ND-CP of the Government dated 8 December
     2003 Providing Detailed Guidelines for Ordinance 42-2002-PL-UBTVQH10 on Self-Protection in
     Import of Foreign Goods into Vietnam.

     Effective as of 1 September 2002, Ordinance 42 allows Vietnam to take protective measures in
     order to safeguard its domestic manufacturing industries against serious losses in
     circumstances where there is a sudden increase in import of goods "beyond the levels", which is
     defined as "the import of goods in a volume, quantity or at a value which increases in an
     absolute or relative way in comparison to the volume, quantity or cost of equivalent goods or of
     directly competitive goods which are manufactured domestically" (article 4.1).

     The MoT may investigate the need for application of self-protective measures on its own
     initiative or upon request by any domestic manufacturer which manufactures at least 25% of the
     volume of similar or directly competing domestic goods. A wide consultative process is provided
     for prior to any decision by the MoT on application of self-protective measures. Pending any



                                                                                                      46
such decision, the MoT may impose the requirement for import permits for goods under
investigation (purely for statistical purposes, not to limit volumes of goods) for a maximum 200
days. The matters to be investigated include: changes in market sales, changes in volumes
being manufactured, employees’ productivity, coefficients of utilization of production capacity,
profit and loss figures, employment figures for the industry which manufactures the goods the
same as the import goods, and ratio of import goods over similar or directly competing goods
being sold on the domestic market. The time-limit for investigations is 6 months (may be
extended for 2 months in unspecified cases of necessity) and any decision must be publicized.
The duration of application of self-protective measures is limited to 4 years, except in specified
cases where application may be extended for another 6 months. Re-application of self-
protective measures is subject to conditions. A complaints procedure is provided for.
Compensation is payable for any loss resulting from application of unwarranted self-protective
measures.

Decree 150 provides for six defensive measures to deal with the excessive import of goods into
Vietnam that cause serious losses to domestic manufacturers: i) increasing the level of import
duty compared to the current level; ii) imposing import quotas; iii) imposing tariff rate quotas; iv)
applying absolute taxes; v) import licensing to control the volume of imported goods; and vi)
imposing surcharges on the imported goods, in addition to the general and undefined "other
measures". Decree 150 prescribes in detail the procedures for investigations into application of
self-protective measures and for the actual application of such measures (including public
notification and consultation requirements). Decree 150 requires the Ministry of Trade to keep
confidential all information provided by State bodies, organizations and individuals relating to
investigations. Specific provision is made for application of self-protective measures to
underdeveloped countries.

Anti-Dumping Measures
On 29 April 2004, the NA's Standing Committee ratified Ordinance 20-2004-PL-UBTVQH11
Against Dumping of Imported Goods in Vietnam. Aimed at limiting the adverse impact on
domestic Vietnamese manufacturing industries caused by dumping of imported goods in
Vietnam, Ordinance 20 prescribes a range of measures which may be applied to prevent
dumping and the investigations which must be undertaken to apply such measures. Goods
imported into Vietnam will be deemed to be dumped when they are sold at a price lower than
the normal market value of such goods in the exporting country. Ordinance 20 prescribes the
method of determining "normal market value".

Anti-dumping measures will only be applied after an investigation by the MoT concludes that
imported goods have been dumped at a significant dumping margin, that the volume and value
of dumped is not insignificant, and that the importation and dumping of such goods directly
causes, or threatens to cause, significant loss to a domestic manufacturing industry. The
dumping margin will be significant where the difference between the normal market price of
imported goods and their export cost at the date of import into Vietnam exceeds 2%. The
volume and value of dumped goods from any one country will be insignificant if it is less than 3%
of the total volume and value of similar goods imported into Vietnam, unless the total volume
and value of goods imported from a number of countries exceeds 7% of the total volume and
value of similar goods imported into Vietnam. "Significant loss to a domestic manufacturing
industry" is defined as a significant reduction in the volume and level of domestic consumption;
in manufacturing profits; in the developmental speed of manufacturing, job creation and
investment and in other indicators of a domestic manufacturing industry; or means a situation
leading to difficulty for the formation of a domestic manufacturing industry. "Threat to cause a
significant loss to a domestic manufacturing industry" is defined as a certain, clear and proven
capacity for significant loss to a domestic manufacturing industry.

The MoT may conduct an investigation on its own initiative or at the request of the
representative of a domestic manufacturing industry (provided prescribed conditions and
procedures are satisfied). Any decision to conduct an investigation must be notified to the
exporter and the administrative authorities of the country or territory exporting the goods which
are subject to investigation, as well as any other parties concerned. The duration of an
investigation may not exceed 12 months (in especially complex cases, this may be extended by
up to 6 months). During an investigation, based on a preliminary conclusion of dumping, the



                                                                                                  47
MoT may apply for up to 4 months interim anti-dumping measures, being interim anti-dumping
duty or payment of a deposit or pledge of collateral to ensure payment of interim duty.
Alternatively, the MoT may accept an undertaking from the manufacturer or exporter of goods
under investigation to adjust the price of the goods imported into Vietnam or to limit the quantity
of imported goods dumped in Vietnam. If such undertaking resolves the loss, or threat of loss,
to a domestic manufacturing industry, the MoT will cease its investigation. If no undertaking is
given, upon a final conclusion of dumping, anti-dumping duty (being an extra import duty, not
exceeding the specific dumping margin) will be applied for up to 5 years (extendable where a
check by the MoT concludes that anti-dumping duty should continue to apply). Ordinance 20
provides for retrospective application of anti-dumping duty.

Ordinance 20 became effective as of 1 October 2004. For more details please refer to our
website at http://www.usvtc.org/Documents/Misc/Legal%20Docs%20by%20Phillips%20Fox.htm

Guidelines for implementation of Ordinance 20 were issued under Decree 90-2005-ND-CP of
the Government dated 11 July 2005. Effective as of 4 August 2005, Decree 90 provides in
detail for the following matters:
-       Basis for determination of a “major proportion of the total volume, quantity or value of
        similar goods manufactured domestically” and “direct relationship between domestic
        manufacturers manufacturing similar goods and any organization or individual exporting
        or importing goods which are the subject of the request for application of anti-subsidy
        measures”
-       Composition of the anti-dumping commission under the MOT and its duties and powers,
        qualifications of investigators and council members and their duties and powers.
-       Types of persons participating in anti-dumping proceedings and their rights and
        obligations.
-       Application files requesting anti-dumping investigation; procedures for commencement of
        investigation, matters to be investigated and verified; conclusions of investigations,
        procedures for application of anti-dumping measures.

Anti-Subsidy Measures
On 20 August 2004, the NA's Standing Committee passed Ordinance 22-2004--PL-UBTVQH11
on Measures Against Subsidized Goods Imported into Vietnam. Ordinance 22 creates a legal
framework for application of measures to protect domestic manufacturing industries when
importation of subsidized foreign goods into Vietnam causes or threatens to cause substantial
loss to a domestic manufacturing industry. Ordinance 22 regulates the following forms of
subsidy (defined as "financial assistance by a government or governmental body provided to an
organization or individual when manufacturing and exporting goods into Vietnam, which subsidy
carries a benefit for such organization or individual):
  -     a government or a governmental body transfers capital to an organization or individual in
        the form of issuance of capital, transfer of shares, provision of a loan with preferential
        interest rate, or provision of a guarantee for a loan with an interest rate less than it would
        be for a loan not so guaranteed;
  -     a government or a governmental body does not collect items which are collectible from
        the organization or individual under an obligation to pay such items;
  -     a government or a governmental body provides goods or services other than common
        infrastructure or purchases goods or services at a higher than market price and on-sells
        them to an organization or individual at a lower than market price;
  -     a government or a governmental body contributes money to a subsidy regime, or
        assigns to a private organization for implementation or orders a private organization to
        implement one or more of the above forms of subsidy;
  -     other forms of subsidy, which shall be determined in a way which is fair, reasonable and
        not contrary to international practice.

Ordinance 22 provides for 2 anti-subsidy measures: (i) anti-subsidy duty and (ii) an undertaking
to be given to the competent Vietnamese body by the subsidized organization or individual or by
the government of the country of manufacture/export that subsidization will be voluntarily
terminated or reduced, that export price will be voluntarily adjusted or that other appropriate
measures will be voluntarily applied. The MoT may investigate the need for application of anti-
subsidy measures on its own initiative or upon request by the representative of domestic



                                                                                                   48
      manufacturers which manufacture at least 25% of the volume of similar or directly competing
      domestic goods. Ordinance 22 became effective on 1 January 2005.

      Guidelines for implementation of Ordinance 22 were issued under Decree 89-2005-ND-CP of
      the Government dated 11 July 2005. Effective as of 4 August 2005, Decree 89 provides in
      detail for the following matters:
      -       Bases on which “volume, quantity or value of subsidized goods imported into Vietnam”
              will be deemed insignificant.
      -       Basis for determination of a “major proportion of the total volume, quantity or value of
              similar goods manufactured domestically” and “direct relationship between domestic
              manufacturers manufacturing similar goods and any organization or individual exporting
              or importing goods which are the subject of the request for application of anti-subsidy
              measures”
      -       Composition of the anti-subsidy commission under the MOT and its duties and powers,
              qualifications of investigators and council members and their duties and members.
      -       Types of persons participating in anti-subsidy proceedings and their rights and obligation.
      -       Application files requesting anti-subsidy investigation, procedures for commencement of
              investigation, matters to be investigated and verified, conclusion of investigations,
              procedures for application of anti-subsidy measures.


6.    Intellectual Property Rights
6.1   Intellectual Property Rights Regime:

      International IP Conventions
      Vietnam is Party to the Paris Convention for the Protection of Industrial Property and the Madrid
      Agreement on International Registration of Marks, became a member of the Convention
      Establishing the World Intellectual Property Organization in 1976, joined the Patent Cooperation
      Treaty in 1993. The Government is now preparing for its accession to the Brussels Convention
      Relating to the Distribution of Programme-Carrying Signals Transmitted by Satellite, and the
      International Convention for the Protection of Plant Varieties (UPOV). Vietnam is also
      considering accession to the Rome Convention for the Protection of Artists, Performers,
      Phonogram Producers and Broadcasting Agencies.

      On 7 June 2004, Vietnam officially signed on to become a member of the Berne Convention on
      Copyright Protection for Literary and Artistic Works (Official Letter 163-BQTGVHNT-QLBQ of
      the Ministry of Culture and Information dated 16 July 2004 on Accession to the Berne
      Convention for Protection of Literary and Artistic Works in Vietnam). Provisions of the Berne
      Convention became effective in Vietnam beginning in October 2004. The Berne Convention is
      Vietnam’s first multilateral agreement on copyright. Under the Berne Convention, Vietnam must
      provide copyright protection for literary and artistic works from 155 other member nations, and
      will have reciprocal protection for Vietnamese works in those countries.

      On 6 April 2005, Vietnam officially acceded to the Geneva Convention for the Protection of
      Producers of Phonograms Against Unauthorized Duplication of Phonograms. Both the Berne
      and Geneva Conventions recognize that the scope and nature of copyright is a matter of law in
      each of their member nations. These Conventions are based on the principles of mutuality and
      national treatment, under which each country extends the same rights to copyright holders and
      authors of other member countries as it extends to authors and copyright holders of its own
      country. Vietnam will be responsible for extending copyright protection for sound recordings
      from other member countries (and vice versa) under the Geneva Convention as of 6 July 2005.

      Vietnam has bilateral agreements on the protection of intellectual property with the EU,
      Switzerland and the U.S. Through the BTA, Vietnam has committed to most obligations covered
      by the WTO TRIPS Agreement and in the working party meeting in Geneva on 20 May 2005, it
      committed to the full implementation of the TRIPS Agreement upon WTO accession.




                                                                                                      49
      By Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of Solutions Aimed At Creating
      New Changes In The Work Of Attracting Foreign Direct Investment To Vietnam, the Prime
      Minister has directed the MoST to (in 2005) submit a plan on joining the Madrid Protocol.

      Legal Framework
      Intellectual property protection and civil violations are currently governed by provisions of
      Vietnam’s Civil Code, Decree 76-CP on Implementation of Certain Provisions Concerning
      Copyright of the Civil Code dated 29 December 1996, and Decree 63-CP of the Government
      dated 24 October 1996 (as amended by Decree 06-2001-ND-CP of the Government dated 1
      February 2001). Vietnam’s Criminal Code covers criminal violations of intellectual property
      rights.

      To address its international obligations, the Government is currently assessing its intellectual
      property regime as it relates to the BTA and its WTO accession. In addition to action plans for
      Vietnam’s accession to and implementation of various intellectual property conventions, the
      Government is considering the establishment of one authority for the uniform State
      administration of the intellectual property regulatory regime (Official Letter 147-VPCP of the
      Office of Government dated 9 January 2003) and has instructed the drafting of a new Law on
      Intellectual Property (Official Letter 3895-2004-VPCP-KG dated 3 August 2004).

      At the Regular Government Meeting on 2-3 March 2005, the second draft of the proposed Law
      was returned to the MoST for considerable revision upon general consensus that the draft was
      not compatible with other laws and international practice, with many unclear and confusing
      provisions. A fourth draft of the Law on Intellectual Property was submitted to the Government
      on 9 May and was considered and discussed at the NA's 7th session in May-June 2005. The
      draft introduces some new provisions on well-known trademarks, collective marks and
      certification marks. See section on trademarks below. As scheduled under Resolution 35, the
      new Law on Intellectual Property will be promulgated at the NA's current 8th Session in October-
      November 2005.

      The Government has also instructed the drafting of a Law on Technology Transfer by the MoST
      and MoJ (Official Letter 3895-2004-VPCP-KG dated 3 August 2004). The Law on Technology
      Transfer is scheduled to be drafted in 2005 and expected to be passed in late 2006. See
      Section 8.9 "Technology Transfer Issues".

      Amendments to the regime for administrative penalties for IP offences have been drafted and
      are currently being considered by the Government (see 6.5 below for more detail).

      While Vietnam is creating a respectable body of substantive law for protecting IP rights, the
      specific procedural rules for enforcing such rights lag behind. For example, relevant laws set
      out only general provisions on the basis of which injunctive and other forms of pre-trial relief can
      be granted. Vietnamese law also lacks provisions on how damages and other remedies in
      actions for infringements should be calculated.

6.2   MFN and National Treatment:
      Ordinance 41-2002-PL-UBTVQH10 on MFN and National Treatment dated 25 May 2002
      provides for MFN and national treatment applicable to foreign organizations or individuals
      holding IP rights, including rights of authors (copyright) & relevant rights; industrial property
      rights (including patents, utility solutions, industrial designs, trademarks, geographical
      instructions, appellations of origin of goods, trade names, trade secrets, layout designs
      (topographics) of integrated circuit, and plant species); and “rights to oppose competition
      deemed unfair by the law on IP rights, and other IP rights.” Ordinance 41 extends no less
      favorable treatment than that extended to domestic organizations and individuals on the
      acquisition, protection, enjoyment and enforcement of all intellectual property rights and any
      benefits derived thereof from organizations and individuals of the country.

6.3   Copyright:
      Copyright in literary, artistic, scientific and “other” works is currently protected under Article 747
      of the Civil Code of Vietnam dated 28 October 1995. Authorship is currently protected for the
      lifetime of the author and 50 years after death (in case of co-authored works, 50 years after the



                                                                                                         50
      death of the last surviving author). Cinematographic works, radio, television, video, sound
      recordings and works published posthumously are protected for a period of 50 years from the
      date of first publication. Works of foreign individuals and organizations are protected under
      Article 836 of the Civil Code and Decree 60-CP of the Government dated 6 June 1997, including
      (i) works created and displayed in a certain material form in Vietnam; (ii) works made known
      publicly or disseminated in Vietnam for the first time; and (iii) works protected in Vietnam under
      international treaties signed or adopted by Vietnam.

      Based on the Berne Convention on Copyright Protection for Literary and Artistic Works which
      Vietnam has signed, the Ministry of Culture and Information has issued an official document
      tightening copyright regulations on musical and theatrical works from 1 October 2004. The
      Official Document places the responsibility on all organizers, like radio and TV stations,
      publishing houses and professional organizers, for ensuring that the use of any foreign musical
      and theatrical works comply with the copyright laws. All foreign musical and theatrical works,
      except classical music and folk songs and arts, must have permission in writing from their
      authors, owners, or legal representatives before being performed.

      Registration
      Copyright registration is regulated under Article 762 of the Civil Code and Articles 23-26 of the
      Decree 76-CP of the Government dated 29 December 1996. Applications and supporting
      documents are filed by the author(s) or the copyright owner(s) of a work at the Copyright Office
      of Vietnam. Copyright certificates are granted within 10 days from the date of receipt of
      application.

      Circular 04-2003-TTLT-BVHTT-BXD dated 24 January 2003 providing guidelines on
      architectural copyrights prescribes the definition of architectural works and copyright registration
      procedures. Circular 04 came into effect as of 10 February 2003.

      Royalties
      Decree 61-2002-ND-CP of the Government dated 11 June 2002 introduced a new regime for
      copyright royalties, pursuant to the copyright provisions of the Civil Code and Decree 76-CP of
      the Government dated 29 November 1996. Effective as of 26 June 2002, Decree 61 prescribes
      the royalty regime for authors and copyright owners of written works, lectures and speeches,
      theatrical works and other forms of artistic performance, cinematographic and video works, radio
      broadcasting and television broadcasting works, press works, musical works, architectural
      works, sculptural works and applied fine art, photographic works, scientific projects, architecture
      or scientific projects, translated, adapted, and rewritten, transformed, compiled and annotated
      works, books of selected works and anthologies; and computer software. Decree 61 prescribes
      a royalty framework applicable to each category of works and the methods for calculating royalty
      payments.

6.4   Industrial Property:
      The National Office for Intellectual Property (“NOIP”) under the MoST has jurisdiction over
      industrial property under Decree 54-2003-ND-CP of the Government dated 19 May 2003 on
      Functions, Duties, Powers and Organizational Structure of the Ministry of Science & Technology
      (as amended by Decree 28-2004-ND-CP of the Government dated 16 January 2004). Under its
      new charter issued with Decision 14-2004-QD-BKHCN of the Ministry of Science and
      Technology dated 25 June 2004, the NOIP has responsibility for procedures for establishment,
      amendment and transfer of IP rights as well as dealing with IP disputes.

      Registration
      The two-tier price structure for registration that had existed for fees and charges has been
      abolished under Circular 132-2004-TT-BTC of the Ministry of Finance dated 31 December 2004
      Providing Guidelines for Regime of Collection, Payment, Control and Utilization of Industrial
      Property Fees and Charges. Effective as of 31 January 2005, Circular 132 replaces Circular 23-
      TC-TCT dated 9 May 1997.

      Patents
      Patents are currently protected under Article 782 of the Civil Code and Decree 63 (as amended
      by Decree 06). Article 782 of the Civil Code states that patent applications are subject to



                                                                                                       51
examination as to form and substance, and time limits for such procedures range from 3 to 18
months. Subject matter excluded from protection falls within three main categories: (1) those
not considered as inventions, including scientific principles, theories and mathematical methods;
aesthetic creations; economic management methods and systems; educational, teaching, training
methods and systems; computer programs; designs and planning schemes for construction works;
projects for regional development and planning; (2) subject matter which should be protected
under other forms of protection other than patents, e.g. layout design of integrated circuits, or plant
and animal varieties; and (3) those not industrially applicable such as methods for the prevention,
diagnosis, and treatment of human or animal diseases, essentially biological processes for the
production of plants or animals other than non-biological and microbiological processes.

Patent owners have the exclusive right to use, transfer, and license rights to other persons.
They also have the right to demand that other persons stop infringements and seek
compensation for damages caused by acts of infringement. The term of protection is 20 years
from the official filing date.

Compulsory Licensing
According to the Civil Code, the rights to a patent (invention) can be restricted when provisions
concerning prior user rights (Article 801) or compulsory licensing (Article 802) are applied.
Conditions and procedures for granting compulsory licensing are prescribed in Decree 63 (as
amended by Decree 06).

The grantee of a compulsory license to an invention is required to pay royalties to the owner.
Compulsory licences can only be granted upon expiry of a 4 year period after the filing of an
application for a certificate of protection or 3 years after such certificate has been issued. The
patent owner is entitled to request the termination of the use of a compulsory licence if the
circumstances which led to it have ceased or are unlikely to recur, provided such termination
does not prejudice the grantee of the compulsory licence.

The MoST is responsible for granting and suspending compulsory licences. The MoST notifies
the patent owner within 15 days of a request for a compulsory licence, and the owner then has
30 days to comment. The MoST can request the parties to renegotiate with a view to agreeing
to a voluntary contractual licence, but if no agreement is reached, the MoST has 3 months to
issue a decision. The decision to grant a compulsory licence has to be published in the Official
Gazette on Industrial Property within 1 month from the date of issuance of the licence. The right
holder has 1 month to comply with the conditions in the decision. The patent owner and the
grantee can appeal against the decision to the Minister of Science & Technology or, in last
instance, to the Prime Minister or can initiate an administrative court case.

Trademarks
Vietnam's Civil Code, Decree 63 (as amended by Decree 06), and Circular 3055-TT-SHCN of
the Ministry of Science, Technology & Environment dated 31 December 1996 provide protection
for trademarks on the basis of registration. Registration of trademarks is carried out with the
NOIP. Vietnam is a "first-to-file" jurisdiction.

Trademark protection is available for service marks, collective trademarks, affiliated trademarks
and now also well-known trademarks (a trademark which has been continuously used for
prestigious goods so that such trademark has become widely known).

The provisions on industrial designs and on inventions and utility solutions in Circular 3055 have
been repealed (see below). However, the provisions of Circular 3055 on transfer of industrial
property rights and trademarks remain effective.

The 4th draft (May 2005) of Vietnam’s Law on Intellectual Property introduces some new
provisions on well-known trademarks, collective marks and certification marks. It provides
criteria for identifying a well-known brand name to facilitate NOIP in the recognition of the well-
known brand name in accordance with the prevailing regulations. Regulations on protection for
certification marks have been also included in the draft. The applicant, when filing the request
for protection with the NOIP, along with the basic documents, should prepare paperwork for
using certification mark which comprise the following fundamental contents: the owner of the



                                                                                                    52
certification mark; conditions for using the certification mark; particularities of origin, services
certified by the mark; methods for evaluation of such particulars and control of using the
certification mark; fees paid by the use for certifying and protecting the brand name, if any.
Amendments to rules governing collective marks have also been added in the draft, including
the owner of the collective mark, the requirements for using the mark, the conditions for being
the member of the organization who is the owner of such a mark, the sanction applied to the
infringement acts of the regulations, and the list of the mark users. Registration certificates of
the collective mark will be terminated if the owner of the mark has not controlled effectively the
compliance of regulations by the members. Nevertheless, how ineffective control is and what the
legal grounds for determining the ineffectiveness thereof will need to be further clarified in the
draft.

Geographical Indications
Geographical indications are currently protected under the Civil Code and Decree 54-2000-ND-
CP of the Government dated 3 October 2000 on Protection of Industrial Property Rights With
Respect to Trade Secrets, Geographical Indications, Trade Names and Protection Against
Unfair Competition. Decree 54 provides for automatic protection of geographical indications
without registration if all prescribed conditions are fully satisfied.

Appellations of origin are protected under the Civil Code, Decree 63 (as amended by Decree
06) and Circular 3055. Registration is required for protection and the term of protection is
indefinite.

Registration of a trademark identical or confusingly similar to protected geographical indications,
including appellations of origin, is prohibited.

The draft Law on Intellectual Property expected to be ratified by the National Assembly in
November 2005 addresses issues relating to the recognition and registration of geographical
indications. The 10th draft of this law reportedly addresses the delicate relationship between
previously applied for, registered, or used trademarks and geographical indications and
translations of geographical indications.

Industrial Designs
Industrial designs are protected under Article 784 of the Civil Code, Decree 63 (as amended by
Decree 06), and now Circular 29-2003-TT-BKHCN of the Ministry of Science & Technology
dated 5 November 2003 Providing Guidelines for Implementation of Procedures for Protection of
Industrial Property Rights with respect to Industrial Designs (which repealed the industrial
design provisions of Circular 3055 as of 27 November 2003).

Circular 29 provides guidelines on: content of and procedures for submission of an application
for a certificate of protection of industrial property rights with respect to industrial designs;
procedures for issuance and amendment of certificates of protection by the NOIP; suspension
and revocation of certificates of protection; and fees payable for certificates of protection. The
owner of industrial property rights may either carry out the procedures directly at the NOIP or
authorize another organization or individual to do so. Of note, under Circular 29, the time-limit
for issuance of certificates of protection in regular cases has been reduced from 12 months to 7
months.

As part of an application for protection, Circular 29 requires an applicant to name the products
bearing the industrial design, the field in which they are used, and the most similar known
industrial designs to the one for which protection is sought, and to set out the basic as well as
new or distinctive "special shaping features" of the industrial design. An applicant may request
a certificate of protection for an industrial design for one product or a set of products and may
include a number of different plans or versions of the industrial design.

Circular 29 provides detailed guidelines on the rules in Decree 63 (Article 5) which require that
an industrial design must be capable of mass producing products by industrial means and which
refuse protection for the external appearance of a building, for the appearance of a product
which cannot be seen whilst in use, and for the appearance of a product which only has
aesthetic value.



                                                                                                 53
In order to assess the novelty of a design, the NOIP will refer to all earlier industrial designs on
its database. The NOIP's working method is similar to that for inventions and utility solutions
(see below), namely it must select a "confronting" or the most similar known industrial design
and make a comparison of differences. The new design will be accepted if a "confronting"
design cannot be found.

The initial term of protection of an industrial design is 5 years from the filing date, renewable for
2 consecutive terms of 5 years. Owners of protected industrial designs have the exclusive right
to use, transfer or license the right to use such industrial design to other persons, the right to
request the NOIP to compel other persons to stop infringements, and the right to claim
compensation for damages caused by such acts of infringement (the Civil Code expressly
covers the making, selling and importing of designs which are “substantially a copy” of a
protected industrial design). Rights are restricted when provisions concerning prior user or
compulsory licensing are applied.

Inventions and Utility Solutions
Inventions and utility solutions are protected under the Civil Code, Decree 63 (as amended by
Decree 06) and now Circular 30-2003-TT-BKHCN of the Ministry of Science & Technology
dated 5 November 2003 Providing Guidelines for Implementation of Procedures for Protection
of Industrial Property Rights with respect to Inventions and Utility Solutions (which repealed the
inventions and utility solutions provisions of Circular 3055 as of 27 November 2003).

Circular 30 provides guidelines on: contents of an application for a certificate of protection of an
exclusive patent for an invention or utility solution, and procedures for submission and
verification of an application; procedures for issuance, amendment and re-issuance of
certificates of protection; suspension and revocation of certificates of protection; and fees
payable for certificates of protection. The procedures for application for a certificate of
protection are carried out at the NOIP. Applications are subject to examination as to form and
substance. The time-limit for examination as to form has been reduced to 1 month (from 3
months). The time-limit for examination as to substance is now 12 months (reduced from 18
months for inventions and increased from 9 months for utility solutions).

Circular 30 now gives substantive guidelines on what constitutes a "technical solution",
"novelty", "creativity" and "uniformity" of an application; and also on gene
sequences/biotechnical inventions. In some cases, full disclosure of inventions in application
documents is no longer required. Under Decree 63, protection is not available to (i) scientific
principles, theories and mathematical methods; aesthetic creations; economic management
methods and systems; educational, teaching, training methods and systems; computer programs;
designs and planning schemes for construction works; projects for regional development and
planning (none of which are considered as inventions); (ii) subject matter which should be
protected under other forms of protection, e.g. layout design of integrated circuits, or plant and
animal varieties; and (iii) inventions which are not industrially applicable, such as methods for the
prevention, diagnose, and treatment of human or animal diseases, essentially biological processes
for the production of plants or animals other than non-biological and microbiological processes.
Patent owners have the exclusive right to use, transfer, and license the right to use the invention
to other persons. They also have the right to demand that other persons stop infringements and
to seek compensation for damages caused by acts of infringement. The term of protection of a
patent is 20 years from the official filing date.

Layout Designs of Integrated Circuits
Under Decree 42-2003-ND-CP of the Government dated 2 May 2003 providing guidance on
protection of industrial property rights with respect to layout of integrated circuits, Vietnam now
provides protection for layout of integrated circuits belonging to Vietnamese and foreign
organizations and individuals. Adapting the Washington Treaty on IP in respect of Integrated
Circuits (“IPIC Treaty”) and the TRIPS Agreement’s wording, Decree 42 defines integrated
circuit as a product, in its final form or an intermediate form, in which the elements, at least one
of which is an active element, and some or all of the interconnections are integrally formed in
and/or on a piece of material and which is intended to perform an electronic function which is
often used inter-changeably with such terms as integrated circuit topography (“IC”), chip, micro-



                                                                                                  54
      electronic device. Topography is a three-dimensional configuration of miniature electronic
      circuits and interconnections of an integrated circuit. Together, integrated circuit topography is
      protected under Decree 42.

      Decree 42 does not protect: principles, process, methods performed by such IS, and
      information, software which are included in IC. Title for protection of an IC will be granted as
      soon as the originality can be proved, which means that IC must be a result of the creative
      working of the creator and not yet widely known among IC creators and manufacturers. This
      requirement of originality is basically the same as the one applied to copyright subjects. Decree
      42 stipulates that IP rights for an IC of the owner/author are established upon issuance of a
      certificate of registration of IC by the NOIP. The validity of the certificate commences on the
      date its issuance and lasts until one of the following times, whichever comes first: (1) the final
      date of the 10-year period from the granting of the certificate; (2) final date of 10-year period
      since application for the protection of an IC was submitted by an empowered applicant, or since
      such empowered person allowed the IC to be commercially exploited any where in the world; or
      (3) the final day of a 15-year period since the date of IC creation.

      Plant Varieties
      Protection of plant varieties is currently governed by Decree 31-CP on Innovations and
      Inventions, Inter-ministerial Circular 01-NN-KCM on Remuneration of Authors of Plant Varieties
      and Animal Species and Decree 07-ND-CP dated 5 February 1996 on Management of Plant
      Varieties. A plant variety needs to be novel, stable, uniform and useful to obtain protection, and
      only the creator of a plant variety is entitled to be registered with the MoST for author's rights.
      Authors are protected by a system of Plant Variety Author Certificates, valid for 15 years from
      the date of filing of the application. Apart from moral rights, the author of a protected plant
      variety has the right to remuneration paid by the users. The exclusive right over the plant variety
      belongs to the Government. Vietnam is currently considering provisions on the protection of
      new plant varieties in accordance with UPOV standards. Current regulations are outlined in
      Decree 13-2001-ND-CP dated 20 April 2001 on protection of new plant varieties and
      supplemented by Circular 119-2001-TT-BNN of the Ministry of Agriculture and Rural
      Development dated 21 December 1996 providing guidance to implement Decree 13-2001-ND-
      CP on protection of new plant varieties.

      In preparation for Vietnam’s accession to the UPOV Convention, the NA’s Standing Committee
      on 24 March 2004 passed Ordinance 15-2004-PL-UBTVQH on the Protection of Domestically
      Developed New Plant Varieties. According to the Ordinance, plant varieties first imported into
      Vietnam may also be protected as new plant varieties if they meet all legal requirements. The
      Ordinance details the "new" characteristic of plant varieties as (i) plant varieties which have
      never been traded in Vietnam; or (ii) plant varieties which have been traded overseas for a
      maximum 6 years for wooded plant varieties and grapes, and 4 years for other plant varieties.

      Foreign individuals and organizations are allowed to apply for plant patent protection in Vietnam.
      The Ministry of Agriculture and Rural Development still maintains the authority to grant a title of
      protection. The Ordinance provides a clearer and more specific test for new varieties. Tests
      comprise of the DUS test (in order to test the "distinctiveness", "uniformity" and "stability" of the
      plant) and VCU test (in order to test the value of cultivation and use of the plant) and will be
      conducted by an organization determined by the Ministry of Agriculture and Rural Development
      and the Ministry of Fisheries. The tests shall be made under a contract between the applicant
      and the testing organization. The Ordinance stipulates that the owner of a new plant variety
      must commercially utilize the new plant if it ultimately is enumerated on the National List of Plant
      Varieties which are acceptable for production. There is no change in the length of protection
      under the Ordinance. Grapes and wooded plant varieties are protected for 25 years and others
      for 20 years.

6.5   Enforcement of Intellectual Property Rights:
      Under Vietnamese law, right holders whose IP is infringed may choose to pursue administrative
      remedies (through administrative agencies under Ordinance 44-2002-PL-UBTVQH10 on
      Dealing with Administrative Offences dated 1 July 2002), civil remedies (through the civil court
      under Vietnam’s Civil Code), or criminal prosecutions (under Vietnam’s Criminal Code).




                                                                                                        55
Administrative Measures
Administrative procedures are the most practical and most often utilized means for enforcing IP
rights in Vietnam. They are also the most cost-effective and least time-consuming. They do
not, however, allow for substantial compensation awards.

Regulations on administrative remedies in the field of industrial property (patents, industrial
designs, utility models and trademarks) are provided under Decree 12-1999-ND-CP of the
Government dated 5 March 1999. The procedures as to how a right holder lodges a complaint
with the competent authorities is provided in the Law on Complaints and Denunciation dated 2
December 1998 (as amended by Law 26-2004-QH11 on Amendment of and Addition to Law on
Complaints and Denunciations dated 15 June 2004, effective as of 1 October 2004). Fines for
importers or manufacturers found to have infringed on trademarks range from VND5-20 million
(USD330-1300), and include suspension from circulation, confiscation and destruction of goods
and compulsory compensation.

Administrative recourse for copyright violations is governed by Decree 31-2001-ND-CP of the
Government dated 26 June 2001 on Dealing with Administrative Offences in the Culture-
Information Field.

Ordinance 44 raised the limit on fines of up to VND100 million for IP offences. Other penalties
include revocation of business license, confiscation and destruction of goods, and compulsory
compensation. Because Decrees 12 and 31 pre-date Ordinance 44, they are now repealed to
the extent that they are inconsistent with Ordinance 44. New decrees to replace Decrees 12
and 31 are expected to be issued in early 2005 to implement the Ordinance 44 reforms.

Vietnam’s MoCI has recently submitted to the Government its draft new decree to replace
Decree 31 dealing with administration fines in copyright violations. Under this draft decree, a
harsher punishment and higher fines are to be imposed on copyright infringers. Accordingly,
organizations or individuals involved in copyright offences may be subject to temporary or
permanent revocation of their business license, while producers and sellers of fake products
could face fines of up to 100 million VND. A fine of 1-3 million VND will be applied to
organizations or individuals giving false information regarding rights ownership of any item
instead of the current 0.5-2 million VND. Penalties will also be based on the value of the
property in question. A fine of 15-30 million VND is proposed for producers of counterfeit goods
worth 20-50 million VND.

The MoST submitted its proposed new decree to replace Decree 12 to the Government at the
end of October 2004 (after collecting opinions from IP agents and the NOIP in August-
September 2004). The new decree deals with IP offences in procedures for establishing and
exercising IP rights; in relation to consultancy services and IP representation; in relation to IP
obligations; in IP protection; in IP rights; counterfeiting; and illegal obstruction of IP
investigations, inspection and examination. As per Ordinance 44, penalties will increase to 100
million VND. The ambit of the new decree will be wider than Decree 12 in order to cover the
new areas of IP now protected under Vietnamese law (see Decree 54 and Decree 42 above).

Under Official Letter 2404-CV-VPCP dated 9 May 2005, the Prime Minister assigned the MoST
to coordinate with relevant ministries and state agencies to build and soon submit the draft law
on intellectual property and to study modifying the contents written in Decree 12 regulating
administrative breaches against intellectual property rights in accordance with the current
regulations.

Following promulgation of the Vietnamese Labeling Regulations in 1999, a number of new
administrative offences with respect to goods labeling were created, including trading,
transporting or storing for sale, and manufacturing or importing, any kinds of goods labels or
packages bearing signs which coincide with or are similar to protected trademarks, thus causing
confusion amongst them.

Civil Procedures
Although Vietnam's civil courts do not currently offer an effective remedy against IP infringement
(for various reasons including costly and time-consuming procedures), an IP holder has the right



                                                                                               56
to file civil proceedings against infringements of its IP rights and seek damages through the
courts.

As of 1 January 2005, the conduct of legal proceedings for all types of civil disputes, including
marriage and family, business and commercial, and labor matters ("civil proceedings") is
governed by the new Civil Procedure Code 24-2004-QH11 dated 15 June 2004 (replacing the
Ordinance on Procedures for Civil Cases dated 29 November 1989). The court of jurisdiction
over IP infringements or disputes in Vietnam is the people's court of the city or province where
the defendant's residence or head office is located (or, in prescribed circumstances, where the
plaintiff's residence or head office is located, where disputed property is located, or as elected
by the plaintiff) ("provincial people's court"). The plaintiff bears the burden of proving the alleged
IP infringement. The complaint submitted to the court must be accompanied by documentary
evidence of the IP rights concerned and proof of the infringement. In certain cases, the judge
may take prescribed measures to gather evidence. Litigants are entitled to representation by a
lawyer.

Under the Civil Procedure Code, during the course of (or, in undefined urgent cases, at the time
of commencement of) civil proceedings, concerned parties may apply to the court for application
of provisional measures to protect evidence or to prevent possible serious consequences,
including: prohibition on dealing with disputed property, freezing of bank accounts or assets,
specific non-performance or performance (Article 102). In some cases, a security deposit is
required to be lodged by the applicant to prevent abuse of provisional measures. Only a limited
range of provisional measures may be ordered by a court on its own initiative. Of note, the Civil
Procedure Code provides for compensation of persons adversely affected by the imposition of
provisional measures that were wrongfully determined and applied. Provisional measures will be
lifted upon request by the plaintiff, when performance of obligations are otherwise secured, or
when obligations terminate. Court decisions with respect to provisional measures are subject to
appeal. Vietnam is currently considering further detailed provisions on provisional measures
through a joint circular of the Supreme People's Court, the Supreme People's Procuracy and the
MoST.

In December 2001, Vietnam’s Supreme Court issued specific guidelines to ensure uniform
application of the Civil Code during the resolution of copyright disputes in civil courts. The
guidelines include information on the types of copyright disputes and jurisdiction, right to initiate
legal action, applicable laws involved, and guidelines for the co-ordination between courts,
inspectorates and copyright offices.

In a recent patent case, a Vietnamese pharmaceutical firm, Phu Tho Pharmaceuticals Joint
Stock Company (Fushico), was ordered (under Article 24 of Decree 54-2000-ND-CP of the
Government dated 3 October 2000 governing unfair competition relating to IP rights) to cease
production of its alcohol metabolism drug ME-21 as it violated the patent of American company
Spirit Science USA Inc. The NOIP concluded that Fushico was practicing unfair competition by
producing and distributing ME-21, which was ruled to be too “similar” to RU-21, a drug
manufactured by Spirit Science, and causing confusion for consumers. The ruling also directed
law enforcement agencies to force the domestic firm to suspend production and circulation of
the drug. RU-21 has been distributed on the Vietnamese market since May 2004 and went on
to be sold at 2,000 pharmacies across the country.

Criminal Procedures
In serious cases, IP rights infringers can be subject to criminal prosecution. Such cases
typically involve large volumes of goods. Vietnam’s Criminal Code provides for any person who
infringes IP rights for commercial purposes, causing serious consequences, or any offender who
has been punished administratively or convicted of the same or similar offences before his
criminal record has been expunged, to be fined from VND20-200 million. Counterfeiters or
traders of counterfeit goods (being foods, fertilizers, veterinary medicines, plant preservations,
animals and plant strains) could face punishment of 1-5 years imprisonment or up to 15 years in
serious cases. Counterfeiters or traders of counterfeit goods (food and medicines for humans)
may be imprisoned for a period from 2 to 7 years, and in serious cases may be subject to 20
years or life imprisonment or death penalty.




                                                                                                   57
An amended Criminal Procedure Code was passed by the NA on 18 November 2003 and
became effective as of 1 July 2004. Amended provisions with respect to investigations,
prosecutions and hearings are aimed at ensuring democratic rights during criminal proceedings,
the right of lawyers to participate, and the supervision of the whole process of criminal
proceedings. The People’s Procuracy will have the right to supervise prosecutions throughout
all stages, ensuring the right defendant is being prosecuted and for the correct crime. The head
of the Procuracy will be required to repeal (within 3 days) any decision to prosecute or not
prosecute by the head of the investigative body which is without grounds. Only the head of the
Procuracy will have the power to approve the arrest and detention of citizens. Lawyers are now
entitled to participate in the investigative stage immediately after someone is arrested, in order
to prevent infringement of the democratic rights and liberty of citizens. Lawyers will be able to
be present when the investigative body takes a statement from someone who is arrested or
temporarily detained and to read all minutes of legal proceedings and decisions relating to their
clients. During court hearings, lawyers will be entitled to lead evidence, to express their
opinions about the prosecutor’s argument and to submit their own proposals. For the first time,
the Criminal Procedure Code provides for complaints to be made with respect to application or
alteration of measures such as arrest and temporary detention.

Border Measures
Articles 57 and 59 of the Law on Customs dated 29 June 2001 (effective 1 January 2002)
provide substantive and procedural basis for owners of IP rights protected in Vietnam to register
their IP rights (including trademarks) with Vietnamese Customs and to request the provisional
suspension of customs procedures for imported or exported goods suspected of infringing IP
rights. Decree 101-ND-CP of the Government dated 31 December 2001 provides more detailed
guidelines on this area. To exercise this option, an owner of IP rights must submit a request
application, evidence of lawful IP rights, and evidence of infringement of IP rights to the customs
office; and pay in advance or submit a letter of guarantee issued by a credit institution for
potential compensation for any damage and expenses caused by an improper request for
provisional suspension of customs procedures.

Specific guidelines for customs protection of imports and exports subject to copyright were
issued in Interministerial Circular 58-2003-TTLT-BVHTT-BTC of the Ministry of Culture and
Information and the Ministry of Finance dated 17 October 2003. Effective as of 17 November
2003, Circular 58 prescribes in detail the procedures for registration at customs offices for
protection of goods subject to copyright (except humanitarian aid, temporary imports for re-
export, goods in transit and goods being gifts which are duty free according to customs law, to
which protection does not extend). Applicants may register for long-term protection of copyright
or protection on a consignment-by-consignment basis. Customs offices are responsible for
monitoring, identifying and inspecting consignments of goods which are suspected of infringing
copyrights as registered. Customs procedures will be suspended temporarily in respect any
consignment suspected of copyright infringement, pending verification of the legal status of
copyright in the goods. If a copyright infringement is verified, an administrative penalty will be
imposed (expenses and damages may also be payable). Of interest, Circular 58 entitles
copyright owners to assist customs offices in the task of copyright protection by providing
information relating to their registered copyrights; by providing training courses for customs
officers to recognize lawful copyright goods and copyright-infringing goods; by providing
financial support to customs offices for disposal by way of destruction of consignments of
copyright-infringing goods.

The MoST has issued Instruction 18-2004-CT-BKHCN on Strengthening Implementation of
Intellectual Property Rights and Management of Quality of Products and Goods Traded
Domestically and Products and Commodities for Export. According to the Instruction, the
MoST’s inspectors must cooperate with STAMEQ, the NOIP and other MoST services to devise
plans and urgently carry them out. The Instruction also requires inspectors to keep inspecting
and resolving administrative breaches of IP rights, including the quality of products and
commodities traded on the domestic market and products and goods for import and export.

Complementing Circular 58 above, specific guidelines on the implementation of border control
measures for imports and exports subject to IP rights were issued under Circular 129-2004-
TTLT-BTC-BKHCN of the Ministry of Finance and the Ministry of Science and Technology dated



                                                                                                58
      29 December 2004. Owners of IP rights (who may request customs offices to suspend customs
      procedures for imported and exported goods which are suspected of infringing their IP rights)
      include assignees of IP rights and licensees (with the co--operation of licensors). An owner
      being a Vietnamese legal entity may directly lodge an application; a foreign investor in a FIE in
      Vietnam may lodge an application via its FIE; a foreign legal entity with a certificate of IP
      protection in Vietnam but without any representation in Vietnam must lodge its application via an
      IP services organization. Applicants may register for general detection of infringements (for one
      year) in the case of "brand name" IP rights or for short-term protection (for 3 months) in cases of
      specific identified consignments of infringing goods. (The time-limits for protection may be
      extended by a further one year or 2 months respectively, but not beyond the duration of
      protection of the relevant IP. Customs offices must respond to applications for short-term
      protection within 24 hours (time-limit of 30 days applies for applications for long-term protection).
      Both types of application require the payment of a security sum of 20% of the value of the
      consignment or, if the value is unknown, a minimum security sum of VND20 million (or a bank
      guarantee to same value) to compensate the goods' owner for all expenses and damages if the
      goods are found not to infringe IP rights. If an infringement is detected, a temporary suspension
      decision will be issued for a 10 day period, during which time all parties have the chance to
      inspect the goods to collate evidence. Further action will only be taken if the applicant lodges
      another application requesting that the infringement be dealt with. If so, the customs office must
      (within 10 days) check the legal status of IP rights and decide if the goods in fact infringe those
      rights. The temporary suspension decision may be lifted in prescribed cases if the owner of the
      goods so requests, a sample is taken to provide a basis for dealing with the matter afterwards,
      and a security sum of 20% of the value of the goods as stated in the contract is paid.

      Other
      Following Official Letter 4992-VPCP-KG of the Office of Government dated 10 October 2003 in
      which the Prime Minister announced his in-principle approval of the proposal by a number of
      FIEs for the establishment of an association to combat circulation of fake goods and to promote
      building of brand names and protection of IP rights in Vietnam, the establishment of Vietnam
      Anti-Counterfeiting and IP Protection Association ("VACIP") was approved by the Ministry of
      Interior on 5 January 2005 under Decision 12-2005-QD-BNV. VACIP held its inaugural meeting
      in Hanoi on 12 April 2005. Under the management of the MPI, VACIP represents foreign
      invested businesses (currently close to 20 members, from pharmaceutical companies to
      software companies) in their dealings with functional agencies, such as market management
      bodies, economic police, customs, State IP bodies and the courts, to fight the production and
      trading of counterfeit goods.

      By Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of Solutions Aimed At Creating
      New Changes In The Work Of Attracting Foreign Direct Investment To Vietnam, the Prime
      Minister has directed the MoST to (in 2005) build a system for supply of information about IP via
      the Internet.


7.    Trade in Services
7.1   MFN and National Treatment:
      Ordinance 41-2002-PL-UBTVQH10 on MFN and National Treatment dated 25 May 2002
      provides for the extension of no less favorable treatment than that extended to a third country
      for like services and service suppliers in Vietnam. MFN is not applicable in the following cases
      including 1) the extension of and exceptions on MFN in services as stipulated in bilateral or
      multilateral agreements to which Vietnam is party to; 2) the advantages extended to services or
      service providers of adjacent countries in order to facilitate exchanges limited to contiguous
      frontier zones of services that are both locally produced and consumed; 3) preferential treatment
      extended to services and service providers as stipulated in regional economic agreements, free
      trade agreements and other agreements that Vietnam is party to; 4) the tendering activities of
      service providers on projects using funds from international organizations, other countries or
      other projects as stipulated by the Government; and 5) other cases as decided by the
      Government.




                                                                                                        59
      Ordinance 41 also extends no less favorable treatment than that accorded to like domestic
      services and service suppliers to services and service suppliers of another country. The
      provision of national treatment in general is subject to the following exceptions including: 1)
      procurement conducted by the Government of Vietnam; 2) Government subsidies and supports
      provided to domestic manufacturers and their use of domestic content products; 3) time
      allotment restrictions on broadcasting and television production and 4) domestic transportation
      costs calculated on the basis of commercial activities of transportation.

7.2   Legal Services (CPC861):
      Vietnam’s foreign legal services market is now regulated under Decree 87-2003-ND-CP of the
      Government dated 22 July 2003 on Practice by Foreign Lawyer Organizations and Foreign
      Lawyers in Vietnam (replacing Decree 92-1998-ND-CP) and implementing Circular 06-2003-TT-
      BTP of the Ministry of Justice dated 29 October 2003. Effective 1 September 2003, Decree 87
      substantially reformed the regulatory framework for the operations of foreign law practices and
      foreign lawyers in Vietnam, in particular expanding the scope of operation for foreign law firms to
      meet requirements of the BTA.

      Market Access and Commercial Presence
      Under Decree 87, a foreign law organization lawfully established and currently operating
      overseas (“offshore foreign law firm”) may be permitted to operate in Vietnam subject to the sole
      condition that it “has goodwill towards the State of Vietnam” (undefined). Previously, offshore
      foreign law firms wishing to operate in Vietnam were subject to additional requirements such as
      1) having foreign clients carrying on business and investment activities in Vietnam; 2) having a
      good reputation in providing legal consultancy services; 3) having an operational plan and
      undertaking to fulfill obligations; and 4) having material facilities necessary for its operations.

      Decree 87 provides for offshore foreign law firms to operate in Vietnam in the following 3 forms:
      1) “Branch” (established as a subsidiary of an offshore law firm); 2) “Foreign law firm”
      (established by one or more offshore foreign law firms); or 3)”Foreign-Vietnamese law
      partnership” (established between one or more offshore foreign law firms and one or more
      Vietnamese partnership law firms on the basis of a partnership agreement).

      Circular 06 clarifies that an offshore foreign law firm may establish any number of branches in
      Vietnam provided that they (i) implement separate application procedures for each branch and
      (ii) have only one office in each province, city under central authority. Under the former Decree
      92, the number of branches was limited at two. Foreign law branches licensed under the former
      Decree 92 may continue practicing until the date of expiry of the license. After the expiry date of
      the license, if they desire to continue practicing in Vietnam in form of a branch, they have to re-
      apply under Decree 87. Where foreign law branches wish to convert into onshore foreign law
      firms under Decree 87, they must submit an application for conversion to the MoJ.

      Domestic Regulation
      The scope of practice of foreign law firms in Vietnam has been substantially broadened under
      Decree 87. Foreign law practices are no longer restricted to advising on foreign and
      international law in the fields of business, investment and commerce. They are now permitted to
      “provide legal consultancy services and other legal services”, including consultancy on
      Vietnamese law where a foreign law practice a) employs a Vietnamese lawyer or b) employs a
      foreign lawyer who (i) has been issued with a certificate to practice in Vietnam, (ii) possesses a
      Vietnamese university law degree and (iii) has been issued with a certificate of satisfaction of
      conditions for providing consultancy on Vietnamese law. Circular 06 prescribes the contents of
      the application file and the procedures for issuance of (iii).

      Foreign law practices in Vietnam may employ Vietnamese lawyers (previously prohibited). The
      scope of legal consultancy and legal services by Vietnamese lawyers is unrestricted and may
      extend to foreign and international law as well as Vietnamese law. However, participation by



                                                                                                      60
foreign lawyers in Vietnamese court proceedings are prohibited still and further extended to
Vietnamese lawyers and trainee Vietnamese lawyers employed by foreign law practices. Of
note, under Circular 06, Vietnamese citizens who permanently reside in Vietnam and have a
foreign legal practicing certificate have the option to practice as a foreign lawyer in Vietnam if
they comply with the requirements of Decree 87.

Circular 06 provides detailed guidelines for implementation of Decree 87 with respect to:
-      Documentation to be submitted as part of an application to establish a foreign law
       practice in Vietnam, and authorization to sign such documentation;
-      Mandatory elements of the name of any foreign law practice in Vietnam;
-      Procedures for issuance and amendment of licenses for foreign law practices in Vietnam;
-      Establishment and registration of branches of onshore foreign law firms and foreign-
       Vietnamese law partnerships;
-      Consolidation and merger of onshore foreign law firms;
-      Temporary suspension of foreign law practices in Vietnam;
-      Employment of Vietnamese trainee lawyers;
-      Certification of foreign lawyers advising on Vietnamese law; and
-      Inspection of and reporting by foreign law practices in Vietnam.

Aspects of Circular 06 which are of particular interest include:
-     In order to be permitted to advise on Vietnamese law, foreign lawyers are required (i) to
      have been issued with a certificate to practice in Vietnam, (ii) to possess a Vietnamese
      university law degree and (iii) to be issued with a certificate of satisfaction of conditions
      for providing consultancy on Vietnamese law. Circular 06 prescribes the contents of the
      application file and the procedures for issuance of (iii).
-     Vietnamese citizens who permanently reside in Vietnam and have a foreign legal
      practicing certificate are given the option to practice as a foreign lawyer in Vietnam
      provided that they comply with the requirements of Decree 87.
-     Circular 06 clarifies that an offshore foreign law firm may establish any number of
      branches in Vietnam provided that they (i) implement separate application procedures for
      each branch and (ii) have only one office in each province, city under central authority
      (previously, the number of branches was limited at two).
-     Foreign law branches licensed under the former Decree 92 may continue practicing until
      the date of expiry of the license. After the expiry date of the license, if they desire to
      continue practicing in Vietnam in form of a branch, they have to re-apply under Decree
      87. Where foreign law branches wish to convert into onshore foreign law firms under
      Decree 87, they must submit an application for conversion to the MoJ.

Unfortunately, Circular 06 fails to clarify how advice is actually issued by a foreign law practice in
Vietnam which employs a foreign lawyer certified as permitted to advise on Vietnamese law or a
Vietnamese lawyer. Circular 06's failure to clarify this issue is regrettable, in particular because
it means the scope of permitted activities of foreign law practices in Vietnam remains unclear -
this is significant because a foreign law practice in Vietnam operating beyond the scope of its
permitted activities may be subject to a fine from VND10-20 million (and also, where aggravating
circumstances, revocation of its license).

The fees for the establishment, operation, registration, change of license, and practice
certificates of foreign law firms and foreign lawyers are regulated under Decision 75-2004-QD-
BTC dated 16 September 2004.

For more detailed information on Decree 87, please refer to our website at:
http://www.usvtc.org/Foreign%20Law%20Firms%20August%202003.pdf

A draft Law on Lawyers has been submitted to the National Assembly for consideration at its
October-November 2005 Session. The proposed Law will replace the Ordinance on Lawyers
2001 (pursuant to which the above Decree 87 and Circular 06 are issued). With respect to
foreign lawyers, the proposed Law enshrines (as the Ordinance does now) the principles for
practising as lawyers; the basic conditions, forms and scope of practice of foreign law
organisations and foreign lawyers in Vietnam (as well as their rights and obligations); and




                                                                                                   61
      provisions on remuneration and payment of costs. The MoJ circulated its draft for comment on
      22 June 2005.
7.3   Accounting and Auditing Services (CPC 862):
      Vietnam’s new Law on Accounting and Law on Statistics, both dated 17 June 2003, replace the
      1998 Ordinance on Accounting and Statistics and became effective as of 1 January 2004.

      Domestic Regulation
      The Law on Accounting regulates the contents of accounting work and the organization of
      accounting departments, accounting staff and professional accounting activities. The Law on
      Accounting is applicable to FIEs, foreign company branches and foreign company
      representative offices, individuals involved in accounting, as well as most Vietnamese entities.
      The Law includes general provisions on accounting duties and requirements (such as to record
      accurately, fully, promptly, clearly and truthfully all economic and financial transactions),
      accounting principles and standards, and accounting periods. The currency unit used in
      accounting activities is VND, with specific provisions for economic and financial transactions
      arising in a foreign currency. The language to be used in accounting is Vietnamese, with
      provision for accounting in foreign language in addition to Vietnamese.

      The Law includes detailed provisions on preparation, management and use of accounting
      vouchers (including electronic vouchers); accounting accounts, charts of accounts, and
      accounting books; preparation, auditing and publication of financial reports; accounting
      inspections; inventory of assets, preservation and archiving of accounting data; accounting work
      upon division, demerger, consolidation, merger, conversion of form of ownership, dissolution,
      termination of operation, or bankruptcy. With respect to accounting departments and
      accountants, the Law includes detailed provisions on organization of accounting departments;
      standards, rights and responsibilities of accountants; duties, standards and conditions for chief
      accountants; responsibilities and rights of chief accountants. The Law also includes provisions
      on persons who are not permitted to act as accountants and provisions on accountancy
      practice; hiring accountants and chief accountants; accountancy practicing certificates;
      professional accountancy associations.

      In order to be issued an accountancy practicing certificate, a foreigner must satisfy the following
      standards and conditions:
      - be permitted to reside in Vietnam;
      - have a certificate as an accounting expert or an accountant’s certificate issued by a foreign or
         international accountancy organization recognized by the MoF;
      - pass examinations held by the competent State body in Vietnamese law on economics,
         finance and accounting.

      Detailed regulations for implementation of the Law on Accounting with respect to entities
      engaged in business operations were issued under Decree 129-2004-ND-CP of the
      Government dated 31 May 2004. Effective as of 30 June 2004, Decree 129 governs accounting
      by FIEs, foreign branch offices and representative offices of foreign companies operating in
      Vietnam, as well as SOEs and private Vietnamese entities.

      Decree 129 stipulates the standards and conditions for appointment of a person to act as chief
      accountant. In the case of FIEs, the chief accountant must have professional accounting
      qualifications and skills at the university or higher level and at least 2 years actual accounting
      work experience; or professional accounting qualifications and skills at the college level and at
      least 3 years actual accounting work experience. In the case of foreign branch offices, the chief
      accountant must have professional accounting qualifications and skills at the intermediary or
      higher level and at least 3 years actual accounting work experience.

      As an alternative to an internal personnel appointment, a business entity may hire an external
      accountancy firm or certified practicing accountant to act as its chief accountant and/or
      accounting personnel. In all cases, the person appointed as chief accountant must have
      attended and passed a chief accountant training course in accordance with regulations of the
      Ministry of Finance.




                                                                                                      62
        Accountancy firms may be established and operate in one of three forms: limited liability
        company, partnership, or private enterprise. A certified practicing accountant may register a
        sole practice. Decree 129 regulates accountancy examinations, issuance of accountancy
        practicing certificates, training courses, the scope of accounting services which may be
        provided, and the rights and responsibilities of accounting personnel.

        Complementing Decree 129, the Government issued separate detailed regulations applicable to
        the State accounting sector in Decree 128-2004-ND-CP of the Government dated 31 May 2004.
        Decrees 128 and 129 follow after Decree 40-2004-ND-CP of the Government dated 13 February
        2004 providing guidelines for implementation of the 2003 Law on Statistics.

        Implementing Decree 129, Circular 13-2005-TTLT-BKC-BLDTBXH of the Ministry of Finance
        and Ministry of Labour, War Invalids and Social Affairs dated 7 February 2005 provides detailed
        guidelines on the standards, conditions, procedures for appointment and removal, and
        determination of salary of the chief accountant or person responsible for accounting in business
        organizations.

        New regulations on auditing have been issued under Decree 105-2004-ND-CP of the
        Government dated 30 March 2004. Effective as of 21 April 2004, Decree 105 replaces Decree
        07-ND-CP of the Government dated 29 January 1994 on Independent Auditing. The new
        regulations govern the auditing of accounting materials, data and financial statements of
        enterprises in Vietnam (including FIEs) and the auditing profession in Vietnam. Under Decree
        105, all FIEs, banks, insurance companies, listed firms, SOEs and balance sheets of projects in
        nationally important Group A must be audited. Under Decree 105, Vietnamese auditing firms
        may be established in the form of partnership, private enterprise or FIE. Decree 105 requires
        existing State owned, limited liability and shareholding auditing companies to convert into one of
        those 3 forms within 3 years (by April 2007). Decree 105 requires an auditing firm to have at
        least 3 certified practicing auditors (previously 5 under Decree 07), 1 of whom must be involved
        in management of the firm.

        Foreign auditing firms are still required to establish FIEs in order to participate fully in the
        auditing sector in Vietnam. However, of significance, Decree 105 now allows foreign auditing
        firms to participate in auditing activities in Vietnam by other more limited means:
         (i)   A foreign auditing firm may admit a Vietnamese auditing firm as a member of its
               organization; audits must be performed in the joint names of the foreign and Vietnamese
               firms;
         (ii)  A foreign auditing firm may co-operate with a Vietnamese auditing firm (including a FIE)
               in order to perform a one-off audit in Vietnam but the audit report must be signed by the
               Vietnamese auditing firm;
         (iii) A foreign auditing firm may independently perform an audit in Vietnam and circulate the
               audit report in Vietnam only with the approval of the Ministry of Finance for each specific
               audit.

        In (i) and (ii) above, 1 of the 2 auditors signing the audit report must be a Vietnamese auditor.
        To work within an auditing firm in Vietnam, a foreign individual must be issued with an auditors
        practicing certificate after passing the MoF exam and must attend annual updating courses.
        Also of significance, Decree 105 expands the range of activities which Vietnamese auditing
        firms may undertake. In addition to auditing services, firms may now register to provide the
        following services: financial consultancy; tax consultancy; manpower resources consultancy; IT
        application consultancy; management consultancy; accountancy services; property valuation
        services; finance, accounting and auditing training; and other relevant finance, accounting and
        tax services in accordance with law. Notably, an auditor may not be involved in the audit of an
        entity at the same time as or within a year of providing these other services to that entity.

        Detailed guidelines for implementation of Decree 105 with respect to the auditing profession and
        auditing requirements were issued under Circular 64-2004-TT-BTC of the Ministry of Finance
        dated 29 June 2004.

        Decree 105 has recently been amended by Decree 133-2005-ND-CP of the Government dated
NEW!!   31 October 2005. Decree 133 provides for auditing enterprises to be established and operate in



                                                                                                       63
various forms, such as limited liability company, partnership company, private enterprise and
foreign invested enterprise, and requires the form to be publicized during operations.

New regulations on auditor entrance examinations and issuance of auditor certificates and (now
also) accountant practising certificates have been issued with Decision 59-2004-QD-BTC of the
Ministry of Finance dated 9 July 2004. Under the new Regulations, Vietnamese individuals and
foreign residents in Vietnam who satisfy prescribed qualifications (including having a bachelor
degree in economics specializing in banking-finance or accounting-auditing and having worked
in the finance-accounting-auditing sector for at least 5 years or as an assistant auditor in an
auditing enterprise for at least 4 years) may sit the entrance exam to qualify to practise auditing
or (now also) accounting in Vietnam. Persons already possessing a foreign auditing or
accounting practising certificate and wishing to be issued with a Vietnamese auditing practising
certificate must sit an exam in knowledge of relevant Vietnamese laws. Persons issued with an
auditor’s certificate are permitted to register to practise as an auditor and provide auditing,
accounting and other services as stipulated in Decree 105 above and to register for the
business of accounting services as stipulated in Decree 129 above. Decision 59 repeals the
former Decision 53-2002-QD-BTC of the Ministry of Finance dated 23 April 2002 and its
Regulations on entrance examinations and issuance of auditor certificates (which replaced
Decision 237-TC-QD-CDKT dated 19 March 1994).

Decision 76-2004-QD-BTC of the Ministry of Finance dated 22 September 2004 provides
regulations on the criteria and conditions for auditors and auditing firms to be approved to audit
listed companies, securities brokers, and investment fund management companies has been
issued; the cases when approved status of auditing firms may be suspended or revoked; and
the rights and obligations of approved auditing firms. Domestic auditing companies are required
to have a minimum chartered capital of 2 billion VND while foreign auditing firms are required to
have at least USD300,000. Both domestic and foreign auditing firms must have at least ten
auditors on the payroll, meet regulated standards, have been established and operating in
Vietnam for at least five years, and have at least thirty annual audited clients. In addition,
foreign practising auditors must have practised auditing in Vietnam for at least two years. The
MoF will select and approve all auditing firms and auditors every two years.

Effective as of 29 November 2004, Decree 185-2004-ND-CP of the Government dated 4
November 2004 on Dealing with Administrative Offences in Accounting Sector is applicable to
domestic and foreign individuals and organizations. Decree 185 covers offences relating to
accounting vouchers, accounting books and accounts, financial statements, accounting
inspections, maintenance and retention of accounting documents, asset inventory, accounting
personnel, accountancy practices, application of accounting standards and systems. Sanctions
include fines from VND200,000 to VND20 million. Additional measures, such as license
revocation, may be imposed. New offences, such as signature of accounting vouchers beyond
competence, delayed submission of financial statements, and accountancy practice without
business registration or practicing certificate, have been prescribed.

On 22 December 2004, the MoF issued Circular 122-2004-TT-BTC Providing Guidelines for the
Implementation of Accounting and Auditing Regulations Applicable to Enterprises and
Organizations with Foreign Owned Capital Operating in Vietnam. Circular 122 applies to JVEs,
100%FOEs and BCCs under the Law on Foreign Investment in Vietnam; foreign law branch
offices; commercial branches; foreign petroleum contractors; and permanent establishments in
Vietnam of foreign companies and other foreign organizations and individuals conducting
business in Vietnam other than in investment forms pursuant to the Law on Foreign Investment.
All of these entities must apply the Vietnamese accounting system; to apply another accounting
system or an adjusted version of the Vietnamese accounting system, the prior approval of the
MoF is required. Circular 122 provides in detail for this application process, as well as
reiterating many of the accounting and auditing obligations prescribed in the Law on Accounting
and Decree 129. Circular 122 replaces Circular 60-TC-CDKT of the Ministry of Finance dated 1
September 1997 and its amending Circular 155-1998-TT-BTC of the Ministry of Finance dated 8
December 1998.

The SBV has issued specific regulations on independent auditing of credit institutions under
Decision 121-2005-QD-NHNN dated 2 February 2005. To qualify to audit a credit institution, an



                                                                                                64
auditing business must meet prescribed requirements, including minimum chartered capital of
VND3 billion for domestic auditing firms and USD300,000 for foreign auditing forms and at least
10 qualified auditors, of whom at least 3 must be assigned to audit the credit institution and the
firm must have been operating in Vietnam for at least 3 years. Credit institutions are required to
prepare and submit to the authorities an annual financial report, balance sheet of expenses and
income and documents supporting financial reports.

Detailed provisions for implementation of the Law on Statistics were issued under Decree 40-
2004-ND-CP of the Government dated 13 February 2004.

Accounting Standards
On 31 December 2001, the MoF released the first batch of Vietnamese accounting standards.
Effective as of 15 January 2002, the four new standards are largely based on International
Accounting Standards (IAS) and comprise norms on inventories (Standard 02); tangible fixed
assets (Standard 03); intangible fixed assets (Standard 04); and revenue and other income.
(Standard 14). Circular 89-2002-TT-BTC of the Ministry of Finance dated 9 October 2002
provides guidelines for implementation of the above 4 accounting standards.

The second batch of Vietnamese accounting standards based on IAS was released by the MoF
on 31 December 2002 under Decision 165-2002-QD-BTC. Effective as of 1 January 2003, the
six new standards comprise: general standard on accounting (Standard 1); lease of property
(Standard 06); impact of changes in foreign exchange rates (Standard 10); construction
contracts (Standard 15); financing costs (Standard 16), and cash flow statements (Standard 24).
Circular 105-2003-TT-BTC of the Ministry of Finance dated 4 November 2003 provides
guidelines for implementation of the above 6 accounting standards.

On 30 December 2003, the MoF released six more Vietnamese accounting standards,
applicable to businesses of all economic sectors. Decision 234-2003-QD- BTC lists the six
standards, namely real estate and property investment - regulations and guidelines on principles
and accounting approach (Standard 05); Accounting of investments in business associations -
regulations and guidelines on principle and accounting approach (Standard 07); Financial
information on capital contribution to joint-ventures - regulations and guidelines on principles
and accounting approach (Standard 08); Presentation of financial statement - regulations and
guidelines on principles and methodology for preparation and presentation of financial
statements (Standard 21); Consolidated financial statement and accounting of investments in
affiliates (Standard 25); and Information on involved third-parties (Standard 26).

Six more Vietnamese accounting standards applicable to all businesses were issued under
Decision 12-2005-QD-BTC of the Ministry of Finance dated 15 February 2005, including
corporate income tax (Standard 17), additional financial reports of banks and financial
organizations (Standard 22), figures if occurring after the closure of annual accounting period
(Standard 23), financial reports of the half of a year (Standard 27), sectional reports (Standard
28), replacement of accounting policies, estimates and shortcomings (Standard 29). Decision
12 became effective as of 23 March 2003.

Circular 55-2002-TT0BTC of the Ministry of Finance dated 26 June 2002 Providing Guidelines
on Vietnamese Enterprise Accounting System Applicable to Enterprises and Organizations with
Foreign Owned Capital Operating in Vietnam provides revised guidelines for application of the
Vietnamese accounting system by FIEs in Vietnam, including projects licensed under the Law
on Foreign Investment (100% FOEs, JVEs and BCCs) and other foreign entities (resident
establishments of foreign companies in Vietnam, branches of foreign law firms, commercial
branch offices, petroleum contractors and other foreign contractors conducting business in
Vietnam). The revised guidelines apply as from the year 2002.

A new regime for management, use and depreciation of fixed assets has been issued under
Decision 206-2003-QD-BTC of the Ministry of Finance dated 12 December 2003, replacing the
former Decision 166-TC-QD-CSTC of the Ministry of Finance dated 30 December 1999 The
new depreciation regime is applicable as of the fiscal year 2004.




                                                                                               65
      On 18 April 2005, the MOF issued 3 Standards on Price Evaluations in Vietnam under Decision
      24-2005-QD-BTC: Market prices as the basis for an evaluation of assets (TDGVN 01) - Price
      evaluation organizations, and valuers must use data from market transactions in normal
      commercial conditions when they use market prices as the basis for evaluation of assets;
      Professional ethics for entities practicing as asset valuers (TDGVN 03) - Any client who request
      an evaluation and third parties who use the results of an evaluation must be aware of this
      standard; and standards for the reporting of results, files, and certificates for the evaluation of
      assets (TDGVN 04).

      Auditing Standards
      The MoF is building a Vietnamese auditing system that will bring the country in line with
      international auditing standards.

      Decision 143-2001-QD-BTC of the Ministry of Finance dated 21 December 2001 introduced 6
      new standards (on fraud, planning, risk assessment and internal supervision, sample selection,
      checking of audit estimates, and internal audits). Decision 28-2003-QD-BTC of the Ministry of
      Finance dated 14 March 2003 issued another 5 new standards for external audit of financial
      statements, including: quality control of auditing activities (Standard 220); essentials in audits
      (Standard 320); additional auditing evidence in respect of special accounting and events
      (Standard 501); events occurring after the closing date of books of accounts (Standard 560);
      using other auditors’ materials (Standard 600).

      Another six auditing standards were issued under Decision 195-2003-QD-BTC of the Ministry of
      Finance dated 28 November 2003 and became effective as of 1 January 2004. These include
      auditing in informatics technology (Standard 401); relating parties (Standard 550); constant
      activities (Standard 570); auditing reports on special audits (Standard 800); review of financial
      reports (Standard 910); inspection of financial statements on advanced consensus (Standard
      920).

      Under Decision 03-2005-QD-BTC of the Ministry of Finance dated 18 January 2005, another six
      accounting standards have been promulgated, including: permission from MoF if auditors want
      to use outside support services for its auditing work (Standard 402); using documentary
      materials provided by specialists (Standard 620); comparative information (Standard 710); other
      information written in auditing documentary papers including financial reports already audited
      (Standard 720); services in synthesizing financial information (Standard 930); and auditors
      permitted to make balance sheets of finished investment capital (Standard 1000).

      New regulations on the issuance of auditor practising certificates have been issued under
      Decision 59-2004-QD-BTC of the Ministry of Finance dated 9 July 2004 (see "Domestic
      Regulation" under this Section 7.3).

7.4   Advertising Services (CPC 871):
      The Ordinance on Advertising was passed on 16 November 2001 and came into force as of 1
      May 2002. Implementing regulations were issued under Decree 24-2003-ND-CP of the
      Government dated 13 March 2003 (and became effective 18 April 2003), followed by detailed
      guidelines issued under Circular 43-2003-TT-BVHTT of the Ministry of Culture & information
      dated 16 July 2003.

      Market Access and Commercial Presence
      Foreign advertising service providers (organizations and individuals) have long been able to
      open representative offices in Vietnam but such offices are not permitted to engage directly in
      advertising activities. The Advertising Ordinance provided, for the first time, for foreign
      advertising service providers to be able to establish branch offices to engage directly in
      advertising activities. Under the Advertising Decree, the following conditions must be satisfied
      for a foreign advertising service provider to establish a branch:
       -      it must have valid business registration for advertising business in its home jurisdiction;
       -      it must have operated for at least 5 years as from the date of its business registration;
              and
       -      it must have had a representative office in Vietnam for at least 7 years (this 7 year period
              will be calculated from December 2001) and have not breached the laws of Vietnam.



                                                                                                       66
Of note, this last condition will delay the licensing of foreign advertising branch offices in
Vietnam until December 2008 at the earliest.

The Advertising Ordinance provides for foreign advertising service providers to co-operate with
domestic advertising service providers to invest in the Vietnamese advertising market. The
Advertising Decree elaborates as follows:
 -      Foreign direct investment may only be conducted in the form of a BCC or JVE. (As
        noted above, foreign investment may be implemented indirectly via branches or
        representative offices in Vietnam)
 -      Only domestic advertising service providers with a business registration certificate
        issued by a provincial-level Business Registration Office are permitted to co-operate
        with foreign investors.
 -      BCCs and JVEs must be licensed by the MPI. Provincial and municipal people’s
        committees do not have any licensing authority with respect to foreign investment in the
        advertising sector.
 -      During the foreign investment evaluation process, the opinion of the MoCI (as well as
        other relevant State bodies) must be obtained by the MPI. In determining its opinion,
        the items to be evaluated by the MoCI include: the degree to which the project complies
        with advertising master planning; the technical and technological standard of the
        advertising by the foreign investor; the socio-economic benefits; the scope and sector of
        advertising; other regulations of the law on advertising.

Domestic Regulation
The Advertising Decree also includes detailed provisions on application files for and issuance of
licenses for foreign advertising branch offices and representative offices of foreign advertising
business, the scope of activities of branch and representative offices, and provides for the MoCI,
and provincial and municipal people’s committees to have authority to issue, amend or revoke
branch office and representative office licenses respectively. Specific regulations on foreign
advertising branches and representative offices are provided to be issued by the Government,
but have not yet been.

Under the Advertising Ordinance, advertising permits are required to be issued for a range of
advertisements. Permits for advertisements on computer information networks, for specialized
advertising programs on radio and television and for specialized advertising printed material are
issued by the MoCI. Permits for advertisements on billboards, placards, panels, banners and
screens placed in public places, on objects illuminated or appearing in the air or underwater, on
means of transportation or on other mobile objects are issued by local Departments of Culture &
information.

The Advertising Decree sets a time-limit of 10 working days (from date of application) for
issuance of advertising permits, but also prescribes a number of prior conditions to be satisfied
for advertisements of products to which Vietnamese industry or other standards compulsorily
apply; medical drugs, raw materials for making up medical drugs, cosmetics, vaccines,
biological immunizing products, medical instruments and equipment, medical services and
foodstuffs; biological products servicing plant cultivation and livestock breeding, feed for
livestock, veterinary drugs, plant protection agents, fertilizer, seed and seedlings. Of particular
note, the Advertising Decree omits the requirement for a certificate confirming legal import to be
submitted in order to obtain a permit to advertise foreign goods imported into Vietnam.

Specific regulations on advertising permits will be issued by the MoCI. For example, Circular 43
provides detailed guidelines with respect to a number of specific types of advertisements,
including advertisements in newspapers, advertisements for alcoholic beverages and tobacco,
outdoor advertisements, and advertisements on the internet. Circular 43 also deals in more
detail with the procedures and authority for registration of advertisements on the internet and
licensing of outdoor advertisements, as well as the responsibilities of local Departments of
Culture & information for State administration of advertising. A number of sample forms are
issued with Circular 43, including application for registration of an advertisement on the internet;
application for an advertising permit; advertising permit; and application for a foreign advertising
branch or representative office license.



                                                                                                 67
      The Ministry of Finance has issued Circular 67-2004-TT-BTC dated 7 July 2004 providing for the
      regime of collection, payment and management of use of fees for issuance of advertising
      permits. Reportedly, fees are capped at VND1 million.

      Specific sub-regulations on advertising in the HCMC area were issued under Decision 108-
      2002-QD-UB of the HCMC People’s Committee dated 25 September 2002. In large part, the
      HCMC advertising regulations repeat the provisions of the Advertising Ordinance, but also
      provide for detailed restrictions on advertising, including that of size, location and length of time
      of advertisements. The HCMC advertising regulations provide for advertising permits to be
      issued by the Department of Culture & information (or the district people’s committee, in some
      cases). Permit application procedures are prescribed. Permits will be only issued in
      accordance with the master plan for advertising in HCMC.

7.5   Communication Services:
      Ordinance 43-2002-PL-UBTVQH10 on Posts & Telecommunications dated 25 May 2002 (which
      became effective as of 1 October 2002) reforms the existing State monopoly in the posts and
      telecom sector in light of Vietnam's international commitments. The State monopoly remains
      with respect to provision of postal services to the public but domestic mail delivery services have
      been opened to enterprises from all economic sectors. With respect to telecoms, there will no
      longer be a State monopoly over provision of network infrastructure, but provision of network
      infrastructure is still restricted to SOEs or State controlled enterprises. However, telecom
      services have now been opened to enterprises from all economic sectors.

      Under Decree 157-2004-ND-CP of the Government dated 18 August 2004 making detailed
      provisions for implementation of a number of articles of the Ordinance on Posts and
      Telecommunications with respect to Post, Vietnam Post (“VNP”) retains its monopoly over the
      public post network throughout Vietnam. Other enterprises are permitted to engage in domestic
      and international mail delivery only. To do so, such enterprises must satisfy the conditions
      prescribed in Decree 157 and apply for a license from the Ministry of Posts &
      Telecommunications ("MoPT"). All FIEs are excluded from engaging in domestic mail delivery.
      Only JVEs are permitted to engage in international mail delivery. The capital contribution ratios
      of the foreign and Vietnamese parties in a JVE engaging in international mail delivery will be as
      determined by the Prime Minister. VNP and enterprises conducting international mail delivery
      are entitled to be agents of foreign mail delivery enterprises subject to approval of the MoPT. In
      an attempt to resolve the issue of liability for damage in the posts sector, Decree 157 stipulates
      the cases in which the various enterprises supplying postal services in Vietnam will be
      responsible for compensation for any damage caused.

      Decree 160-2004-ND-CP of the Government dated 3 September 2004 making detailed
      provisions for implementation of a number of articles of the Ordinance on Posts and
      Telecommunications       with   respect   to    Telecommunications    specifically   regulates
      telecommunication networks and services, operations of service providers and users, licensing
      procedures, establishment of service provider networks, public telecom services and service
      prices and provides guidelines on the design, installation and subscription of terminals, fixed
      telephone service, mobile phones, selling or leasing mobile phone terminals, and telecom
      services. Only SOEs or an enterprise in which the State holds controlling shares or special
      shares will be licensed to establish telecom networks. Enterprises from any sector may be
      licensed to provide telecom services (abolishing Vietnam Post & Telecom’s monopoly over the
      provision of telecom services).

      Decrees guiding the implementation of Ordinance 43 with respect to frequencies and
      investigation are also scheduled to be drafted by the MoPT and passed by the Government.

      By Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of Solutions Aimed At Creating
      New Changes In The Work Of Attracting Foreign Direct Investment To Vietnam, the Prime
      Minister has directed the Ministry of Industry to (in the second quarter of 2005) work with the
      MPI to repeal restrictions, in line with unilateral and multilateral undertakings, on FDI in the
      sectors of posts and telecoms (conditions for investment, forms of investment, conversion from
      BCC to JVEs etc.).



                                                                                                        68
Circular 01-2005-TT-BBCVT of the Ministry of Posts and Telecommunications dated 6 May
2005 provides guidelines for implementation of Decree 157 with respect to international mail
delivery services (see Section 7.10 on Express Delivery Service below).

Industry Regulator
Under Decree 90-2002-ND-CP of the Government dated 11 November 2002 on Functions,
Duties, Powers and Organizational Structure of the Ministry of Post and Telecommunications,
the MoPT is responsible for regulation of the communications industry.

Basic Telecommunication Services

Under Decree 160, basic telecommunications services are defined as fixed and mobile calls,
including calls via satellite, data transmission, video transmission, leased channels, telex and
maritime television.

Market Access and Commercial Presence
Cross border supply and foreign invested commercial presence for provision of basic telecom
services is currently restricted to BCCs with Vietnam’s gateway operators authorized to provide
basic telecom services. Under the BTA, Vietnam has committed to allow U.S. companies to
establish 49% U.S. equity JVEs beginning in December 2005 (for non-voice services such as
data) and beginning in December 2007 (for voice telephone services).

In 2002-2003, with the lifting of the State monopoly of telecom services, new domestic service
providers such as Military Communications Co (Vietel), the semi-private Saigon Posts and
Telecommunications (Saigon Postel), and the Electricity Telecommunications and Information
Company (ETIC) have entered the market. VNPT has also allowed one of its affiliates, Cable
and Telecommunications Material Co (SACOM), to undergo privatization and it is now listed on
Vietnam's stock exchange. ETIC, an affiliate of the state utility Electricity of Vietnam, now has a
license to lease its cables for domestic long-distance service. The monopoly on international
basic telecommunication services is however expected to continue although Vietnam Shipping
Telecom Company (Vishepel) has applied to provide this service and is expected to receive its
license in the next two years.

The country’s first privately invested mobile phone venture based on CDMA technology has
recently been introduced. S-Fone, is a project operated by a South Korean joint venture, SLD
Telecom (SK Telecom, LG Electronics and Dong A Telecom), and the semi-private Saigon Post
and Telecommunications Co (Saigon Postel).

Cost-based Pricing
On 27 October 2003, the Prime Minister issued Decision 217-2003-QD-TTg to lower post and
telecoms fees. Effective as of 14 November 2003, Decision 217 provides that post and
telecoms fees must be calculated on the basis of input costs and be comparable to telecoms
rates in the region and the world. Where it is deemed necessary, "the State will make
interventions to stabilize telecoms fees to protect the legitimate rights and interests of users and
telecoms businesses". Decision 217 also reportedly seeks to prevent unhealthy acts of
competition by regulating the charges of services provided by long-time big players to
newcomers. Accordingly, telecoms connection charges for corporate clients shall be based on
market prices. Affiliates of a telecoms service company will be charged the same as other
corporate clients for the same service, and no price discrimination is allowed. Both the MoPT
and the MoF will have to calculate and consider a price frame for the telecoms fees before
submitting the rates to the Government for approval. Decision 217 is another effort by the
Government to further open up the market to young players, several of whom have made
repeated complaints about unfair acts by the VNPT to knock out potential rivals. Decision 217 is
also expected to herald a new cost-cutting move among industry players.




                                                                                                 69
Value-Added Telecommunication Services

Under Decree 160, value-added telecom services include e-mail, voice mail, online data access,
electronic data exchange, restoring, sending and accessing facsimiles, code and protocol
exchange and data and information processing.

Market Access and Commercial Presence
Foreign investment in the provision of value-added telecom services is currently restricted to
BCCs with Vietnamese partners authorized to provide such services. Under commitments
made in the BTA, Vietnam has agreed to permit U.S. companies to establish 50% U.S. equity
JVEs with Vietnamese partners to provide value-added telecom services such as email,
voicemail, fax services, data and code services, beginning in December 2003. For Internet
services, this commitment phases-in in December 2004. The MPI is reportedly preparing to
allow foreign investors to establish JVEs in value-added telecom services in order to meet
Vietnam's commitments under the BTA. To introduce such reform, the foreign investment
regulations (Decree 24-2000-ND-CP of the Government dated 31 July 2000) would have to be
amended.

New rules easing restrictions on the provision of internet services were issued under Decree 55-
2001-ND-CP of the Government dated 23 August 2001. Non-State owned or controlled
enterprises are now eligible to provide internet access services in Vietnam and the former
monopoly of Vietnam's telecom regulator, the General Department of Post &
Telecommunications ("GDPT"), over provision of internet connection services has been
abolished (effective 7 September 2001).

Gateway provider Vietnam Data Corp (VDC) has recently signed an agreement with Singapore’s
Singtel to be its primary Internet bandwidth provider. Another contract has been signed
between VDC and US based Teleglobe Communications to open direct satellite
communications circuit with North America IP trunk to increase international data transmission
speed. In another significant development, the GDPT has awarded Financing & Promotion
Technology ("FPT") Company and Vietnam’s military-owned telecom company, Vietel licenses
to provide internet access services, breaking VDC’s monopoly in this sector. Several additional
Internet Access Providers (IXPs) are expected to be licensed by 2005, as are 40 Internet
Service Providers (ISPs) and numerous Online Service Providers. (OSPs). 8 of VNPT’s affiliate
companies including VDC have been converted into limited liability companies, still owned by
the State but now operating under the Law on Enterprises and open to competition. U.S.
telecom firm ITXC Corp has recently signed a deal with Vietel giving it access to IXTC's global
Internet-based network. Vietel is one of 4 State-run telecom firms and its service is currently
limited to domestic VOIP calls. VNPT has also recently launched Asymmetric Digital Subscriber
Line (ADSL) high speed Internet service under a joint venture with Korean Telecom.

Domestic Regulation
Circular 04-2001-TT-TCBD of the General Department of Post & Telecommunications dated 20
November 2001 provides guidelines for implementation of Decree 55, including detailed
provisions on the rights and obligations of internet-related enterprises and the conditions and
procedures for licensing.

On 27 June 2003, the MoPT issued Decision 476-QD-BBCVT on Implementation of Provision of
Internet Telephony Services in Form of Domestic and International PC to PC and Out-going
International PC-to Phone and Official Letter 1091-BBCVT providing guidelines on provision of
Internet Telephony services. 7 new companies offering international calls via the internet have
been licensed by the MoPT since then in an effort to speed up introduction of the new service.
The new providers, called OSPs or Connection Internet (OCI), belong to information technology
and telecommunication service provider EIS-and TIE, an electricity import-export company
based in Ho Chi Minh City. 4 enterprises which are authorized by the MoPT to provide internet
telephone services are VNPT, Saigon Post and Telecom Joint Stock Company, FPT and the
One Connection Inc. (OCI).

Implementing Decree 55, Circular 09-2003-TT-NHNN of the State Bank of Vietnam dated 5
August 2003 (effective as of 2 September 2003) governs the provision of banking services on



                                                                                             70
     the internet (for which permission from the SBV Governor is required) as well as the use of
     intranets by organizations and entities within the banking sector (which are not permitted to be
     connected directly to the internet and which must be managed by a specific-purpose
     management committee established within the organization or entity).

     Notwithstanding the easing of restrictions on internet service provision, there is no expectation
     of any easing of "content" restrictions in the internet sector. Under Decision 27-2002-QD-
     BVHTT of the Ministry of Culture & information dated 10 October 2002, permits are required to
     be obtained by Vietnamese and foreign entities from the MoCI prior to the establishment of and
     supply of information via websites on the internet. It remains unclear whether websites
     containing information about Vietnam but which are hosted on overseas servers are also subject
     to the permit requirements under Decision 27. Foreign entities (including FIEs) must submit
     application files comprising a pro-forma application, notarized copies of investment license or
     representative office license, a detailed plan on supplying information on the website, and the
     CVs of persons responsible for contents of the website and of members who supply information.
     A time-limit of 30 days is fixed for the processing of permit applications. The type of information
     which may be supplied via websites on the internet is also restricted.

     Advertisements on the Internet are also subject to regulation. Guidelines on registration of such
     advertisements were included in Circular 43-2003-TT-BVHTT of the Ministry of Culture &
     information dated 16 July 2003 (for more details on advertising, see 7.4 above).

7.6 Construction Services (CPC 511, 512,513, 514, 515, 516, 517, 518)
    Construction services in Vietnam are currently governed by the Law 16-2003 QH11 on
    Construction dated 26 November 2003. Effective as of 1 July 2004, the Law provides an overall
    structure for conducting construction activities in Vietnam, including the rights and obligations of
    both domestic and foreign organizations and individuals investing in construction of works and
    engaging in construction activities.

     To implement the new Law on Construction, the revised foreign investment regulations
     (amended in March 2003) and the revised tendering regulations (amended in July 2003), the
     Government has issued new regulations on the management of foreign construction contractors
     in Vietnam. Decision 87-2004-QD-TTg of the Government dated 19 May 2004 issuing
     Regulations on Management of Operations of Foreign Contractors in the Construction Sector in
     Vietnam governs the operations of foreign contractors – organizations or individuals; head
     contractors, general contractors, contractors in partnership or sub-contractors – in the sectors of
     construction consultancy, supply of technological materials and equipment where that forms part
     of technical services relating to construction works, and execution of construction works.
     Decision 87 maintains that a foreign contractor must be issued with a contractor’s permit in
     order to operate in Vietnam. This permit remains specific to the construction contract being
     performed. In all cases, a foreign contractor must have a partnership with a Vietnamese
     contractor or must engage a Vietnamese sub-contractor (unless exempted by the Prime Minister
     or under Vietnamese Law). For more information on the Law on Construction and Decision 87,
     please              refer              to              the             following               link:
     http://www.usvtc.org/Documents/Misc/Legal%20Docs%20by%20Phillips%20Fox.htm

     Updated administrative procedures for issuance of permits to foreign contractors operating in
     the construction field in Vietnam have been issued under Circular 05-2004-TT-BXD dated 15
     September 2004. According to Circular 05, the Ministry of Construction issues/withdraws
     permits to/from foreign contractors being organizations, which execute tender packages
     belonging to Group-A projects and other tender packages located in two or more provinces.
     Local Departments of Construction are responsible for foreign contractors executing Group-B
     and C projects.

     Policies for taxation of foreign construction contractors have been revised under Circular 05-
     2005-TT-BTC of the Ministry of Finance dated 11 January 2005, effective as of 16 February
     2005 (see Section 8.14 on Foreign Contractors below).

     To implement the new Law on Construction, on 7 February 2005, the Government issued
     Decree 16-2005-ND-CP on the Management of Investment Projects for Construction of Works.



                                                                                                      71
      Effective 5 March 2005, Decree 16 provides guidelines on formulation and implementation of
      investment projects for construction of works; on contracts in construction activities; and on
      conditions applicable to capability of organizations and individuals for project formulation, for
      survey and design, and for execution and supervision of execution of building works. Decree 16
      replaces the provisions on management of construction activities and tendering for construction
      projects in Decree 52-1999-ND-CP of the Government dated 8 July 1999 on Management of
      Investment and Construction (as amended) and Decree 88-1999-ND-CP of the Government
      dated 1 September 1999 on Tendering (as amended). So now, under Decree 16, the tendering
      and management rules for construction projects are separate from and, somewhat confusingly,
      different from the rules for projects for procurement of assets and selection of consultants. The
      most significant reform under Decree 16 is the abolition of the requirement for JVEs and BCCs
      with 30%+ State interest to conduct tendering for construction projects in accordance with
      Vietnamese tendering rules (for more information on tendering, see Section 10.3 on
      "Tendering"). Guidelines on a number of matters relating to formulation, appraisal and approval
      of construction projects and dealing with implementation of Decree 16 were issued under
      Circular 08-2005-TT-BXD of the Ministry of Construction dated 6 May 2005.

      Under Decision 15-2005-QD-BXD dated 25 April 2005, the Ministry of Construction issued new
      regulations on issuance of practising certificates for architects and engineers engaged in
      construction.

7.7   Distribution Services (CPC621, 622, 631, and 632)
      Vietnam’s new Commercial Law was ratified in June 2005 and will become effective as of 1
      January 2006. It regulates foreign participation in the distribution sector. The new Commercial
      Law provides for a separate regulatory framework for FIEs "specializing" in import and
      distribution activities (i.e. where no manufacturing is undertaken) under the control of the MoT.
      FIEs undertaking commercial activities in addition to manufacturing will remain under the control
      of the MPI. For more information on the Commercial Law and its draft implementing regulations,
      please refer to Section 5.8 on “Trading Rights – Foreign Enterprises.”

      To date, foreign investment licenses in the distribution sector have been issued on a case by
      case basis. Under commitments made in the BTA, beginning in December 2004 (i.e. three
      years after entry to force of the BTA), U.S. companies may establish JVEs with Vietnamese
      partners to engage in distribution services, with up to 49% U.S. equity. Beginning in December
      2008, or seven years upon entry into force of the BTA, 100% U.S. invested distribution
      companies will be permitted. One retail outlet may be established as a right, while additional
      outlets will be considered on a case-by-case basis. For some industrial products, Vietnam’s
      market access limitations in the distribution services sector are subject to the additional
      limitations contained in a separate Annex to the Agreement, which provides phase-out periods
      for such restrictions (BTA, Annex D).

      Franchise Services
      Until recently, franchising was not expressly regulated in Vietnam. Since early 2005, franchising
      has been regulated under Vietnam's technology transfer laws. Under Decree 11-2005-ND-CP
      of the Government dated 2 February 2005 on Technology Transfer (see Section 8.9 on
      "Technology Transfer" below), a "grant of special commercial right", by which the transferee
      may use the commercial name, trademark and know-how of the transferor in order to conduct
      business activities, is recognised as a form of technology transfer. Accordingly, Decree 11
      requires franchise contracts to be registered at the MoST.

      Effective as of 1 January 2006, franchising will be regulated under Articles 284 – 291 of the new
      2005 Commercial Law. Franchising is defined as a commercial activity whereby a franchisor
      authorizes and requires a franchisee to conduct on its own behalf the purchase and sale of
      goods or provision of services in accordance with the following conditions: 1. the purchase and
      sale of goods or provision of services must be conducted according to the method of business
      organization specified by the franchisor and be associated with the trademark, trade name,
      business know-how, business mission statements, business logo and advertising of the
      franchisor; 2. the franchisor has the right to control and offer assistance to the franchisee in the
      conduct of the business. This definition is wider than that under Decree 11.




                                                                                                       72
Detailed provisions implementing the 2005 Commercial Law with respect to franchising are
expected to be issued by the Government in the last quarter of 2005. Of note, according to the
MoT's second draft of the proposed implementing decree, the 2005 Commercial Law's
regulations on franchising will repeal the franchising provisions of Decree 11 as of 1 January
2006. The draft implementing decree regulates: inbound franchising (from a foreign country into
Vietnam); domestic franchising (within the territory of Vietnam); outbound franchising (from
Vietnam to foreign countries). Of interest, in the case of outbound franchising, the parties may
agree on the applicable law (failing agreement, the law of Vietnam will apply); in all other cases,
the law of Vietnam must apply.

Under the draft implementing decree, all franchising must be implemented on the basis of a
written franchise contract. The contents, duration and termination of franchising contracts are
regulated in detail in the draft implementing decree. Any provisions relating to industrial
property rights must form a separate part of a franchise contract and will be subject to
Vietnamese industrial property laws. The duration of a franchise contract may be negotiated by
the parties but it must be at least five years (of note, early termination may be provided for). All
franchising activities (inbound, domestic and outbound) must be registered. The MoT will
conduct registration of inbound and outbound franchising. The Department of Trade of the
province or city under central authority in which the franchisee is located will conduct registration
of domestic franchising. (Of interest, under the MoT's first draft of the implementing decree,
registration depended on contract value: contracts above VND1 billion were registered with the
MoT; all other contracts were registered with the local Department of Trade, except domestic
franchising contracts valued below VND500 million, which were not required to be registered).
Under the second draft implementing decree, the documents to be submitted for registration
include a standard form application (to be issued by the MoT), a copy of the franchising contract,
disclosure documents (as prescribed in an appendix to the draft implementing decree), and
written certification of legal entity status of the contracting parties (or representatives) and any
certificate of protection of industrial property rights in Vietnam. Documents must be submitted
for registration within 15 days of signing the franchising contract; and the relevant registration
body must complete registration within 5 days. Of note, the 2005 Commercial Law imposes
responsibility for registration on the prospective franchisor. Further, the draft implementing
decree requires any contract for the transfer of the right to use industrial property rights to be
registered (separately and additionally) in accordance with Vietnamese industrial property laws.

The draft implementing decree stipulates the conditions to be franchisors and franchisees and
the goods or services which are allowed to be franchised. Prescribed conditions for
organizations and individuals to become franchisors include: (i) being lawfully established, (ii)
having been in operation for two years, (iii) being the legal owner of the relevant commercial
rights. Franchisees are subject to condition (i) above and, also, must have business registration
for the business line in conformity with the object of commercial rights granted under the
franchise contract.

The draft implementing decree requires any franchising activities being implemented prior to its
date of effectiveness to be registered within three months from such date of effectiveness.

Direct or Pyramid Distribution
Multi-level selling (also known as pyramid selling) is now regulated under the Law on
Competition, promulgated by the NA on 3 December 2004 and to become effective as of 1 July
2005. The Law on Competition prohibits enterprises from conducting 4 acts in order to sell
goods at multi-levels aimed at obtaining illegal profit from employment of new participants: (1)
requiring persons who wish to participate to pay a deposit or to buy a fixed quantity of goods in
the first instance in order to have the right to participate in multi-level selling of goods; (2) failing
to undertake to re-acquire the goods sold to the participant at least 90% of their original price;
(3) allowing participants to receive commission, bonuses and/or other economic benefits only or
essentially only from their enticing other participants into the network for multi-level selling of
goods; (4) providing false information about the benefits of participation in the network for multi-
level selling of goods or false information about the quality and use of goods in order to entice
other participants.




                                                                                                      73
     Detailed guidelines on multi-level selling have been issued under Decree 110-2005-ND-CP of
     the Government dated 24 August 2005 on Supervision of Multi-level Selling of Goods. For
     goods to be permitted to be sold by multi-level selling, they must satisfy the following conditions:
     they must comply with standards stipulated by law on product quality, safety and hygiene; the
     source, country of origin, function and use of the goods must be clear and lawful; the goods
     must be correctly labelled in accordance with law; they must not be goods prohibited from multi-
     level selling (including goods subject to prohibition on or restriction on circulation; counterfeit
     goods; illegal imports; human medicines; all vaccines and biological products; medical
     equipment; veterinary drugs; plant protection agents; chemicals; insecticides and disinfectants
     used in domestic home sector and health sector; raw materials for manufacture of medicines;
     and all types of toxic chemicals). These restrictions are an attempt to avoid recent problems
     with ambiguous health foods and healthcare products, medicines and medical apparatus.
     Under Decree 110, an enterprise may only retail its product by multi-level selling after obtaining
     a certificate of satisfaction of business conditions from the local Department of Trade. A fee is
     payable. Five business conditions must be satisfied. One condition is the payment of a deposit
     of 5% of the enterprise’s charter capital (but not less than VND1 billion) to a commercial banks
     operating in Vietnam. This deposit is security for payment of commissions and bonuses to
     participating sellers and for the cost of re-acquiring goods from participating sellers in the event
     that the multi-level selling enterprise is unable to pay such amounts. Other conditions include:
     having a transparent and lawful Sales Plan (which details the method of paying bonuses, the
     standard form contract which the enterprise will sign with participants and all other agreements
     containing provisions on the rights and obligations of participants, the information about quality
     standards or quality certificates (if any), the prices, use and method of use of the goods for sale,
     and the provisions relating to warranty, return and buy back of the goods for sale); and having a
     clear program for training participants (which details the matters on which training will be
     provided, duration of training courses, order and procedures for issuance of certificates of
     having passed training courses, and duration and contents of periodic up-dating courses for
     participants). Only individuals with full capacity for civil acts are permitted to act as participating
     sellers, excluding persons who are currently subject to a prison sentence or who have a criminal
     record regarding manufacture or trading of counterfeit goods, dishonest advertising, illegal
     business, tax evasion or defrauding customers, or who have committed crimes being
     misappropriation of property, abuse of trust in order to obtain property, or illegal retention of
     property. Foreign individuals and overseas Vietnamese must have a work permit in order to
     multi-level sell in Vietnam. Multi-level selling enterprises must formulate their own Operating
     Rules (guidelines on methods of conducting transactions) and participating sellers must comply
     with those Rules. Decree 110 details the multi-level selling practices which are prohibited.
     Multi-level selling enterprises must report to the local Department of Trade every six months on
     the number of participants, on turnover, and on the amount of tax paid by the enterprise,
     including personal income tax on behalf of participants. Damages are payable by a multi-level
     selling enterprise or by a participant for loss caused by any breach by them respectively (eg.,
     providing untruthful information to consumers, failing to provide complete information when
     sponsoring a new participant to a multi-level sales network). Decree 110 requires all existing
     multi-level sellers to apply for a certificate from the local Department of Trade within 3 months of
     the date of effectiveness of Decree 110 (ie by the end of 2005) The MoT is yet to issue
     guidelines on the main contents of a sample contract for multi-level selling activities (as provided
     for in Decree 110).

7.8 Educational Services (CPC 923)
    For-profit foreign invested education projects are regulated by the Law on Foreign Investment in
    Vietnam, Decree 06-2000-ND-CP of the Government dated 6 March 2000 on foreign co-
    operation and investment in the fields of medical examination and treatment, education and
    training, and scientific research; and Circular 14-2005-TTLT-BGD&DT-BKH&DT of the Ministry
    of Education and Training and Ministry of Planning and Investment dated 14 April 2005.

     The immediate issuance of Circular 14 by the Ministry of Education and Training ("MoET") was
     instructed by the Prime Minister in Directive 13-2005-CT-TTg dated 8 April 2005 On A Number
     Of Solutions Aimed At Creating New Changes In The Work Of Attracting Foreign Direct
     Investment To Vietnam. The Prime Minister also instructed the MoET to submit to him in the
     second quarter of 2005 a master plan for a network of universities to be used as the basis for
     attracting FDI consistent with the schedule for implementing international undertakings.



                                                                                                         74
Not-for-profit foreign invested education projects are regulated under Decree 18-2001-ND-CP of
the Government dated 4 May 2001 issuing Regulations on establishment and operation of
foreign cultural and educational establishments in Vietnam and implementing Circular 15 of the
Ministry of Education and Training dated 31 March 2003. International co-operation in the
education sector is regulated under Decree 165-2004-ND-CP of the Government dated 14
September 2004.

Market Access and Commercial Presence
Under Decree 06 and Circular 14, for-profit foreign invested education projects may be licensed
in the following areas of education and training:
(a)     Education at all levels (from nursery school through to university and postgraduate, and
        including short-term training) for foreigners currently living and working in Vietnam;
(b)     High school education (for students in grades 10 to 12) for foreigners and Vietnamese;
(c)     Specialized (not vocational) secondary schooling and short-term training (foreign
        language teaching and upgrading professional skills and qualifications) for foreigners and
        for Vietnamese;
(d)     Tertiary (college, university and postgraduate) education for Vietnamese and foreigners.

Under Decree 06 and Circular 14, for-profit foreign invested education projects may take the
following forms:
-       JVEs, BCCs and 100% FOEs may be established to undertake (a), (c) and (d) above;
-       Pilot JVEs and BCCs may be established in Hanoi and HCMC to undertake (b).

The conditions for establishment and operation of foreign invested educational projects under
Decree 06 and Circular 14 include:
-       The educational project must accord with the strategy for the development of education
        and the master plan for the network of education and training establishments of
        Vietnam as approved by the authorized State body. Also, there must be written
        approval for the project from the local people's committee of the province or city under
        central authority. If the project is for college or university level education which is not
        yet mentioned in the master plan, the MPI and the MoET will investigate and make a
        submission to the Prime Minister for his consideration and decision on a case-by-case
        basis.
-       They must have qualified teaching staff as stipulated by the law of Vietnam and
        maintain prescribed staff-to-student ratios.
-       They must have technical infrastructure, facilities and equipment commensurate with
        the scale and level of education and training.
-       They must have appropriate curricula and curricula content as stipulated by the Law on
        Education and other relevant provisions.
-       Investors must have sufficient financial capability to implement the investment project.
        Prescribed minimum investment rates apply.

As stipulated in Decree 06 and Circular 14, licensing of foreign invested education projects is in
accordance with the foreign investment regulations, which provide that projects at the pre-
tertiary, college or university level are subject to Prime Ministerial approval (although the actual
license application is submitted to the MPI). Projects at all other levels are subject to licensing
by the MPI. Provincial and municipal people's committees have no licensing authority with
respect to foreign invested education projects.

Of note, Official Letter 180-VPCP-QHQT of the Office of Government dated 10 January 2003 on
Consideration of Foreign Invested Projects in the Field of Education and Training suspended
the consideration and licensing of new foreign invested projects in the field of university
education until issuance of guidelines by the MoET for implementation of Decree 06. Any
applications for investment projects in the field of university education which were already
under consideration at the time of Official Letter 180 were permitted to continue to be
evaluated, but on the basis of the following principles: balancing regional master planning;
priority to high quality manpower training, the scientific and technical branches, cutting edge
technology, and the selection of entities with adequate capability and experience in university
training and with an international reputation, ensuring a stable team of lecturers and a quality



                                                                                                 75
training program, with the necessary material facilities. Now that guidelines have been issued
under Circular 14, the consideration and licensing of new foreign invested projects in the field of
university education will recommence.

For more information on foreign investment in for-profit education                 projects,   see
http://www.usvtc.org/updates/legal/PhillipsFox/EducationUpdate-May2005.pdf

Under Decree 18 and Circular 15, the following types of not-for-profit foreign invested
educational establishments (“FEEs”) may be established in the areas of pre-school education,
primary and secondary school, tertiary and post-graduate education:
-     Representative office, with the task of representing its parent foreign educational
      organization in promoting and formulating co-operative projects and programs in the
      education sector which are of interest to Vietnam; and of activating and supervising the
      implementation of agreements on co-operation in education which have already been
      signed with Vietnamese educational organizations;
-     Joint FEE, established on the basis of an international treaty to which the Socialist
      Republic of Vietnam is a signatory, or on the basis of an agreement between a foreign
      party and a Vietnamese educational organization;
-     Independent FEE, the operation of which are organized and managed by a foreign
      educational organization and all costs of constructing the material and technical facilities
      are borne by such organization.

Circular 15 stipulates the following sectors as those in which the Government encourages the
opening of FEEs: training technicians; training scientific and management personnel to a high
level in the fields of economics, technology, technical sciences, natural sciences and
environment; and training experts in the field of culture, fine arts, music and information.
Circular 15 also details the contents of and procedures for submission and evaluation of license
application files for establishment of FEEs. The Prime Minister has licensing authority with
respect to independent FEEs and tertiary and postgraduate FEEs (although the actual license
application is submitted to the MoET). The MoET has licensing authority with respect to other
FEEs. Circular 15 also provides guidelines on registration and termination of operations and on
inspection of FEEs.

Domestic Regulation
All foreign invested education projects are subject to the Law on Education. A new Law on
Education was approved at the NA’s May 2005 Session and will become effective as of 1
January 2006. It will replace the old 1998 Law on Education. As under the 1998 Law, the new
Law on Education provides for a system of education generally consisting of 4 levels: (i)
kindergarten education, (ii) "general education", including primary education (grades 1-5), lower-
secondary education (grades 6-9) and upper-secondary education (grades 10-12), (iii)
vocational education, and (iv) university education, including undergraduate and post graduate
education. There are also other forms of education for specific purposes, such as remote
learning, continuing education, etc. Most notably, primary education and lower-secondary
education will be compulsory as of 2006. Under the 1998 Law, only primary education was
compulsory. The entrance examination from primary school to lower-secondary school will be
abolished. The MoET will no longer be responsible to write textbooks used in schools and
universities. Such responsibility will be vested in schools and universities. The MoET will only
promulgate the framework curricula on which textbooks must be based, and will approve
textbooks based on inspection.

Where for-profit foreign invested educational projects provide education for foreigners only, the
curricula and curricula content is required only to be registered with the authorized State body.
Where they provide education for students who are Vietnamese citizens, the curricula and
curricula content must be approved by the authorized State body and a number of specific
requirements are imposed under Circular 14. Of note, Circular 14 prohibits foreign invested
educational establishments from teaching religion.

Decree 165 provides in detail for the legal framework for international cooperation in the
education sector by Vietnamese bodies (such as ministries, Government bodies, provincial-level
people’s committees, socio-political organizations, schools and educational establishments) with



                                                                                                76
    foreign parties. Decree 165 focuses on international co-operation in the form of ODA and
    foreign non-governmental aid funded cooperation projects and programs with foreign parties;
    exchange of information and experience in education sector; and international conferences,
    meetings and seminars on domestic and foreign education.

    The new Law on Education specifies that the Government is responsible to issue regulations on
    co-operation with foreign countries in education and establishment of foreign-invested schools in
    Vietnam. Given that the provisions on foreign investment in education in the new Law on
    Education are unchanged from the 1998 Law, it is unlikely that any new education decrees will
    be issued to replace those discussed above.

7.9 Financial Services

    Insurance

    Vietnam’s insurance industry is regulated by the Law on Insurance Business dated 9 December
    2000 (effective 1 April 2001), implementing Decree 42-2001-ND-CP of the Government dated 1
    August 2001 and Circular 98-2004-TT-BTC of the Ministry of Finance dated 19 October 2004,
    and Decree 43-2001-ND-CP of the Government dated 1 August 2001 and Circular 99-2004-TT-
    BTC of the Ministry of Finance dated 19 October 2004 on financial regime applicable to insurers
    and insurance brokers.

    Market Access and Commercial Presence
    Under the Insurance Law, foreign invested insurers and brokerage companies are permitted to
    set up full business operations in Vietnam in the form of 100% FOEs or JVEs with Vietnamese
    partners. However, 100% FOEs are only permitted “subject to the development needs of
    Vietnam’s insurance market”, and subject to consideration such as the number of existing
    suppliers, the operation of these enterprises, and their impact on the stability of the market,
    overall economy, and society. Representative offices may also be established, but may not
    conduct business operations.

    Under the BTA, Vietnam agreed to allow market access for the cross-border supply of insurance
    services to FIEs or foreigners working in Vietnam. Three years after the entry into force of the
    Agreement (December 2004), U.S. companies will be permitted to form JVEs with a Vietnamese
    partner, as long as U.S. equity participation does not exceed 50%. Five years after entry into
    force (December 2006), percentage limitations on U.S. equity will be eliminated. For a period of
    three years (between December 2001 and December 2004) after the effective date of the
    Agreement, companies with U.S. equity participation are prohibited from providing motor
    vehicle, construction and other types of “mandatory” insurance. After this period, JVEs with
    some U.S. equity participation will be permitted to provide this type of insurance, and after six
    years (December 2007), 100% U.S.-invested companies may be licensed to do so. Until five
    years after the effective date of the Agreement (December 2006), reinsurance must be
    conducted through the Reinsurance Company of Vietnam and must be in a minimum proportion
    of 20%.

    Currently, four 100% FOEs have licenses to provide life insurance services in Vietnam – AIA,
    Prudential, Manulife Financial Corporation, and ACE. Allianz currently has license to provide
    non-life insurance services. US based Crawford Company has also been granted a 100%
    foreign owned license to provide investigative services to insurance companies, self-insured
    companies and government entities.      In May 2003, Vietnam approved a license for France’s
    Gras Savoye to provide insurance brokerage services. U.S. insurer Marsh Inc. has recently
    received a 50-year operating license, becoming the third 100% foreign-owned company to offer
    brokerage services in Vietnam.

    U.S. companies currently seeking licenses to sell directly to the Vietnamese market include New
    York Life, Liberty Mutual, and AIG.

    In an attempt to de-politicize the market entry process of foreign insurance companies seeking
    licenses in Vietnam, the MoF is reportedly drafting new regulations and criteria for the approval
    of licenses for foreign invested insurance companies. These rules are reportedly based on



                                                                                                  77
similar provisions issued by China’s Insurance Regulatory Commission (CIRC) in May 2004.
[China’s Detailed Implementing Rules on the Administration of Foreign Insurance Companies
(13 May 2004) came into effect on 15 June 2004 and include requirements and application
procedures for foreign insurers’ opening new branches, rules on foreign insurers; disbanding,
liquidating and closure. The rules stipulate that foreign funded insurers operating in China need
to have no less than USD24 million in registered capital or operational capital and that those
that have not met this requirement must do so within two years after the rules come into force.
China’s rules also clarify regulator’s obligations including how long the CIRC (in this case 20
days) has to decide on the approval of applications. To view the PRC’s Detailed Implementing
Rules on the Administration of Foreign Insurance Companies (13 May 2004) – currently
available     only    in    Chinese        –    please     click   on    the     following    link:
http://www.circ.gov.cn/policy/list_detail.asp?Auto_ID=200]

Domestic Regulation
Under Vietnam’s Insurance Law which applies to both domestic and foreign companies, all
insurance companies must: (1) have at least USD10 million in capital; (2) have experienced and
effective management; and (3) they must provide economic proof that there is a need for such
services.

In 2003, the Prime Minister approved Decision 175-2003-QD-TTg dated 29 August 2003 on the
Strategy for Development of the Insurance Market in Vietnam for the 2003-2010 Period. The
strategy restricts the licensing of foreign invested insurance businesses operating in Vietnam
must conform to the market development scope and requirements, the integration roadmap and
international commitments. Decision 175-2003-QD-TTg states that to receive a license, a
foreign-invested insurance company should: (1) be a large company with experience in the
insurance business with an international network; (2) be a company of a country that is a big
investor or have a large trade and investment volume with Vietnam; (3) be a company with long
term investment, and contribute to market development through training cooperation programs,
technology transfer, and technical assistance to Vietnam.

The strategy further calls for the mobilization of "domestic and foreign resources for socio-
economic development" and is aimed at developing a "comprehensive, safe and healthy
insurance market in response to the demand of the economy and inhabitants, ensuring that
organizations and individuals alike have access to insurance by international standards". It
recognizes the need to "raise enterprises' business and financial capacity to meet the demand
of competition and international integration".

According to Decision 175, foreign invested insurance businesses which invest their collected
insurance premiums in Vietnam will be entitled to the investment mechanisms and policies as
provided for domestic insurance businesses. They are also entitled to expand the content and
scope of operation and increase their charter capital if they satisfy the conditions prescribed by
law.

On 22 September 2003, the MoF introduced (under Decision 153-2003-QD-BTC) a new system
of "watchdog" indicators which insurers must calculate and report to the MoF at the same time
as they lodge their annual financial reports. The new system applies to all insurers in Vietnam
(State owned, private and foreign invested life and non-life insurers) as from financial year 2003.
The new system is designed to detect as early as possible any risk of insolvency of an insurer
so that measures can be taken promptly to resolve such risk and to protect the lawful interests
of insured persons. The new system is designed as a tool for external supervision by the MoF
but also as a tool for internal supervision by insurers themselves.

Under Decree 118-2002-ND-CP of the Government dated 13 October 2003, which became
effective as of 2 November 2003, administrative offences in the insurance sector include
breaches of licensing provisions, unauthorized assignment of insurance contracts, unlawful
competitive acts (such as providing false information about insurance conditions; obstructing,
enticing, bribing, or threatening staff or clients of other insurers, insurance agents or insurance
brokers; unlawful promotions; agreements in restraint of competition causing loss to insurance
purchasers), forcing persons to buy insurance or to use insurance or reinsurance broking
services, breaches of mandatory capital, security deposit and reserve requirements, and



                                                                                                78
breaches of capital investment restrictions and solvency requirements. Insurance businesses
may be fined up to VND20 million for unlawful competitive acts, up to VND5 million for forcing
persons to buy insurance, and up to VND30 million for breaches of capital investment
restrictions and solvency requirements. A fine of up to VND70 million may be imposed on any
insurer which fails to maintain solvency at any time during its operation.

Effective as of 1 January 2005, Circulars 98 and 99 introduce significant changes in Vietnam's
insurance industry (replacing Circular 71-2001-TT-BTC of the Ministry of Finance dated 28
August 2001 and Circular 72-2001-TT-BTC of the Ministry of Finance dated 28 August 2001
respectively). Circular 98 provides detailed guidelines for the establishment and operation of
insurance enterprises, insurance brokers, insurance marketing activities, reinsurance, insurance
agents, and representative offices of insurance enterprises and foreign insurance brokers in
Vietnam. Of interest, Circular 98 provides the following major changes:

-   Applicants for a license to operate as an insurer or insurance broker will not be able to use
    their real estate holdings to prove financial capacity.
-   The regulations requiring insurers to register their insurance rules, terms and conditions,
    and premium rates have been altered on the principle that insurers are liable for the legality
    of these application files, so the procedures have been simplified and the MoF will now just
    certify that an insurer has fulfilled its obligation to register within the time-limit of 3 days from
    the date an insurer lodges complete documents. The MoF will no longer automatically
    check the contents of the application during the registration process, however, as industry
    regulator, it retains the right to check if it so wishes.
-   The provisions requiring insurers to obtain approval of life, health and personal accident
    insurance products prior to underwriting same have been expanded. Insurers must now file
    more material comprising sample form for request for insurance cover, the insurer's
    explanatory material on its products and services, sales literature and sample forms of
    information which a client must disclose and sign when purchasing insurance. In the case of
    life products which distribute dividends, the bases for calculating premium for the proposed
    product must include principles, methods and the percentage dividend distribution the
    insurer promises to clients which must not be less than 70% of the total revenue from the
    insurance contract following the method agreed by the MoF. (This provision will only apply
    to contracts signed as from 1 January 2006). The application file for approval of a life
    product must be signed by the appointed actuary.
-   There is a completely new section on appointed actuaries of life insurers, for the first time in
    Vietnam (although applicable in many other markets around the world). It will also apply as
    from 1 January 2006. The aim is to make the life product design stage more professional
    and to raise the quality of financial management of insurers. An appointed actuary must
    have at least 5 years' work experience as an actuary in the life insurance sector, and be a
    member of an internationally recognized association of actuaries. The requirement in an
    earlier draft of Circular 98 for an appointed actuary to have Vietnamese citizenship has not
    been adopted. The actuary must be approved by the MoF, and will fulfil tasks of signing
    applications for approval of insurance products, establish mathematical reserves for life
    insurance contracts, approve distribution of any annual surplus of the policy owners' fund,
    and maintain a watch over the insurer's solvency.
-   Insurers may only arrange reinsurance overseas with companies which comply with
    international credit ratings; and insurers may only retain a maximum liability for each risk or
    each loss up to 10% of owner's equity.
-   The provisions on agents have been amended so that any agent who commits a serious
    breach of law will be unable to obtain an agency with another insurer for 3 years.
-   Insurers are now restricted to using a maximum of 2% of insurance premiums actually
    retained in a fiscal year to expend on measures of loss prevention and limitation.

Circular 99 provides for the following notable changes:
-   The sections on establishment of insurance reserves by non-life insurers and by life
    insurers have been re-written.
-   For non-life insurance, the method of establishing unearned premium reserve as a
    percentage of total insurance premiums will be abolished from January 2006, and in the
    meantime the unearned premium reserve for goods' insurance has been increased from




                                                                                                      79
    17% to 25% of the total retained premiums, being consistent with international practice and
    making for a safer industry.
-   Circular 99 also contains detailed instructions for non-life insurers using the method of
    establishing reserves as a co-efficient of the term of insurance contracts, and the provisions
    on the reserve for payment of unresolved claims have been re-written for consistency with
    international practice and to make the reserve more accurate.
-   The regulations on reserving by life insurers have also been re-written, but both non-life
    insurers and life insurers may use more prudent or more conservative reserving methods
    than those specified in Circular 99 with approval from the MoF.
-   Some of the principles for calculation of the timing of receipt of revenue have been
    amended so that in some cases insurers must account for revenue before premium is
    actually paid.
-   There are new provisions requiring accounting for policy owners' fund and shareholders
    fund to be separate from accounting for premiums received, in conformity with international
    practice and as a further protection to policy owners.
-   There is a new section requiring insurers and brokers to announce publicly certain
    information to meet the information needs of the public and of people buying insurance, and
    again this new regulation is consistent with international (and indeed Vietnam) market
    practice.

On 24 February 2005, the Government issued Decree 18-2005-ND-CP on Establishment,
Organization and Operation of Mutual Insurance Organizations. Mutual insurance organizations
are enterprises with legal entity status and conducting insurance business activities aimed at
assisting and supporting members being Vietnamese organizations and individuals operating in
the same business sector or profession or residing in the same area and sharing the same risks
(members must satisfy the conditions to sign an insurance policy as provided by law). Under
Decree 18, mutual insurance organizations are different from shareholding companies in that
the members contribute monies in the form of insurance premiums (at levels decided by the
mutual insurance organization) and do not receive dividends. Mutual insurance organization is
also allowed to choose its insurance activities, operational locations, size and appropriate
operational structure. The minimum number of members is 10 members, who are concurrently
insurance purchasers and owners of the organization and are entitled to participate in
management, inspection and supervision of the organization's operations. Decree 18 requires
the licensing of mutual insurance organizations to comply with the relevant provisions of the Law
on Insurance Business and its implementing legislation. The structure of a mutual insurance
organization consists of: members’ meeting, board of directors, director (general director) and
board of control. Minimum legal capital is VND10 billion VND (lower if the company wants to
operate in the sector of agriculture insurance) mobilized from the following 3 sources:
contributions by foundation members, payment in advance of premiums by members, and other
legal sources as provided by law. After licensing, a mutual insurance organization must deposit
at a commercial bank operating in Vietnam at least 5% of its legal capital. The MoF has just
issued Circular 52-2005-TT-BTC providing detailed guidelines for establishment, organization
and operation of mutual insurance organizations operating in the sectors of agriculture, forestry
and fisheries to meet insurance needs. If a person or organization is a member of a mutual
insurance organization, the person or organization will be permitted to not only buy insurance
premium but also contribute capital for the mutual insurance organization so the capital
contributor will be permitted to manage, check and supervise the operation of the mutual
insurance organization.

Banking

Decision 42-2003-QD-NHNN of the State Bank of Vietnam dated 13 January 2003 outlines
plans for reform in Vietnam’s banking sector. Decision 109-QD-NHNN of the State Bank of
Vietnam dated 30 January 2004 lists legislation for issuance by the SBV in 2004.

Market Access and Commercial Presence
Banking services in Vietnam are governed by the Law on Credit Institutions dated 12 December
1997 as amended by the Law on Amendment of and Addition to the Law on Credit Institutions
dated 15 June 2004 (effective as of 1 October 2004).




                                                                                               80
Licensing of foreign investment in banking services is subject to the development needs of
Vietnam’s banking sector, and takes into consideration the number of credit institutions in the
market, the scope of the credit institutions, and their impact on the economy.

Under the Law on Credit Institutions (As Amended), the forms in which foreign commercial
banks are permitted to establish a commercial presence in Vietnam are expanded from joint
venture banks (with foreign capital contribution not exceeding 50% of charted capital), foreign
bank branches and representative offices to also include 100% foreign owned banks.

Under Vietnam's BTA commitments, U.S. financial service providers may establish bank
branches and joint ventures with Vietnamese banks - this was already permitted under the 1997
Law on Credit Institutions. During the first nine years of the BTA (ie until December 2010), U.S.
equity in joint venture banks must be between 30% and 49%. Under the BTA, U.S. banks will
be permitted to establish 100% U.S. owned subsidiary banks after December 2010 - in fact, this
is now permitted under the Law on Credit Institutions (As Amended) as of 1 October 2004 (more
than 6 years ahead of schedule).

Another important reform introduced by the 2004 amending Law on Credit Institutions is that, as
of 1 October 2004, foreign credit institutions are permitted to contribute capital to and purchase
shareholdings in banks operating in Vietnam in accordance with Government regulations (not
yet passed). To implement this reform, the SBV is currently revising its regulations issued with
Decision 228-QD-NH5 of the State Bank of Vietnam dated 2 December 1993 governing foreign
shareholdings in Vietnamese joint stock commercial banks ("JSCBs"). In early September
2005, the director of the SBV's Department of Banks and Non-Bank Financial Institutions
announced that the new regulations were scheduled to be effective by the end of 2005. The
revised regulations are expected to increase the cap on shareholdings of any one foreign
organization or individual in JSCBs from 10% to 30%. (Up until September 2005, it was only
expected that the cap on shareholdings of any one foreign organization in JSCBs would be lifted
to 15%; and that the cap on shareholdings of any one foreign individual would remain
unchanged at 10%.) No change is expected in the cap on total foreign shareholdings at 30% of
charter capital.

To date, only provisional regulations on procedures for registration for SBV approval of share
listings and public share issues by JSCBs have been issued, under Decision 787-2004-QD-
NHNN of the State Bank of Vietnam dated 24 June 2004. Only after SBV approval is obtained
may a JSCB then apply to the State Securities Commission ("SSC") for permission to list shares
and conduct a public issue at a Securities Trading Centre - the SSC procedures are not dealt
with in Decision 787.

Australian bank ANZ is the first foreign bank to obtain SBV approval to buy shares in a
Vietnamese bank, in this case Sacombank. An officer from the SBV's Shareholding Division
has confirmed that the much anticipated revision of regulations on foreign share purchases in
Vietnamese banks (which was scheduled to be finalized by the end of June 2004 under
Decision 109-2004-QD-NHNN of the State Bank of Vietnam dated 30 January 2004) is still in
progress and that, for the present time, the SBV is approving such share purchases on a case-
by-case basis only. Several major foreign banks have sought SBV approval to buy shares in
Vietnamese banks but their cases have not yet been decided.

A welcome step towards transparency is the new requirement under Decision 1407-2004-QD-
NHNN of the State Bank of Vietnam dated 1 November 2004 for JSCBs to publish audited
financial reports to shareholders and customers on an annual basis (quarterly reporting is
optional). The annual financial report must be certified by independent auditors. The
information in the annual finance statements must be disclosed at the JSCB's offices and in 3
consecutive issues of central and local newspapers within 120 days after the end of a fiscal
year.

To implement the 2004 amendments to the Law on Credit Institutions with respect to foreign
investment in Vietnam's banking sector, a revised decree on the organization and operation of
foreign credit institutions and representative offices of foreign credit institutions in Vietnam is
currently being drafted by the SBV (to replace Decree 13-1999-ND-CP of the Government dated



                                                                                                81
17 March 1999 which currently governs establishment of foreign credit institutions in Vietnam).
However, the current draft of the revised decree has been criticized as not meeting the BTA
commitments, in particular with respect to national treatment. Reportedly, instead of entitling
foreign credit institutions to provide the same products and services which domestic banks are
currently permitted to provide, the draft revised decree provides for the SBV to issue permits to
foreign banks on a discretionary case-by-case basis. The draft revised decree also imposes a
number of restrictions on foreign credit institutions which do not apply to domestic credit
institutions, e.g. foreign bank branches must have legal capital requirements valued at VND 20
billion (equivalent to USD1,274,000); 100% foreign owned banks must have legal capital
requirements of VND10 billion (equivalent to USD637,000). A welcome reform is deregulation
of the ratio of a foreign party's capital contribution in a joint venture bank. However, only
domestic banks (not other domestic non-banking organizations) will be permitted to partner with
foreign banks in joint venture banks. Recent discussions with the SBV indicate that the final
draft of the new decree was submitted to the Government for approval in the first week of
September 2005. Taking an optimistic view, the new decree may be issued in October 2005.
More conservatively, it may take until the end of the year or longer, depending on feedback and
views of the Government.

Vietnam has thus far issued commercial branch licenses to U.S. banks Citibank (in Hanoi and
Ho Chi Minh City), JP Morgan Chase and Far East National Bank (in Ho Chi Minh City). Other
foreign banks that have been granted commercial licenses include ANZ (in Hanoi and Ho Chi
Minh City), Hong Kong & Shanghai Bank (in Ho Chi Minh City), and Singapore’s United
Overseas Bank (in Ho Chi Minh City).

The SBV is drafting an Ordinance on Banking Operations of Non-Credit Institutions, but this is
reportedly still in its initial draft stage.

As of December 2007 - eight years after the effective date of the BTA - credit institutions with
U.S. equity will be allowed to issue credit cards on a national treatment basis.

Domestic Regulation

Other reforms to the Law on Credit Institutions introduced as of 1 October 2004 include:
- Enhanced decision-making autonomy of credit institutions – the amendments widen the range
  of the types of deposits permitted; banks may more freely make unsecured loans and more
  autonomy is given to State banks to make credit decisions;
- Improved safety and soundness of credit institutions – the range of functions to be performed
  by the board of supervisors of a credit institution has been expanded;
- Improved auditing process;
- Separation of policy and commercial lending.

Limitations on VND Deposits
Under the BTA, Vietnam has agreed to an eight to ten year phase-in period over which U.S.
bank branches will be permitted to increase the amount of deposits relative to the branch’s paid-
in capital that they can accept in Vietnamese dong from Vietnamese legal and natural persons
with which they do not have a credit relationship. After this phase-in period, U.S. bank branches
will be entitled to full national treatment.

Official Letter 404-NHNN-CNH of the State Bank of Vietnam dated 22 April 2003 restated the
commitment made by Vietnam in the BTA with regard to the percentage of charter capital and
the limit on VND deposits that an U.S. foreign bank branch is allowed to accept from
Vietnamese legal and natural persons with which it does not have a credit relationship.

According to commitments made in the BTA, an U.S. foreign bank branch is allowed to accept
VND deposits:




                                                                                              82
 Date                             From Vietnamese legal              From Vietnamese individuals
                                  entities with which it does not    with which it does not have a
                                  have a credit relationship         credit relationship
 As of 10 December 2002           100%                               100%
 As of 10 December 2003           250%                               250%
 As of 10 December 2004           400%                               350%
 As of 10 December 2005           600%                               500%
 As of 10 December 2006           700%                               650%
 As of 10 December 2007           900%                               800%
 As of 10 December 2008           Full national treatment            900%
 As of 10 December 2009                                              1000%
 As of 10 December 2010                                              Full national treatment

Under Decision 1084-2003-QD-NHNN of the State Bank of Vietnam dated 16 September 2003
Adjusting the Rate for Acceptance of VND Deposits Applicable to Foreign Bank Branches
Operating in Vietnam, non-U.S. foreign bank branches are now allowed to accept non-term and
term deposits in VND equal to 50% of their statutory capital (as of 1 October 2003).

As of 1 March 2005, the SBV has further eased limitations on VND deposits in the case of
foreign bank branches from EU countries. Under Decision 210-2005-QD-NHNN dated 28
February 2005, an EU foreign bank branch is now allowed to accept VND deposits up to 400%
of its chartered capital from Vietnamese legal entities without a credit relationship with the bank
branch and up to 350% from Vietnamese individuals with which it does not have a credit
relationship. Previously, under Decision 327-2004-QD-NHNN of the State Bank of Vietnam
dated 1 April 2004, the cap on VND deposits from both categories of depositors was raised to
250% for EU foreign bank branches (compared to 50% for non-U.S and non-EU foreign bank
branches). This initial offering in 2004 of equal treatment of EU foreign bank branches with US
foreign bank branches was granted in exchange for an increase in apparel quotas from the EU
of 55 – 70% for 2004 and permission for Vietnam to use leftover quotas from 2003.

In contrast, joint venture banks have been permitted to receive both VND on-call and term
deposits from such depositors without limit since 1 December 1999 under Decision 424-1999-
QD-NHNN5 of the State Bank of Vietnam dated 30 November 1999.

Foreign Currency Regulation
Foreign currency is currently regulated under various Decisions and implementing documents
issued by the SBV. Under Resolution 35 (see Section 4.5 above), an Ordinance on Foreign
Exchange was scheduled to be drafted in 2005 (to replace existing Decree 63 on Foreign
Exchange Control dated 17 August 1998 (as amended 17 January 2001)). Now, in order to
expedite promulgation of legislation necessary for WTO accession, the Ordinance on Foreign
Exchange is expected to be drafted and also promulgated by the NA's Standing Committee by
the end of 2005 (not in 2006 as previously expected).

It is understood that the SBV is close to submitting to the Government its draft of the proposed
Ordinance. Its draft abolishes the requirement for persons wishing to carry foreign currency out
of Vietnam to seek prior SBV approval. If the draft is adopted, banks will be free to sell foreign
currency to customers after making their own evaluation that there is a legal use purpose. The
invoice for purchase of foreign currency will be sufficient proof of the validity of the source of the
cash and its use purpose - persons departing Vietnam will not be required to show any other
documents to Customs. Under Decision 921-2005-QD-NHNN of the State Bank of Vietnam
dated 29 June 2005, effective as of 18 July 2005, Vietnam increased the amount of cash that
travelers may carry into and out of Vietnam to USD7,000 (or equivalent in another foreign
currency) and VND 15 million (equivalent to USD950) - a significant increase from the USD3000
and VND5 million limits which have applied since October 1998. Decision 921 repeals the
corresponding provisions of Decision 337-1998-QD-NHNN7 of the State Bank of Vietnam dated
10 October 1998, but the Decision 337 requirement to obtain prior SBV approval for export of
amounts exceeding the above limits (or exceeding the amount declared upon entry into
Vietnam) remains in force.



                                                                                                   83
        As part of Vietnam’s efforts to join the WTO, a number of controls on current foreign exchange
NEW!!   transactions have been liberalized, pending a new Ordinance on Foreign Exchange. Decree
        131-2005-ND-CP of the Government dated 18 October 2005 provides for amendment of and
        addition to Decree 63-1998-ND-CP of the Government dated 17 August 1998 (as amended 17
        January 2001) on Foreign Exchange Control, effective as of 8 November 2005. The scope of
        payments and remittances for international current transactions has been expanded under
        Decree 131 to include:
        -     Payments relating to export/import of goods/services, other current transactions, short
              term loans from banks and on credit;
        -     Payment for net income from direct and indirect investments, depreciation from direct
              investment capital (if applicable);
        -     Payments for interest and gradual repayments of principal from foreign loans;
        -     One way payments for consumption and other similar purposes.

        Of interest, the main amendments under Decree 131 (which had not been expected to be
        introduced until the new Ordinance on Foreign Exchange was passed) are:
        -     Residents and non-residents are permitted to purchase, transfer or carry personally
              abroad foreign currency for the purposes of payment of lawful current transactions without
              presentation of documentation of satisfaction of tax liabilities to the Vietnamese
              Government.
        -     Residents and non-residents being foreigners who have foreign currency are permitted to
              transfer it abroad upon demand. If they receive income in Vietnamese dong, they are
              permitted to purchase foreign currency from authorized banks to remit abroad.
        -     Residents being Vietnamese citizens are permitted to purchase, transfer or carry
              personally abroad foreign currency for lawful purposes, such as tourism, study, medical
              treatment, subsidies for difficult situations, inheritance and permanent residency in
              accordance with regulations of the SBV.

        Decree 131 does not provide for the cap on the amount of foreign currency permitted to be
        remitted abroad - the USD7,000 cap under Decision 921 continues to apply. Decree 131 does
        not liberalize the restrictions on foreign currency transactions within the territory of Vietnam.
        Transactions in foreign currency must still be conducted only through banking entities authorized
        to conduct foreign currency exchange. Direct foreign currency transactions remain prohibited.

        Under Decision 46-2003-QD-TTg of the Government dated 2 April 2003, the Prime Minister
        effectively abolished the obligation for compulsory conversion of current income in foreign
        currency by Vietnamese economic organizations, FIEs, foreign BCC parties, foreign company
        branches, foreign contracts, contracts in partnership with foreign entities. Originally introduced
        in September 1998 at 80%, the percentage of foreign currency income which was required to be
        sold to Vietnamese banks was gradually decreased in August 1999, May 2001 and May 2002 to
        50%, 40% and 30% respectively. As of 7 May 2003, the percentage was reduced to 0% under
        Decision 46.

        On 21 May 2003, the SBV issued Circular 08-2003-TT-NHNN providing for the implementation
        of the significant reform introduced by Decision 46 above. With respect to the obligation to sell
        foreign currency, Circular 08 repeats the 0% provision of Decision 46 and entitles resident
        organizations to use any legitimate foreign currency revenue for necessary requirements or to
        sell to the banks. Resident organizations that are entitled to purchase foreign currency to satisfy
        their current transactions and other permitted foreign exchange transactions (upon presentation
        of prescribed documentation) include: resident Vietnamese organizations such as economic
        organizations, socio-politic organizations, military forces, employment organizations, social
        funds, charity funds, FIEs, foreign BCC parties, foreign company branches and foreign
        contractors. These resident organizations are not entitled to any guarantee of foreign currency
        availability and must rely on the foreign currency reserves of credit institutions. A guarantee of
        foreign currency availability is only granted by the Prime Minister to resident FIEs and foreign
        BCC parties that invest in “specially important” projects in accordance with Government
        programs. In such case, if the selling bank does not have sufficient foreign currency funds to
        satisfy their foreign currency needs, the bank must report to the SBV which will arrange
        supplementary foreign currency funds. Resident FIEs and foreign BCC parties that invest in
        projects for construction of infrastructure facilities or in other important projects are entitled to an



                                                                                                             84
assurance (only) of foreign currency balancing, which means if the selling bank does not have
sufficient foreign currency funds to satisfy their foreign currency needs, the bank must report to
the SBV which will make a submission to the Prime Minister to consider and issue a decision on
assistance in foreign currency balancing.

Circular 08 also adds new provisions on (i) the purchase of foreign currency for prior payment to
foreign parties on contracts for the import of goods and services which do not yet have customs
declarations and for advance payment to foreign parties on services contracts; and (ii) the
purchase of foreign currency for remittance of profits abroad by foreign contractors. Purchase of
foreign currency for repayment of principal, interest and fees on foreign loans and for remittance
of foreign currency overseas by FIEs and foreign BCC parties are no longer specifically dealt
with.

In another effort to give the currency market more freedom to operate, the SBV issued Decision
679-2002-QD-NHNN on Foreign Currency Trading by Credit Institutions Authorized to Conduct
Foreign Currency Trading to broaden the trading band for banks to set their USD exchange
rates. As from 1 July 2002, credit institutions can set their spot rates for USD within 0.25% of
the SBV’s inter-bank exchange rate, previously set at 0.1%. In addition to this, the SBV also
made across the board increases in bands for the forwards and swap USD transactions of
banks, ranging from 0.5% for 7-30 days to 2.5% for 91-180 day periods (previously 0.4% and
2.35% respectively). Now, under Decision 648-2004-QD-NHNN of the State Bank of Vietnam
dated 28 May 2004 amending Decision 679, commercial banks are free to agree with their
customers on the forward exchange rate between VND and US dollars so long as it does not
exceed a prescribed limit (according to a prescribed formula); and are free to agree with their
customers on the forward exchange rate between VND and other foreign currencies or as
between different foreign currencies without the above limit.

On 10 November 2004, the SBV issued Decision 1452-2004-QD-NHNN on Foreign Exchange
Transactions by Credit Institutions Permitted to Conduct Foreign Exchange Operations in
Vietnam, repealing Decision 17-1998-QD-NHNN7 of the State Bank of Vietnam dated 10
January 1998 and its regulations on foreign exchange transaction. Decision 1452 updates
Vietnam's regulations on foreign exchange transactions by credit institutions, provides for spot
forward and swap transactions, as well as regulates the new commodity of “option to conduct a
foreign exchange transaction” and other foreign exchange transactions as permitted by SBV.
Decision 1452 significantly simplifies the foreign exchange controls of authorized banks in
Vietnam. Of note, authorized banks are no longer required to satisfy prescribed conditions and
obtain specific licenses from the SBV to conduct spot, forward and swap transactions. The
mandatory contents of transaction contracts are no longer prescribed, and transacting parties
are now free to agree on the contents of the transaction contract. Authorized banks however
must still comply with the foreign currency position specified by current SBV regulations, but
they may maintain a total value of options without corresponding transactions at a maximum of
10% of their equity. Authorized banks are no longer permitted to collect transaction fess for spot
forward and swap transactions, but are permitted to do so for options to conduct a foreign
exchange transaction provided fees are specified in the transaction contract. The term
applicable to forward and swap transactions between VND with a foreign currency may now be
anything from 3 to 365 days. There is no term restriction on such transactions between foreign
currencies or on options to conduct a foreign exchange transaction. However, transacting
parties must fix and record in the transaction contract the date of maturity for payment and
transfer of monies.

On 21 January 2003, the SBV issued Official Letter 78-NHNN-QLNH providing guidelines on
opening foreign currency accounts overseas. Under Official Letter 78, credit institutions
authorized to conduct foreign exchange transactions may open an additional foreign currency
account overseas at the discretion of the general director but subject to registration of the
account at the SBV. On 22 March 2004, the SBV issued Decision 293-2004-QD-NHNN, under
which foreign bank branches and joint venture banks are now entitled to decide at their own
discretion to open at-call deposit or fixed term deposit accounts at credit institutions overseas
(provided that the opening and operating of bank accounts overseas complies with foreign
exchange control and other regulations of Vietnam).




                                                                                               85
By Circular 04-2005-TT-NHNN, local firms will be allowed to borrow or buy foreign currency to
carry out direct investment project abroad. Earlier, firms can use only their money in foreign
currency accounts opened at banks for overseas investment.

Foreign Currency Lending - Onshore
Seen as a boost for resident developers who for a long time have been seeking the SBV’s nod
to borrow in foreign currencies, the SBV amended the categories of resident borrowers in
foreign currency from credit institutions in Vietnam on two occasions in 2003. Amending its
Decision 418-2000-QD-NHNN7 dated 21 September 2000, the SBV first issued Decision 343-
2003-QD-NHNN dated 10 April 2003 (effective 20 May 2003) and then Decision 996-2003-QD-
NHNN dated 22 August 2003 (effective 17 September 2003).

Under Decision 966, the range of capital requirements for which foreign currency loans may be
made by credit institutions in Vietnam to resident borrowers now comprises: (1) to make
payment to overseas parties for the import of goods and services in support of production and
business operations (as under Decision 343); (2) to implement investment projects and plans for
production and trading of goods and services for export; investment projects and plans for
production and trading which earn foreign currency revenue within the territory of Vietnam (as
under Decision 343); (3) to negotiate export documentation (formerly, "discounting export
documentation" under Decision 343); (4) to provide loans to employees going overseas to work
for a definite period (as under Decision 343); (5) to implement investment projects pursuant to a
decision of the Prime Minister (formerly, only "overseas direct investment projects pursuant to
decision of Prime Minister" under Decision 343; (6) to make early repayment of a foreign debt if
the loan satisfies the following conditions: the investment project or plan for production and
trading has used such foreign loan effectively; the enterprise has the ability to repay principal
and pay interest on the foreign currency loan; the costs are less than those for obtaining a
foreign loan (formerly, only the first condition applied under Decision 343); (7) to meet
requirements for short-term loans for production and trading of borrowers which do not have any
foreign currency revenue if the credit institution permitted to conduct foreign exchange activities
has guaranteed in writing to sell foreign currency [to such borrowers] or signed a forward
contract for purchase of foreign currency for loan repayment (formerly, Decision 343 did not
provide for the short-term limit nor require a written forex agreement); (8) with respect to other
requirements for capital, prior approval in writing from the SBV Governor is required (as under
Decision 343). Further, now, where any foreign currency loan is used domestically, the client
must sell the amount of foreign currency of such loan to the lending credit institution (under
Decision 343, the obligation to sell back foreign currency was limited to where the foreign
currency loan had been made for the purpose of payment of overseas parties, expressly
"payment for import of goods and services in support of production and business operations,
payment in support of essential financial requirements of employees going overseas to work for
a limited period, and repayment of foreign loans").

Foreign Currency Lending - Offshore
The borrowing and repayment of foreign currency loans obtained from offshore lenders (known
in Vietnam as 'foreign loans') by enterprises (from SOEs to FIEs and including credit institutions)
is regulated under Decree 90-1998-ND-CP of the Government dated 7 November 1998 on
Control of Foreign Loans and Loan Repayments. The borrowing of foreign loans is closely
controlled by the SBV. Short-term loans (ie loans with a term of up to 1 year) must comply with
prescribed conditions. Medium to long-term loans (ie loans with a term of more than 1 year)
must be registered with the SBV. The foreign loan controls apply with respect to contracts for
purchase of goods with deferred payment, credit agreements, financial leasing contracts, and
other foreign loan agreements under which funds may be withdrawn and which provide for the
terms and conditions of foreign loans.

New guidelines for borrowing and repayment of foreign loans were issued by the SBV under
Circular 09-2004-TT-NHNN dated 21 December 2004. Effective as of 19 January 2005, Circular
09 repealed the previous guidelines issued under Circular 03-1999-TT-NHNN7 of the SBV dated
12 August 1999 (as amended 16 November 2001). Circular 09 provided in detail for the
following foreign loan controls:
-     Mandatory prescribed conditions (eg conditions as to loan purpose and amount)
      applicable to the borrowing of short-term loans and medium to long-term loans;



                                                                                                86
        -    Registration of medium to long-term loans with the SBV (within 30 working days from the
             date of signing a foreign loan agreement and prior to initial drawdown);
        -    Registration of short-term loans with the SBV if the loan is extended and the total loan
             term (original term plus extended term) is more than 1 year. (Previously, short-term loans
             were only required to be registered if the extended term was more than one year.)
        -    Issuance of certification of loan registration by the SBV.
        -    Drawdown and repayment of foreign loans, which must be carried out through authorized
             banks, except in prescribed cases.

        The reforms under Circular 09 were minimal. After the above reform with respect to registration
        of extended short-term loans, the most significant reform was that any change to a foreign loan
        may now only be effected with a written agreement. Other changes include updating the foreign
        loan controls for consistency with the amendments in 2004 to the Law on Credit Institutions
        (which became effective as of 1 October 2004) and revising Forms.

NEW!!   In late November 2005, new regulations on control of foreign loans issued under Decree 134-
        2005-ND-CP of the Government dated 1 November 2005 will become effective and replace the
        Decree 90 regulations. The reforms under Decree 134 are minimal. New guidelines to
        implement Decree 134 (and replace Circular 09) are expected to be issued soon.

        Interest Swaps
        On 30 September 2003, the SBV issued Decision 1133-2003-QD-NHNN providing regulations
        on performing transactions with interest swaps, effective 1 November 2003. Eligible cases for
        interest swap include interest swap for VND or any foreign currency between a bank and a
        business borrowing capital from the bank, between a bank and a business borrowing capital at
        another credit institution, between the two banks and between a bank and a foreign credit
        institution. In order to perform interest swaps, a bank must have total equity of VND 200 billion
        or more or assets with equivalent value; have sufficient procedures for interest swap including
        risk prevention; have positive net profit from interest swap transactions otherwise maximum
        negative net profit is allowed to be equal to 5% of total equity of the bank. In case of a business,
        it must satisfy two conditions: have transactions of borrowing capital or buying goods in form of
        deferred payments and have sufficient financial capacity.

        The SBV's Decision 1229-2003-QD-NHNN allows large commercial banks to offer a commodity
        swap service to help clients wishing to control the risks of price fluctuation. Decision 1229 is
        also expected to offer commercial banks a chance to diversify their services in order to get
        benefits from price fluctuation. Local banks can even avert the possible risks by re-swapping
        such prices with an overseas bank. Decision 1229 specifies that only banks with at least
        VND200 billion in chartered capital can offer the service. These banks need to obtain the SBV's
        permission to engage in foreign exchange for the commodity swap service. The SBV in 2002
        has allowed U.S. Citibank branches in Vietnam to provide the service for Swiss cement
        producer Holcim as a pilot scheme.

        Under Decision 648 (see "Foreign Currency Regulation" above) commercial banks may now
        engage in forward and swap deals with their clients for 3 to 365 days, instead of 7 to 180 days
        as at present. The commercial banks can now offer such derivatives for their clients who want
        to buy the US dollar in longer terms. Import and export companies can also fix the USD/VND
        exchange rate for a longer period.

        Loan Security
        The SBV has issued Circular 07-2003-TT-NHNN dated 19 May 2003 providing guidelines for
        implementation of a number of provisions on security for loans from credit institutions. Circular
        07 provides guidelines on a number of the provisions of Decree 178-1999-ND-CP of the
        Government dated 29 December 1999 on Security for Loans Obtained from Credit Institutions
        (as amended by Decree 85-2002-ND-CP of the Government dated 25 October 2002). Circular
        07 omits the requirement for any mortgages of assets attached to land to be accompanied by a
        mortgage of the associated land use rights (this mandatory requirement was abolished by
        Decree 85). Where there are multiple guarantors of a single borrower, they will be jointly liable
        to perform the guarantee, unless there is a specific agreement or legal regulation to the effect
        that the guarantee is of independent sections. Circular 07 reiterates the relaxation of the "one



                                                                                                         87
lender” rule introduced by Decree 85, now allowing a single asset to be used as security for
multiple obligations to multiple lenders, and repeats the relaxed conditions for banks to provide
loans without collateral also introduced by Decree 85. The autonomy in loan decision-making
granted to credit institutions in 2002 has now been enshrined in the amended Law on Credit
Institutions as of 1 October 2004.

Interest Rates
Effective 1 February 2002, commercial banks have been given greater autonomy over lending,
including improved policies aimed at making access to loans for small and medium enterprises
easier. Effective as of 1 June 2002, loan interest rates have been de-regulated. Under
Decision 546-QD-NHNN of the State Bank of Vietnam dated 30 May 2002, commercial banks
may now set their own interest rates on VND loans (as they been able to do for foreign currency
loans since mid-2001). The SBV increased the basic interest rate for VND loans to
0.625%/month or 7.5% per year for market reference purposes under Decision 285-2003-QD-
NHNN of the State Bank of Vietnam dated 31 March 2003, effective 1 April 2003. This was the
second increase since statutory interest rate caps on VND loans were removed as of 1 June
2002.

Decision 1429-QD-NHNN of the State Bank of Vietnam dated 29 October 2003 confirmed a
number of interest rates applicable from 1 November 2003: the basic interest rate for VND loans
was 7.50% per year (0.625% per month); the refinancing rate of the SBV applicable to other
credit institutions is 5.0 % per year (0.416% per month); and the discount rate of the SBV to
other credit institutions is 3.0% per year (0.250% per month).

For market reference purposes, the basic interest rate for VND loans was increased from
0.625%/month or 7.5%/year to 0.65%/month or 7.8%/year under Decision 93-QD-NHNN of the
State Bank of Vietnam dated 27 January 2005, effective as of 1 February 2005. This
represented the third increase since statutory interest rate caps on VND loans were removed as
of 1 June 2002. The basic interest rate for VND loans remains 0.65%/month or 7.8%/year.

The SBV has also recently increased the maximum interest rates for USD deposits of legal
entities at credit institutions. Effective from 1 September 2005, Decision 1247-2005-QD-NHNN
of the State Bank dated 26 August 2005 takes the maximum interest rates for USD deposits to
new all-time highs. For USD on-call deposits, the maximum interest rate is now 0.5% per
annum (up from 0.3% per annum). For USD term deposits up to 6 months, it is now 1.2% per
annum (up from 0.7% per annum). And for USD term deposits over 6 months, it is now 1.5%
per annum (up from 1.0% per annum). This is the second rate increase this year, following the
first increase in April 2005 under Decision 272-2005-QD-NHNN of the State Bank dated 21
March 2005 (now repealed by Decision 1247). Effective as of 8 April 2005, Decision 272 had
increased the maximum interest rate for USD on-call deposits to a then all-time high of 0.3% per
annum (up from 0.1% per annum). Also, Decision 272 had returned the maximum interest rate
for USD term deposits up to 6 months to 0.7% per annum (from 0.4% per annum) and term
deposits over 6 months to 1% per annum (from 0.8% per annum). These maximum interest
rates apply to UDS deposits of economic organizations (excluding credit institutions), state
bodies, units of the armed forces, political, socio-political, social and socio-professional
organizations, social and charitable funds, foreign legal entities operating in Vietnam. Decision
272 replaced Decision 834-2003-QD-NHNN of the State Bank of Vietnam dated 30 July 2003
which adjusted the USD deposit interest rate for term deposits up to six months from 0.5% down
to 0.4% per annum and for term deposits over six months from 1% down to 0.8% per annum,
but retained the maximum interest rate of 0.1% per annum for on-call deposits, effective as of 1
August 2003.

Compulsory Reserves
On 4 July 2002, the SBV issued regulations on compulsory reserve payments in VND by credit
institutions involved in the inter-bank electronic system. Decision 700-2002-QD-NHNN applies
from the compulsory reserve period for July and sets out the responsibilities of credit institutions,
provincial and municipal SBV branches, the SBV Transaction Office and the Information and
Technology Department of the SBV relating to compulsory reserve deposits of credit institutions
involved in the inter-bank electronic system.




                                                                                                  88
Decision 1081-2002-QD-NHNN of the State Bank of Vietnam dated 7 October 2002 allows
banks to keep USD or any other foreign currency at as much as 30% of their chartered capital.
Previous forex regulations capped the forex position of banks at no more than 15% for USD,
and 30% for the basket of foreign currencies. The rule on the money basket remains
unchanged at 30% under Decision 1081, but banks can keep any single foreign currency at their
will to the limit of 30%. However, Decision 1081 expressly excludes foreign bank branches or
joint venture banks.

Decision 1277-2002-QD-NHNN of the State Bank of Vietnam dated 18 November 2002
(effective as of December 2002) adjusts the compulsory reserve ratio of foreign currency
deposits on call and on terms of less than 12 months to 5% (down from 8%) of the total of such
deposits, applicable to foreign bank branches and joint venture banks, as well as State
commercial banks, commercial shareholding banks, co-operative banks, finance companies,
and people’s credit fund. This was the second reduction in 2002. The reserve ratio was
reduced from 10% to 8% by Decision 270-2002-QD-NHNN of the State Bank of Vietnam dated 1
April 2002.

As of August 2003, the compulsory reserve obligations of credit institutions have been adjusted
under Decision 581-2003-QD-NHNN of the State Bank of Vietnam dated 9 June 2003 on
Regulation of Compulsory Reserves of Credit Institutions and Decision 582-2003-QD-NHNN of
the State Bank of Vietnam dated 9 June 2003 on Adjustment of Compulsory Reserve Ratio of
Credit Institutions. Decision 582 reduces the compulsory reserve ratio of foreign currency
deposits on call and on terms of less than 12 months to 4% (down from 5%) of the total of such
deposits, applicable to foreign bank branches and joint venture banks, as well as State
commercial banks, commercial shareholding banks, co-operative banks, finance companies,
and the Central People’s Credit Fund. (The above ratio was reduced from 10% to 8% in May
2002 and from 8% to 5% in December 2002). Decisions 581 and 582 now also provide for
credit institutions to maintain compulsory reserves with respect to foreign currency term deposits
from 12 to less than 24 months, at the rate of 1% of the total of such deposits, applicable to
foreign bank branches and joint venture banks, as well as State commercial banks, commercial
shareholding banks, co-operative banks, finance companies, finance leasing companies, and
the Central People’s Credit Fund.

Beginning 1 July 2004, the compulsory reserve ratio for VND deposits has been adjusted.
Under Decision 796-2004-QD-NHNN of the State Bank of Vietnam dated 28 June 2004, for VND
deposits under 12 months, the compulsory reserve rate increases from 2% to 5% of the total
VND deposit balance, applicable to State owned banks, joint venture banks, foreign bank
branches and financial companies. The rate of 4% will be applied to the Bank for Agriculture
and Rural Development, up from the previous 1.5%. A rate of 2% is applicable for cooperatives
and the People’s Credit Fund, up from the previous 1%. For VND deposits of between 12 and
24 months, the rate is 2%, up from the previous 1% rate.

Decision 796 also adjusts the compulsory reserve ratio for deposits in foreign currencies. For
on-call deposits and term deposits under 12 months, the ratio is now 8%, up from the previous
4% of the total balance of foreign currency deposits. For such deposits from 12 to 24 months,
the ratio is now 2%, up from 1% previously.

From 5 August 2004, the interest rate on compulsory reserve deposits of credit institutions at the
SBV Bank within the above prescribed compulsory reserve ratios will be 1.2% for compulsory
reserves in VND and 0% for foreign currency deposits; the interest rate for any surplus above
the prescribed compulsory reserve ratio in foreign currency or in Vietnamese dong will be 1%,
according to Decision 923-2004-QD-NHNN dated 20 July 2004 providing regulations on
compulsory reserves of credit institutions. Decision 923 amended Article 16.1 of Decision 581
and Article 6 of Decision 582 above.

Prudential Ratio
Vietnam is currently not a party to the 1998 Basel Capital Accord – a commitment by financial
authorities from particular countries to apply a minimum capital requirement to internationally
active banks. The SBV has never indicated any official intention to adopt principles of Basel II –
the new framework to update the capital adequacy rules of Basel I and which is currently in draft



                                                                                               89
form only (expected to apply from 2007). However, in order to improve the existing regulations
to international supervisory standards, the SBV has issued new regulations on prudential ratios
in the operations of credit institutions under Decision 457-2005-QD-NHNN dated 19 April 2005.

Decision 457 regulates the minimum capital prudential ratios. Credit institutions must maintain a
minimum ratio of 8% of their equity over their total assets in credit at risk. Foreign bank
branches are not subject to this requirement (nor were they under the previous regulation).
Credit institutions are required to abide by credit limits for customers. The total amount of loans
made to a single client must not exceed 15% of the equity of the credit institution. Of note, there
are a number of new lending limits introduced including:
  -    the total amount of loans and guarantees made to a single client must not exceed 25% of
       a credit institutions’ equity;
  -    the total balance of loans made by a credit institution to a group of related clients must
       not exceed 50% of a credit institution’s equity;
  -    the total balance of loans and guarantees made to a group of related clients must not
       exceed 60% of a credit institutions equity’s;
  -    the total level of finance leases to a single client must not exceed 30% of the equity of the
       finance leasing company;
  -    the total level of finance leases to a group of related clients must not exceed 80% of the
       equity of the finance leasing company.

There are exceptions to these lending limits, such as provision of loans to the Government of
Vietnam and loans fully secured by cash deposits. Further, loans exceeding the 15% threshold
may be exempted by a specific decision of the Prime Minister, loans and guarantees exceeding
the 25% threshold may be exempted by the written approval of the SBV.

Decision 457 also stipulates in details the payment ability ratio, maximum ratio of short-term
capital funds which a credit institution is permitted to use to provide medium and long-term
loans, and the limit on capital contribution and share purchase where credit institutions may use
up to 40% of their charter capital and reserve funds to make commercial investments with a
maximum of 11% for any particular investment. The total cap represents an increase of 10% for
banking credit institutions. Exemptions are permitted with prior written approval of the SBV. Of
interest, for the first time, and in accordance with core Basel recommendations, equity is divided
into two tiers of which tier 1 being shareholders’ equity and retained earnings and tier 2 being
additional internal and external resources available to the credit institution. Tier 1 equity is used
as the basis for fixing limits on the purchase of and investment in fixed assets of the credit
institution.

Decision 457 repeals and replaces Decision 296-1999-QD-NHNN5 dated 25 August 1999 on
limits on loans to single clients of credit institutions (as amended by Decision 381-2003-QD-
NHNN dated 23 April 2003); Decision 297-1999-QD-NHNN5 dated 25 August 1999 issuing
regulations on prudential ratios in operations of credit institutions and Decision 492-2000-QD-
NHNN5 dated 28 November 2000 issuing regulations on capital contribution and share
purchases by credit institutions.

To ensure the safety of all operations of credit institutions in Vietnam, the penalties for
administrative offences in the field of banking and monetary operations were updated under
Decree 202-2004-ND-CP of the Government dated 10 December 2004. Administrative offences
include violations with respect to establishment and operating licenses, structures of credit
institutions, management, administration, auditing, capital mobilization, lending, guarantee,
discount, financial leasing, foreign currency management, gold trading management, payment,
procurement, investment into fixed assets and real estate trading, illegal competition and others.
Violations of regulations governing establishment and operating licenses of credit institutions,
capital mobilization, foreign exchange management, and gold trading management may be
fined up to VND70 million. Violations relating to administration, management and audit may be
fined up to VND40 million. Violations relating to lending, bank guarantees, discounts and
financial leasing or on payment related to the purchase of, or investment in, fixed assets and
real estate business may be fined up to VND50 million.




                                                                                                  90
Bank Guarantees
On 11 February 2003, the SBV issued new regulations on bank guarantees. Decision 112-
2003-QD-NHNN is applicable to guarantees provided by joint venture banks, foreign bank
branches and other Vietnamese credit institutions. Now, all domestic and foreign organizations
and individuals may be provided with guarantees, except for the (i) members of the board of
management or inspection committee or the general director or deputy general director of the
credit institution; (ii) officials and staff of the credit institution who undertake the task of
evaluating and making a decision to provide a guarantee; (iii) parents, spouses or children of the
persons listed in (i) above; (iv) parents, spouses or children of the director or deputy director of a
branch of a credit institution (at the discretion of the credit institution). (Previously, the
guarantee regulations prescribed the types of entities which could be provided with bank
guarantees, rather than the exceptions as now.)

A credit institution may not provide guarantees without security or with preferential treatment to
its auditor, its chief accountant, inspectors, major shareholders, or any enterprise in which any
person listed in (i) above owns more than 10% of the charter capital. The total amount of any
guarantee made to these persons is restricted to 5% of the equity of the credit institution.

The conditions for bank guarantees have been simplified, giving credit institutions larger
decision-making powers. Entities seeking for bank guarantees are no longer required to have (i)
a good credit rating with the bank or (ii) a feasible and effective investment projects or
production/business plan, foreign economic organizations are no longer required to be
authorized to conduct investment or business or to participate in tendering in Vietnam (although
the regulations on control of foreign loans are still applicable). The conditions now are quite
general such as (i) the purpose for which the guarantee is provided must be lawful and (ii) the
entity must have the financial capacity to discharge the guarantee obligation within the time-limit
promised. The Decision also relaxes provisions on the joint guarantees and security. Detailed
procedural requirements for joint guarantees are no longer stipulated and whether or not
security will be taken for a bank guarantee is now at the complete discretion of the bank and its
client (except in the cases referred above on the entities seeking for bank guarantees.

Land Use Rights ("LURs") as Collateral for Overseas Loans
Legislative reforms to allow FIEs to use LURs as collateral for loans provided by overseas banks
have been deferred. A proposal to introduce this reform was submitted by the SBV to the
Government early in 2003 and was reportedly supported by the Government. It was widely
anticipated that the revised land law would introduce this reform. The MPI had also planned to
provide for this reform under the Law on Foreign Investment (which currently restricts FIEs to
using LURs as collateral for loans from onshore banks only). However, the Law on Land
(Amended) passed by the NA in November 2003 does not provide for the use of LURs as
collateral for overseas loans. Reportedly, the Government is now considering allowing FIEs to
use LURs as collateral for overseas loans on a trial basis only, but no legal instrument enabling
a trial has been issued as yet.

Factoring
A legal framework authorising credit institutions to undertake factoring activities (the process of
purchasing commercial accounts receivable (invoices) from a business at a discount) was
introduced by Decision 1069-2004-QD-NHNN of the State Bank of Vietnam dated 6 September
2004. A number of restrictions and exclusions apply. To undertake factoring activities, a credit
institution must: have approval from the SBV; have overdue debts of less than 5% of its total
loan balance; not be in violation of any regulations on banking safety; not be under any
investigation; and, if import-export transactions are involved, have a permit to deal in foreign
exchange.

Issuance of bonds, short-term or long-term deposit certificates and promissory notes
On 22 November 2002, the SBV issued Decision 1287-QD-NHNN on Issuance of Valuable
Papers by Credit Institutions to Raise Domestic Capital. Decision 1287 allowed credit
institutions (such as State owned credit institutions, State and People’s shareholding credit
institutions, the Central People’s Credit Fund, joint venture credit institutions and other foreign
credit institutions operating in Vietnam) to issue valuable papers beginning 1 January 2003. In
order to implement Article 46 of the Law on Credit Institutions after its amendment by the NA in



                                                                                                   91
        May 2004, Decision 1287 has now been replaced by Decision 02-2005-QD-NHNN of the State
        Bank of Vietnam dated 4 January 2005 issuing Regulations on Issuance of Valuable Papers by
        Credit Institutions to Raise Domestic Capital. Under Decision 02, advance permission from the
        SBV is no longer required for the issuance of short-term valuable papers by credit institutions;
        however, conditions for issuance of valuable papers still apply and advance notification from
        SBV is required. In the case of long-term valuable papers, SBV approval of a plan for issuance
        of valuable papers by credit institutions is required.

        Effective as of 9 December 2003, Decree 141-2003-ND-CP of the Government dated 20
        November 2003 on Issuance of Government Bonds, Bonds Guaranteed by the Government and
        Local Authority Bonds is the current legislation regulating issuance of bonds within Vietnam.
        Decree 141 replaced the earlier Decree 01-2000-ND-CP of the Government dated 13 January
        2000 Issuing Regulations on Issuance of Government Bonds. Decree 141 provides for bonds in
        foreign currency to be issued to credit institutions operating under the Law on Credit Institutions,
        insurance companies, insurance funds, investment funds legally operating in Vietnam, and
        branches of foreign investment operating in Vietnam to fund key national projects upon the
        Prime Minister’s approval. Decision 66-2004-QD-BTC of the Ministry of Finance dated 11
        August 2004 provides regulations for implementation of Decree 141. Decree 23-CP of the
        Government dated 22 March 1995 remains the current legislation regulating issuance of
        international bonds (by the Government, commercial banks and SOEs) on overseas markets.

        Central Bank Restructuring
        The SBV is reportedly preparing to undertake the SBV Reform Project aimed at restructuring
        plans to implement monetary policies more efficiently. Under the Reform Project, the SBV will
        establish a system of monetary policy instruments that fall in line with international practice.
        These will include open market operations, and discount and rediscount operations. The SBV
        will also establish banking inspection standards in accordance with the Basel Committee on
        Banking Supervision.

        The official decision authorizing the equitization of Vietcombank (Vietnam's largest State owned
        bank) was issued under Decision 230-2005-QD-TTg of the Prime Minister dated 21 September
        2005. The equitization of Vietcombank (ie its conversion into a joint stock commercial bank) is
        expected to occur in 2006. Importantly, Vietcombank is authorized to hire an international
NEW!!   consultancy firm to appraise its corporate value and to issue bonds to increase capital under
        Official Letter 3120-VPCP of the Prime Minister dated June 2005. Official permission for pilot
        equitization of the Bank of Foreign Trade of Vietnam was issued under Decision 230-2005-QD-
        TTg of the Prime Minister dated 21 September 2005. And the pilot equitization of Mekong Delta
        Housing Development Bank (“MHB”) was authorized under Decision 266-2005-QD-TTg of the
        Prime Minister dated 27 October 2005. Of note, whereas Vietcombank will undergo its
        equitization in two stages, MHB is permitted to conduct its equitization immediately. All foreign
        and local investors are allowed to buy shares of MHB according to Decision 266 and other laws
        of Vietnam. MHB will also be able to hire an international consultancy firm to audit and evaluate
        its assets (including intangible assets), to formulate the pilot privatization scheme, and to assist
        in the issue of shares as well as the selection of strategic investors.

        Non-Banking Financial Services

        Under the Law on Credit Institutions (As Amended), “non-banking credit institution” ("NBCI") is
        defined as a form of credit institution permitted to conduct a number of banking activities as its
        principal and regular business operations but which is not permitted to receive demand deposits
        and to provide payment services. NBCIs include finance companies, finance leasing
        companies, and other non-banking credit institutions.

        Implementing the Law on Credit Institutions, Decree 79-2002-ND-CP of the Government dated 4
        October 2002 on Organization and Operation of Finance Companies provides for the
        establishment and operation of finance companies in Vietnam and Decree 16-2001-ND-CP of
        the Government dated 2 May 2001 on Organization and Operation of Finance Leasing
        Companies provides for the establishment and operation of finance leasing companies in
        Vietnam.




                                                                                                         92
To implement Decree 79 on finance companies and Decree 16 on finance leasing companies,
the SBV issued Regulations on Opening and Termination of Operation of Branches and
Representative Offices of Non-Banking Credit Institutions under Decision 24-QD-NHNN dated 7
January 2003. Decision 24 only applies to branches and offices located in Vietnam operated by
NBCIs established in Vietnam.

Regulations on Organization and Operation of the Board of Management, Inspection Committee
and (General) Directors of Non-Banking Credit Institutions were issued under Decision 516-
2003-QD-NHNN of the State Bank of Vietnam dated 26 May 2003. Effective as of July 2003,
the Regulations apply to: a) NBCIs belonging to credit institutions and finance companies
belonging to State corporations, where those NBCIs have their own boards of management and
boards of control (collectively referred to as dependent NBCIs); and b) joint venture NBCIs and
100% foreign owned NBCIs (collectively referred to as NBCIs involving foreign elements).
Decision 516 does not apply to joint-stock NBCIs or to subsidiaries of NBCIs which do not have
their own boards of management and boards of control.

Finance companies
Decree 79 provides for the establishment and operation of finance companies in Vietnam,
including joint venture and 100% foreign owned finance companies, with no distinction between
the scope of activities of foreign invested and domestic finance companies. Previously, State
owned corporations had established prototype joint-stock finance companies pursuant to the
1997 Law on Credit Institutions but in the absence of specific regulations governing such
finance companies. Now, a “finance company” is defined as a NBCI which uses its own capital
or raises capital to conduct lending and investment and provides financial and monetary
consultancy services, but which is not permitted to provide payment services or to receive
deposits for a term of less than a year. Foreign exchange activities and debt factoring may be
permitted with SBV approval. Finance companies will be licensed by the SBV for a 50 year
duration (extendable for successive 50 year durations).              Decree 79 also regulates
commencement of operations (mandatory within 12 months of licensing), establishment of
branches and subsidiaries, raising capital and credit activities. Finance companies are subject
to mandatory requirements with respect to risk reserves, prudential limits (the total loan balance
to any one customer may not exceed 15% of the equity of the finance company), reporting and
inspection, as currently applicable to other credit institutions.

Circular 06-2002-TT-NHNN of the State Bank of Vietnam dated 23 December 2002 provides
guidelines on a range of matters relating to the organization and operation of finance companies
including State owned finance companies, shareholding finance companies, finance companies
that are subsidiaries of credit institutions, joint venture finance companies and 100% foreign
owned finance companies. Issues covered include: 1) Shareholders, shares, share certificates
and charter capital (including capital contribution ratios, capital assignment and profit
distribution); 2) Conditions for the issuance of license for the establishment and operation of a
finance company (including additional conditions applicable to the foreign party in a joint venture
finance company and 100% foreign owned finance company); Contents of and procedures for
submission and consideration of, application files for a license for a finance company (including
principal contents of a charter); 3) Deposit of charter capital of a finance company into escrow
account at least 30 days prior to the date of commencement of operations, and transfer of the
amount from the escrow account into its operating accounts upon commencement of operations;
4) Requirements for commencement of operations; 5) Grounds for withdrawal of license; 6)
Changes in finance companies requiring approvals from the SBV; 7) Organizational structure,
management, operation, and control of finance companies (including regulations on standards
of professional ethics; expert qualifications and executive capability of board of management,
inspection committee, and general director).

General provisions on raising capital, on credit provision, on opening deposit accounts and
conducting fund services, on restrictions to ensure the safety of operations, on finance and
accounting, on auditing and reporting, on inspection, special control, bankruptcy and liquidation
apply to finance companies as detailed in Decree 79 and guidelines of the SBV and the MoF.
Standard forms of license are appended to Circular 06. Finance companies established and
operating pursuant to a license issued by the SBV prior to the date of effectiveness of Decree
79 (19 October 2002) were not required to apply for re-issuance of their license, but they were



                                                                                                93
required to amend their charters in compliance with Decree 79 and relevant guidelines by 19
October 2003. The SBV was authorized to amend the contents of and scope of operation in
previously issued finance company licenses in accordance with the provisions of Decree 79 and
the guidelines of the SBV. The duration of operation of already licensed finance companies
remained as stipulated in the issued license.

As of 30 March 2005, micro-finance organizations may now be established by social, political
and trade organizations, charitable and social funds and non-governmental organisations under
Decree 28-2005-ND-CP of the Government dated 9 March 2005 on Organization and Operation
of Small-Scale Finance Organizations in Vietnam. The objective of Decree 28 is to enable
“small-scale finance activities” to be provided to low income people and households. To be
licensed, a micro-finance organization must have a minimum legal capital of VND500 million (or
VND5 billion if savings services are offered). Decree 28 provides for other domestic and foreign
organizations and individuals to contribute capital to such financial organizations.

Finance Leasing
Under the Law on Credit Institutions (As Amended), “finance leasing” is defined as medium or
long term credit operations carried out on the basis of a finance leasing contract entered into
between the lessor (being the credit institution) and the lessee.

Decree 16-2001-ND-CP of the Government dated 2 May 2001 on Organization and Operation of
Finance Leasing Companies provides for the establishment and operation of finance leasing
companies in Vietnam, including joint venture and 100% foreign owned finance leasing
companies. Circular 08-2001-TT-NHNN of the State Bank of Vietnam dated 6 September 2001
provides detailed guidelines for implementation of Decree 16 with respect to organization and
operation of finance leasing companies. Circular 07-2004-TT-NHNN of the State Bank of
Vietnam dated 1 November 2004 provides for amendment of article 17.2 of Circular 08 with
respect to the procedures and application files for obtaining the necessary SBV approval of
changes to the name, charter capital, office locations, operations, major shareholdings, and
management personnel of a finance leasing company (effective as of 25 November 2004).

Under Article 25.4(b) of Circular 08, finance leasing companies are permitted to undertake
finance leasing transactions in foreign currency. Under Official Letter 18-NHNN-CSTT dated 7
January 2003, the SBV has provided guidelines to all finance leasing companies for undertaking
finance leasing transactions in foreign currency. Conditions to be satisfied by the finance
leasing company and the lessee in order for a finance leasing transaction to be undertaken in
foreign currency include: i) the finance leasing company must be licensed to operate in Vietnam
and be expressly permitted to conduct foreign exchange activities; ii) a finance leasing company
wishing to conduct finance leasing transactions in foreign currency must apply to the SBV for a
license to conduct finance leasing activities in foreign currency (or, in the case of a foreign
invested finance leasing company, must apply for express addition to its existing license to
conduct foreign exchange activities).

According to Decision 731-2004-QD-NHNN of the State Bank of Vietnam dated 15 June 2004
providing temporary regulations on operating lease activities of finance leasing companies, joint
venture finance leasing companies and 100% foreign owned finance leasing companies are
allowed to provide asset renting service. In order to become eligible to provide this service, a
finance leasing company must (i) have operated at least two years, gained profits, with overdue
debts not exceeding 5% at the end of the quarter before it begins providing the service; and (ii)
have to meet certain conditions on safety and maintenance service for the rented property. The
total value of assets leased to a client must not exceed 30% of the finance leasing company’s
own capital and that the total value of assets used for operating leases must not exceed five
times the finance leasing company’s own capital.

Amendments to Decree 16 were issued under Decree 65-2005-ND-CP of the Government dated
19 May 2005. Amongst others, the main amendments under Decree 65 are:
-      New criteria for recognizing finance leasing transactions (ownership upon lease expiry;
       lease duration; sum of total lease payments);
-      New provisions for taxation of purchase and lease-back by finance leasing companies;




                                                                                              94
        -      Provision for operating lease services by finance leasing companies (following Decision
               731 above);
        -      Provision for finance leasing companies to sell items receivable from finance leasing
               contracts and to transfer debts being overdue lease payments;
        -      Requirement for the foreign credit institution owning a 100% foreign owned finance
               leasing company to conduct inspections of internal operations of the finance leasing
               company in Vietnam, and to notify the SBV in advance of such inspection and to report
               to the SBV after the inspection;
        -      New provisions on recovery of leased assets, including assets which are the subject of a
               registered security transaction. Both the Law on Credit Institutions and Decree 16
               provide for a finance leasing company to recover leased assets if a lessee breaches the
               contract, however, they do not specify how to deal with the assets recovered, how to
               deal with conduct preventing recovery of the assets, the obligations of the competent
               bodies, and other matters. As a result, almost all finance leasing companies have
               difficulties in recovering leased assets when disputes arise. The amendments to Decree
               16 address these problems.

        Effective as of 16 July, Circular 03-2005-TT-NHNN of the State Bank of Vietnam dated 25 May
        2005 provides guidelines on restructuring terms for repayment and on transfer of overdue debts
        applicable to finance leasing activities of finance leasing companies.

        Following the amendment of Decree 16 by Decree 65, new guidelines for implementation of a
NEW!!   number of articles of Decree 16 and Decree 65 have been issued under Circular 06-2005-TT-
        NHNN of the State Bank of Vietnam dated 12 October 2005. Circular 06 replaces Circular 07
        and provides for new procedures and application files for obtaining the necessary SBV approval
        of changes to the name, charter capital, office locations, operations, major shareholdings, and
        management personnel of a finance leasing company.

        Securities

        Legislation providing for establishment of a securities market in Vietnam was first issued on 11
        July 1998 under the Government's Decree 48-1998-ND-CP on Securities and Securities Market.
        Vietnam's first Securities Trading Center opened in mid-2000, in HCMC. The first update of
        Vietnam's securities market legislation came with Decree 144-2003-ND-CP of the Government
        dated 28 November 2003 on Securities and Securities Market, replacing Decree 48.

        As of 12 March 2004, the transfer of the State Securities Commission ("SSC") into the Ministry
        of Finance under Decree 66-2004-ND-CP of the Government dated 19 February 2004 became
        effective. The functions, duties, powers and organizational structure of the SSC are now
        regulated under Decision 161-2004-QD-TTg of the Government dated 7 September 2004.
        Under Decision 161, the SSC has the functions of State management over securities and the
        securities market, including licensing, supervision and dealing with offences in the securities
        sector.

        Under the 2002 Action Plan for Vietnam’s Stock Market, authorities aimed to have between 20
        and 25 companies, including partially foreign-owned companies, list their stocks in 2002. To
        date in 2005, only 28 companies are listed on the stock market. On 8 March 2005, Vietnam's
        second Securities Trading Center opened, in Hanoi. The SSC hopes that about 40 companies
        will be listed on both the HCMC and Hanoi Securities Trading Centers by the end of 2005.

        20 July 2005 marks five years' operation of the HCMC Securities Trading Centre.

        Market Access and Commercial Presence
        Foreign participation in Vietnam's securities market is subject to various limitations. The
        percentage securities holdings of foreign investors is capped (see "Foreign Securities Listings"
        below).

        Under Decree 144-2003-ND-CP of the Government dated 28 November 2003 on Securities and
        Securities Trading, the SSC may license foreign securities businesses to invest in securities
        companies, securities investment funds and fund management companies, subject to



                                                                                                     95
        satisfaction of prescribed criteria and subject to foreign equity caps as regulated by the Prime
        Minister (now 49%, see below).

        Regulations on Organization and Operation of Securities Companies were issued under
        Decision 55-QD-BTC of the Ministry of Finance dated 17 June 2004. In order to be licensed to
        conduct securities trading activities in Vietnam, foreign firms must set up joint venture
        companies with Vietnamese partners and apply to the SSC for securities trading licenses.
        Under Decision 83-2004-QD-BTC of the Ministry of Finance dated 11 November 2004 issuing
        Regulations on Establishment and Operation of Representative Offices of Foreign Securities
        Trading Organizations in Vietnam, a cap has been imposed on the number of representative
        offices which may be established in Vietnam by foreign securities trading organizations. No
        more than 3 representative offices may be established to conduct market research and to seek
        and develop investment and cooperation opportunities in the securities sector. Only foreign
        securities trading organizations which have been in operation for at least 3 years (among other
        conditions) may establish representative offices in Vietnam. Representative offices are not
        permitted to trade securities. Representative offices and their personnel are not permitted to act
        as the representative of any businessperson or economic organization (domestic or foreign) in
        the securities sector. Representative office licenses will be valid for five years only, extendable
        upon application for successive 5 year periods.

        Regulations on Organization and Operation of Securities Investment Funds and Fund
        Management Companies were issued under Decision 73-2004-QD-BTC of the Ministry of
        Finance dated 3 September 2004. The Decision 73 Regulations provide in detail for the
        operation of securities investment funds and fund management companies as well as criteria for
        an investment fund to list units on the stock market. Decision 73 pertains to two types of funds:
        public funds and private member funds. Public funds are required to issue certificates to the
        public. A private member fund must have at least 49 members who contribute money to the
        fund. Both types of funds must contain a minimum of 5 billion VND. Establishment and listing of
        a public fund is subject to licensing by the SSC. Decision 73 has now been amended by
        Decision 71-2005-QD-BTC of the Ministry of Finance dated 21 October 2005. Under Decision
NEW!!   71, fund management companies established under and controlled by an insurance company
        must manage capital and assets assigned by the insurance company in accordance with the
        laws on insurance business and the laws of securities and the securities market. The capital
        and assets assigned must be deposited at a commercial bank. Under Decision 62-2005-QD-
        BTC and Decision 63-2005-QD-BTC of the Ministry of Finance dated 14 September 2005,
        regulations have been issued for the accounting regime applicable to the fund management
        companies and securities investment fund, respectively.

        In April 2002, foreign-owned Vietnam Frontier Fund was given in-principle approval to invest in
        Vietnam’s securities market, becoming the second Fund (after Vietnam Enterprise Investment
        Limited) to partake in such activity.

        Domestic Regulation
        A Law on Securities is currently being prepared and is expected to be considered by the NA in
        May – June 2006 and then passed at the NA's November 2006 Session. The SSC is in charge
        of drafting. Reportedly, the latest draft allows only fund management companies to manage
        portfolios for investors, with securities firms no longer be allowed to offer such a service. The
        draft also suggests not allowing securities firms to provide corporate finance consulting services.
        Public companies having shares owned by more than 100 individual investors will be required to
        publicise their reports and other financial information like the current bourse-listed firms do. This
        move aims to force more companies to trade shares on the market.

        Administrative offences in securities and securities market are regulated under Decree 161-
        2004-ND-CP of the Government dated 7 September 2004, fines up to 70 million VND may be
        imposed for administrative offences in the securities sector, effective as of 1 October 2004. To
        further implement Decree 161, the MoF issued Circular 130-TT-BTC dated 29 December 2004.

        Foreign Exchange
        A significant reform introduced under Decision 998-2002-QD-NHNN of the State Bank of
        Vietnam dated 13 September 2002 on Foreign Exchange Control Applicable to Purchase and



                                                                                                          96
Sale of Securities by Foreign Organizations and Individuals at Securities Trading Centers was
permission for foreign individuals and institutions investing in the Vietnamese securities market
to exchange VND revenue from stock sales for foreign currency and transfer the monies abroad
without SBV approval (but subject to presentation of prescribed documentation to the remitting
bank). Under the BTA, Vietnam was not required to eliminate such restrictions until 3 years
after the BTA came into force.

Decision 998 has now been replaced by Decision 1550-2004-QD-NHNN of the State Bank of
Vietnam dated 6 December 2004. Major reforms include the repeal of the one year time
restriction on remittance abroad of investment capital (from the date such funds are transferred
into the securities trading account) and significant reduction in the documentation required to be
presented for transactions into and out of accounts. (See Section 8.11 on “Equity Investment”
below).

Listings
Effective as of 16 December 2003, Decree 144-2003-ND-CP of the Government dated 28
November 2003 on Securities and Securities Market represents the first update of Vietnam's
securities market legislation. Decree 144 is more sophisticated and extensive than the original
securities legislation issued under Decree 48-1998-ND-CP of the Government dated 11 July
1998 and now also regulates treasury shares, bonus shares, share purchase rights, share splits
and consolidations, and acquisitions of 25% or more of listed shares.

Decree 144 introduces a number of reforms to stimulate the lagging Vietnamese securities
market. Public issues of securities are now subject to registration with the SSC (previously, they
were subject to licensing by the SSC). The prescribed conditions for registration are more
relaxed than those previously applicable to licensing. This is expected to speed up the
securities issue process. The minimum number of investors external to an issuing organization
which must purchase securities in a public issue has been reduced to 50 (from 100). With
respect to the conditions for initial public issues, of particular note, the minimum required level of
paid-up charter capital for an issuing organization is now VND5 billion (approx. USD320,000,
down by half from the previous VND10 billion) and its business operations must now have been
profitable for only 1 year (previously, 2 years) immediately preceding registration. To assist the
funding of infrastructure and high-tech projects, initial share issues in these sectors are
exempted from the above conditions. Of interest, for public bond issues, the minimum level of
paid-up charter capital remains VND10 billion but the profitability period has been reduced to 1
year.

Decree 144 introduces separate conditions for SSC licensing of securities listings. The
minimum level of paid-up charter capital is VND5 billion (as for public issues), however,
operations must have been profitable for 2 years immediately preceding. To encourage the
Iisting of equitized SOEs, they are required to have made a profit only in the preceding financial
year (not 2 years) if they list immediately after equitization. At least 20% (or 15% in the case of
companies with a share capital of VND10 billion or more) of listed share capital must be held by
at least 50 shareholders external to the issuing organization (previously, this minimum
percentage of share capital was required to be held by 100 shareholders). Further,
shareholders being board members of the listing company must undertake to hold at least 50%
of the shares they own for a period of 3 years after listing (previously, they were required to hold
at least 20% of total share capital for 3 years).

Public issues and listing of investment fund certificates are now provided for in detail in Decree
144, along with licensing of securities investment funds and fund management companies.
Conditions for listing certificates are: the minimum total value of issued investment fund
certificates is VND5 billion and the minimum number of certificate holders is 50. Founding
members of a fund must undertake not to assign the investment fund certificates they own for 2
years after listing. Establishment of investment funds by capital contribution from members is a
new feature. Restrictions on investment by fund managers have been relaxed. Supervising
banks must meet certain criteria, including a custodian license granted by the SSC, having no
ownership of the securities investment fund and no relation to the fund management company.




                                                                                                   97
        Decree 144 now includes detailed provisions on trading of listed securities. In particular, the
        grounds for monitoring listed securities and for suspending securities trading are now
        prescribed. Internal trading and trading of treasury shares are now regulated. Of note, any
        transaction increasing or reducing the shareholding of any organization or individual (either
        alone or with related persons) having 5%, 10%, 15% or 25% of the share capital in a listed
        company must be reported in writing to the SSC and other prescribed entities. Significantly, any
        proposal to acquire 25% or more of listed securities of one listed entity must be approved by the
        SSC and publicly announced. (These notification and approval restrictions complement the
        merger and acquisition provisions of the Competition Law, passed by the NA at its November
        2004 Session. See Section 10.2 for more on competition law.) Stricter disclosure and insider
        trading provisions are reassuring.

        Regulations on securities registration, custody, clearance and payment were issued under
        Decision 60-2004-QD-BTC of the Ministry of Finance dated 15 July 2004. Decision 60 has now
NEW!!   been amended by Decision 72-2005-QD-BTC of the Ministry of Finance dated 21 October 2005.
        Amongst other things, the annual contribution is calculated equal to 0.008% of the brokerage
        transaction value of the securities company or under the transaction value realized by the
        commercial bank the previous year.

        Other legislation to implement Decree 144 includes:
        -   Circular 57-2004-TT-BTC dated 17 June 2004 on Disclosure of Information in the Securities
            Market;
        -   Circular 58-2004-TT-BTC dated 17 June 2004 Providing Guidelines for Securities
            Membership and Trading;
        -   Circular 59-2004-TT-BTC dated 18 June 2004 Providing Guidelines for Listing Shares and
            Bonds in the Securities Market;
        -   Circular 60-2004-TT-BTC dated 18 June 2004 Providing Guidelines for Issuance of Shares
            to the Public;
        -   Circular 75-2004-TT-BTC dated 23 July 2004 Providing Guidelines for Issuance of Bonds to
            the Public.

        Issued under Decision 528-QD-TTg of the Prime Minister dated 14 June 2005 is the list of SOEs
        which are permitted to sell their State owned shareholdings by auction at a Securities Trading
        Centre (66 SOEs in total, including three SOEs under the Ministry of Transport and
        Communications) and the list of shareholding companies which are permitted to list at the
        HCMC Securities Trading Centre or register for trading at the Hanoi Securities Trading Centre
        (161 companies in total). This is another move to force more companies to trade shares on the
        market.

        Under Decision 2592-QD-BTC of the Ministry of Finance dated 4 August 2005, the procedures
        for co-ordinating the equitization of SOEs with the listing of shares at the HCMC Securities
        Trading Centre or with the registration for share trading at the Hanoi Securities Trading Centre
        have been clarified.

        Foreign Securities Holdings
        Effective as of 11 August 2003, Decision 146-2003-QD-TTg of the Government dated 17 July
        2003 on Percentage of Participation by Foreign Parties in the Securities Market of Vietnam
        raised the cap on total foreign shareholdings in domestic shareholding companies listed on the
        Vietnamese securities market to 30% (from 20%) of the total shares of any one listed company.
        This cap applies to the total aggregate shareholdings of all foreign shareholders in any one
        listed company, not the total shareholdings of each foreign shareholder. Decision 146 also
        abolished the specific caps on total shareholdings of any one foreign organization or individual
        (formerly 7% and 3% respectively) in any one listed company.

        Decision 146 repealed Decision 139-1999-QD-TTg of the Government dated 10 June 1999,
        under which the cap on foreign shareholdings in listed domestic shareholding companies was
        20%. This was inconsistent with the cap on foreign shareholdings in unlisted Vietnamese
        enterprises, which was 30%. By aligning the caps on foreign shareholdings at 30%, Decision
        146 resolved a significant flaw of the former regulatory framework.




                                                                                                      98
        Decision 146 also introduced the following reforms:
        -   The percentage holding of foreign organizations and individuals of bonds circulating on the
            securities market of Vietnam is now unrestricted, abolishing the former 40% cap on total
            foreign holdings of bonds of any one listed company.
        -   The maximum foreign capital contribution in a joint venture securities company is increased
            from 30% to 49%.
        -   Joint venture investment funds management companies are permitted, with up to 49%
            foreign capital contribution.

        Decision 146 omitted any reference to foreign investment in securities investment funds. Under
        Decision 139, total foreign holdings of investment fund certificates was capped at 20% of total
        certificates of any one securities investment fund, with holdings of any one foreign organization
        or individual capped at 7% and 3% respectively.

        Circular 73-2003-TT-BTC of the Ministry of Finance dated 31 July 2003 provided guidelines with
        respect to sales to foreign investors of shares in listed Vietnamese companies. The sale must
        be a public sale on the securities market in accordance with Vietnamese securities law. Where
        existing shareholders sell their shares to foreign investors, they must register with the
        shareholding company to ensure that the level of foreign invested capital in the company does
        not exceed the 30% cap. The sale price for shares in a listed company is the share market
        price. For shares belonging to existing shareholders, the sale price may be agreed between the
        shareholder and the foreign investor, but must not be less than the share market price. For
        more on Circular 73, see Section 8.8 on “Legal Entity Restrictions.”

        Effective as of 30 December 2003, Circular 121-2003-TT-BTC of the Ministry of Finance dated
        12 December 2003 Providing Guidelines on Decision 146-2003-QD-TTg of the Government
        dated 17 July 2003 on Percentage of Participation by Foreign Parties in the Securities Market of
        Vietnam reiterated the reforms introduced under Decision 146. With respect to convertible bond
        holdings by foreigners, Circular 121 clarifies that the 30% cap on foreign shareholdings in listed
        companies will apply upon conversion of bonds into shares. Under Circular 121, foreigners
        purchasing or selling shares in Vietnam's securities market must register for a foreign
        investment management code with the STC (Stock Exchange Department) through a depository
        as prescribed by the SSC.

        Under Decision 51-2004-QD-TTg of the Government dated 31 March 2004 on Government's
        Action Program for Implementation of Resolution of 9th Conference of the Executive Committee
        of the Central Party, the MoF was instructed to submit draft amendments to Decision 146 on
        participation by foreign investors in the Vietnamese securities market to the Prime Minister in the
        third quarter of 2004. this did not occur.

        On 29 September 2005, the cap on total foreign shareholdings in listed Vietnamese companies
NEW!!   was increased again - from 30% to 49%. Effective as of 10 October, Decision 238-2005-QD-
        TTg of the Government dated 29 September 2005 lifted the cap on foreign participation in the
        Vietnamese securities market to 49% (repealing Decision 146 above). Circular 90-2005-TT-
        BTC of the Ministry of Finance dated 17 October 2005 provides in detail for this significant
        reform. Together, Decision 238 and Circular 90 provide for the following reforms:
        -     Foreign investors may hold a maximum of 49% of the total shares of any one company
              listed at the HCMC Securities Trading Centre or registered for trading at the Hanoi
              Securities Trading Centre.
        -     Foreign investors may hold a maximum of 49% of the total investment fund certificates
              which have been listed or registered for trading of a securities investment fund. (From
              mid-2003 until Decision 238, the cap was understood to be 30%, although it was not
              expressly stipulated in Decision 146. From mid-1999 until mid-2003, the cap was 20%.)

        Decision 238 clarifies how the 49% cap applies in the case of a foreign invested enterprise that
        has converted into a foreign invested shareholding company (see section on Foreign Invested
        Shareholding Companies below).

        With respect to other securities investments, Decision 238 and Circular 90 maintain the status
        quo, as follows:



                                                                                                        99
-     Foreign investors may hold an unlimited percentage of bonds issued by any issuing
      organization (as introduced under Decision 146).
-     Foreign investors being foreign securities trading organizations may contribute or
      purchase shares up to a maximum of 49% of the charter capital of a joint venture
      securities company or securities investment fund management company (as introduced
      under Decision 146).

It would not be surprising if the Decision 238 reforms were followed by a corresponding increase
of the cap on foreign shareholdings in unlisted domestic Vietnamese companies from 30% to
49% (See Section 8.8 on Foreign Investment in Non-listed Vietnamese Enterprises below).

A question that remains to be clarified is whether foreigners may purchase shares in any listed
Vietnamese company or only in listed Vietnamese companies operating in the limited range of
sectors prescribed in Decision 260-2002-QD-BKH of the Ministry of Planning and Investment
dated 10 May 2002. It is assumed (but not confirmed) that foreigners are free to purchase up to
49% of listed shares of a company irrespective of the sector in which the company is operating
(and that Decision 260 only limits the range of non-listed companies in which foreigners can
purchase shares). This assumption is supported by the recent purchase by foreigners of shares
in a Vietnamese hydroelectric power enterprise traded at the Hanoi Securities Trading Center,
because the power sector is not a prescribed sector in Decision 260 (See Section 8.8 on
Foreign Investment in Non-listed Vietnamese Enterprises below).

Under the Law on Credit Institutions (as amended 2004), foreign banks are allowed to purchase
shares in Vietnamese joint stock commercial banks as of 1 October 2004. The SBV is currently
revising its regulations governing foreign shareholdings in such banks to implement this reform.
For more details, see Section 7.9 "Financial Services - Banking Services" above.

Taxation
To encourage further participation in the Stock Market, the MoF approved in principle the
proposal by the SSC to suspend the collection of the following fees applicable to the following
securities business: fees for trading membership, fee for trading shares, bonds and/or
investment funds certificates, fee for annual management of listing, fee for depository
membership, fee for share depository, and fee for bond depository. Other fees and charges
continue to apply as per the current regime. (Official Letter 14365-TC-TCNH of the Ministry of
Finance dates 31 December 2002.)

Guidelines on the application and calculation of VAT and CIT for the securities industry has
been provided under Circular 100-2004-TT-BTC dated 20 October 2004. Under this Circular,
securities brokerages, securities self-trading, management of securities investments, guarantee
and agency for issuing securities, consultancy on securities investment, securities custody,
representation of bonds’ owners will not be subject to VAT. In addition to specific detailed
provisions on CIT calculation and deductible expenses for securities business, preferential CIT
rates are available to securities companies and fund management companies, which will enjoy
the CIT rate of 20% for first 10 years of operation (then standard CIT rate of 28%). Any such
companies already in operation and paying CIT at the rate of 32% (for domestic enterprises) or
25% (for foreign invested enterprises) now will enjoy the CIT rate of 20% for the remaining
period of their first 10 years in operation.

Foreign Invested Shareholding Companies
The first pilot conversions of selected FIEs into foreign invested shareholding companies
("FISCs") have been approved by the Prime Minister. Under Decree 38-2003-ND-CP of the
Government on conversion of a number of FIEs to operation in the form of FISCs and Joint
Circular 08-2003-TTLT-BKH-BTC of the Ministry of Planning & Investment and Ministry of
Finance dated 29 December 2003 implementing Decree 38, foreign investors, existing FIEs and
domestic Vietnamese investors will be permitted to purchase shares in FISCs. FISCs will be
permitted to list on the Vietnamese securities market and on overseas securities markets (the
latter subject to approval from the responsible authority).

Under Decision 51-2004-QD-TTg of the Government dated 31 March 2004, the MoF and the
MPI have been instructed to co-ordinate to commence drafting of guidelines for listing of FISCs



                                                                                            100
     on the securities market. By Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of
     Solutions Aimed At Creating New Changes In The Work Of Attracting Foreign Direct Investment
     To Vietnam, the Prime Minister directed that the guidelines on listings by FISCs be issued in the
     second quarter of 2005.

     The above detailed guidelines on listings of FISCs have not yet been issued, however Decision
     238 (see above) now clarifies how the 49% cap on foreign securities holdings will apply in the
     case of a FISC. Under the FISC regime, foreign investors may hold up to 100% of the shares of
     a FISC. If a FISC lists or trades its shares at a Securities Trading Centre, Decision 238 provides
     for the 49% cap to apply only to the total shares offered to the public. So if the founding foreign
     investors of a FISC retain 90% of shares and offer 10% to the public, the 49% cap will apply
     only to the 10% - with the result that a maximum of 4.9% of the FISC's shares may be
     purchased by other (non-founding) foreign investors.

     For more detail on FISCs, see Section 8.8 on “Legal Entity Restrictions.”

7.10 Transport and Delivery Services

     Maritime Transport Services
     Vietnam has recently opened up all of its domestic ports to foreign shipping lines. Although
     meant to help reduce freight costs for exporters, Decision 4306-QD-BGTVT also provides
     greater access for importers while eliminating licensing requirements for foreign shipping lines to
     operate to and from Vietnam. Decision 4306, however, still requires foreign shipping lines to
     enter Vietnam using Vietnamese agents.

     In a recent decision, the Vietnam Maritime Bureau has allowed foreign shipping lines to set up
     JVEs with domestic partners. This new policy is part of a push to implement the ASEAN
     Maritime Agreement. Under the new regulations, foreign sailors will be permitted to make up to
     one third of a Vietnam-based ship’s crew in a JVE, but will not be allowed to become
     commanding officers. It is also hoped that discrimination between domestic and foreign
     commercial ships regarding docking, warehousing, piloting and cargo handling charges will end.

     In late March 2005, Danish company Maersk A/S was licensed by the MPI to establish a 100%
     FOE in Vietnam for "supply of goods transportation by sea agent service, including the activities:
     representing goods owners, goods delivery and reception activities, warehousing, goods
     transportation by sea service; preparation of transportation documents, customs documents".
     This is the first 100% FOE licensed to participate in the freight forwarding business in Vietnam.
     Currently, by law, foreign investors in this sector are restricted to a 49% interest in a JVE or
     BCC at best (under the foreign investment regulations issued under Decree 24-2000-ND-CP of
     the Government dated 31 July 2000, as amended 19 March 2003). Reportedly, licensing of
     Maersk's project in the form of a 100% FOE was agreed to during the negotiations to conclude
     the EU-Vietnam Market Access Agreement dated 3 December 2004 and the EU-Vietnam
     Agreement on WTO Accession dated 9 October 2004.

     Express Delivery Services
     Responsibility for State administration of express delivery or courier services is vested in the
     Ministry of Posts and Telecommunications ("MoPT"). Decision 190-2004-QD-TTg of the Prime
     Minister dated 8 November 2004 provides for the MoPT to have jurisdiction over the following
     services:
     -   Services of domestic and international receipt, sorting, transportation and delivery by
         physical means;
      - Information exchanged in form of addressed or non-addressed documents, including hybrid
         mail services and direct mail services;
     -   Parcels and packages with a receiving address.

     Previously, all express-delivery companies in Vietnam were required to work under the auspices
     of “Agency Agreements” with the MoPT. Under Decree 157 (see Section 7.5 above), foreign
     invested JVEs must be authorized by the Prime Minister (corresponding laws guiding foreign
     investment however still limit foreign investment in this sector to BCCs.) Only one JVE license
     has been granted in this sector (to TNT).



                                                                                                    101
      On 6 May 2005, the MoPT issued Circular 01-2005-TT-BBCVT providing guidelines on a
      number of matters arising under Decree 157 with respect to issuance of business licenses for
      mail delivery services and registration of agents for foreign mail delivery organizations. The
      clarification of JVE licensing is welcomed, however, Circular 01 imposes significant additional
      licensing requirements and barriers.

      With respect to issuance of licenses for provision of mail delivery services: As stipulated in
      Decree 157, 100% FOEs are not allowed to engage in the business of domestic and
      international mail delivery services. JVEs are allowed to engage only in the business of
      international mail delivery services. International mail delivery services are defined to include
      (a) collecting mails in Vietnam for delivery abroad, (b) collecting mails abroad for delivery in
      Vietnam, or (c) a combination of (a) and (b). Under Circular 01, an additional license for
      provision of (international) mail delivery services is required. Circular 01 prescribes the
      necessary contents of a license application file, which include documents evidencing a JVE's
      experience in provision of international mail delivery services (at least 5 years experience under
      Decree 157). The term of a license is 10 years (extendable). Of note, Circular 01 requires JVEs
      not satisfying the 5-year experience condition to undergo a trial period (for provision of
      international mail delivery services) by applying for a "trial" license. This trial license has a term
      of up to 1 year. At the end of the trial period, a JVE may apply for a "full" license.

      With respect to registration of agents for foreign mail delivery companies: Circular 01 provides
      for JVEs which are licensed to provide international mail delivery services to act as agents for
      foreign mail delivery companies subject to registration with the MoPT. Certification of
      registration of agents will be implemented by way of the MoPT signing the registration form. So,
      JVEs wishing to act as agents for foreign mail delivery companies must obtain 3 specialized
      documents: first, a foreign investment license, then a license for provision of international
      delivery mail services, and finally a certified registration form.


8.    Investment
8.1   MFN:
      Ordinance 41-2002-PL-UBTVQH10 on MFN and National Treatment dated 25 May 2002
      extends the provision of no less favorable treatment than that accorded to investors and
      investments of a third country in like situations. The scope of application of MFN for investment,
      as stipulated in the Ordinance, includes that relating to the establishment, selling, purchasing,
      expansion and management operations of businesses and investments. MFN exceptions for
      investments or investors should be in accordance with Vietnamese law or international treaties
      to which Vietnam is party to.

8.2   National Treatment:
      The provision of national treatment in investment is defined in Ordinance 41 as the provision of
      treatment no less favorable than that provided to domestic goods. The provision of national
      treatment in general is subject to the following exceptions including: 1) Procurement conducted
      by the Government of Vietnam; 2) Government subsidies and supports provided to domestic
      manufacturers and their use of domestic content products; 3) Time allotment restrictions on
      broadcasting and television production and 4) Domestic transportation costs calculated on the
      basis of commercial activities of transportation.

      Currently, foreign investors operate under the Law on Foreign Investment while domestic
      companies operate under the Law on Promotion of Domestic Investment. To narrow the gap
      between the foreign and domestic investment regimes, the government has commenced a trial
      of "foreign invested shareholding companies" (see Section 8.8 on “Legal Entity Restrictions”).

      Drafting of a new Law on Investment - which will introduce a common investment regime for
      foreign and domestic investment in Vietnam - commenced in April 2004. To support the new
      Law on Investment, a new Law on Enterprises - which will introduce a unified 'company law' for
      domestic enterprises, FIEs and SOEs - has been drafted simultaneously. The new Law on
      Investment will regulate investment guarantee measures, investment sectors and regions which


                                                                                                        102
are encouraged, investment procedures and investment incentives that will apply to domestic
and foreign investors. The Law on Enterprises will regulate the establishment forms and
procedures, organization and management, and dissolution of enterprises in all economic
sectors. Both Laws were scheduled to be considered at the NA's October-November 2005
Session and expected to be passed at its May 2006 Session. Now, to expedite the
promulgation of legislation necessary for Vietnam's WTO accession, both Laws are scheduled
to be considered and promulgated in October-November 2005. However, following criticism of
Draft 16 of the Law on Investment by foreign delegations and reported vigorous debate of Draft
16 by NA delegates, it is possible that the promulgation of this Law will be postponed until the
next NA Session in May-June 2006 to allow further consideration of the proposed new
investment regime. If that is the case, it is expected that promulgation of the Law on Enterprises
will also be postponed.

Elimination of Dual Pricing
Vietnam is gradually eliminating its dual pricing system in areas such as tourism, air, rail
transportation, seaport charges, charges for TV advertising and utilities such as telephone
charges, electricity and water.

Dual pricing of domestic air tickets has been scrapped as of 1 January 2004 under Official Letter
3293-2003-CAAV dated 2 December 2003. Airfares are now uniform for foreigners, overseas
Vietnamese and locals on domestic Vietnam Airlines and Pacific Airlines flights.

Under Official Letter 6842-2004-TC-CST dated 21 June 2004 by the Ministry of Finance, in
2004, fees that are priced in two tiers for Vietnamese and foreigners will be adjusted to become
one common fee level. All kind of fees in customs, advertising, intellectual property, road traffic
and such like will be modified so all fees applied to foreigners and Vietnamese will be the same.
It is understood that the MPI is also currently drafting legislation that proposes the elimination of
dual pricing on land.

According to Official Letter 12665-TC-CST dated 3 November 2004 of the Ministry of Finance,
the fee level of testing and checking medicinal products, medicinal samples, materials for
making medicines and cosmetic products will be applied in accordance with the one-price policy
between Vietnamese and foreigners.

Under Decision 215-2004-QD-TTg of the Prime Minister dated 29 December 2004 and
implementing Circular 01-2004-TT-BTC of the Ministry of Finance dated 7 January 2005,
Vietnam's electricity price tariff now applies equally to FIEs and foreign residents in Vietnam as
well as Vietnamese enterprises and individuals, as of 1 January 2005. However, on 4 February
2005, the Prime Minister made a decision suspending the new Decision 215 electricity price for
living purposes. Until further notice, the pre-1 January 2005 electricity price for living purposes
will apply. The Ministry of Industry, the MoF and the MPI have been assigned to draft a new
electricity price for living purposes (Notification 25-TB-VPCP).

The MoF has drafted a new decree on the collection of land lease rent which proposes a single-
pricing system applicable to both Vietnamese enterprises and FIEs.

Vietnam’s shipping sector is also moving towards a single price policy over seaport fees
applicable for domestic and foreign shipping firms.

Draft 16 of the proposed Law on Investment (article 10) provides for the uniform pricing of goods
and services controlled by the State, comprising: electricity, water, post, telecommunications
and transportation; advertising on the mass media; and other goods and services.




                                                                                                 103
8.3   Trade Related Investment Measures (TRIMS):
      Under the BTA, Vietnam has committed to eliminate certain trade-related investment measures,
      including trade-balancing measures and foreign exchange controls on imports upon entry into
      force (10 December 2001), and all other prohibited TRIMs such as local content requirements
      by the earlier of December 2006 (five years upon entry into force of the Agreement) or the date
      of its WTO accession.

      Under its Action Plan for the implementation on the WTO TRIMs Agreement, Vietnam has
      committed to full implementation without a transition period.

      Draft 16 of the proposed Law on Investment (article 8.2) provides for the State guarantee that
      an investor will not be compelled to do the following:
      -       To give priority to the purchase or use of domestic goods or services; or to purchase
              compulsorily goods from a specific domestic manufacturer or services from a specific
              domestic service provider;
      -       To export a fixed percentage of goods or services; to restrict the quantity, value or type
              of goods or services which may be exported or of goods which may be manufactured
              domestically or services which may be provided domestically;
      -       To import goods at the same quantity and value as goods exported, or to self-balance
              compulsorily foreign currency from sources obtained from exported goods in order to
              satisfy their import requirements;
      -       To achieve certain localization ratios during manufacture of goods;
      -       To achieve a stipulated level or value in their research and development activities in
              Vietnam;
      -       To supply goods or provide services in a particular location whether in Vietnam or
              abroad;
      -       To establish its head office in a particular location.

      Trade Balancing Measures
      Vietnam has eliminated trade-balancing requirements previously undertaken through restrictions
      on the importation of goods used for production by foreign investors. In the same vein, export
      performance requirements have been eliminated for most goods - currently only 14 items remain
      on the compulsory export list. Previously investors in most categories were required to export
      80% of output. With the lifting of these restrictions, the licenses of foreign investors with export
      performance requirements can be modified.

      Foreign Exchange Controls
      Foreign exchange controls for importation of products by foreign investors have been eased
      over the years. Under Decree 27-2003-ND-CP of the Government dated 19 March 2003
      amending the foreign investment regulations issued with Decree 24-2000-ND-CP of the
      Government dated 31 July 2000, FIEs and foreign BCC parties are permitted to purchase
      foreign currency to satisfy their current transaction requirements and for other permitted
      transactions from any banks (previously only from authorized commercial banks) licensed to
      trade in foreign currencies in Vietnam.

      On 25 May 2004, the SBV issued Circular 03-2004-TT-NHNN regulating foreign exchange
      activities relating to capital contribution to or purchase of shares in Vietnamese enterprises by
      foreign investors, including (i) transfer of foreign currency capital into Vietnam for capital
      contribution or purchase of shares; (ii) conversion of foreign currency into VND; (iii) opening and
      use of a VND account for capital contribution or purchase of shares; (iv) conversion of VND
      dividends and profits into foreign currency; and (v) remittance of foreign currency abroad.

      In order to contribute capital to, or purchase shares in, Vietnamese enterprises, foreign investors
      must open a special “capital contribution-share acquisition in Vietnamese dong” account at a
      commercial bank operating in Vietnam. All transfers and other activities relating to capital
      contribution or purchase of shares by foreign investors must be conducted via this account.
      Such account is to be used solely for the purpose of capital contribution to or purchase of
      shares in Vietnamese enterprises. This special account must be registered with the SBV within
      2 working days from the date of opening. Any change of the details of such account must also
      be registered. The above account must be closed in following cases: (i) remittance of the total



                                                                                                      104
      balance of the account abroad or to a securities operation account; (ii) liquidation, bankruptcy
      and termination of an investor being an entity, and in other cases as provided by the SBV.

      On 6 December 2004, the SBV issued Decision 1550-2004-QD-NHNN on foreign exchange
      control applicable to purchase and sale of securities by foreign organizations and individuals at
      Securities Trading Centers, see Section 8.11 on "Equity Investment".

      Local Content Requirements
      Vietnam continues to require some foreign investors to use local content. This is particularly so
      for the electronics, motorcycle manufacturing and automobile sector as stipulated in Decision
      648-1999-QD-BKHCNMT of the Ministry of Science, Technology and Environment Promulgating
      Regulations of Types of Motorcycles Assembly and Manufacture dated 17 April 1999. Under
      Circular 215-HTDT-LXT, automobile manufacturers face high tariffs on imported components
      and have to satisfy requirements as high as 30 to 60% of the total value of an engine in local
      content (Implementation of the automobile components production program is a necessary
      condition for granting an investment license. The value of components and spare parts
      manufactured in Vietnam must account for at least 5% of the value of the finished automobile no
      later than the fifth year from the date of commencing production and must annually increase to
      reach at least 30% of the automobile value at the tenth year of production). Other sectors
      requiring the use of local raw material that include cane sugar, paper processing, vegetable oil,
      wood processing, and milk.

      On 11 May, the MoST issued Decision 05-2005-QD-BKHCN amending and adding to the
      definition of local content for the purpose of localisation rates for automobiles. If a Vietnamese
      automobile manufacturer directly imports automobile components or buys imported parts from
      another Vietnamese importer, such components will not be calculated in the localisation rate.
      Decision 05 also specifically regulates incoherent levels of automobile spare parts.

8.4   Bilateral Investment Treaties

      UK-Vietnam Investment Agreement: On 1 August 2002, the United Kingdom and Vietnam
      concluded a bilateral Agreement on Promotion and Protection of Investments. The assets
      covered by the Agreement includes: 1) moveable and immoveable property and any other
      property rights such as mortgages, liens or pledges; 2) shares in and stock and debentures of a
      company and any other form or participation in a company; 3) claims to money or to any
      performance under contract having a financial value; 4) IP rights, goodwill, technical processes
      and know-how; 5) business concessions conferred by law or under contract, including
      concessions to search for, cultivate, extract or exploit natural resources. The Agreement
      extends protection for covered investments including the provision of MFN and national
      treatment; compensation from losses; protection from expropriation including guarantees on
      prompt adequate and effective compensation against losses in cases of expropriation;
      repatriation of investments and returns; investor-state dispute settlement including access to
      international arbitration mechanisms; and guarantees of dispute settlement between contracting
      parties through local tribunals. An annex to the Agreement lists exemptions on national
      treatment for investment.

      Japan-Vietnam Investment Protection Agreement: On 14 November 2003, Vietnam and
      Japan signed an Agreement on Investment Protection. In principle, the Agreement guarantees
      national treatment and most-favored national treatment to investors and their investment in both
      countries at the initial stage of investment. In addition, it prohibits the respective authorities from
      imposing so-called performance requirements to provide the rules in terms of liberalization,
      promotion and protection of investment in a comprehensive manner. Reportedly, the
      Agreement appendix of industries and sectors to be excluded from the regulations imposed by
      the compact is still under consideration.

8.5   Profit Repatriation:
      Vietnam’s Law on Foreign Investment guarantees foreign investors the ability to repatriate
      profits and invested capital. The Law also permits foreign investors to remit abroad payments
      for the provision of technology or services, the principal and interest on offshore loans incurred
      over the course of their operations, and other monies and assets in their lawful ownership.



                                                                                                         105
      Prior to the 2004 tax year, profit repatriation was taxed at 2-7%. Now, under the new Law on
      Corporate Income Tax and implementing regulations Decree 164-2003-ND-CP of the
      Government dated 22 December 2003 and Circular 128-2003-TT-BTC of the Ministry of Finance
      dated 22 December 2003, withholding tax is no longer payable by foreign investors when
      remitting their profits (see Section 10.6 on “Taxation” below for more details).

      The Ministry of Finance has issued Circular 26-2004-TT-BTC dated 31 March 2004 providing
      guidelines on profit remittance tax and refund of corporate income tax upon reinvestment by
      foreign investors. Circular 26 clarifies that profit remittance tax is not payable in respect of any
      remittance abroad of lawful income as of 1 January 2004 (including remittances of profits arising
      prior to 31 December 2003). However, prior to any remittance of profits abroad, Circular 26
      requires foreign investors to prepare a Declaration of Remittance of Profit Overseas on the form
      in the Appendix issued with Circular 26 and to submit it to the tax office directly managing the
      enterprise in which such foreign investor invested capital. Circular 26 became effective as of 23
      April 2004.

      Under Circular 124-2004-TT-BTC of the Ministry of Finance dated 23 December 2004 providing
      guidelines for Implementation of provisions on profit remittance by foreign economic
      organizations and individuals investing under the Law on Foreign Investment in Vietnam, foreign
      investors are entitled to remit abroad (i) profits from investment activities in accordance with the
      Law on Foreign Investment, (ii) profits from capital assignment after fulfilling obligation o
      corporate income tax, and (iii) income being corporate income tax refunded for reinvestment of
      profits or due to overpayment. Provisional profit remittance abroad may be made only when the
      foreign investor has completed the declaration of corporate income tax of the financial year, has
      provisionally paid quarterly corporate income tax as provided for by law, and does no fall within
      one of the following cases: (i) the enterprise in which the foreign investor invested and from
      which it obtained profits did not declare corporate income tax for the financial year; (ii) the profits
      are not in accordance with current legal provisions on tax and accounting of Vietnam; (iii) the
      profits are of the final year prior to termination of operational duration in accordance with the
      investment license or termination of its operations under decision of investor or competent State
      authority. Profit remittances shall be made at (i) annual remittance of all profits after termination
      of financial year, (ii) provisional remittance during the financial year every quarter or every 6
      months after paying corporate income tax (unless exempted from corporate income tax); (iii)
      profit remittance upon termination of business activities in Vietnam. Circular 124 also provides
      in detail for the determination of the amount of profits permitted to be remitted abroad and for
      the procedures to conduct remittances abroad.

8.6   Investor-State Arbitration and other forms of dispute settlement:
      Vietnam's plans for accession to the 1965 Washington Convention, also known as the
      Convention of the International Center for Settlement of Investment Disputes ("ICSID
      Convention") have been progressing slowly. Now, by Directive 13-2005-CT-TTg dated 8 April
      2005 On A Number Of Solutions Aimed At Creating New Changes In The Work Of Attracting
      Foreign Direct Investment To Vietnam, the Prime Minister has directed the MPI to (in the second
      quarter of 2005) co-ordinate with the MoJ and submit a plan for accession to the ICSID
      Convention.

      Under the provisions of the Investment Chapter in the BTA, Vietnam has consented to allow
      investors (if conciliation fails) to submit disputes arising out of or relating to investment
      authorizations, investment agreements or alleged breaches of the investment-related provisions
      of the BTA to local courts or tribunals of Vietnam, to previously agreed dispute settlement
      procedures, or to international arbitration (including ICSID arbitration). Currently, the foreign
      investment regulations issued under Decree 24-2000-ND-CP of the Government dated 31 July
      2000 (as amended 19 March 2003) requires some disputes which arguably fall within the BTA's
      definition of "investment dispute" (i.e. disputes between a FIE and another FIE and disputes
      between a FIE and a Vietnamese economic organization) to be resolved by Vietnamese
      arbitration organizations or by Vietnamese courts. Importantly, during the Ministry of Justice's
      ongoing review of the conformity of Vietnamese legislation with Vietnam's commitments under
      the BTA and for WTO accession, the inconsistency of this provision of Decree 24 with Vietnam's
      BTA commitments was recognized. The Ministry of Justice proposed that this provision of



                                                                                                         106
      Decree 24 should be abolished under the new Law on Investment (now scheduled to be
      considered and promulgated at the NA's 8th Session in October-November 2005, see Section
      8.2 above). Draft 16 of the new Law on Investment widens the range of investment disputes (to
      "disputes involving a foreign element", regrettably undefined) which can be resolved other than
      by Vietnam courts/arbitration. Also, Draft 16 appears to enshrine (regrettably, not explicitly)
      Vietnam's commitments in the Investment Chapter in the BTA with respect to investor-State
      disputes. A clarified Law on Investment and Vietnam’s accession to the ICSID Convention
      would send a strong signal of Vietnam's commitment to the foreign investment community.

8.7   Investment Registration:
      Vietnam has committed to the elimination of investment licensing for most sectors. Reforms
      which reflected Vietnam's shift towards an investment registration regime were introduced in
      March 2003. Under Vietnam’s proposed new Law on Investment (scheduled to be considered
      and promulgated at the NA's October-November 2005 Session), investment registration is
      expected to be formally introduced for a wider (but still restricted) range of foreign direct
      investment projects.

      Under Decree 27-2003-ND-CP of the Government dated 19 March 2003 amending the foreign
      investment regulations issued with Decree 24-2000-ND-CP of the Government dated 31 July
      2000, the conditions for investment registration under Article 105 of Decree 24 were relaxed to
      the following:
      (i)     Projects must satisfy all of the following mandatory conditions:
              -    not being Group A projects;
              -    conforming to the approved planning (now clarified as) for development of the
                   relevant industry or planning for products, in the absence of which the consent of the
                   ministry in charge of the industry is required.
              -    not requiring an environmental impact statement.
      (ii)    Projects must satisfy one of the following alternative conditions:
              -     exporting 80% of products (relaxed from 100%);
              -     investing in an encouraged or specially encouraged project located in an industrial
                    zone, but not a Group A project (previously, investing in an industrial zone and
                    satisfying export ratio criteria); or
              -     belonging to the manufacturing sector with up to USD5 million invested capital (no
                    longer required to also export at least 80% of products).
      Other reforms in Decree 27 included: (a) the number of sets of a registration file which must be
      submitted to the investment licensing body was reduced from 5 to 3 sets; and (b) the inclusion of
      an express statement that, where a project satisfies all necessary conditions for registration
      under article 105, the investment licensing body must issue the investment license without
      obtaining recommendations from any other body.

      Following Decree 27, licensing processes under the jurisdiction of the Ho Chi Minh City
      Department of Planning & Investment have been streamlined and sped up tremendously. For
      example, registration for projects in the largest category (Group A) has been reduced to a
      maximum of 15 days. As regulated under Decision 236-2004-QD-UB of the HCMC People’s
      Committee dated 14 October 2004 on Regulations on procedures, orders and regimes for
      dealing with issues relating to foreign direct investment in Ho Chi Minh City, the time-limit for
      investment licensing is 10-20 days for projects subject to evaluation (which is most foreign
      investment projects), or 2-5 days for projects subject to registration for investment licensing (the
      time limit is 30-45 days and 15 days respectively under the Government’s foreign investment
      regulations). Ho Chi Minh City’s online facilities for investment licensing (for foreign investment
      projects) and business registration (for domestic businesses) have reduced application
      processing time significantly. Other foreign investment-related matters are also now able to be
      managed via its online facilities such as registration of changes in board members. The post-
      licensing administrative procedures have also been shortened: 2 days for issuance of seal for
      enterprises (instead of 15 days as before) and issuance of import-export code, 8 days instead of
      15 days for issuance of tax code registration. In Da Nang, the government is piloting the
      registration of foreign invested projects in 20 hours and hopes to see this reduced to 15 hours
      soon.




                                                                                                      107
By Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of Solutions Aimed At Creating
New Changes In The Work Of Attracting Foreign Direct Investment To Vietnam, the Prime
Minister has directed the MPI to (in the second quarter of 2005) submit a plan on faster issuance
of foreign investment licenses and to draft transparent criteria for evaluation of FDI projects.

Draft 16 of the proposed new Law on Investment has been approved by the Government and
the NA's Standing Committee and has been submitted to the NA for consideration and
promulgation at its current October – November Session. Regrettably, Draft 16 provides for only
a very narrow class of investment projects to be entitled to (true) investment registration; and,
between the two alternatives of “investment registration” and “investment evaluation/licensing”,
Draft 16 creates a hybrid category of “certification of investment registration”. This is one of the
aspects of Draft 16 that has been criticized by foreign delegations. Vietnamese press have
reported vigorous debate of Draft 16 by NA delegates and it is possible that the promulgation of
this Law will be postponed, which would allow further consideration of the following new
investment regime proposed in Draft 16:

                  Who is entitled?                What investment process         What investment document is
                                                  applies?                        issued?
  Investment      Domestic investment             Registration of investment      No "investment" document
  registration    projects with invested          on sample form at               issued - projects may be
  (article 46)    capital below VND15             provincial            State     implemented in accordance
                  billion (USD943,990),           administrative body for         with registered items in
                  excluding conditional           investment                      business registration
                  projects                                                        certificate issued under new
                                                                                  Law on Enterprises
  Investment      Domestic        investment      Registration of investment      Investment certification in
  certification   projects with invested          on sample form at               "investment      -     business
  (article 47)    capital    from     VND15       provincial State                registration certificate" which
                  billion to below VND300         administrative body for         will    contain      investment
                  billion;                        investment.                     project registration items and
                  Foreign invested projects       (Draft 16 expressly states      business registration items (a
                  with invested capital           that investors will not be      two-step process) - will not
                  below VND300 billion            required to supplement their    stipulate incentives.
                  (USD18,880,000);                application with any other
                                                  documents - but it still uses
                  excluding       conditional
                                                  the language of
                  projects                        "application"!)
  Investment      Projects with invested          Evaluation of project file      Investment certification in
  evaluation      capital of VND300 billion       (but evaluation criteria not    "investment - business
  (article 48)    (USD18,880,000) or              stipulated in Law!)             registration certificate" which
                  more;                                                           will contain investment
                  Conditional projects in:                                        project registration items and
                  - Sectors impacting on social                                   business registration items (a
                  order and safety;                                               two-step process) - will
                  - Sectors impacting on                                          stipulate incentives.
                  financial policy and the
                  national currency;
                  - Sectors impacting on
                  public health;
                  - Culture, information, the
                  press and publishing;
                  - Entertainment services;
                  - Real estate business;
                  - Survey and mining of
                  natural    resources;     the
                  ecological environment;
                  - Education and training;
                  - A number of other sectors
                  in accordance with law.

                  (For foreign investors, the
                  range      of   “conditional
                  projects” is wider still,
                  depending on conditions in
                  Vietnam's      international
                  treaties.)




                                                                                                                 108
              Another concern arising under Draft 16 is that incentives will not be documented for all
              investment projects (as noted above):
              -      Projects subject to investment registration and projects entitled to investment certification
                     will self-assess their entitlement to incentives. They will be required to “negotiate” the
                     granting of each incentive to which they are entitled with each relevant State body
                     without their entitlement being confirmed in any document other than legislation.
              -      Projects subject to investment evaluation will have their entitlements confirmed in the
                     business-investment registration certificate.
              So, whereas now foreign investors have to “negotiate” with tax and other bodies to have
              implemented the incentives stipulated in their investment licenses, under Draft 16 they’ll have to
              “negotiate” their actual entitlement to incentives with those bodies.

              Another concern is that the investment evaluation process is lacking in transparency (as noted
              above). Draft 16 provides no criteria for investment evaluation - investors will have to wait for
              implementing regulations.

        8.8   Legal Entity Restrictions:
              In 2003, Vietnam introduced a number of reforms to expand the options for foreign investment,
              to enhance the efficiency of existing FIEs, to promote the development of the domestic sector,
              and to boost the Vietnamese securities market. The options for foreign investment in Vietnam
              (discussed in more detail below) currently include:
               -     Foreign investment under the Law on Foreign Investment in Vietnam;
               -     Foreign shareholdings in foreign invested shareholding companies ("FISCs");
               -     Foreign shareholdings in/capital contribution to Vietnamese enterprises not listed on the
                     Vietnamese securities market;
               -     Foreign shareholdings in Vietnamese companies listed on the Vietnamese securities
                     market (see Section 7.9 on “Financial Services - Securities” above).

              By Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of Solutions Aimed At Creating
              New Changes In The Work Of Attracting Foreign Direct Investment To Vietnam, the Prime
              Minister directed the MPI to submit (by the end of the second quarter of 2005) the principles for
              application of a pilot test of the model of a parent company with foreign invested capital in
              Vietnam. On 3 August 2005, Matsushita Corporation was licensed by the MPI (with the
              approval of the Prime Minister) to establish an 100%FOE to manage its equity investments in 2
              existing investment projects in Vietnam. This is the first (and expected to be the only) pilot of
              the parent-subsidiary company model in Vietnam's foreign invested sector. Legislation to
              enable this pilot has not yet been issued and is not expected to be issued in advance of the new
              Law on Investment and Law on Enterprises.

              The new duo of the Law on Investment and the Law on Enterprises (which are scheduled to be
              considered and promulgated at the NA's October-November 2005 Session, but which may now
              be postponed until May-June 2006) will provide for foreign investors to establish enterprises in
              any form available under the Law on Enterprises. Currently, foreign invested enterprises
              ("FIEs") are a 'special' form of enterprise peculiar to the Law on Foreign Investment in Vietnam,
              in which investors own "capital contribution" not shares, which have a limited license duration,
              and which are subject to separate 'company law' than applies to Vietnamese enterprises.

              In October 2005, the MPI issued a draft of the proposed decree which will regulate the
NEW!!         conversion of existing FIEs to other forms of enterprise after the new Laws become effective.
              The draft decree also regulates amendment of the activities of FIEs which do not convert. For
              existing foreign investors, this will be one of the most important decrees on implementation of
              the new investment/enterprise regime. A welcome feature is that the draft decree does not
              make it compulsory for FIEs to convert their form - conversion of FIEs is at the discretion of
              investors. But, of note, FIEs that do not convert will nevertheless become subject to and must
              comply with the provisions of the new Law on Enterprises and the Law on Investment - how this
              will work in practice is unclear.

              Some of the features of the draft decree include:
              -    Applies to JVEs, 100% FOEs and FISCs, but does not appear to apply to BCCs.




                                                                                                              109
-      Applications for conversion must include the following certified documents: new charter
       of the enterprise (which must conform with the new Law on Enterprises); resolution on
       conversion from the JVE board or consent of owners of the 100% FOE or FISC (as
       applicable); original investment license.
-      Conversion is required to be conducted within 2 years of the effective date of the decree.
-      Upon conversion, a new legal entity will be formed and will assume the rights and
       obligations of the FIE (presumably the right to carry forward tax losses will still apply).
-      It is not yet clear whether the decree will apply to FIEs established under other laws than
       the Law on Foreign Investment, eg credit institutions and insurance companies.

Legal Entity Restrictions under the Foreign Investment Law (current)
In addition to new BCCs, JVEs and 100% FOEs, the following is permitted under the Law on
Foreign Investment in Vietnam due to reforms introduced under Decree 27-2003-ND-CP of the
Government dated 19 March 2003:
 -    A new 100% FOE may be formed between an existing 100% FOE and (i) another existing
       100% FOE and/or (ii) foreign investor(s);
 -    A BCC may be entered between an existing JVE or 100% FOE and another foreign
       organization or individual;
 -     A new JVE may be established between an existing 100% FOE and a Vietnamese
       enterprise or between an existing 100% FOE and an existing JVE. A JVE may not be
       established between an existing 100% FOE and a foreign investor or an overseas
       Vietnamese investor.

Foreign Invested Shareholding Companies (FISCs)
As the first step in the effort to unify the laws governing foreign invested and domestic
enterprises, in 2003, the MPI issued Decree 38-2003-ND-CP of the Government dated 15 April
2003 providing for conversion of a number of FIEs to operation in the form of FISCs.

The conversion option is only available to JVEs and 100% FOEs. The conversion may take the
form of (i) retention of the value of the FIE and of the investor(s); (ii) assignment of a part of the
value of the FIE to new shareholders; (iii) either of (i) or (ii) together with issuance of additional
shares to raise additional investment capital. A FISC must continue to implement the approved
investment project of the former FIE and will be entitled to preferential treatment under the Law
on Foreign Investment and its implementing regulations. However, the rights of FISC
shareholders and the organizational structure of the FISC will be governed by the Law on
Enterprises - the same as for domestic shareholding companies.

To qualify for conversion, a FIE must have been operating for at least 3 years in the industrial,
agricultural or services sectors; its operations must have been profitable in the year immediately
preceding conversion; and its legal capital must be fully paid up. All conversions are subject to
Prime Ministerial approval. Joint Circular 08-2003-TTLT-BKH-BTC of the Ministry of Planning &
Investment and Ministry of Finance dated 29 December 2003 excludes the following FIEs from
eligibility for selection by the MPI for conversion into FISCs: i) any FIE which has committed to
transfer its assets to the State or Vietnamese partners without any compensation upon expiry of
licensed duration; ii) any FIE with pre-paid income operating in businesses of infrastructure of
industrial zones or new urban areas, of construction of housing for sale or pre-paid lease or of
offices and apartments for pre-paid lease, of golf courses, of services with membership cards, of
pre-paid sub-lease of land; iii) any FIE operating in form of build-operate-transfer (BOT), build-
transfer (BT), and build-transfer-operate (BTO); iv) any FIE with total investment capital
exceeding USD70 million or below USD1 million; v) any FIE having cumulative losses equal to
or higher than legal capital, and (vi) any FIE having unrecoverable bad debts higher than legal
capital.

The deadline for conversion applications was 25 May 2004. Of the 29 applications received by
the MPI, only 12 applications were forwarded to the Prime Minister for his consideration. As
recommended by the MPI, 6 FIEs (Taya, Interfoods, Austnam, Taicere, Tungkuang and Focal)
were approved by the Prime Minister in August-September 2004 to participate in the first round
of pilot conversions (which the MPI expected to be completed within 6 months but is still
continuing). This number is much lower than the target of 20-25 participants set by the MPI.




                                                                                                  110
Foreign investors, existing FIEs and domestic Vietnamese investors will be permitted to
purchase shares in FISCs. A FISC must have a minimum of 3 shareholders (individuals or
organizations), with at least one foreign founding shareholder. There is no restriction on the
maximum number of shareholders.            The total shareholding of the foreign founding
shareholder(s) must be at least 30% of carter capital throughout the life of the FISC.
Shareholdings will be freely assignable, subject to (i) the requirement for a minimum total foreign
founding shareholding of 30% of charter capital at all times and (ii) the approval by the MPI of
the assignment of foreign founding shareholdings. Proceeds of any assignment of foreign
founding shareholdings to domestic Vietnamese investors must be re-invested in Vietnam,
unless the MPI approves the remittance of the proceeds outside Vietnam.

FISCs will be permitted to list on the Vietnamese securities market, however, listing of FISCs on
overseas securities markets will be subject to approval from the responsible authority. By
Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of Solutions Aimed At Creating
New Changes In The Work Of Attracting Foreign Direct Investment To Vietnam, the Prime
Minister directed that guidelines on listings by FISCs be issued in the second quarter of 2005.
Such detailed guidelines have not yet been issued. However Decision 238-2005-QD-TTg of the
Government dated 29 September 2005 (see Section 7.9 on Securities above) now clarifies how
to reconcile the maximum 100% foreign shareholding permitted under the FISC regime with the
maximum 49% cap on foreign shareholding in listed companies (increased from 30% under
Decision 238). The solution is, if a FISC lists or trades its shares at a Securities Trading Centre,
the 49% cap will apply only to the total shares offered to the public. So if the founding foreign
investors of a FISC retain 90% of shares and offer 10% to the public, the 49% cap will apply
only to the 10% - with the result that a maximum of 4.9% of the FISC's shares may be
purchased by other (non-founding) foreign investors. Under the FISC regime, a minimum of
30% of share capital of a FISC must be retained by the founding foreign investors and can
never be traded, and is therefore always excluded from the listing of a FISC. So a maximum of
70% of share capital of a FISC may be listed, of which foreign investors would be permitted to
hold and trade up to (now) 49% of that 70%.

Reflecting another of the many Vietnamese concerns about the introduction of the FISC
investment vehicle, the MoF has requested that the MPI specifically consider how FISCs
converted from a JVE where the Vietnamese party is a SOE should be managed and whether
controls are required to avoid the situation of the foreign party conducting a general meeting of
shareholders and making unilateral decisions on all issues (Official Letter 5037-TC-TCDN of the
Ministry of Finance dated 13 May 2004).

On 18 March 2005, VNExpress reported that Taya (a 100% Korean owned telecom cable
company) was preparing to make a public share issue - this will be the first public share issue by
a FISC. Reportedly, the founding shareholders will retain an 80% shareholding and sell 20%
(equivalent to VND36 billion). Of that 20%, 5% will be reserved for employees, a smaller
percentage will be reserved for strategic investors, and the rest will be auctioned at the
beginning of April 2005.

Under Decree 38 and implementing Circular 08, a review of the first pilot FISCs and the
conversion regime by the Government was scheduled for May 2005. By Directive 13, the Prime
Minister directed the MPI to assess the first round of FISC conversions and to submit (by the
end of the second quarter of 2005) a plan for extension of the time-limit for lodging applications
for conversion under Decree 38 to allow for a second round of FISC conversions. There has
been no news on the latter.

In October 2005, the MPI released its draft of a proposed decree to regulate the conversion of
FISCs (amongst others) when the new Law on Enterprises and Law on Investment regime is
introduced (expected in mid-2006), see above.




                                                                                                111
Foreign Investment in Non-listed Vietnamese Enterprises
Revised regulations on foreign shareholdings in/capital contribution to Vietnamese enterprises
which are not listed on the Vietnamese securities market were issued under Decision 36-2003-
QD-BKH of the Government dated 11 March 2003 (replacing Decision 145-1999-QD-TTg of the
Government dated 28 June 1999) and became effective as of 18 April 2003.

The new Decision 36 governs purchase of shares and also capital contribution by the following
foreign investors: (i) foreign economic and financial organizations established pursuant to
foreign law and conducting business overseas or in Vietnam; (ii) foreigners not residing in
Vietnam; (iii) foreigners who reside, earn their living and live long-term in Vietnam; and (iv)
overseas Vietnamese.

The above foreign investors are permitted to contribute capital to and purchase shares in the
following Vietnamese enterprises: SOEs conducting equitization, shareholding companies,
limited liability companies, partnerships, co-operative unions and co-operatives conducting
business in the sectors of industries and trades currently listed in Decision 260-2002-QD-BKH of
the Ministry of Planning & Investment dated 10 May 2002. Previously, only share purchases in
equitized SOEs and shareholding companies operating in a more limited range of sectors was
permitted. Effective 25 May 2002, Decision 260 lists sectors in which foreign investors may
purchase shares (maximum 30%) in unlisted non-SOEs including agriculture, forestry and
fishing; industry and processing; hotels and tourism; transport; storage; communications;
technology & science; medical care and education.

An important reform is that Prime Ministerial approval is no longer required for the sale of shares
to foreign investors. However, the maximum level of capital contribution and purchase of shares
by any one or more foreign investor in Vietnamese enterprises remains capped at 30% of the
charter capital of the Vietnamese enterprises.

Foreign investors may purchase shares in the initial issue of shares by a newly-equitized SOE
but only in an additional issue of shares by any other shareholding company (or by way of
acquisition of shares from an existing shareholder). Foreign investors are not permitted to be
founding shareholders of Vietnamese shareholding companies other than former SOEs.
Foreign investors may make capital contribution to (or acquire the capital contribution share of
an existing member of) a co-operative union or co-operative, limited liability company or
partnership.

Any capital contribution or share purchase must be carried out in (i) VND (foreign currency must
be converted into VND) or (ii) by way of contribution of assets (including but not limited to
machinery and equipment, raw materials, goods, technology transfer, IP rights, valuable
securities) which must comply with the provisions of Vietnamese laws on technology, culture
and the environment.

Decision 36 provides regulations on procedures for capital contribution and sale/purchase of
shares, selling price, and confirmation of shareholding or capital contribution. Foreign investors
are allowed to (i) mortgage or pledge shares in credit relations and as security for the discharge
of civil obligations in accordance with the laws of Vietnam; (ii) transfer their shares, and to trade
them on the securities market if the shareholding company is listed on the Vietnamese securities
market; (iii) assign their capital contribution; (iv) convert their investment capital (principal and
interest), income from the sale of their shares or assignment of their capital contribution and
other legal income in Vietnam into foreign currency for remittance abroad upon fulfillment of all
financial obligations and compliance with the Vietnamese regime on foreign exchange control;
(v) be granted incentives under the Law on Promotion of Domestic Investment or the Law on
Foreign Investment if the foreign investor uses its income from investment being capital
contribution or purchase of shares in a Vietnamese enterprises for re-investment in a
Vietnamese enterprise; (vi) a foreign investor being an individual will be exempted from personal
income tax on income earned from capital contribution or purchase of shares in a Vietnamese
enterprises; (vii) be entitled to the same rights and interests as other Vietnamese shareholders
or members of the shareholding company, limited company, partnership, co-operative union or
co-operative; (viii) foreigners residing in Vietnam and overseas Vietnamese may participate in
the management of the enterprise.



                                                                                                 112
Notable reforms include: (i) the abolition of the former restriction on transfer of shares by foreign
investors for 1 year (or 3 years if the foreign investor participated in the management of the
shareholding company) from the date of ownership of shares; (ii) offshore executives of a
foreign investor are not permitted to participate in management; (iii) the right to mortgage or
pledge shares as security for the discharge of civil obligations is a new feature.

Circular 73-2003-TT-BTC of the Ministry of Finance dated 31 July 2003 provides guidelines for
implementation of Decision 36, including with respect to authority to make decisions on receipt
of capital contribution from and sale of shares to foreign investors and determination of share
sale price/capital contribution value. With respect to the conduct of capital contribution and sale
of shares:
 (i)     SOEs conducting equitization must, after approval of the equitization plan, make a
          public announcement of the sale of shares outside the enterprise on the mass media.
          In particular, essential information (being name and address of the SOE and number of
          shares for sale or amount of capital contribution to be received) must be provided for
          the reference of foreign investors.
 (ii)     In the case of an existing shareholding company listed on the securities market, the
          sale must be a public sale on the securities market in accordance with Vietnamese
          securities law.
 (iii)    In the case of an existing shareholding company which is not listed on the securities
          market, the sale may be held at the enterprise or via an intermediary financial
          organization established pursuant to the provisions of law. A public announcement of
          the sale of shares to foreign investors must be made on the mass media. In addition to
          the announcement of the number of shares, proposed selling price, date of
          commencement, and other basic information, information on the business status of the
          company and its capital and funds in the current year and for the two preceding years
          must be provided to foreign investors. (It is unclear whether SOEs are required to
          provide this additional information.)
 (iv)     Where existing shareholders sell their shares to foreign investors, they must register
          with the shareholding company to ensure that the level of foreign invested capital in the
          company does not exceed the cap of 30% of charter capital.

Interestingly, where a number of foreign investors register to contribute capital or purchase
shares at a value higher than the cap of 30% of charter capital of an enterprise, the enterprise
may select for itself its preferred foreign investors or may conduct an auction (either itself or via
an intermediary financial organization). Previously, an auction was mandatory. Information
about the share sale and the selling company must be provided on the mass media (radio,
television, central and local newspapers) on a minimum of 3 consecutive occasions at least 30
days in advance of a sale to foreign investors, irrespective of whether or not an auction is held.
If an auction is to be held, the conditions for participating in the auction must be published.
Within 15 days of completion of a share sale or receipt of capital contribution from foreign
investors, the results must be reported to the superior body of a SOE or the business
registration body of a shareholding company, limited liability company, partnership, co-operative
union or co-operative. Circular 73 does not apply to the sale of shares in FISCs.

New guidelines on foreign exchange activities relating to above capital contributions and share
purchases were issued in May 2004, see Section 8.3 above.

Following an announcement by the MPI in early March 2005 and the Prime Minister's Instruction
04-2005-CT-TTg dated 17 March 2005 on Acceleration of Equitization of State Owned
Enterprises, the cap on foreign shareholdings in unlisted Vietnamese shareholding companies
was expected to be abolished in most sectors (but not in prescribed areas, such as finance,
banking and telecommunications) by the end of April 2005. In Instruction 04, the Prime Minister
instructed the MoT to issue a new and expanded list of sectors in which uncapped foreign
shareholding would be permitted and instructed the MoF to submit by the end of June 2005 to
the Government for its approval revised regulations on share purchases by foreign investors in
Vietnamese businesses. Neither of these has occurred (however, the cap on foreign securities
holdings has been lifted, see Section 7.9 "Financial Services - Securities" above).




                                                                                                 113
      Under Decree 80-2005-ND-CP of the Government dated 22 June 2005, individuals and
      businesses of all economic sectors including FIEs and foreign investors are allowed to buy into
      SOEs. However, FIEs and foreign investors are only permitted to buy into SOEs operating in
      sectors in which foreign investors are allowed to make 100% foreign investment or joint
      ventures.

8.9   Technology Transfer Issues
      Technology transfer (from abroad into Vietnam; forming capital contribution to a foreign
      investment project; from Vietnam to abroad; or domestic transfers) is regulated under Chapter III
      of Part 6 of the Civil Code of Vietnam dated 28 October 1995 and Decree 45-1998-ND-CP of
      the Government dated 1 July 1998.

      Article 4.1(d) of Decree 59-2002-ND-CP of the Government dated 4 June 2002 on revocation of
      a number of licenses and substituting a number of licenses with other methods of management
      (effective as of 3 July 2002) replaced the requirement for approval of technology transfer
      contracts with the requirement for registration in the following cases:
       -      Contracts for domestic technology transfer;
       -      Contracts for technology transfer from abroad to Vietnam with respect to investment
              projects not funded by State owned capital; and
       -      Contracts for technology transfer from abroad to Vietnam with respect to investment
              projects funded by State owned capital the value of which is equivalent to less than
              USD30, 000.

      Circular 11-2002-TT-BKHCN of the Ministry of Science & Technology dated 29 November 2002
      (effective as of 14 December 2002) provided guidelines for implementation of article 4.1(d) of
      Decree 59 above, including:
       -      Files for (i) must be submitted to the Department of Science & Technology in the province
              or city under central authority where the transferee has its head office. Files for (ii) and
              (iii) must be submitted to the MoST.
       -      Files for registration of technology transfer contracts must comprise: standard form
              application; original contract; explanatory paper on the technology transfer contents or a
              copy of the feasibility study report; estimated total price to be paid for the technology
              transfer for the duration of the contract; investment license or decision or business
              registration certificate or decision on establishment of the transferee and other certificates
              from State administrative bodies for the specialist branch (if any); and receipt for payment
              of fees for registration of the technology transfer contract.
       -      If, within 15 working days of receipt of a file, the competent body does not request
              amendments or additions, the technology transfer contract will be deemed to be
              approved and will be effective; and the competent body must forward a slip confirming
              registration of the technology transfer contract to the transferee. If the competent body
              requests amendments or additions, the technology transfer contract will remain
              ineffective; if, within 5 working days of receipt of an amended file, the competent body
              does not request further amendments or additions, the technology transfer contract will
              be effective, and the competent body must forward a slip confirming registration of the
              technology transfer contract to the transferee.
       -      Any technology transfer contract which was approved prior to the date of effectiveness of
              Decree 59 (3 July 2002) will continue to be implemented in accordance with the
              provisions in force as at the date of approval of the contract.
       -      On 30 January each year, Departments of Science & Technology in provinces and cities
              under central authority must send to the MoST a written report listing the technology
              transfer contracts registered at the Department in the previous year.

      A Law on Technology Transfer is currently being drafted and is expected to be passed in late
      2006. Pending this new Law, the Government issued Decree 11-2005-ND-CP dated 2 February
      2005 on Technology Transfer (replacing Decree 45 above). Under Decree 11, technology
      transfer comprises the transfer of a wide range of items, including:
      -      Technological know-how and knowledge, e.g. technological processes, formulate,
             technical specifications, technical diagrams, computer software, technical information and
             data in relation to the technology transferred, either accompanied or unaccompanied by
             machinery or equipment;



                                                                                                        114
-     Solutions for rationalization of production and/or renovation of technology;
-     Support services for technology transfer in order that the transferee achieves the
      technological capability to produce products and/or services of the quality specified in the
      contract, e.g. selection of technology, installation and/or operating instructions, trial
      operations of equipment; consultation in relation to technology or business management,
      staff training;
-     Machinery, equipment and technical means accompanying the above; and
-     Grant of a franchise by which the transferee may use the commercial name, trademark
      and know-how of the transferor in order to conduct business activities in the commercial
      service sector.

Of interest, this is the first time franchising has been expressly regulated under Vietnamese law
and is a surprising new addition to the technology transfer regime. Franchising is regulated in
detail under Section 8 of Chapter VI of the Commercial Law (Amended) which was passed on
14 June 2005 and will become effective as of 1 January 2006. For further details on the
Commercial Law (Amended), see Section 5.8 on “Franchising” above.

After an incredible 31 drafts, Decree 11 introduces the following significant reforms as of 2
March 2005:
-      All limits on technology transfer fees are abolished in the case of private companies.
       Previously, under Decree 45, fees were capped at 8% of net selling price, or 30% of
       after-tax profits, or 10% of total invested capital (these maximums applied to technology
       in the "high-tech" category where the majority of products were exported; lower caps
       applied to standard technology).
-      Limits on technology transfer fees are no longer prescribed in the case of technology
       transferees using State funds (presumably including joint ventures with State owned
       enterprises) but technology transfer fees must be approved by the investment decision-
       making body.

Decree 11 enshrines the following significant reforms introduced in the last few years:
-     Replacement in July 2002 of the requirement for approval of technology transfer
      contracts with the requirement for registration in the following cases: domestic transfer
      contracts; contracts for technology transfer from abroad to Vietnam with respect to
      investment projects not funded by State owned capital; and contracts for technology
      transfer from abroad to Vietnam with respect to investment projects funded by State
      owned capital the value of which is equivalent to less than USD30,000.
-     Abolition in April 2003 of the restriction any legal capital (equity) contributed in the form
      of technology transfer to foreign investment projects must not exceed 20% of legal
      capital.

Of note, the maximum duration of a technology transfer contract remains capped at 7 years (or
10 years in prescribed special cases where technology is advanced).

Capital Requirements
Decree 27-2003-ND-CP of the Government dated 19 March 2003 amending the foreign
investment regulations issued with Decree 24-2000-ND-CP of the Government dated 31 July
2000 abolished the restriction that any legal capital (equity) in the form of technology transfer
must not exceed 20% of legal capital. Now, the value of technology to be contributed as capital
is subject only to agreement by the parties (Article 81).

Appraisal of Projects - Technology and Environment
Circular 55-2002-TT-BKHCNMT of the Ministry of Science, Technology and Environment dated
23 July 2002 provides guidelines on appraisal of technology and environment of investment
projects (both foreign and domestic investment projects), replacing the former guidelines issued
under Circular 1940-TT-BKHCNMT dated 15 November 1997. As previously stated in Circular
1490, “appraisal of technology” under Circular 55 means the process of considering and
assessing the suitability of the technology specified in an investment projects for all objectives
and contents of the project on the basis of State guidelines, policies and planning available at
the date of project evaluation. “Appraisal of environment” means considering and assessing the
impact of the project on the environment and any measures to minimize adverse affects in



                                                                                               115
     accordance with current State regulations on environmental protection (previously limited under
     Circular 1490 to the impact of the technology on the environment).

     The following matters must be considered during the appraisal process:
      -     What products will be created by the technology and their market outlets. In addition to
            factors previously required to be considered under Circular 1490, an examination of the
            rationality of the scale of technology and the capacity the equipment is required under
            Circular 55.
      -      Technology selected. As previously, modern technology is preferred, but Circular 55
            defines “modern technological line” as specialized and mechanized production line in
            which at least 1/3 of the automatic equipment is program-controlled, requiring no hard
            manual labor, and which is arranged in a space satisfying industrial hygiene, occupational
            safety and environmental hygiene/sanitation standards. In addition, Circular 55 expressly
            requires the enterprise management system to be an advanced system, i.e. there must
            be a number of computerized sections such as technology management, procurement,
            marketing etc.
      -      Equipment in the technological line (as previously)
      -      Raw materials, components, spare parts to be used for manufacturing (as previously)
      -      Site selected. This is a new feature of Circular 55, requiring specific consideration of the
            suitability of advantages and disadvantages of the site for implementation of the project,
            and of the advantages of the selected site in comparison with other sites.
      -      Technology transfer (as previously).
      -      Impact of the project on the environment.
      -      Effectiveness of the project, such as socio-economic benefits and financial feasibility of
            the project (as previously)
      -      Other relevant matters.

8.10 Land Use and Leasing Rights:
     Although foreign entities continue to be denied land use rights ("LURs"), Vietnam has extended
     such rights to overseas Vietnamese. LURs are extended to FIEs (being Vietnamese entities).
     Further, FIEs are permitted to mortgage the value of LURs with Vietnamese joint stock banks,
     joint venture banks, foreign bank branches and other credit institutions in Vietnam. Decision 79-
     2001-ND-CP dated November 1, 2001 of the Government on the amendment of and
     supplementation to Decree 17-1999-ND-CP dated March 29, 1999 on procedures for Exchange,
     Transfer, Lease and Sub-Lease of a Land Use Right and Mortgage of the Value of Land Use
     Rights, and Decree 81-2001-ND-CP dated 5 November 2001 Allowing Overseas Vietnamese to
     Buy a House in Vietnam provided guidance on these changes.

     A revised Ordinance on Rights and Obligations of Foreign Individuals and Organizations
     Leasing Land in Vietnam was drafted by the General Department of Land Administration and
     submitted to the Prime Minister in 2002, addressing land transferal, increasing land lease
     periods, and providing for leasing land from private individuals. The Law on Land (Amended)
     passed by the NA in November 2003 and effective as of 1 July 2004 repealed the 1994
     Ordinance on Rights and Obligations of Foreign Individuals and Organizations Leasing Land in
     Vietnam but the revised Ordinance has not been scheduled for promulgation, consideration or
     even preparation by the NA in 2005.

     Significant changes to the legal regime governing security for loans obtained from Vietnamese
     credit institutions were introduced under Decree 85-2002-ND-CP of the Government dated 25
     October 2002 amending Decree 178-1999-ND-CP of the Government dated 29 October 1999
     on Security for Loans Obtained from Credit Institutions. Effective 10 November 2002, lenders
     and borrowers may agree to mortgage (or use for guarantee) fixed assets attached to land
     together with the associated LURs or choose to deal with fixed assets and the associated land-
     use rights separately. As Decree 178 previously required any mortgage of fixed assets attached
     to land to be accompanied by a mortgage of the associated LURs and as land laws currently
     prohibit LURs being mortgaged (or use as guarantee) in favor of offshore lenders, it has been
     impossible for fixed assets to be used as security for off-shore loans. Decree 85 allows for off-
     shore lenders to take security over fixed assets such as buildings and factories in Vietnam.




                                                                                                     116
Early in 2003, the Prime Minister approved in principle a proposal by the SBV to allow FIEs to
mortgage LURs in favor of offshore lenders and reportedly authorized the drafting of enabling
legislation. However, this reform was not introduced in the Law on Land (Amended).
Reportedly, the Government is now considering the introduction of this significant reform on a
trial basis only. Of note, Draft 16 of the proposed new Law on Investment (discussed in Section
4.5) does not provide for this important reform.

Decree 181-2004-ND-CP of the Government dated 29 October 2004 to implement the Law on
Land (Amended) became effective on 16 November 2004. Decree 181 deals, amongst other
things, with procedures for expiry and extension of land use terms, registration of mortgages
and guarantees using LURs, and real estate market development. Of note, under article 101.1
of Decree 181, subdividing land with infrastructure into lots for sale without building residential
houses by any entity (including Vietnamese companies) is prohibited. This restricts property
developers to selling houses and apartments only (not vacant land lots). Decree 181 also
addresses the resolution of disputes relating to the term of land use in cases where the land has
been allocated by the State for residential use, borrowed by the State, or compulsorily acquired
by the State. Decree 181 provides for the extension of land use terms of foreign invested
projects if the project licenses are extended, but not for longer than the original term.
Application must be made to the MoNRE 6 months before expiry of the term; necessary
documentation is prescribed in Decree 181. There are however no provisions on how assets on
land will be handled in the event that the term of land use by a foreign investor is not extended.

To provide detailed guidelines to implement Decree 181, the MoNRE issued Circular 01-2005-
TT-BTNMT dated 13 April 2005, covering matters such as: application files for the allocation of
land, lease of land and conversion of land use purpose, duration of land use, determination of
the main land use purpose and other land use purposes of a parcel of land. It also deals with
implementation of projects entitled to use land reserves for generation of capital for the purpose
of construction of infrastructure facilities. Circular 01 also provides how to deal with various
cases where an investor receives an assignment of land use right, leases a land use right or
receives a land use rights as a capital contribution in order to implement a project, mortgages or
guarantees using the land use rights in the case of a sub-lease of land in an industrial zone,
high-tech zone or economic zone. Of note, Circular 01 provides for the recording of assets
attached to land on land use right certificates.

In order to provide detailed regulations and clarifications of various land issues, the Government
has issued a number of Decrees implementing the new Land Law, including:
-     Decree 182-2004-ND-CP of the Government dated 29 October 2004 dealing with
      administrative penalties for breaches of the Law on Land (Amended;
-     Decree 188-2004-ND-CP dated 16 November 2004 on methods of determination and
      frameworks of land prices;
-     Decree 197-2004-ND-CP dated 3 December 2004 on compensation, assistance and
      resettlement; and
-     Decree 198-2004-ND-CP dated 3 December 2004 on land use fees.

Although foreign entities are not permitted to own land, they may own housing and other
building works "attached to" land in Vietnam. New guidelines issued under Decree 95-2005-ND-
CP of the Government dated 15 July 2005 provide for certification of ownership of housing and
other building works (to be issued by the Ministry of Construction) to be completely independent
from certification of ownership of the land on which such works stand (to be issued by the
MoNRE). Certificates of ownership of housing and construction works will be the legal basis for
owners to exercise their rights with respect to such buildings. To be eligible for a certificate, a
foreign individual must be permitted by law to own housing or construction works in Vietnam
(very limited range) and a foreign organization must (i) have legal entity status, established and
operating under Vietnamese law and (ii) lawfully own housing and construction works by way of
investment in construction, purchase, acceptance of gift, donation, acceptation of inheritance,
transfer. Decree 95 became effective as of 10 August 2005.

The MoF has submitted a draft decree to the Government on collection of land lease rent.
Currently the unit price for land lease rent applicable to Vietnamese enterprises is 0.5% of the
land price framework promulgated by the provincial people's committee and 0.7% applicable to



                                                                                               117
    FIEs. The MoF's latest draft proposes a single-pricing system applicable to both Vietnamese
    enterprises and FIEs (with the percentage set at 0.5%).

    By Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of Solutions Aimed At Creating
    New Changes In The Work Of Attracting Foreign Direct Investment To Vietnam, the Prime
    Minister directed that (in the second quarter of 2005) the MPI must co-ordinate with the Ministry
    of Construction and submit a plan for investment (including FDI) in construction of residential
    housing for sale or for employees in IZs and EPZs; and the MoF must submit amendments to
    the rules on business activities of FIEs in the residential housing for sale sector.

    The Law on Real Estate is currently being considered by the National Assembly and is expected
    to be passed in 2006. The current draft law governs the following types of real estate: houses,
    apartments, certain land use rights, and other construction works. It defines "real estate
    business" as investing in the development of real estate for sale or lease; purchase, sale and
    lease of real estate; assignment of real estate for purpose of profit; and "real estate related
    services" as comprising brokerage, organization of transaction floor, consultancy, valuation,
    auction, advertisement, and management of real estate. Foreign invested enterprises will only
    be permitted to engage in the following real estate activities: investing to develop housing and
    construction works for sale or lease; brokerage; and real estate management. Individuals and
    enterprises engaged in real estate activities (ie real estate business and real estate related
    services) will be required to register their business and satisfy prescribed conditions. Individuals
    (including staff of real estate businesses) who are engaged in valuation and brokerage will be
    required to have a professional practice license. Pre-sale of real estate will be recognized, but
    will be subject to conditions. Individuals/enterprises engaged in real estate business must
    conduct their sale, lease and assignment at transaction floors. All contracts relating to real
    estate activities (including related services) must follow standard forms to be prescribed by the
    Government. Notarization/certification of sale/lease contracts will only be required if agreed by
    the parties and subject to other laws.

8.11 Equity Investment

    Foreign Exchange Control and Repatriation
    On 6 December 2004, the SBV issued Decision 1550-2004-QD-NHNN on Foreign Exchange
    Control Applicable to Purchase and Sale of Securities by Foreign Organizations and Individuals
    at Securities Trading Centers. Decision 1550 replaces Decision 998-2002-QD-NHNN of the
    State Bank of Vietnam dated 13 September 2002 on the same subject. Decision 1550 provides
    regulations with respect to (i) remittance of funds into Vietnam in order to purchase and sell
    securities, (ii) conversion of foreign currency into VND, (iii) opening and use of VND bank
    accounts in order to purchase and sell securities, (iv) conversion of VND into foreign currency,
    and (v) remittance abroad of foreign currency. Foreign investors stipulated herein comprise
    foreign economic organizations established under foreign law, non-resident foreign individuals,
    overseas Vietnamese, and resident foreign individuals. Decision 1550 does not govern foreign
    exchange transactions by foreign investors relating to foreign direct investment projects in
    Vietnam under the Law on Foreign Investment in Vietnam nor foreign exchange transactions by
    foreign investors relating to capital contribution to and purchase of shareholding in unlisted
    Vietnamese enterprises. Although it stipulates that the purchase and sale of securities by
    foreign investors must be implemented in VND, the following sources of VND funds may be
    used or foreign currency funds may be converted into VND for use for purchase of securities: (i)
    foreign currency transferred from abroad into Vietnam; (ii) foreign currency and VND in accounts
    of foreign investors opened at authorized banks; (iii) VND in capital contribution accounts or
    share purchase accounts of foreign investors opened at commercial banks in Vietnam (not
    previously expressly provided for); (iv) any share of profits distributed to foreign investors from
    direct investment activities in Vietnam; (v) revenue of foreign organizations and individuals from
    assignment, liquidation or dissolution of direct investment activities in Vietnam; (vi) salary,
    bonuses and other legal income of foreign individuals in Vietnam; and (vii) other sources if
    approved by the SBV (a new option under Decision 1550). For the purchase and sale of
    securities, a foreign investor must open a VND securities trading account at a securities
    company. The specialized, on-call foreign currency or VND deposit account must be opened at
    an authorized bank in Vietnam. No foreign currency conversion guarantee is provided to foreign
    securities investors. Major reforms include the repeal of the one year time restriction on



                                                                                                    118
     remittance abroad of investment capital (from the date such funds are transferred into the
     securities trading account) and significant reduction in the documentation required to be
     presented for transactions into and out of accounts.

     New guidelines on foreign exchange control with respect to capital contribution to and purchase
     of shares in unlisted Vietnamese enterprises were issued in May 2004, see Section 8.3 on
     “TRIMS – Foreign Exchange Controls” above.

     Income Tax
     Official Letter 4321-TC-TCT of the Ministry of Finance dated 7 May 2002 on Tax Policy
     Applicable to Organizations and Individuals Engaging in Securities Investing in Vietnam
     confirms that (i) foreign individuals investing in securities continue to be exempt from personal
     income tax, as provided under Decision 39-2000-QD-TTg dated 27 March 2000 issuing
     provisional regulations on preferential tax treatment for securities trading; and (ii) the profits from
     securities investment of foreign companies carrying on business in Vietnam other than under the
     Law on Foreign Investment are subject to tax under Circular 169-1998-TT-BTC dated 22
     December 1998. Official Letter 4321 also noted that, upon remittance of profits overseas, both
     foreign companies and individuals investing in securities in Vietnam must pay 5% withholding
     tax. However, withholding tax has been abolished as part of the tax reforms introduced in mid-
     2003 and effective as of 1 January 2004 (see Section 10.6 on “Taxation” below for more
     details).

     Decision 36-2003-QD-BKH of the Government dated 11 March 2003 revising the regulations on
     foreign shareholdings in Vietnamese companies which are not listed on the Vietnamese
     securities market provides for a foreign investor being an individual to be exempted from
     personal income tax on income earned from capital contribution or purchase of shares in an
     unlisted Vietnamese enterprise. For more details on foreign investment in unlisted Vietnamese
     enterprises, see Section 8.8 on “Legal Entity Restrictions” above.

     Decree 147-2004-ND-CP of the Government dated 23 July 2004 providing detailed regulations
     for implementation of the Ordinance on Income Tax of High Income Earners continues to
     provide for exemption from personal income tax for income of individuals from activities of
     investing in securities. The Ordinance and Decree 147 apply as from 1 July 2004.

8.12 Grandfathering
     Decree 24-2000-ND-CP of the Government dated 31 July 2000 (as amended by Decree 27-
     2003-ND-CP of the Government dated 19 March 2003) expressly provides that any new legal
     provisions which offer foreign investors more favorable treatment than previous ones will apply
     automatically, following amendment of existing investment licenses at the written request of
     foreign investors. Upon license amendment, such favorable treatment will apply as from the
     date on which the legal provision providing for such favorable treatment comes into effect (that
     is, not only from the date on which the amended investment license becomes valid).

     Draft 16 (September 2005) of Vietnam’s proposed new Law on Investment (scheduled to be
     considered and promulgated at the NA's October-November 2005 Session) provides the
     following investment guarantees in the event of changes in law or policies:
     -       If the change reduces the rights and incentives of an existing investor, such investor will
             enjoy the following options: continue to enjoy the rights and incentives which it enjoyed
             prior to the date on which such law or policy became effective but only for a specified
             period; or enjoy a tax reduction or exemption or a deduction of loss from taxable income;
             or a change in operational objectives of the investment project. (Unlike Draft 13 of
             August 2005, Draft 16 does not provide for the State to apply supportive measures or
             pay damages if the change causes loss or damage to the investor.)
     -       If the change introduces benefits and incentives which are more favourable than the
             benefits and incentives which an existing investor enjoyed previously, such investor will
             be entitled to the benefits and incentives provided in the new law or policy for the
             residual duration of the investment (no change from Draft 16).




                                                                                                        119
8.13 Investment/Export Incentives in Industrial, Export Processing and High-Tech Zones:

     High-tech zones: In light of the new Regulations on High-Tech Zones ("HTZs") issued under
     Decree 99-2003-ND-CP of the Government dated 28 August 2003 and the various land,
     corporate income tax ("CIT") and personal income tax ("PIT") reforms introduced in 2004, the
     Government has revised the preferential treatment available to domestic and foreign investors in
     HTZs and to the Vietnamese and foreign individuals working for investment projects in HTZs
     under Decision 53-2004-QD-TTg of the Government dated 5 April 2004, as follows:

     -       CIT: Investors are entitled to CIT rate of 10% for the whole duration of project
             implementation; and to CIT exemption for 4 years as from when they have taxable
             income; and to 50% CIT reduction for subsequent 9 years.
     -       PIT: Vietnamese individuals (including overseas Vietnamese) are entitled to PIT
             exemption/reduction such that their PIT obligations are equal to those of foreign
             individuals with the same level of income.
     -       Land use: A uniform land leasing price will apply to domestic and foreign investors in
             HTZs. Investors are permitted to mortgage land use rights and assets attached to land
             during the term of lease or sub-lease of land to credit institutions operating in Vietnam in
             accordance with law. Investors implementing a project on research and development of
             technology or on high level skills training in science and technology will be exempt from
             land rent.
     -       Credit: Domestic investors in manufacturing in a HTZ will be considered by the
             Development Assistance Fund for medium or long term credit with a preferential interest
             rate, for a loan guarantee, and for assistance with interest after the investment. Any
             investor will be entitled to State preferences regarding credit assistance for export when it
             directly exports products; and the regime on export awards shall apply to such investors.
     -       Visas: Foreign individuals and overseas Vietnamese investing or working in HTZs and
             members of their families are entitled to multiple entry visas with a term compatible with
             the duration of their work and operation in the HTZ.
     -       Housing: Favorable conditions will be created for all investors and workers in HTZs with
             respect to their residence and renting/purchasing houses in HTZs.

     In addition, uniform prices for public services will apply to domestic and foreign investors and
     workers in HTZs. Investors in designated "specially important projects" may be entitled to
     additional preferential treatment.

     Industrial and export processing zones: Amending Decree 164-2003-ND-CP of the
     Government dated 22 December 2003 making detailed provisions for implementation of the Law
     on Corporate Income Tax, the Government has issued Decree 152-2004-ND-CP dated 6 August
     2004 revising the preferential CIT treatment to which newly established investment projects in
     industrial zones ("IZs") and export processing zones ("EPZs") are entitled. Decree 152 provides
     for the following preferential CIT rates and CIT exemptions and reductions:

         -   Entities supplying services in IZs: CIT rate of 20%; 2 year CIT exemption and 6 year 50%
             reduction of CIT payable tax;
         -   Entities supplying services in EPZs and manufacturing establishments in IZs: 15% CIT
             rate; 3 year CIT exemption and 7 year 50% reduction of CIT payable;
         -   IZ and EPZ infrastructure development entities and export manufacturing enterprises
             (whether in or outside of EPZ): 10% CIT rate; 4 year CIT exemption and 7 year 50%
             reduction of CIT payable.

     Decree 152 is applicable as from the 2004 taxation period. By Circular 88-2004-TT-BTC dated
     1 September 2004, the MoF provides for corresponding revision of the guidelines on preferential
     CIT treatment.

     By Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of Solutions Aimed At Creating
     New Changes In The Work Of Attracting Foreign Direct Investment To Vietnam, the Prime
     Minister has directed the MPI to (in the second quarter of 2005) co-ordinate with the Ministry of




                                                                                                      120
     Construction and submit a plan for investment in construction of residential housing for
     employees in IZs and EPZs.

     In the working party meeting in Geneva on 20 May 2005, Vietnam committed that goods
     produced in export processing zones under tax and tariff provisions that exempt imports and
     imported inputs from the tariffs and certain taxes would be subject to normal customs formalities
     when entering the rest of Vietnam, including the application of tariffs and taxes, thus abiding by
     some of the obligations of the WTO Agreement on Subsidies and Countervailing Measures
     (SCM).

8.14 Foreign Contractors:
     Vietnam distinguishes between the taxation of foreign economic organizations and individuals
     carrying out business activities in Vietnam in the forms of investment permitted under existing
     regimes (eg the Law on Foreign Investment regime) and those carrying out business activities in
     different forms. The latter are commonly referred to as "foreign contractors" and include,
     amongst others, foreign companies providing services in Vietnam (such as foreign construction
     contractors) and foreign companies earning income from technology transfer or royalties but
     without a presence in Vietnam.

     Policies for taxation of foreign contractors have been revised under Circular 05-2005-TT-BTC of
     the Ministry of Finance dated 11 January 2005 Providing Guidelines for Taxation of Foreign
     Organizations Not Having Vietnamese Legal Entity Status and Foreign Individuals Doing
     Business or Having Income in Vietnam, effective as of 16 February 2005. Circular 05 replaces
     Circular 169-1998-TT-BTC of the Ministry of Finance dated 22 December 1998 on Taxation of
     Foreigners Carrying Out Business Activities in Vietnam Not Under the Law on Foreign
     Investment and its amending Circular 95-1999-TT-BTC of the Ministry of Finance dated 6
     August 1999.

     Under Circular 05, the definition of foreign contractor (and therefore the scope of application of
     Circular 05) is wider than it was under Circular 169. Also, the procedures for tax declaration and
     payment by foreign contractors have been simplified. As previously, in practice, tax collection
     applicable to foreign contractors continues to be based on deduction at income source (except
     in some cases which have separate instruction documents of the MoF), which conforms with
     international practice.

     Of note, the rates of corporate income tax and VAT applicable to foreign contractors remain
     unchanged. However, Circular 05 does ease the tax burden for foreign contractors in a number
     of ways, in particular by clarifying that the supply of goods, raw materials, supplies, machinery
     and equipment in Vietnam is taxed separately from services and that the supply of prescribed
     imported machinery, equipment and supplies (associated with the provision of services) is VAT
     exempt. Specific guidelines on tax payment in a number of specific cases, such as ship leasing
     contracts, are new.

     Under Circular 05, foreign contractor taxes are imposed on all earnings in Vietnam, irrespective
     of whether associated services are implemented inside or outside Vietnam's territory
     (previously, under Circular 169, only services implemented inside Vietnam were subject to
     foreign contractor taxes).

     Objectives of the MoF's Circular 05 include to clarify documentary and procedural requirements
     in a bid to ensure transparency, to create better conditions for taxpayers and tax offices, to
     minimise "ambiguous" regulations causing adverse effects on tax declaration by and business
     environment of foreign contractors as well as investment environment in general.




                                                                                                   121
9.    Transparency
9.1   Publication of Laws:
      Vietnam has committed to ensuring the publication of all legal instruments and regulations
      concerning issues covered by the scope of the BTA. Amendments to the Law on Promulgation
      of Legal Instruments passed by the NA on 16 December 2002 introduced a number of important
      reforms in an attempt to improve the quality of legal instruments (at both draft and final stage),
      the consistency of the Vietnamese legislative framework, and the efficiency of the NA's
      legislative functions, including:

       -      In the process of preparation of new legal instruments, the drafting body is required to
              obtain opinions from all relevant bodies, organizations and individuals (including but not
              limited to the Vietnam Fatherland Front and its member organizations, social
              organizations, economic organizations, State bodies, and units of the armed forces)
              and, in particular, from subjects directly affected by the legal instrument. Opinions which
              are contributed must be investigated by the drafting body in order to determine any
              appropriate revision. (Article 3) See Section 9.3 on “Public Commentary” below for
              more details.
       -      Any body promulgating a legal instrument is expressly required to identify and list any of
              its own previously promulgated legal instruments (or articles, sub-articles or clauses
              thereof) which are inconsistent with the new legal instrument; and to amend such prior
              inconsistent legal instruments (or articles, sub-articles or clauses thereof). (Article 9)
       -      The provisions governing the composition, operation and responsibilities of drafting
              committees have been revised. For the first time, drafting committees are responsible
              for the speed of the drafting process. (Articles 25, 60 and 61)
       -      Draft legal instruments proposed by a body, organization or NA delegate are required to
              be submitted to the Government for its opinion at least 45 days (in the case of laws and
              ordinances of the NA) or 40 days (in the case of ordinances or resolutions of the NA's
              Standing Committee) prior to the opening of a NA session. (Article 28)
       -      An Evaluation Council must be established by the Minister of Justice for evaluation of
              law projects, ordinance projects and draft resolutions in cases where the MoJ has
              presided over the drafting thereof. The matters for evaluation are stipulated. Where
              necessary, the Evaluation Council may require the MoJ to report on issues pertaining to
              the contents of the law project, ordinance project or draft resolution; or may organize
              (itself or jointly with the MoJ) an actual survey of such issues. The MoJ must consider
              the opinions of the Evaluation Council and make appropriate revisions prior to
              submission to the Government. Any difference of opinion must be reported to the
              Government for its consideration and decision. (Articles 29a and 63)
       -      A Legal Committee of the NA is provided for, to assist in the verification of the
              constitutionality, legality and consistency with the legal system of any law or ordinance
              prior to its submission to the NA or the NA's Standing Committee. If the Legal
              Committee has an opinion different from that of the body presiding over verification, it
              must report its opinion to the NA or to the NA's Standing Committee. (Article 34a)
       -      A cap of two NA sessions has been set for the consideration and promulgation of laws.
              (Article 45)
       -      The specific steps for consideration and promulgation of laws and ordinances by the NA
              have been revised. In particular, the NA must consider the basic contents of a law and
              the major issues on which there are differing opinions (rather than discussing each
              article or chapter, as previously) and must review the whole revised draft prior to
              approval. (Articles 45 and 47)
       -      The Prime Minister is expressly permitted to assign the Office of Government to publish
              a draft Government resolution or decree or Prime Ministerial decision or directive on the
              mass media and on the internet for the purpose of obtaining opinions from relevant
              bodies, organizations and individuals. Individuals may contribute opinions via bodies or
              organizations, directly or by sending a letter to the Office of Government or to the
              drafting body, or via the mass media. The drafting body must research any opinions
              received. (Articles 62 and 65)
       -      Legal instruments of the Government, the Prime Minister, ministers, heads of ministerial
              equivalent bodies, the People’s Supreme Court, the People’ Supreme Procuracy and
              joint legal instruments will be effective after 15 days from the date on which they are


                                                                                                     122
              published in the Official Gazette (previously, 15 days from the date of signing), unless a
              later effective date is stipulated in the legal instrument. In the case of a legal instrument
              of the Government or of the Prime Minister which provides for implementing measures
              in an emergency situation, the legal instrument may provide for an earlier effective date.
              (Article 75)
       -      The MoJ is responsible to assist the Government in the work of checking the compliance
              of new legal instruments with the law and to assist the Prime Minister to check and deal
              with any legal instrument contrary to the law of a ministry, ministerial equivalent body, or
              provincial people’s council or people’s committee (Article 83). The role of the People's
              Inspectorate in checking the compliance of legal instruments with the law has been
              abrogated (Article 85).

      Ministries and government bodies have also established web sites for the notification of
      information under their jurisdictions. These include:
      SPS (MARD)                                           http://www.mard.gov.vn
             (Plant Protection Department)                 http://www.ppd.gov.vn
      TBT/Standards (STAMEQ)                               http://www.tcvn.gov.vn
      Finance/Taxation/Budget (MoF)                        http://www.mof.gov.vn
      Customs                                              http://www.customs.gov.vn
      Foreign Relations (MoFA)                             http://www.mofa.gov.vn
      Trade Statistics/Trade Agreements/Laws (MoT)         http://www.mot.gov.vn
      Foreign Investment/Licensing (MPI)                   http://www.mpi.gov.vn
      Investment Licensing (HCMC DPI)                      http://www.dpi.hochiminhcity.gov.vn

      Utilizing the Internet as an effective means by which Vietnamese citizens can participate in the
      law-making process, drafts of the Criminal Procedure Code (Amended,) the Law on Land
      (Amended), and the Law on Competition were published in their entirety on the Internet prior to
      their promulgation by the NA at its October-November 2003 and 2004 Sessions respectively.

      In November 2001, Vietnam issued a Decision to require the mandatory publication of all
      statistics relating to its State budget.

9.2   Official Gazette:
      A priority project for the Vietnamese Government has been to improve the publication of all legal
      documents and Vietnam's agreement to international conventions in both hard copy and
      electronic official gazette form in a timely manner. Legal documents issued by local authorities
      must also be announced in local gazette publications. According to the MoJ, this project will
      include the compilation of a specific decree on publishing legal gazettes, establishment of close
      and compulsory interaction between legislative bodies and gazettes' editorial offices, and
      increased government expenditure to modernize the way official gazettes are issued.

      To address the delay problem in publication of legal instruments in the Official Gazette, Official
      Letter 309-CP-PC of the Government dated 20 March 2003 requires (i) for any body
      promulgating a legal instrument to forward a copy to the Office of Government within 2 days of
      promulgation; and (ii) for the Office of the Government to publish legal instruments in the Official
      Gazette within 15 days of promulgation.

      The number of issues of the Official Gazette published in Vietnamese and English increased
      from 4 issues to 6 issues per month as of April 2002, to 20 issues per month as from June 2003,
      and beginning 1 July 2003, the Official Gazette has become a daily publication.

      According to the amendments to the Law on Promulgation of Legal Instruments passed by the
      NA on 16 December 2002, the legal instruments of the Government, the Prime Minister,
      ministers, heads of ministerial equivalent bodies, the People’s Supreme Court, the People’
      Supreme Procuracy and joint legal instruments will be effective after 15 days from the date on
      which they are published in the Official Gazette (previously, 15 days from the date of signing),
      unless a later effective date is stipulated in the legal instrument. In the case of a legal
      instrument of the Government or of the Prime Minister which provides for implementing
      measures in an emergency situation, the legal instrument may provide for an earlier effective
      date (Article 75). For more details, see Section 9.1 on “Publication of Laws” above.



                                                                                                       123
      Implementing the Law on Promulgation of Legal Instruments (As amended), Decree 104-2004-
      ND-CP of the Government dated 23 March 2004 sets out the position and functions of the
      Official Gazette; the duties, organization and activities of the Official Gazette Agency; the
      procedures for forwarding, receiving and publishing legal instruments in the Official Gazette; and
      the responsibilities of State agencies regarding publication of legal instruments in the Official
      Gazette.

      Implementing Decree 104, Circular 04-2005-TT-VPC of the Office of Government dated 21
      March 2005 requires that all legislation issued by the Government, the Prime Minister, Ministers,
      heads of ministerial equivalent bodies, the Supreme Court and the Supreme Procuracy must
      clearly stipulate that it will become effective after 15 days from the date of its publication in the
      Official Gazette, unless excepted. Circular 04 also reiterates the instructions in Official Letter
      309 above. Effective as of 7 April 2005, Circular 04 clarifies that all foreign language
      translations of legislation in the Official Gazette should be used for reference only.

9.3   Public Commentary:
      Article 3 of the amendments of the Law on Promulgation of Legal Instruments (as amended)
      addresses the important provision of seeking public commentary on draft laws in Vietnam. It
      stipulates that during the process of drafting legal documents, depending on the nature and
      contents of a bill or draft, the agency and organization concerned shall facilitate other agencies,
      organizations and individuals to participate by providing their opinions, and shall gather opinions
      from those directly affected by the legal documents within an appropriate scope and appropriate
      form. Opinions contributed to a bill or draft of a legal normative document must be investigated
      in order to accept revision of the bill or draft document.

      The Law on Promulgation of Legal Instruments (as amended) also stipulates the responsibilities
      of each agency and organization in gathering opinions on the draft of legal documents, in
      particular, in gathering opinions from those directly affected by such documents (Articles 26.4
      and 61.4). With regard to drafts of Resolutions and Decrees of the Government, Decisions and
      Instructions of the Prime Minister, Articles 62.2 and 65.4 require the Office of the Government to
      publish such drafts in the mass media and on the internet for comments by agencies,
      organizations and individuals. The gathering of opinions, in principle, should be arranged
      flexibly depending on the nature, contents and the scope of effect of the document concerned.
      The amendments to the Law, therefore, do not stipulate a common and "fixed" provision on this
      issue.

      To implement Article 3, Vietnam is currently drafting a decree consisting of a charter on
      gathering opinions. Reportedly, the draft will clarify responsibilities, form and methods of
      gathering opinions on drafts of legal documents. These include the provisions on preparing the
      issues subject to comments; the address to send comments; an appropriate period that
      gathering agency must reserve (20 days) for agencies, organizations and individuals directly
      affected by the legal normative document in question to contribute their opinions; and the
      investigation of such opinions to revise the draft. The draft decree will require for the opinions
      gathered to be attached to the bill or draft documents upon submission to competent authorities
      for consideration and approval. Law 31-2004-QH11 on Promulgation of Legal Instruments of
      People’s Councils and People’s Committees which was promulgated by the NA at its November
      2004 Session also provides for the gathering of opinions on drafts of legal documents issued by
      local authorities, effective as of 1 April 2005.

      Other proposals being considered relating to the implementation of Article 3 include:
      -     Proposal for gathering public opinions on bills of law and ordinances prepared by the
            Office of the NA;
      -     Proposal of the Government on improving the quality of bills of law and ordinances
            submitted by the Government (prepared by the Office of the Government) to the NA, the
            NA's Standing Committee, whereby the following regulations are expected to be issued:
            regulations on attracting experts and scientists in the process of drafting and evaluating
            drafts of legal documents; and regulations on gathering opinions from those directly
            affected by the legal documents.




                                                                                                       124
      -      Program on upgrading the preparation, drafting, and improving the quality of legal
             documents conducted by the Ministry of Justice according to the Decision 909-QD-TTg
             dated 14 August 2003 of the Prime Minister. (See Section 9.4 on Formulation of Laws
             below).

9.4   Formulation of Laws:
      To implement one of the pivotal elements of its action plan for overall State administrative
      reform, the Government approved (under Decision 909-2003-QD-TTg dated 14 August 2003)
      the action plan to reform the formulation and promulgation of legal instruments and to raise the
      quality of legal instruments. Decision 909 provided for a Steering Committee for Reform of
      Formulation and Promulgation of Legal Instruments and for Raising Quality of Legal Instruments
      to be established, chaired by the Minister of Justice with a deputy Minister-Head of the Office of
      Government as deputy chairman, with members selected from the MoF, the MPI and the
      Ministry of Interior. Importantly, the action plan provides for foreign experts to be engaged as
      part of the taskforce to undertake the reform projects. Reform projects comprise:
       -       Reform of the process for producing long-term and annual programs for formulation of
               proposed legal instruments by the NA, the NA's Standing Committee, the Government
               and the Prime Minister. Over the period from the 4th quarter of 2003 to the 4th quarter of
               2005, the MoJ will assess and report on the current process and will devise a new
               coordinated regime for producing effective and adequately funded annual law programs.
       -       Perfecting the process for formulation and promulgation of legal instruments by the
               Government, the Prime Minister, ministers and heads of ministerial equivalent bodies.
               By a 2 stage process over the period from the 4th quarter of 2003 to the 4th quarter of
               2007, the Office of Government will assess and report on the current process and
               investigate a number of reforms, including:
                  (i)      Ensuring sufficient, appropriate and effective detail in legal instruments so
                           that guidelines are not required before they can be implemented;
                  (ii)     Fixing clearly the specific roles and responsibilities of, and sanctions
                           applicable to, each competent agency or person in order to overcome delays
                           in law projects;
                  (iii)    Increasing the time that the Government devotes to law making;
                  (iv)     Fixing clearly the law projects requiring establishment of a drafting committee
                           or independent evaluation council;
                  (v)      Increasing and strengthening the staff of the MoJ and of the Office of
                           Government so as to improve the regular checking of consistency of legal
                           instruments issued by ministries, branches and local authorities;
                  (vi)     Modernizing the checking and proclamation of legal instruments by the
                           Government by applying information technology achievements on the basis
                           of substantial investment in building and developing the national laws
                           database.
       -       Establishing a process for formulation and promulgation of legal instruments by People’s
               Councils and People’s Committees. Over the period from the 4th quarter of 2003 to the
               4th quarter of 2005, the MoJ will assess and report on the actual status of the formulation
               and promulgation of legal instruments by local authorities and the organization of the
               implementation of such laws over recent years. The action plan anticipates the proposal
               of a single Law on Promulgation of Legal Instruments to be uniformly applicable to all
               central and local State agencies (in replacement of the current Law).
       -       Strengthening the taskforce of agencies and officials directly engaged in formulation and
                                                                               th                        th
               promulgation of legal instruments. Over the period from the 4 quarter of 2003 to the 4
               quarter of 2005, the MoJ will prepare a plan for training and application of information
               technology in drafting and evaluating legal instruments.
       -       Formulating an effective regime for attracting the participation of experts, scientists,
               concerned parties and citizens in the process of formulating and promulgating legal
               instruments. Over the period from the 4th quarter of 2003 to the 4th quarter of 2005, the
               MoJ will assess the current situation, investigate reforms (including a regime for drafting
               committees to sign contracts with scientific establishments, universities and leading
               experts to assist in drafting legal instruments) and prepare a plan to achieve an effective
               regime for wider participation in formulation of legal instruments.




                                                                                                       125
      Under Decree 135-2003-ND-CP of the Government dated 14 November 2003 on the Scrutiny of
      Legislative Normative Documents Issued by Ministers, Heads of Ministerial Bodies and People’s
      Committees, all legislative normative documents will be subject to close scrutiny for any error in
      both form and content. Decree 135 also imposes administrative penalties and criminal liability
      on persons or bodies issuing illegal documents.

      Decree 135 is supplemented by Circular 01-2004-TT-BTP of the Ministry            of Justice dated 16
      June 2004. Accordingly, every legal instrument must be scrutinized to            ensure that (i) it is
      consistent and complies with the Constitution, Laws, Resolutions of the          NA and documents
      issued by State bodies at higher level; (ii) it is being issued in the correct   form for its content;
      and (iii) its contents are within the competence of the issuing-body.

      By Decision 933-QD-TTg dated 27 August 2004, the Government has approved a new Program
      on Improving Quality of Legislation Building of the Government.

      By Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of Solutions Aimed At Creating
      New Changes In The Work Of Attracting Foreign Direct Investment To Vietnam, the Prime
      Minister has directed the MoJ (in the second quarter of 2005) to prepare and submit a plan on
      strengthening staff working on inspection of legal instruments to be issued; to work with
      ministries and people's committees to issue guidelines on how they should assist enterprises in
      implementation of laws; and to work with ministries and people's committees in extending the
      national laws database to all localities.

9.5   Judicial Reform:
      Judicial tasks have been transferred from the MoJ to the Supreme Court of Vietnam by the NA
      under its Resolution 08-2002-NQ dated 2 January 2002 on Key Reforms in the Judicial Sector in
      an effort to develop a more independent judiciary.

      Contributing to this effort, amendments introduced by the NA in November 2003 to the Criminal
      Procedure Code enhance the responsibilities of the Procuracy and the participation of lawyers
      and promote democratic rights during criminal proceedings and supervision of the whole
      process of criminal proceedings.

      The Ordinance on Judges of People's Courts and the Ordinance on Prosecutors of the People's
      Procuracy issued in October 2002 also guide developments in the area of judicial reform.
      Effective 8 November 2002, the Ordinances regulate the activities permitted to be undertaken
      by judges and prosecutors in an effort to limit corruption and restore public confidence in the
      judiciary and procuracy. Accordingly, the Vietnamese courts and judiciary will receive greater
      autonomy in dealing with both substantive matters brought before them and in arranging the
      funds for its operation.

      Under Decision 23-2004-QD-TTg of the Prime Minister dated 25 February 2004 on
      Establishment of Institute of Justice, Vietnam has for the first time an institute dedicated to
      training judicial officers (including judges, prosecutors, lawyers, judgment enforcers, notaries)
      and to conduct research in the justice sector. It will have an office in each of Hanoi and HCMC.

      For the first time ever, Vietnam's Supreme Court published all decisions (103 in total) made by
      the Judges' Council in civil, commercial and labour cases in the years 2000-2004. The 400
      page book was published on 5 July. This is an important step, enabling other courts to refer to
      the Supreme Court's decisions. Vietnamese law requires the publication of Supreme Court
      decisions, but it has never in fact occurred before. Decision 49 of the Politburo dated 2 June
      2005 dealing with legal reform requires that judgments to be published from now on.




                                                                                                        126
9.6   Enforcement of Civil Judgments:
      Circular 05-2002-TT-BTP of the Ministry of Justice dated 27 February 2002 providing guidelines
      for referral of civil cases to local people’s committees responsible for direct enforcement of
      judgments reflects Vietnam's attempt to improve the enforcement of civil judgments, particularly
      in the provinces. Ordinance 13-2004-PL-UBTVQH11 of the Standing Committee of the National
      Assembly dated 14 January 2004 on Execution of Civil Judgments replaces its 1993
      predecessor as of 1 July 2004. A major reform is that Ordinance 13 expressly provides for
      enforcement of Vietnamese arbitration awards as well as Vietnamese court judgments on civil,
      marital/family, labor, and economic matters and foreign court judgments and arbitration awards.
      Previously, there was no mechanism for enforcement of Vietnamese arbitration awards. A Law
      on Enforcement of Judgments is scheduled to be considered at the NA’s 8th Session in October-
      November 2005 and expected to be promulgated at its 9th Session in May 2006.

9.7   Administrative Appeals:
      Pursuant to the Law on Complaints and Denunciations, individuals and organizations are
      entitled to lodge petitions and appeal against administrative decisions or actions to Vietnam’s
      administrative courts if they consider such decisions or actions are illegal. The complainant
      lodging the first petition shall send the petition to the agency issuing the administrative decision.
      The period available for lodging the petition is 90 days from the date of receiving the
      administrative decision (Article 30).       The period for settlement of the first petition or
      denunciation shall be 30 days from the date of receiving the petition or denunciation. In
      complicated cases, the settlement period may be extended but shall not be longer than 45
      days; in remote and distant areas, the above period shall be 45 days and 60 days respectively.
      Within 30 days from the date of terminating the settlement period but the petition is not settled,
      or from the date of receiving the decision on settlement of the first petition, the complainant is
      entitled to either continue lodging the appeal to a superior administrative body or to bring the
      case to an administrative court. Issues relating to customs, taxes, licensing fees and charges
      are all under the purview of such administrative courts (Article 11).

      Amendments to the Law on Complaints and Denunciations and the new Civil Procedure Code
      which were passed by the NA on 15 June 2004 (effective as of 1 October 2004 and 1 January
      2005 respectively) deal with many of the issues relating to the right to appeal, including the right
      to appeal without penalty and the right to appeal to a judicial body.

      A new Law on Denunciations and Complaints (Amended) has been added to the NA's
      legislative agenda for 2005. This is scheduled to be considered and promulgated at the NA's
      8th Session in October-November 2005.


10. Other
10.1 Textiles:

      Quota Administration
      The MoT, MPI and Ministry of Industry issued Circular 08-2002-TTLT-BTM-BKHDT-BCN dated
      12 August 2002 guiding the granting and implementation of quotas and garments and textiles
      exported to EU countries, Canada and Turkey for 2003. Circular 08 provides guidelines and
      procedures governing quota allocation while stipulating lists of maximum industrial quotas and
      quotas for export of textile products assigned to enterprises. The deadline for the registration of
      the export of domestically manufactured clothing products and industry quotas is 30 May 2003
      and 15 May 2003 respectively. Circular 08 states that unmet quotas are to be returned to the
      MoT or the Provincial People’s committee for reassignment. Under this new regime, export
      licenses for 70% of garment categories will be granted automatically to avoid situations of
      depleted export quota. The remaining quota will be allocated to the People’s Committees in Ho
      Chi Minh City, Hanoi, Hai Phong and Da Nang, and other businesses.

      The MoT issued regulations governing export quota allocations for textiles and garments under
      Decision 1191-2002-QD-BTM dated 4 October 2002, changing the process of applying for
      export quotas from an automatic granting of licenses to an auction. A board chaired by the MoT
      will be set up to regulate maximum quota volume for each firm and lowest bidding invitation


                                                                                                       127
price for each category. All Vietnamese enterprises that have business registration certificates
and registered codes of enterprises for importing and exporting may participate in the bid, as
may FIEs. Decision 1191 regulations only apply to goods which are signed for export from 1
January - 31 December 2003.

Following the agreement signed between the EU and Vietnam on 3 December 2004, the MoF
abolished the fee for granting export quota for textile and garment products to the markets of the
EU and Canada under Decision 02-2005-QD-BTC dated 12 January 2005, effective as of 1
January 2005. Decision 02 replaces Decision 16-2004-QD-BTC dated 12 February 2004 on
quota allocation charges for textile and garment exports to the EU and the US and Decision
118-2002-QD-BTC dated 25 September 2002 on collecting quota allocation fees for garment
and textile exports to the EU and Canada.

On 1 April 2005, the MoT and MoI issued Circular 06-2005-TTLT-BTM-BCN providing guidelines
on the transfer of quotas for textile and garment exports to the US market for 2005. Quotas to
be transferred are those for textile and garment exports to the US market allocated by the MoT
and the MoI on the basis of enterprises’ achievements or achievement quotas, including pre-
allocated ones. Chain quotas which are allocated based on the export achievements of
enterprises which are valid members of one chain can only be transferred between the
members of the chain. The transfer of other kinds of quotas is not permitted. Quota transfers
must be implemented voluntarily, directly and publicly. All broker actions are prohibited.
Moreover, transferred quotas cannot be further transferred or exchanged. Transferers are
allowed to transfer all or a part of the quotas valid for transfer to one or more transferees. The
volume of quotas to be transferred cannot exceed the volume of enterprises’ allocated quotas
which are valid for transferred and unused. Transferers which do not used up the transferred
quotas have to inform the MoT and the MoI of that for its settlement.

On the same day, the MOT and the MOI also issued Inter-ministerial Circular 07-2005-TTLT-
BTM-BCN supplementing Joint-circular 04-2004-TTLT-BTM-BCN dated 28 July 2004 guiding
the allocation and implementation of quota of exporting garment and textiles products to US
market in 2005.

U.S.-Vietnam Textile Agreement
On 25 April 2003, the U.S. and Vietnam concluded a bilateral textile agreement setting export
quotas for Vietnam for several categories. The Agreement is to begin on 1 May 2003 and be
effective through 31 December 2004. The Agreement will roll over for another year unless the
Parties terminate or re-negotiate the Agreement by 1 December 2004, or by 1 December of any
subsequent year, until Vietnam becomes a member of the WTO. The Agreement includes
Flexibility Adjustments with a 6% annual swing. Vietnam will issue visas for all categories
subject to quotas.

To address fraud relating to transshipment, the Ministry of Trade issued Decision 0285-2004-
QD-BTM dated 8 March 2004 on Establishment of the Permanent Working Group in
Cooperation with the U.S. in Terms of Control of Trade Frauds in the Process of Implementation
of Vietnam-U.S. Garment and Textile Agreement.

On 13 May 2004, the U.S. Department of Commerce announced a 4.5% cut in textile quotas in
response to the above investigation.     A report on the investigation is available at
http://www.doc.gov

The U.S. and Vietnam have recently signed a memorandum of understanding on the extension
of the bilateral textile agreement for the period 1 January 2005 to 31 December 2005. The U.S.
reportedly agreed to increase quotas of 2004 to the allowed maximum level as regulated in the
textile agreement. The new extension helps exporters who have already sold most of their quota
by letting the country borrow from next year's quota with an increase of up to 8 per cent.

Tariff Reductions for U.S. Textile Products
To implement tariff reductions in the U.S.-Vietnam Bilateral Textile Agreement, the Ministry of
Finance issued Decision 19-2004-QD-BTC dated 16 February 2004 issuing the list of goods and
import duty rate to implement the schedule of reduction of import duties under the Agreement on



                                                                                              128
trading of Textile and garment products signed between Vietnam and the US for the period
2003-2005.

Under Decision 13-2005-QD-BTC dated 8 March 2005, the MoF has modified import duties
applied to apparel and textile products imported from the US and EU in order to implement its
pledges in accordance with the agreement between Vietnam and EU on market access and the
trade agreement on apparel and textile products with the US in 2005.

Textile Quota Allocation (US Market)
 Under Circular 02-2003-TTLT-BTM-KHDT-CN of the Ministry of Trade, Ministry of Planning &
Investment and Ministry of Industry dated 27 May 2003 on granting and implementing quotas for
garment and textile exports to the U.S. market for 2003, the quota for the U.S. market will be
temporarily allocated as follows:
 -     65-70% of the total quota will be given to enterprises depending on their export outcomes
       for the year of 2002 and the first three months of 2003;
 -     23-28% of the total quota will be given to those that have large production and export
       capacity but have started to export their product at the end of 2002 or at the beginning of
       2003, and to those that have yet to export for the year of 2002 and first three months of
       2003 but have obtained export contracts for 2003;
 -     3% of the total quota will be given to those that sign direct production and export
       contracts with the leading U.S. distribution import groups;
 -     7% of the total quota will be given to those who use domestic materials. Accordingly, the
       first period will allocate 80% of total quota on 31 May and at the end of June 2003.

Garment makers that are not able to fulfill their quotas must inform the MoT in writing as soon as
possible so it can transfer them to other enterprises. Enterprises, which fail to meet their quotas
but return them to the Ministry before October 1, will have those same quotas allotted next year.
Those who fail to inform the Ministry will be granted no such corresponding quotas. The sale,
transfer or substitution of quotas is not allowed.

Further, all categories of garment and textile exports are required to have visas as of 1 July
2003. The following regulations govern the issuance of visas:
  - Circular 03-2003-TT-BTM of the Ministry of Trade dated 5 June 2003 providing guidelines
    for granting visas for garment and textile exports to the USA in accordance with the US-
    Vietnam Garment and Textile Agreement;
 - Decision 0665-2003-QD-BTM of the Ministry of Trade dated 4 June 2003 on granting visas
    for garment and textile exports to the USA (under which the MoT authorizes the Import-
    Export Departments of Hanoi, Hai Phong, Da Nang, HCMC, Vung Tau and Dong Nai to
    grant visas for garment and textile exports to the USA, effective as of 1 July 2003);
 - Official Letter 1183-TM-XNK of the Ministry of Trade dated 4 June 2003 on quota of
    garment and textile exports to the USA;
 - Circular 07-2003-TT-BTM of the Ministry of Trade guiding the allocation and implementation
    of export quotas for garments and textiles to the U.S. in 2004.

Under Official Letter 1766-TM-XNK of the Ministry of Trade on the Exchange of Garment Export
Quotas Among Local Textile Exporters, business with export quota but do not yet have export
contracts shall be required to return the quotas, which then could be granted to other
businesses lacking sufficient quota to fill export contracts. Businesses that have returned quota
shall be re-granted with additional quotas in 2004 in line with the respective rate. Businesses
which have been provided with additional quotas in 2004 shall not receive the same quotas
allocated for next year. Lending of quotas can conducted via mutual agreement between two
businesses. According to Official Letter 1766, the directors of the two businesses are required
to sign the documents of the loaned quotas and send such to the MoT. When proceeding with
procedures to obtain the quotas, the borrowing business is only required to produce the signed
documents of lending to the local export-import managing department without the MoT’s
approval.




                                                                                               129
     To further supplement the management of textile quota to the U.S., the Ministry of Finance
     issued Decision 16-2004-QD-BTC dated 12 February 2004 issuing Tariff for Quotas for Textiles
     and Garments for Export to the EU and US Markets. Decision 16 became effective as of 10
     March 2004 and replaces Decision 83-2003-QD-BTC of the Ministry of Finance dated 17 June
     2003 issuing Tariff for Export Quotas for Textiles and Garments to the US market and Decision
     118-2002-QD-BTC of the Ministry of Finance dated 25 September 2002 issuing Tariff for Export
     Quotas to EU market.

     The MoT will continue to grant apparel quotas to the US based on previous export performance
     (for the second stage of 2005) under Official Letter 0246-TM-DM dated 21 February 2005.
     Exporters must submit quota requests to the MoT before 27 February 2005. If the exporter has
     already been advanced with quotas, the exporter will be also permitted to submit a further
     request for apparel and textile quotas but the total number of advance times is not permitted to
     exceed 80% of export achievement of the exporter calculated from 1 August to 31 December
     2004.

10.2 Competition and Monopoly Pricing:
     Ordinance 40-2002-PL-UBTVQH10 of the National Assembly dated 26 April 2002 codifies and
     consolidates a number of items of legislation on prices and price controls, effective as of 1 July
     2002. Detailed regulations on pricing were issued under Decree 170-2003-ND-CP of the
     Government dated 25 December 2003 and became effective as of 14 January 2004. Applicable
     to all foreign and domestic organizations and individuals engaged in production or business
     activities in Vietnam ("businesses"), Ordinance 40 provides for:
      (a)     State management of the stability of market prices of important and essential goods and
              services (prescribed in Decree 170 as including petrol, oil, liquefied gas, cement, iron,
              steel, rice, coffee, cotton, sugar cane, salt, and certain kinds of medication);
      (b)     Determination by the State of prices of land, water surfaces and important natural
              resources, State owned assets to be sold or leased out, goods or services subject to
              monopoly (including electricity, transportation and post and telecom services), and
              goods and services important for national welfare and people’s livelihood (including
              petrol, treated water, basic medicines, bus transportation and subsidized commodities);
      (c)     Evaluation of prices of State owned assets;
      (d)     Control of monopoly prices (defined as the price of goods or services fixed by any one
              seller or purchaser organization or individual in the market, or the price of goods or
              services of multiple organizations and individuals co-operating in a monopoly, holding a
              major share of the market and having the power to dominate market prices);
      (e)     Control of price monopoly co-operation (price-fixing);
      (f)     Prohibition on dumping;
      (g)     Other prohibitions on businesses with respect to pricing.

     Decree 170 limits the definition of "price monopoly co-operation" to price-fixing agreements
     between businesses aimed at dominating the market exceeding the market share stipulated by
     law (italicized words do not appear in Ordinance 40). But the new regulations do not stipulate
     the relevant market share. Of note, the price-fixing provisions of the Law on Competition (see
     below) prescribe a market share threshold of 30%. Decree 170 expressly prohibits the following
     conduct deemed to be price monopoly co-operation:
      -      agreement between businesses to fix prices, control prices, change prices for sale of
              goods and services aimed at restraining competition, infringing the legal interests of
              other businesses or of consumers;
      -      sudden sale of one (identical or similar) type of goods or services at one uniform price by
              several businesses at one particular point of time;
      -      agreement between businesses to create scarcity of goods by way of limiting production,
              distribution, transportation, sale of goods or supply of services; destructing or damaging
              goods; or taking advantage to speculate and increase prices;
      -      agreement between businesses to apply conditions of sale or purchase of goods and
              supply of after-sale services which affect prices of goods and services;
      -      agreement between businesses to change prices of sale and purchase of goods and
              services in order to eliminate or force other enterprises to co-operate with them or
              become their affiliates.




                                                                                                    130
Implementing Decree 170, Circular 15-2004-TT-BTC of the Ministry of Finance dated 9 March
2004 provides detailed guidelines on regulation of petrol, oil, liquefied gas, cement, iron, steel,
rice, coffee, cotton, sugarcane, salt and some medications (effective as of 6 April 2004). Of
note, Circular 15 prescribes the circumstances in which prices will be deemed to have
"abnormally fluctuated", for the purposes of State management of stability of market prices.
Circular 15 does not provide any further guidelines on price monopoly co-operation.

In August 2004, the Prime Minister issued a directive on measures to control the rate of price
growth in the immediate future. By Official Letter 11026-TC-TCT dated 29 September 2004, all
tax departments are now under instructions from the MoF to, among other things, check
regularly the sale pries declared by foreign invested enterprises as well as domestic
shareholding companies and limited liability companies) producing and trading petrol, iron and
steel, and cement to verify if their increases in market prices are appropriate. All tax
departments are required to submit monthly and quarterly reports on the above checks.

Under Decree 169-2004-ND-CP of the Government dated 22 September 2004 on Dealing with
Administrative Offences in Pricing Sector, any domestic or foreign organization or individual
engaged in production or business activities in Vietnam and breaching the provisions on price
stabilization will be subject to a VND5-10 million fine. Circular 110-2004-TT-BTC of the Ministry
of Finance dated 18 November 2004 which provides guidelines for implementation of Decree
169 imposes a fine of VND12.5 million on organizations and individuals engaging in price
monopoly co-operation within a single province or municipality. If the offence extends to more
than one province or municipality, a fine of VND17.5 million will be imposed.

How the price-fixing provisions of the above Ordinance 40 and Decree 170 interrelate with the
new Law on Competition below awaits clarification.

The Law on Competition was promulgated by the NA on 3 December 2004 and became
effective as of 1 July 2005. The Law on Competition applies to all business organizations and
individuals in Vietnam (“enterprises”), including foreign invested enterprises and "overseas
enterprises with activities in Vietnam" (which is understood to include: foreign commercial
presences such as branch offices and foreign contractors with an office or directly supplying
services in Vietnam), as well as professional and trade associations with activities in Vietnam.
The Law on Competition regulates (i) practices in restraint of competition, comprising
agreements in restraint of competition (such as price-fixing agreements between competitors),
abuse of dominant or monopoly market position (such as predatory pricing and minimum resale-
price fixing), and economic concentrations (including mergers and acquisitions), and (ii) unfair
competitive practices (such as misleading and deceptive advertising and illegal multi-level
selling, also known as pyramid selling). Please refer to our website (http://www.usvtc.org) for
additional details and updates on the Law on Competition.

Early in 2004, a new Competition Administration Department was established under the MoT to
administer the Competition Law (Decree 29-2004-ND-CP of the Government dated 16 January
2004 on Functions of Ministry of Trade). Consistent with the Government's administrative
reform policy aimed at streamlining Vietnam's bureaucracy, this new Department also has
responsibility for consumer protection and anti-dumping issues. During the NA's debate of the
Law on Competition, its Economics and Budgetary Committee acknowledged that, in the long
term, it will be necessary to form a State administrative body for competition which is
independent of the MoT.

Legislation to implement the Law on Competition was expected to be issued by the Government
in time to come into effect with the Law on 1 July 2005, but this did not occur. On 24 August
2005, the Government issued its first implementing decree: Decree 110 on Supervision of Multi-
Level Selling (see Section 7.7 on Distribution Services). On 15 September, the Government
issued its main implementing decree: Decree 116-2005-ND-CP Making Detailed Provisions for
Implementation of the Law on Competition. On 30 September, the Government issued Decree
120-2005-ND-CP on Administrative Penalties for Offences in the Competition Sector. The
Government is still yet to issue its Decision on organization and operation of the Vietnamese
competition authorities (ie the Competition Commission, to consider applications for exemption
from the Competition Law and to investigate competitive practices, amongst other things, and



                                                                                               131
     the permanent Competition Council, to deal with competition cases concerning practices in
     restraint of competition after completion of investigations by the Commission. It is understood
     that this Decision will be finalized by the Ministry of Trade shortly and then submitted to the
     Government (for review by the Ministry of Justice and the Ministry of Interior), so it is not
     expected to be issued before the end of November.

     Decree 116 provides in more detail for:
     - how to determine the relevant market and market share;
     - what constitutes the various types of agreement in restrain of competition and the various
        practices in abuse of dominant market position or monopoly position;
     - how to determine “capability to substantially restrain competition;
     - which acquisitions amount to an economic concentration;
     - procedures for exemption from competition prohibitions;
     - competition complaints, competition legal proceedings, competition decisions and appeal
        avenues.

     Special provisions for insurance companies and credit institutions have been made with respect
     to determination of market share and acquisitions. Unfortunately, Decree 116 does not clarify
     the range of "overseas enterprises with activities in Vietnam" which are subject to the Law on
     Competition.

     Decree 120 provides in detail for administrative penalties to be imposed on entities when they
     deliberately or negligently commit a competition offence which does not amount to a criminal
     offence. Generally, for prohibited practices in restraint of competition, a fine of up to 5% of the
     total revenue in the financial year preceding the year in which the offence is committed will be
     imposed on each party participating in the offence. The fine may be between 5-10% in
     prescribed circumstances, such as where the concerned goods and services are food, medical
     apparatus, drugs for human and animals, fertilizer, animal food, plant protection drugs, seeds or
     domestic animals, and medical and healthcare services or where one offender organized and/or
     induced others to participate in a competition offence. For abuses of monopolistic position, a
     fine of 10% will be imposed. For failure to inform of a proposed economic concentration, a fine
     of 1% to 3% will be imposed on each party. The capping of fines at 10% is consistent with the
     Law on Competition. Decree 120 provides for the calculation of revenue for the purpose of
     calculation of fines. For unfair competitive practices, there are 3 fixed bands of fines according
     to the type of practice: VND5-10 million (eg., for defamation), VND15-25 million (eg., for
     misleading advertising), and VND50-70 million (applicable only for multi-level selling). Decree
     120 also provides in detail for the authority and procedures to deal with offences and impose
     penalties, complaints against penalty decisions and administrative appeals against complaint
     decisions.

     On 11 October 2005, the MoT signed an agreement with the Japan International Cooperation
     Agency (JICA) under which JICA will support Vietnam's study of capacity building for
     enforcement of the Law on Competition and implementation of competition policies. To
     commence towards the end of 2005 and run for a year, the aim of the study is to assist the
     Competition Administration Department in enhancing its capacity to enforce the Law. In
     particular, surveys will be conducted to provide insights into competition in Vietnam in different
     economic sectors, technical support will be provided for building a website on competition
     policies, and a series of seminars on the competition law and policies will be organised at the
     central and local levels with the participation of Japanese experts.

10.3 Tendering:
     Vietnam’s tendering regime has now been updated for the fifth time since the original tendering
     regulations were issued in 1996. First, the original regulations were amended in August 1997.
     Then, new tendering regulations were issued with Decree 88-1999-ND-CP of the Government
     dated 4 September 1999 and were subsequently amended by Decree 14-2000-ND-CP of the
     Government dated 5 May 2000 and by Decree 66-2003-ND-CP of the Government dated 12
     June 2003. Suspended for most of 2004, the information disclosure requirements introduced by
     Decree 66 are now being enforced by the MPI. For more information on Decree 88 and the
     Decree       66       reforms,      please         refer       to     the     link       below:




                                                                                                    132
http://www.usvtc.org/Documents/Vietnam%20Laws/Tendering%20Update%20%20July%202003
.pdf"

The provisions of Decree 88 (As Amended) relating to tendering for construction projects have
been replaced by Decree 16-2005-ND-CP of the Government dated 7 February 2005 on
Management of Investment Projects for Construction of Works, effective 5 March 2005 (see
Section 7.6 "Construction"). Now, the tendering rules for construction projects are separate
from and, somewhat confusingly, different from the tendering rules for procurement projects and
selection of consultants. The most significant reform of Decree 16 is the abolition of the
compulsory requirement for JVEs and BCCs with 30%+ State interest to conduct tendering for
construction projects. If they wish to conduct construction tenders, the JVE or BCC parties are
free to agree on what tendering rules to apply. Now, only failing such agreement, it is
compulsory to apply the Vietnamese tendering rules applicable to the party with the highest
percentage of invested capital. So, under Decree 16, it is only where the State holds more than
50% in a JVE or BCC that, failing agreement on what tendering rules to apply, it will be
compulsory to apply Vietnamese tendering rules.

Controversially, the MPI has issued Official Letter 2364-BKH-TD&GSDT dated 12 April 2005
noting that the MPI is coordinating the drafting of an Ordinance on Tendering and requesting
ministries, branches and local authorities, investors and project management units to continue to
implement any provisions that have been replaced by Decree 16 (specifically, Decree 88).
Official Letter 2364 is understood to have been issued at the direction of the Prime Minister.
Under the Law on Promulgation of Legal Instruments (As Amended), Official Letter 2364 has no
legal effect. However, it is of great practical significance. Many entities will now be reluctant to
adopt the reforms under Decree 16. In particular, SOEs are unlikely to agree to not conduct a
tender (as would be permitted under Decree 16); in which case, if the SOE has the highest
percentage of invested capital in a JVE or BCC, then tendering in accordance with Vietnamese
tendering rules will be compulsory after all. The confusion arising from Decree 16 - not properly
resolved by Official Letter 2364 - will persist until legislation of equal or higher standing replaces
it. Somewhat surprisingly, guidelines for implementation of Decree 16 were issued under
Circular 08-2005-TT-BXD of the Ministry of Construction dated 6 May 2005. Of note, the MPI
has not yet responded to the issuance of Circular 08.

The MPI's proposed Ordinance on Tendering has been elevated to Law status. The draft Law
on Tendering is currently being debated by the NA at its October-November 2005 Session. The
proposed Law will consolidate the current three decrees on tendering (Decree 88, Decree 66
and the recent Decree 16) into one legal instrument of higher legal validity. The NA's Standing
Committee is in favour of this consolidation because they expect it to result in more efficient use
of State funding and a reduction in 'negative conduct' by State officials, at the same time as
recognizing its part in facilitating WTO negotiations. Of note for foreign investors, the MPI's April
draft (of what was then proposed to be an Ordinance) retained the original Decree 88 and
Decree 66 tendering requirements for BCCs and JVEs with 30%+ State interest, thereby
abolishing the fleeting (albeit practically unenforceable) reform introduced under Decree 16). If
nothing else, it is hoped that the new Lawon Tendering will streamline those tendering
requirements. The Law is expected to be passed by the NA at the end of its current Session.

Please refer to our website (http://www.usvtc.org) for more updates on Vietnamese tendering
regulations.




                                                                                                  133
   10.4 Labor:
        56 amendments to the Labor Code were passed by the NA on 2 April 2002 and became
        effective as of 1 January 2003. Changes include: (i) Foreign companies are allowed to recruit
        employees directly (no longer required to use labor supply agencies); (ii) Social insurance
        contributions are mandatory for all employees employed under labor contracts with a term of 3
        months or more (previously, only mandatory where an employer employed over 10 employees);
        (iii) A national unemployment insurance scheme is provided for. Since April 2002, the
        Government has issued a raft of decrees and circulars implementing the new provisions of the
        Labor Code (Amended). The national unemployment insurance scheme provided for in the
        Labor Code (Amended) is expected to be detailed in a new Law on Social Insurance, which is
        scheduled to be prepared in 2004 and likely to be passed in 2005.

        Under Decree 105-2003-ND-CP of the Government dated 17 September 2003 Providing
        Detailed Guidelines for Implementation of a Number of Articles of the Labour Code With
        Respect to Recruitment and Management of Foreign Employees Working in Vietnam, the
        Government has imposed a maximum limit on the number of foreign employees who may be
        employed by Vietnamese enterprises operating under the Law on Enterprises, by SOEs and by
        FIEs. No more than 3% of the total number of employees may be foreign employees - up to a
        maximum of 50 foreign employees.             Other employers in Vietnam (including foreign
        representative and branch offices) are not subject to this maximum limit but the approval of the
        chairman of the relevant people's committee is required for the employment of foreigners. Work
        permits are required for all foreigners employed for 3 months or more, except in a small number
        of prescribed cases (including foreign lawyers registered in Vietnam).

        Implementing Decree 105, Circular 04-2004-TT-BLDTBXH of the Ministry of Labour, War
        Invalids and Social Affairs dated 10 March 2004 provides guidelines on how to calculate the 3%
        cap on foreign employees, as well as on applications for, issuance of and extension of work
        permits. In the spirit of the Government's Resolution 01-2004-NQ-CP of January 2004 which
        attempted to soften the impact of the cap, Circular 04 provides for a number of exceptions to the
        cap. Following Decision 51-2004-QD-TTg of the Government dated 31 March 2004 which
        specifically instructed the Ministry of Labour, War Invalids and Social Affairs ("MoLISA") to
        "investigate amendments to the policy on employment by extending rights of companies in
        recruiting employees especially foreign employees", Official Letter 3668-VPCP-VX of the Office
        of Government dated 15 July 2004 directed the MPI and the MoLISA to co-ordinate to
        investigate and submit to the Government amendments to Decree 105 in the direction of an
        increase in the percentage of foreign employees working in enterprises in all economic sectors
        in Vietnam. Further, by Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of
        Solutions Aimed At Creating New Changes In The Work Of Attracting Foreign Direct Investment
        To Vietnam, the Prime Minister directed the MoLISA to (in the second quarter of 2005) submit a
        plan for amending Decree 105 to relax the cap on foreign employees permitted to be recruited
        by FIEs.

        Due to the protests of the foreign invested community, it was expected that the cap on foreign
        employees would be abolished. However, this has not been the case. Amendments to Decree
        105 were introduced under Decree 93-2005-ND-CP of the Government dated 13 July 2005,
        effective as of 7 August 2005. And amendments to Circular 04 were introduced under Circular
        24-2005-TT-BLDTBXH of the Ministry of Labour, War Invalids and Social Affairs dated 26
        September 2005, effective as of 23 October 2005. Decree 93 and Circular 24 do not abolish the
        current 3% cap on foreign employees. They do, however, abolish the maximum of 50 foreign
        employees. Decree 93 and Circular 24 also provide for exemption from the 3% cap if (i) a
        higher number of foreign employees is stipulated in the license of the employer, or (ii) if
        approved in writing by the chairman of the provincial or municipal people’s committee where the
        employer’s head office is located. With respect to (ii), it appears, but is not entirely clear in
NEW!!
        Decree 93 and Circular 24, that only enterprises in (undefined) special sectors with a small
        number of employees or in the early stages of investment with unstable production and which
        have a need to employ foreign employees in excess of the 3% cap may seek and be granted
        approval for exemption. As previously under Decree 105, the 3% cap does not apply to
        employers being foreign contractors, representative offices and branches of foreign companies,
        representative offices of economic, trade, financial, banking, insurance, scientific and
        technological, cultural, sporting, educational, and medical health organizations, offices of foreign



                                                                                                        134
     or international projects in Vietnam; branches of foreign law firms. Now also, it does not apply to
     the operating office of the foreign party to a BCC and Vietnamese law firm. However, the
     approval of the chairman of the people’s committee is still required for the employment of
     foreigners by all such employers.

     Under Decree 93 and Circular 24, a foreigner who is a member of the board or members council
     of an enterprise in Vietnamese remains exempt from the work permit requirement (amongst
     others). But a foreigner who is the general director or deputy general director of an enterprise
     (and who had been exempt under Decree 105) no longer enjoys exemption from the work permit
     requirement. It had been expected that the work permit exemptions would be widened, so this
     backward step of abolishing an exemption is totally unexpected.

10.5 Environmental Standards:
     A new list of environmental standards for local and foreign enterprises and individuals
     conducting business in Vietnam was issued under Decision 35-2002-QG-BKHCNMT of the
     Ministry of Science, Technology and Environment dated 25 June 2002 and became effective as
     of 1 January 2003. The new list includes compulsory standards on air quality, noise, water
     quality, land quality and vibration.

     By Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of Solutions Aimed At Creating
     New Changes In The Work Of Attracting Foreign Direct Investment To Vietnam, the Prime
     Minister has directed the MoF to (in the second quarter of 2005) co-ordinate with the MoJ and
     submit a plan on ratification of the Kyoto Convention.

10.6 Taxation:
     Amendments to the Law on Corporate Income Tax ("CIT"), Law on VAT and Law on Special
     Sales Tax became effective as of 1 January 2004.

     Corporate Income Tax
     Under the Law on CIT (Amended), a single standard tax rate of 28% now applies to domestic
     enterprises and new foreign invested businesses, representing a 4% reduction for domestic
     businesses (from the current 32%) but a 3% increase for new foreign invested businesses (from
     the current 25%). Preferential rates of 20%, 15% and 10% will be available. Existing foreign
     invested projects will continue to be subject to the former standard tax rate of 25% and any
     other already approved preferential tax treatment. Enterprises operating in the fields of
     prospecting, exploration and exploitation of oil and other rare and precious natural resources
     remain subject to a higher CIT rate of between 28% and 50% (as determined by the Prime
     Minister on basis of the production and business situations of each enterprise). Decree 164-
     2003-ND-CP of the Government dated 22 December 2003 and Circular 128-2003-TT-BTC of
     the Ministry of Finance dated 22 December 2003 provide guidelines on the CIT reforms. Decree
     152-2004-ND-CP of the Government dated 6 August 2004 provides for amendment of Decree
     164 with respect to preferential CIT treatment. In addition to the preferential treatment for IZs
     and EPZs (see Section 8.13 above), Decree 152 provides for the following preferential treatment
     for specially encouraged foreign investment projects and medical treatment, education, training
     and scientific research institutions: 10% CIT rate for 15 years, 4 year CIT exemption and 9 year
     50% CIT reduction. Decree 152 became effective as of 29 August 2004 and is applicable as
     from the 2004 taxation period. By Circular 88-2004-TT-BTC dated 1 September 2004, the MoF
     provides for amendment of Circular 128 for consistency with the amendments under Decree
     152.

     By Directive 13-2005-CT-TTg dated 8 April 2005 On A Number Of Solutions Aimed At Creating
     New Changes In The Work Of Attracting Foreign Direct Investment To Vietnam, the Prime
     Minister has directed the MoF to (in the third quarter of 2005) submit a list of specially
     encouraged projects for the purposes of preferential treatment under Decree 164.

     Personal Income Tax (PIT)
     Amendments to the 2001 Ordinance on Income Tax of High Income Earners were promulgated
     by the Standing Committee of the NA on 24 March 2004. The following reforms became
     effective as of 1 July 2004:




                                                                                                    135
      -     Income tax rates for Vietnamese individuals have been drastically reduced. The income
            tax threshold has been raised to average monthly income of VND5 million (up from VND3
            million). Income tax brackets have been broadened and the number of brackets has
            been reduced to 5 (from 6). The top tax bracket is average monthly income of over
            VND40 million and subject to 40% tax. Additional income tax rate of 30% has been
            abolished. Only 75% of the taxable income of singers, circus artistes, dancers,
            footballers and professional sportsmen and sportswomen is subject to personal income
            tax (ie 25% of their taxable income is tax-free).
      -     Income tax rates for foreigners with average monthly income up to VND80 million remain
            unchanged. The previous top tax bracket of average monthly income over VND120
            million, subject to 50% tax, has been abolished. The top tax bracket is now average
            monthly income of over VND80 million and subject to 40% tax.
      -     The former tax exemption for income derived in Vietnam of non-resident foreigners
            remaining in Vietnam for less than 30 days has been abolished. Now there are only 2
            categories (down from 3) of foreigners for personal income tax purposes: (1) foreigners in
            Vietnam for over 183 days and subject to tax tariff and (2) foreigners in Vietnam for less
            than 183 days and subject to fixed rate of 25%.
      -     Income derived from scientific or technical services, income derived from the transfer of
            technology, income from the licensing of rights to use inventions or trademarks, IT
            services, consultancy or training services or agency services; income from royalties; and
            broking commissions are now expressly included as forms of regular income subject to
            income tax (previously, these were categorized as irregular income).
      -     Gifts or donations in kind sent by overseas residents are no longer included as irregular
            income subject to income tax.
      -     Irregular income tax threshold has been raised to VND15 million (from 2 million). Only 2
            tax rates now apply to irregular income (down from 6 rates): 5% applies to irregular
            income derived from transfer of technology; and 10% applies to irregular income from a
            lottery win.

     Detailed provisions for implementation of the Ordinance have been issued under Decree 147-
     2004-ND-CP of the Government dated 23 July 2004 and Circular 81-2004-TT-BTC of the
     Ministry of Finance dated 13 August 2004 (now amended by Circular 12-2005-TT-BTC of the
     Ministry of Finance dated 4 February 2005).

     A Law on Personal Income Tax is scheduled for preparation in 2005 (see Section 4.5 above).

10.7 Commercial Arbitration:
     Ordinance 08-2003-PL-UBTVQH11 on Commercial Arbitration dated 25 February 2003
     (effective as of 1 July 2003) represents a vast improvement on previous Vietnamese arbitration
     law, even though the new Ordinance falls short of UNCITRAL Model Law. Notable features of
     the Ordinance include:
      -      The Ordinance governs arbitration of disputes relating to all commercial acts by business
             organizations or individuals, including the purchase or sale of goods or the provision of
             services; commercial distribution, representation or agency; bailment; leasing out or
             leasing; hire-purchase; construction; consultancy; technical activities; licensing;
             investment; finance and banking; insurance; exploration and exploitation; transportation
             of goods and passengers. Previously, Vietnamese arbitration law was limited to
             resolution of disputes relating to economic contracts, disputes between a company and
             its members, disputes between members of a company, and disputes relating to the sale
             and purchase of shares and debentures.
      -      The provisions on form and validity of arbitration agreements of the Ordinance break new
             ground. As previously, an arbitration agreement must be made in writing. However, the
             Ordinance clarifies that an arbitration agreement may be an arbitration clause in a
             contract or a separate document, including a letter, telegram, telex, facsimile, electronic
             mail or any other written form which clearly shows the parties’ intention to resolve
             disputes by arbitration.
      -      Disputes may be resolved by (i) an arbitration tribunal organized by an arbitration center
             or (ii) an arbitration tribunal established by the parties. The arbitration tribunal may be
             made up of three arbitrators or a sole arbitrator as agreed by the parties. Although the
             Arbitration Ordinance is a great improvement on previous law (which only contemplated



                                                                                                    136
      (i) above), it is not consistent with the UNCITRAL Model Law which gives parties the
      freedom to determine the number of arbitrators and makes three the default number. The
      ability of disputing parties to select more than three arbitrators allows the flexibility for
      each party to name an arbitrator in cases where there are many defendants or plaintiffs
      and the opportunity for the parties to ensure a broad range of experts. Importantly, under
      the Ordinance, the selection of arbitrators by the disputing parties or a court is no longer
      restricted to arbitrators on the lists of arbitrators of Vietnamese arbitration centers.
 -    Any Vietnamese citizen may be selected to act as an arbitrator provided that conditions
      prescribed in the Ordinance are satisfied. The new condition requiring a Vietnamese
      arbitrator to have a university degree and at least 5 years’ work experience in his or her
      area of expertise alleviates the shortcoming of the previous law which allowed citizens
      who were only experienced (not qualified) in law or economics to be arbitrators. Although
      the MoJ is responsible for State administration of arbitration in Vietnam (in coordination
      with the Vietnam Lawyer’s Association), it no longer has authority over the selection of
      arbitrators.
 -    The Ordinance, for the first time, permits foreign citizens to act as arbitrators in Vietnam
      for the resolution of any dispute with a foreign element, defined as "a dispute arising from
      commercial activities in which a participating party is a foreign individual or legal entity; or
      where the grounds for establishing, altering or terminating a relationship the subject of a
      dispute arise abroad; or where assets relating to the dispute are located abroad". To be
      appointed as arbitrators in Vietnam, foreign citizens must be qualified to act as arbitrators
      under the law of their home country. Further, in a dispute with a foreign element, the
      disputing parties are entitled to agree that (i) a foreign law will be the substantive law to
      resolve the dispute, provided that such foreign law is not inconsistent with the
      fundamental principles of the law of Vietnam; (ii) the arbitration tribunal will apply
      procedural rules other than those provided for in the Ordinance; (iii) the arbitration
      proceedings will be conducted in a foreign country or in Vietnam; and (iv) the arbitration
      proceedings will be conducted in a foreign language or in Vietnamese.
 -    The Ordinance prescribes the conditions and procedures for licensing and operation of
      arbitration centers in Vietnam, which are defined clearly as non-government
      organizations with legal entity status, which may establish branches and representative
      offices. The Ordinance does not impose any limit on the duration of an arbitration centre,
      subject only to termination pursuant to the provisions of its charter or license revocation.
      Previously, Vietnamese law limited the duration of licenses for arbitration centres to 5
      years only (with extension available upon application).
 -    The Ordinance includes more detailed and improved provisions than previously provided
      by law on procedural rules with respect to statements of claim, statement of defense,
      counter-claims, limitation periods for initiating proceedings for dispute resolution by
      arbitration, default procedures for arbitration, evidence, injunctive relief, stay of
      proceedings, conciliation, etc.
 -    The Ordinance provides more detailed and improved provisions on enforceability,
      cancellation and enforcement of arbitration awards. Importantly, the Ordinance provides
      for an award creditor to apply for enforcement of an arbitration award (including awards
      made prior to 1 July 2003) by the judgment execution body in the area where the award
      debtor has its office or residence or assets. The provisions of the law on execution of
      civil judgments will apply to the enforcement of arbitration awards. Previously,
      Vietnamese law did not provide for enforcement of domestic arbitration awards.
      Enforcement of Vietnamese arbitration awards is now expressly provided for in
      Ordinance 13-2004-PL-UBTVQH11 of the Standing Committee of the National Assembly
      dated 14 January 2004 on Execution of Civil Judgments (see Section 9.6 on
      “Enforcement of Civil Judgments”).

Under the Ordinance, like other arbitration centers established prior to 1 July 2003, the Vietnam
International Arbitration Center (established under the auspices of the Vietnam Chamber of
Commerce and Industry and currently having 76 arbitrators specializing in economic and legal
disputes) is not required to apply for a new operational license but is required to amend and
supplement its charter and procedural rules for consistency with the Ordinance by 1 July 2004,
failing which its license will be revoked.




                                                                                                  137
     Detailed provisions for implementation of a number of articles of the Ordinance have been
     issued under Decree 25-2004-ND-CP of the Government dated 15 January 2004 and became
     effective as of 6 February 2004. Decree 25 provides in detail for the jurisdiction of commercial
     arbitrators; the procedures for establishment, registration of operation and termination of
     arbitration centres; the procedures for establishment of branches and representative offices of
     arbitration centres; the fees for arbitration; dealing with breaches; and State administration of
     arbitration.

     A new consolidated Civil Procedure Code was passed by the NA on 15 June 2004 and became
     effective as of 1 January 2005. The Code introduces new regulations governing recognition of
     foreign court judgments and foreign arbitration awards in Vietnam.

10.8 Secured Transactions:
     Vietnam’s National Registration Agency of Secured Transactions ("NRAST") officially came into
     operation in Hanoi on 12 March 2002. Officially established in July 2001, the NRAST's entry
     into formal operation was long awaited in order to allow credit providers to register their security
     transactions (mortgages, pledges, guarantees) as required by law. The first branch office of
     NRAST was opened on 26 August 2002 in Ho Chi Minh City. Other branch offices are planned
     to be opened throughout Vietnam.

     Detailed guidelines for implementation of Decree 165-1999-ND-CP of the Government dated 19
     November 1999 with respect to signing and performance of security contracts and realization of
     security property were issued under Circular 06-2002-TT-BTP of the Ministry of Justice dated 28
     February 2002. The tariff of fees for registration of security transactions and for information
     relating to registered security transactions was issued under Joint Circular 33-2002-TTLT-BTC-
     BTP of the Ministry of Finance and the Ministry of Justice dated 12 April 2002. Any security
     transaction entered into prior to 27 April 2002 is exempt from payment of fees for registration
     provided it is registered prior to end of July 2002.

     Significant reforms relating to security were introduced under Decree 85-2002-ND-CP of the
     Government dated 25 October 2002. Effective as of 10 November 2002, Decree 85 relaxed the
     "one lender" rule - a single asset may now be used as security for multiple obligations to multiple
     lenders if the following conditions are satisfied: (i) all security transactions relating to the single
     item of property must have been registered at the office for registration of security transactions;
     (ii) all of the lenders must agree in writing on the appointment of a representative to obtain retain
     the original documentation relating to the security property and to realize the property to recover
     the debt if the borrower fails to reply; (iii) the value of the security property (now, as fixed at the
     time of signing of the security contract) must exceed the total value of the secured obligations,
     unless otherwise provided by the law. Decree 85 also allows offshore lenders to take security
     over fixed assets (for more information, see 8.10). For details of Circular 07-2003-TT-NHNN of
     the State Bank of Vietnam dated 19 May 2003 providing guidelines for implementation of a
     number of provisions on security for loans from credit institutions, see Section 7.9 on “Financial
     Services – Banking” above.

     A draft Ordinance on Registration of Security Transactions is currently being considered in order
     to incorporate reforms to be introduced under Vietnam's new Civil Code which was passed at
     the NA’s 7th Session in May-June 2005 and which will become effective as of 1 January 2006.
     The Civil Code 2005 abolishes, amongst other things, the distinction between pledges and
     mortgages on the basis of whether the security assets are moveable or immoveable. Instead,
     pledges and mortgages will be distinguished by who holds the security assets - a transaction will
     be a pledge when the secured party does not hold the security assets and it will be a mortgage
     when the secured party does hold the security assets. Another noteworthy reform in the draft
     Ordinance is the provision for online registration with NRAST and other registration bodies.

10.9 Printing and Publishing:
     Aimed at improving the business environment, Decree 59-2002-ND-CP of the Government
     dated 4 June 2002 abolishes (amongst other things) the requirement for licenses for printing
     “technical instructions on production; introduction of products; instructions on use of goods;
     leaflets on instruction of products, goods or enterprises” effective as of July 2002.




                                                                                                        138
Under Decision 28-2002-QD-BVHTT of the Ministry of Culture and Information dated 21
November 2002, conditions must be satisfied and permits obtained from the MoCI prior to
publication of newsletters, documents, prospectuses, issuance of press notices or publication
and distribution of newsletters in electronic form (referred to together as "newsletters and other
documents") by foreign bodies and institutions in Vietnam. Foreign bodies in Vietnam desiring
to publish a newsletter or other documents must satisfy the following conditions: (i) operating
lawfully in Vietnam; (ii) having qualified person duly responsible for publication of the newsletter
or other document; (iii) determining clearly information content, objective, term of publication,
size, numbers of page, quantity, place of printing, subject of the newsletter or other document;
(iv) having official head office and necessary conditions for publication of the newsletter or other
document. The application for MoCI permission must comprise: (i) standard form application
(issued by MoCI); (ii) notarized copy of investment license, representative office license, or other
documents certified by competent Vietnamese authorities for lawful operations in Vietnam; (iii)
draft, model of newsletter or other document. Decision 28 also prescribes the content and form
of newsletters and other documents as well as the conditions and procedures for permits for
foreign representative bodies, foreign delegations and international conferences.

A revised Law 30-2004-QH11 on Publishing was passed by the NA on 3 December 2004 and
will become effective as of 1 July 2005, replacing the Law on Publication dated 7 July 1993.
The new Law on Publishing is more detailed than its 1993 predecessor, but contains little
change in the restrictions on publishing activities in Vietnam - publishing remains a highly
regulated sector in Vietnam.

Publishing may still only be conducted by a licensed publishing house. The range of entities
which may be permitted to establish a publishing house remains limited, albeit slightly
expanded. Now, Government bodies, political organizations, socio-political organizations and
"other organizations as stipulated by the Government" (together referred to as "the managing
body of a publishing house") may be permitted to establish a publishing house (previously, only
State bodies and socio-political organizations were so permitted). Conditions for licensing of
publishing houses by the MoCI include: the heads of the publishing house and (now also) the
editorial staff must satisfy prescribed standards; at least one of the persons occupying the
position of head of the publishing house must have operated in the publishing sector for at least
3 years; and licensing must be in compliance with the master plan for development of the
publishing profession on a national basis and with master plans for each industry and each
locality. Of note, previously, only the director and editor-in-chief of a publishing house were
required to be Vietnamese citizens and to reside in Vietnam. Now also, the editorial staff are
required to be Vietnamese citizens and to reside in Vietnam.

Unlike its predecessor, the new Law now provides for licensing by the MoCI of representative
offices of foreign publishing houses and foreign distributors in Vietnam. However, whereas its
predecessor provided for co-operation with foreign parties for the purpose of publication, printing
and distribution of publications, the new Law appears to limit the scope of foreign direct
investment to business co-operation contracts and joint ventures in the sector of distribution
only. (This is not entirely consistent with the foreign investment regulations under Decree 24-
2000-ND-CP of the Government dated 31 July 2000 (as amended 19 March 2003) which
contemplate foreign invested projects in the sector of publishing and printing and provide for
them to fall within the decision-making authority of the Prime Minister.) In addition to these
limitations on foreign representative offices and foreign direct investment, the new Law restricts
the publication, printing and distribution of foreign works in Vietnam as follows:
 -     Business publications of foreign organizations and individuals and international
       organizations operating in Vietnam must be published by a Vietnamese publishing house
       with the appropriate function.
 -     Non-business publications may be published by the foreign or international organization
       itself or by a Vietnamese publishing house. In the case of self-publication, a permit must
       be applied for from the MoCI. Such permit must be presented for the non-business
       publication to be printed by a Vietnamese printing house.
 -     Where overseas parties contract with a Vietnamese printing house for printing of
       publications, a permit must be applied for from the MoCI (in the case of a central level
       printing house) or the provincial people's committee (in the case of a local level printing




                                                                                                139
           house). Two copies of the publication required to be printed must be submitted as part of
           the permit application file.
      -    The importation of publications must be carried out through a licensed publications
           importer. Only State owned enterprises may be licensed by the MoCI to conduct the
           business of importing publications.
      -    Publishing on the Internet must be implemented by a publishing house and must comply
           with the provisions of this Law. Only publications which are being circulated legally are
           permitted to be published on the Internet. Presumably, these provisions only apply to
           publications published on webservers located in Vietnam (but this is not clear in any
           legislation regulating the Internet in Vietnam).

      Of note, a permit is not required to export the publications of a publishing house which are
      being circulated legally. The Law provides for issuance of Government regulations on the
      importation of non-business publications by Vietnamese bodies, organizations and individuals;
      by foreign organizations and individuals and international organizations currently operating in
      Vietnam; and by overseas Vietnamese.

      Although the new Law stipulates that the State will not censor works prior to their publication (as
      its predecessor did too), the new Law provides for various restrictions on contents. All
      publications are officially read by the National Library of Vietnam and, if it is discovered that a
      publication breaches the provisions of the new Law, the MoCI or provincial people's committee
      can take measures for dealing with the breach, including temporary or ongoing suspension of
      distribution, the retrieval or the confiscation of an offending publication.

 10.10 Commercial Contracts:
      Vietnam's Commercial Law 1997 will be replaced as of 1 January 2006 by the new Commercial
      Law 2005 approved by the NA at its May 2005 Session. The Commercial Law 2005 will
      reconcile differences between Vietnamese commercial law and international commercial laws in
      order to accommodate requirements arising from the BTA and other international agreements.

      Currently, business contracts may be governed by the Commercial Law 1997, the Civil Code
      1995 or the Ordinance on Economic Contracts 1989. The difficult inter-relationship of the above
      legislation is addressed by the repealing of the Ordinance on Economic Contracts by the Civil
      Code 2005 as of 1 January 2006.

      For other reforms under the Commercial Law 2005, see Section 5.8 on “Trading Rights” above.

      Decree 175-2004-ND-CP of the Government dated 10 October 2004 on Dealing with
      Administrative Offences in the Field of Commerce provides for administrative sanctions for a
      wide range of offences in the field of commerce (being either intentional or unintentional
      offences, which are not serous enough to warrant criminal prosecution (by organizations and
      individuals including breach of regulations on (1) management and use of business registration
      certificates, (2) establishment and operation of representative offices and branches of foreign
      traders in Vietnam, (3) circulation and trading of goods and services in the market, (4) trade
      promotion, and (5) import-export of goods and services. Decree 175 imposes high fines for
      breaches of regulations on foreign traders in Vietnam (up to as high as VND70 million
      depending on the nature and seriousness of the offence) and for breaches of regulations on
      goods and services the trading and circulation of which is prohibited in Vietnam (up to as high
      as VND100 million depending on the seriousness of the offence).

10.11 Business Registration and Commercial Rights
      The Law on Enterprises dated 12 June 1999 governs companies’ commercial rights and in its
      application extended both trading and distribution rights to all Vietnamese enterprises
      (previously restricted to only State trading entities).

      Decree 02-2000-ND-CP on Business Registration and Decree 03-2000-ND-CP on the
      Implementation of the Law on Enterprises, both dated 3 February 2000 further streamlined and
      eliminated business-licensing procedures in many sectors. As many as 62,300 companies with
      total investment capital of USD7.4 billion have been established since the Law on Enterprises
      became effective on 1 January 2000. More licensing requirements, including with respect to



                                                                                                     140
publishing, pharmaceuticals, film production, trading of medical equipment and advertising, have
since July 2003 been abolished or relaxed. Moreover, a new online system and the
establishment of the Enterprise Information Centre have made business registration in Hanoi,
Hai Phong and Ba Ria-Vung Tau significantly faster (from 7-8 days to as little as one hour) and
cheaper. Registration time for the establishment of a business has been shorted from 15 days
to 7 days or even 3 days in Ho Chi Minh City. Businesses can also register and track the
process online through Ho Chi Minh City’s Service of Trade website.

Effective as of 29 April 2004, Decree 02 has been replaced by Decree 109-2004-ND-CP of the
Government dated 2 April 2004 on Business Registration. Decree 109 revises the duties and
powers of business registration offices ("BROs") and the rights and duties of organizations and
individuals registering their businesses. Of note, separate District BROs will only be established
if merited by the specific requirements of business registration work in the district. Grounds for
revocation of business registration certificates have been revised. The MPI's former duty to
publish bulletins on establishment, dissolution and bankruptcy of enterprises, on any alteration
of business registrations and on legal information relating to business has been replaced by the
new duties to supervise and inspect business registration work, to check legal instruments on
business registration and identify any which are ultra vires or contrary to the Law on Enterprises
or Decree 109, and to resolve such matters. Decree 109 provides for stricter regulation of the
names of businesses. Decree 109 permits individuals and households to register business in
the form of sole traders provided that they employ no more than 10 employees, have one
trading place and comply with other prescribed restrictions. A sole trader must convert into an
enterprise if it employs more than 10 employees or has more than one trading place. As
previously, sole traders being street vendors and the like are not required to register their
business.

Effective as of late June 2004, Decree 03 has been amended by Decree 125-2004-ND-CP of
the Government dated 19 May 2004. Of note:
 •    When foreign organizations and non-resident foreign individuals contribute capital to and
      purchase shares in domestic enterprises, the change in charter capital and change in
      membership of the domestic enterprise must be registered at the BRO where the
      enterprise is registered. (Foreign organizations and non-resident foreign individuals
      remain excluded from founding a domestic enterprise.)
 •    Foreign organizations and non-resident foreign individuals contributing capital to, or
      purchasing shares in, a domestic enterprise have the right to:
      -     authorize a Vietnamese citizen to act as a member of the members' council
            corresponding to their share of equity, in the case of a limited liability company; or
      -     nominate a person (not restricted to Vietnamese citizen) to the board of management,
            in the case of a shareholding company, in accordance with the provisions of law or
            the charter of the company.
      This is a welcome clarification of the right of major non-resident and corporate foreign
      shareholders to participate in management of domestic shareholding companies.
      However, the continued limitation on who may be board members (restricted to resident
      foreign individuals, overseas Vietnamese or Vietnamese citizens) remains a disincentive.
      Further, the number of board members that a major shareholder is entitled to nominate is
      subject to the decision of the General Meeting of Shareholders. Curiously, where the
      number of candidates nominated by a major shareholder is less than the requisite number
      decided by the General Meeting of Shareholders, the remaining number will be nominated
      by the board - not by the major shareholder.
 •    Shareholding capital of founding shareholders must be fully paid up immediately after
      issuance of a business registration certificate, and they will be liable for debts and other
      financial obligations of the company within the value of their share of equity in the
      company as recorded in the register of founding shareholders registered at the BRO.
 •    Public declarations of prescribed related interests of members and management personnel
      of limited liability companies and shareholding companies are compulsory, thereby
      facilitating greater transparency in Vietnam's corporate environment.
 •    Specific guidelines on a number of rights and obligations of members of limited liability
      companies have been added.
 •    With respect to conditional lines of business, the founder of an enterprise and its legal
      representative are responsible for strict implementation of all business conditions in



                                                                                              141
           accordance with regulations and the board members and partners etc will be jointly liable
           for any business operations carried on without having satisfied all conditions. With respect
           to lines of business which are subject to legal capital requirements, board members and
           partners etc are jointly liable for the truthfulness and accuracy of the certified amount of
           capital at the time of establishment of the enterprise and throughout the course of
           business operations of the enterprise.

       The Law on Enterprises is currently under review and scheduled to be replaced by a new Law
       on Enterprises, which will regulate the organizational structure and operation of all types of
       enterprises in Vietnam, comprising domestic enterprises (currently established under the
       existing Law on Enterprises), FIEs (currently established under the Law on Foreign Investment)
       and SOEs (currently established under the Law on State Owned Enterprises). One of the
       objectives of this significant reform is transparency and ease of registering and dissolving
       enterprises. The new law will be applicable to all investors and businesses irrespective of their
       source of capital. Reportedly, the draft new Law on Enterprises still contains articles that keep
       the cost of doing business in Vietnam high and decrease the international competitiveness of
       Vietnamese enterprises. It still requires all businesses to have a supervisory board and limits
       the level to which a business may invest in other businesses. Specifically, if a business wants
       to contribute its capital as a shareholder or member in another enterprise, the level of capital
       contribution is capped at maximum 50% of its ownership capital. Expected reforms include:
       removing the cap on foreign shareholdings in Vietnamese shareholding companies (currently
       capped at 30%, see Section 8.8 "Foreign Investment in Non-listed Vietnamese Enterprises");
       further simplification of administrative procedures; and lifting of other barriers which prevented
       foreign investors from accessing the Vietnamese market. The new law will be applicable to
       four types of business, including liability limited companies, shareholding companies, private
       enterprises and partnerships. It will allow foreign investors to form any of the four types of
       business, not just the existing sole option of a limited liability company. The draft Law on
       Enterprises is scheduled to be considered and promulgated by the NA at the October-
       November 2005 Session in an attempt to meet Vietnam’s goal of WTO accession before the
       end of 2005.

10.12 Electronic Commerce:
     Legislation on e-commerce was originally scheduled to take the form of an ordinance. The MoT
     had drafted an Ordinance, based on the UNCITRAL Model Law, which facilitated the use of e-
     commerce by giving legal standing to electronic contracts and electronic signatures as well as
     allocating the responsibilities of parties with respect to the transmission and receipt of electronic
     data. A draft Law on Electronic Transactions was considered at the May 2005 Session of the
     NA and is expected to be passed at its October-November 2005 Session.

10.13 General Fees and Charges:
     A detailed list of charges and fees was issued with Decree 57-2002-ND-CP of the Government
     dated 3 June 2002 providing in detail for implementation of the Ordinance on Charges and Fees
     (replacing Decree 04-1999-ND-CP of the Government dated 20 January 1999 on fees and
     charge under the State Budget). Under implementing Circular 63-2002-TT-BTC the Ministry of
     Finance dated 24 July 2002, competent authorities are entitled to collect only those charges and
     fees listed in Decree 57. Competency to fix charges is as follows: the Government is
     responsible for fixing some important charges with large revenue and in connection with the
     socio-economic policies of the Republic; provincial people's committees are responsible for
     fixing charges related to management of land and natural resources within their jurisdiction; and
     the MoF fixes the remainder. As for fees, competency to fix important fees with large revenue
     and international legal significance belongs to the Government while the MoF is in charge of the
     remainder. Circular 63 also makes detailed provisions on levels of charges and fees;
     management and utilization of charges and fees collected; exemptions and reductions of
     charges and fees; responsibilities of the State bodies on management of charges and fees.
     Circular 63 replaces Circular 54-1999-TT-BTC of the Ministry of Finance dated 10 May 1999 (as
     amended by Circular 21-2001-TT-BTC of the Ministry of Finance dated 3 April 2001).

10.14 Penalties and Fines:
     Ordinance 44-2002-PL-UBTVQH10 on Dealing with Administrative Offences dated 2 July 2002
     stipulates the kinds of penalties, the bodies empowered to impose penalties and the procedures



                                                                                                      142
     for imposing penalties on individuals and organizations breaching State administrative
     regulations (not constituting a crime). Ordinance 44 deals with administrative offences in a
     range of sectors, including labor, goods quality, accounting, justice, social insurance (with fines
     of up to VND20 million); commerce, customs, environment, construction, securities, banking &
     technology transfer (fines of up to VND70 million); and IP, maritime, natural resources and
     taxation (fines of up to VND100 million). Implementing guidelines were issued under Decree
     134-2003-ND-CP of the Government dated 14 November 2003.

10.15 Constitutional Amendments:
     Amendments in December 2001 of the 1992 Constitution of Vietnam introduce improvements in
     administrative functions that will assist in making Vietnam’s administrative bodies more effective.
     The Constitution (as amended) also for the first time provides that “the State shall adopt
     consistent policies on the development of a socialist-oriented market economy.” (Article 15) - a
     significant development since reference to the term “market economy” has never been made
     before. The foreign investment sector is also recognized for the first time as a legitimate sector
     of Vietnam’s economy.

10.16 Anti-Corruption Measures
      A Law on Corruption Prevention and Control was considered by the National Assembly at its
      May-June 2005 Session and will be re-considered then promulgated at its next Session in
      October-November 2005. Vietnam's Government Inspectorate has recently acknowledged that
      Vietnam's corruption problem has increased in the level of severity, expanded in scope, and
      become more complicated and difficult to detect. Factors identified by the Government
      Inspectorate as contributing to the corruption problem include: low salaries of civil servants;
      vague job descriptions for government staff; uncoordinated corruption-fighting approaches
      taken by different agencies; no enforced accountability for civil servants regarding declaration
      of income and assets, despite such regulations having been issued; and inadequate
      investigation measures to detect corruption. Methods for fighting and preventing corruption
      proposed in the draft Anti-Corruption Law include:
        -      Increased disclosure and transparency in areas such as public procurement;
               management of investment in construction; finance and budget, funding, management
               and equitization of State owned companies; auditing of State budget; management and
               use of land and personnel management;
        -      Compulsory declaration of State employees’ assets and income, including spouses and
               children in the same household;
        -      Strengthening the accountability of heads of organizations and agencies;
        -      From a practical perspective, administrative reform and renovation of managerial
               technology and payment methods in the economy;
        -      Creation of a national level steering committee to conduct oversight and investigate
               corruption; and encouragement of "whistle-blowing" by the public and other agencies,
               rewarding such actions with commendations and awards to those who help reclaim
               State assets.
      One idea considered during discussions on the draft Anti-Corruption Law is the creation of an
      anti-corruption agency to deal specifically with corruption issues, such as in Hong Kong.
      However, some experts point out that such agencies work well only after the underlying
      systemic causes of corruption have largely been eradicated. Once reforms at lower levels
      have had an opportunity to take root, then an anti-corruption agency can be an effective body
      to support such reforms. There is a fear that without proper supports in place such a body
      could serve to become just another source of corruption itself.

      Anti-Money Laundering
      On 1 August 2005, Vietnam's first-ever anti-money laundering regime will become effective.
      Under Decree 74-2005-ND-CP of the Government dated 7 June 2005 Against Money
      Laundering, new responsibilities are imposed on individuals and organizations facilitating
      monetary or other asset transactions ("transacting bodies") to co-operate in Vietnam's new
      fight against money laundering.

      Money laundering is defined as conduct of an individual or organization seeking a way to
      legalize money or assets obtained as a result of crime, via the following specific acts such as (i)
      participating, either directly or indirectly, in a transaction involving money or assets obtained as



                                                                                                      143
a result of crime, (ii) receiving, appropriating, transferring, converting, assigning, transporting,
using or carrying across a border money or assets obtained as a result of crime, and (iii)
investing in a project or construction works, contributing capital to an enterprise, or seeking
another way to conceal, camouflage or hinder verification of the true source and nature or of
the sites and process of the movement of, or of the ownership of money or assets obtained as
a result of crime.

Decree 74 applies to Vietnamese and foreign individuals, bodies and organizations, as well as
stateless persons, residing or operating in the territory of Vietnam who conduct transactions
with or provide services to customers which involve monetary or other asset transactions in
Vietnam. Of note, Decree 74 also applies to foreign individuals and organizations not residing
or operating in the territory of Vietnam but conducting transactions with or providing services to
customers which involve monetary or other asset transactions in Vietnam.

Transacting bodies with responsibilities to prevent and combat money laundering include:
financial institutions (such as credit institutions, money brokers, securities companies, gold
dealers, insurance companies, representatives of foreign financial institutions); casinos; real
estate companies; lawyers, legal consultants, and law firms when conducting monetary or
other asset transactions on behalf of clients, eg., through trust accounts.

Decree 74 requires transacting bodies to identify and report to the Anti-Money Laundering
Information Center (established under the SBV pursuant to its Decision 1002-2005-QD-NHNN
dated 8 July 2005, effective as of 1 August, but not yet operational) the following transactions
(in VND, foreign currencies or gold):
-     One or more cash transactions conducted by an individual/organization in a single day
      with a total value of VND200 million (approx USD12,615) or VND500 million in respect
      of savings account transactions (approx USD31,535). These amounts may be varied by
      the Prime Minister for conformity with socio-economic development from time to time.
-     Other suspicious transactions (the features deemed to be suspicious are prescribed in
      Decree 74).

If transacting bodies have reason to believe that a transaction is (i) related to criminal activity,
or (ii) involves individuals/organizations on the warning list compiled by the Ministry of Police,
the transacting bodies have the right to reject such a transaction.

The SBV is currently finalizing guidelines for implementation of Decree 74.

Following Decree 74, Decision 1002-QD-NHNN of the State Bank of Vietnam dated 8 July
2005 provides for the establishment of the Anti-Money Laundering Center or “AMLC” under the
SBV as of 1 August 2005. Of note, as yet, personnel and infrastructure for the AMLC have not
been arranged. Under Decision 1002, the AMLC will oversee the implementation of Decree
74. Based on the information obtained about a suspicious transaction from a transacting body,
the AMLC and other relevant authorities may covertly scrutinize a suspicious transaction as
well as the individuals/organizations involved in such transaction, and may apply temporary
measures (including freezing accounts and/or sealing or seizing assets) with respect to such
transaction and the involved individuals/organizations.




                                                                                                144

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:67
posted:4/18/2012
language:
pages:144