An Analysis: Trade-Related Investment Measures and ... 2/Documents/USVTC TA/Technical...

Updated as of September 24, 2002

An Analysis: Trade-Related Investment Measures and Vietnamese Law

Prepared by

RUSSIN & VECCHI

and

SIDLEY AUSTIN BROWN & WOOD LLP

and

U.S.-VIETNAM TRADE COUNCIL EDUCATIONAL FORUM

With funding provided by

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. For additional information, please contact the Trade Council in Washington at 202-547-3800, 844-822-3653 in Hanoi, 848-824-3651 in Ho Chi Minh City, or visit our website at http://www.usvtc.org. Washington, DC 731 Eighth St., SE Washington, DC 20003 Tel: 1-202-547-3800 Fax: 1-202-546-4784 E-mail: [email protected] Website: www.usvtc.org

Hanoi City Gate Building 104 Tran Hung Dao St. Hanoi Tel: 84-4-822-3653 Fax: 84-4-822-3652

Ho Chi Minh City New World Hotel Business Center Suite 317, 76 Le Lai Blvd., District 1 Ho Chi Minh City Tel: 84-8-824-3651 Fax: 84-8-823-0710


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Table of Contents

I. Introduction

II. The Agreement on Trade Related Investment Measures

A. Background on Scope of the TRIMs Agreement B. Basic Substantive Obligations C. Some Common TRIMs

D. TRIMs and Developing Countries III. A Review of Vietnam’s Laws and Regulations

A. Law on Foreign Investment, dated 12 November 1996, as amended 9 June 2000, effective 1 July 2000

B. Decree 24-2000/ND-CP dated 31 July 2000 Providing Detailed Regulations on the Implementation of the Law on Foreign Investment in Vietnam, dated 31 July 2000

C. Circular 22-2000-TT-BTM of the Ministry of Trade on the Export and Import

Activities of other Commercial Activities and other Commercial Activities of Enterprises with Foreign Owned Capital Providing Guidelines for implementation of Decree 24-2000-ND-CP of the Government dated 31 July 2000 providing detailed regulations on the implementation of the Law on Foreign Investment in Vietnam with respect to export and import activities and other commercial activities of enterprises with foreign owned capital, dated 15 December 2000

Circular 26-2001-TT-BTM of the Ministry of Trade on Amendments of and Additions to a Number of Points of Circular 22-2000-TT-BTM dated 15 December 2000 Providing Guidelines for Implementation of Decree 24-2000-ND-CP of the Government dated 31 July 2000 Providing Detailed Regulations on Implementation of the Law on Foreign Investment in Vietnam with Respect to Export and Import Activities and other Commercial Activities of Enterprises with Foreign Owned Capital, dated 4 December 2001)

D. Decision 648-1999-QD-BKHCNMT dated 17 April 1999 of the Ministry of Science,

Technology and Environment promulgating Regulations of Types of Motorcycles Assembly and Manufacture

E. Joint Circular 176-1999-TTLT-BTC-BCN-TCHQ dated 25 December 1998 Guiding

the Implementation of Tax Policy in the proportion of use of domestic products and parts in the field of mechanics-electric-electronics

Joint Circular 120-2000-TTLT-BTC-BCN-TCHQ Amending and Supplementing tax

policy in accordance with the level of the use of domestic products with respect to products, parts in the field of mechanics-electric-electronics as provided in Joint Circular 176, dated 25 December 2000

Decision 1944-1998-QD-BTC of the Ministry of Finance promulgating Regulations

on preferential import tax rate in accordance with the level of the use of domestic


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products with respect to products, parts in the field of mechanics-electric-electronics dated 25 December 1998

Decision 116-2001-QD-BTC of the Ministry of Finance dated 20 November 2001

supplementing and amending the preferential tax rates applicable to motorcycles as stipulated by Decision 1944

F. Circular 11-2001-TT-BTM of the Ministry of Trade dated 18 April 2001 Guiding the

Implementation of Decision 46-2001-QD-TTg of Prime Minister dated 4 April 2001 on the Management of Import and Export of Goods during 2001-2005.

G. Decree 45-2000-ND-CP of the Government Providing Regulations on

Representative Offices, Branches of Foreign Traders and Tourism Enterprises in Vietnam dated 6 September 2000, Article 13.2 and list of goods and services for which branches of foreign traders are allowed to do business in Vietnam

H. Joint Circular 20-2000-TTLT-BTM-TCDL of the Ministry of Trade and the General

Department of Tourism dated 20 October 2000 Guiding the Implementation of Decree 45, Chapter IV.2

IV. Policy Implications and Conclusions


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I. Introduction

This paper attempts to review Vietnam’s laws and regulations in order to help identify areas that appear to be inconsistent with the WTO Agreement on Trade-Related Investment Measures (“TRIMs Agreement”), with a focus on the basic substantive obligations addressed in this Agreement as embodied in Article 2 and its Illustrative List. Article 2.1 of the TRIMs Agreement requires Members not to apply any trade-related investment measure (“TRIM”) that is inconsistent with the provisions of Article III (national treatment of imported products) or Article XI (prohibition of quantitative restrictions on imports or exports) of GATT 1994. An Illustrative List annexed to the TRIMs Agreement provides examples of measures that are inconsistent with paragraph 4 of Article III and paragraph 1 of Article XI. Section II of this paper provides background on this Agreement and its disciplines, and explains the examples listed in the Illustrative List. Where available, we provide examples from relevant past GATT and cases WTO cases. Section III discusses relevant provisions in the legal regime relating to investment in Vietnam, in relation to the obligations in the TRIMs Agreement. We focus both on the rules that apply to foreign investment and on the rules that apply to domestic enterprises. We discuss how they could raise issues under the TRIMs Agreement and to what extent they could violate GATT Articles III and XI. We conclude with possible policy implications regarding Vietnam’s commitments under its Bilateral Trade Agreement (BTA) with the United States and regarding Vietnam’s WTO Accession. The information in this memorandum on Vietnam’s investment regime is primarily based on the draft BTA Commitments Road Map III (“Road Map III”) dated March 27, 2001 compiled by the U.S.-Vietnam Trade Council Education Forum, in particular the section on TRIMs, updates and amendments to Vietnam’s investment regime through December 2001, and some additional information from the first several months of 2002.

This document is not an official analysis, and represents only best effort to help assess the current situation in Vietnam. While attempting to be comprehensive, it is in draft form so that errors and omissions can be added in future updates if useful.

II. The Agreement on Trade Related Investment Measures (TRIMs) A. Background on the TRIMs Agreement The Agreement on Trade Related Investment Measures (TRIMs) was negotiated in the Uruguay Round negotiations on trade in goods, as an interpretation of GATT rules. The TRIMs Agreement is thus limited to trade in goods. It elaborates and clarifies the application of Articles III and XI of the GATT. The TRIMs Agreement prohibits WTO Member governments from applying any trade-related investment measure that discriminates against imported products (i.e. violates “national treatment” principles in GATT Article III). It also outlaws investment measures that quantitatively restrict imports (violating GATT Article XI). All exceptions under GATT 1994 apply as well to the provisions of the TRIMs Agreement. During the 1980s, two important GATT disputes explored the way in which GATT trade rules can affect the regulation of foreign investment by governments. The panels that ruled on these disputes interpreted Article III and Article XI. Those interpretations were not legally binding except on the parties to those two disputes, but they were widely accepted as correct. The negotiators of the TRIMs Agreement then agreed to rules clarifying how Articles III and XI apply to measures found in some foreign investment regimes. These rules apply to all WTO Members, and are found in an Illustrative List of TRIMS agreed to be inconsistent with Articles III:4 and XI:1, appended to the TRIMs Agreement. In 1982, the United States brought a dispute concerning trade aspects of Canada’s investment regime. Foreign investors who were seeking approval of investments by the Canadian authorities, under Canada’s Foreign Investment Review Act (FIRA), would routinely offer “undertakings” to the Canadian authorities making promises


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about their proposed investment. If the investment was approved, the undertakings would become legally binding on the investor. The panel in the FIRA case found that Article III:4 was violated by undertakings that discriminate against imported products, such as: undertakings to purchase a certain percentage of products from Canada; undertakings to replace imports with Canadian-made goods; undertakings to purchase Canadian goods if they were competitively available (that is, if the price ands other

terms were the same, the investor would buy the Canadian product); and undertakings to buy from Canadian suppliers (because the investor could buy goods directly from a domestic

producer but could not buy directly from a foreign producer).1 In 1988, Japan brought a dispute against the European Communities (EC) about a particular provision of the EC’s antidumping law. Some Japanese companies had reacted to EC antidumping duties by investing in the EC, exporting the same products in unfinished form to their EC plants and assembling the products there, in so-called “screwdriver” plants. The EC would then apply the same antidumping duties to the product of a “screwdriver” plant, unless the investor agreed to limit its use of Japanese parts and components. The panel in this “Screwdriver case” found that the national treatment requirement in Article III applies not just to requirements which an enterprise is legally bound to carry out, like those in the FIRA case, but also to those which an enterprise voluntarily accepts in order to obtain an advantage from the government. The EC’s decisions to suspend antidumping duties on particular plants were an “advantage,” and the fact that this advantage was conditional on limiting imported parts meant that imported parts were being discriminated against, in violation of Article III:4.2 Key provisions of the Illustrative List attached to the TRIMs Agreement codify these findings in the FIRA and Screwdriver cases. For instance, the Illustrative List includes measures which require particular levels of local procurement by an enterprise (“local content requirements”). It also prohibits measures which limit a company’s imports, or require balancing of imports and imports (“trade balancing requirements”). The Illustrative List also provides that it applies both to mandatory measures and those “with which compliance is necessary to obtain an advantage.” Under the TRIMs Agreement, all TRIMs that are inconsistent with GATT must be notified to the WTO Secretariat, and Members must eliminate such measures on a prescribed timetable. Developed countries were required to eliminate TRIMs in two years (by the end of 1996); developing countries had five years (to the end of 1999); and the least developed countries had seven years (to the end of 2001). The agreement establishes a Committee on TRIMS to monitor the implementation of these commitments. B. Basic Substantive Obligations Article 2.1 of the TRIMs Agreement requires Members not to apply any TRIM that is inconsistent with the provisions of Article III (national treatment of imported products) or Article XI (prohibition of quantitative restrictions on imports or exports) of GATT 1994. Thus, the disciplines of the TRIMs Agreement focus on trade measures, and do not concern the issue of entry and treatment of foreign investment as such. Article III of the GATT Agreement sets out obligations on national treatment of imported goods. Paragraph 4 of Article III, in particular, is relevant to the TRIMs Agreement. It states:

“ The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the

1 Canada—Administration of the Foreign Investment Review Act, BISD 31S/140, 158-161, paras. 5.4-5.11; available at http://www.wto.org/english/tratop_e/dispu_e/82fira.wpf. 2 EEC—Regulation on Imports of Parts and Components, BISD 37S/132,197, para.5.21; available at http://www.wto.org/english/tratop_e/dispu_e/88scrdvr.wpf.


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application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.”

GATT Article XI prohibits the use of quotas or measures other than duties to restrict either importation or exportation of products. Paragraph 1 of GATT Article XI states:

“No prohibition or restrictions other than duties, taxes or other charges whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.”

As noted above, the TRIMs Agreement also includes an Illustrative List of trade-related investment measures that are inconsistent with paragraph 4 of Article III and paragraph 1 of Article XI. The Illustrative List provides as follows:

1. TRIMs that are inconsistent with the obligation of national treatment provided in Paragraph 4 of Article III of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage and which require:

(a) the purchase or use by an enterprise of products of domestic origin or from any domestic

source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production.

(b) that an enterprise’s purchase or use of imported products be limited to an amount related to the

volume or value of local products that it exports

2. TRIMs that are inconsistent with Article XI:1 of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage and which require:

(a) the importation by an enterprise of products used in or related to its local production, generally or

to an amount related to the volume or value of local production that it exports.

(b) the importation by an enterprise of products used in or related to its local production by restricting its access to foreign exchange to an amount related to the foreign exchange inflows attributable to the enterprise

(c) the exportation or sale for export by an enterprise of products, whether specified in terms of

particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production

The Illustrative List provides examples of measures in a host government’s investment regime that affect trade, such as domestic content regulations, import and export restrictions relating to an investors’ import-export ratios (by volume or value), and foreign exchange restrictions tied to an investor’s inflow of foreign exchange. We discuss these examples below in more detail. It is important to note that the Illustrative List is not exhaustive, but simply illustrates TRIMs that are prohibited. Other situations could also constitute TRIMs violations. The WTO has ruled that the TRIMs Agreement “essentially interprets and clarifies” Articles III and XI, and so the TRIMs Agreement neither adds to nor subtracts from Articles III and XI.3 For this reason, any trade-related investment measure that violates Article III or XI is also a TRIMs violation. Any new interpretation of Article III or Article XI by a WTO panel will therefore affect the interpretation of the TRIMs Agreement. A WTO panel has found a TRIMs violation in only one past dispute, the dispute brought by the EC, Japan and the United States

3 Panel report, EC-Regime for the Importation, Sale and Distribution of Bananas, document WT/DS27/R, paragraphs. 7.183-7.187; available on WTO website.


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against Indonesia’s automobile investment regime (the Indonesia Autos dispute).4 However, to understand the TRIMs Agreement, it is not enough to just examine the Indonesia Autos dispute. It is also necessary to examine the GATT and WTO panel decisions interpreting Article III and XI. We therefore refer to some of these panel decisions in discussing the meaning of the TRIMs Agreement. C. Some Common TRIMs In this section, we discuss common types of TRIMs covered by the Illustrative List. These include local content requirements, trade balancing requirements, foreign exchange restrictions and export restrictions. Where appropriate, case studies have been provided to highlight how such measures are inconsistent with the TRIMs Agreement. The TRIMs Agreement applies only to “trade-related investment measures” (TRIMs). It is important to note that TRIMs can include not just measures within a government’s regime for inward foreign investment, but also measures promoting or regulating investment by domestic entities as well. The WTO dispute settlement panel in the Indonesia Autos dispute found that Indonesia’s National Car Program violated the TRIMs Agreement, even though the only investor benefiting from the program was a domestic company. The Indonesia Autos panel examined the application of the TRIMs Agreement to this kind of program by determining first that a TRIM is an “investment measure” that is “trade-related.” The panel found that “investment measures” are not limited to “foreign investment measures” but includes “domestic investment measures” as well. Examining Indonesia’s auto regime, the panel found it was an “investment measure” because the legislation and regulations in question provided that they were aimed at encouraging the development of a local manufacturing capability for finished motor vehicles and parts in Indonesia. The panel explained that “inherent to this objective is that these measures necessarily have a significant impact on investment in these sectors,” and it found that for that reason, the measures involved in the auto regime were “investment measures.”5 The panel then found that if a measure is a local content requirement, it favors the use of domestic products over imported products and inherently affects trade; it found that the tax and duty reductions provided for local content in the Indonesian auto program were local content requirements, found they were TRIMs, and found a violation of the TRIMs Agreement. (i) Local Content and Sourcing Requirement Paragraph 1(a) of the Illustrative List covers local content TRIMs which require the purchase or use by an enterprise of products of domestic origin. Domestic content stipulations require investors to use local products instead of imports. As an example, if a host government requires an investor to build its factory using locally produced cement, or to use local products in the factory’s operations, the government is favoring domestic cement over imported cement. This is a GATT Article III national treatment violation. Indonesia’s National Car Program, which was at issue in the Indonesia Autos dispute, provides a classic example of a local content TRIM. The program provided for tax advantages on finished motor vehicles that used a certain percentage value of local content, and additional customs duty advantages on imports of parts and components to be used in finished motor vehicles that used a certain percentage value of local content. These incentives were found to violate the TRIMs Agreement. The classic GATT case on Italian Agricultural Machinery provides another example of a local content requirement that violates Article III:4. The Italian government provided special credit terms for purchases of agricultural machinery; eligible purchasers could obtain such loans at a rate that was substantially below the rate for loans on commercial terms. However, the Italian government would only provide a loan if the machinery purchased was made in Italy. The GATT panel found that this government measure discriminated against imports in violation of Article III:4, because it altered the conditions of competition in favor of domestic agricultural machinery.6

4 Document WT/DS54/R, available on WTO website. 5 Id., para. 14.80. 6 Panel report, Italian Discrimination against Imported Agricultural Machinery, GATT BISD 7th Supp. p. 60 (1958), available at http://www.wto.org/english/tratop_e/dispu_e/58agrmch.wpf.


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The local content undertakings by investors in the FIRA and Screwdriver cases, discussed above, provide other examples of local content requirements that violate Article III. The requirement to eliminate domestic content speaks only in terms of products. A WTO Member can require an enterprise to use domestic services such as labor, without violating its obligations relating to trade in goods. Paragraph 1(a) also prohibits requirements to purchase or use products “from any domestic source” (a requirement to buy goods from a domestic supplier). As noted above, the GATT panel in the FIRA case found that undertakings to purchase from Canadian suppliers violated Article III. If goods were domestic, they could be bought directly from the manufacturer; if goods were imported, they would have to be bought through a Canadian agent or importer. The imported product would therefore have more difficulty in competing with domestic products.7 Paragraph 1(a) of the Illustrative List reflects that finding. (ii) Trade Balancing Requirements Paragraphs 1(b) and 2(a) of the TRIMs Illustrative List identify measures that violate GATT Article III and XI respectively through trade balancing requirements. A host government can make an investor balance trade in two ways. First, the host government may limit the investor’s ability to import goods. This “border measure” violates Article XI:1 and falls under paragraph 2(a) of the Illustrative List. Second, the host government may limit the investor’s purchases of goods that have already been imported by others. This internal measure violates Article III:4 and falls under paragraph 1(b) of the Illustrative List. The operation of trade balancing, and the difference between the two types of trade balancing, can be understood with a few examples. For many years, India maintained an extremely restrictive import policy. All imports of consumer goods were prohibited in principle, except if the authorities issued an import license. After a WTO panel and the Appellate Body found that India’s import restrictions were not justified, India abolished these restrictions. Suppose that a government maintains an import licensing system like the former Indian system: if the authorities issue an import license to an investor only if the investor has exported goods equal in value to the proposed imports, that restriction on importation violates Article XI:1 and falls under paragraph 2(a) of the Illustrative List. Now suppose that a government maintains a regime for approving domestic and foreign investment. Any investor will need to purchase goods, in order to build a factory and in order to process goods in the factory. Even if the investor does not directly import the goods but buys them locally, the goods may be locally produced or they may be goods that were already imported by some other person. If the government grants an approval for an investment, but requires in return that the investor’s purchases of imported goods may not exceed the amount of exports generated by the investor, then this is a trade balancing requirement that violates Article III:4 and falls under paragraph 1(b) of the Illustrative List. Trade balancing requirements force a domestic or foreign investor to market less efficiently, and reduce a host country’s attractiveness to foreign investment. By prohibiting requirements that limit imports or discriminate against imported products, the TRIMs Agreement also protects the investor’s ability to make independent business decisions on the basis of business efficiency. (iii) Foreign Exchange Restrictions Paragraph 2(b) of the Illustrative List describes a type of quantitative limitation on importation of goods, where the limit on how much can be imported by an enterprise is determined in relation to the amount of foreign exchange which the enterprise generates. Article XI of the GATT prohibits any quantitative limitation on imports, including any limitation determined by reference to foreign exchange amounts. In exceptional circumstances, a developing country WTO Member with serious balance of payments problems can control the general level of its imports by restricting the quantity or value of imports, under Article XVIII of the GATT. This “balance of payments exception” applies as well to obligations under the TRIMs Agreement. So, for instance, if a country has balance-of-payments limitations on imports to respond to a balance of payments crisis, it can have TRIMs as part of those import limitations.

7 FIRA case, BISD 31S/160-161, para. 5.10-5.11.


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However, the WTO Agreements also limit the types of balance-of-payments measures that a WTO Member can take. The Understanding on the Balance-of-Payments Provisions of the GATT 1994, which is a separate agreement attached to the WTO Agreement package, provides that any balance-of-payments measure must normally take the form of a tariff surcharge or import deposit requirement or another measure that affects the prices of goods (a “price-based measure”), not a quantitative limitation on imports. Balance-of-payments measures must be applied to all imports, not selectively to a few products. If a WTO Member imposes a price-based measure, it cannot also impose a quantitative limitation on imports. WTO Members that take balance-of-payments measures are also required to consult with a special WTO Committee on Balance-of-Payments Measures, which consults with the International Monetary Fund on all economic issues. So a WTO Member cannot respond to a general shortage of foreign exchange by limiting imports of a few products. When Brazil imposed an import quota on automobiles in 1995, and tried to justify it as a balance-of-payments measure, Brazil was unsuccessful and was compelled to end its auto quota. Suppose that a host country permits a foreign company to invest in the automotive industry, and prohibits the investor from importing any fully-assembled automobiles except to the extent that the investor has generated foreign exchange by exporting automobiles or auto parts. This restriction on imports is a TRIM that violates Article XI:1 of the GATT and falls under paragraph 2(b) of the Illustrative List. Suppose that the host country has a genuine balance-of-payments crisis. It imposes a general tariff surcharge on all imports. The host country also imposes the same TRIM limiting imports of automobiles by the investor to the amount of foreign exchange that the investor generated by exports. This TRIM is still a violation of Article XI:1 and cannot be justified as a balance-of-payments measure, for two reasons. First, the country already has a tariff surcharge and cannot impose a quantitative limitation on imports in addition. Second, the TRIM is not a measure limiting the general level of imports, but is sector-specific. The TRIM therefore violates the TRIMs Agreement, and falls under paragraph 2(b) of the Illustrative List. (iv) Export Restrictions Article XI:1 of GATT also prohibits quantitative restrictions on exports of goods. Accordingly, paragraph 2(c) of the Illustrative List covers measures involving restrictions on the exportation of goods, or sale for export of goods, by an enterprise, whether specified in terms of particular products, volume or value of products or in terms of proportion of volume or value of its local production. Most restrictions on exportation are used by governments to require that a raw material product must be processed locally before it can be exported. Because the raw material cannot be exported, its price will be below the world price, giving an advantage to the local processing industry. For instance, before 1993, Canada prohibited the exportation of some kinds of fish, to give an advantage to Canadian fish processors. A GATT panel found that this export prohibition violated Article XI:1 of the GATT. A TRIM that restricts imports by an enterprise violates the TRIMs Agreement and falls under paragraph 2(c) of the Illustrative List. Export incentives do not limit exports. They are outside the TRIMs Agreement, and are subject instead to the rules in the Agreement on Subsidies and Countervailing Measures. Export performance requirements are also not covered by the TRIMs Agreement, except if they involve trade balancing or other implicit limitations on importation or on the purchase of imported products. D. TRIMS and Developing Countries Article 5.2 of the TRIMs Agreement requires developing country Members to eliminate their TRIMs within 5 years of the date of entry into force of the WTO Agreement (until January 1, 2000). Least-developed country Members8 have seven years (until January 1, 2002). In both cases, this transition period has expired. However, Article 5.3 of

8 The WTO recognizes as “least-developed countries” the 49 nations that the United Nations classifies as such. Currently, thirty “least-developed countries” are WTO Members, and nine are negotiating their accession. In Southeast Asia, Cambodia, Laos, and Myanmar (Burma) qualify as “least-developed countries.”


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the TRIMs Agreement allows the WTO Council for Trade in Goods (“WTO Goods Council”) to extend this transition period for those developing and least-developed country Members that demonstrate particular difficulties in implementing provisions of the TRIMs Agreement. The WTO Goods Council has granted extensions to several developing countries. For instance, in October 1999, the Philippines requested a five-year extension for: (1) local content and foreign exchange requirements in the automobile sector and (2) local content requirements for coconut-based chemicals. The Philippines contended that an extension was necessary to account for its specific development, financial, and trade needs. In July 2001, the WTO Goods Council granted an extension until 31 December 2001 but expressed a willingness to further extend this period provided that the Philippines set forth a description of the steps it planned to take to eliminate these TRIMs. After the Philippines submitted such a plan, the WTO Goods Council extended the transition period to 30 June 2003. The WTO Goods Council granted similar extensions to Argentina, Colombia, Malaysia, Mexico, Pakistan, Romania, and Thailand. Ministers of WTO Members considered the issue of TRIMs extensions at the WTO’s November 2001 Fourth Ministerial Conference at Doha. Ministers agreed to a special decision to address concerns expressed by developing countries regarding implementation of certain WTO provisions. With respect to TRIMs, Ministers (1) noted requests from individual developing country Members to extend further the transitional period for TRIMs and (2) urged the WTO Goods Council to look favorably upon extension or waiver requests from least-developed Members. III. A Review of Vietnam’s Laws and Regulations Following are the laws and regulations governing Vietnam’s foreign and domestic investment regime that contain provisions resemble measures mentioned in Section II “Some Common TRIMs.” Not all laws identified are TRIMs inconsistent, and in such cases we mention conditions under which they could come to be inconsistent with Article III or Article XI. A. Law on Foreign Investment in Vietnam (LFI)

(dated 12 November 1996, as amended 9 June 2000, effective 1 July 2000) Article 30 and referenced Law on Tendering LFI, Chapter IV, Article 30 provides that “Enterprises with foreign owned capital and parties to business co-operation contracts must carry out tenders in accordance with the provisions of the law on tendering.” Relevant provisions of related rules provide as follows:

Decree No. 14-2000-ND-CP on Amendment of and Addition to a Number of Articles of the Regulations on Tendering Issued with Decree 88-1999-ND-CP of the Government Dates 1 Sept 1999, Article 10, Paragraph 4:

“Tenderers participating in tendering in Vietnam must undertake to procure and to use materials and equipment which are suitable in terms of quality and price and are manufactured, processed or available in Vietnam.”

Decree No. 14, Article 10, Paragraph 8:

“Domestic tenderers in international tendering shall be entitled to preferential treatment in accordance with the law.”

Circular No. 04-2000-TT-BKH Providing for Implementation of the Regulations on Tendering, Chapter III,

Section I on Conditions for Participating in Tendering, Paragraph 2: “Tenderers participating in tendering in Vietnam must undertake to procure and to use materials and

equipment which are suitable in terms of quality and price, and are manufactured, processed or available in Vietnam as provided for in Clause 4 of article 10 of the Regulations on Tendering; if [such materials and equipment] are not domestically manufactured or processed, the tenderers can offer imported materials and equipment provided that their quality is ensured and the price is reasonable.”


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As can be seen, when Article 30 is read together with the tendering rules, it clearly appears that every foreign-invested enterprise and every party to a business co-operation contract is required to purchase Vietnamese products whenever Vietnamese products are available. This is a clear violation of the TRIMs Agreement. Article 31 Article 31 of the LFI provides: “…Foreign-invested enterprises (“FIEs”) [and] partners involved in business cooperation contracts (“BCCs”) must give priority in purchasing equipment, machinery, materials, and transport means [manufactured] in Vietnam in the case technical-commercial conditions are the same.” [emphasis added] Article 31 of the LFI states that the investor must give “priority” in sourcing equipment, machinery, materials and transport means. Article 31 appears to alter the conditions of competition in favor of domestic products, denying national treatment. It is correct that the term “priority” assumes that while one must consider a domestic product, the domestic product can be rejected, and that an imported product can be chosen - on the basis of price, quality, delivery dates, etc. However, even a mandate for “priority” can violate national treatment obligations. In the FIRA case in the GATT, discussed above, a GATT panel examined a Canadian requirement that foreign investors purchase Canadian goods where “competitively available.” The panel considered that in those cases where imported and domestic products were offered on equivalent terms, this requirement would entail giving preference to the domestic product, distorting the terms of competition between imports and locally produced goods, and thus violating Article III:4 of the GATT.9 Article 33 Article 33 of the LFI provides that: “Enterprises with foreign owned capital and parties to business co-operation contracts may purchase foreign currency from commercial banks to meet the demand of their current transactions and other permitted transactions in accordance with the provisions of the law on foreign exchange control.”;… “The Government of Vietnam shall guarantee the foreign currency balance of specially important projects investing in accordance with the programs of the Government in each period.”.… “The Government of Vietnam shall assure its assistance in the foreign currency balance of projects for the construction of infrastructure facilities and a number of other important projects.” If the reference to “guarantee the foreign currency balance” does not mean that the Government will reduce imports if it deems that foreign exchange is inadequate, then there is no violation of Article XI:1 or of the TRIMs Agreement. Vietnam has so far promulgated two Decrees specifically dealing with foreign exchange issue: Decree 63/1998/ND-CP on foreign exchange management dated 17 August 1998 (“Decree 63”) and Decree 05/2001/ND-CP amending and supplementing several articles of Decree 63 dated 17 January 2001 (“Decree 05”). Decrees 63 and 05 apply to both domestic and foreign investors, and provide general provisions on foreign exchange. According to these Decrees, investors “are entitled to purchase foreign currencies at licensed banks to satisfy their current transactions or other permitted transactions on the basis of producing valid papers and vouchers.” (Article 13, as amended by Decree 05). While there are rules with respect to access to foreign exchange, those rules are not related to exports. This appears to be consistent with obligations under sub-paragraph 2(b) of the TRIMs Illustrative List. Article 47 LFI Chapter IV, Article 47 provides: “Raw materials, materials, components imported for production of projects in sectors where investment is specially encouraged or in regions with specially difficult socio-economic conditions shall be exempted from import duty for a duration of five years from the commencement of production.” The exemption from import duties constitutes a subsidy to the project, but unless it is conditional on use of domestic products, then it does not violate the TRIMs Agreement. Article 48 LFI Chapter IV, Article 48 provides: “Export processing enterprises and enterprises with foreign owned capital in industrial zones shall be entitled to preferential tax rates in cases where investment is encouraged or specially encouraged in accordance with articles 38, 39, 43, and 44 of this Law.” The preferential tax rates constitute a subsidy to the products manufactured by the enterprise receiving the reduced tax rates. If they are an export subsidy, they fall under special provisions in the WTO Agreement on Subsidies and Countervailing Measures (SCM

9 FIRA case, BISD 31S/160, para. 5.9.


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Agreement). However, as long as access to the preferential tax rates is not conditional on use of domestic products, it does not violate the TRIMs Agreement. Article 63 LFI Chapter IV, Article 63 provides that “Any enterprise and individual making outstanding achievements in production and business activities, or making significant contributions to the cause of national construction and development shall be rewarded in accordance with the provisions of the law.” The reward may be a subsidy to the producer (benefiting its product), but if it is not conditional on purchase or use of domestic products, it does not violate the TRIMs Agreement. B. Decree 24/2000/ND-CP

(Providing Detailed Regulations on the Implementation of the Law on Foreign Investment in Vietnam, dated 31 July 2000)

Article 67 Decree 24/2000/ND-CP implementing the LFI provides in Article 67.2 that “With respect to specially important investment projects investing in accordance with Government programs in each period, the Prime Minister shall make a decision on guarantee of foreign currency balance of enterprises with foreign owned capital and business co-operation parties which shall be stated in the investment license.” If this decision balances the foreign exchange account for a particular enterprise by limiting imports, it is inconsistent with the TRIMs Agreement and falls under paragraph 2(b) of the Illustrative List. Article 71 Article 71.3 of Decree 24 provides:

“When commercial terms are equal, enterprises with foreign owned capital and parties to a business co-operation contract are encouraged to purchase products in Vietnam instead of importing them.”

Decree 24 implements the LFI. Its purpose is to elaborate upon the requirements of the LFI, not to change those requirements. Article 71 requires all foreign investors or parties to business co-operation contracts to register all of their import plans for the capital construction phase and for each year; the import plan may be adjusted each year. A body authorized by the Ministry of Trade may disapprove any import plan, as long as the disapproval is explained promptly in writing. Any disapproval of an import plan violates GATT Article XI:1. Article 71.3 does not require investors to give “priority” to purchasing equipment, machinery, materials, and transport means made by Vietnam as does article 31 of the LFI. It only “encourages” investors to do so. However, the context of Article 71.3 makes it clear that failure to substitute domestic products for imports may lead to disapproval of import plans. If any government ministry or official links approval of an import plan to purchasing local products or purchasing goods from Vietnamese suppliers, this violates the TRIMs Agreement and falls under paragraph 2(a) of the Illustrative List. Decree 24-ND-CP is also supported by Circular 06-2000-TT-TCHQ of the General Department of Customs Providing Guidelines for customs procedures applicable to imported and exported goods of enterprises with foreign owned capital. To the extent that Decree 24 is in violation of Article III and Article XI of GATT 1994, Circular 06-2000-TT-TCHQ will also have to be examined for similar violations through its implementing regulations. Indeed, the concrete customs provisions in the Circular would tend to clarify whether there are TRIMs violations in the LFI and Decree 24. Article 105 and Appendix I Under Article 105.2 and 105.3 of Decree 24, small or medium-size investment projects have a right to automatic investment approval if they export all their production, or if they have at least an 80 percent export ratio. Similarly, Appendix I of the Decree lists certain types of projects as “specially encouraged”, “encouraged” or subject to “conditional” licensing of investment.


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The “specifically encouraged investment projects” listed in Appendix I include projects involving “producing, processing for export at least 80% of products” and ”processing agricultural, forestry (except for wood) and aquaculture products from domestic material sources for export of at least 50% of products.” Similarly, the “encouraged projects” listed in Appendix I include “producing, processing for export at least 50% of products.” Also, the list of sectors in which licensing of investment is conditional in Appendix I includes “products in respect of which export ratio requirements must be satisfied: The export ratio requirements in respect of each product which is domestically produced and has met quality and quantity requirements shall be published from time to time by the Ministry of Planning and Investment.” If the government is simply requiring that production be exported, such an export performance requirement is not regulated by the TRIMs Agreement. However, if the export requirement is tied to reduction of imports, or if the rules for implementing the export requirement or the export ratio requirements published by the Ministry discriminate against imported products, this requirement may violate the TRIMs Agreement. Also, if projects receive subsidies because they involve exporting, then the subsidies may be prohibited by the separate rules in the Agreement on Subsidies and Countervailing Measures. The “encouraged” projects listed in Appendix I also include “producing, processing for export at least 30% of products and using many domestic raw materials and materials (with value of at least 30% of total production costs.” This provision calls for according preferential treatment to projects on the basis of local content. It therefore is inconsistent with the TRIMs Agreement and falls under Paragraph 1(a) of the Illustrative List. Appendix I, List IV Appendix I, Item IV.3 of Decree 24 provides:

“Processing projects must be coupled with investment in the generation of raw materials: • Milk processing and production; • Production of vegetable oil, cane sugar; • Wood processing.” [emphasis added]

We understand this to mean, for example, that investment in milk processing must be coupled with investment in the generation of required raw materials – e.g., farm milk; that investment in wood processing requires investment in the production of wood, etc. Investment in the generation of raw materials can be understood to mean investment in Vietnam with the consequent creation of domestic products to utilize. This requirement is stipulated in the investment license of an FIE processing one of the above products. Failure by that FIE to generate and utilize domestic raw materials may violate this requirement, and violation of a provision of an FIE’s investment license may cause the licensing authority to revoke its license, or to impose some of sanction. We believe that to require investment in Vietnam in order to generate domestic raw materials is the kind of distortion that TRIMs seeks to remove. An investment approval is an “advantage” of the sort described in paragraph 1 of the Illustrative List, and a government may not make such an advantage conditional on purchase or use of domestic products. C. Circular 22-2000-TT-BTM (of the Ministry of Trade on the Export and Import Activities of other Commercial Activities and other

Commercial Activities of Enterprises with Foreign Owned Capital Providing Guidelines for implementation of Decree 24-2000-ND-CP of the Government dated 31 July 2000 providing detailed regulations on the implementation of the Law on Foreign Investment in Vietnam with respect to export and import activities and other commercial activities of enterprises with foreign owned capital, dated 15 December 2000)

Circular 26-2001-TT-BTM

(of the Ministry of Trade on Amendments of and Additions to a Number of Points of Circular 22-2000-TT-BTM dated 15 December 2000 Providing Guidelines for Implementation of Decree 24-2000-ND-CP of the Government dated 31 July 2000 Providing Detailed Regulations on Implementation of the Law on Foreign Investment in Vietnam with Respect to Export and Import Activities and other Commercial Activities of Enterprises with Foreign Owned Capital, dated 4 December 2001)


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Circulars 22 and its amending Circular 26 provide regulations for Decree 24-ND-CP which in turn guides the implementation of the Law on Foreign Investment. Both of these govern import and export activities of foreign invested enterprises. Below, we focus our attention to the export prohibitions that have been imposed on foreign invested enterprises. Item II of the List of Circular 22 specifies two products which: (a) are controlled by export quotas; and (b) may be exported only by local enterprises. They are rice and textile products. The quotas on the export of rice appear to be based on both the narrow economic interests of state-related trading companies which receive the quotas and perhaps on national food security policy. Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs are permitted by GATT Article XI:2(a). However, a restriction that has been in place since 1998 cannot be said to be temporary at this point. Vietnam might also justify an export restriction on rice under GATT Article XX(i), if it is necessary to ensure adequate quantities of rice to a domestic processing industry when the domestic price of rice is being held below world prices. Vietnam might also justify such an export restriction under Article XX(j) if it is essential to the distribution or acquisition of products in local short supply. To the extent that quotas cannot be legally justified, they should be eliminated. The quotas on textiles present a different issue. The WTO Agreement on Textiles and Clothing (ATC) permits restrictions on trade in textiles, subject to a phase-out ending in 2005. The ATC requires that textile restrictions must be administered by the exporting country. Under the WTO Agreement, the ATC rules supersede the GATT and the ATC also provides an exception to the TRIMs Agreement. Allocation of export quotas to firms within Vietnam is a purely domestic matter, unless it infringes Vietnam’s commitments regarding trade in services. Item III on the List of Circular 22 does not impose quotas, but provides for six types of products which may be exported by local enterprises; they are (1) coffee, (2) animals raised for export, (3) forest plants used for breeding purposes, (4) precious stones and metals and natural pearls, (5) wood products, and (6) minerals. Item III of Circular 22 states generally that “if an FIE is issued a license to export the above products, its export must be carried out in accordance with relevant law”. It is not clear whether the “relevant law” involves restrictions on exportation. If it does, those restrictions may be inconsistent with GATT Article XI. D. 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)

Items 3.2 to 3.5 of the Regulations of Types of Motorcycles Assembly and Manufacture are noteworthy:

“3. Provides regulations on five types of assembly and manufacture [of motorcycles] as follows:

3.2 CKD2: The difference from the CKD1 kit is that all of the components: engine, gearbox,

generator are completely knocked down. In the event that the engine, gear-box, generator are in an assembled form, which form is allowed to be imported pursuant to the Investment License to manufacture and assemble motorcycles, then [the investors] must use components which are domestically manufactured and which components have a value of at least 5% of the total value of the motorcycle.

3.3 IKD1: The difference from the CKD2 kit is that some components which are listed in groups

3 and 610 [must] be produced domestically. Domestic components must have a value which is at least 10% (if engine, gearbox and power generator are completely knocked down) or 15% (if imported engine, gearbox and power generator are in assembled form) of the total value of the motorcycle.

10 Group 3: free wheel and wheel: rim, spoke, inner tube and tyre, brake system, motorcycle chain, completely knocked down motorcycle chain, etc. Group 6: tyre and auxiliary equipment: entire tyre and auxiliary equipment completely knocked down.


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3.4 IKD2: The difference from the CKD2 kit is that motorcycle frames and several components

listed in groups 4 or 511 must be produced domestically, and that engine, gear-box and power generator must be completely knocked down. The total value of domestic components and parts must be at least 30% of the total value of the motorcycle.

3.5 IKD3: The difference from the IKD2 kit is that the total value of domestic components and

parts must be 60% of the total value of the motorcycle; of that amount, the value of the components which relate to engine must be 30% of the value of the engine.”

Decision 648 clearly requires the use of domestic products by an enterprise in the motorcycle manufacturing industry. The regime offers tax reductions and other advantages to enterprises which comply. Failure to comply will deny an enterprise such tax advantage, and will also subject the enterprise to administrative penalties.12 The provisions of Decision 648 prima facie deny national treatment and are local content prohibitions that the TRIMs Agreement seeks to address. As can be seen from the discussion of the Indonesia Autos case at page 7 above, Decision 648 can still be a TRIM even if it is not targeted specifically at foreign investors. The facts that Decision 648 is designed to promote the development of an on-shore manufacturing capacity, and that it provides incentives linked to local content (and discriminating against imported products) mean that it is an investment measure, that it is trade-related, and that it is a prohibited TRIM. E. Joint Circular 176/1999/TTLT-BTC-BCN-TCHQ

(Guiding the Implementation of Tax Policy in the proportion of use of domestic products and parts in the field of mechanics-electric-electronics, dated 25 December 1998)

Joint Circular 120/2000/TTLT-BTC-BCN-TCHQ (Amending and Supplementing tax policy in accordance with the level of the use of domestic products with respect to products, parts in the field of mechanics-electric-electronics as provided in Joint Circular 176, dated 25 December 2000) Decision 1944/1998/QD/BTC (of the Ministry of Finance promulgating Regulations on preferential import tax rate in accordance with the level of the use of domestic products with respect to products, parts in the field of mechanics-electric-electronics, dated 25 December 1998) Decision 116/2001/QD/BTC (of the Ministry of Finance supplementing and amending the preferential tax rates applicable to motorcycles as stipulated by Decision 1944, dated 20 November 2001)

As the names of these regulations imply, Vietnam provides preferential tax rates to encourage the use of domestic products. We state some relevant provisions from these legal instruments below:

Chapter I of Joint Circular 120 provides conditions for an enterprise to apply for import tax benefits corresponding to the level of its use of domestic products. In addition to other conditions, in order to enjoy the preferential tax rate, an enterprise must register the level of its use of domestic products with the Ministry of Industry.

Chapter II of Joint Circular 120 provides the calculation of the level of the use of domestic products in order to

qualify for the preferential tax rate.

11 Group 4: Controlling device: handlebar, twist grip, etc. Group 5: electric system: electric system, motorcycle light, stop and tail light unit, signal light; all are completely knocked down. 12 “Administrative penalty” refers to non-judicial remedies which are normally confined to warnings and monetary fines. In some cases, sanctions could be imposed. Recently, some 23 motorcycle manufacturers and assemblers were banned from importing components as they failed to meet the local content requirement.


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Decisions 1944 and 116 provide specific preferential tax rates corresponding to the level of the enterprise’s use

of domestic products. For example, if the percentage of domestic products incorporated into a motorcycle manufactured by an entity is 0% to 20%, that entity will be entitled to a preferential import tax rate of 60%. If the percentage is 40% to 50%, the tax rate is 30%.

As can be seen from the discussion of the Indonesia Autos case at page 7 above, these measures can still be TRIMs even if they are not targeted specifically at foreign investors. The facts that these measures are designed to promote the development of an on-shore manufacturing capacity, and that they provides incentives linked to local content (and discriminating against imported products) mean that they are investment measures, that they are trade-related, and that they are prohibited TRIMs. In fact, key aspects of the National Car Program examined in the Indonesia Autos case closely resemble these measures. A preferential tax regime such as this one, which accords benefits conditional on use of domestic content, is prima facie inconsistent with item 1(a) of the Illustrative List. We believe that the regime formulated by the above regulations in Vietnam falls within the precedent of the Indonesian case, and is subject to elimination as a result of the application of the TRIMs Agreement. F. Circular 11/2001/TT-BTM

(of the Ministry of Trade guiding the Implementation of Decision 46/2001/QD-TTg of the Prime Minister dated 4 April 2001 on management of import and export of goods during 2001-2005, dated 18 April 2001)

Circular 11 provides a list of goods which are either prohibited from import and export, or which must be imported and exported under the Ministry of Trade’s license. Item 2.3 of Circular 11 provides that both domestic investors and FIEs/BCCs that wish to import supplies and raw materials specified in Appendix 2 of that Circular for either “production of export products” or for the performance of processing contracts with foreign traders, must send a written request to the Ministry of Trade for consideration and approval. Appendix 2 of Circular 11 comprises black and white and Portland cement; construction sheet glass; a number of categories of construction steel; refined vegetable oil in liquid form; refined and crude sugar; brand-new motorbikes and motor-tricycles in complete units and sets of components for assembly without registering the localization rates; engines and frames of assorted motorbikes and motor-tricycles, excluding those of a type accompanying the component sets with registered localization rates; brand-new means of passenger transport of nine seats or less. (including those of a type designed for the transportation of both passengers and goods, with the goods and passenger compartments in the same cabin) Appendix 2 of Circular 11 sets expiration dates by which the requirement for an import license from Ministry of Trade will be eliminated for all the above products, except Ministry of Trade import licenses required for refined and crude sugar. Importation of black and white and Portland cement will not require approval from the Ministry of Trade as of 1 January 2003. The same is true for the importation of brand-new motorbikes and motor-tricycles in complete units and sets of components for assembly without registering the localization rates and engines and frames of assorted motorbikes and motor-tricycles, excluding those of a type accompanying the component sets with registered localization rates; brand-new means of passenger transport of nine seats or less (including those of a type designed for the transportation of both passengers and goods, with the goods and passenger compartments in the same cabin). Importation of construction sheet glass, a number of categories of construction steel and refined vegetable oil in liquid form will be exempt from the Ministry of Trade’s approval as from 1 January 2002. Importation of refined sugar and crude sugar remains subject to the Ministry of Trade’s approval from 2001 through 2005. It is unclear whether these products will still be subject to import restrictions beyond 2005. The overall purpose of the Circular 11 restrictions relating to Appendix 2 items appears to be to control imports of these sensitive products. An enterprise may be permitted more access to these imports because it will process and export them (perhaps in a tolling operation) without letting them leak into the domestic market. An enterprise may also be permitted more access to these imports because it is exporting, in order to make it more competitive in the export market. In either case, the import regime restricts imports, and ties the permitted amount of an enterprise’s


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imports to the amount it exports, or to the fact that it is exporting at all. The restrictions are therefore a prohibited TRIM under Article 2(a) of the Illustrative List. G. Decree No. 45-ND-CP

(Setting Forth Regulations on Representative Offices and Branches in Vietnam of Foreign Merchants and Foreign Tourism Enterprises, dated 6 September 2000)

Decree No. 45 provides guidelines on the setting up of representative offices or branches in Vietnam for foreign investors. Item II of the List of Goods and Services attached to the legislation is as follows:

“List of Goods and Services in Which Branches of Foreign Merchants are Permitted to Do Business in Vietnam

II. Goods Imported A branch of a foreign merchant which has foreign currency obtained from [its] export of the goods prescribed in Section I (Goods purchased in Vietnam for Export) of the List may import the following goods for sale in the Vietnam market, provided that [it] has a permit from the Ministry of Trade and its volume does not exceed [its[ export volume.” [emphasis added]

This provision is clearly inconsistent with the TRIMs Agreement. Not only is the list of goods which can be exported specified and limited, but there is also a direct relationship between imports and exports based on “foreign currency revenues.” This trade balancing requirement, which applies to importation of goods by traders, clearly falls under Paragraph 2(b) of the Illustrative List. H. Joint Circular 20/2000/TTLT-BTM-TCDL

(of the Ministry of Trade and the General Department of Tourism Guiding Implementation of Decree 45-ND-CP Setting Forth Regulations on Representative Offices and Branches in Vietnam of Foreign Merchants and Foreign Tourism Enterprises, dated 20 October 2000)

Chapter IV.2 As a regulation implementing Decree 45, Joint Circular 20 has a similar provision. Item 2 of Chapter IV provides:

2. With respect to Branches: a) Branches operating in the field of trade The scope of activities as stated in the Branch License includes: The eligibility to import types of goods defined in Section II of the List of goods and services which foreign traders are allowed to do business in Vietnam, for sale on the Vietnamese market through agents or showrooms opened directly to introduce and sell such goods, when earning foreign currency(ies) from the export of goods defined in Section I of the above-mentioned List of goods and services, provided that they have permits issued by the MOT and provided the import value does not exceed the export value.

As with Decree 45, Joint Circular 20 reflects trade balancing requirements for investors and should be addressed accordingly. IV. Policy Implications and Conclusions

On December 10, 2001, the Bilateral Trade Agreement (BTA) between Vietnam and the U.S. came into force. Under Article IV.11 of the BTA, Vietnam agreed to eliminate all TRIMs falling under Paragraphs 2(a) and 2(b) of the Illustrative List upon entry into force of the BTA, and to eliminate all other TRIMs no later than 5 years after


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entry into force of the BTA (December 10, 2006), or the date required by Vietnam’s terms of accession to the WTO, whichever occurs first. The same Illustrative List is also attached to the BTA at Annex I. Article 5(2) of the TRIMs Agreement provides that the phase-in period for compliance for a developing country like Vietnam is within five years “of the date of entry into force of the Agreement Establishing the WTO.” This deadline has now passed. Thus, TRIMs that fall under the Illustrative List or otherwise violate Article III:4 or XI:1 of the GATT 1994 will have to be eliminated upon Vietnam’s accession to the WTO, unless Vietnam negotiates a phase-out for its measures or a delayed application of the TRIMs Agreement. The standard draft WTO accession protocol provides that “Except as otherwise provided for [in the accession Working Party Report], those obligations in the Multilateral Trade Agreements annexed to the WTO Agreement that are to be implemented over a period of time starting with the entry into force of that Agreement shall be implemented by [the acceding country] as if it had accepted that Agreement on the date of its entry into force.” It is therefore possible, in theory, for an acceding country to obtain a phase-in or even an exemption from WTO obligations, if the special terms are provided for in the accession protocol and/or the report of the working party that examines the acceding country’s request for accession. For instance, China obtained a one-year postponement of GATT national treatment obligations for product regulations applying to pharmaceuticals; this postponement is provided for in the working party report on China’s WTO accession. Accession to the WTO involves a complex negotiation with the many existing Members of the WTO. In this negotiation, the WTO Members will seek market access commitments by Vietnam for access to Vietnam’s market for goods and services. They will also seek assurances that Vietnam’s trade regime conforms to WTO rules. After the terms of accession are negotiated, they are memorialized in the acceding country’s protocol of accession, the report of the accession working party, and a WTO decision approving the accession protocol. The entire package must be approved by consensus. Consensus approval means that any WTO Member can block Vietnam’s accession by objecting to the accession package. It is likely that WTO Members will look at Vietnam in comparison to China. In the case of China, WTO Members were concerned that China was in the process of transition from a socialist economy, and so they sought and obtained special commitments from China that go beyond WTO rules. They also obtained China’s agreement to special safeguard and anti-dumping provisions that limit China’s access to other WTO Members’ markets for the near future. If China was able to postpone obligations in some sectors, China had to “pay” for those postponements by providing more market access in other sectors, or accepting limitations on market access for Chinese exports. As for TRIMs, China was unable to obtain any postponement of the full application of the TRIMs Agreement, and agreed to eliminate all WTO-inconsistent TRIMs as of the date of China’s WTO accession (December 10, 2001). Thus, the fact that China agreed to eliminate its TRIMs immediately may make existing WTO Members, including China, unwilling to accept any continued application of TRIMs by Vietnam after WTO accession. The WTO Doha Development Agenda will not likely alter this dynamic. As discussed earlier, Ministers adopted at Doha a special decision to address the implementation concerns of developing countries. This decision noted requests from developing country Members to extend the phase-out period for TRIMs (which expired for developing country Members in 2000 and least-developed country Members in 2002) and urged the WTO Goods Council to look favorably upon TRIMs extension or waiver requests from least-developed country Members. However, neither of these factors is likely to be viewed as particularly relevant to applicants for WTO accession. Instead, WTO Members will likely require such applicants to eliminate their TRIMs upon accession and will not likely grant an extension request unless the particular applicant is a least-developed country. Nevertheless, since the terms of WTO accession are a matter of negotiation, Vietnam could decide to try to negotiate a postponement of its TRIMs obligations. If other WTO Members are willing to accept some postponement, it is likely be a question of how much they will want in return and how much Vietnam is willing to “pay” them in other concessions. On the other hand, Vietnam’s trading partners may also be willing to “pay” Vietnam for a prompt elimination of TRIMs. Vietnam has already committed in the BTA to eliminate some TRIMs immediately and to eliminate all TRIMs by December 2006. Vietnam’s compliance with the immediate TRIMs elimination obligations, and other provisions of the BTA, will likely be examined in the WTO accession working party. If Vietnam wishes to accede to the WTO before the December 2006 BTA phase out deadline, Vietnam will possibly need to choose whether to agree to


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accelerate the phase out of all TRIMs, or to negotiate and “pay” for maintaining the December 2006 TRIMs elimination date promised in the BTA.

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