December 07, 2013
Foreign-invested enterprises (FIEs) are slated to distribute the commodities they haven’t been allowed to in the domestic market, such as rice and fuels, from 2014 onwards. Is it really an opportunity for FIEs and consumers?
FIEs at every business forum have always complained about the barriers in commerce, especially access to the local goods distribution system. In compliance with commitments to the World Trade Organization (WTO), Vietnam on January 1, 2009 fully opened its door so that foreign companies could establish distribution companies in the domestic market. However, faced with a barrier called “economic needs evaluation” set up by the Ministry of Industry and Trade in which the ministry and local authorities are to consider whether a certain location really needs more retail outlets or not, foreign distributors have had to evade the rule in various forms. Recently, this regulation has been officially removed. Despite the efforts expended by the Ministry of Industry and Trade to enforce such a rule, FIEs have been able to expand their retail networks in one way or another.
Also in line with WTO commitments, the Ministry of Industry and Trade released Decision 10/2007, banning FIEs from directly distributing selected commodities such as rice, sugar, drugs, tobacco, crude oil, publications and precious metals. However, this list contains various unreasonable points, especially when rice and drug distribution are taken into account. In fact, since early 2011, FIEs have been involved in rice export following rice distribution under a Government document. For this reason, the decision has to be revised.
A draft circular in place of this decision with an aim of reinforcing the right for goods distribution of FIEs is expected to be issued early next year, with FIEs to be permitted to distribute a number of items they used to be banned from.
Will this move prompt nevertheless the FIEs specializing in trading rice, fuels and the other tiems mentioned above to flock to Vietnam and overwhelm local distributors just as what has happened in the retail sector?
This will likely be the case, theoretically. Still, even when the door is opened to them, FIEs have to cope with a series of other regulations to boost their local market shares. Even in the retail sector, FIEs have not been subject to a “one stop shop” mechanism for investment certificate granting and there has been no transparent process for making changes to their business operations. However, those procedures are minimal in comparison with a series of other barriers a foreign company must carefully consider before entering the market.
For example, the new draft circular allows FIEs to distribute pharmaceuticals (excluding non-pharmaceutical nutritious products). However, the list of products they are able to distribute does not include therapeutic vaccines and medical equipment, which are the strength of foreign manufacturers with their multinational distribution networks. In addition, FIEs may not distribute veterinary drugs, biological products and materials for making animal feeds. Only when the list of items allowed to be distributed and those not allowed are clearly separated will distributors e able to be wholly on their own.
In fuel trading, many large wholesalers do not consider FIEs as a real threat at the moment. There are currently 17 fuel wholesalers in the local market (with six of them getting a license in the first nine months of this year). All are pending the amendments to Decree 84 to be more active in fuel import, export and distribution.
The reason why fuel traders remain calm in response to the decision on permitting FIEs to engage in fuel distribution is that although Decree 84 us amended with loosened regulations, fuel trading will remain “driven by the market and regulated by the State”. If a 10% difference between the base price and the retail price happens, businesses must not revise prices without permission from the State.
In other words, albeit a license for a fuel wholesaler in the domestic market, FIEs will still face a multitude of problems, such as the fuel trading mechanism not entirely driven by the market and the requirement for investment in storage facilities, sales agents and for 30-day reserve. This is difficult problem about profit FIEs must solve since local enterprises have gained enormous advantages in trading this commodity with financial aid from the State capital.
(By Ngoc Lan)