VietNamNet Bridge – Foreign investors may be entitled to directly distribute products they are banned from under existing regulations.

FIEs will be able to establish distribution chains in more sectors.

The Ministry of Industry and Trade (MoIT) is drafting a circular on announcing a roadmap on implementing policies for the trading of goods and related activities by foreign invested enterprises (FIEs).

Under this circular scheduled to take effect in 2014, foreign firms will finally be able to distribute husked rice, sugarcane and sugar beet, tobacco and cigars, crude oil and processed oil, pharmaceutical drugs (excluding health food supplements), explosives, books, newspapers and magazines, precious stones, and image recorded objects.

Currently, these goods are prescribed in the list of goods not permitted to be distributed by foreign firms under Decision 10/2007/QD-BTM issued in May 2007 by the Ministry of Trade (currently the MoIT). The new circular will replace this decision.

Tran Trong Binh, senior attorney from French law firm Audier & Partners Vietnam LLC, told VIR that the existing ban on distribution of these goods was to protect local production.

“However, under World Trade Organization commitments, Vietnam will have to open its distribution door to FIEs on these goods. The new regulation will help improve competitiveness. Many foreign enterprises are eager to distribute these products in Vietnam,” Binh said.

“Under the new regulation, consumers should gain from cheaper prices as FIEs will directly sell them in Vietnam without using local distributors, which often increase product prices,” he explained.

For example, pharmaceutical products are currently distributed by local companies and this has pushed prices up, while 90 per cent of medicines at central-level hospitals are foreign manufactured, with rates of international medicine usage at provincial and district level hospitals standing at 65 and 50 per cent respectively, according to statistics by a US-backed investment consultancy firm in Hanoi.

“I believe this new regulation will help curb medicine price hikes,” Binh said.

However, locally-owned Lynh Farma Company general director Duong Kim Khanh told VIR the new regulation would mean big woes for thousands of local pharmaceutical companies.

“Local pharmaceutical firms have partly been relying on the government’s ban on FIEs from directly distributing pharmaceutical products to do business. If the new regulation comes true, I don’t know what will happen to about 2,000 local pharmaceutical firms in Ho Chi Minh City,” Khanh said.

“The new regulation will benefit foreign pharmaceutical firms as they will be able to directly sell products in the market, without needing local distributors.” Nguyen Do Anh Tuan, vice head of Vietnam’s Institute of Policy and Strategy for Agricultural and Rural Development, told VIR that even if FIEs were allowed to distribute rice in Vietnam, they “won’t be able to earn big profits because the domestic distribution system has already been established by local enterprises and small-scale merchants.”

“FIEs can only distribute some types of foreign imported rice, but these types of rice are consumed in a very small volume in Vietnam,” Tuan said. “However, local sugar enterprises will be affected, because locally-sourced sugar prices are higher than foreign imports. FIEs will bring more foreign sugar into Vietnam. As a result, consumers will benefit.”

Commenting on permission of FIEs to distribute petrol in Vietnam, Petrolimex chairman Bui Ngoc Bao said trading petrol was subject to specific regulations, and he remained confident that FIEs would fail to meet specific conditions on the trading this product.

Source: VIR