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Under WTO, after January 11, 2007, foreign investors can begin distribution activities if they set up joint ventures with Vietnamese partners (foreign capital contribution ratio must not be higher than 49 percent).
Since January 1, 2008, theyhave been able to set up joint ventures in which the capital contribution ratio is up to 99.99 percent. And since January 1, 2009, they can set up 100 percent foreign owned retail chains.
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Under WTO, after January 11, 2007, foreign investors can begin distribution activities if they set up joint ventures with Vietnamese partners (foreign capital contribution ratio must not be higher than 49 percent). |
As such, within two years, Vietnam opened its retail market, almost half of the time it is needed to open other markets such as delivery, stock and transport services.
Vietnam also set up barriers to protect its retailers. It prohibits foreign investors distribute nine products and imposes ENT (economic needs test).
Nevertheless, the restrictions are not applied to foreign retailers which were established in Vietnam prior to January 11, 2017.
Nguyen Phi Van, chair of Retail & Franchise Asia, said the problem is that the State did not prepare a strategy to prepare Vietnamese retailers well for the market opening.
Pham Chi Lan, a renowned economist, said ENT cannot protect Vietnamese retailers as expected.
Loopholes in commitments
Lan said she can see many loopholes in Vietnam’s commitments on market opening, which have become factors which put Vietnamese retailers at a disadvantage in the competition in the market.
First, Vietnam set up ENT as a tool to prevent the rapid expansion of foreign supermarket chains, but ‘forgot’ about convenience stores – the 50-100 square meter small shops.
As a result, investors have opened 200-300 such shops throughout the country, which compete directly with petty merchants and groceries.
Second, the WTO commitments and the restriction by ENT did not cover the foreign retailers which were set up prior to January 11, 2007.
Third, while Vietnam prohibits foreign investors to distribute nine product items, it does not prohibit the foreign distribution of farm produce. Meanwhile, other countries in the world always try to protect their farm produce and the products made by domestic producers with the requirements on localization ratios.
What to do?
It is now too late to try to regain the retail market with administrative orders and the restrictions on foreign retailers. What Vietnam needs to do is to create an environment for fair competition among all economic sectors and not to give preferential treatment to foreign invested enterprises and state enterprises.
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