2.1 Legislation on trade and investment

The major laws pertaining to trade and investment in Vietnam include the Law on Foreign Investment, the Law on Corporate Income Tax (Amended), the Law on Inland Waterway Transportation, the Law on Competition, the Law on Accounting, the Law on Statistics, the Law on Aquatic Products, the Ordinance Against Dumping of Imported Goods into Vietnam, the Ordinance on Measures Against Subsidized Goods Imported into Vietnam, the Ordinance on Food Safety and Hygiene, and the Ordinance on Protection of Domestically Developed New Plant Varieties.

In June 2005, the Vietnamese National Assembly promulgated the Commercial Law, the Amendment of Law on Customs, and the Law on Export and Import Duties, all of which took effect as of 1 January 2006.

To facilitate Vietnam's accession into the WTO and to align its legal framework of trade and investment to WTO's multilateral trade rules, the Vietnamese National Assembly deliberated and adopted the Law on Intellectual Property, the Law on Amendment of Law on Value Added Tax and Law on Special Sales, the Law on Investment, the Law on Enterprises, the Law on Tendering, and the Law on Electronic Transactions, all of which shall go into force as from 1 July 2006.

2.2 Trade administration

The foreign trade policy of the Vietnamese government aims at encouraging exports and discouraging imports. Goods imported into Vietnam are subject to import duties, value added tax, special consumption tax and customs service charges.

2.2.1 Tariff system

Currently, Vietnam administers four different categories of tariff rates: common tariff rate, the most-favored- nation rate of duty, ASEAN-specific preferential tariff rate, and the Early Harvest Program (EHP) tariff rate under the framework of China-ASEAN Free Trade Area. Common tariff rate, which is 70 percent higher than the most-favored-nation rate of duty, applies to those countries which have not established normal trade relationships with Vietnam. Products of Chinese origin enjoy the most-favored-nation rate of duty, except that EHP tariff rate applies to products listed under chapters 1 to 8 of Vietnam's tariff nomenclature.

The current Vietnamese tariff schedule lists 10,721 tariff lines of 8-digital harmonized commodity description. Divided into 16 classes, Vietnam's tariff averages 18.3 percent. The simple average tariff rate for agricultural products and for non-agricultural products stands at approximately 29.4 percent and 17.0 percent respectively.

2.2.2 Import and export administration

The Vietnamese government mainly uses import ban, tariff quota, import quantitative restriction, import licensing, and import and export trading right licensing in the administration of imports, and adopts export ban, export duties, and quantitative restrictions in the administration of exports.

According to the Decision on Management of Import and Export of Goods in 2001-2005 promulgated by the Vietnamese Ministry of Trade, Vietnam adopts a pigeonhole system in the administration of imports and exports, including banned imports and exports, imports and exports subject to licensing by the Ministry of Trade, and imports and exports subject to the administration of professional associations. On 7 December 2005, the Vietnamese government decided to extend the validity of the above-mentioned Decision to 30 April 2006.

Specifically, goods prohibited from import include weapons, ammunitions, explosive materials, and military technical equipment; drugs of addiction; toxic chemicals; anesthetics; certain types of children's toys; pornographic or reactionary cultural items; firecrackers; cigarettes, cigars and other forms of tobacco finished products; second-hand consumer goods; right-hand-drive automobiles; second-hand materials and means of transport; second-hand internal-combustion engines under 30 horsepower; products containing asbestos of the group of amphibole; specialist coding machines and cipher software programs used in the sector of protection of State secrets.

Products prohibited from export include weapons, ammunitions, explosive materials, and military technical equipment; drugs of addiction; toxic chemicals; antiques; round timber and sawn timber from domestic natural forest; firewood and charcoal from timber or firewood, sourced from wood from domestic natural forest; wild animals, rare natural fauna and flora; coding machines and cipher software programs used in the sector of protection of State secrets.

To contain the spread of avian influenza (bird flu) from foreign countries into Vietnam, the Ministry of Agriculture and Rural Development decided on 28 October 2004 to suspend the import of all types of fowls and pet birds from 1 November 2005 to 31 March 2006.

2.3 Investment administration

Pursuant to the amended Implementation Rules for the Law on Foreign Investment in Vietnam, the Vietnamese government has further liberalized foreign investment in the country, replacing the investment licensing regime with an investment registration regime. Apart from according income tax reduction or exemption policy to foreign invested enterprises, the Implementation Rules provide preferential arrangements in terms of investment promotion policy and investment operational taxation policy. Sectors that are restricted or prohibited from foreign investment are as follows:

2.3.1 Restricted investment sectors

(1) Sectors where foreign investment is only allowed by means of contractual cooperative operation: telecommunications services; domestic and international post delivery; journalism and publishing; radio and television networks.
(2) Sectors where foreign investment is only allowed by means of contractual cooperative operation or joint venture: petroleum, mining and processing rare minerals; air freight, railroad transport and ocean carriage; bus transport; construction of seaports and airports (excluding investment projects such as BOT, BTO and BT); ocean shipping and air flight services; culture; forestation; production of industrial explosives; tourism; consulting services (excluding technical consulting services).
(3) Sectors where foreign investment in processing and development of raw materials is tied in: production and processing of dairy; production of plant oils and cane sugar; processing of timber (excluding investment projects involving imported timber).
(4) Import and export, domestic distribution, high sea fishing, and development investment projects are subject to the approval of the Prime Minister.

2.3.2 Prohibited investment sectors

(1) Projects threatening national security, national defense and public interests.
(2) Projects damaging Vietnamese historic relics, culture, traditions and customs.
(3) Projects damaging ecological environment.
(4) Projects for processing imported toxic wastes.
(5) Projects for producing toxic chemicals or using toxic substances banned by
international conventions.

2.3.3 Foreign exchange control regime

In 2005, Vietnam's Ministry of Finance issued a circular on the remittance of investment returns by foreign investors in Vietnam. It is stipulated that foreign enterprises and individuals in Vietnam can remit their profits abroad once a year at the end of each fiscal year and after the presentation of the final annual taxation statement. If the foreign enterprise has already paid its corporate income tax, it may remit its profits abroad every 3 or 6 months. Enterprises that have ceased to operate may remit all their profits abroad. The foreign party to a joint venture or cooperative enterprise may remit its profits abroad every 3 or 6 months, if it has already reported the annual corporate income and paid the corporate income tax on a quarterly basis.

2.4 Competent authorities

The major government bodies responsible for the administration of trade and investment in Vietnam include the Ministry of Trade, the Ministry of Finance, the Ministry of Construction, the Ministry of Industry, the Ministry of Natural Resources and Environment, the Ministry of Planning and Investment, the Ministry of Agriculture and Rural Development, the Ministry of Transportation and Communications, the Ministry of Culture and Information, the Ministry of Post and Telecommunications, the Ministry of Science and Technology, and the State Bank of Vietnam.

In addition to the administration of foreign trade, the Ministry of Trade is also responsible for supervising domestic transportation of goods, activities in import and export, electronic business, domestic market, fair competition, anti-monopoly and anti-dumping, representing the owner of state assets in state-owned enterprises, and determining the eligibility of enterprises for preferential treatment such as tax credit. Since 2005, the Vietnamese government has relegated some of its administrative functions to sub- national trade authorities. For example, the Ministry of Trade has delegated its administration of Chinese goods in transit of Vietnam to the Import and Export Department of Hanoi, Hong Gai, and Ho Chi Minh City.

The Ministry of Planning and Investment is the central authorities in attracting foreign investment and supervising Vietnamese investment abroad, and its Foreign Investment Bureau is specifically entrusted with the task along this line.