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Retail market: foreign investors may dodge laws
Vietnam will have to open its retail market as of January 1, 2009. Meanwhile, state management agencies still have not released necessary guiding documents yet.
According to Tran Quoc Khanh, Director of the Multilateral Trade Policies Department under the Ministry of Industry and Trade, the ENT principle (Economic Needs Tests) will be implemented in considering licencing the second retail points of foreign investors.
This means that Vietnam will have the right to consider licencing based on three criteria: the total numbers of retailers in localities, the stability of the market and the scale of the residential quarter. Moreover, the government will also consider local development programmes and local population density to decide whether or not to grant licences.
However, Khanh said that to date, there is still no legal document which gives clear instructions about ‘economic needs’ and explains the three above criteria. The term ‘retail point’ has also not been clearly defined.
The lack of legal documents and definitions of concepts is believed will create difficulties for enterprises when making business decisions, and for state management agencies themselves in management work.
Nguyen Ngoc Hoa, Chairman of the Saigon Co-op, is worried that foreign retailers may dodge the laws to develop their retail networks by establishing many companies which bear the same brand name.
This has been occurring in HCM City. P., a retailer, has set up three distribution centres in HCM City, Hanoi and Hai Phong with the same brand name. The three centres are three separate legal entities which have three different tax codes.
The problem lies in the fact that all three centres are in P’s name. Thus, the rights stipulated in ENT principle have been neutralised. If the problem cannot be resolved, Vietnam will be unable to control the opening of the second and third retail points of foreign retailers.
Analysts have also warned that more and more foreign retailers have been attempting to land in Vietnam by purchasing a part or all of domestic retail companies.
According to Tran Anh Tuan from The Pathfinder, the purchasing of businesses has been increasing rapidly. Most recently, Sojitz, a Japanese distributor, purchased 25% of stakes of Huong Thuy, a retailer in HCM City. Lotte Confectionary has also purchased 30% of stakes of Bibica worth $19mil.
The trade deals clearly show the big holes in the legal framework. It remains unclear if foreign distribution groups, when buying domestic companies, are considered new project investors, which would mean they would be able to purchase more than one business as second and additional retail points.
Another question is if foreign indirect investment businesses have to follow the regulations on the restriction of retail points per WTO commitments. Answers to the questions will decide the business plans of domestic retailers.
Khanh related that a provincial leader had asked him to introduce foreign retailers so that he could invite the retailers to open retail points in the locality. Khanh said that the leader wanted to create more jobs for local people. However, this has raised issues for thought, in particular the decentralisation of licencing foreign retailers.
If the decentralication mechanism is implemented, this may cause difficulties in controlling the number of retail points of foreign investors.
“The important thing now is that state management agencies need to promulgate the conditions on opening second retail points,” Khanh said.
Tien phong
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