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Vietnam: Statistical Appendix and Background Notes

Author(s):
International Monetary Fund
Published Date:
September 2000
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I. Recent Developments in the External Trade System

During the 1990s, Vietnam’s trade system evolved from comprehensive control of the balance of payments towards protection for import substituting industries. In the wake of the Asian crisis, trade restrictions were tightened in 1998 and early 1999 to protect the balance of payments and preferred domestic sectors. Some liberalizing steps have been taken since late 1999 as concerns within the government grew over the link between high protection and the poor competitiveness of domestic industries. Many of these industries, often financed by domestic banks or through external borrowing, are now characterized by high production costs, excess capacity, and debt service difficulties. Moreover, as the liberalization under the ASEAN Free Trade Area (AFTA) is entering a more intensive phase, the potential impact of regional integration by 2006 on domestic industries is now becoming apparent. Thus, this note also includes a summary of Vietnam’s commitments under AFTA.

Foreign trading rights

Decree 57 issued in July 1998 effectively extended the right to export unrestricted goods to all domestic enterprises. This permitted many more producers to deal directly with importing firms in Vietnam’s export markets, and, as a result, to develop greater knowledge of market requirements and eliminate some inefficient intermediaries. Together with market opening agreements with the European Union and Japan, these reforms contributed to the substantial growth in manufactured exports in 1999. As a further step, the right for domestic enterprises to import any goods not subject to restrictions was included in the Enterprise Law (passed in June 1999), but the implementing regulations have not yet been issued.

Trading activities of foreign-invested enterprises are governed by the Foreign Investment Law (FIL). The authorities have stated that the right of foreign-invested enterprises to export is the same as for domestic enterprises. Regarding imports, foreign-invested enterprises can import inputs for production, but because they are not approved for trading activities (if they are set up for manufacturing), they cannot import other products in their line of business that may be needed to fill out their product range. Amendments passed in May 2000 to the Foreign Investment Law did not change this situation.

Quantitative restrictions

Effective April 1, 2000, quantitative restrictions (QRs) were removed from 8 of the 19 items subject to QRs. The items liberalized were liquid soda, raw material for plastics, fertilizer, ceramic and glass consumer goods, bicycles, ceramic sanitary wares, consumer electric fans, and plastic packaging. Tariffs on these items were increased to 100 percent for some glass consumer products and 80 percent for bicycles, but the rate on fertilizer was only raised to 5 percent.

More generally, there appears to be a much greater easing of the import regime than implied by the removal of QRs. In the first half of 2000, imports rose by an estimated 34 percent (over the same period in 1999), after three years of no increase in the value of total imports (despite large increases in oil prices, high export growth in 1999, and real GDP growth of 3-5 percent during these three years).

The goods remaining subject to QRs are ceramic and granite tiles, vegetable oil, window glass, paper (newsprint, writing, and packaging), construction steel, cement and clinker, motor cars for 16 or fewer passengers, motorcycles and kits, sugar, alcoholic beverages, and petroleum products. The last two items were removed from the list of items subject to import licensing (Decision 242/1999/QD-TTg), but are under separate controlling instruments that still restrict the total value of permitted imports.

Tariffs

In early 1999, a new and substantially revised the tariff schedule was introduced. It reduced the maximum standard tariff rate to 50 percent; about 1 percent of line items had rates above this level, mainly alcoholic beverages and motor vehicles. This new schedule was also more in line with the harmonized standard nomenclature, increasing the total number of tariff items to about 6,000.

In early 2000, the tariff schedule was again revised, partly to reflect the tariff increases needed for the newly liberalized imports. These changes contributed to the increase in the number of tariff rates to 19 from 12 in 1999. Notwithstanding the increases in tariff rates on the liberalized items, the average tariff rate from the schedule remained at 15.5 percent, since the number of items with rates of 20 percent or less increased slightly.

Bilateral trade agreements

The bilateral trade agreement under discussion with the United States, would give Vietnam normal trade access to the U.S. market (subject to annual approval) in exchange for Vietnam phasing in steps to liberalize nontariff barriers, customs procedures, investment measures, and entry requirements for some services, and for reducing some tariffs. The framework was agreed in principle in June 1999, but formal approval by Vietnam was not given. In early 2000, the Vietnamese authorities requested further discussions on some of the items in the agreement and discussions resumed in early July 2000.

Vietnam: Summary of Normal Tariff Schedule, 1999-2000 1/
Rates in 1999
BandsNumber of lines:
numberpercent
01,96532.4
11482.4
33746.2
561610.2
104487.4
15581.0
205318.8
3066310.9
4061710.2
505749.5
60340.6
100280.5
Total6,056100
Number of bands12
Average:15.5
standard deviation:17.7
Source: Tariff schedule from the Ministry of Finance.

The normal tariff rates are termed preferential in the official schedule There are also nonpreferential tariff rates about 50 percent higher than these rates, which are applied to imports from countries without a trade agreement (or not in the process of negotiating one).

Rates in 2000
BandsNumber of lines:
numberpercent
02,02932.0
11732.7
33816.0
567910.7
770.1
105198.2
1220.0
15791.2
1810.0
205168.1
2530.0
3063310.0
4067810.7
4520.0
505699.0
5510.0
60120.2
8090.1
100480.8
Total6,341100
Number of bands19
Average:15.4
Standard deviation:18.1
Source: Tariff schedule from the Ministry of Finance.

The normal tariff rates are termed preferential in the official schedule There are also nonpreferential tariff rates about 50 percent higher than these rates, which are applied to imports from countries without a trade agreement (or not in the process of negotiating one).

Source: Tariff schedule from the Ministry of Finance.

The normal tariff rates are termed preferential in the official schedule There are also nonpreferential tariff rates about 50 percent higher than these rates, which are applied to imports from countries without a trade agreement (or not in the process of negotiating one).

APPENDIX
APPENDIX: ASEAN Free Trade Area (AFTA)

At end 1995 Vietnam signed the AFTA agreement with the core commitment of reducing tariffs on almost all imports from AFTA members to 0-5 percent by the start of 2006. For the first five years Vietnam’s AFTA commitments were met by applying low tariffs to goods that did not compete with domestic production. Beginning in 2000, however, this liberalization is beginning to exert pressure on domestic enterprises to improve competitiveness.1 Moreover, since AFTA members are in many cases low-cost producers, this process is likely to increase Vietnam’s potential for manufactured exports by significantly reducing the costs of production and providing relatively strong international competition. Under the rules for AFTA, Vietnam is to submit a roadmap for meeting its commitments in 2001-06 by end 2000.

Specific commitments

The structure of Vietnam’s agreement under AFTA is similar to the other members and is based on classifying the approximately 6,300 items on Vietnam’s tariff code into four lists:

1. Inclusion List (IL) This list covers items on which tariffs are to be reduced to the common effective preferential tariff (CEPT) of 0-5 percent by 2006. It effectively comprises all items not on the exclusion lists below and will comprise about 6,030 items by 2003. The IL currently comprises 4,233 items, of which tariffs on 1,270 items are over 5 percent and 451 items are over 20 percent, with tariffs on a few items as high as 50 percent. Although a linear tariff reduction over the phase-in period is recommended, the annual tariff rate reduction must be at least 5 percent. A comparison of the 1999 and 2000 CEPT schedules suggests that the most common reduction was 5 percentage points. Under the implementing arrangements, by 2003 very few IL items would have CEPT rates over 20 percent.

2. Temporary Exclusion List (TEL) This list covers items to be phased into the IL by 2003. In early 2000, in accordance with the existing plan, 640 items were moved from the TEL to the IL, to bring the IL up to 4,233 items. After the 2000 installment, the TEL now comprises about 1,800 items, which will be transferred to the IL in three roughly equal annual installments, so that by 2003 the TEL will be depleted.

3. General Exclusion List (GEL) This list covers items not subject to liberalization for cultural, security, health, and environmental reasons. This list comprises 202 items, including alcoholic beverages, automobiles, motorcycles and kits, and petroleum products, which are currently subject to quantitative restrictions. However, the scope of the GEL is being reviewed, and a few items, including radios and larger motorcycles are likely to be removed.

4. Sensitive Exclusion List (SEL): In accordance with the Protocol on Sensitive and Highly Sensitive Products signed on September 30, 1999, Vietnam has 51 items, mainly unprocessed agricultural products and including sugar, on the sensitive list and no products on the highly sensitive list. Items on the SEL are to have tariffs reduced to 0-5 percent by 2013, and by at least 10 percent each year starting no later than 2006, but sugar is specifically to reach the 0-5 percent target by 2010. All quantitative restrictions and other nontariff barriers are to be removed from these items by 2013.

Vietnam: CEPT Tariff Rates, 1999–2000
Rates in 1999
BandsNumber of lines:
numberpercent
01,52342.7
1822.3
33329.3
410.0
556115.7
7200.6
102617.3
1547013.2
20250.7
25240.7
25130.3
30330.9
3530.1
402316.5
4510.0
Total3,567100
Average:7.1
Standard deviation:10.6
Source: Tariff schedule from the Ministry of Finance.
Rates in 2000
BandsNumber of lines:
numberpercent
01,69039.9
11553.7
33357.9
400.0
578318.5
7100.2
1057313.5
151293.0
201072.5
30721.7
352806.6
40821.9
4510.0
5030.1
Total4,233100
Average:7.3
Standard deviation:10.7
Source: Tariff schedule from the Ministry of Finance.
Source: Tariff schedule from the Ministry of Finance.

Nontariff barriers

Under the AFTA agreement, QRs for the IL items should be removed at the latest by the time the import: (i) satisfies the AFTA content requirement of at least 40 percent; (ii) is on the IL of both source and destination country; and (iii) has a CEPT rate of 20 percent or less. In practice, Vietnam has removed QRs on AFTA imports sooner, and on a multilateral basis, typically when the item was moved from the TEL to the IL. Other nontariff barriers are to be removed from the goods within five years from when these three conditions are met.

1

AFTA members accounted for 19 percent of Vietnam’s exports and 28 percent of imports in 1999.

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