NEW REGULATIONS ON TOBACCO BUSINESS

Reports from the World Health Organization, Vietnam is specified as a country with high rate of smokers, among others all over the world. In the face of harms of tobacco and smoking to the human health, on 18 June 2012, the National Assembly of Vietnam passed Law No. 09/2012/QH13 on Tobacco harm prevention (“Law”). Follow this issuance, the Government has  successively issued two new decrees guiding the implementation of the Law, including Decree No. 67/2013/ND-CP dated 27 June 2013 (“Decree 67”).

The system of permit

According to WTO commitment of Vietnam, tobacco and cigars are excluded from scope of the commitment. Therefore, all entrepreneurs who wish to operate in this field shall stringently comply with the domestic law of Vietnam. In our view, the Decree 67 marks a legitimate and flexible step in the war against harms of tobacco by setting forth strict conditions for planting, purchasing, manufacturing tobacco and other equipment, ingredients, etc. essential for production of tobacco, instead of rigidly prohibiting people from consuming, selling and buying this product. In addition, in order to perform activities relevant to plant, trade in, manufacture, import or export tobacco, entrepreneurs are required to apply for necessary permits from the State bodies. They are:

⇒ Certificate of eligibility to invest in tobacco cultivation;

⇒ License to trade in tobacco ingredients;

⇒ License to process tobacco ingredients;

⇒ License to manufacture tobacco;

⇒ License to distribute tobacco;

⇒ License for tobacco wholesaling;

⇒ License for tobacco retailing.

The authority for issuing those licenses is contributed to three separate State bodies: (1) the Ministry of Industry and Trade; (2) the Department of Industry and Trade in provinces and (3) Office of Industry and Trade (or Economic Office) in districts.

 Foreign investment in tobacco manufacture

Before mentioning on the foreign investment in this sector, it is essential to comprehensively understand limits on issuing License to manufacture tobacco provided in Article 17.1 of the Decree 67. Pursuant to this Article, only enterprises:

may be issued the said License. In other words, the Decree 67 restricts both domestic and foreign entrepreneur from directly establishing new enterprises which may operate in the field of tobacco manufacturing. For this reason, to invest in this sector, oversea investors must comply with the following principal conditions:

⇒ Cooperate or perform merge and acquisition with an already existed tobacco manufacturing enterprise mentioned in Article 17.1;

⇒ This enterprise must as well be issued Certificate of eligibility to invest in tobacco cultivation;

⇒ The state capital shall make up a predominant part in the charter capital of the enterprise (for join-venture);

⇒ Purposes of the project are to upgrade technologies and equipment, improve the quality and value of products;

⇒ The cooperation or merge and acquisition must be agreed by the Prime Minister at the request of the Ministry of Industry and Trade;

⇒ Other conditions under Article 17 and 25 of this Decree.

While fastening up provisions on the sector of manufacturing, this Decree does not raise any similar restrictions to foreign investors in other sectors, comprising of tobacco cultivation, trading in tobacco ingredients, processing tobacco ingredients and trading in tobacco. Together with other articles, it shows the purposes of the Government to accelerate the quality, as well as build up and propagate the brand name, of tobacco “made in Vietnam” while still controlling strictly production and contribution process of this sensitive product in the domestic market. Particularly, the technology, manufacturing line and management experience of foreign entrepreneurs will be promising factors to upgrade, reform the weak tobacco industry of Vietnam, which, in turn, may bring several benefits to manufacturers, contributors, farmers and the economy.

Commercial import and export of tobacco

With regard to tobacco import, in order to perform this activity, an entrepreneur is required to obtain the tobacco manufacturing license and appointed by the State authority. Since, the most important principle to be complied with is “to perform state commerce in tobacco import”, which, pursuant to Article 3.6 of the Decree 67, is defined as “the mechanism for importing tobacco by which the State appoints major importers of tobacco”. In addition, the Ministry of Industry and Commerce will be responsible for the nomination of entrepreneurs to import tobacco. Additionally, the output of tobacco import for domestic usage will be clearly stipulated in  the License to manufacture tobacco and will be reviewed after a period of five years by the Ministry of Industry and Commerce, according to performance of the enterprise in 03 years and the production plan for the next 05 years.

With regard to tobacco export, the Decree 67 merely requires entrepreneurs to have one of the following licenses: (1) License to manufacture tobacco; (2) License to distribute tobacco or (3) License for tobacco wholesaling. Besides, the exported tobacco shall have legal origins according to this Decree and other relevant law.

The Decree shall take effect from the date of 16 August 2013.

FOREIGN EXCHANGE CONTROL WITH REGARD TO THE ISSUANCE OF INTERNATIONAL BONDS

In the period of world crisis, capital is an essential factor which affects significantly to the existence of enterprises. Thus, issuing bond to the international market would be considered as an legitimate choice for enterprises to collect more and more capital to maintain and develop their production and other activities. In order to be well prepared for this discretion, on 16 July 2013, the State Bank of Vietnam (“SBV”) has issued Circular No. 17/2013/TT-NHNN guiding the foreign exchange control with regard to the issuance of international bonds by enterprises that are not guaranteed by the Gorvernment (“Circular 17”). This Circular will replace the Circular No. 19-2011/TT-NHNN providing on the same matter (“Circular 19”).

What is an enterprise that are not guaranteed by the Gorvernment?

Although determined as the principal subject of application of the Circular 17 and 19, the notion of “enterprises that are not guaranteed by the Government” (“Enterprises”) is not specifically defined or listed out in both the old and new. Consequently, we need to refer to its contrary concept in the Law on Public debt management. Pursuant to Article 32 of this Law, beneficiaries of government guarantee comprise of:

⇒ Enterprises implementing programs and projects under Article 33 of this Law; or

⇒ Policy banks of the State and financial and credit institutions implementing the State's target credit programs.

The projects and programs mentioned above are the ones that are decided by the National Assembly or the Prime Minister or funded with commercial loans associated with ODA fund; projects that applies high technologies and so on.

For those reasons, the Enterprise is not policy banks, financial and credit institutions implementing the State’s target credit programs or enterprises implementing programs and projects under Article 33 of Law on public debt management. Based on provisions of the Circular 17, the Enterprise may be classified into three types with different procedures to be applied: State commercial banks; State enterprises (not State commercial banks) and other enterprises.

Issuance of international bonds of private enterprises under the Cicular 17

Pursuant to Article 5.3, they are required to implement the process for issuance limit confirmation, appraisal of issuance plan, register for issuance of international bonds. This process comprises of three steps as follows:

⇒ Step 1: Establish and approve plan on international bond issuance;

⇒ Step 2: Submit dossier requesting for issuance limit confirmation to Department of foreign exchange management of the SBV;

⇒ Step 3: Submit dossier of registration for issuance to Department of foreign exchange management of the SBV.

Chapter II, III, IV and V of the Circular provides on the documents necessary to accomplish the said process. Besides, pursuant to Article 11 and 14, it may take approximately twelve (12) days for enterprises to complete step 2 and step 3 and get all permissions of State authorities. If the dossiers do not satisfy the relevant provisions, the SBV shall notify the applicant and clearly explain the reasons for its refusal in writing.

In case of being allowed to issue bond, enterprises are required to comply with the rights and obligations provided in Article 3 of the Circular 17. Among them are some noticeable rights and obligations as follows:

Firstly, they have to open and use account of foreign borrowing and repayment at one (01) authorized credit institution or foreign bank’s branch, which is authorized to conduct business and provision of foreign exchange services pursuant to the laws of Vietnam (“Authorized Bank”), to perform the international bonds issuance. This account will be used for receiving proceeds from the issuance, transferring the money of payment for bond issuance fee and other relevant activities. Simultaneously, it is as well an efficient measure for the SBV to manage the bond issuance activities of enterprises.

Secondly, enterprises shall only be permitted to use the fund received from the issuance of international bonds for purposes as approved in the issuance plan after the State Bank has confirmed the registration.

Thirdly, enterprises shall be entitled to buy foreign currency at the authorized credit institution or foreign bank’s branch for payment of the principal, interest debt of the bonds and charges relating to the issuance on the basis of presenting vouchers, documents proving the demand for payment in accordance with provisions of the authorized credit institution in conformity with current provisions of laws on foreign exchange control.

The Circular 17 shall take effect from the date of 01 September 2013.

TOBACCO BUSINESS      TOBACCO BUSINESS     TOBACCO BUSINESS