RESTRICTEDWORLD TRADE
ORGANIZATIONWT/ACC/VNM/19
5 December 2001
(01-6203)
Working Party on the
Accession of Viet NamOriginal:  English
ACCESSION OF VIET NAM
Notification under Article 5.1 of the Agreement on TRIMs
The Government of the Socialist Republic of Viet Nam has submitted the following
Notification under Article 5.1 of the Agreement on Trade-Related Investment Measures (TRIMs),
with the request that it be circulated to the members of the Working Party.
______________
Notification under Article 5.1 of the
Agreement on Trade-Related Investment Measures (TRIMs)
Viet Nam
(up to 6/2001)
I. DESCRIPTION OF THE MEASURE AND OF ITS MAIN FEATURES
- Investment projects in manufacturing and assembling of automobile, motorcycle, mechanical-
electric-electronic products must comply to the localisation program.
- Incentives in the form of import duty and/or corporate income tax will be applied to
investment projects implementing localisation program or using effectively local raw
materials and natural resources.
(Please see item 6 for more details)
1. The category in the illustrative list under which the measures falls
The above-mentioned measures fall into item 1(a), Illustrative List of the TRIMs Agreement.
2. Is TRIMs applied by the Government under discretionary authority of mandatory
legislation?
 The localisation program, the domestic raw material development program and the incentives
for investment projects implementing such programs are stipulated in the Law on Foreign
Investment in Viet Nam, Law on Domestic In vestment Promotion and other legal documents
issued by the Government and governmental agencies.
3. Where the TRIMs is general in nature, what  are the criteria for determining to which
enterprises it applies?
 The above-mentioned measures are imposed on both FDI and local enterprises in a manner
described in Item 6 on a non-discriminatory basis.WT/ACC/VNM/19
Page 2
4. Where the TRIMs is applied pursuant to manda tory legislation, does the legislation
require the measure to be applied to new enterprises or new investments of existing
enterprises?
According to current regulations, TRIMs is ap plied to all existing and newly-established
enterprises operating in such industries in Viet Nam as mentioned in item I of this
Notification including new investments of these enterprises.
5. Whether compliance with the measure by the enterprise is (a) mandatory or enforceable
under domestic law or administrative rulings or (b) necessary to obtain an advantage?
 The compliance with the above measures by enterprises is necessary to obtain investment
licence and/or to be eligible for certain advantages.
6. When the TRIMs relates to specific products , give sufficient detail on these products to
define the scope of the measure.
6.1. Measures which are conditional upon granting investment licence:
- Automobile manufacturing and assembling projects:  Implementation of automobile
components production program in Viet Nam is a condition for granting investment
licence. The value of components and spare parts manufactured in Viet Nam must
account for at least 5 per cent of the finished automobile value no later than the fifthyear from the date of commencing production and must annually increase to reach at
least 30 per cent of the automobile value at the tenth year of production (Circular
No.215/UB-LXT 8/2/1995).
- Motorcycle manufacturing and assembling projects: Projects assembling motorcycle
in simple CKD form shall not be granted investment licence. From the second year ofproduction, the value of components and spare parts manufactured in Viet Nam must
account for 5-10 per cent of the finished motorcycle value and this percentage must
gradually and steadily increase to reach the target of at least 60 per cent of the
motorcycle value after 5-6 years as from the year of commencing production
(Circular No.215/UB-LXT dated 8/2/1995).
- Mechanical, electric and electronic products assembling and manufacturing projects :
assembling projects may only be approved in IKD form, in which the value of
components and spare parts manufactured in Viet Nam in the first 2 years must
account for at least 20 per cent of the value of finished products and must annually
increase in subsequent years (Circular No.215/UB-LXT dated 8/2/1995) .
6.2. Measures which are conditions to obtain incentives:
6.2.1. Import duty incentive
a. Scope of application (Item 1, Inter-ministerial Circular No. 176):
Vietnamese and foreign-invested enterprises operating in production, assembly of complete
products and/or parts of these complete products of mechanical-electric-electronic industries,
which are subject to MFN import tariff rates of 30 per cent or above, shall be subject to MFN
import tariff rates contingent upon localisation ratios.WT/ACC/VNM/19
Page 3
b. Conditions to enjoy incentives  (Item 3 Inter-ministerial Circular No. 120):
- Conditions to be met by applicant enterprise for being applied MFN import
tariff rates contingent upon localisation ratios are as follows:
- Meeting technical conditions and technology capacity to manufacture
products in accordance with guidelines issued by Ministry of Industry;
- Having a registration document of implementing localisation program in
production of complete products and parts, which is certified by Ministry of
Industry;
- Having documents verifying the legitimate use of industrial properties issued
by the competent authorities with respect to the product which is registered
for applying tariff policy contingent upon localisation ratios;
- Directly importing assembling kits, components, spare parts, parts and
materials for its own production;
- Making payments for the full value of its import consignments via banks;
- Using deductive method in paying VAT.
c. Formula of localisation ratio:
           Z - I                                       IN =  ------------- x 100% = (1 -  ---------) x 100%
                         Z                                         Z
Where:
N (%): localisation ratio of a type of product or spare part;
Z: import price or selling price of product, spare part produced by the enterprise;I: Import value (CIF) of semi-finished products, parts, components directly
imported by the enterprise.WT/ACC/VNM/19
Page 4
MFN import tariff rates contingent upon localisation ratios with respect to products and parts
of mechanical-electric-electronic industries:
- Motorcycles and parts of automobiles and motorcycles:
Motorcycles (MFN import tariff rate applied to complete imported motorcycles is 60%):
Achieved localisation ratio (%)MFN import tariff rates
contingent upon localisation ratios (%)
1. Above 0 and up to 20
2. Above 20 and up to 303. Above 30 and up to 40
4. Above 40 and up to 50
5. Above 50 and up to 606. Above 6060
5030
15
10
5
Parts of automobiles and motorcycles:
MFN import tariff rates contingent upon localisation ratios (%)
Achieved localisation ratio
(%)With respect to
parts which are
subject to MFN
import tariff rate of
30%With respect to
parts which are
subject to MFN
import tariff rate of
40%With respect to
parts which are
subject to MFN
import tariff rate of
50%With respect to
parts which are
subject to MFN
import tariff rate of
50%
1. Above 0 to 15
2. Above 15 to 30
3. Above 30 to 40
4. Above 40 to 505. Above 5020
15
10
5320
15
10
5330
20
10
5340
20
10
53
- Electronic complete products and parts:
i) Electronic products:
MFN import tariff rates contingent upon localisation ratios (%)
Achieved localisation ratio
(%)With respect to
parts which are
subject to MFN
import tariff rate of
30%With respect to
parts which are
subject to MFN
import tariff rate of
40%With respect to
parts which are
subject to MFN
import tariff rate of
50%With respect to
parts which are
 subject to MFN tariff
rate of 60%
1. Above 0 to 20
2. Above 20 to 353. Above 35 to 504. Above 50 to 605. Above 6020
1510
5330
2010
5340
301510
340
301510
3WT/ACC/VNM/19
Page 5
ii) Electronic parts:
MFN import tariff rates contingent upon localisation ratios (%)
Achieved localisation ratio
(%)With respect to
parts which are
subject to MFN
import tariff rate of
30%With respect to
parts which are
subject to MFN
import tariff rate of
40%With respect to
parts which are
subject to MFN
import tariff rate of
50%With respect to
parts which are
subject to MFN
import tariff rate of
60%
1. Above 0 to 15
2. Above 15 to 30
3. Above 30 to 40
4. Above 40 to 50
5. Above 5020
1510
5320
1510
5330
2010
5340
2010
53
- Mechanical-electric products and parts:
i) Mechanical-electric products:
MFN import tariff rates contingent upon localisation ratios (%)
Achieved localisation ratio
(%)With respect to
parts which are
subject to MFN
import tariff rate of
30%With respect to
parts which are
subject to MFN
import tariff rate of
40%With respect to
parts which are
subject to MFN
import tariff rate of
50%With respect to
parts which are
subject to MFN
import tariff rate of
60%
1. Above 0 to 20
2. Above 20 to 35
3. Above 35 to 50
4. Above 50 to 60
5. Above 6020
1510
5
330
2010
5
340
3020
10
350
4020
10
3
ii) Mechanical-electric parts:
MFN import tariff rates contingent upon localisation ratios (%)
Achieved localisation ratio
(%)With respect to
parts which are
subject to MFN
import tariff rate of
30%With respect to
parts which are
subject to MFN
import tariff rate of
40%With respect to
parts which are
subject to MFN
import tariff rate of
50%With respect to
parts which are
subject to MFN
import tariff rate of
60%
1. Above 0 to 15
2. Above 15 to 30
3. Above 30 to 40
4. Above 40 to 50
5. Above 5020
1510
5
320
1510
5
330
2010
5
340
2010
5
3
6.2.2. Incentive in corporate income tax
Incentive in the form of preferential corporate income tax (15 per cent in 12 years from the
date of commencing production; tax exemption for 2 years from the date of first profit-
making and reduction of 50 per cent in the 3 subsequent years) is granted to the following
projects:
- Labour intensive projects and projects using effectively natural resources in
Viet Nam;WT/ACC/VNM/19
Page 6
- Projects manufacturing and processing goods for export, which account for at least
30 per cent of its production and using local raw materials valued at no less than
30 per cent of production costs.
7. The date of implementation of TRIMs
- Mandatory requirement on implementing localisation program for projects in the
fields of manufacturing and assembling automobile, motorcycle and mechanical-
electric-electronic products has been applied since 1995.
- Incentive in the form of MFN import tariff rates contingent upon localisation ratios
for the above-mentioned products has been applied since January 1999.
- Regulation on incentive in the form of corporate income tax for projects using major
local raw materials and using effectively natural resources in Viet Nam has been
applied since 1996 and amended in 2000.
8. Does TRIMs, as applied under domestic law, include provision for its phasing-down
and/or elimination?
So far, there is no provision for the phasing-down and/or elimination of the TRIM in
Viet Nam's current legal regulations.
9. The domestic law, regulation or administrative guideline under which TRIMs is
applied; a copy should be submitted to th e Secretariat to be available for inspection by
interested members.
- Law on Foreign investment in Viet Nam dated 12 November 1996;
- Decree No. 24/2000/ND-CP dated 31 July  2000 of the Government stipulating in
details the implementation of the Law on Foreign Investment in Viet Nam;
- Circular No. 215/UB-LXT dated 8 February 1995 of the former State Committee for
Co-operation and Investment guiding foreign investment activities in Viet Nam;
- Inter-Ministerial Circular No.176 /1998/TTLT-BTC-BCN-TCHQ dated
25 December 1998 of Ministry of Finance, Ministry of Industry and General
Department of Customs guiding the implementation of tariff policy contingent uponlocalisation ratios with respect to products and parts of mechanical-electric-electronic
industries;
- Inter-Ministerial Circular No.120 /2000/TTLT-BTC-BCN-TCHQ dated
25 December 20002000 of Ministry of Finance, Ministry of Industry and General
Department of Customs on supplements of and amendments to tariff policy
contingent upon localisation ratios with respect to products and parts of mechanical-
electric-electronic industries stipulated in Inter-Ministerial No.176/1998/TTLT-BTC-BCN-TCHQ dated 25 December 1998 of Ministry  of Finance, Ministry of Industry
and General Department of Customs;
- Decision No.1944/1998/QD/BTC dated 25 Decem ber 1998 of Minister of Finance on
promulgating regulations on import tariff rates contingent upon localisation ratios
with respect to products and parts of mechanical, electric and electronic industries;WT/ACC/VNM/19
Page 7
- Decision No.71/1999/QD-BTC da ted 6/7/1999 of Minister of Finance on modifying
Article 3 of Decision N o.1944/1998/QD/BTC dated 25 Dece mber 1998 of Minister of
Finance;
- Circular No.01/1999/TT-BCN dated 12 March 1999 guiding registration to be
certified the conditions for applying import tariff contingent upon localisation ratioswith respect to products of mechanical-electric-electronic industries;
- Decision No.159/2000/QD-BTC  dated 26 Se ptember 2000 on removing import tariff
rates applied to CKD, IKD components of certain products and parts of mechanical-
electric-electronic industries;
- Decision No. 65/2000/QD-BCN dated 13 Novemb er 2000 of the Minister of Industry
promulgating regulation on certification of conditions to enjoy import tariff rates
contingent upon localisation ratios with respect to motorcycle.
The above legal documents will be translated into English and submitted to Working  Party in
appropriate time.
10. The level of government applying TRIMs, th e name of the implementing agency and any
information on the procedures governing its application necessary to enable its nature
and scope to be understood.
The above-mentioned TRIMs are applied at the levels of Ministry, local People's Committee
and provincial Board of Management of Industrial Zone (BMIZ) according to  such authority
and function as stipulated by the Law on fore ign investment in Viet Nam and other related
legal documents as follows:
- Ministry of Planning and Investment, local People's Committees and BMIZ are
responsible for granting investment licence and approving incentives according to its
authority and function respectively;
- Ministry of Finance is responsible for coordinating with Ministry of Industry and
General Department of Customs in guiding the implementation of tax treatment
according to localisation ratios with respect to products and parts of mechanical,electric and electronic industries;
- Ministry of Industry is responsible for guiding the application of technical conditions
and technological capacity for registration of certification of localisation ratios with
respect to products and parts of mechanical, electric and electronic industries;
- Customs offices (where enterprises carry out import procedure) shall receive
application and collect import duty with th e rates contingent upon localisation ratios
of the enterprise in question as certified by the Ministry of Industry;
- Besides, other Governmental authorities (e.g. Ministries of Science, Technology and
Environment, Transportation, etc.) are responsible for issuance of standards on
quality, safety and environment of automobile, motorcycle, spare parts and for quality
inspection of these products.WT/ACC/VNM/19
Page 8
II. GENERAL INFORMATION ON THE PROGRAM IN QUESTION
The main purpose of introducing local content requirement in Viet Nam is to promote the
parts industry, to upgrade technology, to improve quality and to reduce production costs of
automobile, motorcycle and  mechanical-electric-electronic products; to enhance capacity of
production from local raw materials.
There are 100 enterprises registering implementation of localisation program so far, of which
64 per cent are FDI enterprises and 36 per cent are local enterprises. These enterprises have registered
local content ratio for 700 products, which mainly are motorcycle's spare parts, electronic products,
refrigerators and air-conditioners, household appliances. However, the above industries in Viet Nam
are still under-developed and their products are not competitive in the world market.
__________