Economic Needs Test could be a counter-productive entry barrier
A Lotte Mart outlet in Ho Chi Minh City's District 11. Experts said it is better for Vietnam to encourage foreign retailers to come to the local market rather than restrict them.
Vietnam should encourage foreign retailers to come into the country and develop the immature market rather than restrict their entry, local and international experts have said.
They said at a conference in Ho Chi Minh City last week that the Economic Needs Test (ENT) the Vietnamese government is preparing would disadvantage the retailers in developing outlets and also make it more difficult for local officials to monitor the sector.
Any foreign firm wishing to open more than two retail outlets in Vietnam must apply for a license and pass the ENT criteria that the World Trade Organization allows each member state to establish in order to prevent market overkill in the retail sector.
However, ENT was a very difficult provision to create, said Robert Rogowsky, adjunct professor of International Trade at George Mason University's School of Public Policy in the US. Instead, "it (the government) should try to create something healthy for the market."
Rogowsky told Thanh Nien Weekly that it would be a problem for the government to devise and apply ENT for a market that is dynamic and fast-changing in different regions like HCMC, Hanoi and other areas.
The professor said it was better to spend time on encouraging foreign retailers to come and work with local producers and farmers rather than to create a formula for the ENT, which was not being used by governments, including that of China, to monitor their retail markets.
Francois Bobrie, economics professor at France-based Unversite de Poitier, said governments considered the ENT a measure to protect their local
retailers but generally did not use it, opting instead to set other requirements like outlet size that retailers had to meet if they wanted to develop their chain. For example, one of the requirements would be that an additional outlet must have a space of over 1,000 square meters to open in a specific area, he said.
It was not clear, however, as to how such stipulations would act as entry barriers to huge foreign firms that typically muscle in on domestic territory and send local firms out of business. It has been seen elsewhere that the entry of the foreign firms itself creates an unlevel playing ground because they have enormous capital and other resources that are impossible for domestic firms to match, local experts said.
Meanwhile, Vietnam has no law on the retail sector and the market has developed based on the Commercial Law and other related regulations, noted Fred Burke, director of law firm Baker & McKenzie Vietnam.
Former minister of Industry and Trade Truong Dinh Tuyen agreed that Vietnam needed a retail law but asserted that in the current situation, the Vietnamese government should apply the ENT.
Tuyen said the absence of ENT criteria was creating pressure on household-run retail establishments and reducing market transparency for foreign investors.
However, it was not easy to formulate the ENT in such a way that it would meet the twin goals of facilitating FDI in the retail sector through clear and transparent regulations, while at the same time preventing a market glut, the former minister said.
An official from the HCMC Industry and Trade Department said local officials lacked regulations as well as guidance to deal with applications from foreign retailers seeking licenses to open more outlets in the country's most dynamic market.
"This is strange considering several international firms have already established their presence in the city," said the official, who did not want to be named.
Foreign retailers including Korean Lotte Mart, Malaysian Parkson and German Metro Cash & Carry have open more than two outlets in Vietnam.
In a meeting with the municipal administration last month, members of the Japanese Business Association of HCMC asked for ENT guidelines so they would know what conditions they had to meet to develop their business here.
Representatives of Japanese firms said they were interested in the Vietnamese retail market, which was fully opened to foreign investors early last year, but they were hesitant to implement projects because they were not sure what they needed to do to pass the ENT test.
The Ministry of Industry and Trade said it was preparing ENT provisions that would apply to both local and foreign traders.
The ENT would be based on three criteria: the number of retail establishments, market stability and resident density, the ministry said.
Under one proposal being considered, local governments would establish a council to conduct the test and its outcome would need to be approved by the ministry.
Vietnam posted retail sales of US$65 billion in 2009, according to Tuyen. The nation's gross domestic product last year was estimated at $80-90 billion.