Articles
Interpreting Vietnam’s WTO commitments on market openings in services – Some important rules remain unvisited

27 - 02 - 2010
By Bui Ngoc Hong and Huynh Tan Loi*

Under the Schedule of Specific Commitments in Services ("Service Schedule"), one of the commitments Vietnam made in acceding to the WTO, foreign investment in many sectors is limited to joint ventures ("JV") with domestic investors. In many instances the Service Schedule provides additional restrictions on who can act as the domestic partner in a JV, but there are also sectors in which the Service Schedule is silent.  To determine what restrictions apply to domestic investors there remains one potent conflict: if domestic law provides restrictions, and the Service Schedule is silent, will domestic law preempt the Service Schedule's silence? The Service Schedule itself provides no clarification on this issue.

Take for example, travel agencies and tour operation services ("Tourism Services").

Article 51 of the Law on Tourism dated 14 June 2005 ("Tourism Law") requires the Vietnamese partner in a Tourism Services JV to be a company possessing an international travel license.  For Tourism Services, the Service Schedule reads, "None, except that: foreign service suppliers are permitted to provide services in the form of JVs with Vietnamese partners with no limitation on foreign capital contribution". As normally interpreted, this text is considered silent on the issue of restrictions on domestic partners in Tourism Services JVs.

The Tourism Law's implementing provisions, though issued after the country's accession to the WTO, remain silent regarding the application of restrictions under Article 51. Because of this apparent conflict, the licensing authorities have been reluctant to approve Tourism Services JVs where the domestic partner does not have an international travel license.

Such reluctance may have been avoided if another rule in the Report of the Working Party on the Accession of Vietnam ("Working Party's Report") had also been referenced. In paragraph No. 475 of the Working Party's Report, "foreign service suppliers were free to choose their partners unless otherwise specified in Viet Nam's Schedule of Specific Commitments" ("Rule 475").  Though it may have been buried, in practice, Rule 475 should prevail over the provisions of domestic law such as Article 51 of the Tourism Law.  Rule 475 is part of an international treaty and, in the Service Schedule's silence, pre-empts domestic restrictions.  Accordingly, in the Tourism Services Sector, a foreign investor is legally free to choose its JV partner, be it an individual or a company, regardless of possession of an international travel license.

During the last three years, whenever market openings in service sectors are questioned, the Service Schedule is touted as the relevant scripture when it is only one of the ‘Testaments' extant. It has become habit to only consult the Service Schedule and completely neglect the Working Party's Report.

Reaching a complete understanding of Vietnam's commitments on market opening in services requires that the Service Schedule be read with paragraphs 472 to 508 of the Working Party's Report.  To properly apply Vietnam's WTO commitments, local licensing authorities should revisit the provisions of the Working Party's Report.

(*) Please contact the author at hong.bui@indochinecounsel.com and loi.huynh@indochinecounsel.com or our partners if you wish to have more information or specific advice for the topic of this article.

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