WTO rules pre-empt local law on trade in services

By Bui Ngoc Hong & Huynh Tan Loi*

Under Viet Nam's WTO commitments in the area of services, foreign investment in many sectors is limited to joint ventures with domestic investors. The commitments provide additional restrictions on who can act as the domestic partner in a joint venture, but there are also sectors as to which the services commitments are silent. If domestic law provides restrictions, but Viet Nam's Schedule of Specific Commitments in Services is silent, will domestic law pre-empt the schedule?

Take, for example, travel agencies and tour operation services. Article 51 of the Law on Tourism, dated June 14, 2005, requires the Vietnamese partner in a tourism services joint venture to be a company possessing an international travel licence. But, for "Tourism Services," the Service Schedule reads, "None, except that: foreign service suppliers are permitted to provide services in the form of joint ventures with Vietnamese partners with no limitation on foreign capital contribution".

Regulations issued under the Law on Tourism after the country's accession to the WTO remain silent regarding the application of restrictions under Article 51. Because of this apparent conflict, licensing authorities have been reluctant to approve tourism ventures in which the domestic partner does not have an international travel licence.

Such reluctance might be avoidable if another rule in the Report of the Working Party on the Accession of Viet Nam were 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". Though it may seem buried, the so-called Rule 475 should prevail over conflicting provisions of domestic law such as Article 51 of the Law on Tourism.

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 joint venture 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 Viet Nam'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 Viet Nam's WTO commitments, local licensing authorities should revisit the provisions of the Working Party's Report.

(*) Please contact the author at and or our partners if you wish to have more information or specific advice for the topic of this article.

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