Nontariff Barriers in Vietnam.docx

FOREIGN TRADE UNIVERSITY ***

GROUP ASSIGNMENT INTERNATIONAL FINANCE Nontariff Barriers in Vietnam

Tạ Quang Hưng Dương Quốc Anh Đỗ Quyết Thắng Trần Bích Hường Nguyễn Văn Dương

Vũ Thanh Lân

1001030157 1001030023 1001010860 1001010425 1001010192 1001020194

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Contents FOREWORD........................ .................................... ....................... ....................... ......................... ...................... ......... 3 PART I ........................ .................................... ....................... ....................... ........................ ........................ .............. .. 4 Overview of non-tariff barriers in Vietnam ................ ............................ .................... ........ 4 1. Nontariff barriers being applied in Vietnam .............................. .............................. 4 2. Expected targets of the nontariff barriers: ............................... ............................... 8 3. Conflicts between NTBs and other regulations ........................ ........................ 10 PART II .................... ............................... ........................ ........................ ....................... ........................ .................. ...... 11 DISADVANTAGES OF NONTARIFF BARRIERS IN VIETNAM ............. ............... .. 11 1. Price fluctuation ....................... ................................... ....................... ....................... .................... ........ 11 2. Importing waste ...................... .................................. ....................... ....................... .................... ........ 11 3. Diminishing productivity and quality ...................... .................................. ................ .... 12 4. Increasing cost ........................ .................................... ....................... ....................... .................... ........ 12 5. The small private businesses suffers ................. ............................. .................... ........ 12 PART III ........................ .................................... ....................... ....................... ........................ ........................ ............ 15 Tariffication-a solution to demolish tariff barriers ....................... ........................... .... 15 1. Advantages of tariffi ....................... ................................... ....................... ....................... .............. .. 15 2. Why does Vietnam still apply NTBs ....................... ................................... ................ .... 16 3. How to move from NTBs to tariffs ...................... ................................... .................... ....... 17 4. TPP – the trap of nontariff barriers ...................... ................................... .................. ..... 20 References ....................... ................................... ....................... ....................... ........................ ...................... .......... 21









FOREWORD Since 1986, Vietnam has been altering its centralized planning economy into a new one which is open to trade and regulated by market rules. Liberalization of trade is a major component of this process. Since then, by integrating into the globalization of economics and trade liberalization, Vietnam has set up trade relationship with more than 165 countries all over the world and signed 72 bilateral trade agreements. We have been a member of the IMF, WB, ADB, ASEAN, APEC, AFTA, WTO, etc and are to sign the TPP. During that process of integration, the prolonged existence of nontariff barriers (NTBs) would be one of the biggest obstacles for Vietnam, since the cutting of them is a crucial condition to liberalize trade. This is, as unofficial as its nature, no matter that have long been concerned, but might be of urgent need since we are speeding up in our globalization. That is why we have chosen the topic “Non -tariff barriers in Vietnam” for our assignment. In this assignment, we would discuss the root, the disadvantages of NTBs in Vietnam, and how to take them down.

The assignments includes of three parts: Part I: Overview of non-tariff barriers in Vietnam Part II: Disadvantages of non-tariff barriers in Vietnam Part III: Tariffication-a solution to demolish tariff barriers









PART I Overview of non-tariff barriers in Vietnam Nontariff barriers (NTBs) remain a major point in trade policies poli cies of Vietnam. Quantity restriction, target allocation of foreign currency and differential administrative measures are applied to monitor, manage and restrict the import of specific types of goods. Their prolonged existence is against the measures the Government has taken to improve the trade system. Quantity restriction is among the low-level trade barriers. Its impact is implicit, which just leads to the benefits for the holder of preferential quotas and a dime degree of protection. Because the degree of protection is blurred, it is difficult to conduct any trade liberalization. Protection based on tariff would then be the starting point of the route to change. Although the advantages of tariffs are clear, NTBs are still stil l in use in Vietnam, which might be the result of a seemingly false oldfashioned knowledge that they can things that are out of any tariff system’s scope. A visible feature of NTBs in i n Vietnam is that they are often applied to pursue multiple targets. The first step to dismantle them is thence to define the methods being applied and their basic purposes. 1. Nontariff barriers being applied in Vietnam

Many types of nontariff barriers are being applied in Vietnam, which creates the trade conflict between Vietnam and other countries. In our opinion, the biggest and most common barriers would be Quantity Restrictions (QRs) on imported goods and methods of allocation of foreign currency.









- Conditioned imported goods: o Goods listed in Decree 57/1998/NDCP, including goods that needs to have import license and is conditionally imported. o Goods under Decision 254/1998/QD-TTg - Goods under regulation of sector ministries - Goods that are banned from import and export The scope of QRs’ effects

QRs are defined specific by types of goods. Figures regarding import and export of Vietnam are often reported in compounding mode, which discourages the calculation of nontariff products (NTPs) effect. However, we used the newest national figures of import i mport and interindustry balance sheet to enable the work. Sales

Products under Decree 57 - 19%

Products under Decision 254 5% Banned products - 3%

Special monitored products 13% Other non-monitored products - 60%

The Impact of Quantity Restrictions on Imported Goods (Source: IEDB, CIE’s calculation)

As it might be seen above, approximately 40% of imported goods is









The specialist control has affection over 13% of the import, although the figure is subjected to high standard deviation. QRs have caused distortions in trade when importing some types of goods. Hence, the approximation of NTBs’ impact is often lower than reality. Moreover, the above number did not include i nclude the impact of other NTBs such as foreign currency control and credit control. Those NTBs have unpredictable and unequal impacts on goods, thence leads to difficulties in estimating their total impact. i mpact. Meanwhile, we may conclude that the number of 60% would be much higher if these barriers are taken into account.

Allocation of foreign currency

Decision 254 states that commodities and imported materials (alloy steel, raw material PVC, aluminum, etc) would be regulated r egulated by taxation, additional charges and other costing methods. In reality, this means that banks are not permitted to use deferred deferr ed L/C to import these goods. The importers are thence required to pay for them at sight, which leads to major obstacles for companies with low net working capital. In addition to those is the conditions regarding selling foreign currencies to banks, which results in even further difficulties for firms to import commodities as well as other types of goods. Apart from the deferred L/C, SBV also encouraged banks to put specific restrictions on approaching the foreign currencies used to import goods which are producible in the domestic market. This leads to a major lack of manifestation in allocation of foreign currencies and an un-patent NTB in turn. The final result is that only big firms have the access to foreign currencies to import those types of goods. This does not only increase the protection over domestic production but also causes difficulties for small private enterprises whose impacts on











currencies which does not form any barrier. Others, at the same time, who have to weigh between buying in the domestic market and importing paper, alloy steel, cement and other types of goods, are being too concerned by the barriers and forced to sort to domestic supply.

Other NTBs

An important group of NTBs includes methods that are similar to tariff in UNCTAD’s classification. In Vietnam, they are mainly: custom collection, excise tax and value added tax (there are special exemptions for foreign-tradable goods). Although the excise tax is theoretically applied on luxury goods regardless of place of origin, special exemptions for domestic goods means that the rule is i s only applicable to export goods. A solution that has been in use is to apply the method of minimum price. The method would be applied on goods on the list, of which number reduced from 37 in 1997 to 11 in 1999 and 5 in 2010. The goods are drawn out of the list if the scopes of commercial frauds over them are small and if their market price is stable, which enables the custom agencies to identify the precision in their import quotes. However, the custom has admitted that the minimum price method is not an appropriate method to decide import tax and a nd are proposing a change in custom law, which would involve standards complying









2. Expected targets of the nontariff barriers:

Protection of the domestic industries would be the ultimate and thorough purpose of NTBs. However, in specific cases, NTBs is aimed at multiple targets. For example, the excise tax is basically a tool for Government budget inflow, but in fact it i s added to import tax to strengthen the protection over domestic producers. The restrictions on deferred L/C was initially applied to solve the matter of short term foreign debts, but are currently used to limit the import of consumer goods and other types. Regarding the QRs, they are partly stagnant reminders of the old ol d centralized planning system, where trade was managed to reach balance of finance and real objects of the economy. A typical example is the QRs over petrol and fertilizers, which is more of a quota for importing goods to ensure the supply of the economy than upper limit applicable only to import. QRs on fertilizer in particular are applied as a method to ensure the stability of fertilizer’s price rather than a protection. This is true for cases of ure, which is a type of low capacity fertilizer, while untrue regarding some recent restrictions on the import of NPK fertilizers, which created a considerable protection over domestic producers. QRs on motorbikes are another interesting case. On one hand, Vietnam aims to develop the production of domestic motorbikes and









Fertilizers

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Petrol

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Motor vehicles

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Goods listed in Decision 154 Specialist management restriction Chemicals Wild animals, seeds, pesticides, animal food Pharmaceuticals Articles, photos, audio and video works Explosive materials Banking facilities Banned goods Weapons

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     

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Drugs

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Ensure the stability of price Protect domestic industry Ensure supply Protect domestic industry Protect the environment Protect domestic industry Protect the environment Balance of payment Protect domestic industry

Safety Public health Protect the environment Isolative monitoring People’s health Protect the culture

Safety Technical standards Safety National security People’s health International mission









3. Conflicts between NTBs and other regulations

In Vietnam, the Government is using various tools for any specific purpose. Hence, the demolishment of NTBs is only effective when accompanied with the dismantlement of other regulations. This is to state that, if we take down NTBs, we need to ensure that no other regulating tool would be born. Alloy steel is a typical example of the interaction between policies. The Pricing Committee has proposed the minimum price monitoring for some types of alloy steel, since the competitiveness is becoming fierce and the demand is going down. The repeal of the import ban on construction alloy steel might not increase the effectiveness of the domestic alloy steel production if the minimum price reduced their competitiveness in the domestic market. Similarly, investing in other newly opened fields might not be encouraged if the maximum price restricts the producers’ profit. In some cases, the elimination of NTBs NT Bs might make some rules become void. A good example in this case is fertilizer, as the import of NTK was banned in 1999 for the domestic capacity had met the demand. The restriction was an important for domestic producers. However, Decree 250/1998/ND-CP dated December 24, 1998 stated that domestic fertilizers must not be sold sol d at any price higher than similar imported ones. This regulation would have become unnecessary if free trade was allowed, since competition would not allow any producer to raise their price to a higher extent of the same









PART II DISADVANTAGES OF NONTARIFF DISADVANTAGES BARRIERS IN VIETNAM Predictability and transparency are two important characteristics of a good policy. The use of tariffs as a tool to implement trade policy and industrial policy does not meet the two requirements. Therefore, this chapter focuses on the impact of the widespread tariff use as a tool of protection in Vietnam , and explain why the elimination of such barriers is important for economic development in the medium term and long term . 1. Price fluctuation

Trade management mechanism in Vietnam always follows the general way of controlling imports with the aim to keep domestic prices up with world price. But almost inevitable mistakes in evaluating and implementing have caused sharp price fluctuations in the domestic market. Price volatility, scarcity of commodities such as cement, steel , paper and pesticide took place in many years is a clear evidence . Economic costs of these policies are often very large. Price volatility creates mixed signals to producers and consumers, limiting their











domestic steel construction does not meet quality then it is the better to use high quality steel . Such alternative means the economy will suffer a waste in foreign currency prices since imported high quality steel will be higher than the price of imported steel to have the same function. 3. Diminishing productivity and quality

When the domestic goods quality themselves was lower than imported goods, and the replacement ability is limited then the quality of products manufactured in the stages will be affected. This leads to the quality of goods produced in the later stages is reduced and may adversely affect the profitability of manufacturers. 4. Increasing cost

Commercial management system is now somewhat influenced by the want to balance the demand for domestically produced goods and the ones to be protected. If estimated production capacity of domestic goods can meet local demand then the government will immediately









construction sector is also beneficial to the direct costs decreasing by 4 % of cement prices as well as other products. Due to the cost savings the industry thus can gain competitiveness at home and abroad, thus increasing the output and employment expansion. Another feature should be viewed. Although mechanisms have direct benefits for exporters because it allows them to use imported inputs at world prices but this mechanism will not affect the price of domestically produced inputs because they been raised by the applied protection. Moreover, this mechanism also creates disadvantages for domestic production inputs for the same reason (the industry must also use the higher input prices due to protection ) and although more sophisticated tax-exempt can be designed , more practical solution is to reduce the protection of equal status for all items. Second, the analysis does not take into account the various substitutes for the inputs that businesses can fully use them if the cost of the inputs change. Businesses can change the combinations of inputs towards reducing the cost so allow the chance of cost-cutting to occur.









The case of agriculture can prove that the cost savings reflects the entire cost of the use restriction on the quantity rather than the use of tax. Part I identified the target of quantity restrictions is to ensure price stability but for protection. However, some other studies showed that domestic fertilizer prices are higher than the world price by 30% . The duty to fix the level of expected protection result on fertilizer applied tax as low as zero. Thus, agriculture can enjoy the full cost savings as calculated above. The above analysis has shown that although non-tariff barriers can protect certain industries, but they increase costs for other industries. Especially with the economic structure of Vietnam, the industries which is considered needed for rural development (industry) exports ( food processing ) and investment (construction) has always been badly affected by protection . If this industry is such important that needs maintaining protection, the protection needs to be conducted at the most effective way.









PART III Tariffication-a Tarifficatio n-a solution to demolish tariff barriers 1. Advantages of tariffi

A tariff is a tax or duty placed on an imported good by a domestic government. Tariffs are usually levied as a percentage of the declared value of the good, similar to a sales tax. Unlike a sales tax, tariff rates are often different for every good and tariffs do not apply to domestically produced goods. The following ones give three situations in which governments often impose tariffs: To protect fledgling domestic industries from foreign competition. co mpetition. To protect aging and inefficient domestic industries from foreign

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Impact to the economy of a country with the tariff imposed on it

It is easy to see why a foreign tariff hurts the economy of a country. A foreign tariff raises the costs of domestic producers which causes them to sell less in those foreign markets. In the case of the softwood lumber dispute, it is estimated that recent American tariffs have cost Canadian lumber producers 1.5 billion Canadian dollars. Producers cut production due to this reduction in demand which causes jobs to be lost. These job losses impact other industries as the demand for consumer products decreases because of the reduced employment level. Foreign tariffs, along with other forms of market restrictions, cause a decline in the economic health of a nation. 2. Why does Vietnam still apply NTBs

There is a practical reason is that in some case, we have to control import to ensure public safety. For example, we need to control the import of petroleum, only let the businesses and individuals who are trained and equipped appropriately involve in buying and selling this











In Vietnam, the usage of NTBs is the source of planned economics. Until 1989, Vietnam still cannot aware the importance of tax as a way of controlling import or export. Currently, the process of building a tax procedure is still new. The sharing of income between provinces and other levels is not clear. We still need time to complete this process because there are many arguments and we do not have enough experience in this. 3. How to move from NTBs to tariffs

3.1. How to determine the tax rate?

To determine the tax rate is quite abstract. There is no specific rule to









If this comparison was taken between domestic goods and import goods then we have to compare the price at comparable period of time. It is best to compare the factory price (after deducting indirect taxes) with the price of free-duty import goods at the harbor. Secondly, the prices of good are different because of quality, after-sale services and other characteristics. Although we have to compare the price of the same product, this cannot always be done. We have to notice the quality of products when calculating the price differences. If the competitive products are not seen by the consumers as substitute products then the tax rate between domestic goods and import good









3.3 Consider other information

The list of current tax rate also provides useful information for tariffication. Until now, the producers of the goods on Decision 254 are only be protected by tax. Because the market has changed so the Decision 254 became obsolete. The reason is that Vietnam do not levy tax on goods which are not produced domestically. The application of the same tax rate on the same products can make positive impact on consumers because they will choose the products with low tax rate instead of high tax rate. And the Government and use tax impose to redirect the trend of consumption. Using high









4. TPP – the trap of nontariff barriers

This is rather out of the scope of what the report has been discussing since the beginning. However, we find it i t necessary to put in some linkage to this rising issue, since a recent case has shown high relevance to the matter of nontariff barriers. The main event was that in the 19 th round of TPP negotiation in Brunei, no concurrent voice was met in opening op ening the agriculture product market, since many of the nations are determined on protecting that of their domestic market. The event showed us a high competitiveness in the field which is a major advantage of Vietnam.









References www.google.com http://vi.wikipedia.org/wiki/Thu%E1%BA%BF_quan http://www.trochoiviet.com/games/module-pnFlashGames-display-id256-game-Thue-quan.phtml http://www.vietfin.net/kinh-te-hoc-ve-thue-quan/ http://www.vatgia.com/hoidap/4485/15029/han-ngach-thue-quanhttp://www.vatgia.com/hoidap/4485/15029/ han-ngach-thue-quan-lalagi.html

Nontariff Barriers in Vietnam.docx

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