Vietnam: Implementation of BTA Customs Obligation

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TAGS: ETRD EINV ECON EAID PREL VM BTA
SUBJECT: Vietnam: Implementation of BTA Customs Obligation


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REF: (A) 03 HANOI 2795 (B) Hanoi 821


1. (U) Summary: The GVN has taken significant steps toward
implementing the U.S.-Vietnam Bilateral Trade Agreement
(BTA) obligation to adopt a system of customs valuation
based on the transaction value of the imported merchandise,
according to GATT standards. At this time, the GVN is
applying the new valuation method only to goods imported
from the U.S. and ASEAN, (as well as for goods imported by
foreign invested enterprises.) GVN steps include adopting
key implementing regulations, issuing a new (additional)
declaration form for importers, and training local customs
officials. As expected, however, application of the new
regulations at the ports of entry appears uneven. Also, in
a move inconsistent with the terms of the BTA, the GVN is
continuing to use minimum prices for valuation purposes on
some products. End summary.

GVN Adopts Regulations Implementing Transaction Value
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2. (U) According to the terms of the BTA, the GVN was
obligated by December 10, 2003 to adopt a system of customs
valuation based on the transaction value of the imported
merchandise, rather than arbitrary reference or minimum
prices. In June 2002, the GVN issued Decree 60 establishing
rules for customs valuation based on the transaction value
of goods imported from countries to which Vietnam has made a
commitment on customs valuation. On December 8, 2003 the
Ministry of Finance (MOF) issued Circular 118, the
implementing regulations for Decree 60. In addition, the
General Department of Customs issued Official Letter 1774 on
February 29, 2003 providing additional instructions to local
Customs offices on how to implement Circular 118. (Note:
Embassy was unable to obtain a copy of 1774 as official
letters are not published in the Official Gazette and the
MOF refused to provide it upon request. End note.)


3. (U) To assist in the implementation of the Circular, The
General Department of Customs in Hanoi disseminated copies
of the new regulations and guidelines to customs offices
throughout Vietnam and provided training on the new
regulations in Hanoi for customs officials from provincial
offices. Additionally, provincial customs offices carried
out some in-house training for their staff and, in some
areas, provided training to Vietnamese importers on how to
work within the new regulations.


4. (SBU) In real terms, the new regulations have not
resulted in significant uniform changes in the procedures
and practices of local customs officials. To implement the
changes in valuation, customs issued a new form that
importers must fill out when bringing in goods of U.S. or
ASEAN origin. The new form appears to have been well
circulated, as most importers Econoffs talked to were
familiar with the form. In Ho Chi Minh City, at least one
customs office created a designated area for processing
goods imported from the U.S. and ASEAN. However, in other
smaller ports, such as Hai Phong and Mong Cai (on the
Chinese border) customs offices have not have made any
changes to their internal procedures to address the fact
that they are using two kinds of valuation systems. They
have not divided their officers into teams or even set up
different lines for companies declaring goods eligible for
the new valuation method. Also, the GVN remains committed
to upgrading, retaining, and relying on its reference price
list for detecting fraud. One World Bank official commented
to Econoff that the GVN appears to be taking an overly
simplified approach to revamping its customs operations.

Despite BTA, Exceptions Remain
--------------


5. (U) Despite the fact that the BTA does not provide for
any exceptions for the application of transaction value,
Decree 60 reserved the right for the GVN to use minimum
prices for the purpose of calculating duties on a number of
items "in order to protect the State's interests and
domestic production." On February 4, 2004 the Ministry of
Finance issued Official Letter 393 providing specific
instructions on the application of minimum prices. This
Official Letter instructed customs officials to continue
using minimum prices on a specific list of products (whose
import prices are controlled by the State) - regardless of
whether or not these goods are subject to Circular 118. The
list referred to in Official Letter 393 was originally
published in MOF Decision 164 in October 2000 and includes
the following items: 1) assorted beverages; 2) tires,
pneumatic inner tubes and fenders; 3) wall and floor tiles,
sanitary ware (toilets, sinks, urinals, wash basins and bath
tubs); 4) flat glass, white, colored and light-reflecting
glass, water flasks and vacuum inner flasks; 5) motors,
generators (not those used for cars, motorbikes or other
special use vehicles); 6) electric fans; and motorcycles.


6. (SBU) In a meeting with Ha Huy Tuan, Deputy Director of
the International Relations Department at the MOF in early
March, Econoff questioned the GVN's decision to maintain the
use of minimum prices. Tuan (who did not argue the point
that the BTA does not provide for any exceptions on customs
valuation) explained to Econoff that Official Letter 393 is
a temporary measure until the MOF can finalize a new,
revised list of goods subject to minimum prices. The
purpose of establishing this new list, according to Tuan, is
to target high fraud-risk goods and companies. The General
Department of Customs, in coordination with local customs
offices is in charge of drafting the list. Customs has
submitted several versions to the MOF, all of which have
been rejected. The MOF sees the minimum price list as a
"very serious issue" Tuan added and is working hard to
identify the priority areas - that is why it is taking so
long to finalize the list.


7. (SBU) Econoff reiterated that the current list of
exceptions - and any future list - contradicts Vietnam's
obligations under the BTA. Econoff stressed that this is a
serious issue, particularly given the fact that U.S.
products are being disadvantaged by the GVN decision not to
fully meet its BTA obligations. Econoff cited imports of
U.S. wines as an example, noting that Vietnamese wine
importers have complained to U.S. officials about Customs
decision to maintain minimum prices as the basis for
calculating import duties on U.S. wines. Tuan took the
point and promised to convey the message to the Vice
Minister of Finance. (Note: Although, as reported ref B,
on March 16 Minister of Trade Tuyen told Ambassador that if
the MOF is not applying transaction value to all U.S.
imports in accordance with the BTA, he would tell MOF to
"fix" the problem, nothing has changed as yet. End note.)

Survey of Companies' Experiences
--------------


8. (SBU) Econoffs met with a number of companies in Ho Chi
Minh City in February to discuss their experiences with
implementation of the new customs obligations. While it was
quite soon after implementation of the new regulations,
these companies provided a useful snapshot of the results of
the GVN's early efforts at implementation.

-- Local companies: Local companies that import significant
amounts of goods from the U.S. and/or ASEAN appear to have
had the most success in using the new customs valuation
procedures, so far. Representatives of a number of
Vietnamese companies were well read on the new regulations
and familiar with the new form. They told Econoffs that
duties on their imports are now consistently assessed based
on the invoice price, even if that price is lower than the
GVN's reference price. It should be noted however, that
most of these companies are very familiar with local customs
procedures. They said they are also generally accustomed to
paying "facilitation fees" at each step of the clearance
process, which may have directly or indirectly increased
Custom's willingness to apply transaction value for their
imports.

-- U.S. companies: Econoffs talked to representatives from
a number of large U.S. companies doing business in Vietnam.
On the whole they did not yet have a strong sense of the
impact of new customs procedures on their businesses. Some
of these companies were only vaguely aware of the new
regulations and many had not seen the new customs form. The
owner of one U.S.-owned company, who has been doing business
in Vietnam for more than ten years, told Econoffs that in
terms of customs valuation nothing has changed for him since
passage of the new regulations. Customs generally charges
duties on his shipments based on the higher of the invoice
or the reference price. Another U.S. company that imports
pet food from factories in the ASEAN area was told by HCMC
customs that pet foods are not eligible for transaction
value. Pet foods are not on the minimum price list so it is
unclear where this "rule" may have come from. The
representative of another U.S. company told Econoffs his
company always get invoice pricing, but noted their invoices
are always above the GVN's reference prices.

-- Fed Ex: Fed Ex has customs officers that are assigned to
work at the Fed Ex warehouse to assess the value of
packages. According to the local Fed Ex representative,
there has been no change in the process since implementation
of the new regulations. In practice, the Customs officers
continue to use the higher of the reference or the invoice
price to calculate the duty. Fed Ex has submitted a written
request to Ho Chi Minh City Customs asking them to begin
using the transaction value. About eighty percent of Fed
Ex's packages are from either the U.S. or ASEAN countries.

-- Wine/Spirits importers: As noted above, currently wine
importers are not benefiting from implementation of
transaction value. Per Official Letter 393, Vietnamese
customs is still using minimum prices as the basis for
calculating import duties on beverages imported from the
U.S. and ASEAN. The end result of this is that U.S. wines
have been disadvantaged significantly in comparison to
imports of EU wines. The tariff on imports of EU wines was
reduced twenty percent in February (see ref B) and European
wines are also exempt from the use of minimum prices.
(Note: As with the tariff reductions, the exemption of
certain EU imports from the application of minimum prices is
a by-product of the EU-Vietnam "Textile" agreement. End
note.) U.S. wines, however, are charged the higher duty
rate on either the minimum price or invoice price (whichever
is higher). (Note: U.S. wine imports are supposed to start
getting the lower duty rate no later than May 1. End note.)
Wine importers are not allowed to use the new customs form
because wine is on the list of state-controlled items.


9. (SBU) Comment: The GVN should be praised for the efforts
it has taken to put in place a solid legal framework for
fulfilling its BTA customs obligations. We are not
surprised, however, that application is uneven, given the
GVN's ongoing concerns about revenues, the pervasive
corruption at all levels in customs, and a lack of capacity
in terms of both human resources and infrastructure. Only
time will tell if the GVN will be successful at ensuring
full implementation at all ports of entry. The GVN's
decision to maintain dual systems (one for U.S. and ASEAN
and one for everyone else) is problematic, as it will likely
hinder efforts to change customs officials' mindset and
approach to valuation. Additionally, the GVN decision to
carve out "exceptions," not identified in the BTA is
worrisome. Post recommends including a detailed discussion
of customs in the agenda of the next U.S.-Vietnam BTA Joint
Committee meeting this spring.
BURGHARDT