(Tiểu luận) vietnam’s implementation of freedom of transit provision(article 11) of the trade facilitation agreement (tfa)

Trang 1 FOREIGN TRADE UNIVERSITYSCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESSTRADE FACILITATION ASSIGNMENTTOPIC:VIETNAM’S IMPLEMENTATION OF FREEDOM OF TRANSIT PROVISIONARTICLE 11 OF THE

FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS

TRADE FACILITATION ASSIGNMENT

Pham Kim Hoa 2011140204

Doan Vu Nhat Mai 2011140210

Nguyen Mai Ngoc 2011140202

Nguyen Ha Phuong 2015140202

Nguyen Phuong Thao 2011140217

Nguyen Quoc Viet 2011140219

Transit activities taking place in the territory of Vietnam in recent years have becomemore and more exciting Vietnam is a country located in Southeast Asia with a favourablegeographical position and a sea border gate located deep on the mainland, so transit activitiestake place a lot in Vietnam In the era of opening up, Vietnam has also established diplomaticrelations with more than 185 countries and economic - trade - investment relations with morethan 224 countries and territories By actively participating in trade agreements, Vietnam'seconomy will open up even more to countries around the world, thereby making transit activitiesstronger and busier The Trade Facilitation Agreement that Vietnam joined took effect onFebruary 22, 2017, and Article 11 stipulates freedom of transit with commitments that Vietnamfully complies with With the above reasons, our group decided to choose the research topic:

"Vietnam’sImplementationofFreedomofTransitprovision(Article11)of the Trade FacilitationAgreement(TFA)"

Based on the information and the current status of the application of Article 11 of theTrade Facilitation Agreement (TFA) in Vietnam, along with the analysis, we will clarify thetheoretical basis and make an assessment of the regulations’ implementation on freedom oftransit in Vietnam, thereby making a number of proposals and suggestions for Vietnam.The group essay is divided into three parts:

Part 1: Theoretical framework

Part 2: Implementation and evaluation of Article 11 in Vietnam

Part 3: Recommendations for effective implementation of Article 11 on Vietnam’s trade

We sincerely thank Ms Nguyen Thi Yen for giving us the opportunity to learn about one

of the aspects of trade facilitation, apply theory to analyse the current situation, and then makesuggestions for Vietnam Due to the limited time, the group's essay is not truly thorough, and welook forward to any comments and corrections

1.1Overviewof TradeFacilitationAgreement(TFA)

1.1.1.OverviewoftheTradeFacilitationAgreement(TFA)

In December 2013, during the Ministerial Conference in Bali, WTO members negotiatedthe Trade Facilitation Agreement (TFA) On November 27th, 2014, in Geneva, the legaldocument of the agreement was reviewed for the final time and officially came into effect onFebruary 22nd, 2017, with the consent of two-thirds of WTO member countries

The TFA aims to achieve several goals, which include facilitating trade, ensuring abalance between facilitation and compliance with the law, and expediting the clearance of goods.Moreover, the TFA has a significant role in promoting cooperation between Customs authoritiesand other agencies, and enhancing technical assistance and capacity building

1.1.2.StructureoftheTradeFacilitationAgreement

The TFA consists of 24 articles, which are divided into three main sections, with a focus

on facilitating the movement, release, and clearance of goods (including transit goods).Part I: Provisions on technical measures related to the publication and management ofinformation, including five main contents:

● Publication, ensuring access to information related to imports, exports and transit;

● Enhancing transparency and objectivity without discrimination;

● Promoting the process of release and clearance of goods, including transit goods;

● Clarifying and developing Articles V, VIII, and X of GATT (1994);

● Customs cooperation

Part II: Special and Differential Treatment (SDT) provisions for developing andleast-developed countries (LDCs), allowing these countries to implement certain commitments ofthe Agreement immediately upon receiving technical assistance and support To benefit from thespecial and differential treatment, TFA member countries must classify each TFA provision intogroups and inform other WTO member countries of the specific implementation timelines:

● Group A includes commitments to be implemented immediately or within one year fromthe date the TFA officially takes effect for developing and least-developed countries

● Group B includes commitments to be implemented after a standard preparation periodfollowing the TFA's entry into force.

● Group C includes commitments to be implemented after a standard preparation period andrequires technical support and capacity building When classifying provisions into Groups

B and C, specific, clear implementation dates must be specified

Part III: Institutional Arrangements and Final Provisions The Agreement provides for theestablishment of a Standing Committee on Trade Facilitation within the WTO to periodicallyreview the implementation of the Agreement It also establishes committees in each membercountry to facilitate domestic coordination and implementation of the Agreement Additionally, itincludes specific provisions regarding the legal status of the commitments made by Groups A, B,and C, provisions for reservations, and dispute resolution

The TFA has opened up new opportunities for developing and least-developed countries

It is the first WTO agreement that allows member countries to determine a suitableimplementation timeline based on their technical and financial capabilities WTO, WTO membercountries, and organisations including the World Bank, the World Customs Organization, and theUnited Nations Conference on Trade and Development (UNCTAD) collaborate to providetechnical assistance and capacity building Alongside the TFA, the Trade Facilitation AgreementFacility (TFAF) was established in July 2014 to ensure assistance to developing andleast-developed countries in effectively implementing the Agreement when requested

1.1.3.BenefitsoftheTradeFacilitationAgreement

Estimates suggest that comprehensive implementation of the TFA will reduce trade costs

by approximately 14.3% This will result in global trade growth of $1 trillion per year, with thepoorest countries in the world benefiting the most A 2015 research and analysis report by WTOeconomists highlighted the benefits of TFA implementation:

● Removing trade cost bottlenecks - eliminating obstacles for developing countries,narrowing the economic gap between nations, and unevenly affecting small andmedium-sized enterprises (SMEs)

● Simplifying and reducing costs in customs and trade procedures, thus reducing tradecosts

● Increasing global export volumes by 2.7% per year and global GDP by over 0.5% peryear Developing countries will benefit from nearly $1.9 trillion in export growth,contributing to 0.9% annual economic growth.

● Diversifying product offerings and export markets The number of new export productswill increase by 20% in developing countries and 36% in least-developed countries

● Reducing administrative burdens on small and medium-sized enterprises

● Attracting foreign direct investment (FDI)

The TFA includes provisions aimed at improving transparency, predictability incross-border trade and creating a business environment with minimal discrimination, includingconsultation and dispute settlement rules The TFA's provisions enhance the availability andpublic disclosure of information on cross-border procedures, improve traders' rights, reduce feesand related methods for importing and exporting goods and services, automate and digitizecustoms procedures, and enhance conditions for the free transit of goods

1.2 Analysis of Article 11 - FreedomofTransitinaccordance withTradeFacilitationAgreement(TFA)

Goods in transit refers to merchandise and other types of inventory that have left theshipping dock of the exporting country, going through one or many other countries' territorybefore arriving at the importing country

Article 38 of the 1982 United Nations Convention on the Law of the Sea states: “Transitpassage means the exercise in accordance with this Part of the freedom of navigation andoverflight solely for the purpose of continuous and expeditious transit of the strait between onepart of the high seas or an exclusive economic zone and another part of the high seas or anexclusive economic zone However, the requirement of continuous and expeditious transit does

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not preclude passage through the strait for the purpose of entering, leaving, or returning from aState bordering the strait, subject to the conditions of entry to that State.”

1.2.2Content

Article 11 - Freedom of Transit in accordance with TFA was made to ease and expeditethe movement of goods across countries, particularly for landlocked nations With this goal inmind, 17 regulations are introduced in the article as part of a measure, This measure aims toensure the flow of traffic in transit by applying rules, regulations, and processes in a way thatdoes not restrict trade, by getting rid of all formalities and regulations that are unnecessary, byoutlawing any voluntary restraints on traffic in transit, and by ensuring that goods in transit aretreated fairly

Some key points to be taken from the measure introduced in Article 11 are (Organization,2023):

1 No Discrimination: Article 11 requires that goods (including means of transport) in transitshould not be subject to any unnecessary delays or restrictions and should not beconditioned on any customs duties, charges, or any other imposition

2 Most Favored Nation Treatment: Traffic in transit should receive treatment not lessfavorable than that accorded to the transit traffic of any other country This means, forinstance, a country cannot discriminate against transit traffic from one country whilefavoring another

3 Charges and Regulations: Charges and regulations tied to traffic in transit should bereasonable, having regard to the conditions of the transit They must be justifiable and notrepresent a disguised restriction on trade

4 Infrastructure Maintenance: Charges can be imposed for transportation services or for theuse of infrastructure related to transit, but they must be in proportion to the costs incurred,and should not represent a hidden trade barrier

5 Non-discrimination in Transport: Member countries must permit the selection of means oftransport and cannot favor one means of transport over another

6 Advance Filing: For the purpose of speeding up transit procedures, countries can requirethat documentation and data be submitted in advance before the goods arrive

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7 Guarantees: Some countries require guarantees (like bonds) to ensure compliance withcustoms and transit requirements Article 11 states that these guarantees should not behigher than the duty/tax at risk, and once the goods have exited the country, the guaranteeshould be quickly discharged.

8 Delays and Blockages: In case of delays or blockages, member countries are supposed toprovide for the temporary storage of goods in appropriate facilities, at the risk and cost ofthe parties involved

In conclusion, Article 11 - Freedom of Transit in accordance with TFA addresses one ofthe primary pain points in international trade — the challenges of goods in transit Byestablishing clear rules, it seeks to reduce trade costs, increase predictability, and in essence,facilitate smoother and more efficient global trade It is particularly significant for landlockedcountries, which often face challenges in accessing the global market due to their geographicalconstraints

2.1.1InregardofVietnam’sgovernmentagencies

The government has implemented a number of measures to carry out the freedom oftransit in Vietnam (Article 11), such as enforcing circulars, decrees on Goods Export and Importmanagement, or regulations on Commercial Law exercise in International Goods trading activity

By signing the Trade Facilitation Agreement (TFA), the Vietnamese governmentdemonstrated its willingness to alter and complete the Legal Framework in order to comply withthe concluded Agreement It could be clearly seen that right after the ratification of TFA by theNational Assembly of Vietnam (November, 2015), promulgated legal documents such as Circular

No 247/2016/TT-BTC of the Ministry of Finance on charge rate, mode of charge, pay, manage,and use of customs fees and fees of commodities and vehicles, or Circular No 59/2018/NĐ-CP

on April 20th, 2018 of the Government’s amendments and supplements some of provisions ofCircular No.08/2015/NĐ-CP on January 21st, 2015 about details and measures on PromulgatingLaw on Customs of customs procedures, customs check, and customs examination

Besides that, the government also prioritises technical investment, modern vehicles, andadvanced technology in order to ensure efficiency in customs management; encouragesorganisations and individuals to participate in technology development and advanced means oftechnique to guarantee the application of effective customs administration methods A vividexample could be traced to the ASEAN Customs Transit System (ACTS) According to thesystem, all commodities transiting through ACTS across other member nations and imported intoVietnam must adhere to all management regulations applicable to imported goods related toVietnam Organisations and individuals involved in Goods Export and Import activity areresponsible for participating in the development and implementation of e-commercialtransactions and e-custom procedures

2.1.2InregardofVietnam’sbusinessmen

In the operation of trade, businessmen and export firms in Vietnam must not only complywith laws and regulations on transit of goods but also other related requirements In addition,Vietnamese traders also actively learn about the proclaimed regulations and commitments onfreedom of transit through mass media and documents issued by the government

Currently, there are a handful of companies providing transit of goods services, such as:VRTS - Vietnam Railway Transport Service Joint Stock Company VRTS has carried out anumber of customs procedures for cargo, including transit of goods from China to Hai Phong,transit of goods to Laos at different borders VRTS’s customers are international corporations andmultinational corporations, Vietnam’s big companies such as Logitem, Vina, Takaoka, Abb,Habin, Honda, Evn, etc.

Additionally, there are companies providing goods transit services: Ocean TransportLogistics, Nippon Express Vietnam Ltd, Vietnam Container Joint Stock Company, etc.2.2TheeffectofArticle11implementationontradeinVietnam

The implementation helps contribute to business’s cost decline and profit increase intransit of goods Also, this helps to develop competitiveness among businesses participating ingoods transit, creating benefits and promoting transiting activities, advocating geographicadvantages of Vietnam in transited commodities transport for the purpose of further facilitationfor the transport of goods in transit, and supporting the implementation of the trade sector

In regard to facilitation of business activities, the application of freedom of trade alsobrings about acceleration of customs procedure reformation, simplification, and standardisation,

as well as the enhancement of transparency in customs procedures By doing this, theGovernment supports small and medium enterprises, attracting more Foreign Direct Investment(FDI) in production activities and exports to foreign markets (Tuan Anh, 2020)

Furthermore, Article 11 can prevent a tax deficit for the Government Recently, theVietnam Functional Force detected that many cases of goods in transit through Vietnam's borderhave been broken and gutted, causing tax losses to the Government (Manh Hung, 2020).Therefore, to ensure no risks or disputes arise from the process, the Government can choose aform of guarantee for a journey or guarantee multiple journeys and submit a letter of guaranteefrom a credit institution, a bank branch from abroad to the customs office where the updateddeclaration is registered through the system

Businesses are exempt from guaranteeing multiple itineraries in transit if they meet thefollowing conditions: to be recognized as a priority transit enterprise; to register transportationservices or provide logistics services in accordance with the law; to not have any overdue taxes,late payment interest, or fines for more than 90 days; and to not be subject to any penalties

applying to coercive measures to enforce tax administrative decisions in the field of customs for aperiod of 2 consecutive years.

Moreover, Vietnam is a member of several free trade agreements (FTAs), including theASEAN Free Trade Area (AFTA) and the Comprehensive and Progressive Agreement forTrans-Pacific Partnership (CPTPP) These agreements have reduced or eliminated tariffs ongoods traded between Vietnam and its trading partners, making it more attractive to use Vietnam

as a transit country FTAs can also provide technical assistance to countries to help themimplement the TFA, which can include training for customs officials and other stakeholders(James Clark et al., 2022) The combined use of Trade Facilitation Agreement and other FreeTrade Agreements provides both exporters and importers with preferable conditions, enhancingtrading activities

The implementation of this article can also be assisted by Vietnam’s legal framework,Government support, stable politics and long-term master plan In 2015, according to “Review OfVietnam Law With The WTO Trade Facilitation Agreement” by VCCI, Vietnamese law satisfiedall requirements in Article 11 of the TFA, which demonstrates the continuous effort of thegovernment At the end of 2016, the Prime Minister issued Decision No 1969/QD-TTg onOctober 13, 2016, approving the plan for preparing and implementing the TFA In other words,Vietnam has shown its positivity and initiative in ratifying and preparing work to ensure

compliance with the obligations of Article 11 specifically and TFA generally The government isalso taking a long-term view to develop Vietnam into a transit hub by first investing in thetransportation infrastructure (SOA, 2023) In 2021, a masterplan is announced by Vietnam'stransport ministry to provide appropriate infrastructure as required in 11.5-11.10 provisions.

b Weaknesses

Vietnam still lacks some of the necessary infrastructure to support the efficient movement

of goods through the country This includes roads, railways, and ports that are not yet up tointernational standards The utilisation of minor ports and vessels, which make up around 80% ofcontainer imports and exports in the nation, presents the biggest challenge to Vietnam's largestports (Koushan Dash, 2019) Additionally, several ports are overloaded with cargo, which hascaused congestion and substantial delays It cannot be denied that Vietnamese ports'infrastructure is expanding, and several sizable projects are already under way to handle therising volume of trade However, the enhanced infrastructure to absorb extensive increases inshipping volume is necessary and critical for Vietnam’s economic growth and sustainability.Furthermore, weak border agency co-operation in Vietnam, as demonstrated by Figure 1below, creates many difficulties for transit From 2017 to 2022, both the External and Internalborder agency co-operation indicators only witnessed a slight increase from 0.7 to 1 and from 1

to 1,36 relatively, while they are one of the most important factors regarding the implementation

of Article 11 Internationally operating companies are subject to trade and customs regulations atevery port and border In particular, exposure will occur when products transit via a third country(as is frequently the case for landlocked countries) and through transshipment hubs (such as thelarger shipping ports that pull feeder-traffic from smaller ports), as well as while they are intransit

Source: OECDThe quality of human resources in the Customs sector still has limitations andinadequacies, although the quality of Customs officers and civil servants is increasinglyimproving and being standardised according to professional requirements Customs officers andcivil servants are formed from many different sources, and the quality of officers is uneven.Currently, some officers still have limitations in foreign languages, information technology,skills, and working methods that still follow the old traditional style and do not meet therequirements of modern customs management The increasing workload despite the downsizing

of staff leads to a situation where there is not enough staff to perform the task In addition, theassessment and analysis of training have not been implemented in a timely manner (Quang Hung,2021)

c Opportunities

By effectively implementing the Freedom of Transit provisions, Vietnam could become aregional logistics hub by providing efficient and reliable transit services for goods movingbetween China, ASEAN, and other countries in the region Belonging to a dynamic development