bs_bs_banner Growth and Change Vol •• No •• (•• 2014), pp ••–•• DOI: 10.1111/grow.12043 Re-Regulation in the Post-WTO Period? A Case Study of Vietnam’s Food Retailing Sector HAI T H NGUYEN, GEOFF DEVERTEUIL, NEIL WRIGLEY, AND KANCHANA N RUWANPURA ABSTRACT Academic interest on domestic regulatory (and re-regulatory) impacts of retail foreign direct investment remains surprisingly under-researched, despite high-profile campaigns, particularly in Southeast Asia, to rein in the expansion of retail transnational corporations This paper focuses on the trends of re-regulation of foreign retailers, particularly in the food sector, in Vietnam before and after the accession to the World Trade Organization (WTO) in 2007 The findings reveal a complex layering of regulation, some of it a holdover from the pre-2007 period and some of it occurring since WTO accession, in the form of the controversial Economic Needs Test A cademic interest on domestic regulatory (and re-regulatory) impacts of retail foreign direct investment (FDI) remains under-researched, despite high-profile campaigns, particularly in Southeast Asia, to rein in the expansion of retail transnational corporations (TNCs; Coe and Wrigley 2007) Wrigley and Lowe (2010) claim that academic opinion has increasingly begun to query whether retail globalisation has entered a new phase since the mid-2000s, with one of the characteristic features being pressures to re-regulate These have been stronger in some regions (e.g., Southeast Asia) than others, and they extend to include slower than anticipated processes of retail FDI/market access liberalisation in some countries, most significantly India Two broad types of barrier have important effects on the development of trade in retailing First, there are the institutional, cultural, and organisational barriers that must be overcome by retailers in order to achieve market competitiveness in the economies (both emerging and “mature”) which they enter Second, and the focus of this paper, there are the wide range of regulatory barriers covering a spectrum from inward retail Hai Thi Hong Nguyen is a lecturer at the Department of Economic Management, Vietnam National University, Hanoi, Vietnam Her e-mail address is: hainth@vnu.edu.vn Geoff Deverteuil is a senior lecturer of Social Geography at the Cardiff School of Planning, Cardiff University, Cardiff, Wales CF10 3WA, UK His e-mail address is: DeVerteuilG@cardiff.ac.uk Neil Wrigley (FBA) is a professor of Economic Geography at Geography & Environment, University of Southampton, Southampton SO17 1BJ, UK His e-mail address is: N.Wrigley@soton.ac.uk Kanchana N Ruwanpura is a senior lecturer in Development Geography at the Institute of Geography, University of Edinburgh, Drummond Street, Edinburgh EH8 9XP Her e-mail address is: kanchana.ruwanpura@ed.ac.uk Submitted October 2011; revised January 2012; accepted April 2012 © 2014 Wiley Periodicals, Inc GROWTH AND CHANGE, •• 2014 FDI, market competition, land/property and zoning, shareholder equity, and minimum capital requirements, to store opening hours, “below cost” selling and so forth This paper considers the putative trend towards re-regulation, and responds to calls from Coe and Wrigley (2007, 2009) and Wrigley and Lowe (2010) by focusing on the most recent transition in regulation of the food retailing industry in a Southeast Asia country, Vietnam, in the last two decades The paper is organised along the following lines: 1) a conceptual consideration of re-regulation (processes and responses); 2) the Vietnam case study, which provides an overview of a trend towards re-regulation; and 3) a set of discussions and conclusions of how the case study illustrates this putative trend towards re-regulation Re-Regulation? Processes and Responses A wide range of regulatory barriers can be, and have been, employed by countries experiencing rapid multinational retail-induced transformation of their existing retail systems following retail FDI (Alexander and Doherty 2009) At one end of the spectrum, while those countries will legitimately and necessarily have land, property, and competition laws—laws that will inevitably reflect cultural and institutional variations between countries—they can be written and/or interpreted in such a way that they are restrictive of particular forms of ownership and levels of control by foreign firms For example, registration of land ownership may be restricted for companies with a significant percentage of foreign ownership, such companies may also be proscribed from purchasing particular types of commercial property; and competition laws that seek to control unfair trade practices can be interpreted in a way that produces an anti-competitive assessment of multinational retail expansion on business competition in the host economy More explicitly, anti-FDI laws can be employed to impose restrictions on the share of a firm’s capital that can be owned by foreign nationals, and equity requirements can be imposed on foreign investors who wish to hold majority stakes At the other end of the spectrum, both the market entry costs and ongoing operational costs of retail TNCS can be raised differentially by a wide range of what can be seen as merely legitimate and necessary regulatory responses to the need to protect culturally valued aspects of the urban and/or rural environment, or to maintain competitive markets in the host economy in the context of multinational retailer-driven concentration of the retail sector That is to say by regulations covering land-use zoning, building and outlet-size codes, hours of operation restrictions, environmental impact assessment requirement, and so on Conversely, those regulations can be designed in such a way that they differentially impact on the operational costs of the multinational retailers and therefore become restrictive in terms of trade and investment During the mid to late 1990s, the transformation of the previously “traditional” retail systems of many emerging economies was facilitated to a significant extent by what Reardon and Hopkins (2006: 537) describe as the “immense shock of FDI VIETNAM’S FOOD RETAILING SECTOR POST-WTO liberalisation” which, in turn, “was part of structural adjustment programmes, multiand bi-lateral trade agreements, and WTO accession requirements.” They locate this “first-wave” liberalisation in large parts of Latin America (Mexico, Brazil, Argentina— see Reardon and Berdegue 2002) and Central/Eastern Europe during the mid-1990s, while in Asia—spurred by the exigencies of the economic crisis of 1997—equivalent “second-wave” liberalisation in Indonesia, Thailand, the Philippines, and so forth took place at the end of the 1990s and was accompanied in other parts of the region (e.g., China, Vietnam, India) by initial/partial liberalisation Although some of the “third wave” partial liberalisation countries subsequently moved to full liberalisation of retail trade (e.g., China in 2004 and Vietnam in 2007 as part of World Trade Organization [WTO] accession) important trends during the 2000s can be summarised along the following lines: 1) intense controversy in many of the countries that had liberalised market access in the 1990s, surrounding the desirability of multinational-driven retail change, the adverse impacts of large-format retail development on traditional smalloutlet retailers, and heightened retailer–supplier tensions associated with the inclusionary/exclusionary dimensions of radically transformed supply systems postretail FDI; 2) consistent pressure towards re-regulation—that is, attempts to manage restrictions on inward retail FDI effectively through ownership and control, and market competition; to protect existing retail structures via land-use zoning restrictions, regulation of store opening hours, and permitted retail formats; and to impose codes of conduct on retailer–supplier relations; and 3) policy conflict caused by tensions in balancing the conflicting goals of “seeking to promote trade competiveness with defending the interests of local firms, interest-groups and consumers” (Mutebi 2007: 366) On the second point, the motivations behind this re-regulation trend can be traced to the earlier liberalisation of retail FDI, which by the mid-2000s sparked intense debate within the host economy/society over the desirability of multinational driven retail change, large-format retail development, and/or market dominance by retail TNCs (Fels 2009; Wang 2009) The sheer visibility of the necessarily embedded investment of the retail TNCs frequently exposed them to intense and localised regulatory scrutiny and challenges, emerging from a precarious mixture of shifts in local consumption cultures and geographies, rapid erosion of the market share of traditional channels, and the political influence of incumbent groups of local retailers and other SMEs (Wrigley and Lowe 2010) Academic research on this wide spectrum of host economy regulatory barriers to the development of international trade in retailing is surprisingly limited Table 1, adapted from one of the few academic papers to explore the issue (Mutebi 2007), provides a useful summary of the range of regulatory measures, which have been used by governments to slow retail FDI and multinational retail-induced concentration and transformation of the sector Mutebi (2007) divides the measures into two groups First, there are those measures—FDI restrictions, land/property, and competition laws— which are applicable generally, but sometimes at varying levels, to all inward FDI Second, those measures (equity thresholds, capital requirements, environmental and GROWTH AND CHANGE, •• 2014 TABLE REGULATORY MEASURES IN SOUTHEAST ASIA WHOSE DESIGN/ IMPLEMENTATION HAS BEEN USED TO CONSTRAIN RETAIL FDI AND MULTINATIONAL-RETAIL-INDUCED CONCENTRATION AND TRANSFORMATION OF THE RETAIL SECTOR Measures applying to all foreign investors Large-format TNC-targeted measures Land and property laws Laws governing the various forms of ownership in real property Advance socio-economic impact studies Rules requiring assessment of likely social/econ impact a retail project may have on existing businesses and local community Competition laws Laws promoting competition and prohibiting unfair trade practices, and generally encompassing anti-trust and consumer protection laws Environment and/or historic preservation impact studies Rules requiring assessment of the likely human environmental health impact, risk to ecological health, and environmental changes that a project may have on a given area or community FDI laws and policies Laws governing movement of capital across national frontiers in manner that grants investors control over acquired assets-covers both greenfield investments and acquisitions Zoning Rules designating the permitted uses of land based on mapped zones, which separate one part of the community from another Large-format TNC-targeted measures Large-format TNC-targeted measures Shareholder equity requirements Rules on specific equity thresholds for TNCs to participate in the host country’s retail sector Serviced population requirements Rules requiring minimum population thresholds for permit to site a large-format retail outlet in a given community Minimum capital requirements Rules on specific capital requirements of a firm to participate in the retail sector Building and outlet-size codes Rules specifying form and size of construction for large-format retail outlets and shopping centres, usually prohibiting specific formats and/or sizes Advance applications for new outlets Rules on specific equity and related requirements for any firms to participate in the retail sector Hours of operation Restrictions on operating hours of large-format outlets, usually specifying opening and/or closing hours Others Rules relating to warehousing, management and marketing, ancillary service provisions, etc Source: Adapted from Mutebi (2007, 368) VIETNAM’S FOOD RETAILING SECTOR POST-WTO community/business impact study requirements, zoning restrictions, building and outlet-size codes, store opening hours restrictions, minimum serviced population sizes) that are seen as more specifically targeting multinational retailers, and, in particular, at the large-format stores with greater impacts on the local retail landscape We are not aware of any research to this point that has provided empirical evidence of the differential costs imposed by each of these regulatory measures on the entry and market expansion of the retail TNCs Rather, academic concern has centred more broadly on putatively emerging re-regulation trends in countries, which had liberalised market access in the 1990s; more to the point, we are interested in how Mutebi’s identified regulatory measures are part and parcel of this re-regulation in the 2000s, and how they apply to the Southeast Asian context, specifically the case of Vietnam and specifically to the food retail sector The Vietnamese case study is especially interesting in comparison to the Chinese experience, with its roughly parallel strategies to protect domestic retailers (Fels 2009; Wang 2009; Xinxin 2000) Fels (2009: 20) notes that in China, and despite its 2001 accession to the WTO, “foreign investment has not transformed the [retailing] sector so far Beijing is making it harder for foreigners by adopting policies that seek to ensure that indigenous national champions emerge as the dominant force in Chinese retail.” Strategies include limits to foreign ownership, and financial support for local “flagship” retailers (Fels 2009) Complementing Mutebi’s (2007) categorical approach, and in this context of potential re-regulation, we wish to consider several measures of a services trade restrictiveness index (STRI) Here we draw on the Organisation for Economic Co-operation and Development (OECD) Working Party of the Trade Committee’s (March 2010) list of potential measures for inclusion in a STRI (OECD 2011)—a list organised into five main categories: 1) Restrictions on foreign ownership and other market entry conditions; 2) restrictions on movement of people; 3) other discriminatory measures and international standards; 4) barriers to competition; and 5) regulatory transparency and administrative requirements Of these measures, the two most relevant to our focus, and likely to complement Mutebi (2007), are and For category 1, there are foreign equity restrictions that put controls on multinational retailers taking positions of majority or controlling share ownership in leading domestic retailers in the markets for which they seek to enter; this trend has been particularly prominent in places such as India Moreover, minimum capital requirements have also grown as an issue in some emerging markets But it is category that is potentially the most crucial yet also problematic dimension Competition policy offers a useful lever with which host economy governments can impose to prevent market abuse by large retailers (e.g., predatory pricing to drive out smaller retailers, the imposition of anti-competitive supply-chain practices, etc.) and to maintain competitive markets However, evidence exists that multinational retailers have borne the brunt of regulations that may at first blush seem necessary and legitimate responses to the need to defend culturally valued aspects of the host economy, and/or to ensure competitive markets and consumer welfare in the face of trends towards concentration in the sector Nevertheless, these regulations may also GROWTH AND CHANGE, •• 2014 have been calculated, or may be interpreted, in such a manner that they differentially impact the operating costs of multinational vis-à-vis domestic retailers Indeed, there is a fine distinction between regulations that seek competitive markets and/or to mitigate adverse impacts on communities and environment, and those measures that restrict trade It is within this context that the land-use zoning, hours of store operation, and building code restrictions previously noted are assessed and incorporated appropriately into the potential STRI Just the same, we accept that it is no straightforward task to develop this STRI, and that in the context of the heated debates over the consequences of multinational retailer-driven market transformation and concentration in host economies, we wish to explore the point made by Nordas (2008: 450) that “enforcement of competition policy in the retail sector may be necessary for trade liberalisation to yield the expected improvement in market access for foreign suppliers of consumer goods and predicted gains to consumers.” Context: Southeast Asia Reardon and Hopkins (2006) propose that the post-FDI liberalisation phase of retail re-regulation is occurring in the “strong regulator” countries of Southeast Asia Their conclusion, however, is that in many emerging markets “retail policy is now equivalent to foreign policy—and the same kinds of external pressures (sticks and carrots) that led to trade and investment liberalisation in the first place continue to act to slowly pry open the markets” (2006: 19) Beyond the aforementioned Chinese examples, we can further point to the intense campaigns in Thailand in the mid-2000s, aimed at tightening legislation and limiting further expansion of the retail TNCs, which had entered the market (Wrigley and Lowe 2010) The newly minted military government, acknowledging strong campaigns by indigenous retailers to limit provincial expansion by the retail TNCs (Tesco, Casino, Carrefour) who had established dominance of the market from the late 1990s onwards, enacted legislation to significantly limit retail chain expansion In turn Tesco, the market leader, was forced to halt a significant part of its development programme Its initial responses to the threat of regulatory tightening during the years prior to the military coup of 2006 combined 1) pre-emptive site acquisition in anticipation of land-use zoning tightening in the metro Bangkok area subsequent to the initial wave of large-format hypermarket development by the retail TNCs, and 2) format adaptation, whether small-format “Express” convenience stores in metropolitan Bangkok (139 convenience stores by 2006) or the novel low-build cost “Value” store format—essentially a stripped-down, small hypermarket core surrounded by a leased, local fresh food vendor market, and farming supplies area, in an attempt to circumvent the threat of tightened development control in low-income provincial “up country” towns where large-format hypermarket development was seen to be both politically impossible and commercially unviable This embedding process was deepened through attempts to vaunt Tesco’s inter-firm and extra-firm relations and importance to the Thai economy—expressly relating to employment, supply-chain VIETNAM’S FOOD RETAILING SECTOR POST-WTO TABLE REGULATORY MEASURES USED IN INDONESIA, MALAYSIA, AND THAILAND DURING THE MID-2000S WHOSE DESIGN/IMPLEMENTATION WAS USED TO CONSTRAIN FURTHER INROADS OF MULTINATIONAL AND LARGE-FORMAT RETAIL Indonesia Measures specific to all foreign investors Land and property law Competition law FDI policies Large-format TNC-specific measures Shareholder equity requirements Minimum capital requirements Advance applications for new outlets Zoning Advance socio-economic impact studies Serviced population requirements Building and outlet-size codes Ancillary services provision requirements Warehousing requirements Management and marketing requirements Malaysia Thailand X X X X X X X X X X X X X X X X X X X X X Source: Adapted from Mutebi (2007, 369) modernisation, infrastructure investment, skills training, and export gateway benefits—and to emphasise the potential coexistence of traditional and modern retail systems Despite these high-profile campaigns in Southeast Asia to rein in the expansion of the retail TNCs, and increased regulatory sensitivity across many markets, host economy regulatory impacts of retail FDI remain surprisingly under-researched (but see Mutebi 2007; Reardon and Hopkins 2006) More widely across the region, Mutebi (2007) has charted the rise of re-regulation and specifically, as shown in Table 2, the regulatory barriers (see Table 1) re-imposed in Indonesia, Malaysia, and Thailand by the mid-2000s in an attempt to limit further inroads of multinational retail and, in particular, large-format outlets We now propose a case study in Vietnam, inspired by Mutebi’s (2007) outline as well as the draft STRI, which will in turn help us situate the Vietnamese case with those in other Southeast Asia The paper’s empirical basis is drawn from case study material in Vietnam Its emphasis is on the analysis of Vietnamese policy documents (many of which are online but few in English), laws, and governmental announcements/decrees that may be considered primary material since they exist only in Vietnamese and have GROWTH AND CHANGE, •• 2014 remained untranslated into English These data were buttressed by 10 unstructured interviews with government officials in Hanoi, three local supermarket chains, and several academic experts Vietnam Context: Pre-WTO Accession The Vietnamese story is complicated by the relatively long build-up to WTO accession in 2007, a gradualist approach characterised by an incremental, if occasionally conflicted and contradictory, drive towards economic liberalisation (Cadilhon et al 2006; Marumaya and Trung 2007; McDonald, Darbyshire, and Jevons 2000) From the mid-1980s onwards, Vietnam pursued a policy of encouraging FDI and widening access to foreign investors gradually (Cadilhon 2005) The changes in regulation aimed to remove obstacles on the operation of foreign investors and to improve the investment climate in Vietnam Usually, these changes included tax incentives, simplifying investment-licensing producers, and promoting the transfer of technology In terms of protecting investors’ rights, preferential treatment and investment, Vietnam’s FDI policies, laws, and regulations were quite liberal in comparison to the Asian countries (Nguyen and Nguyen 2007) It is worth noting that some of these changes were due to Vietnamese government’s own initiatives to accommodate foreign investors, while others were due to external pressure from international economic integration (such as under the BTA or WTO accession) More specifically, in the pre-WTO period, Vietnam embarked on a series of initiatives to open up the economy to foreign investment, akin to other transitional economies In 1986 began an “open door policy” (Doi Moi) for foreign investors, performing a gradual transition from a planning economy into the market-oriented economy, one that would extend into the new millennium In 1987, the Law on Foreign Investment was initially promulgated The lifting of 30-year-old American embargo in 1994 and, afterwards, the establishment of diplomatic links with the U.S., were conspicuous signs of a new openness in the country (Venard 1996) Vietnam loosened FDI restriction in 1996, allowing foreign joint ventures in the retail sector for the first time Ultimately, regulations for foreign enterprises significantly changed when the Investment Law and Enterprise Law came into effect in order to meet the requirements of the WTO The law reflected, for the most part, Vietnam’s policy of equal treatment for domestic and foreign investors and incentives for investment Key components in 2007 included the following: 1) from 2006, foreign investors could invest in any area not prohibited by the laws, instead of areas allowed by state agencies as in the previous laws; 2) equal fees for international and domestic investors; 3) investment capital and legal assets cannot be nationalised or confiscated without proper confiscation; 4) the maximum investment duration of foreign-invested projects is 50 years or, in special circumstance determined by the government under a stipulation of the Standing Committee of the National Assembly, 70 years; 5) the State makes it clear that foreign VIETNAM’S FOOD RETAILING SECTOR POST-WTO investors are not obliged to buy or use domestic goods or services, to export any set percent or amount of product, to use local materials, to provide any particular goods or services or to locate their head office in any government mandated area; 6) no imposition on the right of foreigners to participate in management; 7) foreign investors are offered corporate income tax exemption and deduction, as well as VAT exemption; and finally, 8) prohibition of enterprises having a combined market share of above 50 percent in the relevant market The Post-2007 Period One would expect, given the deregulatory impulse of the laws leading up to the 2007 WTO accession, that Vietnam would have been flooded with multinational retailers, along with the potential for a backlash and re-regulation And this period was indeed characterised by an uneven re-regulation that aimed to provide more instruction and details for retail TNCs The following table summarises Vietnamese regulations on the retail sector We focus on five specific policies pertaining to regulate retail TNCs First is the threshold of capital share In order to protect domestically owned supermarkets, the government of Vietnam has discouraged 100 percent foreign-owned investment in the retail industry Decision 36 (dated 11 March 2003) also capped the foreign stake in a domestic company at 30% of legal capital; these restrictions were a major disincentive for foreign investors to make significant share purchases in domestic enterprises (Vietnam Net 2011) From January 2007 onwards, foreign investors could set up distribution joint ventures, in which they can hold up to 49% of capital The capital contribution ratio would be raised to 99.99% in 2008 From 2009, Vietnam opened its market door for 100% foreign-owned retailers Vietnam continues open-door policy towards international investors, which allow full ownership of retail enterprises, although full ownership was confided to the non-food sector in 2009 Food retailing (except foodstuff excluded in the WTO commitment) was allowed from January 2010 onwards (Table 3) The second policy regards prohibited products Foreign-invested companies in distribution services are permitted to act as commission agents, wholesale and retail business of all legally imported and domestically produced products (Table 3) It is worth noting that distribution of the following products is excluded from any commitment made on trade in distribution sector: cigarettes and cigars, books, newspapers and magazines, video records on whatever medium, precious metals and stones, pharmaceutical products and drugs, explosive, processed oil and crude oil, rice, cane, and beet sugar However, foreign retailers have largely failed to comply with the regulations on excluded products from WTO commitment; some of these excluded products, such as rice, cane sugar, wine are still on sale in many foreign outlets From the angle of domestic retailers, the excluded products play an important role with respect to the economy, welfare, security, and culture As a result, if they are prohibited in the 10 GROWTH AND CHANGE, •• 2014 TABLE SUMMARY OF REGULATIONS SPECIFIC TO RETAIL TNCS IN VIETNAM Regulation type Policies specific to retail TNCs Threshold on Quasi-regulation maximum share of capital List of banned goods Quasi-regulation License Quasi-regulation Real property and planning Quasi-regulation Restriction on the number of outlets Quasi-regulation Economic Need Test (ENT) Quasi-regulation Year of issuance 2007 Decision No 10/2007/QD-BTM Decree No 23/2007; Circular No 09/2007; Circular No 5/2008 Promotion and advertisement Existence of local monopolies for some products Threshold of retail size Zoning Hour of operation Building and outlet-size code Policy specific to retail sector Draft Decree on Quasi-regulation retailing a Guiding schedule applied for capital share in an enterprise in retail sector Guiding schedule to sell and buy goods and related activities for foreigner companies in Vietnam Retailers need to apply for three or even four license (if applicable) Rules on commercial property and planning (urban, local and nationwide) Ministries and local authorities For the first outlet: It is approved together with application for right to distribution For the second and subsequent outlets, the ENT is requested Is the test whereby local authorities assess local conditions before deciding whether to issue an authorisation to an existing foreign invested company to establish any additional retail sale outlet (EUGreenbook 2010) Maximum level is 10% of total cost Yes, e.g., imported tobacco Not yet Not yet Not yet,a except for some recreation services such as karaoke, dance, etc Not yet 2010 Stipulates regulations for foreign retailers to open stores to be applied throughout Vietnam For example, in 2011 Lunar New Year, Big C extended hours of operation by 1–2 h during the peak period from January 24 to February Especially, all Big C outlets opened from a.m to midnight on the New Year Eve (2 February 2011) (Source: http://vietnambusiness.asia/stores-increase-hours-staff-for-tet/) VIETNAM’S FOOD RETAILING SECTOR POST-WTO 11 commitment, the state should impose regulation on retailers rather than leave it be breached (VNeconomy 2011) A major issue Vietnam is facing is the dilemma of how to reconcile socio-economic policies with the enforcement of the restrictions entered by Vietnam in its schedule of specific commitments There is a widespread belief both among Vietnamese experts and government officials that the WTO commitments make it difficult for local authorities to pursue their own socio-economic objectives Vietnamese experts exemplify this as follows: If local authorities want to attract large investment projects in distribution services they have to ‘violate the commitment’, otherwise they have to refuse the application from foreign distributors This kind of story has been told a number of times in Vietnam Recently, Metro has asked the Vietnamese government to authorize the establishment of a ninth outlet and the right to sell rice in this outlet This application is fully supported by the People’s Committee of An Giang because Metro’s project is expected to be of great help to An Giang’s rice farmers However, rice is excluded in the WTO commitments on distribution services and therefore the People’s Committee of An Giang will ‘violate the WTO commitments’ if they grant the authorization applied for by Metro (MUTRAP 2009) In fact, in September 2010, Metro Long Xuyen in An Giang was opened as the 11th outlet in Vietnam with the commitment of Metro: “A Metro Cash and Carry center benefits the local economy and its community Metro Long Xuyen is new milestone of the cash and carry wholesale concept in Vietnam and is again emphasising our Metro’s long-term commitment to Vietnam” (Managing director of Metro Cash and Carry Vietnam 2010) The third policy concerns licensing Foreigners who wish to business in distribution have to submit dossiers as regulated by Law on Investment, Decree no 108/ 2006/ND-CP and some documents mentioned in Decree no 23/2007/ND-CP and Circular no 09/2007/TT-BTM After being approved, foreign distributors will have an Investment Certificate, which shows their right to distribute in Vietnam A licence or approval is needed in the cases of trading alcohol, tobacco, gasoline, petrol, and oil (Enterprise Law 2006 and instruction Decrees) The fourth, and potentially most profound policy, regards the ENT or Economic Needs Test This allows local governments to reject foreign applications to open a second store if officials think it is unnecessary These regulations are explained in the draft decree in 2010; the draft decree lists provisions to carry out ENT to account for the number of stores, market stability, and population density Section of the ENT provides that to establish a retail unit, it must comply with the retail master plan The types of retail units include grocery store (including automatic selling machine), factory outlet, department store, convenience store, supermarket, hypermarket, boutique shop, and shopping mall The Ministry of Industry and Trade (MoIT) shall specify criteria for each type of retail unit The establishment of a retail unit must also comply with the retail master plan to be developed by the local authority where the retail unit is established, as well as statutory requirements, such as scale and 12 GROWTH AND CHANGE, •• 2014 the establishment and maintenance of the operation of retail shops are detailed carefully As noted, the local authority is responsible for developing retail master plan of its location, and the MoIT is responsible for developing the national retail master plan The draft decree is unclear as to whether investors are allowed to establish a retail unit if a relevant master plan has not been developed or approved Under Article 24, the master plan must comply with the national economic plan, the traffic environment, the logistics conditions, the population and other parameters of the location involved Article 25 further specifies the content of retail master plan, requiring addressing issues such as projects, priority of retail projects, the infrastructure conditions as well as the national or local demand of the retail market, which should be implemented exactly These issues constitute rather unclear requirements, and risk becoming technical barriers that prevent foreign investors from participating in the Vietnamese retail market Article 28 of the draft decree regulates the application of an ENT; it covers the establishment of retail establishments of all traders, including foreign-invested enterprises that must follow procedures defined in this decree and be in accordance with the area’s master plan Store numbers will be considered based on the numbers of stores at the same level and same fields Market stability will be considered based on a formula showing the influence of new retail stores on others with similar products within the same geographical areas (Business Times 2010) Population density is carefully applied with the main contents such as the number of retail units on population density in a geographical region: “It must not exceed [by five times] the rate of the number of retail units on population density in the province covering the concerned region (Item b, Clause 4, Article 28) and only retail units (not wholesale units) are allowed to be established in geographical regions of inhabitants’ density [by five times] higher than the average inhabitants” density of that province (Item c, Clause 4, Article 28) Under the draft Decree, the People’s Committees of local provinces and cities must establish a “Council of Economic Need” to establish whether any retail outlet over a certain size (as yet undetermined, but of course key in determining the scope of coverage) meets the “Economic Need” criteria In the case of new retail stores that overlap with other areas, the ENT council must include at least one representative from these places The draft decree also stipulates that ENT councils report to provincial and municipal people’s committees and their proposals need to be sent to the Ministry of Industry and Trade for consideration and approval (Business Times 2010) Licensing must meet ENT requirements and fit trade development plans It is clear that tight ENT regulations seek to prevent indiscriminate license granting; with these strict controls, local governments cannot grant licenses arbitrarily The ENT issue has been mentioned in many workshops recently, especially since Vietnam wholly opened its retail market on January 2010 (Business Times 2010) The Government has issued the first draft of the Decree on Retailing; in its current form, the document is missing key details making it difficult to comment in depth However, the Decree reiterates the ability of foreign investors to set up enterprises to undertake retail activities in accordance with commitments under WTO accession (Table 4) b The main criteria of the ENT are: • Number of existing service suppliers • Stability of market • Population density The draft decree adds two new standards: • Retail unit The establishment of this unit must comply with the retail master plan of local authority that must comply with the national economic plan • Each area will have an ENT council Draft decree on retailing issued in 2010 Amended by Circular no 5/2008/TT-BCT dated 14/4/2008 Footnote 24, p 33, WORKING PARTY ON THE ACCESSION OF VIETNAM, WT/ACC/VNM/48/Add.2 The main criteria of the ENT are • Number of existing service suppliers • Stability of market The Circular adds two new standards: The establishment of retail outlets outside the first retail outlet shall be considered case-by-case including population density and the sustainability of the investment project to the plans of the province or city The main criteria of the ENT are • Number of existing service suppliers • Stability of market • Geographic scale Applications to establish more than one outlet shall be subject to pre-established publicly available procedures, and approval shall be based on objective criteria The main criteria of the ENT include the number of existing service suppliers in a particular geographic area, the stability of market, and geographic scale.b a Circular no 09/2007 dated 17/7/2007a Decision no 10/2007/QD-BTM dated 21/5/2007 WTO commitment issued in Oct 2006 TABLE CHANGES IN ENT REGULATION VIETNAM’S FOOD RETAILING SECTOR POST-WTO 13 14 GROWTH AND CHANGE, •• 2014 The fifth policy regards the draft decree on retailing The government is currently following a MoIT proposal and is drafting a decree detailing retailing activities in Vietnam These articles highlight certain requirements of foreign-invested enterprises participating in retail market in Vietnam The draft decree on retailing activities applies to enterprises with the right to implement retailing activities in Vietnam Enterprises are granted the right to conduct retailing activities in Vietnam specified in business certificate or investment certificate The forms of retail include wholesale, retail, distribution, direct sale, e-commerce, or franchising activities Drafting such a retailing services decree is an important step in opening the market, which may bring investors, especially foreign ones, to enter and invest in the Vietnamese market Most of the requirements, however, are not clear and difficult to meet (Business Times 2010) As such, investors would face many technical barriers for access retail market, as WTO commitment gives them the rights, in particular with the ENT If the draft decree is issued, it will become the basis for foreign investors while applying for making retailing service investment decisions in Vietnam Evidence of Re-Regulation in Post-2007 Vietnam? Would these five regulatory policies—and particularly the ENT—constitute a process of re-regulation in the eyes of Mutebi (2007) and the STRI (entry and competition)? Perhaps, given that in 2009 Vietnam began opening its retail market to foreign retailers under the WTO commitments, with expert prediction that the Vietnamese market would become the destination of the world’s leading retailers; however, the giant retailers are still absent as of 2011 After the January 2007 WTO accession, then again after 2009 and 2010, there was no new global retailers appear in Vietnam, except three Asian-oriented retailers specialised in convenience stores, namely, Couche-Tard (Hong Kong) in 2008; FamilyMart in 2009, and Ministop in 2010 (both are from Japan) By the end of 2010, Vietnam remains one of the few rapidly growing Asian consumer markets without any McDonald’s, Starbucks, or Tesco stores (Blogs 2010) The slowness of the process may be partly due to the Vietnam’s low levels of urbanisation, but there is also evidence that re-regulation may partly explain it In effect, the permission to open additional outlets is one of the most important factors determining the decision of market entry The ENT is more often than not seen as an obstacle for foreign investors in their plan for business expansion In the interest of investors as well as the development of the retail sector itself, more clarification should be given in the identification of the scope of ENT and local authorities should adopt a uniform and comprehensive interpretation of ENT (EU Greenbook 2010) Moreover, the technical barriers that foreign investors face when they want to open second and subsequent retail points are also reasons that keep foreign investors away Foreign investors have complained that the lack of concrete ENT regulations makes it difficult to access the market (Business Times 2010) The draft Decree excludes the VIETNAM’S FOOD RETAILING SECTOR POST-WTO 15 requirement to meet such economic needs criteria for the “first retail establishment of foreign invested enterprises,” and it remains to be clarified what rules govern an enterprise if the retail outlet is smaller than the size requiring an economic needs test In a conference in Ho Chi Minh City (HCMC) in September 2010, international experts argued that the ENT being prepared by the Vietnamese government would disadvantage the retailers in developing outlets and make it more difficult for local officials to monitor the sector (Saigon Times 2010) Any foreign firm wishing to open more than two retail outlets in Vietnam must apply for a license and pass the ENT criteria allowed by the WTO for each member state to establish in order to prevent market overkill in the retail sector However, according to Rogowsky,1 ENT was a very difficult provision to create, and instead the government should try to create something healthy for the market It would be a problem when the government attempts to devise and apply ENT for a market that is dynamic and fast changing like HCMC, Hanoi, and other cities According to him, it was better to spend time on encouraging foreign retailers to come and work with local producers and farmers rather than to create a formula for the ENT, which was not being used by other governments, including China, to monitor their retail markets Bobrie2 advised that the governments considered the ENT a measure to protect their local retailers but generally did not use it, opting instead to set other requirements like outlet size that retailers had to meet if they wanted to develop their chain For example, one of the requirements would be that an additional outlet must have a space of over 1,000 square metres to open in a specific area It is not clear from the draft about how much additional detail the Decree will contain in relation to each of the above criteria, but there is concern that the Decree will not clearly define the criteria and thereby provide significant discretion to the ENT Council Provisions are also included in the Decree governing direct selling and authorising online retailing of goods However, these are not detailed and without further implementing regulations it is difficult to examine these further at this time More detail and clarification on all fronts is eagerly awaited (PWC 2010) Rogowsky (Vietnam News 2010) suggests that “in Vietnam, representatives of the Ministry of Industry and Trade should be members of the local commercial zoning committees and of the economic need test committees for tighter management.” Local experts argue that it was not clear, however, as to how such stipulations would act as entry barriers to huge foreign firms that typically muscle in on domestic territory and send local firms out of business It has been seen elsewhere that the entry of the foreign firms itself creates a non-level playing ground because they have enormous capital and other resources that are impossible for domestic firms to match The former minister of Industry and Trade (Truong Dinh Tuyen) agreed that Vietnam needed a retail law but asserted that in the current situation, the Vietnamese government should continue to apply the ENT He said the absence of ENT criteria was creating pressure on household-run retail establishments and reducing market transparency for foreign investors However, it was not easy to formulate the ENT in such a way that it would meet the twin goals of facilitating FDI in the retail sector through 16 GROWTH AND CHANGE, •• 2014 clear and transparent regulations, while simultaneously preventing a market glut Vietnam says it is committed to opening up to foreign investors and its laws allow retailers to have 100% stakes in their Vietnamese businesses; nevertheless, that rarely happens In its latest “white book” on Vietnam’s business climate, the European Chamber of Commerce described the test as a “significant market access barrier for foreign investors,” which is “applied arbitrarily and differently” at a provincial level (ECC 2011) This is in contrast to Western countries where larger retailers have had uneven—and sometimes even detrimental impacts—on small local businesses The test hence makes it challenging for international retail groups to apply their low-cost “cookie-cutter” approach to store expansion, upon which their global success has been based (Blogs 2010) An official from the HCMC Industry and Trade Department said local officials are not provided sufficiently regulation as well as guidance to deal with applications from foreign retailers seeking licenses to open more outlets in the country’s most dynamic markets In a meeting with the municipal administration in August 2010, members of the Japanese Business Association of HCMC asked for ENT guidelines so they would know what conditions they had to meet to develop their business here Representatives of Japanese firms said they were interested in the Vietnamese retail market, but they were hesitant to implement projects because they were not sure what they needed to to pass the ENT test A few big foreign retailers, however, have been successful in expanding their operation in Vietnam Big C, for example, has 14 distribution points nationwide, including the five points set up in 2010 Metro Cash and Carry also has 13 retail points, including the one opened in Vung Tau City in late 2010 (Table 5) Meanwhile, Lotte has revealed a plan to obtain 30 supermarkets in Vietnam by 2018 (Vietnamnewstoday 2009) Foreign firms were able to circumvent these strict regulations by setting up joint ventures or transferring their franchise to domestic companies in order to expand their business in the country (Business Times 2010) Alongside the ENT are licensing and operating procedures that can be perplexing to foreign TNCs According to the Big C Director, the Vietnamese market has opened up since 2007 but legal procedure and regulations on foreign retailers remain; similarly, the Director of Consultation in PricewaterhouseCoopers Co points that many enterprises continue to complain about changes of law as well as regulation are too complicated and verbose (Thethaovanhoa 2009) The barriers of market entry include a lack of transparency, and the tangled bureaucracy and intervention of local authorities especially prevalent at the provincial level These issues not necessarily breach the WTO commitment; however, they occur more frequently with small foreign retailers rather than retail TNCs (IBM et al 2009) According to Decree no 23/2007, if an enterprise wants to enter the retail sector, it will need three documents: business certificate, investment certificate, and permission issued by MoIT (IBM et al 2009) Other barriers include the size of land for project, and this remains problematic as ENT tests might limit the feasibility of real estate projects, which are often considered the most important factor in retailing According to the Deputy of Planning Department of 1998 2002 2006 2005 2008 2008 2009 2010 1996 1995 1997 2001 2006 Dairy Farm PCSC Lotte Couche-Tard FamilyMart Ministop Domestic retailers Saigon Co.op Citimart Fivimart Intimex Hapro Date of entry Retail TNCs Casino Metro Group Name of retailers Hong Kong Taiwan Korea Canada, Hong Kong Japan Japan France Germany Home country v v v v v v v v v v SM/HM v v v v v CS v v SFS Type of format 10 SM25 SM and CS18 1 End 2007 TABLE STORE OUTLETS OF MAIN RETAILERS IN VIETNAM, MAY 2011 15 SM32 2008 20 SM and CS SM43 9 2009 SM44 SM and CS 20 17 15 SM12, CS20 10 12 Feb 2010 18 16 SM21; CS20; SFS13 SM50; SFS17 SM and CS27 Expected to be launched in May 2011 14 13 and forthcoming outlet in Hanoi By May 2011 VIETNAM’S FOOD RETAILING SECTOR POST-WTO 17 18 GROWTH AND CHANGE, •• 2014 MoIT, who is in charge of licensing, the common problem of most retail TNCs in Vietnam is searching for a location to open an outlet because it is not easy to locate in the inner city of large metropolitan areas such as HCMC and Hanoi These barriers have prevented the entry of foreign retail TNCs in the retail sector; foreign retailers prefer to collaborate with a local company, which points to the difficulties that foreign companies face when going it alone it in Vietnam’s retail sector For instance, Ministop, a Japanese convenience store operator, is the latest to get in on the act It is entering into a partnership with Trung Nguyen, a local coffee group, to roll out 500 stores over the next years (Blogs 2010) Working through Vietnamese enterprises and agents can complicate issues such as payment, inventory management, or after-sale service Nevertheless, bringing the dispute to the court is not recommended because foreign companies who have used this option stated that the Vietnamese court system is slow and lacks transparency Conclusion By reviewing the changes in regulations under the accession to WTO for Vietnam, this paper has contributed to a better understanding of regulation and re-regulation of foreign retail TNCs, especially in the food sector In effect, Vietnam has been re-regulating since its WTO accession, seeking largely to prevent the entry of foreign investors in distribution sectors and protect domestic retailers These barriers have significantly impacted the entry of retail TNCs The opening schedule of distribution has seen slow progress: From 2007 to 2008, Vietnam used barriers of capital share and prohibited products; in 2009, limitation of capital share was removed but remained the list of prohibited product; in 2010, the list of prohibited product was lifted but the ENT criteria were revised and tightened Moreover, the unclear and inconsistent regulations are quite popular in the domestic retail sector, and are a key factor in the downgraded attractiveness of the market to investors As noted by Fred Burke, director of law firm Baker and McKenzie Vietnam, Vietnam has no law on the retail sector, not unlike many other countries in the Global South (Thanhniennews 2010) Finally, and more generally, the Vietnam case study seems to work against Reardon and Hopkins’ (2006) conclusion that the re-regulatory trends of the past decade are unlikely to be a longterm major 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