Incentives With Prudence
By Nguyen Tuan
The Government issued Decree 61/2010/ND-CP on June 4, 2010 (Decree 61), on boosting investment in agriculture and rural areas. While this document bodes well for enterprises, experts contend that the incentives must be launched with care; otherwise these measures may breed international trade disputes and violate the rules set by the World Trade Organization.
The World Trade Organization (WTO) categorizes subsidies into domestic support and export subsidies, the latter of which are banned as they distort trade. Vietnam has promised to eradicate export subsidies upon its WTO accession in January 2007 and will probably steer clear of offering them to Vietnamese enterprises.
Domestic support is generally feasible, but should conform to several conditions and criteria, say experts. Specifically, according to WTO, there are four types of domestic support, each with its own conditions (see table). Dr. Nguyen Van Nam, director of Nam Hung Law Co., says that the criteria and conditions for offering investment incentives pursuant to Decree 61 are rather murky. In particular, the decree lists three groups of projects entitled to the incentives: (i) projects eligible for special incentives (in severely disadvantaged regions); (ii) projects eligible for incentives (in disadvantaged regions) and (iii) projects encouraged in rural areas.
Even though Decree 61 already stipulates 28 specific sectors where incentives are applicable (for instance: animal feed production, material zone development, animal husbandry, post-harvest storage and so on), rural areas, as mentioned in (iii), are still a vague concept. “I don’t understand upon which basis these sectors are selected. By right, the selection should depend on WTO principles and standards to ensure legitimacy,” Dr. Nam says.
Dr. Nguyen Thi Thu Trang from the Vietnam Chamber of Commerce and Industry (VCCI) says that, in line with WTO’s Agreement on Agriculture, only sectors whose final products are agricultural wares, are entitled to domestic support. Some sectors listed in Decree 61 such as those producing fabrics, leather materials, agro-equipment and food processing machinery, do not seem to meet this requirement and, pursuant to WTO regulations, are arguably not eligible for subsidies.
Lawyer Ngo Quang Thuy, managing director of NT Trade Law LLC., says that some of the incentives offered by Decree 61 may distort trade. They include, for instance, land use fee and land rent exemption or reduction or water surface and land rent support. Experts say that while some forms of domestic support deemed as detrimental to trade may be used (amber-box support), they can still be mired in lawsuits if considered deleterious or potentially deleterious to other countries.
In addition, these incentives are deemed illegal if applied in non-agricultural sectors, for they may engender lawsuits involving Vietnam’s exports. Enterprises would do well to bear in mind these possible consequences.
Thuy cites, as an example, the U.S.’s anti-dumping lawsuit against Vietnam’s plastic bags, accused of selling at a price below fair market value and receiving a government subsidy of 1-52.56% (including land rent reduction or exemption).
In response to these concerns,Nguyen Dinh Tai, director of the Management Consultancy and Training Center (under the Central Institute for Economic Management), which oversees the compilation of Decree 61, says that the document has been thoroughly discussed and assessed by the ministries of finance, industry and trade, and justice, as well as the Government Office. “We are aware that WTO bans some forms of support. However, Vietnam does not have to eradicate such incentives immediately,” Tai says.
Nguyen Thi Hong, deputy head of planning at the Ministry of Agriculture and Rural Development, adds that, in addition to blue- and green-box incentives, Vietnam can also apply amber-box support so long as the subsidy does not exceed 10% of the product value (or the total output value in agriculture) or a certain level (according to the country’s promise). “Vietnam’s agricultural support is still in line with WTO’s regulations,” Hong says.