Decision No. 08/2017/QD-TTg dated March 31, 2017 of the Prime Minister guiding the implementation of the protocol between the Government of the socialist republic of Vietnam and the government of the Russia federation on supporting the production of motor vehicles in the territory of Vietnam

THE PRIME MINISTER 

Decision No. 08/2017/QD-TTg dated March 31, 2017 of the Prime Minister guiding the implementation of the protocol between the Government of the socialist republic of Vietnam and the government of the Russia federation on supporting the production of motor vehicles in the territory of Vietnam

Pursuant to the Law on organization of Government dated June 19, 2015;

Pursuant to the Law on Treaties dated April 09, 2016;

Implement the Protocol between the Government of the Socialist Republic of Vietnam and the Government of the Russia Federation on supporting the production of motor vehicles in the territory of Vietnam signed at Moscow on March 21, 2016 (hereinafter referred to as “Protocol”);

Implement the Free Trade Agreement between the Socialist Republic of Vietnam and the Eurasian Economic Union and its members (Hereinafter referred to as the VN - EAEU FTA Agreement) signed at Burabay, the Republic of Kazakhstan on May 29, 2015;

Pursuant to the Government’s Decree No. 95/2012/ND-CP dated November 12, 2012 defining the functions, tasks, powers and organizational structure of the Ministry of Industry and Trade;

At the request of the Minister of Industry and Trade;

The Prime Minister promulgates the Decision guiding the implementation of the Protocol between the Government of the Socialist Republic of Vietnam and the Government of the Russia Federation on supporting the production of motor vehicles in the territory of Vietnam.

Chapter I

GENERAL PROVISIONS

Article 1. Scopeof adjustment

This Decision prescribes the process of allocation of tariff quota, procedure for issuance of license for importation under tariff quota, inside and outside tariff quota rates and the cooperation and management mechanism between regulatory agencies to implement the mechanism of tariff quota on importation applicable to motor vehicles and SKD kits within the framework of Protocol.

Article 2.Subject of application

1.Competent State management authorities.

2.Joint ventures satisfied all requirements specified in Article 4 this Decision.

Article 3. Definitions

In this Decision, these terms are construed as follows:

1.Enterprises authorized by the Russia include:

a) “GAZ”, LLC Automobile manufacturing plant

Address: 603004, 5 Ilyicha, Nizhny Novgorod, Russian Federation.

b) «KAMAZ» International Trading Company

Address: 423815, 2 Avtozavodsky Avenue, Naberezhny Chelny, Republic of Tatarstan, Russian Federation.

c)“Ulyanovsky Avtomobilny Zavod” (UAZ)  Public joint-stock company

Address: 432034, 92 Moskovskoe Avenue, Ulyanovsk, Russian Federation; and

d) The enterprises added or replaced at the request of the Russian Federation.

2.”Joint venture” refers to a juridical person established in accordance with an agreement signed between an enterprise authorized by the Russia and an interested Vietnamese enterprise within the territory of Vietnam correspond to law provisions of Vietnam.

3.“Motor vehicle” means a number of SUV (a sport utility vehicle) of UAZ (M1G); a motor vehicle which is designed to carry 10 passengers or more, including the driver (M2, M2G, M3, M3G); a truck (N1, N1G, N2, N2G, N3, N3G) and a specialized vehicle (SB, SC, SD) as agreed between the enterprise authorized by the Russia and the interested Vietnamese enterprise.

4.“SKD kit” refers to a kit containing parts imported to Vietnam by the joint venture that is needed to assemble SKD motor vehicles, except for parts and components manufactured in the territory of Vietnam.

5.“Local content” means the domestic value added content calculated in accordance with the following formula:

a) Cost of raw materials of Vietnam means the value of raw materials, components or goods made in Vietnam and satisfied the origin criteria in accordance with the rules specified in Chapter 4 (Rules of Origin) of Agreement VN - EAEU FTA;

b) Direct labor cost includes salaries, bonuses and other benefits of workers associated with the production process in accordance with the law of Vietnam, including compulsory social and health insurance;

c) Direct overhead cost includes but is not limited to administrative and commercial expenses; costs of fixed assets associated with the production process (costs of rental, building depreciation, taxes, including income tax and mortgage interest); rental costs and interest payable on plants and equipment; plant protection costs; insurance costs (plant, equipment and materials used in the production of goods); costs for using public services (energy, electricity, water and other public service charges associated with the production of goods); research and development costs, design and engineering costs; dyes, molds, tools and depreciation, maintenance and repair of plants and equipment; royalties or licenses (related to copyrighted machines or processes used in the production of goods or the right to produce goods); costs of testing and inspection of materials and goods; warehouse costs; costs for recycling wastes and costs of elements used in the calculation of the value of raw materials, i.e. port fees and the fees for release of goods and import duties on dutiable items;

d) Profit means the net profit of the joint ventures after deducting all taxes and fees in accordance with the Vietnamese law;

dd) EXW price means the price of goods based on Ex Works which is provided for in Incoterm 2010 promulgated by the International Chamber of Commerce.

Article 4. Requirements applicable to joint ventures

Eligible joint ventures include:

1.Juridical persons established under an agreement signed between an enterprise authorized by the Russia and an interested Vietnamese enterprise within the territory of Vietnam in accordance with law provisions of Vietnam.

2.Each enterprise authorized by the Russia is eligible to establish only one joint venture in the territory of Vietnam.

3.The capital contribution ratio of Vietnamese enterprises in the joint venture shall be at least 50% of the total charter capital of such joint venture.

4.The joint ventures shall be established and operated for a period of at least 10 years but not more than 30 years.

5.The enterprises authorized by the Russia shall not transfer their capital in the joint ventures to any third party from the third country.

6.The local content that the joint ventures shall achieve for the years of 2020 and 2025 is set as follows:

7.The motor vehicles manufactured by the joint ventures to use in the territory of the Socialist Republic of Vietnam shall meet the technical requirements, standards and conformity assessment procedures in accordance with the laws of Vietnam.

Chapter II

IMPORT TARIFF QUOTAS

Article 5. Import tariff quotas

1.Total import tariff quotas applicable to all joint ventures until 2021:

2.The Ministry of Industry and Trade shall allocate the import tariff quota for each joint venture annually based on the total import tariff quota specified in Clause 1 Article 5 this Decision, notify on the allocation of import tariff quotas of the Ministry of Industry and Trade of the Russian Federation and the current process of the implementation of the production plan of the joint venture sent to the Ministry of Industry and Trade.

3.The volume of quota granted in the following year may be exempted, subject to the implementation of local content of the joint ventures in their production plans and the implementation of quota in the previous year in accordance with the following formula:

In which:

a) M is the volume of quotas for each joint venture in accordance with Clause 1 Article 5 this Decision and the notice of the Russia (Ministry of Industry and Trade of the Russian Federation) on allocation of import tariff quota;

b) A is the percentage of actual failure to implement the local content in the production plan of the previous year;

c) B is the volume of quotas specified in Clause 1 Article 5 this Decision that is not taken up in the previous year and is transferred to the following year;

d) C is 30% of M for the following year if the joint venture executes from 50 to 80% of the quota in the previous year (M of the year before) specified in Clause 1 Article 5 this Decision;

dd) D is 50% of M for the following year if the joint venture executes less than 50% of the quota in the previous year (M of the year before) specified in Clause 1 Article 5 this Decision.

4.If there are any changes in the volume of quotas specified in Clause 1 Article 5 this Decision, the Ministry of Industry and Trade of Vietnam shall notify the Ministry of Industry and Trade of Russian Federation before January 31 annually.

Article 6. Regulations on import tariff rates

1.The import tariff rates inside the import tariff quota shall be 0% if the origin of the goods is in accordance with the rules specified in Chapter 4 (Rules of Origin) of Agreement VN - EAEU FTA and approved by the Certificate of Origin issued with indication of 55% value added content calculated in accordance with Chapter 4 (Rules of Origin) of Agreement VN - EAEU FTA. The value of Vietnamese materials shall be excluded from the calculation of value added content.

2.Regarding import tariff rates outside the import tariff quota:

a) If the goods obtain the Certificate of Origin in accordance with Agreement VN - EAEU FTA (Certificate of Origin form EAV), the import tariff rate outside the import tariff quota shall be the effective import tariff rate specified in the Agreement VN - EAEU FTA;

b) If the goods do not obtain the Certificate of Origin form EAV, the import tariff rates outside the import tariff quota shall be determined in accordance with related law provisions on taxes of Vietnam.

Chapter III

PROCEDURE FOR ISSUANCE OF LICENSE FOR IMPORTATION UNDER TARIFF QUOTAS AND IMPORTATION UNDER TARIFF QUOTAS

Article 7. Procedures for issuance of license for importation under the tariff quota

1.The joint venture shall submit the annual production plan to the Ministry of Industry and Trade, in which specify:

a) Type and quantity of vehicles which will be produced;

b) The list of components in SKD kits;

c) Tariff lines corresponding to motor vehicles and SKD kits which will be imported at 8-digit number level according to the list of Vietnam’s exports and imports;

d) Roadmap to the local content as committed in Clause 6 Article 4 this Decision;

dd) Expectation of the implementation of the agreement on technology transfer and human resources training;

2.Within 30 days from the receipt of the production plan sent by the joint venture, the Ministry of Industry and Trade shall announce the result of the approval of this plan. In case it is necessary to clarify or supplement the production plan, the Ministry of Industry and Trade shall notify the joint venture on specific requests for additional information to be provided.

Within 10 days from the receipt of the production plan sent by the joint venture, the Ministry of Industry and Trade shall announce the approval or rejection of this plan.

3.Based on the annual production plan approved by the Ministry of Industry and Trade of the joint venture and the allocation of tariff quota of the Ministry of Industry and Trade of Russian Federation, joint ventures shall submit their applications to the Ministry of Industry and Trade for import licenses in accordance with the tariff quotas to import motor vehicles and/or SKD kits, together with the Certificate of Origin form EAV granted by a competent authority of the Russian Federation in accordance with the regulations specified in the Protocol. The following information must be specified in the application:

a) Number of registrations for all types of vehicles, importing date;

b) 8-digit tariff lines according to the list of Vietnam’s exports and imports, corresponding to the approved production plan (except parts and components of motor vehicles produced in the territory of Vietnam).

4.The Ministry of Industry and Trade shall grant the import license in accordance with the tariff quota based on the production plan and specific requirements on importation of the joint venture within 14 days from the receipt of the application of the joint venture. The license will expire after December 31 annually.

Article 8. Procedure for importation

Based on the import license in accordance with the tariff quota granted by the Ministry of Industry and Trade and the law provisions of Vietnam, customs authorities at checkpoints where the import procedure is carried out shall grant customs clearance in accordance with the principle of automatic subtraction of tariff quota for each product in the license.

Article 9. Revocation of import licenses under import tariff quotas

Import licenses under quotas shall be revoked if joint ventures commit one of the following cases:

1.The joint venture does not operate in accordance with the Vietnam laws.

2.The joint venture does not meet the requirements on local content within 10 years from the effective date of the Protocol as specified in Clause 6 Article 4 this Decision.

3.Enterprises authorized by the Russia transfer their capital in the joint venture to any third party from a third country.

4.The joint venture does not fulfill its duty in the agreements related to technology transfer.

5.The joint venture does not: carry out specific activities to contribute to the development of Vietnam s auto parts manufacturing industry; develop car maintenance and repair service system; provide technical training for local workers and support for motor vehicles and SKD kits produced by joint ventures into foreign markets, including the Eurasian Economic Union.

Article 10. Change of authorized enterprises in accordance with the Protocol

The Ministry of Industry and Trade shall take charge and review the request of the Russia (the Ministry of Industry and Trade of Russian Federation) on the supplementation or replacement of authorized enterprises based on the criteria specified in the Protocol and send a confirmation to the Russia on eligible enterprises within 28 days from the receipt of the request and necessary documents.

Chapter IV

MANAGEMENT MECHANISM BETWEEN REGULATORY AGENCIES

Article 11. Cooperation mechanism in the issuance of import licenses under tariff quotas

1.The Ministry of Industry and Trade shall take charge in:

a) Implementing the procedures for review and issuance of import licenses under tariff quotas;

b) Reviewing the request of the Russia on supplementation and replacement of authorized enterprises in accordance with the Protocol and notifying to the concerned ministries and sectors in case of accepting the request.

2.The Ministry of Industry and Trade shall take charge and cooperate with concerned ministries in approving the production plans of joint ventures to grant import licenses under tariff quotas, in which:

a) The Ministry of Science and Technology shall review and accept the fragmentation of imported SKD kits specified in the production plan in accordance with effective regulations;

b) The Ministry of Finance shall review the compatibility of the list of motor vehicles and SKD kits proposed to enjoy the duty exemption under tariff quotas in the 8-digit production plan according to the list of Vietnam’s exports and imports.

3.Before January 31 annually, the Ministry of Industry and Trade shall notify the Ministry of Finance on the adjusted tariff quotas.

4.The Ministry of Industry and Trade shall notify the Ministry of Finance on the list of motor vehicles and SKD kits to be imported of each joint venture immediately after approving the production plan of such joint venture.

5.The Ministry of Planning and Investment shall implement the mechanism of announcing the list of domestically-made auto parts according to their functions and tasks and update information on production establishments in Vietnam that have produced auto parts with specific types and technical standards to the joint ventures. At the same time, the Ministry of Planning and Investment shall inspect the process of agreement between joint ventures and production establishments on order of auto parts for vehicles manufactured by the joint ventures at Vietnam. 

Chapter V

INSPECTION AND REPORT

Article 12. Inspection

1.The Ministry of Industry and Trade shall inspect the production; evaluate the implementation of tariff quotas, the implementation of the commitments on local content of each joint venture and the adjustment of the duty-free quotas for the following year.

2.The Ministry of Finance shall inspect the customs clearance of shipments to ensure that the imported motor vehicles and SKD kits are duty free in accordance with the list of motor vehicles and SKD kits sent by the Ministry of Industry and Trade and the import licenses under tariff quotas issued by the Ministry of Industry and Trade. 

3.The Ministry of Transport shall inspect motor vehicles and SKD kits manufactured by joint ventures to use in the territory of Vietnam to ensure that such motor vehicles and SKD kits meet the technical requirements, standards and conformity assessment procedures specified in relevant law provisions of Vietnam.

Article 13. Reporting responsibilities

1.The joint venture shall comply with the Vietnam laws.

2.Before January 15 annually, joint ventures shall submit to the Ministry of Industry and Trade their reports on the production and business results of the previous year, the implementation of tariff quotas and implementation of local content, in which specify:

a) The quantity of duty-free motor vehicles and SKD kits

b) Type and quantity of manufactured vehicles;

c) Information on necessary data to calculate the local content (costs of raw materials of Vietnam, direct labor costs, direct overhead costs, profits and EXW price);

d) The most recent update of the annual financial statement.

Chapter VI

IMPLEMENTATIONPROVISIONS

Article 14. Effect

This Decision takes effect on May 15, 2017.

After the Protocol comes into force, every 5 years, the Ministry of Industry and Trade shall cooperate with concerned ministries and sectors in reviewing the commitments on local content of each joint venture and consider revoking the license of the joint venture if the joint venture does not reach the local content as committed in Clause 6 Article 4 this Decision after 10 years.

Article 15. Implementation responsibilities

1.The Minister of Industry and Trade shall monitor and inspect the implementation of this Decision.

2.Ministers of Industry and Trade, Finance, Planning and Investment, Science and Technology and Transport shall implement this Decision./.

The Prime Minister

Nguyen Xuan Phuc

[1] The classification of motor transport vehicles by categories is regulated in the United Nations Economic Commission for Europe (UNECE) regulations