Requirements to apply for the badges
On 10 September 2014, the Government issued Decree No. 86/2014/ND-CP setting out conditions on transportation business (Decree 86) that automotive vehicles with designed capacity of 10 tones and above and from 7-10 tons must bear badges (the Badges). On 7 November 2014, the Ministry of Transportation and Communications (MT) issued Circular No. 63/2014/TT-BGTVT guiding Decree 86 (Circular 63), which requires that only enterprises having the Certificate of doing transport business by automotive vehicles can apply for the Badges.
Conditions to carry out transport business and the dilemma when applying for the Badges
According to Vietnam’s WTO Schedule of Specific Commitments in Services, foreign contribution in a joint venture doing transportation services must not exceed 49% of the total charter capital of that joint venture. Accordingly, enterprises with more than 51% foreign ownership do not have transportation business in their investment certificates, resulting in the impossibility to obtain the Certificate of doing transport business by automotive vehicles. This further leads to the fact that these enterprises will neither be able to apply for the Badges.
Moreover, Decree 86 creates the concept of ‘transport business with indirect money collection’ which is defined as ‘the transport business by automotive vehicles, in which the transport business units perform the transport phase and perform at least another phase in the process from production to consumption of products or services and collect freight through revenues from such products or services’ (Article 3.3). Circular 63 further requires trucks used by companies that carry out the transport business with indirect money collection to affix the Badges thereon when in traffic.
It is noted that some enterprises, considering their business nature, have to invest in specialized means of transportation to transport their own products between their locations and to their customers in Vietnam (for example, industrial gas products). Examples would be road tankers, special trailers and tube trailer, etc. that must be imported because their special designs make them impossible to be produced in Vietnam. Given high technical safety standards of international level, it is nearly impossible for enterprises to rent these special vehicles in Vietnam while relying on the same standards. Meanwhile, enterprises must still maintain their operation and cannot stop delivering their goods to the customers according to the terms of the contracts. However, according to Decree 86, from 01 January 2016, automotive means of goods transport with designed capacity from 10 tones must bear the Badges. Meanwhile, only enterprises having the Certificate of doing transport business by automotive vehicles can apply for the Badges. It is also contrary to the Vietnam’s WTO Schedule of Specific Commitments in Services which does not allow 100% foreign-owned enterprises to provide transport services.
It does also not make any business and legal sense if a manufacturing foreign invested enterprise which is allowed to import means of transport for its operations to serve its production activities is forced to register for professional transportation business or outsource this internal job to a professional business transportation company. In fact, thousands of other foreign invested enterprises have been long granted with the right to import means of transportation without any requirement on transportation business until the adoption of Decree 86. They have long maintained their trained driving staff and management personnel in compliance with their own internal policies. Thus, it is not so simple to switch to a new contractor and hire outside staff.
Which way for wholly-owned foreign enterprises?
Considering the abovementioned difficulties of enterprises with more than 49% foreign ownership doing business in crude oil products with special characteristics, the Ministry of Transport (MOT) has proposed to the Government to consider the issuance of the Badges for vehicles of these enterprises without requiring the Certificate of doing transport business by automotive vehicles, and at the same time consider the amendment of Decree 86.
Consequently on 30 March 2016, the Prime Minister issued Resolution No. 23/NQ-CP which clearly states that in the short term, the Government allows the MOT to issue the Badges to commodity carrying trucks of foreign invested enterprises with 49% foreign ownership or more for the purpose of the main production and business of these companies. For the next step, the MOT is responsible for incorporating the same regulations in the amendments of Decree 86.
This move of the Government has basically solved the abovementioned difficulties for enterprises with more than 49% foreign ownership so that they can keep operating as normal. This also ensures lawful right of doing business of foreign invested enterprises having transport services of goods produced by themselves to their customers, is in conformity with foreign investment encouraging policies of the Government and improves business environment in Vietnam.
Amendments of Decree 86 – What are in the current Draft?
The Government is now seeking public comments on the Draft Decree on doing business and conditions on doing transport business by automotive vehicles. This Draft Decree is essentially amending important points in Decree 86, among which is the requirement to apply the Badges for vehicles of enterprises doing transport business with indirect money collection.
In the current Draft Decree, internal goods transport is the activity of goods transport with indirect money collection and includes the following forms:
(1) Use of transport vehicles to transport dangerous goods according to the Government’s list of dangerous goods, transport of dangerous goods and authority to license such transport;
(2) Use of transport vehicles to transport cargos and overweight goods when in traffic on roads;
(3) Having 5 vehicles and more;
(4) Use of vehicles with permitted transported goods of 10 tons and above to transport goods.
Enterprises doing transport business with indirect money collection must satisfy conditions on means of transport, drivers, parking location and management of the driving staff as well as their vehicles.
Although the above is not yet effective, we can see that the Draft Decree has given much more clarity to the business of internal transport and conditions applied thereto. The Draft Decree is expected to be finally adopted in the upcoming months.
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Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
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