Opening the market for banking services in line with the commitments made by vietnam on its WTO accession

Overview o f banking services and international commitments of Vietnam on opening banking services market in the WTO’s framework.... 25 1.2.3 Commitment on regulating the form o f financ

Joint Swedish-Vietnamese Master’s Programme

Dr Bui Ngoc Cuong

Préfacé and Acknowledgements

The author would like to express many thanks to Professor Christina Moëll, Faculty

o f Law, Lund University, Sweden; Doctor Bui Ngoc Cuong, Hanoi Law University, and my teachers, relatives, friends and colleagues for their support during the process

o f writing this thesis

Table of Contents

Préfacé and Acknowledgements 1

Table o f C ontents 2

Abbreviations 4

Introduction 5

1 Overview o f banking services and international commitments of Vietnam on opening banking services market in the WTO’s framework 7

1.1 Overview o f banking services and the opening up o f banking services as part o f globalization 7

1.1.1 Overview o f banking services 7

1.1.2 Opening up the banking services market in the context o f globalization 14 1.2 International commitments o f Vietnam on opening up its services market within the WTO’s framework 18

1.2.1 Commitment on licensing foreign crédit institutions to supply banking services in Vietnam 22

1.2.2 Commitment on regulating the form o f fmancial companies are licensed to operate in V ietnam 25

1.2.3 Commitment on regulating the form o f financial services that can be provided in Vietnam 25

1.2.4 Commitment on regulating the capital ratio o f foreign banks may own in a Vietnamese bank 26

2 The current situation regarding Vietnamese law on banking services and completing the implementation o f the commitment to open up the banking services market within the WTO framework 27

2.1 The current situation regarding Vietnamese Law on banking services 27

2.1.1 Current overview o f the banking system and the Vietnamese Banking Law 27

2.1.2 Influence o f international commitments on opening banking services on Vietnam L aw 30

2.1.3 The adaptation of Vietnamese Law on Banking in line with its commitments on joining the W TO 32

2.2 Completing the work on Vietnamese Law to fully implement the commitments on opening up the banking services market within the WTO framework 40

2.2.1 Completion criteria for various régulations o f Vietnamese Law and the international commitments on opening up the banking services market 40 2.2.2 Proposai of solutions to the correct implementation o f the international commitments on opening up the banking services market o f Vietnam 41

Conclusion 44

Table o f Statutes and other Légal Instruments 46

International Treaties and Conventions 46

National Législations 46

Vietnam 46

Bibliography 47

Official Reports and other Documents 47

Monographs 47

Articles in Joumals, Anthologies etc 48

Abbreviations

The purpose o f this thesis is to clarify the theory and practice o f modifying the law on banking services in accordance with Vietnam’s commitments on WTO accession and with international practice in général

This involves the following tasks:

Clarify the concept o f banking service according to international practices (the WTO agreement) and the particular requirements o f member countries wishing to open up their banking service market

Clarify Vietnam’s commitments on opening up the banking service market in the framework o f the WTO agreement

Clarify the situation o f Vietnamese Law when linked to its international commitments within the WTO framework Such an analysis is the scientific foundation needed to help reform the law in the direction o f opening up the banking service market

The thesis will focus on the commitments on opening up banking services market undertaken following WTO accession and on how Vietnam is in fact implementing these commitments However, because the régulations on opening up the banking services market are based on the law o f banking services in général, this research needs to be seen against the background o f a study o f régulations o f Vietnamese and WTO régulations o f banking services in the light o f 4 of the commitments undertaken: (i) commitment on licensing foreign crédit institutions to supply banking services in Vietnam, (ii) commitment on regulating the form of financial companies licensed to operate in Vietnam (iii) commitment on regulating the form o f financial services that can be provided in Vietnam, (iv) commitment on regulating the capital ratio o f foreign bank ownership of a Vietnamese bank

Base on this research, the thesis hope to give an overview o f the theory and practice o f the current law on banking services in Vietnam and makes some proposais aimed at effectively implementing the commitments made on WTO accession and strengthening the compétitive capacity o f the banking service sector

1. Overview of banking services and international

commitments of Vietnam on opening banking services market in the WTO’s framework

1.1 Overview of banking services and the opening up of

banking services as part of globalization

a The concept o f “Services”:

Today, service activities are developing strongly and are now playing an important

part in the economy o f most nations In the 1990s, services made up 40% o f GDP in

Uganda, 50% o f GDP in Zambia, more than 60% o f GDP in Korea and Brazil and 80% o f GDP in Canada (In Vietnam, according to the General Statistics Office ,

services made up 37,98% o f GDP in 2004) However, there are many différent concepts o f services, none o f which is accepted globally

According to many researchers, services can be understood in both a broad and a narrow sense

- In the broad sense, services are considered the third economic sector, which

includes ail economic activities other than industry and agriculture This point o f view is held by economists such as Allan Fisher and Colin Clark3 Clark defined

services as “form s o f economic activities which are not included in the first and

second sectors (industry and agriculture)

- In the narrow sense, services are understood to be the “software” of visible

products, closely related to the production process and visible product exchange An example is the Honda product warranty service which is a service connected to the sale o f Honda motors, carried out after sales in order to support and enhance sales activity overall

In Vietnam, there are various ways o f understanding the concept According to the

Vietnamese encyclopedic dictionary, services are activities to meet the demand o f

1 National Committee on international economic coopération (2005), General view o f service commercial liberalization, National Politics Publishing House, p.21.

2 National Committee for International Economic Coopération Office (2006) “WTO

intégration documents o f Vietnam”, p 182.

3 James R Melvin, History and Measurement in The Service Sector: a review, Review of Income and Wealth, sériés 41, number4, December 1995, p.484.

production, business and life4, such as entertainment, health and éducation services

in daily life; transport, information and Consulting services in business According to

Prof, PhD Nguyen Thi Mo: “Services are laboring activities crystallized into

invisible products which, although o f value, cannot be touched”.5 Compared with the

encyclopedia définition this makes it clearer that services consists o f invisible products

International organizations like the International Monetary Fund (IMF) or World Trade Organization (WTO) define the concept by determining the areas which are regarded as services and then just listing and classifying them The General Agreement on Trade in Services (GATS)6 GATS does not define the term but indirectly refers to the concept by way o f the 4 modes for providing services

Modes of providing services according to GATS:

(a) Cross- border supply: In this mode, the service provider the and customers are

each in their own country but the service is provided from the territory o f one country to that o f another For example, express-service or transporting oil through a pipeline

(b) Abroad consumption: In this mode, customers have to go to the country o f the

provider to buy the service, such as the service o f being examining and medically treated in a foreign country or studying abroad

(c) Commercial presence: In this mode, service providers set up their presence in

the country o f the customer through a légal entity such as a branch, représentative office or subsidiary company For example, banking services, distribution services

29 terms o f GATS applies to ail service sectors including the banking service sector These provisions state the principle that ail Member States must comply with: (1) Most-Favored- Nation, (2) Transparency, (3) National treatment, (4) Market access.

(d) Naturalpresence: In this mode, providers appoint représentative in the country

of the customer to provide services there For example, providing experts, researching the market

According to the WTO classification, services are divided into 11 main branches; each branch is again divided into sub-branch, the total number o f sub-branches being

155 ones.7 The main branches include: Business services (including services relating

to specialities and professions, such as légal consultancy, accounting, auditing, promotion ), information services (including services relating to delivery, télécommunication, and audio vision), construction services, distribution services (including activities o f wholesaler, retail, dealer), éducation services, environment services, financial services (including services relating to banking, insurance, security), médical services, tourism services, culture-entertainment services and transportation services

In my opinion, the concept o f services can be understand like this: “Service is the

by-product o f the laboring process It does not exist as an object but is consumed together with the process o f provision in order to meet the demands o f production and ofhuman life

Services have some attributes as foilows:8

First, a service has the characteristic o f Intangibility: Services are invisible and

immaterial Services are things which “cannot drop to your f e e t ' when being sold.9

You cannot touch it or drop it on your feet like other common goods because a service product does not exit as an object For example, when you buy a bottle of milk, it may fall on your feet if you or the seller are not careful But this problem never happens with services On the other hand, you cannot assess its quality before consuming it For example, a customer cannot evaluate the quality o f a spa shop if she does not directly use that service

Second, a service has the characteristic o f Inconsistency: It is difficult to

determine the quality o f services because they depend on the context that creates them, such as provider, time, and place o f provision For instance, the quality of training at a foreign language center may be différent when teachers at différent

7 See Document MTN.GNSAV/120 o f the WTO

levels teach Even the same teacher can have a successfol lecture in one class but fails in another since the level o f success depends not only on raw ability but also on equipment and m ood

Third, a service has the characteristic o f Inseparability : One o f the characteristics

of a service is that with a service product, consuming coexists with providing the service A service is consumed when it is produced, and the process o f provision stops when service consumption stops On calculating the output o f the economy, the Bureau o f Economie Analysis, U.S Department o f Commerce also gave a général

définition of service: “Services are those whose products cannot be stored and are

consumed at the time and place where trading activities take place,0”.

Forth, a service has the characteristic o f Inventory: Services cannot be stored;

this means that service products cannot be produced in advance and stored to wait to

be consumed However, this characteristic is only relative, since some service products are in object form, as in design services, where drawings are visible and can

be stored

Similar to the concept o f service, there are many différent ways o f understanding the concept o f banking service Before reviewing this concept, let us find out what a

“bank” is

In the past, a bank was often defined by its fonction (services provided) in the economy In fact, many financial organizations including security companies, security intermediary companies or leading insurance companies are now trying to provide banking services And banks are competing by expanding the scale o f the services they provide, such as securities, insurance and many other new services The public is becoming unable to distinguish banks from some other kinds o f financial organization

There is one view that : A Bank is a financial organization which provides varions

catégories o f financial services, especially crédit, savings and payment services, as well as implementing more financial functions than any other business organization

in the economy 11

11 Encyclopedia o f Business and Finance (2001), Vol.2, Macmillan, p.762

11 For a général view o f banks and banking services, see www.saga.vn accessed 9th 0ctober,2008

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In Vietnam, provision 2, Article 20 o f The Law on Crédit Institutions provides that: “A Bank is a form of crédit institution permitted to conduct ail banking opérations and other related business opération

In the book “Modem Banking”, David Cox stated that: “Most professional

activities o f commercial banks are called banking service or foundations fo r

1 ^

developing such seri’ice” According to the viewpoint of this writer, banking services constitute ail the professional activities carried out by a bank, which is just a kind of business

In Vietnam, banking services are controlled by the Law of Crédit Institutions, yet this law does not give a définition or explanation of banking services The phrase

“banking services” is mentioned in provision 7, Article 20 o f The Law on Crédit Institutions: “Banking opérations mean monetary business and provision o f banking services, with the regular and principle opérations being the taking o f deposits and the use o f such deposits to extend loans and to provide payment services” So, here,

“banking services” means one of the activities o f a Bank

In some Vietnamese books, newspapers and magazines, without giving a définition, writers often list various types o f banking service According to this, banking services are understood in a broad and narrow sense:

- In the broad sense, banking services includes ail currency, crédit, payment and

foreign exchange activities o f the banking system14 (This viewpoint fits the way of classifying banking services used by the WTO15 as well as in many developed countries)

- In the narrow sense, banking services only consists o f fee receiving activities such

as money transfers, guarantee, foreign exchange business, international payments 16Here, we would like to research issues relating to banking services in the broad sense o f the word as it is mainly understood in the modem world

12

This Law was passed by the X Législature o f the National Assembly o f the SRV in its second session on 12 December 1997 (The Law No 02/1997/QH10) and was amended and supplemented by the Law on amending and supplementing a number of Articles o f the Law on Crédit Institutions, passed by the XI Législature o f the NA o f the SRV in its flfth session on 15 June 2004 (the Law No 20/2004/QH11 ).

13 Cox D (1997), Modem Banking, Politics Publishing House, p335

14 See “Develop Vietnam’s fmancial service market in the process o f integrating” Thai Ba Can, Tran Nguyen Nam

15 According to the WTO’s classification, banking service is a component part of the fmancial service sector in général and was ranked as the 7th sector, sub-sector B.

16 See Professor, PhD Nguyen Thi Quy, Modem Banking Service, 2008, Scientific Society Publishing House, p.8

1.1.1.2 Characteristics o f banking services.

Beside the général attributes of services mentioned above, banking services have the following features:

(a) Banking is a highly sensitive activity fo r the economy.

The banking system is regarded as the nervous system o f the economy Banks play the key rôle in distributing finance and managing most financial transactions And the bankruptcy o f a single bank may cause the collapse o f the whole system, as we have just seen Banking opérations, hence, have a direct effect on the stability of the national economy

(b) Diversity o f banking service forms.

Unlike trade in commodities, trade in services takes various forms While the object

o f a commodity trade is particular goods, the object o f trade in service is forms o f providing services which are based on the capacity o f the service provider These forms are recognized throughout the world Banking service is one o f the branches o f the trade in services, so it also reflects this On the other hand, beside the traditional services with a long history, such as bank deposits or lending services, banks are increasingly broadening the category o f services and providing new services for customers, always being helped by the development o f new technology Banks today

1 7

are even becoming “financial supermarkets” according to Peter Rose

(c) Subject to interference o f the govemment through measures affecting the

capacity o f the banking service.

Interference o f the govemment into trade in service is only implemented through preventing provider’s capacity o f providing or consumer’s capacity of consuming service An activity o f providing and consuming normal service requires the presence

o f service provider and consumer Only by managing effectively or gaining necessary reorganization o f service transaction, can the govemment make full use of those measures In banking service, the govemment makes influence on ability of providing and consuming banking service through measures such as building and implementing national monetary policy or using Law as the tool of manage and maintain order o f banking opérations

1 ' Peter Rose (1999), Commercial Bank Management, Irwin McGraw Hill.

1.1.1.3 Classification o f banking services

Banking services can be classified in différent ways, each o f which has a certain value

Based on the time factor, banking services are divided into:

discounting commercial papers and commercial lending, (c) receiving deposits, (d) preserving valuable property, (e) providing transactional accounts, (f) providing confïdential services

cash management, (d) services relating to buying and hiring equipment, (e)selling insurance services, (f) providing services regarding securities, (g)

i o

providing investment bank service

This classification is a foundation on which to construct a légal framework, State policies, measures o f the Bank (strategy, organization, applied technology,monitoring activities, risk co n tro l ) suitable for each type o f service, especially the more modem kind, to promote the best possible performance

Based on the fonctions o f banks, banking services are also classified into:

1 receiving savings from the public

See General view o f banks and banking services, www.saga.vn accessed 9 October, 2008

19 See Syllabus o f Vietnamese Law on Banking, Hanoi University o f Law, The People’s public security publishing house, 2007

1.1.2 Opening up the banking services market in the context o f

globalization.

It is necessary to open up the banking services market for the following reasons, ail

of which acquire greater force in this time o f globalization:

First, opening up the banking services market is what the economy demands

As we known, “capital” is always a “hot” topic in most countries, especially in the developing countries Demand for capital is increasing, especially in the context o f a financial crisis of global magnitude Opening up the banking services market will increase Foreign Direct Investment (FDI) capital sources

After a long period o f tightly protecting domestic bank markets, many countries which were implementing economic reforms in the 1990s, especially average-income countries such as those in Latin America, Eastem Asia, Middle-Eastem Europe, started reducing or removing the barriers preventing Foreign Direct Investment (FDI) from flowing into the banking area Currently, many nations allow foreign investment in banking not only by opening offices or branches but also by investments in domestic banks The value o f FDI investing in the financial area o f developing countries increased dramatically from 2.5 billion USD in the period 1991

- 1995 to 51.5 billion USD in 1996-2000 and 67.5 billion USD in 2001-2005.20 The participation rate o f foreign countries can be measured by the proportion o f the total value o f the banking system which they hold

On the other hand, opening up the banking services market will also help foreign investors take part in privatizing state-owned banks

Generally,, opening up the banking services market will help the big banks in America and Europe expand into promising markets in developing countries and buy weak banks, restructuring and selling them or otherwise benefiting from their activities

Second, opening up the banking services market aids in the intégration o f the international economy.

Opening up the banking services market conforms to multilatéral commercial agreements, to EU rules (for several countries in Middle Europe and Eastem Europe), to IMF rules (for countries affected by the economic crisis) or to the accession requirements of the WTO (for the WTO’s member countries)

20 Bank Austria Creditanstalt (BA-CA) report, 2005

For a member o f the WTO or a country participating in negotiations to join WTO, the opening up o f the market for banking services is a commitment which has to be implemented if membership is to happen.

So, opening up the market for banking services dérivés from the practical demands

o f the economy and the need to integrate o f each nation, especially developing countries, like Vietnam into the international economy

market fo r WTO member countries

The term “globalization” understood in the present context is linked to the intemationalization o f many sectors o f which, the most basic is the economic The economy is however connected to other sectors Globalization removes political barriers, relies on the progress o f digital technology and shrinks distances And his process is happening on a global scale

Globalization is linked objectively to two other economic processes :liberalization and intégration The final destination o f globalization will be is a united global economy that does not recognise any national boundaries

Opening up markets in each nation is one o f globalization’s key processes Opening up the market for banking services is fiilly within this process The WTO is

an organization whose members are admitted through negotiation, which means that besides agreeing to WTO régulations, the new member must open up is commodity and services markets

Naturally, the commitment on opening up service markets is that the new member commit to loosening the conditions for foreign service providers to get access to the domestic market However, in practice, countries receiving imported services have a tendency to tighten the conditions for access o f foreign service providers to the domestic market so as to protect domestic service providers In order to have a deeper understanding o f this matter, we need to distinguish between commodity commerce and service commerce so that we can understand the différences in market protection

Due to there being no direct tariff on import or export o f services, to restrict the activities o f foreign service providers and protect the domestic service provider, the host country can propose measures and conditions to control foreign access at two

91points of time:"

(i) When foreign service providers want to be allowed to provide services and be present in the host country to provide them

21 See Multilatéral Trade Aid Project MUTRAP JI (2006), Q&A a bout WTO, p.68

(ii) After they are allowed to provide services and have entered the host country.

The conditions given at the first point o f time are restrictions on opening p the market If these conditions cannot be met, foreign service providers will not be allowed to provide services in the host country

The conditions at the second point o f time are restrictions providing for national priority These conditions discriminate between foreign service providers and domestic ones

Previous multilatéral negotiations tended to avoid service branches since it was thought that services has little ability to be exchanged and transported but today they are regarded as subject to the common development trend affecting ail sectors In the negotiating round in Uruguay (ended in 1994) and the establishment o f the General Agreement o f Trade in Service (GATS), the members o f the WTO made services a decisive element o f the multilatéral system The facts then showed that liberalization

o f services can lead to major investments Nowadays, in the Doha negotiating round, despite many diffîculties, the countries are trying to foster the process o f service liberalization

Service liberalization is expressed in a schedule o f commitments According to régulations o f the WTO, a schedule o f commitments consists o f 3 parts: joint commitments, particular commitments and list o f measures regarding waiver to Most Favored Nations (MFN)

(i) Joint commitments: include commitments covering ail services in the service

commitment schedule This part mainly mentions général matters, such as régulations o f investment, mode o f enterprise establishment, measures relating to taxation o f and subsidies for domestic enterprises

(ii) Particular commitments: include spécifié commitments applied to each

service in the service commitment schedule The content o f these commitments expresses the level o f opening up o f each service to Foreign Service providers

(iii) List o f measures regarding waiver to Most Favored Nations: includes

measures regarding violations o f the MFN principle for services According to régulations o f GATS, a member can violate the MFN principle if that member bring the violating measure into the list o f measures regarding waiver to Most Favored Nations and this is accepted by other members o f the WTO

The schedule of commitments includes 4 columns:

(i) Column o f Branch/sub-branch description: shows name o f particular service subject to a commitment

(ii) Column of Market Access: gives list o f measures maintained for foreign service providers GATS regulates 6 limiting measures: 1) limitation on number of service providers, 2) limitation on total value o f transactions or property, 3) limitation on total number providing services, 4) limitation on number of workers, 5) limitation on forms of enterprise establishment, 6) limitation on contributing capital from foreign countries.

Therefore, the more measures a commitment schedule can list, the narrower the level o f opening up the market for foreign service providers

(iii) Column of limitation on national treatment: lists measures maintaining discriminatory treatment between domestic service providers and foreign ones The more measures a commitment schedule can list in this column of, the greater the discriminatory treatment between domestic service providers and foreign ones

(iv) Column o f supplementing commitment: lists measures affecting service providing and consuming opérations not belonging to the other limitations This column describes régulations relating to ability, technical standard, requirements or procédures o f licensing

Measure of accessing “negative approach” and “positive approach”:

range o f things This measure is used when giving commitments for services

in the schedule According to this, committing parties will list ail the limiting measures applied to services Except for these measures, no other ones can be applied

A “Positive approach” measure: is a commitment to do only those things specifically allowed According to this, committing parties only commit to open markets for the services appearing in the schedule They have no responsibility for services that do not appear there

When opening up the market in providing services, each member country will give priority to banking services or banking service providers o f any other member country if they accept the conditions and restrictions which are agreed and regulated

in the commitment list of that country

Firstly, opening up the market for banking services will impact positively on

domestic capital markets bank In fact, foreign capital has-a-relativelv~important

position in re-financing the banking sector If the home country is faced with ashortage o f capital following a serious banking crisis or for any other reason, it needscapital to produce and do business.

Secondly, on opening up the banking services market, domestic banking will have

a new foundation of légal régulations o f operating organizing, inspecting or supervising banking which will conform to international practises

Thirdly, opening up the banking services market will help to increase the

compétitive capacity o f existing banks In particular, it will have an influence on the method o f operating and managing existing banks, forcing financial institutes to operate more effectively by re-structuring, reforming the mode o f management and reducing expenditure

In short, opening markets in général, and opening the market for banking services

in particular is a complicated issue However, we must accept that it will change the face o f the economy of every nation

1.2 International commitments of Vietnam on opening up

its services market within the W lO ’s framework.

Up to the present, Vietnam has only committed to open up its banking services area

in a bilatéral commercial agreement between Vietnam and Canada, the Agreement for the Liberalization, Promotion and Protection o f Investment between Vietnam and Japan and the Commitment on integrating into the WTO The main content o f its commitments in the banking area is found in Vietnam’s commitments on integrating

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banking services to the negotiation table o f the WTO is the General Agreement on Trade in Services (GATS)

(a) Overview:

Basically, according to GATS, each member country will give the same favorable priority to the banking services or banking service providers of any other member country to the extent o f the conditions and articles as well as the restrictions which are agreed on and regulated in the commitment list of that country

22 Report No.l99/BC-NHNN of State Bank o f Vietnam date 21/3/2008 Summarized the Law

on Crédit Institutions.

In its negotiations with the WTO, Vietnam committed regarding 11 service branches, covering about 110 o f the total 155 sub-branches in the WTO classification, including its commitment on opening up the banking services market.

Vietnam committed to open up the banking service markets in 4 modes o f supply,

as follows:

- Cross-border supply mode (banking services are supplied from one country to

another): Vietnam has not committed except for sections (k) and (1) This means that Vietnam retains its ability to restrict access to the market and maintain national treatment in the 9 other service sub-branches, that is, except for sections (k) and (1) Foreign organizations can supply the services section (k) provides namely financial information, service o f treating financial data, Consulting services, brokerage, and the section (1) services o f supporting, Consulting and brokerage for ail other banking services

- Abroad consumption mode: (consumers or companies using banking services in

foreign countries): Vietnam does not limit this mode This means that Vietnam does not restrict access to the market or national treatment to ail the 11 sub-branches o f banking and other financial services covered by this Consumers in other member countries o f the WTO are allowed to get access to banking services in Vietnam and are to be treated as Vietnamese citizens

- Natural presence mode: (individuals travel from one country to another to

supply banking services, Vietnam has not committed except for commitments in the général commitment part (foundational commitments) Vietnam maintains the ability

to restrict access to the market and national treatment The commitments listed in the général commitment part continue to apply, they are commitments relating to entering a country and temporary residence there (of individuals)

- Commercial presence mode: (foreign crédit institutions set up branches or joint

venture companies to supply banking services in another country) This is the most important mode o f supplying banking services Vietnam committed to have “no restriction but exception” It means that Vietnam agreed to open up its banking services market but make a list o f restrictions which can be applied to foreign service suppliers in the column Restriction to access market and Restriction national treatment

WTO commitments in the banking sector are expressed through: (i) commitments on opening the service market shown in the Service Commitment Schedule and (ii) multilatéral commitments shown in the Intégration Report o f Mission Committee

(i) Service Commitment Schedule:

Particular commitments on banking and other financial services lie in part 7 -

“Financial services” - o f the Commitment schedule This part states that:

“Commitments on banking and other financial services are to be implemented so as

to be compatible with related laws and régulations enforced by Vietnamese bodies in

about financial services”24 but “according to common régulations and based on non- discriminatory treatment, the provision o f banking products or services and other financial services has to follow requirements about légal form and related institution”

Particular commitments on banking services and financial services covers 11 service areas, including:

Leasing in ail forms, including consumer crédit, mortgage crédit, factoring and sponsoring commercial transactions

- Financial leasing and buying

- Services o f payment and money transfer, including crédit cards, payment cards and loan cards; tourism checks and foreign exchange

Business on their own or their customers account, at transaction office, in a transaction market, by agreement or other ways

+ Monetary market tools (including checks, bills o f exchange, deposit certificates)

collective investing management, retirement fund management, deposit services and others

Article VI of GATS provided that: “each Member shall ensure that ail measures o f général application affecting trade in services are administered in a reasonable, objective and impartial manner”.

24 Item 2 (a) of Annex on Financial Services provided that: “Notwithstanding any other provisions o f the Agreement, a Member shall not be prevented from taking measures for Prudential reasons W here such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement”.

Payment for services and financial property balances, including securities, derivative products and other tools.

Providing and delivering financial information and processing financial data

as well as related soft wares or other financial service providers

(ii) Intégration Report o f Mission Board

The Report o f the Mission Committee on the WTO intégration o f Vietnam in the Budget and Monetary Policies Part (from passage 9 to passage 17), Foreign Exchange and Payment Part (from passage 18 to passage 31), Service commerce policy relating banking Part (from passage 482 to passage 486) are o f interest

According to this, Vietnam will implement its obligations about matters o f foreign exchange under the régulations o f the WTO Agreement and other WTO déclarations

as well as décisions o f the IMF Vietnam will not apply any other law, décisions or measures that can limit foreign currency supply by any individuals or enterprises so that they can carry out international non-resident transactions in the domestic territory

The Vietnamese govemment claimed that its future régulation o f licensing of banks with 100% foreign capital will be careful and only cover matters such as capital safe rate, capacity to pay and manage the enterprise In addition, conditions for branches of foreign banks and banks with 100% foreign capital will be applied without any discrimination The State Bank o f Vietnam régulations conform to articles XVI and XVII o f GATS when considering new licensing permission applications, in accordance with conform to the restriction mentioned in the Service

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Commitment Schedule o f Vietnam

On the other hand, Vietnam will actively adjust its managing procédure for branches o f foreign banks, including requirements for minimum capital, in accordance with international practices that are commonly recognized

A branch o f foreign bank is not licensed to open transaction points, transaction points’ opération depending on the capital of the branch Vietnam has no restriction

on the number o f branches o f foreign banks However, transaction points do not include ATM machineries at the head office Foreign banks operating in Vietnam are

able to enjoy fully most favoured nation treatment on installing and operating ATM

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machineries

In général, the WTO intégration commitments of Vietnam in the financial sector allow foreign crédit institutions to operate in Vietnam in différent forms, expand their scale and range o f supply of banking services, creating a convenient and equal

“playground” for banks

(b) Détails:

The légal issues relating to core banking services when Vietnam joined the WTO include: (i) commitment on licensing foreign crédit institutions to supply banking services in Vietnam, (ii) commitment on regulating the form of financial companies licensed to operate in Vietnam (iii) commitment on regulating the form o f financial services that can be provided in Vietnam, (iv) commitment on regulating the capital ratio o f foreign banks may own in a Vietnamese bank.28 Here are 4 extremely important and spécifié criteria each with the following commitments respectively:

supply banking services in Vietnam

Under the WTO’s intégration commitments in the Report o f Mission Board,29 the régulations on licensing foreign crédit institutions to supply banking services in Vietnam includes: (i) Régulations on licensing conditions for crédit institutions operating in Vietnam and (ii) Régulations on licensing procédures and application files for crédit institutions

(i) Régulations on licensing conditions fo r crédit institutions operating in Vietnam:

One o f the key conditions for establishing a branch o f a foreign commercial bank in Vietnam was that the parent bank must have a total assets o f more than 20 billion

In order to establish a joint venture bank or a bank with 100% foreign capital in Vietnam, the parent bank must have a total assets o f more than 10 billion USD at the end of the year prior to application; To open a financial company with 100% foreign capital, joint venture financial company, financial leasing company with 100% foreign capital and joint venture financial leasing company, foreign crédit institution

in Vietnam, the foreign crédit institutions need to have total assets o f more than 10 billion USD at the end o f the year prior to application.31

Besides représentative offices, branches and joint venture banks, foreign crédit institutions are allowed to establish banks with 100% foreign capital in Vietnam

The maximum time permitted for foreign banks or joint-venture banks is 99 years.Basically, Foreign Service providers enjoy national treatment, except for some exceptions: there are one time domestic subsidies to strengthen and create favorable conditions for the process o f equalizing Vietnamese enterprises, for research and developing, for the sectors o f health, éducation and audio vision; and a subsidy to enhance welfare and create jobs for minor domestic banks

In général, the conditions presented to foreign crédit institutions to be granted operating licenses in Vietnam are based on the spirit o f openness, meet the principles

of the WTO / GATS and are in accordance with the purpose o f developing the economy o f Vietnam

(ii) Régulations on licensing procédures and application files fo r crédit institutions:

GATS and commitments stipulate that foreign crédit institutions (bank branches, joint venture banks, 100% foreign owned financial leasing companies, joint venture financial leasing companies, 100% foreign owned financial companies, etc.) must submit an application letter before opening and operating in Vietnam There are no detailed régulations on the licensing procédures and application files However, the Agreement gives général principles relating to administrative procédures, transparency and most favored nations regarding trade in services

+ Art 16 (1): Each Member shall accord services and service suppliers o f any other Member treatment no less favorable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule

+ Art 16 (2): The measures which a Member shall not maintain or adopt either on the basis o f a régional subdivision or on the basis o f its entire territory, unless otherwise specified in its Schedule, are defined as:

31 See paragraph 483, Report o f Mission Board on Vietnam to join WTO, WTO intégration

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