Circular No. 01/2002/TT-BCN guiding the implementation of certain provisions of Decree No. 76/2001/NĐ-CP dated October 22, 2001 of the Government on tobacco production and business activities.

CIRCULAR

||| Guidelines for Implementing Certain Provisions of Decree No. 76/2001/NĐ-CP dated October 22, 2001 of the Government on Activities of Tobacco Production and Trading||| Guidelines for Implementing Certain Provisions of Decree No. 76/2001/NĐ-CP dated October 22, 2001 of the Government on Activities of Tobacco Production and Trading

 ||| Pursuant to Decree No. 76/2001/NĐ-CP dated October 22, 2001 of the Government on Activities of Tobacco Production and Trading; after exchanging opinions with relevant Ministries and sectors, the Ministry of Industry hereby provides detailed guidelines for certain provisions of the Decree as follows;

 This technical regulation sets out technical requirements, testing methods, sampling procedures; management requirements; responsibilities of organizations and individuals producing, trading, and importing cigarettes.

1.||| These Guidelines provide guidance on the conditions for trading tobacco raw materials; production conditions for tobacco products and procedures, formalities, and authority for issuing production permits for tobacco products; import conditions for specialized machinery and equipment, tobacco raw materials, cigarette paper; management of production capacity and investment in tobacco product production; management, inspection, and handling of specialized machinery and equipment.

2.||| These Guidelines apply to all enterprises established under Vietnamese law that participate in tobacco production and trading activities within the territory of Vietnam.

3.||| Trading tobacco raw materials is a business activity subject to conditions without requiring a permit. Enterprises of all economic components may only engage in trading tobacco raw materials if they meet the conditions stipulated in these Guidelines.

4.||| The State implements monopoly over cigarette production; only state-owned enterprises granted production permits by the Ministry of Industry may produce tobacco products. Enterprises engaged in tobacco product production must comply with the provisions set forth in these Guidelines.

||| Foreign-invested enterprises producing tobacco products within the scope of their investment permits must adhere to the provisions of the Law on Foreign Investment in Vietnam and Decree No. 76/2001/NĐ-CP dated October 22, 2001 of the Government on Activities of Tobacco Production and Trading.

5.||| Specialized machinery and equipment for tobacco (detailed in the Appendix attached hereto), tobacco raw materials, cigarette paper (the part containing tobacco threads of cigarettes) are imported goods subject to specialized management by the Ministry of Industry.

6.||| Deepening investments, modernizing equipment and production technology; constructing new facilities, expanding existing ones due to relocation or for export purposes must be consistent with the Master Plan for the Development of the Tobacco Industry during each period approved by the Prime Minister and not exceed the total production capacity determined and announced by the Ministry of Industry.

II.||| TRADING TOBACCO RAW MATERIALS

1.||| Conditions for Business Subjects:

||| A trader is an enterprise registered to trade tobacco raw materials.

2.||| Conditions for Technical Facilities and Equipment:

a)||| The area of the raw material procurement facility, including sorting areas, packaging areas, and raw material storage areas, must be sufficiently spacious, commensurate with the scale of business operations, and have a minimum total area of 500 square meters.².

b)||| There must be a dedicated warehouse for tobacco raw materials. The warehouse must have ventilation systems and other equipment suitable for storing tobacco raw materials, including temperature and relative humidity monitoring devices, pest control measures; there must be sufficient shelves or racks to support cigarette packs at least 20 centimeters above the floor and at least 50 centimeters from walls and columns.

c)||| Procurement points must display signs bearing the commercial name of the trader engaged in tobacco raw material trading and must have samples of tobacco raw leaves according to classification standards prescribed by the Ministry of Industry.

3.||| Conditions for Environmental Protection and Fire Prevention:

||| Procurement facilities must have complete fire prevention and firefighting equipment and ensure environmental hygiene safety as prescribed by the State.

III.||| PRODUCTION OF TOBACCO PRODUCTS

A.||| CONDITIONS FOR PRODUCTION OF TOBACCO PRODUCTS

1.||| Conditions for Business Subjects:

||| It is a state-owned enterprise established in accordance with the law and currently engaged in tobacco product production before the issuance of Resolution No. 12/2000/NQ-CP dated August 14, 2000 of the Government on National Policy to Combat the Harmful Effects of Tobacco in the 2000-2010 Period, managed by the People's Committee of provinces and centrally-administered cities or the Vietnam Tobacco Corporation.

2.||| Conditions for Investment and Use of Domestic-Grown Tobacco Raw Materials:

a)||| Enterprises producing tobacco products must use domestically-grown tobacco raw materials for production in accordance with the ratio prescribed by the Ministry of Industry, except for international brand products or products for export. This ratio is specified for each period, in line with the Development Plan for Tobacco Raw Material Regions approved by the Prime Minister.

b)||| Enterprises producing tobacco products must participate in planting tobacco raw materials through direct investment or joint investment via traders engaged in tobacco raw material trading who directly plant tobacco, in accordance with the scale of production and business operations of the enterprise and the Development Plan for Tobacco Raw Material Regions approved by the Prime Minister.

3.||| Conditions for Production Volume:

||| The annual production volume of tobacco products converted to cigarette packs (20 cigarettes/pack) must reach 50 million packs/year or more.

4.||| Conditions for Machinery and Equipment:

a)||| Enterprises producing tobacco products must have specialized machinery and equipment comprising the main processes: fiber processing, cigarette rolling, and packaging.

b)||| The fiber processing process must have minimum equipment ensuring the synchronization of the process, including steaming machines, humidifying machines, material adding machines, leaf storage and fermentation tanks, cutting machines, fiber drying machines, cooling machines, flavor spraying equipment, mixing and weighing equipment.

||| The fiber processing line must be specialized, arranged in spaces meeting industrial hygiene, occupational safety, and environmental hygiene standards.

c)||| For enterprises without a fiber processing line, there must be a contract for outsourced fiber processing. The unit undertaking outsourced fiber processing must meet the conditions stipulated in point b above.

d) During the rolling, packaging, and sealing processes, the enterprise must useautomatic rolling, packaging, and sealing machines, except in cases where tobaccoproducts are produced using traditional methods that require manual operation.

e) Enterprises producing tobacco products must have minimum testing equipment tomeasure and check quality indicators such as cigarette weight, cigarette circumference,cigarette pressure drop, and dust content in the tobacco strands. For other physicaland chemical indicators and tobacco hygiene standards, enterprises may conduct theirown inspections or through service units with inspection functions. Inspection resultsmust be systematically retained for long-term monitoring.

g) All machinery and equipment used to produce tobacco products must have legalorigins. The enterprise shall not lease or borrow machinery and equipment for producingtobacco products from organizations and individuals without the function of producingtobacco products.

5. Conditions regarding product quality and safety hygiene:

Tobacco production facilities must meet requirements concerning quality and facilitysanitation according to Vietnamese Standards, Industry Standards, and DecisionNo. 4196/1999/QĐ-BYT dated December 29, 1999, issued by the Ministry of Healthregarding "Regulations on Quality and Food Safety Hygiene."

6. Conditions regarding ownership of trademarks:

Enterprises producing tobacco products must have the right to own or legally useregistered and protected trademarks in Vietnam.

7. Conditions regarding the environment and fire prevention:

Enterprises producing tobacco products must have complete firefighting equipmentand ensure environmental hygiene safety in accordance with state regulations.

B. AUTHORITY, PROCEDURES AND FORMALITIES FOR ISSUING PRODUCTION LICENSES FOR TOBACCO PRODUCTS

1. The Ministry of Industry is the authority issuing production licenses for tobaccoproducts.

2. The application dossier for issuing a production license for tobacco products includes:

a) Application form for a production license for tobacco products.

b) A certified copy of the business registration certificate.

c) Documents related to standards and business conditions stipulated in thisCircular, including:

Report on the business operation results of the enterprise in the last three years,specifying clearly the production volume index for each group of tobacco products(converted volume).

List of machinery and equipment inventory, cigarette production capacity, and eachprocess capacity converted to 20 cigarettes per shift for the last three years. Documentationproving the legal origin of machinery and equipment.

Contract for processing tobacco strands, quality control service contract (if any).

List of warehouse, factory, office space, and other auxiliary areas.

Certified copy of the quality registration certificate or Declaration of compliancewith quality standards.

Certified copy of documents confirming ownership or legal use of trademarks for tobaccoproducts.

Certified copy of environmental permit or environmental impact assessment certificateissued by the competent authority.

Certified copy of fire prevention and extinguishing safety certificate issued by thecompetent police authority.

3. Procedures for issuing a production license for tobacco products:

a) Within thirty days from the date of receiving a complete and valid application,dossier, the Ministry of Industry will examine and issue a production license for tobaccoproducts. In case of refusal, a written response with reasons must be provided.

b) If the application dossier is incomplete, within seven days from the date of receiptof the enterprise's dossier, the Ministry of Industry will issue a written requestfor supplementation.

4. The production license will be made in five copies: two copies kept at the Ministryof Industry, one copy sent to the provincial industry department where the enterpriseis headquartered, one copy sent to the superior management agency of the enterprise,and one copy sent to the enterprise granted the license.

5. The production license for tobacco products has a validity period of five years. Thirtydays before the expiration date of the license, the enterprise must submit a writtenrequest for renewal to the Ministry of Industry for consideration.

6. An enterprise producing tobacco products will have its production license revokedin case of serious violations of production conditions for tobacco products and otherregulations stipulated in this Circular, or if the enterprise is merged or dissolved.

7. Enterprises granted a production license for tobacco products must pay a fee asprescribed by the Ministry of Finance.

IV. INVESTMENT IN THE PRODUCTION OF TOBACCO PRODUCTS

1. Management of production capacity for tobacco products:

a) Total production capacity is defined as the synchronized production capacity alongthe tobacco product production line (including main machinery and equipment onvarious stages: strand processing, rolling, packaging) and calculated for two shiftsper day at the time of issuance of Resolution No. 12/2000/NQ-CP dated August 14,2000, of the Government on National Policy on Prevention and Control of TobaccoHarm during the 2000-2010 period.

b) The Ministry of Industry will coordinate with relevant agencies and Vietnam TobaccoCorporation to determine and announce the total production capacity of each unitas a basis for investment in tobacco product production and importation of specializedmachinery and equipment.

Enterprises are allowed to increase production capacity for export tobacco productionwithin the scope of the total capacity already determined and announced.

Each year, units must submit statistical reports on their production capacity to theMinistry of Industry.

2. Some provisions on deep investment and production of tobacco products:

a) Before implementing an investment project, the investor must obtain a writtenagreement from the Ministry of Industry. Within fifteen days from the date of receiptof the enterprise's proposal, the Ministry of Industry will provide a written response;in case of refusal, the reasons must be clearly stated.

b) The content of the proposal includes the project name, location, major technicalparameters, and disposal plan for replaced machinery and equipment (if there isreplacement investment).

c) After obtaining the agreement from the Ministry of Industry, the enterprise willimplement the investment according to the procedures and formalities for investmentand basic construction prescribed by the State.

d) The enterprise must report to the Ministry of Industry the results of processing specialized tobacco machinery and equipment that has been replaced during the investment process.

V. IMPORT OF SPECIALIZED TOBACCO MACHINERY AND EQUIPMENT, TOBACCO RAW MATERIALS, AND CIGARETTE PAPER

1. Specialized tobacco machinery and equipment, tobacco raw materials, and cigarette paper are types of imported goods subject to specialized management by the Ministry of Industry. Only enterprises with production licenses for tobacco products may import such goods.

2. Enterprises may import directly or through units with export-import trading functions to import specialized tobacco machinery and equipment, tobacco raw materials, and cigarette paper for production purposes.

3. Import of specialized tobacco machinery and equipment:

a) Imported specialized tobacco machinery and equipment must be compatible with the production capacity of the enterprise producing tobacco products.

b) Within ten days from the date of receipt of the import proposal document from the enterprise, based on the approved investment project, the Ministry of Industry shall issue a document approving or rejecting the enterprise's import of machinery and equipment.

4. Import of tobacco raw materials and cigarette paper:

a) By November 15 each year, enterprises producing tobacco products must submit their import requirements for tobacco raw materials and cigarette paper for the following year to the Ministry of Industry. Based on production volume, the ratio of domestically grown tobacco raw material usage, and the report from Vietnam Tobacco Corporation regarding domestic supply capability, the Ministry of Industry will issue a notification of the import plan to enterprises and relevant agencies no later than December 15 each year.

b) Imported tobacco raw materials and cigarette paper can only be used for producing tobacco products according to the enterprise’s production plan. If not fully utilized, they may only be resold to enterprises with production licenses for tobacco products.

5. For cases of importing tobacco raw materials for export purposes, the Ministry of Industry will consider and resolve each specific case based on the enterprise's proposal and related export plans.

6. Annually, enterprises producing tobacco products must report to the Ministry of Industry on the importation and utilization of specialized tobacco machinery and equipment, tobacco raw materials, and imported cigarette paper during the period.

VI. MANAGEMENT, CONTROL, AND HANDLING OF SPECIALIZED TOBACCO MACHINERY AND EQUIPMENT

1. Organizations and individuals without a production license for tobacco products are prohibited from using specialized tobacco machinery and equipment in any form to produce tobacco products.

2. Specialized tobacco machinery and equipment without legitimate origin will be confiscated and handled according to the law.

a) Specialized tobacco machinery and equipment are considered illegal in the following situations:

Imported before Directive 13/1999/CT-TTg dated May 12, 1999, without valid import procedures

Imported after Directive 13/1999/CT-TTg dated May 12, 1999 took effect but without valid import procedures and approval agreement from the Ministry of Industry.

b) Handling of confiscated specialized tobacco machinery and equipment shall be carried out according to current regulations and may only be resold to enterprises with production licenses for tobacco products.

3. The transfer and liquidation of specialized tobacco machinery and equipment by enterprises producing tobacco products, in addition to complying with state regulations on asset liquidation, must also adhere to the following provisions:

a) Enterprises may only transfer specialized machinery and equipment still in usable condition to enterprises with production licenses for tobacco.

b) Machinery and equipment no longer in usable condition must be liquidated as scrap.

c) After transferring or liquidating, enterprises must report to the Ministry of Industry the results of implementation.

4. The Ministry of Industry shall lead and coordinate with the Public Security, Market Management, and Customs departments to inspect, detect, and handle specialized tobacco production machinery and equipment without legitimate origin.

VII. IMPLEMENTATION PROVISIONS

1. This Circular takes effect fifteen days from the date of issuance, and all previous regulations conflicting with this Circular are abolished.

2. Merchants currently engaged in tobacco raw material trade who have registered business activities prior to the issuance of this Circular may continue operations but must adjust and supplement all conditions stipulated in this Circular within four months from the date it becomes effective.

3. Within ninety days from the date this Circular becomes effective, enterprises meeting the business entity conditions as specified in Section III.A, if continuing to operate tobacco product production, must apply for a production license for tobacco products and submit registration documents to the Ministry of Industry. During the waiting period for the production license, enterprises may continue operations until the Ministry of Industry issues or rejects the production license for tobacco products.

4. Enterprises involved in tobacco raw material trade, tobacco product production, and importation of specialized tobacco machinery and equipment, tobacco raw materials, and cigarette paper are responsible for implementing this Circular accurately.

5. In the course of implementation, if there are difficulties, they should be reported to the Ministry of Industry for timely review, supplementation, and amendment./.