Decision No. 08/2017/QĐ-TTg guiding the implementation of the Protocol between the Government of the Socialist Republic of Vietnam and the Government of the Russian Federation on supporting the production of motorized transport vehicles in the territory of Vietnam.

Pursuant to …;

GUIDELINES FOR IMPLEMENTING THE PROTOCOL BETWEEN THE GOVERNMENT OF THE SOCIALIST REPUBLIC OF VIETNAM AND THE GOVERNMENT OF THE RUSSIAN FEDERATION ON SUPPORT FOR THE PRODUCTION OF MOTOR VEHICLES WITH ENGINES IN VIETNAM

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

Pursuant to the Law on Treaties dated April 9, 2016;

Pursuant to the Protocol between the Government of the Socialist Republic of Vietnam and the Government of the Russian Federation on support for the production of motor vehicles with engines in Vietnam signed in Moscow on March 21, 2016 (hereinafter referred to as the Protocol);

Pursuant to the Free Trade Agreement between one party being the Socialist Republic of Vietnam and the other party being the Eurasian Economic Union and its member states (hereinafter referred to as the Vietnam-EAEU FTA) signed in Astana, Kazakhstan on May 29, 2015;

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

At the proposal of the Minister of Industry and Trade;

The Prime Minister issues this Decision to guide the implementation of the Protocol between the Government of the Socialist Republic of Vietnam and the Government of the Russian Federation on support for the production of motor vehicles with engines in Vietnam.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Decision stipulates the procedures for allocating tariff quotas, the process and procedures for issuing import permits under tariff quotas, the rates of import duties within and outside tariff quotas, and the mechanism for coordination among state agencies to implement the import mechanism under tariff quotas for motor vehicles with engines and kits in the framework of the Protocol.

Article 2. Applicability

1. Competent State Management Authority.

2. Joint ventures meeting the conditions as prescribed in Article 4 of this Decision.

Article 3. Explanation of Terms

In this Decision, the following terms shall be understood as follows:

1. Authorized Russian enterprises include:

a) GAZ Automobile Plant LLC

Address: 603004, Ilyicha Street No. 5, Nizhny Novgorod, Russian Federation.

b) International Trade Company "KAMAZ"

Address: 423815, Avtozavodsky Avenue No. 2, Naberezhnye Chelny, Republic of Tatarstan, Russian Federation.

c) Public Joint Stock Company "Ulyanovsky Automobile Plant" (UAZ)

Address: 432034, Moskovskoe Avenue No. 92, Ulyanovsk, Russian Federation; and

d) Enterprises added or replaced at the request of the Russian side.

2. A joint venture is a legal entity established by agreement signed between authorized Russian enterprises and interested Vietnamese enterprises on Vietnamese territory in accordance with Vietnamese law.

3. Motor vehicles with engines include certain types of SUVs (utility sport vehicles) of UAZ (M1G); passenger motor vehicles carrying 10 or more persons including the driver (M2, M2G, M3, M3G); trucks (N1, N1G, N2, N2G, N3, N3G); and special purpose vehicles (SB, SC, SD) as agreed between authorized Russian enterprises and interested Vietnamese enterprises.

4. Kits consist of spare parts and components imported into Vietnam by joint ventures and necessary for industrial assembly of motor vehicles in kit form, excluding spare parts and components produced in Vietnam.

5. Localization rate is calculated according to the following formula:

a) Cost of Vietnamese raw materials means the value of raw materials, spare parts, or goods of Vietnamese origin and meeting the criteria of origin in accordance with Chapter 4 (Origin Rules) of the Vietnam-EAEU FTA;

b) Direct labor costs include wages, bonuses, and other benefits of workers directly related to the production process as prescribed by Vietnamese law, including compulsory health insurance and social insurance;

c) Direct common costs include, but are not limited to administrative and commercial expenses; costs of fixed assets related to the production process (rent, depreciation of buildings, taxes, including income tax, interest on mortgages); costs of renting and paying interest on factories and equipment; factory protection costs; insurance costs (factories, equipment, and raw materials used in producing goods); public utility service costs (energy, electricity, water, and other public utility costs related to production); research and development costs, design and engineering costs; dyeing, molds, tools, depreciation, maintenance, and repair costs of factories and equipment; copyright or license fees (related to machines or processes with copyrights used in the production process or the right to produce goods); costs of testing and inspecting raw materials and goods; warehouse costs at the factory; costs of recycling waste and factors used in calculating the value of raw materials, that is, port fees and customs clearance and import duties payable on taxable parts;

d) Profit is the net profit of joint ventures after deducting all taxes and fees as prescribed by Vietnamese law;

đ) EXW price is the price of goods provided on an ex-factory basis as stipulated in Incoterm 2010 issued by the International Chamber of Commerce.

Article 4. Requirements for Joint Ventures

Joint ventures meeting the conditions include:

1. Legal entities established by agreements signed between authorized Russian enterprises and interested Vietnamese enterprises on Vietnamese territory in accordance with Vietnamese law.

2. Each authorized Russian enterprise is only permitted to establish one joint venture in Vietnam.

3. The portion of capital contributed by Vietnamese enterprises in the joint venture must reach at least 50% of the total registered capital of the joint venture.

4. Joint ventures must be established and operate for a minimum period of 10 years and a maximum of 30 years.

5. Authorized Russian enterprises are not allowed to transfer capital in joint ventures to any third party from a third country.

6. The localization rate that joint ventures must achieve in 2020 and 2025 is as follows:

7. Motor vehicles with engines produced by joint ventures for use on the territory of the Socialist Republic of Vietnam must meet technical requirements, standards, and conformity assessment procedures as prescribed by Vietnamese law.

Chapter II

QUOTA DUTY LIMIT

Article 5. Quantity of Quota Duty

1. The total quantity of tariff quotas for all joint ventures until 2021 is as follows:

2. The Ministry of Industry and Trade annually allocates tariff quotas for each joint venture based on the total tariff quota volume specified in Clause 1 of Article 5 of this Decision, the announcement regarding the allocation of tariff quotas by the Russian Federation's Ministry of Industry and Trade, and the actual implementation of the production plan of the joint venture, and reports to the Ministry of Industry and Trade.

3. The amount of the tariff quota granted in the following year may be reduced depending on the implementation of the localization ratio stated in the planned forecast of the joint venture and the implementation of the previous year's tariff quota according to the following formula:

Where:

a) M is the amount of the tariff quota for each joint venture under Clause 1 of Article 5 of this Decision and the notification from the Russian side (Russian Federation's Ministry of Industry and Trade) regarding the allocation of tariff quotas;

b) A is the percentage of the planned localization rate of the previous year that was not achieved;

c) B is the quota duty specified in Clause 1 of Article 5 of this Decision that was not fully utilized in the previous year and carried over to the following year;

d) C is 30% of M allocated for the following year if the joint venture only implements between 50 - 80% of the quota duty of the previous year (M of the preceding year) as specified in Clause 1 of Article 5 of this Decision;

đ) D is 50% of M allocated for the following year if the joint venture only implements less than 50% of the quota duty of the previous year (M of the preceding year) as specified in Clause 1 of Article 5 of this Decision.

4. In case of any adjustment to the tariff quota volume specified in Clause 1 of Article 5 of this Decision, the Ministry of Industry and Trade of Vietnam shall notify the Russian Federation's Ministry of Industry and Trade before January 31 each year.

Article 6. Tariff Rate for Import Duties

1. The import duty rate within the tariff quota is 0% if the goods have origin in compliance with the provisions of Chapter 4 (Origin Rules) of the VN-EAEU FTA Agreement and are confirmed by a Certificate of Origin issued with a clearly stated value-added content of 55% calculated according to the method stipulated in Chapter 4 (Origin Rules) of the VN-EAEU FTA Agreement. The value of Vietnamese raw materials is excluded from the calculation of the value-added content.

2. For the rate of import duty outside the quota:

a) In the case where goods are accompanied by a Certificate of Origin under the VN-EAEU FTA Agreement (Certificate of Origin model EAV), the import duty rate outside the tariff quota is the current import duty rate committed to in the VN-EAEU FTA Agreement;

b) In the case where goods are not accompanied by a Certificate of Origin model EAV, the import duty rate outside the tariff quota is determined according to relevant Vietnamese tax laws.

Chapter III

PROCEDURE FOR ISSUING IMPORT LICENSES UNDER TARIFF QUOTAS AND IMPORTING UNDER TARIFF QUOTAS

Article 7. Procedures and formalities for issuing import licenses under tariff quotas

1. Joint ventures submit their annual production plans to the Ministry of Industry and Trade, which must include:

a) Types and quantities of vehicles expected to be produced;

b) Detailed list of parts included in the kits;

c) Tax codes corresponding to motor vehicles and kits expected to be imported at the 8-digit level according to the current Vietnamese Export and Import Goods List;

d) Schedule to achieve the localization ratio as committed in Clause 6 of Article 4 of this Decision;

đ) Expected implementation of technology transfer agreements and human resource training.

2. Within thirty days of receiving the production plan sent by the joint venture, the Ministry of Industry and Trade will notify the result of approving the production plan. In cases requiring clarification or additional information about the production plan, the Ministry of Industry and Trade will notify the joint venture of specific requirements for additional information to be provided.

Within ten days from receiving the supplementary information for the production plan submitted by the joint venture, the Ministry of Industry and Trade will notify the approval or rejection result of the plan.

3. Based on the annual production plan of the joint venture approved by the Ministry of Industry and Trade and the allocation of tariff quotas by the Russian Federation's Ministry of Industry and Trade, the joint ventures submit applications to the Ministry of Industry and Trade requesting issuance of import licenses under tariff quotas to import motor vehicles and/or kits, along with a Certificate of Origin model EAV issued by the competent authority of the Russian Federation in accordance with the Protocol. The application should clearly state:

a) The registered quantity for all vehicle models and the anticipated import time;

b) Tax codes at the 8-digit level according to the current Vietnamese Export and Import Goods List, consistent with the approved production plan (excluding spare parts and components of motor vehicles produced within Vietnam).

4. The Ministry of Industry and Trade issues import licenses under tariff quotas within fourteen days from the date of receipt of the complete application documents submitted by the joint venture. These licenses may be issued with validity until December 31 of the year.

Article 8. Import Procedures

Based on the import license under the tariff quota issued by the Ministry of Industry and Trade and the provisions of Vietnamese law, customs authorities at ports of entry will consider clearing the imported consignment according to the principle of automatic rollback until the quota volume for each item in the license is exhausted.

Article 9. Revocation of Quota Tariff Permit

The import permit under quota may be revoked if the joint venture is found to violate any of the following cases:

1. The joint venture does not operate in accordance with Vietnamese law.

2. The joint venture fails to meet the localization rate requirement within ten years from the date the Protocol becomes effective as committed in Clause 6, Article 4 of this Decision.

3. Russian enterprises authorized transfer capital in the joint venture to a third party from another country.

4. The joint venture fails to fulfill its obligations under agreements related to technology transfer.

5. The joint venture does not implement specific activities to contribute to the development of Vietnam's automotive parts manufacturing industry; develop a service system for car maintenance and repair; train technical skills for local labor and support motorized transport means with CKD kits produced by the joint venture to penetrate markets of other countries, including the Eurasian Economic Union.

Article 10. Change of Authorized Enterprise under the Protocol

The Ministry of Industry and Trade shall take the lead in reviewing and evaluating the request of the Russian side (the Russian Federation's Ministry of Industry and Trade) regarding the supplementation or replacement of authorized enterprises based on criteria stipulated in the Protocol and confirm to the Russian side that the authorized enterprises meet the conditions within 28 days from receipt of the request and necessary documents.

Chapter IV

MECHANISM FOR COORDINATION OF MANAGEMENT BETWEEN GOVERNMENT AGENCIES

Article 11. Coordination Mechanism in Issuing Import Permits Under Quota Tariffs

1. The Ministry of Industry and Trade shall take the lead:

a) Implement the process of reviewing the issuance of import permits under quota tariffs;

b) Review the request of the Russian side regarding the supplementation or replacement of authorized enterprises according to the Protocol and notify relevant ministries and agencies if they agree with the request of the Russian side.

2. The Ministry of Industry and Trade shall take the lead and coordinate with relevant ministries to review and approve the production plan of the joint venture to issue import permits under quota tariffs. In this regard:

a) The Ministry of Science and Technology shall conduct the review and approval of the level of disaggregation of CKD kits imported recorded in the production plan in accordance with current regulations;

b) The Ministry of Finance shall review the compatibility of the list of motorized transport means and CKD kits proposed to enjoy tax exemption benefits under quota tariffs in the production plan, detailed at the 8-digit level with the List of Export and Import Goods of Vietnam.

3. Before January 31 each year, the Ministry of Industry and Trade shall notify the Ministry of Finance about the adjusted quantity of tariff quotas.

4. The Ministry of Industry and Trade shall notify the Ministry of Finance about the list of motorized transport means and CKD kits expected to be imported by each joint venture immediately after approving the production plan of the joint venture.

5. The Ministry of Planning and Investment shall implement a mechanism to publish the list of domestically produced spare parts according to its functions and tasks and introduce updates to joint ventures about production facilities in Vietnam that have produced spare parts with specific types and technical standards. At the same time, the Ministry of Planning and Investment shall inspect the process of joint ventures directly negotiating with production facilities regarding orders for spare parts for cars assembled in Vietnam by the joint ventures.

Chapter V

INSPECTION AND REPORTING REGIME

Article 12. Inspection

1. The Ministry of Industry and Trade shall inspect the production process; evaluate the implementation of quota tariffs, the fulfillment of localization rate commitments of each joint venture, and adjust the amount of quota tariff exemptions for the following year.

2. The Ministry of Finance shall inspect the clearance of imported consignments to ensure that motorized transport means and/or CKD kits are imported tax-free in accordance with the list of motorized transport means and CKD kits sent by the Ministry of Industry and Trade and the import permit under quota tariffs issued by the Ministry of Industry and Trade.

3. The Ministry of Transport shall inspect motorized transport means and CKD kits produced by joint ventures for use on Vietnamese territory to ensure that these transport means and CKD kits comply with technical standards and conformity assessment procedures prescribed in relevant Vietnamese laws.

Article 13. Reporting Obligations

1. Joint ventures are obligated to comply with Vietnamese law.

2. Before January 15 each year, the joint venture must report to the Ministry of Industry and Trade on the business situation in the previous year, the implementation of quota tariffs, and the implementation of the localization rate plan, specifying:

a) The number of motorized transport means and CKD kits that have been imported tax-free;

b) Types and quantities of vehicles produced;

c) Information on necessary data to calculate the localization rate (cost of Vietnamese raw materials, direct labor costs, direct common costs, profit, EXW price);

d) The latest update of the annual financial report.

Chapter VI

IMPLEMENTING PROVISIONS

Article 14. Effective Date

This Decision takes effect from May 15, 2017.

After the Protocol comes into force, every five years, the Ministry of Industry and Trade shall cooperate with relevant ministries and agencies to review and assess the fulfillment of localization rate commitments by each joint venture and consider proposals to revoke the license of the joint venture if, after ten years, the joint venture fails to achieve the localization rate committed to in Clause 6, Article 4 of this Decision.

Article 15. Responsibility for Implementation

2. The Ministers, Heads of ministerial-level agencies, Heads of government-affiliated agencies, Chairpersons of provincial and centrally-administered city People's Committees are responsible for implementing this Decision./.

2. The Ministers of the Ministries of Industry and Trade, Finance, Planning and Investment, Science and Technology, and Transport are responsible for implementing this Decision./.