Decision No. 88/2007/QĐ-TTg Approving the Overall Strategy for the Tobacco Industry of Vietnam until 2010 and Vision 2020

 DECISION

Approving the Overall Strategy for the Tobacco Industry of Vietnam until 2010 and Vision 2020

đến năm 2010 và tầm nhìn năm 2020

PRIME MINISTER

Pursuant to the Law on Organization of the Government dated December 25, 2001;

Considering the proposal of the Ministry of Industry at the report No. 1902/TTr-BCN dated May 3, 2007 regarding the submission to the Prime Minister for approval of the Overall Strategy for the Tobacco Industry of Vietnam until 2010 and Vision 2020; opinions of relevant ministries, sectors, and agencies.

DECISION:

Article 1. Approving the Overall Strategy for the Tobacco Industry of Vietnam until 2010 and Vision 2020 with the main contents as follows:

I. GUIDING PRINCIPLES

1. The State does not encourage the consumption of tobacco products, implements strict measures to control production volume limits, importation, tax policies to reduce tobacco consumption, and promotes campaigns to reduce demand for tobacco use.

2. Implementing reforms in the management mechanism of the tobacco industry in accordance with WTO commitments, gradually implementing the Framework Convention on Tobacco Control (FCTC).

3. The State has a monopoly in the supply of tobacco products, including production and importation. Only state-owned enterprises that have been licensed and joint ventures between licensed enterprises and foreign entities, where the State holds controlling shares, may produce tobacco products. Implementing a state-managed trade mechanism for the importation of tobacco products.

4. Tobacco products are restricted goods. The State controls circulation and consumption of tobacco products in the market, strictly managing wholesale and retail sales of tobacco products.

5. The production capacity of each enterprise and the entire tobacco industry is determined based on three shifts per day, which is the capacity of machinery and equipment available at the time of issuance of Resolution No. 12/2000/NQ-CP dated August 14, 2000 by the Government announced by the Ministry of Industry.

6. The annual production volume of tobacco products supplied to the domestic market (including both production and importation) shall not exceed the production capacity recorded in the tobacco product manufacturing license. The Ministry of Industry will stipulate the production volume of domestically and internationally branded tobacco products of enterprises during each period.

7. Production of tobacco products is a conditional investment area. New construction or expansion of domestic tobacco production facilities exceeding the total production capacity determined by the competent authority is prohibited. Only deepening investments, modernizing production technology equipment to transform product structure towards enhancing product value and quality, reducing harm, and protecting the environment are permitted.

8. International cooperation is based on compliance with general principles of international economic integration and international commitments of Vietnam, without increasing domestic tobacco production capacity, improving product quality, combating counterfeit and smuggled tobacco products.

9. Producing new tobacco products bearing foreign trademarks for sale in Vietnam must be within the permitted production capacity and must be approved by the Prime Minister.

10. Foreign investment in tobacco product production must be based on joint ventures or cooperation with licensed tobacco product manufacturing enterprises; meeting all conditions for obtaining a production license; aligning with the Overall Strategy for the Tobacco Industry; the State holding controlling shares; and must be approved by the Prime Minister.

11. Machinery and equipment, raw materials, cigarette paper are specialized managed goods, subject to strict control in production, importation, and usage.

12. Investment in tobacco cultivation areas aims to leverage land and labor potential, meet market demands. Special attention should be given to developing tobacco cultivation in mountainous regions, remote areas, contributing to poverty reduction.

13. Promoting research and application of science and technology, raising the scientific and technological level of the tobacco industry to match regional standards.

14. Continuing to reorganize tobacco manufacturing enterprises towards larger scale, establishing a Vietnam Tobacco Group operating across multiple industries based on further reorganization and structuring of key enterprises such as Vietnam Tobacco Corporation, Saigon Industrial Corporation (Ben Thanh Tobacco Company), Khanh Viet Corporation, Dong Nai Food Industry Corporation (Dong Nai Tobacco Company). Modernizing equipment and technology to meet requirements for improved product quality, reduced harm, environmental protection, and high economic efficiency and competitiveness. Vietnam Tobacco Corporation plays a core role in this implementation.

II. OBJECTIVES

1. Organization of tobacco production until 2020

a) Vietnam Tobacco Corporation is the core entity, carrying out restructuring of small-scale tobacco manufacturing enterprises with ineffective business operations into strong enterprises capable of competing domestically and internationally.

b) Establishing a Vietnam Tobacco Group operating across multiple industries based on continued reorganization and structuring of key enterprises managing tobacco production and business operations such as Vietnam Tobacco Corporation, Saigon Industrial Corporation (Ben Thanh Tobacco Company), Khanh Viet Corporation, Dong Nai Food Industry Corporation (Dong Nai Tobacco Company).

2. Production of tobacco products

a) Domestic consumption production capacity of the entire tobacco industry

The production capacity of each enterprise and the entire tobacco industry is based on the machinery and equipment capacity available at the time of issuance of Resolution No. 12/2000/NQ-CP dated August 14, 2000 by the Government, calculated at three shifts per day, determined and announced by the Ministry of Industry.

The production capacity of each enterprise and the entire tobacco industry serves as the basis for managing investment in specialized tobacco machinery and equipment and the production volume of enterprises.

b) Annual production volume of tobacco products

Although tobacco is not encouraged for consumption, domestic production must be maintained to meet market demands while limiting the smuggling of tobacco products.

The annual production volume of tobacco products provided to the domestic market (both production and import) shall not exceed the actual production capacity determined and announced by the Ministry of Industry on August 14, 2000. Each enterprise shall not exceed the production capacity recorded in its tobacco product manufacturing license.

The Ministry of Industry shall specify the production volumes for domestic and foreign brand tobacco products for enterprises during each period, meeting domestic market demand, with a trend towards gradually reducing the demand for tobacco products.

c) Product structure

Shift the product structure towards increasing the proportion of mid-to-high-end cigarette production and gradually decreasing low-end cigarettes.

By 2010:

Filtered cigarettes reach 100%, mid-to-high-end cigarettes gradually increase and account for 37.5% of domestic consumption. The rate of localization of raw materials reaches 64%.

By 2020:

Mid-to-high-end filtered cigarettes become predominant, accounting for 65%. The rate of localization of raw materials reaches 70%.

d) Tar and Nicotine reduction roadmap

Implementing Resolution No. 12/2000/NQ-CP dated August 14, 2000 of the Government on the National Policy to Combat the Harmful Effects of Tobacco for the period 2000-2010, and the FCTC Convention which Vietnam has joined and ratified, the roadmap for reducing Tar and Nicotine in cigarettes until 2010 and vision until 2020 is specified as follows:

d) Raw material production

- Agricultural production:

By 2010:

The area under tobacco cultivation is approximately 39,200 hectares, with an average yield of 2 tons/hectare, producing 78,400 tons/year.

By 2020:

Stabilize the area under tobacco cultivation at about 40,300 hectares, with an average yield of 2.2 tons/hectare, producing 88,660 tons/year. Enhance agricultural technology to world-leading levels, producing most of the raw materials for mid-to-high-end cigarettes.

- Raw material processing:

By 2010, use 80% of processed raw materials and over 30% of domestically produced raw materials to replace imported raw materials for high-end cigarette production. From 2015 onwards, all cigarette production units will use 100% processed tobacco raw materials.

e) Production of auxiliary materials

Produce various types of auxiliary materials for cigarettes such as filter sticks, various wax papers, tipping paper, aluminum foil, and packaging materials (labels, cardboard boxes) to meet domestic production needs and for export.

g) International cooperation

Continue to cooperate with major international tobacco corporations that are strategic partners to produce international brands through joint ventures, contract manufacturing, and licensing to enhance competitiveness, curb illegal imports, but not increase domestic consumption; gradually promote exports of high-value cigarette brands.

Foreign investment and joint ventures in the tobacco product manufacturing and trading sector must be consistent with general principles of international economic integration, international commitments of Vietnam, and ensure the following conditions:

- Deepen investment, innovate technology, and machinery/equipment to improve product quality and value without increasing domestic cigarette consumption capacity.

- Foreign production of tobacco products must be based on joint ventures or cooperation with existing licensed tobacco product manufacturers; align with the overall tobacco industry strategy; the State must hold controlling shares; must be approved by the Prime Minister and meet the conditions for obtaining a production license.

- Minimize harm, protect the environment, safeguard public health, comply with the FCTC Framework Convention, and adhere to regulations governing tobacco product production.

- Encourage investment in tobacco product production linked to regional raw material cultivation and the use of domestically produced auxiliary materials.

h) Investment

- Deepening investment

Renovate and upgrade existing cigarette factories towards modernizing equipment and technology, adding high-capacity and automated machinery without increasing production capacity. Dispose of and destroy outdated and polluting equipment. By 2015, modern machinery and equipment should account for 40% of total capacity; by 2020, modern machinery and equipment should account for 55% of total capacity.

- Relocation of some factories according to planning

Relocate some cigarette factories out of city centers according to planning, such as: Saigon Tobacco Company, Thang Long Tobacco Company, Ben Thanh Tobacco Company...

- Other areas

Invest in enhancing scientific and technological research capabilities to improve product quality and value, reduce harmful substances, and minimize environmental pollution.

III. IMPLEMENTATION STRATEGIES

1. Organizational restructuring solutions for the tobacco industry

a) Restructuring and merger solutions

- Identify small-scale tobacco manufacturing enterprises with inefficient business operations and lacking competitive ability both domestically and internationally.

- Organize these enterprises into stronger ones or merge them into new enterprises capable of diversified business operations.

b) Solution to establish the Vietnam Tobacco Corporation

- Concentrate on four main tobacco manufacturing and trading entities in the industry: Vietnam Tobacco Corporation, Sai Gon Industrial Corporation, Khanh Viet Corporation, Dong Nai Food Industry Corporation.

- Establish the Vietnam Tobacco Corporation based on the consolidation of key enterprises, engaging in diversified business operations.

The organizational restructuring solutions for the tobacco industry are based on voluntary agreements, discussed and agreed upon between relevant localities and enterprises.

2. Solutions for tobacco product sales organization

- Consolidate and reorganize the distribution system reasonably, grasp the wholesale market firmly, move towards controlling the retail system, build a retail system with fixed sales points under management. Proactively control and regulate market prices in the direction of increasing state revenue and reducing tobacco consumption.

- Actively seek to expand cigarette export markets, cooperate or subcontract for foreign countries.

- Strengthen inspection and control over the transportation and sale of smuggled cigarettes. Support funding from the state budget and contributions from cigarette manufacturing enterprises to prevent and reduce smuggled cigarettes, and to equip anti-smuggling forces with equipment and personnel.

3. Investment and scientific research solutions

a) Deep investment and technological innovation

Focus on upgrading key equipment towards modernization.

- Cigarette tipping and packaging equipment: replace and supplement cigarette tipping and filter joining lines with a capacity of 6,000 to 10,000 cigarettes per minute; packaging lines with a capacity of 250 to 400 packs per minute.

- Filament production line equipment: continue to upgrade and modernize filament workshops in factories to reach average advanced and modern levels.

- Invest in developing tobacco growing regions, improving raw material quality, replacing one raw material processing line with a capacity of 3 tons per hour. Invest in one tobacco sheet production line with a capacity of 5,000 tons per year.

- Equip new filament expansion lines, innovate technology in fiber separation processing, raw material processing, fiber processing, using flavorings and additives in a direction to reduce harmful substances, in line with increasingly high consumer requirements and international trends.

- Upgrade infrastructure, modernize workshops; automate warehouse and transportation systems suitable for modern machinery and equipment.

- Modernize some auxiliary materials production facilities.

b) Scientific Research

- Vigorously promote research and application of scientific and technological achievements, improve technological levels in certain fields such as raw materials, cigarettes, product quality management, auxiliary materials...

- Invest in building the Institute of Tobacco Economics and Engineering into a research and development agency for the industry.

c) Sources of Capital

Diversify forms of capital mobilization from the Tobacco Raw Material Cultivation and Processing Investment Fund, corporate development investment capital, commercial loans, capital raised through corporate bond issuance, and legally permissible capital raising methods. phù hợp với quy định của pháp luật.

4. Solutions for Developing Tobacco Raw Material Growing Regions

- Prioritize investment in high-quality raw material growing regions such as Cao Bang, Bac Son (Lang Son), Ninh Thuan, Tay Ninh, Gia Lai, Dak Lak... Thuận, Tây Ninh, Gia Lai, Đắk Lắk...

- Study and apply scientific and technical advances in selecting tobacco varieties, cultivation techniques, preliminary processing, drying tobacco, grading tobacco raw materials.

- Manage raw material production and business: create capital sources from the Tobacco Raw Material Cultivation and Processing Investment Fund. Develop reasonable pricing policies, implement appropriate purchasing methods. Promote various forms of farm construction, joint ventures, and partnerships including foreign joint ventures investing in raw material cultivation and processing.

5. International Cooperation Solutions

- Continue cooperation with BAT, Philip Morris, Imperial, Japan Tobacco groups to produce internationally licensed cigarette brands under joint venture, cooperation, and license agreements. Produce additional international brands to replace smuggled cigarettes.

- Develop joint ventures in tobacco raw material cultivation and fiber processing to meet market demands.

- Cooperate with BAT, Sampoerna, Universal, Dimon groups in programs for research and development, improving domestic tobacco raw material quality, exporting raw materials, and substituting imported auxiliary materials.

- Study the possibility of joint ventures in other industries according to Vietnam's tobacco industry multi-industry business orientation.

6. Human Resource and Training Solutions

Diversify training formats, link training closely with actual production. Reorganize production labor. Streamline management structures, establish mechanisms and policies to nurture talent, encourage and stimulate workers' creativity. Enhance international cooperation in technical and technological training and transfer.

7. Environmental Protection and Clean Production Solutions

- Implement the relocation of tobacco production units according to planning schedules and invest in new effective facilities.

- Invest in updating technology and modern machinery, use cleaner production technologies to improve product quality and mitigate environmental pollution. Combine traditional and modern technologies to effectively treat exhaust gases, solid waste, wastewater, and hazardous waste generated during production in a cleaner production direction.

8. Diversification of Business Industries Solutions

Implement diversification of business industries, seek new investment opportunities, prepare investment plans for other industries to enhance capital utilization efficiency, increase revenue for the state budget, address employment and income issues for workers.

a) Production Policy

- Invest in infrastructure serving tobacco growing regions: irrigation systems, roads, etc.; support farmers in tobacco cultivation with loans in kind such as fertilizers, pesticides, dried charcoal, etc. Maintain the Tobacco Raw Material Cultivation and Processing Investment Fund, establish penalties for disputes and non-compliance with contracts.

- Provide state budget funding for researching and developing new products with high value and quality; support policies for the tobacco industry to address job losses and surplus labor in line with the government's special consumption tax increase schedule.

b) Specialized Management Policy

- For production:

+ The State has a monopoly in the supply of tobacco products, including production and import.

+ Manage the production capacity of each enterprise and the entire tobacco industry based on the capacity of machinery and equipment at the time of promulgation of Government Resolution No. 12/2000/NQ-CP dated August 14, 2000 by the Ministry of Industry, determined to be three shifts per day.

||| Article on production volume: the annual domestic market supply of tobacco products by enterprises (including both production and import) shall not exceed the production capacity recorded in the tobacco product manufacturing license. The Ministry of Industry shall specify the production volume of domestically and internationally branded tobacco products for enterprises during each period. ||| (specifying international cigarette brand production volumes through franchising, production cooperation, joint ventures).

||| Manage the provision of tobacco tax stamps according to the prescribed production volume limits and import quotas for tobacco products for enterprises during each period.

||| - For imports:

||| + For imported tobacco products:

||| Include them in the list of goods subject to specialized management and state trade import control measures combined with non-tariff measures.

||| Vietnam Tobacco总公司是唯一进口烟草产品的渠道。进口烟草产品的数量应确保不会增加越南国内的烟草消费总量。

||| Imported tobacco products must comply with the following requirements: clearly indicate the place of manufacture, tar and nicotine content, affix an import stamp to distinguish from domestically produced tobacco products, and include health warning statements...

||| In addition to the specified taxes, there will be a phased import duty schedule for tobacco ||| (percentage duty, specific duty) ||| aimed at creating a fair competitive environment for the tobacco industry.

||| + For raw tobacco leaf products:

||| Continue to maintain the quota tariff management measures as a result of WTO accession negotiations.

||| + For specialized machinery, equipment, tobacco threads, and cigarette paper:

||| Machinery, equipment, raw materials, and cigarette paper are goods subject to specialized management, strictly controlled in production, import, and use to ensure that they do not increase tobacco production capacity, and to limit the production of untaxed tobacco and counterfeit tobacco products of poor quality.

||| - Other policies:

||| + Improving the legal framework:

||| Study and amend relevant legal provisions in accordance with WTO regulations and the Framework Convention on Tobacco Control (FCTC) regarding areas such as import and export, investment, etc., based on the principle of "ensuring the competitiveness of the Vietnamese tobacco industry while enabling the State to control tobacco production and consumption and fulfill its commitments when integrating into the global economy."||| + Combating smuggling of tobacco products and counterfeit tobacco sales:”.

||| Strengthen inspections and controls over the sale of smuggled and counterfeit tobacco products of poor quality; allocate necessary funds based on budget allocations and contributions from the tobacco industry to destroy smuggled tobacco products and support investments in communication, transportation, personnel, etc., for anti-smuggling forces; pay attention to supporting poverty reduction and job creation for border residents.

||| - The Ministry of Industry shall take the lead and coordinate with relevant ministries, sectors, and localities to implement this Strategy.

Article 2. Implementation

||| - Ministries: Planning and Investment, Finance, Agriculture and Rural Development, Construction, Trade, Labor, Invalids and Social Affairs, Science and Technology, Natural Resources and Environment, Health, Culture and Information, State Bank, Vietnam Development Bank shall, within their respective functions and powers, cooperate with the Ministry of Industry in implementing this Strategy.

||| - People's Committees of provinces and centrally-administered cities shall coordinate with the Ministry of Industry and relevant ministries and sectors to concretize this Strategy in accordance with the overall socio-economic development plan of the locality. Coordinate with the Ministry of Industry to implement policies for restructuring tobacco manufacturing enterprises under provincial and municipal management.

||| This Decision shall take effect fifteen days after its publication in the Official Gazette.

Article 3. ||| Ministers, Heads of ministerial-level agencies, Heads of agencies under the Government, Chairmen of Provincial People's Committees, and related agencies are responsible for enforcing this Decision.

Article 4. ||| - Supreme People's Procuracy;