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WTO ACCESSION AND FISCAL POLICY REFORM IN VIETNAM
(Present at i on by H. E. Le Thi Bang Tam, Vi ce Mi ni ster of Fi nance, at t he
Forum "Vi et nam' s readi ness for WTO accessi on)

Mr./Mme Chair,
Ladies and Gentlemen,
First of all, I would like to sincerely thank the National Center for Social Science and
Humanity, and the World Bank for co-organizing this forum and thank the organizers for giving me
the opportunity to talk to you on the fiscal policy reform in Vietnam during the WTO accession
process.
Our presentation will touch upon the following issues:
1. WTO and issues related to fiscal policy in Vietnam.
2. Fiscal policy reform in the integration process.
3. Conclusion and recommendations.

A. WTO AND ISSUES RELATED TO FISCAL POLICY IN VIETNAM
In recent years, the implementation of the economic policy reform toward opening up and
integration through the signature and participation to the bilateral and multilateral agreements on
trade, finance, and investment has created motivation for high economic growth, with sound fiscal
stance (both inflation and budget deficit are brought under control), and enhanced Vietnam's position
in the international community. This further confirms Vietnam's effort in integrating into the world
economy and becoming the WTO member, in an irreversible trend.
However, for Vietnam to become WTO as we desire, understanding WTO is not sufficient,
we should know how to approach WTO in an appropriate way for Vietnam, a developing country in
transition from centrally-planning and subsidized system to market economy.
WTO gives a comprehensive framework not just for trade in goods but also in services, and
not only trade issues, but also trade-related investment, intellectual property right; and not only to
comply with statutory rules, but also to ensure market access.
Taxation, customs, and financial services are the issues directly influence the WTO
negotiation and are also sensitive in the Vietnamese economy, and determinant to the success of
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integration. Therefore, from the fiscal point of view, WTO accession should consider the 3
following issues:
1. Fundamental WTO requirements
- Tariff and customs policy:
+ Export and import tariff policy: The import tariff rate has to be reduced and follow the
MFN principle (without discrimination between imports from different nations); import tariff is the
only instrument to protect the domestic production and should not be a revenue raising device.
Customs valuation should base on the foreign trade contract, as stipulated in the Agreement
on Customs Valuation.
+ Domestic tax policy: The MFN principle and the National Treatment (without
discrimination between domestics and imported goods and services) should be respected.
- Fiscal policy: State budget revenue from exports and imports should be kept at a level to
ensure the necessary protection only; fees and charges levied on exports and imports should be
sufficient to recover the cost of service delivery only. Direct budget expenditures such as subsidies,
export subsidies, subsidies to SOEs, etc. will be removed. Even the government procurement will
also be governed by the WTO rules.
- Financial market opening: Vietnam should make and implement commitments on market
access for financial services (e.g. insurance, accounting, auditing, tax consulting) and commitment
on equal treatment between domestic and foreign invested financial service firms.
- Policy toward financial sector should be disclosed, transparent, and facilitate market access
related to trade.
2. Short term challenges:
Becoming WTO member and implementing these commitments put a challenge to the
financial sector in particular and to state regulatory agencies in general, especially in the context of
incomplete and inconsistent legal framework and policies that are not appropriate to the international
practices; in some areas, regulatory documents are even non-existent, such as financial brokerage,
tax consulting. Economic institutions, especially the domestic enterprises, both SOEs and private
enterprises, insurance companies, accounting and auditing firms, are weak and uncompetitive.
Revolutionary steps in governance and economic management should be taken within a short time;
policies toward the financial sector should be changed to be appropriate to the market mechanism,
such as :
a- A competitive and equal business environment should be developed by
- removing the discrimination between domestic and foreign enterprises, between domestic
and imported goods and services;
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- applying the same tax rates and charges to enterprises of all ownership, both domestic and
foreign;
- phasing out protection in tariff barriers, subsidies, trade preferences that are inappropriate
to the international practices.
- applying the customs valuation system based on the WTO's Agreement on Customs
Valuation (imported tariff calculation is based on the price quoted in the contract, instead of
imposing the minimum price for tariff purpose).
- removing non-tariff barriers, applying the contract price, and removing protection. This
requires the development and application of control measures to fight fraud in trade, such as
countervailing duties, anti-dumping duties, transfer pricing, and anti-monopoly, to ensure a fair and
sound trade environment.
b. The tariff reduction under ASEAN/AFTA commitments, BTA, and WTO commitments
will directly affect the budget revenue of the government. Therefore, the government fiscal policy
will have to make some adjustment to change the revenue structure toward more domestic revenue,
higher effectiveness of tax administration and collection in order to correctly determine the payable
taxes, tax base, and reduce the arbitrary tax preferences.
c. Transparency: In the context of implementing the international commitments, Vietnam
should ensure a stable, transparent, and clear legal environment and policy framework that follows
the international practices, from policy making, promulgation, and implementation. This is an
obligation that requires the whole management system to make significant progress (at both central
and local levels) in administration reform, ensuring the government management role, and the law
compliance, avoiding interference, disturbance, and corruption.
d. Market opening should create opportunities for the development of the corporate sector,
but should also expose it to fiercer competition in the domestic market, with the following measures:
- Removing the inertia and over-reliance of enterprises on the state protection. Enterprises
should see integration as their own business. They have to take action to approach and find
investment sources in the capital market, financial market, and should consider the capital cost as
part of the investment efficiency and production.
- For the SOEs sector, it is necessary to accelerate the restructuring through financial clean
up, debt resolution, improving the competitiveness. The government has to further deal with the
bottleneck in fund mobilization, removing the unnecessary protection that violate WOT rules,
further improving the export promotion scheme to help enterprises seize the export opportunities and
finding new market.
- The investment environment should be conducive to businesses, especially to encourage the
private sector development and SME development.
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- Capital market and financial services should be developed to be more liberal, integrated,
and ensure the systemic safety for the financial market.
. Dispute cases over the catfish, shrimp, and gas lighter are only the beginning when
Vietnam join the world market with many complicated law systems. While in the WTO, Vietnam is
able to use the multilateral dispute settlement mechanism, with more simple rules and regulations.
However, Vietnamese enterprises need to study and understand fully about the market and business
environment, laws and regulations of the host countries, in order to avoid the undesirable disputes.
At the same time, regulatory bodies should be qualified staff to play the role of "lawyer" to defend
the domestic enterprises while doing business abroad.
e. There are gaps in the economic and financial management skills in Vietnam, and yet
opening up would entail more diverse and complicated types of trade and services, requiring high
skills in management. The staff working international relations and integration process still falls
short of professional skills, knowledge of international laws, and foreign language.
3- Long term benefit:
Despite the short term challenges, opening up and international economic integration, trade
liberalization bring long term benefit for Vietnam in terms of trade, world market penetration for
Vietnamese exports, improving the mechanism for trade dispute settlement with other countries,
encouraging foreign investment into Vietnam, and more importantly promoting economic reform
and development.
Vietnam's efforts in becoming WTO member confirm the commitment for opening up and
integration by Vietnam, the willingness to accept the international rule of games, thus enhancing
Vietnam's position in the international community and strengthening investors' confidence, at home
and abroad.
The implementation of Vietnam's commitments under the BTA, the AFTA tariff reduction
roadmap, and future WTO commitments will be important engine for economic reform, especially in
accelerating the domestic enterprises restructuring, shift in investment direction, improving business
skills, transfer of technology, to improve competitiveness, creating new business culture,
accelerating the economic restructuring, and improving business efficiency.
Seizing such opportunities of integration and trade liberalization would help Vietnam
successfully implement the industrialization and modernization of the country, strengthening the
comprehensive relations between Vietnam and international trading partners.

B. FINANCIAL REFORM IN INTEGRATION PROCESS
The financial sector participate to the WTO accession process by drafting, negotiating, and
implementing commitments on finance and incorporating the finance related commitments to the
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sector's planning and strategy, to implement the overall socio-economic development strategy of the
country. Financial reform programs under the integration agenda include:
1- Export promotion:
- Tax policy: (i) more incentives in indirect taxes should be provided to help enterprises
reduce production cost for export, improving the competitiveness in prices of Vietnamese goods
versus other countries; (ii) more incentives in direct taxes for export producers and processing,
especially in sectors where Vietnam has advantage in raw materials and labor; (iii) tax incentives to
Vietnamese companies that set up branches abroad to increase the ratio of direct exports; (iv)
selective protection for production through tariff.
We should make clear that tax incentives, reduction or exemption to promote exports are
only necessary measures in the early stage of export promotion. Otherwise, enterprises may over-
rely on these incentives, which are not of international practices.
- Financial support to enterprises that can effectively compete and export by (i) strengthening
and diversifying export credit schemes, facilitating enterprises in export and import payment, further
completing preferences in export credit, (ii) completing the Export Support Fund, (iii) further
completing the export supporting credit scheme and Export Credit Bank to focus all credit
instruments to export through the only channel.
- Addressing the bottleneck and creating many channels for fund mobilization for business
and investment in development for enterprises, especially small and medium enterprises, by setting
up Credit Guarantee Fund, financial leasing, to raise more fund, deal with the gap in technology, and
create more flexibility in export, and certain safety to exporters.
- Applying the flexible and appropriate monetary and exchange rate policies.
- Further developing and completing the social safety net to provide contingency and support
to enterprises when they face difficulty.
2 - Protection of domestic production industries
- Encouraging and protecting domestic production through preferred credit, investment
support, to limit the use of non-tariff barriers or the unexpected raise of import tariff.
- Non-tariff measures should be tariffied. This makes the tariff regime more simple,
transparent, and raise more revenue, helping domestic industries to adapt gradually to the protection
with tariff only, in line with the international practices.
- Taking more measures to fight trade fraud and tax evasion.
- Completing the import tariff schedule to reflect the reasonable, conditional, and time-bound
protection for domestic production, taking into account the competitiveness of the existing industries
and their future development.
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- Supplementing a number of other policy instruments to prevent and address the adverse
occurrences in international trade, in line with the international practices, such safeguarding, anti-
dumping duties, countervailing duties, and other trade management instruments, beside import tariff,
such as quota tariff, and absolute tariff.
3 - Improvement in the investment environment
- Reviewing tax incentives policies to make them transparent, competitive, and to be more
effective in attracting both foreign and domestic investment.
- Disclosure and transparency in compliance with the international practices: The
commitments should be disclosed, with full information about the roadmap for commitment
implementation, and the related regulatory documents and policies. More dialogues should be
conducted with foreign and domestic investors to address any bottleneck or problem on a timely
basis.
4 - Capital market and financial service development
Capital market, securities market should become the fundamental instrument to raise medium
and long term fund for investment in development. Approaching the international capital market is
another important channel that helps Vietnam better integrate into the international financial market.
The development of financial services (insurance, accounting and auditing, financial consulting, tax
consulting) is necessary to mobilize the domestic and external resources, to maintain financial
security, promoting the industrialization and modernization, and to improve the competitiveness of
the Vietnamese economy as the whole, and of particular products made in the country. The Ministry
of Finance is in the process of drafting and completing the financial service development strategy,
including insurance, accounting and auditing, investment fund, non-bank financial institutions, and
capital market development with the following steps:
+ Developing and completing the legal environment for each type of financial service.
+ Determining the role of the state sector, restructuring the SOEs operating in accounting,
auditing, insurance, to make sure they can compete on an equal footing in the market.
+ Determining the role of regulatory agencies as stipulated by law, to make sure no
administrative interference affects the business performance of the service providers.
5 - Strengthening capacity and effectiveness of financial sector
The process of industrialization and modernization, the integration of Vietnam into the
region and the global economy put many challenges to the financial sector. The regulatory capacity
should be strengthened to oversee many players in the financial market and new financial
transactions that are growing in the economy. In the overall administration reform program and
financial sector reform that aims at building modern governance, a requirement is how to introduce
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new technology into management to ensure the smooth information flows to the local and central
financial regulatory bodies.
Capacity building and effectiveness strengthening in the financial sector will be done through
the following:
1) Developing and completing the policy and institution system;
2) Improving the capacity for the organizational apparatus and the human resource;
3) Developing the modern financial information management system.
Based on the strategic orientation for the sector's development, and things to be done in the
near future, 5 groups of modernization work are identified, related to 5 areas of transactions in the
sector, including:
+ State budget management includes the improvement in state budget management scheme,
to meet the requirement of fast and sustainable economic development, social equity, and poverty
reduction. This would contribute to strengthen democracy, disclosure, and transparency in financial
and budgetary transactions of the government. A comprehensive and consistent state budget
information system should be developed, and connected to other information in the financial sector
in order to provide accurate and timely information to the central and local regulatory bodies.
+ Improvement in tax and customs administration: This includes the further revision in the
current tax laws (VAT, corporate income tax, special consumption tax, etc.). The tax administration
system should be further reorganized to increase the management capacity over the taxpayers, to
apply modern technology into tax administration, and specialize each state, strengthen the Customs
system for Vietnam to catch up with other countries in the region and the world in terms of
implementation capacity, automation. This has to follow the Customs Law and the international
commitments made by Vietnam with regard to customs, to facilitate international trade, to
effectively fight against smuggling and fraud.
+ Enterprise supervision and management include a system for financial supervision for
state-owned enterprises and enterprises of other ownership. Corporate governance, inspection,
supervision should be strengthened, a system of indicators should be developed to evaluate the
business performance and the corporate finance management.
+ Public assent management includes the revision in regulatory and legal documents, to
create a legal framework for public asset management in the administrative agencies, for managing
natural resources, land, and infrastructure. Professional skills in public asset management should
also be strengthened to ensure the long term stability, and to introduce information technology.
+ Sovereignty debt management includes the establishment of risk management mechanism,
and national strategy for sovereignty debt management. New financial instruments and institutions
should be developed in the stock market and other financial markets. Database on short term and
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long term debt, both domestic and external, should be built, including contingency. Information
should be connected to coordinate between the Ministry of Finance and the State Bank of Vietnam,
the Ministry of Planning and Investment, State Securities Committee, and other related agencies.
+ Financial market development includes the development of financial intermediaries,
business supporting services, strengthening capacity for regulatory bodies to oversee the financial
market and for financial intermediaries in such areas as insurance, capital market, accounting,
auditing, tax consulting, etc.

C. CONCLUSION AND RECOMMENDATIONS
Vietnam's accession to the WTO requires strong commitment and efforts of all levels and
authorities in the government and enterprises.
First, it is necessary to combine between the implementation of WTO commitments and the
acceleration of domestic economic reform and restructuring.
Second, the domestic legal system should be reformed and adjusted following the
international standards, to ensure disclosure, transparency, effectiveness, and stability to improve
investors' confidence; this is an instrument to deal with adverse development and disputes in
international trade.
Third, to fully implement the international commitments of Vietnam in integration, it is
necessary to coordinate between sectors, authorities at both central and local levels in making policy
and implement in a consistent way, to make sure the policies promulgated are enforced.
Fourth, the administration reform should be accelerated and domestic institutions should be
strengthened to catch up with the requirements of integration. Especially, competent staff, with good
qualification and foreign language skills, need to be trained, to meet the demand of WTO
negotiation, dispute settlement, and implementation of domestic commitments.
We appreciate the support from donors in implementing financial reform projects for
integration, especially support from international financial institutions and bilateral donors. We wish
to further receive the assistance from other organizations and governments in access to information,
institution development, capacity building in management, technology, training of qualified staff for
WTO negotiation, and implementation of commitments. This would help Vietnam fully integrate
into the world economy. This is part of the industrialization and modernization program of the
country as the whole and of the financial sector in particular.

Thank you very much for your attention./.