Broad Application of Economic Needs Test Hinders Foreign Retail Investment in Vietnam

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Jul. 2 – Vietnam’s broad application of a special tool allowed for World Trade Organization members to curb market access has hindered major foreign retail companies from entering the country, market analysts are saying.

“We talked to some international distributors who are interested in Vietnam’s market like Walmart. They said that they will only come to Vietnam when they are sure that they can open more than one store,” said Fred Burke of the consulting firm Baker & McKenzie during a retail market workshop sponsored by the National Assembly’s Economic Committee held on Tuesday.

The Economic Needs Test (ENT) Non-objective Criterion gives authorities the power to reject applications made by foreign retailers to expand and open more stores.  Specifically it states: “The establishment of retail outlets outside the first retail outlet shall be considered case-by-case … [including] the sustainability of the investment project to the plans of the province or city.”

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ENT is a widely used tool by WTO members but usually just reserved for selected areas in the economy and not a whole industry. Vietnam’s broad application of the rule will continue to deter major retail companies from entering the market.

However, the rule will give local retail companies the time to expand and mature in their markets while no huge foreign competition threatens their market share. In 2009, total revenue from retail sales and services expanded by 18.6 percent.