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Thursday, March 4, 2021

E-commerce management law: Problems remain

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E-commerce is a heated issue during the Covid-19 pandemic. Its importance is underscored by the draft amendments to Decree 52/2013/ND-CP unveiled by the Ministry of Industry and Trade.

Apart from technical amendments, there are two important issues—the supply of platforms and e-commerce activities across borders by foreign entities.

Ride hailing services

The definition of e-commerce is supplemented. Clause 2 of Article 24 of Decree 24 indirectly mentions this type of services, but the amendments will offer more clarity via Clause 16 of Article 3, which holds that e-commerce refers to commercial activities in which individuals and organizations set up e-commerce websites to provide a platform for other individuals and organizations to promote business, sell goods or provide services.

Many platform service providers, including controversial ride hailing services, fall under this category. However, the debate may continue simmering as the second part of the definition states that individuals and organizations that design websites without being directly involved in business activities on those websites are not considered e-commerce service providers.

In other words, e-commerce service providers must manage the commercial activities taking place over the applications. It remains debatable which category e-commerce service providers belong to since Decree 52 (prior to amendments) states that e-commerce technical infrastructure providers do not own the e-commerce sales websites, but supply them to the owners (Article 24.5).

Regarding ride hailing services, the owners must be considered as e-commerce service providers. In other words, they cannot conduct e-commerce activities by, for example, selling their own products, an activity governed separately by Clause 1 of Article 24 of Decree 52 (prior to the amendments).

The change deemed as an improvement may lead to inconsistency facing Decree 10/2020/ND-CP implemented by the Government in April 2020, which holds that so long as platform owners are involved in key aspects such as assigning drivers or setting prices, they are considered as transport providers. This is why tax offices in Vietnam have recently considered Grab and similar applications as taxi providers and imposed value added tax according to Decree 126/2020/ND-CP. This approach clearly differs from the draft amendments to Decree 52.

Playing with fire while struggling with fear

The draft amendments apply not only to foreign e-commerce entities that invest and set up branches, representative offices or websites in Vietnam, but also to foreign individuals and organizations with e-commerce activities in Vietnam, regardless of whether they have any representatives here (Article 2.1.c). This provides a strong legal basis for taxing e-commerce contractors.

The draft decree supplements Article 67a on these entities. Apart from e-commerce websites based in Vietnam or using Vietnamese, the number of transactions undertaken by customers or users from Vietnam is also suggested as a possible criterion. This will enable the Vietnamese authorities to deal with websites based in other countries or using foreign languages.

However, the draft decree views e-commerce service supply as a sector in which foreign participation is subject to conditions, it offers market access requirements. However, such requirements are sometimes debatable. For example, it holds that the service provider must be globally recognized (according to the Ministry of Industry and Trade—Article 67c.2.b). Assuming that local e-commerce firms are in their nascent stage, welcoming only globally renowned technological firms may adversely affect domestic companies.

Another problematic provision pertains to the requirement that if a foreign e-commerce firm may dominate one or more domestic e-commerce firms with a significant market share, the Ministry of Public Security and the Ministry of Defense must assess the entry application. The Competition Law already deals with stake acquisition in local firms, so this requirement is unnecessary and may lead to inconsistency. While the Competition Law is a basis for implementing the document, it does not mean the decree can extend the provisions of the law.

If the requirement is considered as a market entry condition, to be adhered to during the operation of a firm, it may engender a lack of transparency in the use of administrative tools as market barriers. In both theory and practice, a good legal framework encourages criteria that, once met, will allow firms to enter a market without having to overcome a barrier established by the authorities. This approach is undertaken by the Investment Law, which the draft decree cites before adding the above conditions.

In short, apart from commendable changes, the draft decree must revise controversial provisions; otherwise, it may give the impression that while the Government seems to welcome prestigious foreign firms, it is wary of them dominating domestic companies, including those with a dominant market. It is like playing with fire while struggling with fear.

By Truong Trong Hieu(*)

(*) University of Economics and Law, Vietnam National University HCMC

 

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