Distribution of Wine in Vietnam

Vietnam has enjoyed tremendous, steady GDP growth in recent years, including during the pandemic-ridden years 2020 and 2021, attracting more and more expats that work primarily in the thriving manufacturing and service industries and allowing an ever-larger chunk of its young, dynamic 97+ million population to afford more and more sophisticated products, indulge in more westernised customs, while retaining a strong sense of traditions, including eating and drinking out. A former French colony and open to sea and land trades, Vietnam indeed displays a lot of charm. The wine market in Vietnam is now more exciting than ever with quality and quantity constantly increasing every year. The Vietnamese appear to have beaten the Japanese and the Indian in the unofficial game of alcohol consumption growth rate, where the rate in Vietnam is twice the runner-up. Vietnamese drinkers knocked down 4.2 billion litres of alcohol in 2019, an increase of 90% over 10 years, making the country the leading market for alcohol in Southeast Asia. Whilst accurate reports are released every two years and at the time of writing data pertaining to 2020 and 2021 are not available yet, it is certain that wine and in general alcohol consumption during the pandemic has increased significantly. Inevitably global products pour into this young, potential market. Pundits see Vietnamese drinkers’ growing taste for wine as evidence of the creeping westernisation of the Country. In 2018, the total import turnover of wine reached USD53.2 million, an increase of 85% compared to 2010. According to the statistics of the Vietnam Alcohol and Beverage Association, there are currently only 15 companies in Vietnam producing and bottling wine with an annual output of about 12-13 million litres. The General Statistics Office announced in its latest available report that the growth rate of imported wine has increased by about 25% per year since 2004. Between 2017 and 2021, the total food and beverage sales are expected to grow at a compound annual average rate of 11.3%. The popular classification of wine in Vietnam is based on the country of origin, with favourites being the “usual suspects”, namely Australia, Chile, France, Italy, New Zealand, South Africa and the USA. In 2020 Italian wines outpaced the French in sales. In 2019, the growth rate of imports of French and Italian wines to Vietnam was up 20%. Vietnam is being targeted as a massive potential market in Asia by French and Italian wine suppliers, since its annual growth rate remain steadily at 10%. Despite Italy’s top performance mentioned above, generally, over the years, France has always been the top wine supplier to Vietnam. Second in the wine distribution sector in Vietnam have traditionally been Chilean wines. Vietnam has lowered its restrictions on importing wine after it joined the World Trade Organization (WTO) and ASEAN.

Revenues in the wine segment should amount to USD245 million in 2022. The market is expected to grow annually by 4.38% (CAGR 2022-2025).

By 2025, 31% of spending and 24% of volume consumption in the wine segment will be attributable to out-of-home consumption (e.g. in bars and restaurants).

The market for wine segment is expected to show a volume growth of 3.6% in 2023.

Vietnam has earned a notorious reputation for the production and distribution of counterfeited goods, including cigarettes, garments, perfumes, spirits and wine. It is not very hard to spot business owner blatantly exhibiting fake drinks on their shelves facing crowded streets in Hanoi or Ho Chi Minh City, let alone “second tier” cities. Trademark registration is not a mandatory requirement for wine to be traded in Vietnam, however, in a situation of widespread fakes, smuggled alcohol and lack of deep and wide knowledge about wine, getting your name, logo, brand registered is the most effective way to legally protect your tangible as well as intangible assets. Since Vietnam is a party to the Madrid System governing the international registration of trademarks, in order to obtain protection of a trademark in Vietnam, trademark owners may either file the application through the national route in Vietnam or through the Madrid system. A common trademark registration process in Vietnam involves the following procedures:

• formality examination: the National Office of Intellectual Property (NOIP) will perform an examination to check that the proposed registration complies with its formal requirements. The NOIP will also search for earlier registered trademarks that conflict with the application, in case there are identical, similar or likely to be confused, which the applicant will then have an opportunity to argue against. The application is processed in approximately one month;
• application publication: assuming the application gets through the examination phase, it will then be published on the IP Gazette for a period of two months counting from the date of decision for the purpose of possible actions by third parties;
• substantive examination: absolute refusal and relative refusal-based examinations are simultaneously conducted by the NOIP in usually nine months commencing from date of publication on the IP Gazette;
• statement of grant of protection: it is the confirmation that the trademark is registered and entails the payment of a fee for such certificate. Payment must be made within thirty days and a similar timeline is expected for the release of the original certificate.

If the application is successful, the trademark registration will last for an initial period of ten years, following which it can be renewed for additional periods of ten years each indefinitely. However, if a trademark is not put to use in the first five years from its registration or for a continuous period of five years during its registration, then a third party may seek to have the registration revoked for non-use.

All imported wine must comply with Vietnam’s labelling regulations. Some mandatory information (such as product name and alcohol content) must be written in Vietnamese, according to Decree No. 43/2017/NĐ-CP of 14 April 2017 on the Labelling of Goods. For imported wines, in addition to the manufacturer's main label, the importer shall carry out a declaration of the quality of the product and apply a sub-label.

All goods sold in Vietnam must bear a seal and an additional label (the sub-label) must include:

• quantity;
• ethanol content;
• expiry date (if any);
• instructions for storage;
• warnings (if any);
• lot identification number (if any).
  

Wine is in the list of special imports into Vietnam. To import wine, it is necessary to go through a complex process of customs procedures and the related documentation is quite complicated, hence it is an activity that is conducted by specialised importers from the earlier stages until the post-inspection process. It is essential to identify the right, licensed importers and consider conducting a simple due diligence on them.

The main source of law in this regard is Article 20 of the Government’s Decree no. 105/2017/NĐ-CP dated 14 September 2017 on wine production and trading, which states as follows:

“Article 20. Importing wine

1. Imported wine comprise bottled finished wine for instant consumption, and semi-finished wine for producing finished wine in Vietnam.

2. Imported wine must have legal import documents as prescribed by current regulations, and be conform to the regulations on stamps on imported wine as prescribed in Article 15 of this Decree.

3. Imported wine must be labelled as prescribed in Article 14 of this Decree and relevant laws.

4. Only enterprises having licences for wine distribution may directly import wine, and must be responsible for the safety and quality of the imported wine. Enterprises importing semi-finished wine and additives for producing finished wine may only sell it to enterprises licensed to produce wine.

5. Enterprises having license for mass production of wine may directly import or authorise other enterprises to import semi-finished wine and additives for producing finished wine.

6. Imported wine must be registered for the Declaration of Conformity with the competent agency of Vietnam before the import, and each consignment must be issued with the written certification of food eligible for being imported as prescribed by law.

7. Wine is only imported to Vietnam through international border checkpoints. Apart from the papers presented to the customs when following the import procedure as prescribed, the importer must present the written appointment or authorisation as an official distributor or importer of the producer or trader, or the agent contract of the producer or trader of those articles.”

Thus, in order to be allowed to import alcohol, enterprises must meet the above conditions.

In addition, Vietnam imposes legally binding regulations on alcohol advertising, product placement, sponsorship and sales promotion, but health warning labels on alcohol advertisements and containers are not required. Furthermore, alcohol cannot be sold, whether on or off-premises, to minors.

Upon completion of import procedures, distributors are required to have a liquor resell licence.

Foreign distributors can now conduct such activities in Vietnam by establishing a (wholly) foreign owned Vietnamese company which must obtain a so-called trading licence, before kicking off retail operations.

Imports in Vietnam are regulated by the Customs Law (2015) and other notices and decrees issued by the Vietnamese Government. Imported wine must be inspected before they can be cleared at the customs, in compliance with the National Technical Regulation on Food Safety for Alcoholic Beverages (QCVN:2010/BYT). Core elements of inspection naturally include quality, specifications, quantity, and alcohol volume.

Besides, wine import firms in Vietnam are required to submit their document portfolio to the import authorities, including the import business code and the certificates of company registration. Import declarations must be submitted in advance or within thirty days of arrival through the electronic data processing system of the Vietnam Automated Cargo and Port Consolidated System/Vietnam Customs Information System (VNACCS/VCIS). Other supporting documents, including commercial invoices, inspection reports, value statements and certificates of origin, may also be required.

Vietnam adopts the Harmonized System (HS) for commodities, and most import goods are subject to import tariffs. In addition to import tariffs, some goods may be subject to other taxes, such as value added tax (VAT). To determine if a certain wine is subject to tax exemption, it is advisable to refer to Article 107 and Article 108 of Circular 38/2015/TT-BTC of March 25, 2015.

The code for wine is: 22042111.

The corresponding tax rate for this HS code are as follows: Import Tax: 50%; Special Consumption Tax (SCT): 30%; Value Added Tax (VAT): 10%.

Evidently, taxes make imported wines quite expensive for the end-consumers to buy, but Vietnam has lowered its tariff restrictions on importing wine after it joined the World Trade Organization (WTO) and the Association of Southeast Asian Nations (ASEAN). To improve long-term relationships with its stable trading partners, Vietnam has implemented lower import tariffs for wine exporters coming from Australia and New Zealand and more recently with EU Member States, thanks to the EU-Vietnam Free Trade Agreement (“EVFTA”), in force since August 2020. The ASEAN-Australia-New Zealand Free Trade Area (“AANZFTA”) is the agreement that affects, among others, the wine trade and its import tariffs between Vietnam and Australia and New Zealand. The lowered tariff as well as non-tariff barriers between Vietnam and Australia and New Zealand, as well as Vietnam and the EU, present big opportunities for greater exposure to imported wine and wine products.

After completing the import procedures, wine retailers are also required to have a specific trading license.

Vietnam is a Civil Law jurisdiction (hence not too distant in principle from legal standards one can find in Countries like France or Italy), a Socialist Republic with at the same time strong customary traditions that form part of the legal practice, somehow similarly to the People’s Republic of China. Whilst laws are relatively simple and can easily be found available in English, complications arise with their interpretation through a myriad or circulars and regulations, a very formalistic approach adopted by the courts and the evident toughness of the Vietnamese language.

Therefore, having a properly drafted agreement in place is essential, so that the will of the parties is fixed and compliant with the laws and regulations so, it can be interpreted without too many headaches in case of dispute.

Vietnam does not have a specific law on commercial agency, unlike Member States of the European Union, where many producers accustomed to such model come from. The parties can indeed regulate their business according to a freely negotiated contract, whose content is similar to the commercial agency in the EU, but they must do so, through a valid contract and bear in mind that such type of contract is mainly regulated by the Law on Commerce No. 36/2005/QH11. The Commercial Law defines “commercial agency” as a business activity whereby the principal and the agent agree for the agent to, on behalf of the principal, but in its own name, conduct the sale and purchase of goods or provide services to third parties (customers). The agent must be a Vietnamese legal entity.

The Commercial Law, together with the Civil Code 2015, is the main source of legislation on distribution contracts between a supplier (typically the wine producer) and a distributor who accords rights to the distributor to resell the supplier’s goods or services.

Whilst not mandatory, it is essential that both a commercial agency agreement and a distribution agreement be regulated by a proper written agreement, which addresses, inter alia, and mutatis mutandis, the following clauses:

• licence: the distributor must hold valid licences (see “Make sure you play by the book”) to act in such capacity;
• exclusivity: it should be noted that Vietnamese agents may enter into agreements with various, sometimes competing, principals, unless this is expressly prohibited by the contract;
• territory: regardless of exclusivity, Vietnam is populous and relatively large Country, long and narrow, with big cities, faraway from each other, which may entail having different agents / distributors throughout it;
• products that the producer supplies the agent / distributor with;
• pricing, which may be determined by the producer at its discretion, and payment terms, could include conversion rates of the Vietnamese Dong, as well as penalties for delays;
• distributor’s obligations (to name but a few: inventory, minimum quantities, after-sale services) and supplier’s obligations (e.g. to provide technical support and marketing material);
• intellectual property rights: on top of safeguarding the producer’s IPRs, the agreement may also set out the distributor’s scope of use of the supplier’s trademarks and trade names;
• governing law and jurisdiction, in case of dispute, going to court is never a pleasant exercise and in Vietnam even less so, hence a valid arbitral clause should be drafted, bearing in mind that Vietnam is both a signatory to the New York Convention on the recognition of foreign arbitral awards and home to a few valid international arbitration centres scattered throughout its territory.

In recent years, against initial sceptical expectations, e-commerce and ancillary activities (delivery, in-app purchases, gamification, tokenisation etc.) have literally boomed and foreign wine producers should take this consumer behaviour and new technologies into account when devising their strategies and agreements for Vietnam.