I. GENERAL PROVISIONS

1. Goods processing contracts signed between Vietnamese traders and foreign traders according to the contents stipulated in Decree No.57/1998/ND-CP of July 31, 1998 of the Vietnamese Government shall serve as basis for the customs authorities to carry out the procedures for export and/or import of goods for the performance of processing contracts.

All the contractual components are integral parts of processing contracts.

In the course of performing such a processing contract, should there be any changes in or adjustments of such contract�s terms, the Vietnamese traders who have signed the contract shall have to promptly provide Vietnam�s customs office which monitors such processing contract with documents on such changes or adjustments.

Traders who have signed processing contracts shall have to strictly comply with regulations of Vietnamese law on signing and performance of processing contracts.

2. All goods exported and/or imported under the processing contracts must be subject to the customs procedures, customs inspection and supervision, and the customs fee payment as prescribed by Vietnamese law.

3. The receipt of a processing contract, the carrying out of the customs procedures for export goods and/or import goods under such processing contract, the liquidation and settlement of such processing contract shall be conducted at a customs unit of the province or city where the concerned enterprise or its head offices is located. In cases where the customs authority is not available in the locality, the enterprise shall be entitled to choose a customs authority most convenient for them to carry out the procedures.

In cases where the goods under such processing contract are exported and/or imported through the border-gate managed by the provincial/municipal customs department other than the provincial/municipal customs office that has received the processing contract, the customs authority of the locality having such export/import border-gate shall continue proceeding with the customs procedures on the basis of the customs dossier sent by the provincial/municipal customs department which has received and monitored the contract. After completing the procedures for the lot of goods, the customs authority of export/import border-gate shall return the dossier to the customs authority which has received the processing contract.

4. All processed products shall have to be re-exported to the foreign processees or customers designated by the processees, except for products paid as the processing remuneration by the processees.

In cases where the processed products, after being exported, are returned together with a written notice by the processee for reprocessing or repair, the processor shall be entitled to receive such products for reprocessing, then have to re-export them.

5. Enterprises are entitled to export and/or import goods samples to be used as processing models. The goods samples having no commercial value shall be exempt from export tax and import tax. If the export goods samples are made from raw materials, auxiliary materials and materials imported under processing contracts, they shall be liquidated as export products.

II. INTERPRETATION OF A NUMBER OF THE DECREE�S CONTENTS

1. Processing-undertaking parties: Vietnamese traders of all economic sectors shall be entitled to undertake processing for foreign traders. Particularly, the processing activities undertaken by foreign-invested enterprises shall comply with the provisions of the Law on Foreign Investment in Vietnam, the relevant legal documents and stipulations in Articles 12, 13, 15, 16, 17 and 18 of Decree No.57/1998/ND-CP of July 31, 1998 of the Government.

2. Regarding processing contracts stipulated in Article 12 of Decree No.57/1998/ND-CP:

2.1. Processing contracts may be signed directly or via facsimile, telex,...

2.2. A processing contract must be made in Vietnamese and English or another foreign language mutually agreed upon by the two parties. In cases where a processing contract is signed in a foreign language, the Vietnamese enterprise shall have to make the official Vietnamese translation of such contract, to affix with its signature and seal thereon and take responsibility for such translation.

2.3. Regarding the payment mode stipulated in Clause d, Article 12: Processing contracts must clearly state the payment mode: in cash or in processed products. If the processing remuneration is paid in processed products, the types and value of such products must be clearly stated.

3. Regarding the trademarks and the names of origin of goods stipulated in Clause i, Article 12 of the Decree: The parties must agree in the contracts upon the use of trademarks and names of origin of goods. The processee must commit itself to take responsibility for the use of trademarks and names of origin of goods and for the settlement of disputes related to the use of such trademarks and names of origin of goods.

In cases where such trademarks and names of origin of goods are identical to those already registered for protection in Vietnam, the written certifications of the Vietnam Industrial Property Office are required.

4. Hired or borrowed machinery and/or equipment stipulated in Chapter III of the said Decree include machinery and equipment in complete sets or in separate units, production tools, and replacement or supplement tools, which are supplied by the processees in form of temporary import for re-export.

5. The norms for the use of raw materials, auxiliary materials and materials (stipulated in Articles 13 and 18 of the Decree) are volume of raw materials, auxiliary materials and materials necessary for production of a product unit.

The norms for materials consumption are volume of raw materials, auxiliary materials and materials used for production of a product unit, but not constitute the products or a visible part of products.

The wastage of raw materials, auxiliary materials and materials is volume of raw materials, auxiliary materials and materials wasted during the production process. Such wastage depends on the quality of materials, skills of workers, possible machinery and equipment incidents and other reasons.

6. Enterprise directors as stipulated in Article 13 shall be understood as follows:

For traders being legal persons: They are directors of enterprises. For traders being individuals: They are such individuals. For traders being cooperatives: They are heads of such cooperatives. For traders being households: They are heads of such households.

7. Clause 2, Article 14 stipulates the import of technologies, and export and import management: According to this stipulation, when importing production machinery, equipment and tools, enterprises shall have to abide by the regulations on quality control, labor safety and regulations on specialized management (if the imports are on the list of imports subject to specialized management).

8. The payment of processing remuneration in form of processed products as stipulated in Clause 2.d, Article 15 of the Decree must ensure the following conditions:

- It must be agreed upon in processing contracts (or their appendices).

- The value of products to be used for payment of processing remuneration shall not exceed the value of processing charge.

- The products to be used for payment are not banned or suspended from import. If they are subject to conditional import, the written approval from the competent agency is required.

- The processed products used for payment of processing remunerations shall be liable to import tax and relevant taxes.

III. CUSTOMS PROCEDURES

A. UNDERTAKING PROCESSING FOR FOREIGN TRADERS

1. The procedures for receiving processing contracts:

Within 3 working days before the procedures for import of the first lot of goods under a contract are carried out, the concerned enterprise shall have to fill in the procedures for producing the contract to the customs authority.

a) Each dossier to be produced comprises:

- The processing contract and its appendices (if any), two copies.

- The copy of its business registration certificate or investment license (for foreign-invested enterprises which make the registration for the first time).

- The written approval of the Ministry of Trade, if the to-be-processed commodity is on the list of goods banned or suspended by the Vietnamese State from export or import.

- The certificate of the Vietnam Industrial Property Office (in cases where the trademark and name of origin of goods have been registered for protection in Vietnam).

b) The responsibilities of the customs authorities when receiving processing contracts:

- To receive processing contracts in accordance with Article 12 of the Decree.

- To stamp the "RECEIVED" seal on the contracts and enlosed documents.

Within 2 working days after receiving complete and valid dossiers, the customs authority shall have to complete the procedures for receiving contracts. After receiving a contract, the customs authority shall keep one copy thereof for monitoring purpose.

2. The import procedures:

2.1. The procedures for import of raw materials, auxiliary materials and/or materials:

a) The dossiers registered for carrying out of the customs procedures for raw materials, auxiliary materials and/or materials imported for the processing as stipulated in Decision No.50/1998/QD-TCHQ of March 10, 1998.

b) Sampling of raw materials and auxiliary materials:

Except for cases where goods items cannot be sampled due to their natural properties (gold, silver, raw skin,...); for other cases, when inspecting raw materials, auxiliary materials and/or materials imported for processing, the customs authorities shall have to sample main raw materials serving as basis for comparison when the procedures for export of products are carried out. Products shall be sampled by customs officers together with representatives of the enterprises. The samples shall be sealed up by customs authorities and handed over to the enterprises to preserve and produce when carrying out the procedures for export of products.

2.2. The procedures for temporary import of machinery and equipment:

The machinery and equipment temporarily imported in service of the processing shall, upon the expiry of the processing contracts, have to be re-exported to the processee, except for expendable or damaged equipment and/or tools which can no longer be used and other cases permitted by the Ministry of Trade.

These machinery and equipment shall have to go through the customs procedures as those applicable to lots of goods temporarily imported for re-export, but shall be exempt from tax(es).

In the use course, if such machinery and/or equipment are damaged and the enterprises wish to send them abroad for repair, they shall be entitled to carry out the procedures for tax-free temporary export - reimport.

3. The procedures for export of processed products:

The dossiers to be registered for carrying out of the customs procedures for export of processed products shall comply with Decision No.50/1998/QD-TCHQ of March 10, 1998. When carrying out the procedures for export of products, the customs authority shall have to compare the imported raw materials samples with those constituting the products.

4. The procedures for transfer of raw materials, auxiliary materials and/or materials from one contract to another:

4.1. For cases of the same processee and processor and the same managing customs authority: The processor shall only have to notify in writing the customs authority managing the processing contract of the transfer of such raw materials, auxiliary materials and/or materials, together with the written agreement between the two parties.

4.2. For cases of the same processee and processor, but the processing contract is managed by the customs authority of another province or city: The procedures shall be carried as for intermediary processed products as stipulated below.

4.3. For cases of the same processee but different processors: The procedures shall be carried out as for intermediary processed products as stipulated below.

5. The procedures for delivery and receipt of intermediary processed products as stipulated in Clause 3, Article 17 of the Decree:

5.1. In this Article:

- Traders delivering intermediary processed products shall be referred to as the delivering party.

- Traders receiving intermediary processed products shall be referred to as the receiving party.

- Customs authorities managing the processing contracts of the delivering parties shall be referred to as the delivering party�s customs authority.

- Customs authorities managing the processing contracts of the receiving parties shall be referred to as the receiving party�s customs authority.

- Bills for delivery of intermediary processed products shall be referred to as the intermediary bills.

5.2. In principle, the delivery of intermediary processed products shall be managed by the customs authorities, but the customs authorities shall not directly carry out the procedures for the delivery and receipt of goods. The concerned enterprises shall organize by themselves the delivery and receipt of goods according to the steps stipulated below. The directors of the delivering enterprises and receiving enterprises shall be responsible before law for the delivery and receipt of products according to the agreed quantity and categories.

5.3. The implementation steps:

a) Step 1: The delivering party shall make 4 bills for delivery of intermediary processed goods according to the form set by the General Department of Customs. After making the bills, the delivering party shall hand over the products to the receiving party.

b) Step 2: The receiving party, after receiving in full the products, certifying and putting its signature and seal on the above-said 4 intermediary bills, shall produce and register such bills with the receiving party�s customs authority.

c) Step 3: The receiving party�s customs authority shall receive the 4 intermediary bills, give its certification on such bills, with its signature and seal.

If the receiving party�s customs authority is the supervision and management section of the provincial/municipal customs department, the head (deputy head) of such supervision and management section shall give his/her signature and stamp the seal of the provincial/municipal customs department.

If the receiving party�s customs authority is the border-gate customs authority, the head (deputy head) of such border-gate customs authority shall give his/her signature and stamp such border-gate customs office�s seal.

After giving its certification on all the above-said bills, the receiving-party�s customs authority shall return 3 bills to the receiving party and keep one bill together with the processing contract under which the intermediary processed products are used.

The receiving party shall keep one bill together with the processing contract and return two others to the delivering party.

d) Step 4: The delivering party shall, after receiving back 2 intermediary bills with certifications of the receiving party and receiving party�s customs authority from the receiving party, have to produce them to the delivering party�s customs authority. The delivering party�s customs authority shall give its certification, signature and seal on such 2 monitoring bills, keep one bill together with the processing contract, return the other to the delivering party for being kept together with processing contract.

The signatory and seal of the delivering party�s customs authority shall be similar to those of the receiving party�s customs authority.

5.4. These intermediary bills shall be considered vouchers for the future liquidation of processing contract. For the delivering party, only bills with certifications, signatures and seals of the above-said 4 parties shall be valid for contract liquidation. For the receiving party, only bills with certifications of 3 parties (excluding the delivering party�s customs authority) shall be valid for contract liquidation. The enterprise directors of the delivering party and the receiving party shall be responsible before law for the legality and truthfulness of the delivery and receipt of intermediary processed products and these bills.

5.5. For the intermediary processing in case of the same domestic partner but with different foreign partners, the processing-undertaking enterprise shall only have to report in writing to the customs authority on such intermediary processing. Such report must clearly state the names, quantity and value of delivered products. The written report shall be made in 4 copies, of which, after being certified by the customs authority, 2 copies shall be kept by the customs authority together with the 2 contracts, 2 others shall be returned to the enterprises for being kept together with the 2 contracts.

Such written report shall be valid for contract liquidation.

6. Hiring other traders to conduct the processing activities, as stipulated in Clause 2.b, Article 15 of the Decree:

The enterprises that undertake the processing for foreign traders shall be entitled to hire other traders to do the processing. The customs authority shall not carry out the procedures for such hired processing.

The enterprises that have signed processing contracts with foreign traders shall have to directly carry out the procedures for export, import and liquidation of processing contracts, and fulfill other obligations related to the processing contracts.

7. The procedures for re-export of processing raw materials, auxiliary materials and materials:

In the course of performing processing contracts, at the requests of the processees, the processors shall be entitled to re-export the raw materials, auxiliary materials and materials to the processees.

The customs procedures for re-export of such raw materials, auxiliary materials and materials shall be similar to those appicable to the export of a lot of processed goods. Apart from a dossier as set for a lot of export processed goods, a copy of the re-export request with certification of the processing-undertaking enterprise must be submitted. The customs authorities carrying out the re-export procedures shall have to compare the to be-re-exported raw materials, auxiliary materials and materials with their imported samples.

8. The procedures for liquidation and settlement of processing contracts according to Article 18 of the Decree:

8.1. The bases for the settlement of processing contracts shall comply with Clause 2, Article 18 of the Decree.

The directors of the enterprises which have signed processing contracts shall be responsible before law for the norms on the use, consumption and wastage of raw materials, auxiliary materials and materials as agreed upon in the processing contracts and declare them to the customs authorities.

In the course of performing processing contracts, the customs authorities shall not inspect the norms upon each goods� tax code. But when there are evidences to believe that the norms stated in the processing contracts are inaccurate or untruthful, the customs authorities shall inspect such norms. If violations are detected, the enterprise directors shall be handled according to law.

8.2. Each settlement dossier comprises:

- The processing contract and its appendices;

- The list of declarations of imported raw materials, auxiliary materials and materials (including the bills for delivery of intermediary processed products) enclosed with such declarations;

- The sum-up list of imported raw materials, auxiliary materials and materials;

- The list of declarations of export processed products (including bills for delivery of intermediary processed products), enclosed with such declarations.

- The sum-up of the processed products already exported.

- The list of declarations of temporarily imported machinery and equipment, enclosed with such declarations.

- The sum-up list of temporarily imported machinery and equipment.

- The sum-up table of norms on the use and consumption of processing raw materials, auxiliary materials and materials (enclosed with norms for each goods sample).

- The sum-up list of raw materials, auxiliary materials and materials already turned into export products.

- The settlement of the processing contract.

8.3. The time limit for settlement:

Within 3 months from the termination of a processing contract, the processor shall have to complete the contract settlement with the customs authority (including the handling of surplus raw materials, auxiliary materials and materials, temporarily imported machinery and equipment, discarded materials and faulty products). Past that time limit, they shall be sanctioned for administrative violations in the field of customs as prescribed by law.

Processing contracts with a term of over one year must be divided into contractual components; and the term for performing each component shall not exceed one year. The surplus raw materials and auxiliary materials after the settlement of one contractual component shall be used for another component.

9. The procedures for handling of surplus raw materials, auxiliary materials and materials and temporarily imported machinery and equipment in service of processing after the termination of contracts:

9.1. The customs authorities shall consider and permit:

- Their re-export to the processees;

- Their transfer to other processing contracts;

- Destruction of discarded materials and faulty products in Vietnam;

All the above-said cases shall be exempt from tax(es).

- Sale or donation in Vietnam of raw materials, auxiliary materials, materials, machinery and/or equipment which are not on the lists of goods banned or suspended from import or subject to conditional import.

9.2. Cases where the consents of the Ministry of Trade (as stipulated in Clause 3, Article 8 of the Decree) are required:

- Sale on Vietnamese markets.

- Donation in Vietnam.

10. The procedures for destroying discarded materials and faulty products:

The discarded materials and/or faulty products of processing contracts shall be destroyed under the supervision of the customs authorities which monitor such processing contracts. In cases where the destruction affects the environment, the consents of the local environment management agencies are required.

11. The procedures for donation:

The donees shall have to fill in the import procedures at the customs authorities which monitor the processing contracts, and to pay import tax (if any). The dossier for filling in the customs procedures shall comprises:

- The customs declaration;

- The written paper on donation made by the processee;

- The written approval of the Ministry of Trade (if the donated goods are on the list of goods banned or suspended from import or subject to conditional import).

B. ORDERING THE GOODS PROCESSING ABROAD:

1. The procedures for receiving contracts for ordering the goods processing abroad:

- The procedures for receiving contracts and contractual components for ordering goods processing abroad must be carried out at the customs authorities.

- The receiving procedures shall comply with the stipulations in Point 1, Section A, Part III above.

- The time limit for the receipt: within 3 working days before the procedures for export of its first goods lot are carried out, the Vietnamese enterprise ordering the processing shall have to produce the processing contract to the customs authority. Within 4 working hours, the customs authority shall have to complete the procedures for receiving such processing contract.

2. The procedures for export of machinery, equipment, raw materials, auxiliary materials and materials:

a) For machinery and equipment: the procedures shall be carried out as for the goods temporarily exported for re-import, but they shall be exempt from tax(es).

b) For raw materials, auxiliary materials and materials: the customs procedures shall be carried out in accordance with Decision No.50/1998/QD-TCHQ of March 10, 1998.

3. The import procedures: shall comply with Decision No.50/1998/QD-TCHQ of March 10, 1998.

The customs authorities shall have to compare the raw materials and auxiliary materials constituting the products with the raw materials and auxiliary materials samples they keep.

4. The settlement of processing contracts:

The settlement dossiers and procedures shall comply with stipulations in Point 8, Section A, Part III above.

IV. IMPLEMENTATION ORGANIZATION