Challenges from new regulations on rice export business: What direction for enterprises?

Decree No. 01/2025/ND-CP ("Decree 01"), which amends and supplements Decree No. 107/2018/ND-CP ("Decree 107") on rice export business, recently came into effect in early March. One key revision is that entrusted rice export enterprises must now also obtain a Rice Export Certificate ("Rice Export License"), similar to the enterprises receiving the entrustment. How does this regulation impact business operations, and what steps should enterprises take in response?

Is the new regulation reasonable?

Statistics on Vietnam’s rice export activities have recorded impressive achievements[1] in recent years despite fluctuations in the international market. However, Vietnam’s rice export market faces fierce competition from regional and global rivals. Furthermore, international commitments and increasingly stringent customer requirements regarding the traceability of exported rice are putting pressure on Vietnamese rice enterprises to enhance their export standards to maintain market share and competitiveness on the global stage.

The provisions of Decree 107 do not impose conditions on entrusted rice export activities, which has raised concerns among regulatory authorities when compared with Clause 2, Article 50 of the Law on Foreign Trade Management 2017[2]. This provision requires that either the entrusting party or the entrusted party must hold an export license. Previously, only the entrusted party was required to obtain a rice export license, creating a potential loophole that businesses could exploit to engage in rice exports with only one party meeting the licensing requirements[3]. To address this issue, the Government has introduced new regulations mandating that entrusting enterprises must also obtain a rice export license, thereby eliminating the risk of regulatory circumvention.

Traditionally, businesses have understood that only enterprises possessing the necessary export license were permitted to engage in rice export activities. The purpose of this regulation has been to eliminate substandard entities, thereby minimizing fraud risks and ensuring that exported products meet required quality standards. However, extending the licensing requirement to both the entrusting and entrusted parties appears unreasonable. If an enterprise already meets all eligibility criteria and holds a rice export license, is it truly necessary for it to entrust exports to another entity that also possesses a license? We question whether the new provisions under Decree 01 effectively address the concerns raised by the Law on Foreign Trade Management 2017. This is particularly relevant given the unique characteristics of Vietnam’s rice export sector, where small-scale production and trading practices are prevalent. It has long been common for small and medium-sized enterprises (SMEs) that lack the required license to collaborate with licensed export firms to supply rice to international buyers.

Significant Challenges for Enterprises

It is evident that the new regulations under Decree 01 have significantly impacted both entrusting enterprises and entrusted exporters.

For entrusted export enterprises, this group of enterprises typically enters into contracts with foreign partners. The execution of rice export contracts may have commenced months before the issuance and effective date of Decree 01, with the quantity and quality of rice already agreed upon by the parties. The pressing issue for rice exporters concerning ongoing contracts is that, from March 1, 2025, entrusted export enterprises may be unable to fulfill orders for their customers/partners due to insufficient time to meet the licensing requirements for rice export. This presents a significant risk, particularly for entrusted exporters, exposing them to compensation claims and contractual penalties for failing to fulfill agreed-upon terms. Moreover, this situation places enterprises at a competitive disadvantage in the international market, as failure to honor contracts erodes customer trust and damages reputations. Additionally, if enterprises are unable to entrust their exports, they will face large unsold rice inventories and financial distress, making it difficult to repay debts to suppliers, farmers, and employees. These are unforeseen consequences arising from abrupt policy changes, leaving businesses with insufficient time to adjust and prepare for the new regulatory framework. Furthermore, obtaining a Rice Export License requires enterprises to comply with strict infrastructure standards, including warehousing, milling, or processing facilities that meet national technical regulations[4]. Enterprises must also maintain compliance with licensing conditions to ensure post-licensing inspection by competent authorities. These requirements demand substantial resources and large-scale operations, which pose considerable challenges for small and medium-sized enterprises (SMEs) that typically export only a few thousand to tens of thousands of tons of rice annually. This creates regulatory, financial, and investment burdens for SMEs. Moreover, the requirement for both entrusting and entrusted parties to obtain export licenses reduces the inherent flexibility of the entrustment mechanism, increases bureaucratic procedures and costs, and runs counter to the government's current policies aimed at promoting private sector economic activities, streamlining administrative procedures, and reducing unnecessary burdens on enterprises.

For entrusted export service providers, these sudden regulatory changes have significantly impacted their ability to adapt, as they face a substantial decline in clients. Entrusting enterprises are now struggling to meet the newly imposed licensing requirements for entrusted rice export businesses in order to continue their operations. The situation is further complicated by the high likelihood that once these entrusting enterprises obtain the required export licenses, they will handle export procedures independently rather than relying on entrusted export service providers. This presents an extremely challenging scenario for entrusted export service providers, as the profound impact of the new regulations could force them to temporarily suspend operations. In a worse case, they may be compelled to shift their business focus or, at the most severe level, face dissolution or bankruptcy.

Source: The Saigon Times

What solutions are available?

Given the current situation, enterprises should consider the following short-term and long-term strategies to sustain their business operations and growth.

First, enterprises should immediately suspend signing new contracts until they are certain about obtaining an Export License from the competent authority. For contracts that have already been signed with partners, businesses should engage in negotiations and conciliation with their counterparts to find a balanced solution that protects the interests of both parties while demonstrating their efforts to comply with contractual commitments to the highest extent possible. In cases where no mutual agreement can be reached on postponing contract execution, businesses may consider collaborating with licensed domestic rice exporters or foreign rice exporters as a temporary solution to fulfill existing orders and minimize potential risks.

Second, enterprises should promptly prepare and fulfill all regulatory requirements and initiate the procedures for obtaining a Rice Export License as soon as possible. It is important to note that the time required to meet the necessary conditions and complete the licensing process may vary depending on the enterprise’s capacity and available resources. Typically, this procedure may take several months to finalize.

Regarding regulatory authorities, while the primary objective of this new regulation is to establish a transparent legal framework, tighten control over the rice export supply chain, and ensure that only capable and experienced enterprises with standardized management systems participate in export activities, thereby enhancing the reputation and branding of Vietnamese rice in the global market, this new requirement poses significant challenges for rice exporters engaged in entrusted export transactions. From a regulatory perspective, we believe that competent authorities should consider both legal and practical aspects when formulating policies, ensuring that new regulations are not only legally sound but also reasonable. The law should uphold its authority and fairness while also supporting and fostering business growth. As the period from the enactment of Decree 01 to its effective date is merely two months, coinciding with the 2025 Lunar New Year holiday, businesses have been given an exceedingly short timeframe to prepare for compliance with the new requirements. To allow enterprises more time to meet the necessary conditions, including preparing documentation and upgrading infrastructure to obtain a Rice Export License, we propose that the competent authority consider postponing the effective date of this regulation by at least three months. This extension would provide much-needed support for enterprises to overcome the challenges posed by the decree. Simultaneously, we recommend that regulatory authorities consider delegating the authority to issue Rice Export Licenses from the Ministry of Industry and Trade to provincial and municipal People’s Committees. Given that rice export activities are heavily concentrated in the Mekong Delta provinces of Vietnam, decentralizing the licensing process could reduce bureaucratic delays, lower administrative costs, and facilitate a more efficient licensing and business environment for enterprises.

Decree No. 01 was introduced to enhance product quality and ensure transparency throughout the rice export supply chain, ultimately strengthening the reputation and global standing of Vietnamese rice. However, the requirement for both the entrusting and entrusted enterprises to obtain an export license has inadvertently created substantial obstacles for SMEs. To ensure balanced and sustainable development within the rice production and export industry, immediate regulatory adjustments from competent authorities will be the key to helping businesses navigate these new export licensing challenges.

Lawyer Nguyen Van Phuc

HM&P Law Firm

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