Which “barriers” prevent import of automobiles?

The Vietnam automobile industry is facing many great pressures. Photo: Nguyen Ha.

Imports to increase

According to the statistics of the General Department of Customs, in the first two months of 2017, Vietnam imported 15,275 cars, valued at $US 309,740,647, up 36.5% in volume and 12% in value. Only in the first 15 days of March, the total number of complete cars imported into Vietnam were 6,348 units, mainly cars with 9-seats or less (4,802 cars valued at $US 41.42 million).

According to the data from the General Department of Statistics, in 2016, Vietnam imported 115,000 complete cars, turnover reached $US 2.322 billion. With the growth rate of the automobile market in Vietnam reaching about 30% per year, it is estimated that there will be more than 150,000 cars imported into Vietnam in 2017, and the amount of foreign currency for importing cars will go up about $US 3 billion. And with the trend of increasing imported complete cars, we will continue to spend a large amount of foreign currency to import cars in 2018 and the following years.

The increase about quantity of imported complete cars will affect the domestic automobile production greatly. With this momentum, if there is not effective solutions, the domestic automobile production industry will be in trouble, Automobile production joint ventures will simply "stop production", and switch to import.

For example, in 2017, the largest automobile joint venture in Vietnam, Toyota Vietnam company reduced the number of domestic assembled vehicles from 5 models to 4 models. The representative of the company also did not hide plans that they would continue to reduce to 2-3 models in the coming time.

Discuss solutions

According to the commitment schedule in ASEAN, Vietnam will gradually reduce import duty on complete cars (if regional value reaches 40% or more) from 60% to 50% (by 2015), down to 40% % (by 2016), 30% (by 2017) and 0% (by 2018).

With tariff reductions under the regional schedule, imports of complete cars will increase. When the domestic automobile production industry has been reduced to almost "nothing", the production line consists mainly of four main stages including welding, painting, assembling and inspecting. Finding the solution to promote domestic production development, and reduce import is considered a difficult problem.

After a very long time, in July 2014, the Ministry of Industry and Trade finally submitted to the Prime Minister to sign Decision No. 1168/QD-TTg approving the Development Strategy of the automobile industry and Decision 1211/QĐ-TTg on planning and developing the automotive industry. However, the specific policy solutions for developing the automotive industry have not been available.

Most recently, in February 2017, the Ministry of Industry and Trade held discussions to find solutions on developing the automobile industry of the country. The information from this showed once again: "The automobile industry, though formed has been weak, and produced only a few types of simple spare parts with low technology content"; "The localization ratio of individual vehicles has been low, averaging from 7 to 10%" and "The car prices have been still expensive compared to other countries in the region". From there, this office offered three groups of solutions to develop the automotive industry.

Many technical solutions are being considered to prevent fast-growing automobile imports

The first group of solutions was to create a market for the domestic automobile manufacturers based on the incentive to use domestically-made cars and to protect the market properly. Accordingly, the authorities would study to take appropriate measures to protect the market through technical barriers, measures against commercial fraud such as tax declaration price, C/O fraud to enjoy the advantages of Tax preferential treatment.

The second group of solutions was to focus on supporting automakers to reduce production costs and improve competitiveness. Accordingly, it would consider the promulgation of standards for spare parts and components, harmonization of standards. For import duties for components and spare parts, the tax adjustment will be studied on the principle of less than the import duty of finished cars. At the same time, the possibility of applying special consumption tax for cars with a high localization rate would be studied which means that the value generated at home would not attract special consumption tax.

The third group of solutions is to focus on developing the supporting industries on the basis of requesting the automobile production and assemble enterprises to cooperate with domestic enterprises to participate in the production of domestic spare parts and components; Supporting domestic enterprises supporting industry to manufacture spare parts and components through the Supporting Industry Development Program.

Most recently, the Deputy Prime Minister Trinh Dinh Dung had a written request to relevant ministries and agencies to promote deployment of solutions to develop the supporting industry for the automobile industry under their functions and missions with many specific solutions.

Not easy

Solutions that the Government, as well as the Ministries are Branches are working on to support the domestic production are needed, but "not easy".

Because the time for the domestic industry to improve and be enough to compete with imported products seems no longer, when the tax reduction schedule has been implemented and has remained for less than a year to 0%.

More importantly, which solutions will achieve the desired effect? It can be said that in the past 20 years, the automobile industry has enjoyed many preferences of investment, and tax policies, but enterprises (mainly foreign-invested joint ventures) have reached only 7-10% of the localization ratio on average, and most have just reached uncomplicated assembly rates instead of investing to ensure the localization ratio as committed (10% to 40% in 10 years). For a long time, the automobile enterprises have relied on protection and when the taxes are reduced, the moves showed that these enterprises will not assemble in Vietnam and will import the complete cars for sale.

If the technical barriers are built, on the one hand, we should calculate how to avoid violating international commitments. On the other hand, this solution will make the import of complete cars become more difficult, and cost more, but it is not necessary to help domestic production compete when “The car price has been remained high in the region”, “The quality of domestic assembled cars has been not as well as the quality of imported cars”, according to the Ministry of Industry and Trade.

Some domestic manufacturers such as the Truong Hai Auto Joint Stock Company and the Thanh Cong Hyundai are struggling to solve the problem of increasing output to reduce the price in competition with the imported products.

Obviously, the problem of domestic production is still difficult, requires solutions quickly, but more importantly, the solutions must be "hit" and "right" to be able to compete with the "flood" of imported cars.