News Room - Business/Economics

Posted on 14 Oct 2009

Local automobiles to face fierce competition when import duties fall (Vietnam)

Reports that import duties of CKD (complete knock-down) will reduce in the coming months is putting high pressure on domestic automobile manufacturers. As per the plan the pledged import duty for CKD imported from Asean will be 0 percent by 2018.

 

According to the finance ministry, import duties of different kinds of automobiles are required to be cut to 70 percent after seven days following Vietnam's WTO entry. That means by 2014, the duty for automobiles imported from WTO-member countries will reduce to 70 percent from the current 83 percent. Passenger automobiles with capacity of 2.5 litters or higher will be entitled to an import duty of 52 percent instead of the current 90 percent by 2019.

 

Two-bridge automobile lines are levied an import duty of only 47 percent by 2009. However, in order to avoid frauds, passenger-two-bridge automobiles will be entitled to the same duty rate of 47 percent by 2017.

 

As for CKD imported from 10 Asean countries under Cept/Afta, cutting import duties will be faster than WTO commitments. Accordingly, passenger automobiles with 10 seats or more and trucks were entitled to an import duty of only 5 percent from 2006. As for passenger automobiles with nine seats or less, the duty rate will be 0 percent by 2018.

 

An official from the finance ministry confirmed that the two commitments, WTO and Cept/Afta, will significantly impact the local automobile market and will also be a big challenge for Vietnam's automobile industry. Domestic automobiles will have to compete directly with products that are assembled at nine Asean member countries including Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Laos, Myanmar and Cambodia. In principle, automobiles imported into Vietnam are required to contain 40 percent Asean contents.

 

The Common Effective Preferential Tariffs (Cept) for the implementation of Asean Free Trade Area (Afta) that became effective from January 1992 is aimed at removing trade barriers among Asean countries, establishing a common production base, a unified regional market with over 500 million consumers.

 

In 2003, six Asean founding countries including Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand cut import duties to 0-5 percent for almost all goods items. From 2006, Vietnam also finished reducing duty lines to 0-5 percent. Duty rates for all products will continue being abolished in 2015 for six founding countries and in 2018 for four remaining members, Vietnam, Laos, Myanmar and Cambodia.

 

Previously, many people had suggested that it was necessary to put forward an import duty-cut route from 2009 to 2018 to avoid shocks for the market. Also, cutting import duties should be split into different stages with proper rates in order to avoid difference in commercial flows. However, the finance ministry said that domestic manufacturers should promote their competitive capacity to cope with foreign automobiles when cutting import tariffs are nearly approaching.

 

At a meeting on developing strategic cars held on October 9, a representative from Vietnam Automobile Manufacturer Association (VAMA) also expressed his worry over duty changes in the coming time. He said that duty is one of a tool used to stabilise the automobile industry. Thus, if the finance ministry continuously changes policies, automobile producers would find it hard to forecast the market.

 

He emphasized that "if the local automobile industry is no longer protected, the number of locally-made automobiles would drop and we will die."

 

General Director of Truong Hai Automobile Co Tran Ba Duong said that "whether we are building an automobile industry or not? If not, ministries and agencies should let us know so that we will not produce automobiles any more but import automobiles."

 

Duong added that the automobile industry requires huge investment and relies on various factors. Sometimes, businesses can gain profits but also make losses. Therefore, automobile policies should be stable otherwise businesses will switch to import automobiles instead of continuing manufacturing them.

The import duty rates are applied from 1991 up to now as follows:

 

- 1991-2001: the import duty for CKD was maintained at 100 percent for passenger and goods automobiles with capacity of five tonnes. The duty rate for CKD, IKD components were always at 3-25 percent.

 

- 2002 up to now: The government allows import of CKD of less than nine seats and second-hand automobiles with less than nine seats.

 

- The CKD duty rate reduced to 90 percent from 100 percent in November 2005, to 80 percent in November 2007. When Vietnam entered WTO, the duty rate fell to 70 percent in August 2007 and 60 percent in October 2007. In March 2008, the import duty for CKD rose to 70 percent and was kept stable at 83 percent from April 2008.