ASEAN-CHINA FTA BRINGS FIERCE COMPETITION TO VIETNAM'S AUTO SECTOR
Last Updated: 2012-07-10
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An NNN-Xinhua Special report

HANOI, July 10 (NNN-XINHUA) -- The Asean-China Free Trade Agreement (ACFTA), which came into effect in January 2010, has brought about fierce competition to the Vietnamese automobile industry, according to the Ministry of Planning and Investment (MPI) here.

Under the ACFTA, China and six of the 10 member countries of the Association of South East Asian Nations (Asean) -- Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand -- can apply a tariff of between 0.1-0.6 per cent to automobiles and auto spare parts, while the four less economically developed Asean members -- Cambodia, Laos, Myanmar and Vietnam -- have to wait until 2015 for the similar tariff application.

Although by 2018, imported automobiles will enter Vietnam with zero tariff, the Vietnamese auto industry is now facing tough competition from imported auto spare parts, mostly from China, said the MPI here Monday.

In the context that the completely built-up (CBU) automobiles are limited to enter Vietnam and domestic auto spare parts are less favoured by customers, imported auto spare parts are on the rise in Vietnam.

According to the MPI, in the first five months of this year, Vietnam's imports of auto spare parts and accessories reached 72 million USD, double the value of imports of CBU vehicles, and the figure is forecast to rise in the coming years when the tariff is reduced.

Meanwhile, insiders said that with complete production infrastructure and strong support industries, together with attractive policies, some Asean countries have become giant "workshops" for the world's leading automobile brands.

That works against Vietnam's auto industry, particularly from 2018, when the import tariff of CBU automobiles from ASEAN countries will enter Vietnam at zero per cent tariff. They also say that too many changes in automobile-related policies have caused great worries to auto manufacturers in Vietnam.

According to the Vietnam Automobile Manufacturers Association (VAMA), in 2008, Toyota Vietnam ceased investment in increasing the number of its most favoured Innova model in Vietnam because of changes in the consumption tax, which reduced its Innova sales by half.

Toyota Vietnam invested only two to three million USD in its production of spare parts in Vietnam, while it spent 500-700 million USD to import auto spare parts for assembly in the country.

Over the past three years, auto manufacturers invested about 10 million USD in their production, a disappointing amount compared with the amounts invested in Thailand or Indonesia, reported the VAMA.

Vietnam, with a population of nearly 88 million as at the end of 2011, is a major potential market for the auto manufacturers. Currently, Vietnam has reached a rate of 18 vehicles per 1,000 inhabitants but after 2020, when the country's economy further develops with the income per capita increasing and transport infrastructure improved, demand for private automobiles (of less than 10-seat capacity) will surely surge.

According to the Vietnamese Ministry of Industry and Trade (MIT), Vietnam will have around 235,000 new vehicles in use by 2015, 347,000 units by 2020 and 836,000 units by 2025. Public buses and trucks will then account for 27 per cent of the total vehicles.

If the domestic auto industry does not develop strongly in line with the increasing demand, by 2025, Vietnam will have to spend 12 billion USD on importing automobiles, the MIT has forecast. -- NNN-XINHUA