VIETNAM: "Heated words" but little sympathy from government over CKD component tariff hikes - report
"Heated words but few concrete results" emerged on Friday from a meeting of 11 foreign car makers and Vietnam's government to discuss surprise higher tariffs on imported parts, a move the industry bitterly opposes, Reuters reported.
According to Reuters, tax department officials, part of the Ministry of Finance that signed the December 4 decision, slammed car firms for not advancing Vietnam's tiny car industry beyond the basic assembly stage while being protected by years of low tariffs.
"On issuing investment licences to foreign auto assemblers, Vietnam made it clear that it wanted to build an auto production industry, not an auto assembling industry," Dang Thi Binh An, deputy general director of the General Department of Taxation, told reporters after the 1-½ hour meeting, Reuters said.
"The prolonged protection of auto assemblers in Vietnam has also not been in compliance with the international integration trend," she added.
Reuters said the car makers warned the communist-run government that the fast-growing industry would be crippled and factories for cars, buses and trucks might be shuttered if the January 1, 2003 hikes that would double or nearly quadruple tariffs go into effect.
"We have invested a lot of money, and so need time to get some return," Kim Jung-In, head of Vietnam Daewoo Motor Co (Vidamco), told Reuters.
"I think the deadline is a little early. If the decision is implemented, most of us will have to close our plants. And this is a very serious problem."
Industry experts rold Reuters that such unexpected actions also heighten investment risk in the southeast Asian country, which has already seen funds from foreign investors shrink.
"The localisation content is an important issue, but we think how much attractive Vietnam is to foreign investors, right now, right at this moment, is also a very important issue," Mercedes-Benz Vietnam general director Thomas Rapp told Reuters.
Reuters said most cars in Vietnam are made from Completely-Knocked Down (CKD) kits, all parts of which are shipped in and assembled on site.
The arguments from Friday's meeting will be forwarded to the finance ministry, Reuters said, adding that it was unclear when, or how, the dispute might be resolved or whether Prime Minister Phan Van Khai, at whose direction the decision was signed, would intervene.
Reuters noted that the surprise government move on car tariffs was the second shock to foreign investors in three months after limits were placed in September on the importation of motorcycle components - which prompted the suspension of some manufacturing at foreign-owned factories in Vietnam until the curbs were eased two months later.
Vietnam's fledgling CKD industry could, conceivably, end up in the same situation as New Zealand's in the mid-1990s.
After some 50 years of relative import tariff stability, which encouraged local assembly with about 45% local parts and labour content, a succession of governments made a series of abrupt changes and reductions to tariffs, in a bid to lower the prices of locally-assembled cars and make the CKD industry more efficient by forcing it to compete with importers of fully-assembled cars.
The industry responded by closing small inefficient plants, consolidating Ford and Mazda assembly in a single factory, and supplementing higher-volume CKD assembly with lower-volume niche models imported at more competitive prices thanks to the newly reduced import tariffs.
However, a constant downward revision of tariffs over a decade ultimately made CKD kit assembly uneconomic and the last plant closed in 1997.
The cost to Ford - and its mainstream Japanese competitors, all of whom had bought their plants from independent local firms in the preceding two decades - is not known.