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March 7, 2003

VIETNAM: Increased imported car parts tariffs will hurt assembly industry with over capacity – report

A plan by Vietnam to increase tariffs on imported car parts will hurt a small sector that already faces modest sales and overcapacity, an executive of General Motors which has a venture in the country, told Reuters. The news agency said that, in the first public comments from GM on an issue that has riled other foreign car makers, William Botwick, executive director of GM's ASEAN operations, said that if the hike goes through, "it will be devastating to the automotive industry in Vietnam."

By bcusack

A plan by Vietnam to increase tariffs on imported car parts will hurt a small sector that already faces modest sales and overcapacity, an executive of General Motors which has a venture in the country, told Reuters.

The news agency said that, in the first public comments from GM on an issue that has riled other foreign car makers, William Botwick, executive director of GM’s ASEAN operations, said that if the hike goes through, “it will be devastating to the automotive industry in Vietnam.”

Reuters noted that GM is represented in the communist country through Vietnam Daewoo Motor Co or Vidamco.

According to Reuters, speaking at an Asia Society conference, Botwick cited the proposed boost in imported parts as one example of what foreign investors disliked about investing in the southeast Asian country. Companies seek predictability, stability and transparency, the executive said.

Reuters said that, last December, the Ministry of Finance without warning said it would increase the duties which in some cases quadrupled effective January 1. After vehement protests by Vidamco and 10 other foreign car makers, Hanoi agreed to reconsider. Last month, it proposed a graduated increase to bring the tax from 20% to 30% by April 1, 2003 and finally to a 50% ceiling by 2005.

Reuters said that foreign car makers have submitted their responses on that plan, and appear not to have been appeased.

Botwick, who declined to detail Vidamco’s reply to the government to Reuters, said the higher tax would burden an industry already facing “low investment and overcapacity”.

A robust second-hand car market also means that despite annual production capacity of approximately 120,000 units of vehicles in Vietnam, just 27,000 domestically built vehicles were sold last year, he added, according to Reuters.

Reuters noted that Hanoi has said its tariff hike is an attempt to boost the woefully low level of locally made components used by foreign car makers. That level stands at under 10%, and Vietnam had a nearly $3 billion trade gap last year.

But Botwick told Reuters raising taxes on imported parts would not help lift levels of domestically made ones. “The Vietnam automobile industry is dependent on imports due to a lack of qualified suppliers,” he said.

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