Ministry of industry and trade

The Ministry of Industry and Trade last week informed the General Department of Customs to accept a new C/O form E in accordance with the ASEAN-China Framework Agreement on Comprehensive Economic Cooperation.

Local automobile businesses are dependent on major foreign car manufacturers and their core technologies, a sticking point for true progress, photo Le Toan

Vietnam has received praise for its control of the pandemic, which has also contributed to its prestige among South Korean businesses. “Vietnam’s auto parts sector has reached an export scale of $5 billion and an import volume of $4 billion, thus attracting many South Korean businesses during the past three years,” said Lee Jong Seob, president of the Korea Trade-Investment Promotion Agency (Kotra) in Southeast Asia-Oceania and general director of its branch in Hanoi. Seob came to Vietnam under a special entry programme nine months ago.

According to Seob, Vietnam’s auto part exports are in the high growth group. In 2020, these exports grew by 48.6 per cent but “have not yet entered a stable period”, Seob pointed out, adding that “the development of the auto-business in Vietnam is based on the understanding of the government’s policymakers, promoting a business strategy that is consistent with the reality of Vietnam.”

Lagging behind

In mid-April, VinFast – a subsidiary of Vingroup – announced that it would sell three electric car models in the US market in 2022. Previously, VinFast introduced the Sedan Lux A 2.0 and SUV models. The Lux SA 2.0 participated in the international exhibition of the Paris Motor Show, one of the largest auto events in the world, and received an enthusiastic reception from the international public.

Vietnam may already be on the map of the world’s auto industry, but there is still a lot to do to gain a firm foothold in the global market, such as the right policies to develop the production of auxiliary automobile products.

A panorama of Vietnam’s auto industry was faithfully described by Pham Tuan Anh, deputy director of the Ministry of Industry and Trade’s (MoIT) Industry Agency at a seminar hosted by the ministry’s Trade Promotion Agency and Kotra that took place last week.

Vietnam’s car production has increased steadily in recent years, from around 287,000 vehicles in 2018 to 323,000 in 2020 – figures which include manufactured and assembled vehicles. The responding growth rate of the industry amounted to 2 per cent per year. However, despite the increase, Vietnam’s automobile industry remains behind other regional countries such as Thailand, Indonesia, and Malaysia.

Vietnam has 50 companies operating in automobile assembly, 45 companies manufacturing chassis and vehicle bodies, and over 200 companies producing spare parts, data from the MoIT shows. However, local businesses are only participating in the lower ends of the value chains in the automobile industry and are heavily dependent on global automobile manufacturers as they are not yet proactive in the development of core technologies.

The production and assembly of Vietnamese automakers have not yet met the criteria in the global industry and have not created links among businesses in manufacturing, assembling and spare parts, as well as with large-scale suppliers of raw materials.

While some companies are participating in the global supply chain, domestic automakers are still dependent on technological factors and the designation and distribution decisions of major manufacturers worldwide. Similarly, domestic suppliers only produce basic components, mainly for welding and painting.

Meanwhile, one of the MoIT’s regulations on the development of the country’s supporting industries lists conditions for companies to enjoy tax incentives. The Industry Agency’s deputy director Anh said, “South Korean supporting businesses make good use of an overwhelming number of incentives from the Vietnamese government’s auto industry development policy.”

The domestic automobile industry – with one of its focal points being spare parts – is one of the important industries for the nation’s industrialisation and has thus been given special incentives by the government, such as the prime minister’s Decision No.1168/QD-TTg from 2014 and the new Law on Investment, which reaps not just investment incentives for the industry but also additional ones to develop assembly activities.

Roadmap for localisation

Vu Ba Phu, director of the MoIT’s Trade Promotion Agency, sees a great opportunity for Vietnamese industrial parks and manufacturing enterprises to connect with South Korean businesses and invest in and cooperate in developing the value chain manufacturing auto parts.

In Vietnam, the production capacity of Hyundai Thanh Cong reaches 100,000 units. “We plan to develop more auto parts in Vietnam as the government has issued policies to focus on localisation,” said Yang Yun Goo, general director of Hyundai Thanh Cong.

Currently, the company does not directly manufacture auto parts itself but cooperates with local businesses to gather supplies of components.

The government already has preferential programmes for imported parts. However, the support of these programmes is not enough to lower car prices as the current tax remains relatively high compared to regional countries.

As the nation is further opening its market, Vietnam signed many free trade agreements (FTAs), but the implementation of technical factors under these schemes has received many reactions from several countries around the world.

Regulations on importing vehicles into Vietnam are an example of the remaining barriers. Luong Duc Toan, deputy director of the Industry Agency’s Department of Processing and Manufacturing, believed that Vietnam has been “unlucky”, similar to Thailand, when developing its industry at a time of blossoming bi- and multilateral FTAs as well as increased barriers. However, the application of technical measures by the Thai government has not suffered as many harsh reactions as Vietnam.

According to Toan, regulations on the production of spare parts imported by the Thai government in the 1980s did not receive any negative response. At that time, investing in manufacturing components in Thailand always followed the conditions of the supply chain.

The kingdom’s market capacity of around one million vehicles per year has also been an important factor contributing to the development of supporting industries and a sharp reduction in the cost of domestically produced vehicles.

Thailand had chosen the best time to become a country with a developed automobile industry in ASEAN, Toan said, with most major automakers wanting to enter Thailand as they turned the country into a car hub.

Meanwhile, Vietnam’s consumption of about 600,000 vehicles per year will increase to one million units by 2030. Companies like Hyundai Thanh Cong see this the reason to open cooperation with partners and speed up the localisation of spare parts manufactured in Vietnam as they hope that the localisation rate will increase to 40 per cent.

“We have had many visitors looking for opportunities to cooperate with spare part manufacturers in Hanoi and other regions,” said Kim Kwang Young, regional deputy director of Hyundai Thanh Cong. “The localisation rate of 40 per cent cannot be achieved in the short term. Instead, the government needs a roadmap to develop supporting automotive industries sustainably.”

Currently, the Vietnamese market is still small, and even if it is localised, the costs will not be reduced in the short term but may even increase over time.

Young pointed out that it may be simpler and less risky to let foreign enterprises invest in Vietnam and import components for assembly than building ancillary factories. However, the initial investment costs are huge, and these procedures also take a lot of time. That is why foreign businesses remain cautious in expanding investments in Vietnam.

According to Young’s observations, domestic manufacturers do not have much incentive to import complete units. “On the contrary, we have to bear many costs related to building factories or training workers. This situation leads to difficulties for businesses who want to invest in the Vietnamese market,” he added.

Kim also hopes that the government will soon have appropriate incentives to develop a supporting industry network, helping businesses of both countries to use each other’s products, which could benefit to local customers and contribute to the development of Vietnam’s automobile industry.

Vietnam posted a trade surplus of US$1.29 billion during the four-month period, a positive result amid difficult global trade environment as a result of the Covid-19 pandemic.

Vietnam’s trade turnover in the January-April period rose by a 10-year high growth of 29.5% year-on-year to reach US$206.5 billion, the General Statistics Office (GSO) has said in a monthly report.

Production at Nha Be Garment for exports. Photo: Khac Kien

Upon breaking down, the country’s exports during the period surged by 28.3% year-on-year to US$103.9 billion, while imports were estimated at US$102.61 billion, up 30.8%.

As Vietnam reported an estimated trade deficit of US$1.5 billion in April, the overall trade surplus in the first four months of 2021 was narrowed to US$1.29 billion, but remained a positive note amid difficult global trade environment as a result of the Covid-19 pandemic.

According to the GSO, the foreign-invested sector made up 75.2% of the total exports with US$78.14 billion, representing an increase of 34.4% year-on-year, while the domestic-invested sector exported US$25.76 billion, or 24.8% of the total.

Among Vietnam’s key export staples, phones and parts earned the largest export turnover during the January-April period of US$18.4 billion, up 19.4% year-on-year and accounting for 17.7% of Vietnam’s total exports.

In addition, electronic products, computers and components have earned an estimated US$15.9 billion, up 30.8% year-on-year; followed by equipment and parts (US$12 billion and up 76.9%); garments (US$9.5 billion and up 9%).

Deputy Director of the Ministry of Industry and Trade’s Import and Export Department Tran Thanh Hai attributed Vietnam’s effective measures against the Covid-19 pandemic to its strong performance in trade.

“No disruption to business and production activities was key to help local traders fulfill their  their foreign peers’ orders,” said Hai.

Meanwhile, efforts from Vietnamese enterprises in adjusting to the new situation during the pandemic have also been decisive, he noted.

On the trade outlook for this year, Deputy Minister of Industry and Trade Do Thang Hai warned any resurgence of the Covid-19 pandemic would cause negative impacts on trade activities.

“Given the current context, safety measures to combat the pandemic continue to be the utmost priority,” said Hai.

Amid growing uncertainties surrounding the pandemic situation, Head of the Macroeconomic Policy Department under the Central Institute for Economic Management (CIEM) Nguyen Anh Duong called for enterprises to focus on markets having free trade agreements (FTAs) with Vietnam.

In the first four months of the year, the US, China, EU, ASEAN and South Korea remained Vietnam’s largest five export markets. Meanwhile, China continued to be Vietnam’s largest supplier, selling US$33.1 billion worth of goods to Vietnam, or an increase of 47.8% year-on-year. South Korea claimed the second place by exporting US$16.9 billion worth of goods to Vietnam, up 16.9% year-on-year, followed by ASEAN countries with US$14.1 billion, up 48.2%.

Vietnam posted a trade surplus of US$1.29 billion during the four-month period, a positive result amid difficult global trade environment as a result of the Covid-19 pandemic.

Vietnam’s trade turnover in the January-April period rose by a 10-year high growth of 29.5% year-on-year to reach US$206.5 billion, the General Statistics Office (GSO) has said in a monthly report.

Production at Nha Be Garment for exports. Photo: Khac Kien

Upon breaking down, the country’s exports during the period surged by 28.3% year-on-year to US$103.9 billion, while imports were estimated at US$102.61 billion, up 30.8%.

As Vietnam reported an estimated trade deficit of US$1.5 billion in April, the overall trade surplus in the first four months of 2021 was narrowed to US$1.29 billion, but remained a positive note amid difficult global trade environment as a result of the Covid-19 pandemic.

According to the GSO, the foreign-invested sector made up 75.2% of the total exports with US$78.14 billion, representing an increase of 34.4% year-on-year, while the domestic-invested sector exported US$25.76 billion, or 24.8% of the total.

Among Vietnam’s key export staples, phones and parts earned the largest export turnover during the January-April period of US$18.4 billion, up 19.4% year-on-year and accounting for 17.7% of Vietnam’s total exports.

In addition, electronic products, computers and components have earned an estimated US$15.9 billion, up 30.8% year-on-year; followed by equipment and parts (US$12 billion and up 76.9%); garments (US$9.5 billion and up 9%).

Deputy Director of the Ministry of Industry and Trade’s Import and Export Department Tran Thanh Hai attributed Vietnam’s effective measures against the Covid-19 pandemic to its strong performance in trade.

“No disruption to business and production activities was key to help local traders fulfill their  their foreign peers’ orders,” said Hai.

Meanwhile, efforts from Vietnamese enterprises in adjusting to the new situation during the pandemic have also been decisive, he noted.

On the trade outlook for this year, Deputy Minister of Industry and Trade Do Thang Hai warned any resurgence of the Covid-19 pandemic would cause negative impacts on trade activities.

“Given the current context, safety measures to combat the pandemic continue to be the utmost priority,” said Hai.

Amid growing uncertainties surrounding the pandemic situation, Head of the Macroeconomic Policy Department under the Central Institute for Economic Management (CIEM) Nguyen Anh Duong called for enterprises to focus on markets having free trade agreements (FTAs) with Vietnam.

In the first four months of the year, the US, China, EU, ASEAN and South Korea remained Vietnam’s largest five export markets. Meanwhile, China continued to be Vietnam’s largest supplier, selling US$33.1 billion worth of goods to Vietnam, or an increase of 47.8% year-on-year. South Korea claimed the second place by exporting US$16.9 billion worth of goods to Vietnam, up 16.9% year-on-year, followed by ASEAN countries with US$14.1 billion, up 48.2%.

The important issue is to have long-term solutions to balance supply-demand and enhance production capabilities of local steel firms, said an expert.

Amid soaring steel prices, the Ministry of Industry and Trade (MoIT) is set to propose tightening exports of steel products that are in hot demand domestically.

Meanwhile, the ministry would help speed up the construction of steel plants in a move to boost domestic steel production.

“For certain steel products with high price volatility, the MoIT suggests the government to lower preferential import tariffs,” it noted.

Regarding this issue, Deputy Director of the Tax Policy Department under the Ministry of Finance (MoF) Truong Ba Tuan, urged a cautious approach is needed if the government is to revise existing import duty for finished steel products, saying this is important to ensure sustainable development of the local steel industry.

Tuan attributed the rising steel prices to a surge in steel ingots of 37-39% in the global market against last October, which came as a result of rising demand for steel from the Chinese market.

In April, prices of steel ingots increased by US$50-55 per ton against the previous month, while those of in the domestic market rose by VND1,450 per kilogram.

The situation is not helped by resumption of construction activities in major cities in the first quarter of this year, including Hanoi and Ho Chi Minh City, as the government continues to push for public investment.

Since January, steel producers announced their new pricing policies by an increase of VND300-900 per kilogram for steel products. Such increases later rose to VND1,600-1,700 for a kilogram in April, taking prices for steel products at plant from VND16,200-17,800 (US$0.71-0.78) per kilogram (not included 10% VAT and commission fees).

Steel production at Thai Nguyen Steel Plant. Photo: Hoai Nam

According to Tuan, to support domestic steel firms, the import duty under the most-favored-nation (MFN) status for input materials of steel production are set at 0-3% depending on each type of product.

“Low import duty for input materials help local steel firms reduce their operational cots and expand businesses,” he said.

In terms of finished steel products for the construction, the preferential import rates are in range of 15-20%, mainly imported from China and India.

Vietnam is also members of 14 free trade agreements, including in the ASEAN Trade in Goods Agreement (ATIGA), Vietnam-Japan Free Trade Agreement (VJFTA), and Vietnam-South Korea Free Trade Agreement (VKFTA), whereby import duties have been set at low levels.

“Current import duties are in line with local laws, the current development of the steel industry and Vietnam’s commitments in different trade agreements,” said Tuan.

Instead of revising the import tariff, Tuan suggested Vietnam could modify the self-protection duties on steel ingots and construction steel products to lower prices.

At present, tariff on imported steel ingots is set at 13.3% and expected to be reduced to 11.3% by March 22, 2022. For long steel products, the rate is determined in phases, with the current rate of 7.9% and going down to 6.4% in March 2022.

“The important issue would be to have long-term solutions to balance supply-demand and enhance production capabilities of local steel firms,” Tuan stressed.

Dang Cong Khoi, deputy director of the Price Management under the Ministry of Finance, said every month, the consumer price index, a gauge for inflation, could further expand by 0.66% while the inflation remains below 4% target.

“However, inflationary pressure would continue to rise amid growing input material prices for production,” Khoi noted.