The document provides an overview of Vietnam's automotive market and industry. It discusses the market's growth until 2012 and recovery in 2013-2014. It also examines the roles of different ministries and policies around vehicle assembly, imports, taxes, and regulations. The document proposes recommendations to reduce administrative burdens and standardize processes to further develop the industry and benefit consumers and producers.
Why Every Business Should Invest in a Social Media Fraud Analyst.pdf
Vietnam – Automotive – 2015
1. Vietnam – Automotive - 2015
Overview
The Vietnamese automotive market can be divided into domestic assembly of Complete
Knock- Down (CKD) vehicles - grouped under the Vietnam Automotive
Manufacturers’Association [VAMA]
- and the import of Complete Built Up (CBU) vehicles by official importers. Some
companies in Vietnam are involved in both assembly and import. Vehicle assembly started in
1992 and imports of new cars on a larger scale started in 2003.111 Official importers started
their operations in Vietnam when the country joined the World Trade Organisation (WTO) in
2007.
While the Ministry of Industry and Trade (MOIT) has been making efforts to develop the
automotive industry, the Ministry of Transport (MOT) and the Ministry of Finance (MOF)
have been concerned about road congestion and have therefore imposed high taxes and fees
on cars. Despite high prices, the automotive market demonstrated a remarkable growth rate
from 2007 until 2012, when it crashed by 50% due to the increase of the registration tax. In
2013, the Vietnamese market for new vehicles reached 106,500 CKD and CBU imported
passenger cars and commercial vehicles, a 20% increase as compared to 2012 but still not
back to the 2007 level that was expected by the time of publishing the Whitebook of 2014.
Both CKD and CBU for new passenger cars increased by 19%, whereas the import of used
CBU passenger cars reached over 5,000 in 2013.
From January to July 2014, the passenger car market in Vietnam has kept growing strongly
with a growth of 24% and 62% for CKD and CBU respectively.121 CKD and new CBU
represent 75% and 25% respectively of the new automotive passenger car and commercial
vehicle market.
According to VAMA, domestic auto production and sales should remain on an uptrend
throughout 2015 as local carmakers expand output to meet higher demand. Further banking
sector reforms and the improving macroeconomic outlook should continue to benefit
Vietnam with annual vehicle sales growing 7% per annum during the period 2014-2017. The
local CKD industry is likely to benefit from 3% production growth per annum only 141 as the
formation of the ASEAN Economic Community (AEC) by 2015 will bring intense
competition to local assemblers. ASEAN+3 (China, Japan, Korea) will facilitate tax
reduction on car imports not only between ASEAN member countries, but also for Japan,
South Korea and China. From 2014, the CBU car tariff on imports from ASEAN has been cut
to 50% and it is planned to further cut tariffs to 0% by 2018. Therefore, CBU imports from
within ASEAN will probably gather momentum.
Apart from premium brands from Germany, mainstream brands which are market leaders in
Europe remain non-existent in Vietnam. Over the last five years, European brands such as
2. Citroen, Renault, Fiat, and Volkswagen have all been insignificant. At the same time, since
2010 two strong Korean brands - Hyundai and Kia - which used to make up 60% of the total
volume of new CBU passenger cars imports in 2012 - were representing over 70% in 2014
(56% Hyundai and 14.5% Kia) of all new CBU passenger car imports. Such imports grew by
92% from January to July 2014, reaching 13,163 units compared to 6,838 during the same
period in 2013, according to VAMA data.
Despite a weaker Euro currency lately, the cost of cars from European mainstream brands
continues to appear extremely uncompetitive in comparison with market leading Korean
CBU models so affordable after all taxes paid that they even continue to outsell locally
assembled competitors.
There are currently 18 foreign-invested businesses and 38 domestic businesses involved in
automobile manufacturing and assembly, with a potential capacity of around 460,000
vehicles per year according to VAMA. Generating two-thirds of the automotive market and
providing employment to Vietnam as a socio-economic benefit, VAMA estimates that its
assembly members contributed approximately USD 1 billion in taxes to the State budget in
2013. According to a calculation by the author, CBU imports, which represent a third of the
volume, are estimated to have generated USD 1 billion in tax collection from January to July
2014.
The lack of a coherent Government automotive policy over time, combined with Government
incentives that are considered weak by CKD assemblers, and poor supplier presence, have
resulted in a local manufacturing environment in Vietnam that is not as attractive for
automakers as in other ASEAN countries, such as Thailand, Malaysia and Indonesia. Rapid
policy changes prevent the automotive sector from growing, since automobile manufacturers
usually plan their business and production activities at least five years ahead.
Since 1992, to support the local car industry, the Vietnamese Government has issued policies
to protect import tariffs for manufacturing materials, has lowered taxes for automobile
manufacturers, and has encouraged local enterprises to invest in manufacturing spare parts. In
addition to the general incentives provided under Vietnam's investment laws, specific tax
protection was granted to automobile assemblers, for example through special consumption
taxes, and protectionist policies have been implemented through high import taxes and bans
on the import of used cars. Notwithstanding these support mechanisms, prices for cars in
Vietnam are still 20% higher than in other ASEAN countries.
The domestic components and parts manufacturing sector is still small after twenty years,
although the government is making it a priority. Carmakers in Vietnam are reluctant to invest
in production without a well-developed supplier base, and suppliers want to see growth
potential in vehicle assembly before investing. The Vietnamese Government wants local
suppliers to be providing 67% of all the necessary car parts for domestic production by 2020
and 35% for spare parts needed locally. We believe that the Government's plan to create a
national industry hub in the Chu Lai Economic Zone to increase the scale of domestic
production should make the sector more competitive when import tariffs are eliminated under
3. the ASEAN Economic Community in 2018. Nevertheless, preferential tax incentives, and
better support for the infrastructure to connect production bases to the ports in the country are
still necessary.
Given the rapid economic growth in the region, there is significant development potential for
the industry as less than 4% of the population currently owns a car. According to the MOIT,
Vietnam’s automotive industry almost meets domestic demand, as 80% of the demand for
passenger cars and 60% of the demand for trucks are met domestically. However, the
Government expects that by 2030 out of the 863,000 vehicles, 452,000 will be passenger
cars, and the current switch from motorbikes to cars is now being taken into account.
Environmentally friendly vehicles will enjoy a more favourable tax regime, but the definition
of ’environment-friendly’ needs to be clearly defined and achievable for both passenger cars
and commercial vehicles.
In order to provide clear direction to Vietnam’s automotive industry, Prime Minister Nguyen
Tan Dung recently approved a new Master Plan on the development of the industry by 2025,
with a vision for 2035 mentioning the target of 227,500 domestically produced vehicles by
2020, increasing to 466,400 vehicles in 2025 and 1,531,400 vehicles in 2035.191 The
Government underlines the benefits of commercial vehicles to the country’s industrial
development by focusing on the demand of the domestic market for trucks, buses and
specialised vehicles. The Government also acknowledged the need for urban and
infrastructure planning to meet the automobile use of the people, and the development of
transport infrastructure as well as environmental protection.
Administrative Requirements
Relevant Ministries: Ministry of Industry and Trade (MOIT), Ministry of Finance (MOF),
Ministry of Transport (MOT)
1. ADMINISTRATIVE BURDENS REGARDING CUSTOMS DUTY REFUND Issue
description
At the moment, under Circular 128/2013/TT-BTC the compulsory documents to apply for
customs duty refund are the original customs declaration of the exporting enterprises proving
the actual exportation of products.
Potential gains/concerns for Vietnam
Reducing such administrative constraints will save time, especially when such activities will
develop in the future.
Recommendations
Certified copies of the customs declarations should be allowed instead of the original customs
declarations.
4. 2. USE OF BANK WARRANTY AT CUSTOMS AND HOMOLOGATION
Issue description
Until mid-2013, official CBU importers could use a bank warranty to guarantee payment of
all taxes upon customs clearance and homologation of new vehicles by the Vietnam Register
(VR). In June 2013, this facility has been removed and all taxes now have to be paid upfront
for clearance and homologation to take place.
Potential gains/concerns for Vietnam
This procedure creates unnecessary additional costs, which should be avoided.
Recommendations
We recommend that the bank warranty facility is allowed for official importers clearing and
homologating new vehicle imports.
3. ADMINISTRATIVE BURDENS AT HOMOLOGATION
Issue description
At the moment, new cars continue to have to be homologated even though they already have
EU2 (or higher) emission certificates meeting the EU2 standards, which is the norm in
Vietnam.
In order to reduce administrative procedures, the Vietnam Register should homologate cars
meeting EU2 or higher emission standards based on the emission certificate supplied by the
independent testing authorities used by car manufacturers, without requesting any further
local emission tests. EU2 certificates from European testing authorities meet the EU2
homologation standard. EU4 and EU5 emission certificates from European testing authorities
should also be accepted as they even exceed the EU2 homologation standards.
Potential gains/concerns for Vietnam
Considering the market growth forecast by the Vietnamese authorities, this would save time
and costs for producers, importers, dealers, and customers and it would also save
homologation staffing resources.
Recommendations
We recommend abolishing the requirement for additional local emission tests for cars with
EU2 or higher emission certificates.
4. ADMINISTRATIVE BURDEN REGARDING FUEL CONSUMPTION
Issue description
Performing a fuel consumption test and providing the corresponding labeling on both locally
assembled and imported cars is now becoming compulsory for all new passenger cars below
seven seats prior to retail under a Joint-Circular of the Ministry of Transport and the Ministry
5. of Industry and Trade, which will be applicable from 1 December 2014.1111 Its purpose is to
protect consumers by providing reliable information concerning the type of fuel used and the
fuel consumption of vehicles displayed in showrooms. Energy labels must be completed
before retail as per the standardised form.1121 All fuel consumption and energy cases
registered, tested by Vietnam Register and published with appropriate labeling, will be valid
from January 2015 to the end of December 2016.
Potential gains/concerns for Vietnam
We are deeply concerned that such a tight timeline is unrealistic both for CKD and CBU
players as well as for the Vietnam Register testing centre. It is unlikely that the Vietnam
Register will be able to test the fuel and emission standards of all new passenger cars and to
issue their label on the first day of 2015. According to the Department of Environment of the
MOT, certified energy labeling of vehicles shall be conducted concurrently with the
certificate of technical safety and environmental protection regulations under Circular
30/2011/TT-BGTVT1131 and Circular 31/2011/ TT-BGTVT[U1 of the MOT. At the
moment, the Department of Environment of the MOT recommended the Vietnam Register to
approve self-published results from manufacturers according to global standards. An
appropriate roadmap was requested by industry players. Furthermore, there are no clear
guidelines on the testing as a fuel consumption test necessitates various modes (e.g. city,
highway, combined). Testing consumption will create mileage on a vehicle, which is an issue
for a car to be sold as new. At this stage, it is not clear how many miles will be necessary for
the consumption test to be conclusive. When contacted for information about this test at the
end of October 2014, the relevant authorities had no clear direction or process in place
between their various departments.
Recommendations
We recommend that car manufacturers continue to be liable to consumers fortheir published
data certified by independent testing authorities, as it is customary in Europe. We further
recommend that the requirement for additional local fuel consumption and emission tests for
new cars should be abolished for models with EU2 (or higher) emission certificates. Should
the Vietnamese authorities decide to maintain those fuel consumption and emission tests, we
recommend that fiscal compensation will be granted for one test car of each tested model,
especially if conducting the fuel consumption and emission tests would turn a new car into a
used one. No penalty for late labeling at retail should be contemplated, neither for importers
and assemblers nor for car dealers, considering the short notice and lack of coordination of
this measure.
In any case, because the timing of this new regulation, which has a nationwide effect and will
be applicable to the whole market for new cars, is very short, we recommend the Vietnamese
authorities to accept the self-declared fuel consumption level by importers/assemblers who
officially announce and take full responsibility for its truth.
5. HOMOLOGATION ASSESSMENT OF CONFORMITY OF PRODUCTION
6. Issue description
Circular 55/2014/TT-BGTVT 1151 increases the administrative burden requiring a so-called
'Conformity of Production’ (COP) assessment to be conducted by the Vietnam Register at
overseas plants before the importation of vehicles if importers cannot show valid certificates
of COP assessment with ECE, EC standards having been granted by competent authorities
before. The regulation enters into effect on 1 July 2015 for new imported models and on 1
January 2016 for existing models that have already obtained the required quality certificate.
Potential gains/concerns for Vietnam
Reducing the administrative burden will allow for time savings, reduction of costs for
travelling, and for the reduction of unnecessary procedures for both importers and producers
of vehicles.
Recommendations
We would recommend that the timeline for COP assessment is postponed by at least one year
in order for automotive companies to prepare for this type of assessment.
Taxation issues
Relevant Ministries: Ministry of Finance (MOF), Ministry of Industry and Trade (MOIT)
1. EU/VIETNAM AUTOMOTIVE IMPORT DUTY ROADMAP Issue description
Under the ASEAN Trade in Goods Agreement , Vietnam has committed itself to reducing its
import duties to zero for all vehicles manufactured within ASEAN as from 2018, which is
extended to ASEAN+3 (China, Japan and Korea).
Vietnam and the European Union are currently negotiating a free trade agreement (EU - VN
FTA), which will have a significant impact on the trade and investment relations between the
two parties. At the core of the EU - VN FTA is the reduction and elimination of import duties
and we consider it as a great opportunity to make the import duties on automobiles from the
European Union competitive with those imposed on imported automobiles from ASEAN+3.
Potential gains/concerns for Vietnam
Reducing the import duties on cars imported from the European Union will provide a level
playing field for all car importers. In turn, it will benefit Vietnamese customers in terms of
choice and access to a diverse range of products. It would furthermore contribute to a stable,
long-term development of the industry within the context of ASEAN and the WTO. Further
opening the market to cars imported from the European Union would also give a positive sign
to potential European investors.
Recommendations
We recommend that commitments are undertaken in the pending EU-Vietnam negotiations
with the aim of eliminating all customs duties on cars (CBU and CKD) originating from the
7. other party with immediate effect. When this is not feasible, we recommend the immediate,
progressive and reciprocal reduction of all customs duties (CBU and CKD), in accordance
with a clear schedule. Not only would this create a level playing field for all importers,
Vietnamese consumers would also benefit from better access to high-quality cars from the
European Union.
2. STANDARDISATION OF TAX LEVEL AT NATIONAL LEVEL
Issue description
Leaving the implementation of tax levels to local authorities in practice often leads to
misunderstandings. Since there is no follow-up mechanism to ensure the smooth application
of decisions made at the central level, the implementation stage at the local level becomes a
bottleneck.
Potential gains/concerns for Vietnam
Nationwide implementation of tax levels would allow for a more coherent and consistent
application of the law, and would facilitate the collection of taxes.
Recommendations
We suggest to leave decisions with regard to tax levels to the central level for nationwide
application and to limit the flexibility in the application of the local level. Decisions should
be clearly worded and allow for the smooth implementation of legal documents and policies.
Homologation Certification
Relevant State bodies: Ministry of Transport (MOT), Vietnam Register
Issue description
We recommend homologation offices in Vietnam to accept to validate the full range of
accessories specified by the car manufacturer, and not just the accessories fitted physically on
the model during the check. For instance, under the current regulations, a car owner fitting a
roof rack on a car could later be fined by the police as the car height is altered by the roof
rack and is thus different from the car registration document.
Potential gains/concerns for Vietnam
The case of alloy-wheels is an illustrative example: validating the various sizes allowed in the
car homologation document would prevent car owners from being fined if they wish to
change for bigger alloy wheels after they purchased the car.
Recommendations
We recommend that the homologation process should accept certification from reputable
foreign certifying bodies as provided by car manufacturers, in order to avoid costly additional
local certification.
8. The whole range of accessories as specified by car manufacturers should be validated once as
a whole, and not be limited to those fitted on the car at the time of homologation.
The Effects of ASEAN Auto Growth on Vietnam's CKD and Parts Industry
Relevant Ministries: Ministry of Industry and Trade (MOIT), Ministry of Transport (MOT)
Issue description
According to the Boston Consulting Group (BCG) , the path in the value chain for cars
manufacturers to expand follows five steps in localisation: from "home players” (no sourcing,
no R&D, no production) to "exporters" (no R&D, simple parts sourcing, small CKD
production), "explorers" (no R&D, one large fully-fledged plant, sub modules sourcing),
"settlers" (minor local R&D, several plants, wide array of products sourcing, regional office
with cross-market sales) and "global players" (major local R&D, worldwide network, several
large plants serving other regions).
Depending on the localisation topic, the car industry in ASEAN according to the BCG
consists of "exporters" and "explorers" for sourcing. This is the case in Vietnam where the
localisation ratio for automobiles assembled in Vietnam is low.
ASEAN rules have an effect on the CKD and parts industry. In order to qualify for the
ASEAN preferential import tariffs under the ASEAN Trade In Goods Agreement, a regional
value content of 40% or more is required.
Potential gains/concerns for Vietnam
For the Vietnamese authorities, it will remain a 'catch twenty-two situation' to issue generic
standalone incentives, with the expectation that they suit undisclosed individual strategies of
geographical integration from foreign-owned assemblers. In order to make domestic
assembly more attractive in Vietnam, we would recommend the Vietnamese Government to
put in place incentives, such as tax rebates, export rights, goods in transit zones for kits,
vehicles and parts for vehicle production, favourable conditions for investment in plants and
equipment, and employee training.
Recommendations
As the automotive industrial landscape is not only national but includes the ASEAN, China,
Korea and Japan, Vietnamese authorities should encourage CKD assemblers to disclose their
Principals' regional strategy for a win-win customised negotiation with Vietnamese
authorities. Manufacturers who proactively organise intelligent parts sourcing amongst
ASEAN countries to reach 40% local ASEAN content will benefit from this, and so will
Vietnam thanks to its low-cost base. The BCG quotes one such OEM deploying an intelligent
sourcing network within ASEAN countries making Diesel engines and steering columns in
Thailand, transmission and constant velocity joints in the Philippines, petrol engines in
Indonesia, as well as steering gear and control unit in Malaysia. As stated, werecommends
that commitments are undertaken in the pending EU-Vietnam negotiations with the aim of
9. eliminating all customs duties on cars originating from the other party with immediate effect.
When this is not feasible, we recommend the immediate, progressive and reciprocal reduction
of all customs duties, in accordance with a clear schedule.
The right incentives and an open discussion between the Vietnamese Government and the
private sector, assemblers that proactively organize intelligent parts sourcing amongst
ASEAN countries in order to reach the 40% ASEAN regional value content could benefit
from the opportunities within the ASEAN+3 trade area. In the long run, Vietnam will benefit
from increased investment and trade activity within the CKD sector.
Importation of Re-Manufactured Parts
Relevant Ministries: Ministry of Industry and Trade (MOIT), Ministry of Finance (MOF),
Ministry of Science and Technology (MOST), Ministry of Transport (MOT)
Issue description
Currently, there is no regulation providing for a definition of so-called "re-manufactured"
parts. Decree 187/2013/ND-CP ('Decree 187') providing general guidelines for import/export
activities prohibits used automotive parts from being imported into Vietnam. In accordance
with Circular 128/2013/TT-BTC providing detailed instructions for carrying out customs
procedure for commercial goods, Vietnam Customs interprets any part which is not 'brand
new’ as a 'used part’ and hence makes importation of re-manufactured parts impossible.
Potential gains/concerns for Vietnam
Re-manufacturing saves energy, cuts CO2 emissions, conserves resources and benefits
customers and consumers in Vietnam. Furthermore, re-manufacturing saves thousands of
tons of precious raw materials and many tens of thousands of megawatt hours of electricity.
In brief, re-manufacturing reduces the burden on the environment. Every European country
and most Asian countries have understood the importance and environmental significance of
re-manufactured parts and therefore allow the importation and trading of such parts. This has
also been demonstrated by various life cycle assessment studies certified by independent
testing organisations such as 'TUV SUD’ in accordance with international standards.
Recommendations
We recommend the Government of Vietnam to allow the import of re-manufactured parts
subject to clear definitions and to take a commitment to that effect in the pending EU-
Vietnam FTA negotiations. Genuine re-manufactured parts meet the same quality standards
as brand new parts. They are produced according to strict quality requirements and undergo
final quality examination with exactly the same standards as brand new parts. Furthermore,
genuine re-manufactured parts are supplied by car makers with the same warranty as for new
parts, and are more cost effective for customers and they align with environmental protection
trends.
10. Please contact Oliver Massmann under 1TUomassmann@duanemorris.comU1T if you have any
questions.