Vietnam’s automobile industry’s development policies are erroneous

"The biggest problems of policy makers are that they cannot explain their decisions and they dare not take responsibility for their policies”, said Vo Tri Thanh, Deputy Head of the Central Institute for Economic Management (CIEM).

 

In early October 2010, the Ministry of Finance (MOF) proposed to slash the import tariffs on trucks. The proposal has immediately faced the strong opposition from domestic automobile manufacturers.

 

The manufacturers have warned that the proposed import tariff changes would force them to shut down production and go bankrupt.

 

MOF says the current import tariffs on trucks are overly high (80 percent on less-than-five-ton trucks and 54-55 percent on 6-10-ton trucks). Trucks are considered the main production tool for cargo transport companies.

 

The story has once again stirred up the public’s prolonged debate about Vietnam’s automobile industry’s development strategy. Many people believe that Vietnam made a mistake when deciding to develop the automobile industry based on the local production protection mechanism.

 

Dr Vo Tri Thanh, Deputy Head of CIEM

 

In order to successfully develop an automobile industry, it is necessary to satisfy two factors: big production and market scales (if not, it will be impossible to develop supporting industries), and the technology transfer, which only occurs through competition and association.

 

However, Vietnam still lacks both factors.

 

We have been trying to develop the automobile industry based on protection of local production policies.

 

Vietnam has been puzzled during the process of building up the market, opening the market, installing barriers to protect local production, in trade liberalization, and domestic economic reform.

 

The reality shows that our strategy for the development of the automobile is flawed. This should be seen as a lesson in the development process. However, by speaking so, I don’t mean that we must put an end to our ambitions to develop automobile industry. There are other solutions which allow us to make changes to develop the industry.

 

I would like to emphasize that in order to minimize the costs we have to pay for adjustments in policies, we have to maximize transparency, the predictability of policies and we must give a certain time period for adjustments.

 

Policy makers must have good explanations for their decisions. All the proposals and petitions by enterprises must be addressed by policy makers.

 

The biggest problems of policy makers are that they cannot explain their decisions and they dare not take responsibility for their policies.

 

Dr Tran Huu Huynh, Head of the Legal Department of the Vietnam Chamber of Commerce and Industry

 

The story here is that it is necessary to find the answer to the question if Vietnam needs to have the whole automobile industry, or does it only need to develop a certain branch of the automobile industry?

 

In order to find out the answer, we need to consider if our products can be competitive in the regional and international markets. We should learn lessons from the electronics industry. Sony has decided to scale down production and leave Vietnam.

 

Vietnam has experienced a decade of trying to develop its automobile industry. However, to date Vietnam still does not have its automobile industry. It only has the automobile assembling industry.

 

We should also look into other neighboring countries. They are more competitive than us, they have the state’s determination, good infrastructure and better supporting industries. However, they still cannot develop automobile industries of their own.

 

Our automobile industry could not develop even when the local production was well protected in the past. Meanwhile, the protection of local production will have to be loosened because we need to hold our commitment of opening the market.

 

If we draw the conclusion that we need to adjust policies, we need to foresee how the adjustments will affect investors, their business plans and jobs. We need to give support to those who will be hurt by the policy adjustments.

 

Minister of Finance Vu Van Ninh

 

In the past, we once applied a mechanism to encourage product localization . However, the mechanism was not successful. We wanted to have an automobile industry, not an automobile assembling industry.

 

Our tax policies were all thoroughly considered before they were promulgated. When drafting regulations policy makers not only had to consider local production and domestic conditions, but they also had to consider to our commitments to international treaties.

 

Regarding the opinion that the tax policies will kill domestic production, I do not totally agree with that. It still depends on the products. For example, the tax policies will still be reasonable to protect the products which Vietnam can manufacture with high quality.

 

The Ministry of Finance has requested the Ministry of Industry and Trade to join forces to have a review on the issue. However, it is really a complicated issue.