The Vietnam’s commitments when joining the WTO stated that tariff of the whole vehicle by 2018 would gradually reduce to 5%, the current tariff is 83%. The current average tariff of CKD parts is 18% (Trinh, etc. 2007). From January 1, 2009, the Viet Nam officially opened car and motorcycle markets, and allow foreign-funded enterprises to set up auto or motorcycle sales companies. In addition, in 2010, Vietnam’s Ministry of Finance issued a notice to lower the import duties on some auto models. Among them, the import duties on gasoline-fueled 2.5 liter four-wheel drive vehicles with less than nine-seat decreased from 83% to 80% and that of others turned to 77% (ETCN, 2010).
Taking one with another, as the auto projects require large investments, Vietnam government did not conduct a substantive long-term investment, and mainly relied on foreign-funded enterprises to accelerate the improvement of national auto industry. In various joint ventures, Vietnam government possessed 30% shares with the land usage rights, and the technology and equipment assets of foreign enterprise accounted for the other 70% of the shares. The recent policy of Vietnam government tends to encourage local CKD production, domestic parts production and restriction by high tariffs on vehicle imports. Vietnam government actively supports the production of energy-efficient small-displacement cars, agricultural vehicles and special vehicles required by national production such as mineral extraction, construction, waste disposal, etc.
To improve the localization rate of automotive production, the Vietnamese government has introduced a series of measures, including the low-interest loans for domestic enterprises and preferential tax policies, replacing the original tax reporting on the import of CKD on the basis of the import tax rates of different parts, proposing preferential mechanism concerning manufacturing projects of automobile engine, gearbox, transmission, special vehicles and ordinary cars. So as to strive to raise the percentage of home-made to 35%-40% and export auto mobile parts to neighbor countries and regions in 2010 (Huong Ly, 2010). However, at present, the policy of improving localization rate of car has achieved so little that joint ventures and the import of vehicles and parts are still the main forms in the auto industry. Main point of policies in the auto industry can be list as follows:
Deregulation of the foreign investment;
Published in 2010 under the Vietnam automobile industry development strategy, the government will no longer approve the establishment of new foreign investment in Vietnam assembly plant in order to support and develop its automobile industry but encourage the cooperation and joint ventures between foreign investment and Vietnam companies, hoping that foreign investment participate in the restructuring of state-owned automobile manufacturers. It is conducive to introduce foreign investment and promote the development of Vietnam’s automobile industry.
For the joint venture corporations with Vietnamese companies, regulations of government ensure their priority over land usage, water and power. Also the tax concessions state that the enterprises can exempt from income tax in the first two years and in the next four years the income tax will be reduced by half (Huyen, 2010). Income tax rate is 25%, while income tax rate of native enterprises is 33%. In addition, if the export of products reaches 80%, the export tax rate will be 10% and the import of production equipment and raw materials will be free from duty (Kenichi Ohno, 2004). Besides, the government has allowed enterprises to import 50% of all components abroad as well. Tax incentives both reduces the production costs and increases the market competitiveness of enterprises, thus it is more conducive and attractive to the introduction of foreign capital (Quach, 2004).
Improve the official efficiency.
To realize official efficiency by accurate, quick and best service, the government simplifies some procedures, and establishes special investment services organizations to provide relevant services directly to foreign-invested enterprises. Meanwhile, foreign-invested enterprises can enter into the Vietnam Investment Capital market, adjust the investment environment and enhance the operating efficiency of enterprises more quickly and easily.
As the economy growth rate keeps on an average of 7% – 8% annually, the construction of Vietnam’s domestic infrastructures are in full swing, such as highways, railways, ports and terminals, airports and city facilities. In February 2009, the government investing 55.7 billion U.S. dollars decided to build the high speed railway which the full length is 1,555 km from Hanoi to Ho Chi Minh City, and it is expected to be completed in 2035. In addition, Viet Nam vigorously develops the shipbuilding industry, in order to be the world’s fourth largest shipbuilding country by 2015, but at present, nearly all shipbuilding steel should be imported overseas.
Now automotive steel mainly imports from Japan and Korea and according to Vietnam’s development planning, in the recent ten years from 2011 to 2020, Vietnam’s average growth rate of total vehicle is 8%.
From 2007 to 2025, Vietnam will invest in six major steel projects: Ha Tinh steel plant (capacity of 4.5 million tons per year), Rong orange steel plant (capacity of 5 million tons per year), 1.2 million tons Cold Rolled plant and 3 million tons Hot Rolling plant invested by South Korea’s Pohang Iron and Steel Company in Vietnam Namba – Vung Tau province, 200 tons per year high-wire production plant invested by India ESSA, 1.5 million tons per year Old Streets steel plant and the Expansion Project of Taiyuan Iron and Steel Plant. Therefore, theoretically there will be enough automotive steel to ensure the native auto industry.
In 2009, in spite of the global economic slump, the total Automobile sales, containing domestic-manufactured and imported autos, make a new record of almost 200,000 units on the domestic market, giving a great boost to Vietnamese automakers. The sixteen members of Vietnam Automobile Manufacturers Association (VAMA) sold 119,460 units in 2009, 7% more than in 2008 (VBN, 2010).