The auto industry does not shrink from many challenges

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 Speakers discussed at the Seminar. Photo: Quang Hung
Speakers discussed at the Seminar. Photo: Quang Hung

Challenges of competition

Seminar: “Vietnam’s automobile industry implements the Free Trade Agreement: In what direction is it developing?”, organized by Customs Magazine on May 24.

Overall assessment of the current situation of Vietnam’s automobile industry, Dr. Le Huy Khoi, Deputy Director of the Institute of Industry and Trade Strategy and Policy Research (Ministry of Industry and Trade), said that in recent times Vietnamese automobile industry has certain development, especially after the Covid-19 epidemic. The year 2022 recorded record business results, however, in 2023 and entering 2024, the auto market is facing difficulties with a very rapid decline.

Commenting on the opportunities in the coming time when implementing Free Trade Agreements (FTAs), Mr. Le Huy Khoi said that the process of implementing FTAs ​​will bring many opportunities for the Vietnamese automobile industry, but also poses many challenges.

With the tax reduction roadmap, businesses will be able to access and import products easily and at lower costs, contributing to cutting production costs and increasing product competitiveness. However, this creates the pressure of competition on cars imported from abroad for the domestic market.

Sharing about the development of the automobile industry in recent times, Mr. Duong Ba Hai, Deputy Head of Export Tax and Import Tax Division – Department of Management and Supervision of Tax Policy, Fees and Charges (Ministry of Finance) said that Vietnam is an open economy, has joined 17 bilateral and multilateral agreements, including new generation FTAs ​​such as CPTTP, EVFTA, etc which are important agreements, helping businesses open market opening, market diversification, including automobile industry enterprises.

However, according to Mr. Duong Ba Hai, the market openness is very large, but Vietnam’s automobile industry is mostly young, subject to a lot of competition from import enterprises, foreign enterprises, etc, at the same time it must still fully meet the requirements and high standards of labor and environment.

In the context of many challenges facing the young industry, the Ministry of Finance has accompanied businesses to overcome difficulties.

To promote domestic automobile manufacturing and assembly enterprises, protect the domestic automobile industry in the context that tariff barriers on imported cars are gradually being reduced according to international commitments of Vietnam in FTAs, the Ministry of Finance has submitted to the Government to promulgate Decree No. 125/2017/ND-CP dated November 16, 2017, which promulgates the Tax Incentive Program for importing automobile components for production, car assembly being applied for 5 years (from 2018 to the end of 2022). This program removes difficulties for businesses, ensuring adherence to the Automobile Industry Development Strategy.

Up to now, many large-scale automobile manufacturing enterprises with sufficient production capacity have participated in the Tax Incentive Program and the Vietnamese automobile industry has developed quite rapidly in recent years. Domestic manufacturing and assembly enterprises have initially affirmed their role and position in the domestic automobile market and have developed faster and more sustainably.

In parallel with the tax incentive policy for domestic manufacturing and assembly enterprises, the Ministry of Finance has coordinated with ministries and branches to submit to the Government a tax incentive program for the automobile support industry to implement for the 5-year period from 2020 to 2024 (stipulated in Decree No. 57/2020/ND-CP). Accordingly, raw materials, supplies, and components that cannot be produced domestically can be imported to produce products on the List of supporting industrial products prioritized for development of the automobile manufacturing and assembly industry according to Decree No. Decision No. 111/2015/ND-CP dated November 3, 2015 of the Government to supply components and spare parts for automobile manufacturing and assembling enterprises will be eligible for 0% preferential import tax.

“The automobile supporting industry tax incentive program has been effective through import tax refunds, contributing to reducing input material costs, helping to reduce product costs, and improving the competitiveness of businesses in the market’, Mr. Duong Ba Hai informed and said that, specifically regarding import tax, the Ministry of Finance always grasps the market situation to gradually bring preferential policies to life, ensuring difficulties to be removed for the development of the automobile industry and automobile support industry.

In addition, special consumption tax policies, registration fees, and other tax incentive policies for automobile manufacturing projects, etc have had a positive impact on the economy in general and the automobile industry in particular, making an important contribution to the implementation of the Strategy for developing the domestic automobile industry; Encourage automobile manufacturing and assembly enterprises to invest in expanding production, increase localization rate and deeply participate in the global supply chain.

From a business perspective, Ms. Nguyen Anh Tuyet, Head of the Customs Subcommittee of the Vietnam Automobile Manufacturers Association (VAMA), said that among the FTAs ​​that Vietnam has participated in and signed, many FTAs ​​have committed to on CBU cars and has a roadmap to reduce import tax on CBU cars to 0%, typically the ASEAN Trade in Goods Agreement (ATIGA) 0% from 2018; Trade Agreement between Vietnam and the UK, EU (UK/EVFTA) 0% from 2028; Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) 0% from 2027, etc.

“This is a huge opportunity for the auto market to diversify products and bring many choices to Vietnamese consumers. In fact, immediately after committing to eliminate import and export taxes from ASEAN countries, many domestically produced products could not compete with products from ASEAN countries such as Thailand and Indonesia and were replaced by imported products,” Ms. Tuyet stated.

With the implementation of EVFTA commitments, import tax on CBU cars from the EU to Vietnam will decrease by about 6.4%/year, continuously for 10 years. In 2024, the applicable import tax is 38.1%. It is expected that by 2030, the import tax on CBU cars from the EU will be 0%.

This also puts increasing pressure on Vietnamese automobile manufacturing enterprises to maintain production and maintain market share in existing segments.

How to welcome opportunities and overcome challenges?

According to Mr. Le Huy Khoi, with quite strong commitments in the field of automotive products, components, and spare parts, especially commitments on tariffs, EVFTA is expected to have a strong impact on the Vietnamese automobile industry when enforce commitments. The auto industry has the opportunity to import quality, high-tech auto products, spare parts, and components from the EU at lower prices, contributing to cutting production costs and increasing product competitiveness; opportunity to take advantage of the long roadmap period (protection) to continue developing the domestic manufacturing and assembly industry before having to compete directly and fairly with EU competitors when the roadmap ends. Export opportunities for auto and motorbike spare parts and components that Vietnam has strengths in, and can become joint venture investment partners, or suppliers for EU investors coming to Vietnam to seek opportunities to exploit domestic and regional markets, etc.

However, from an export perspective, the EU market is a market with high standards, geographical distance is quite far from Vietnam, so export opportunities will be difficult to come true if businesses do not have enough capacity to participate in the supply network in the field of automobiles and motorbikes, and high competitiveness.

Besides, although the 7-10 year protection period is relatively long, if the Vietnamese automobile and motorbike industry continues to stagnate and lack initiative in improving competitiveness, there is a high risk of losing on the home course. Therefore, Vietnamese automobile industry enterprises need to carefully study EVFTA commitments, prepare conditions to take advantage of opportunities from the Agreement as well as be ready for a competitive future when the tax protection roadmap ends.

Joining hands to support the auto industry, the Customs agency also implemented many solutions to create favorable conditions for the import-export business community, including CBU car importers and businesses importing components and spare parts for automobile production and assembly.

Sharing at the seminar, Ms. Truong Binh An, Deputy Director of Hai Phong Customs Department, said that for businesses importing components, raw materials, and supplies to produce and assemble cars, automobile support industries under the Tax Incentive Program and the Automobile Support Industry Tax Incentive Program located in the management area, the unit’s leaders always pay attention to directing the quick handling of related procedures such as registration procedures to participate in the Program, procedures for checking production facility conditions, customs declaration procedures, and tax refund procedures. This makes an important contribution to reducing procedure time and actively supporting production and business activities of the above enterprises.

Mr. Duong Ba Hai said that, in the context that Vietnam has participated in many FTAs, besides favorable opportunities, the domestic automobile industry is also facing many different challenges (the rate of production in water level is low, the market size is still small, the cost of manufacturing and assembling cars is high, traffic infrastructure still has many bottlenecks, etc), the formulation and implementation of policies to promote development The automobile industry in general and electrified cars in particular in the coming time need to be studied carefully and thoroughly, ensuring adherence to the Party and State’s policy directions, in accordance with international practices and the fact that Vietnam is joining FTAs.

Mr. Le Huy Khoi also said, the orientation of the Vietnam Automobile Industry Development Strategy to 2030, vision to 2045 is determined, to 2030: Developing Vietnam’s Automobile Industry on the basis of preservation of goals and overall socio-economic efficiency; Aims to be approachable and proactive in manufacturing technology for machine parts; Meet environmental requirements and standards and trends in economical and green energy use, enhance supply capacity for domestic consumption needs and participate in the global automotive value chain, has great export value.

By 2045, developing the automobile industry will not only ensure the goal of contributing and improving overall socio-economic efficiency but also meet new requirements and pioneer in environmental protection and completely switch to manufacturing and supplying automobile products using electricity, green energy, and new energy; move towards being fully proactive in engine production for most vehicle types; fully meet domestic consumption needs and deeply participate in the global automobile industry value chain; Expand and increase turnover and added value in exports.

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