Identifier
Created
Classification
Origin
05HANOI106
2005-01-14 09:22:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Hanoi
Cable title:  

Vietnam: VM Industry on Auto Policy

Tags:  ETRD EIND ECON VM WTO 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 HANOI 000106 

SIPDIS

SENSITIVE

STATE PLEASE PASS TO USTR EBRYAN
STATE ALSO FOR E, EB AND EAP/BCLTV
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ETRD EIND ECON VM WTO
SUBJECT: Vietnam: VM Industry on Auto Policy

Sensitive but Unclassified -- Please protect accordingly.

UNCLAS SECTION 01 OF 02 HANOI 000106

SIPDIS

SENSITIVE

STATE PLEASE PASS TO USTR EBRYAN
STATE ALSO FOR E, EB AND EAP/BCLTV
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ETRD EIND ECON VM WTO
SUBJECT: Vietnam: VM Industry on Auto Policy

Sensitive but Unclassified -- Please protect accordingly.


1. (SBU) Summary. At an Amcham luncheon in Hanoi on January
13, Vice Minister of Industry Do Huu Hao said that the GVN
is currently "reconsidering" its policy (approved by the
National Assembly in May 2003) to increase the special
consumption tax (SCT) on automobiles to eighty percent by
2007/8. VM Hao refused however, to estimate when the
National Assembly might consider any changes to the policy.
VM Hao also highlighted GVN plans to transition from
applying tariffs on auto kits toward applying tariffs on a
part-by-part basis and to raise the tariffs on new and used
completely built vehicles. End Summary.


2. (U) Vice Minister of Industry Hao spoke about the
Government's strategy for development of the auto sector at
an Amcham lunch on January 13. In his prepared remarks, VM
Hao provided a brief history of recent decisions affecting
the auto industry and cited statistics on growth and
development of the sector. Of note, in 2003 42,550 autos
were sold in Vietnam, but in 2004 that number dipped to
32,847. VM Hao emphasized the government's interest in
encouraging automakers in Vietnam to increase local
production - particularly of auto parts and engines. (Note:
While some parts are produced in Vietnam, it is a very small
amount and Vietnam does not currently produce engines. End
Note.) He also detailed very optimistic GVN localization
targets. For example, the GVN hopes to reach 40-45 percent
local content for passenger vehicles by 2010.


3. (U) VM Hao also enumerated upcoming changes on auto
tariffs. The GVN plans to move from applying auto tariffs
on auto kits to applying tariffs on a part-by-part basis.
The GVN also plans to raise the tariffs on new and used
completely built vehicles. (Note: Representatives of Ford
Vietnam have told Emboffs that the industry is opposed to
application of tariffs on a part-by-part basis. End note.)


4. (U) In January, in accordance with a 2003 decision
(proposed by the Ministry of Finance and approved by the
National Assembly) the GVN raised the SCT on autos from 24

to 41 percent. Additional increases are planned with the
goal of reaching eighty percent in 2007/8. In his remarks,
however, VM Hao said the SCT plan is "under reconsideration"
because enterprises are opposed to increases in the SCT.
The Ministry of Planning and Investment (MPI) is currently
working with the Ministry of Industry (MOI),the MOF, the
Ministry of Science and Technology (MOST) and the Ministry
of Transportation (MOTr) to develop a revised plan for the
SCT. However, given that the National Assembly has already
approved the increase of the SCT to 80%, VM Hao said, it
would also have to approve any changes to the policy. When
asked by the audience, VM Hao refused to provide any time
frame for when this might occur.


5. (U) During the a Q&A session VM Hao made very clear that
there is not consensus among GVN ministries on the issue of
the SCT. He noted that his ministry (MOI) is in agreement
with the Vietnam Automobile Manufacturer's Association
(VAMA) that decreasing taxes is more likely to result in
increased production and ultimately encourage localization.
However, the GVN is concerned that if it decreases the
consumption tax, Vietnam's already strained infrastructure
will not be able to keep pace with production increases. He
also pointed out that Vietnam, as part of its WTO accession,
has to harmonize the SCT rates applied to locally produced
and imported vehicles. The MOF wants the harmonized rate to
be 80 percent, but other ministries think that rate is too
high. In "his opinion," VM Hao said, the SCT rate should not
be more than 20-25 percent, but he "does not know how MOF"
would feel about a lower rate. (Note: Ambassador and
Econoffs have - for two years - emphasized to officials
throughout the GVN that harmonization should be at lower
levels to encourage development of the industry. End note.)


6. (U) At one point, a representative of Ford Vietnam in the
audience noted that GVN local content targets are too
difficult for the industry to meet because Vietnam's auto
industry lacks economy of scale. When automakers initially
invested in Vietnam, he said, the outlook for the industry
was much higher than it is now, making localization
commitments seem more reasonable. He also pointed out that
Vietnam would not be able to maintain local content
requirements once it accedes to the WTO and suggested
Vietnam eliminate local content requirements immediately.
VM Hao said the MOI wants automakers to pay more attention
to local content and to identify parts that could be
produced in Vietnam both for local use and for export. He
pointed out that Toyota has already established an export
center in Vietnam and exported about $25 million worth of
parts in 2004. He also noted that Toyota has a local
content ratio of about 30 percent while other automakers
only have 5-10 percent local content.


7. (SBU) Comment: The lack of consensus within the GVN on
the SCT policy is not new. To date, the MOF has been
victorious in gaining National Assembly approval for raising
the SCT and fending efforts to revise the auto plan. The
MOI remains a welcome advocate of the automakers position.
However, this ministry is no match for the powerful (and
very revenue conscious) MOF. On a bright note, we view VM
Hao's public description of the split within the GVN on this
issue and his statement that the GVN is reconsidering its
SCT policy as a positive sign that opportunities still exist
to press the GVN to freeze or even roll back the SCT rate.

MARINE