VietNamNet Bridge - If the government wants to retain auto-assembling enterprises to develop Vietnam’s auto industry, it will have no other choice than to support domestic enterprises.

Toyota, the Japanese automobile manufacturer, has made a series of claims in exchange for its stay in Vietnam to help the country develop an automobile industry.

It emphasized that supporting domestic enterprises is the only way for the government to retain automobile manufacturing enterprises. If not, the manufacturers would rather import cars to sell in Vietnam than make cars domestically, because the imports are expected to be 15-25 percent cheaper when Vietnam cuts the tariff on imports from ASEAN to zero percent.

Analysts noted that, of the investment incentives proposed by Toyota, the ones within reach of the government are: cutting the tariff on car-part imports to zero percent, changing the way of calculating luxury tax, cutting corporate income tax, giving preferential loans and giving support in production workshop premises.

They also said the incentives will need to exist for 10 years at least to help enterprises implement their long-term production strategies.

However, an expert noted that even if all the incentives are applied, Vietnam would still not be able to create advantages for domestically made cars against imports. 

The estimated 15-25 percent price gap between domestically made and imported cars can only be eliminated if the state agrees to prop up production costs for automobile manufacturers as proposed by Toyota, he said.

However, they also warned that the support, if they are designed in an unreasonable way, would violate WTO (World Trade Organization) rules. 

If Vietnam still insists on giving support, it will have to give the same support to imports under the mode of complete-built-units to ensure a fair investment environment.

A 10-year investment incentive policy is believed to cause a huge loss to the state budget revenue.

The suggested solution of imposing luxury taxes based on the car-part import bills will bring advantages to auto manufacturers able to make products with a high rate of locally made content. This would help encourage domestic production. 

However, the solution is also believed to violate WTO commitments that Vietnam should not have preferential policies for product localization.

Enterprises argue that the solution is being applied by many other countries, which are also WTO members.

Meanwhile, the Ministry of Finance said it is considering a calculation method.

It is a difficult question for the government to createt reasonable policies which can help automobile manufacturers and avoid violations of trade agreements that Vietnam has signed with its partners.

Tran Thuy