A. ISSUES AUTOMOBILE SECTOR
1. Small production and competition
2016, the Automobile market in Vietnam reached over 300,000 units
(consisting of: 230,000 CKD and 70,000 CBU vehicles). However, the
overall production only covers around 50% of the total capacity.
Furthermore, investors do not decide to invest in long –term
project due to big fluctuations in the past and the lack of a
stable market. It is very risky for suppliers to invest in high
investment producing parts due to disadvantages of small
production. These high prices on parts manufactured locally is
affecting the competition between local parts and imported parts.
As a result, many suppliers cannot afford and sustain the
production in the Vietnamese market.
Moreover, with the lack of local manufactured parts available in
Vietnam, CKD vehicle assemblers need to import the most parts and
materials which is causing higher costs due to logistics, packaging
and import duty. Thus, these conditions are opening a gap between
Vietnam CKD vehicles and CBU vehicles from about 10-20%.
2. Critical delivery capability of suppliers
A fully assembled car is consisting of hundreds of parts. As a
result, car assemblers need a well-structured supply chain meeting
their supply requirements. In Vietnam, many Vietnamese suppliers
cannot provide materials in the required QCD standards for being
able to take part in the international supply chain. Furthermore,
the technology transfer, the right on use of patents, licensing
agreements and copywriting permits are still required and not
developed enough to ensure supply in global standard. Moreover, the
safety standards for 4-wheel parts production is not developed as
required yet.
In addition, the government is not developing well-supporting
policies or measures to ease the production and trade for
suppliers. In the last years, the government issued supporting
decrees but they contain complicated procedures. There is no list
provided containing information about all relevant suppliers
available in Vietnam. As result, it is very difficult for companies
to find all needed suppliers to ensure efficient production.
Further policies for stabilizing the market are to be made.
Countermeasures and infrastructure development is a very important
aspect to improve current issues. Moreover, the production cost cap
and the gap between CBU and CKD vehicles need to be narrowed by
setting new regulations or enforcing policies. Lastly, the
government needs to give incentives to attract investments to
support the development of the automobile sector.
Suppliers should try to go in cooperation with foreign suppliers
for transferring technology to Vietnam and take part in databases
for suppliers. National suppliers have to listen to international
companies to develop the understanding of vehicle assemblers and
their requirements. If assemblers find supplier companies
understanding their needs and they are able to operate in the way
of those needs, new investments will be attracted in the
future.
3. Issues with Decree 116/2017/n33-CP on requirements for
automobile supplier, importer, manufacturer and automobile
aftersales guarantee and maintenance
a. Article 6, clause 2 point a rules that CBU importers must submit
vehicle type approval certificate (VTA) and COP factory
certificate. These have to be issued from the overseas authority.
This is a major issue due to every agency is following national
regulations and is adjusting their work to domestic requirements.
It is unbearable to demand that suppliers must adjust work on
regulations to each export country. In addition, there is no VTA
authority in some countries (for example: Korea), so that, the VTA
certificate cannot be issued to CBU importers in these countries.
As result, the requirement of certificates' issuance is a major
reason for slow development of the automobile sector. Thus, Vietnam
is limiting market access to some foreign investors in a very
critical way. Furthermore, tests on safety and emission will be
conducted of every single CBU shipment. This provision will highly
increase the production time. However, the requirement of testing
each shipment should be amended due to lack of necessity. Moreover,
the government should start accepting the UNECE certificate. It is
an internationally accepted certificate while it is meeting the
Vietnamese requirements as well. In addition, the government needs
to act as fast as possible to create transparent and stable
environment for investors and their businesses in the automobile
sector due to recent production cancellations of some enterprises
on import of CBU vehicles.
b. Article 7, clause 1, point a provides the requirement of test
roads with 800m length for CKD makers by 17 April 2019. The
requirement of owning a test road is a huge financial burden, even
renting test roads is very expensive and most producers are not
owning test roads or do not have so much land available for that
use.
B. ISSUES MOTORCYCLE SECTOR
1. Intellectual property
Intellectual property infringement is not only a small deal in
Vietnam. Many Illegal imitations of motorbikes and parts, for
example, Honda or Piaggio are manufactured in Vietnam. This is
causing bad impacts on business and consumers due to lack of
quality of imitated vehicles or parts of it. Furthermore,
decreasing prestige and competitiveness are notable consequences of
intellectual property infringement. There have to be further
regulations on protection of intellectual rights and guidelines on
enforcing these rights should be provided soon.
2. Increase of VAT
The increase of VAT from 10 to 12% on purchase of motorcycles is
planned. Still, the motorbike is the main transportation vehicle
used by Vietnamese in cities and rural areas. The increase of VAT
will lead to worse socio-economy growth, thus, the government again
should overthink the necessity of this planned measure.
C. OUTLOOK ON MAJOR TRADE AGREEMENTS TPP 11 AND EUVNFTA
In January 2017, US President Donald Trump decided to withdraw from
the US' participation in the TPP. In November 2017, the
remaining TPP members met at the APEC meetings and concluded about
pushing forward the now called CPTPP (TPP 11) without the USA. The
agreement shall be signed by all member states by the first quarter
of 2018. After that, it has to be ratified in each member state
before taking effect.
The effects of the TPP 11 promising great benefits for the automotive sector in Vietnam. The TPP 11 is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. Due to mostly high tariffs on vehicles, the TPP will impose great impact on production, business and trade flows. For ensuring the better market access under the TPP, suppliers must satisfy the regional value content requirements (RVC), thus, Vietnam will have to adjust regulations to ensure the satisfaction of the requirements of the TPP. As a result, Vietnam will be more competitive, but also be able to offer international standards to foreign investors.
One another notable major trade agreement is the EUVNFTA between the European Union and Vietnam. The EUVNFTA offers great opportunity to access new markets for both the EU and Vietnam. It will help to bring more capital into Vietnam. In addition, the EUVNFTA will boost the most economic sectors in Vietnam. In particular, the agreement will impose new foreign direct investment in Vietnam but there still remain problems regarding lack of infrastructure and low technology. On the other hand, it will also give the chance for better transfer of technology from Europe to Vietnam. Furthermore, the low labor costs in Vietnam are a big advantage for European investors to do business in the automotive sector in Vietnam.
Furthermore, the Investor State Dispute Settlement (ISDS) will
ensure highest standards of legal certainty and enforceability and
protection for investors. We alert investors to make use of these
standards! We can advise how to best do that! It is going to be
applied under the TPP 11 and the EUVNFTA. Under that provision, for
investment related disputes, the investors have the right to bring
claims to the host country by means of international arbitration.
The arbitration proceedings shall be made public as a matter of
transparency in conflict cases. In relation to the TPP, the scope
of the ISDS was reduced by removing references to "investment
agreements" and "investment authorization" as result
of the discussion about the TPP's future on the APEC meetings
on 10th and 11th November 2017.
Further securities come with the Government Procurement Agreement
(GPA) which is going to be part of the TPP 11 and the
EUVNFTA.
The GPA in both agreements, mainly deals with the requirement to
treat bidders or domestic bidders with investment capital and
Vietnamese bidders equally when a government buys goods or requests
for a service worth over the specified threshold. Vietnam
undertakes to timely publish information on tender, allow
sufficient time for bidders to prepare for and submit bids,
maintain confidentiality of tenders. The GPA in both agreements
also requires its Parties assess bids based on fair and objective
principles, evaluate and award bids only based on criteria set out
in notices and tender documentation, create an effective regime for
complaints and settling disputes, etc.
This instrument will ensure a fair competition and projects of
quality and efficient developing processes.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.