Decision No. 177/2004/QD-TTg dated October 05, 2004 of the Prime Minister approving the planning on development of Vietnam’s automobile industry till 2010, with a vision to 2020

DECISION

APPROVING THE PLANNING ON DEVELOPMENT OF VIETNAM’S AUTOMOBILE INDUSTRY TILL 2010, WITH A VISION TO 2020

THE PRIME MINISTER

Pursuant to the December 25, 2001 Law on Organization of the Government;

At the proposals of the Ministry of Industry in Official Dispatches No. 2042/CV-CLH of April 26, 2004; No. 2441/CV-CLH of May 19, 2004 and No. 3721/CV-CLH of July 26, 2004; and opinions of the Ministries of Planning and Investment, Science and Technology, Trade, Transport, Finance, Agriculture and Rural Development, and Defense, the State Bank of Vietnam and the Development Assistance Fund at the May 6, 2004 meeting at the Government Office,

DECIDES:

Article 1.- To approve the planning on development of Vietnam’s automobile industry till 2010, with a vision to 2020, with the following principal contents:

1. Development viewpoints

a/ The automobile industry is a very important industry which should be prioritized for development in order to contribute to efficiently serving the process of industrialization and modernization and building up national security and defense potentials.

b/ To rapidly develop the automobile industry on the basis of the world market and integration into the world economy; to select appropriate development steps, encourage specialization and cooperation in order to bring into play advantages and potentials of the country; and at the same time to actively participate in the process of labor distribution and international cooperation in the automobile industry.

c/ The development of automobile industry must be linked to the approved master planning on national industrial development and strategies on development of  relevant industries in order to mobilize and bring into the fullest  play resources of all economic sectors, with State enterprises playing the pivotal role.

d/ To develop the automobile industry on the basis of absorbing the world’ advanced technologies, together with stepping up research-development activities in the country and efficiently making full use of the existing material foundations and equipment in order to rapidly meet the domestic demand for common-use automobiles with competitive prices, create a motive force for the domestic supporting industries to develop so as to speed up the process of domestic manufacture of components and spare parts.

e/ The development of automobile industry must be in line with the national consumption policy and ensure its synchronism with the development of traffic infrastructure system as well as the requirements of environmental protection and improvement.

2. The planning’s objectives

a/ Overall objectives:

To build and develop Vietnam’s automobile industry to make it by 2020 an important industry of the country, which can satisfy to the utmost the domestic market demand and join the regional and world markets.

b/ Specific objectives:

- Regarding common-use automobiles (trucks, passenger cars, cars):

To meet around 40-50% of the domestic market demand in terms of quantity and reach the localization rate (domestic manufacture content) of up to 40% by 2005; to meet over 80% of the domestic market in terms of quantity and reach the localization rate of 60% by 2010 (particularly for engines, to strive for the localization rate of 50%, and 90% for gearboxes).

- Regarding special-use automobiles:

To meet 30% of the domestic market demand in terms of quantity and reach the localization rate of 40% by 2005; proceed to meet 60% of the domestic market demand in terms of quantity and reach the localization rate of 60% by 2010.

- Regarding high-class automobiles:

For high-class tourist cars, to strive for the localization rate of 20-25% by 2005 and 40-45% by 2010, and substantially meet the domestic market demand;

For high-class trucks and passenger cars, to reach the localization rate of 20% by 2005 and 35-40% by 2010, and meet 80% of the domestic market demand.

- Regarding engines, gearboxes and spare parts:

To concentrate efforts on selective development of some types of engines, gear boxes, transmission details and spare parts with large quantities in service of domestic assembly and export.

- Regarding output and product structure orientations:

Table 1. Projected output of assorted automobiles till 2020

Unit: automobile

* Including the replacement of 55,000 rural transport vehicles (rudimentary trucks) in the period from now till the end of 2007.

On the basis of balancing the existing capacity and forecast demand, the projected additional output of automobiles till 2010 is in Table 2.

Table 2. Capacity of, demand for, and additional output of, automobiles till 2010

Unit: automobile

- Regarding export:

To strive for the automobile and spare part export value of 5-10% of the industry’s total output value by 2010 and gradually increase the export turnover in the subsequent periods.

3. Planning orientations till 2010

a/ Regarding common-use automobiles, including trucks (mainly small- and medium-sized trucks), passenger cars and cars of between 4 and 9 seats

- Passenger cars:

To serve mass transit, including cars of 10 seats or more. Projected output:

+ By 2005: 15,000 cars, meeting over 50% of the market demand;

+ By 2010: 36,000 cars, meeting over 80% of the market demand.

The localization rate to reach 40% by 2005 and 60% by 2010. Particularly for engines, the localization rate to reach 15-20% by 2005 and 50% by 2010.

- Trucks:

To serve cargo transport, mining, industry-construction etc, including mainly small- and medium-sized trucks, partly large-sized trucks (with a tonnage of up to 20 tons).

Projected truck output:

+ By 2005: 68,000 trucks, meeting over 50% of the market demand;

+ By 2010: 127,000 trucks, meeting around 80% of the market demand.

The localization rate to reach over 40% by 2005 and around over 60% by 2010.

- Cars of 4 - 9 seats:

Are cars with structures similar to those being manufactured by foreign-invested enterprises (minibuses, coaches, etc.) but with simpler forms and facilities, and prices suitable to the domestic purchasing power.

Projected output:

+ By 2005: 3,000 cars, meeting around 10% of the market demand;

+ By 2010: 10,000 cars, meeting around 15% of the market demand.

(If the output of up-to-9 seat cars manufactured or assembled by foreign-invested enterprises is included, the domestic market demand shall be substantially  met).

The localization rate of common-use cars to reach 30% by 2005 and over 50% by 2010.

b/ For special-use vehicles:

On the basis of imported or home-made automobile chassis, to organize the manufacture of special-use vehicles, including refrigerator cars, fire-engines, road-sweepers, mud-dredgers, concrete-mixers, crane trucks, electric-repair vehicles, ambulances, drillers, excavators, etc., to meet the domestic demand.

Projected output:

+ By 2005: 2,000 vehicles, meeting around 30% of the market demand;

+ By 2010: 6,000 vehicles, meeting over 60% of the market demand.

The localization rate of special-use cars to reach 40% by 2005 and 60% by 2010.

c/ For high-class cars:

Projected output of assorted cars (including cars of between 6 and 9 seats of foreign-invested enterprises) is as follows:

+ By 2005: 32,000 cars;

+ By 2010: 60,000 cars.

To strive for the localization rate of 20-25% by 2005 and 40-45% by 2010.

d/ Manufacture of automobile engines, gear boxes and transmission details:

- Automobile engines (mainly assorted diesel engines of a capacity of 80-400 horse power):

The total output of the engine-manufacturing plants to be around 100,000 engines/year by 2010 and around 200,000 engines/year by 2020, of which engines of a capacity of 100-300 horse power represent 70%. To strive for the localization rate of 15-20% by 2005 and 50% by 2010.

To encourage foreign-invested sector to manufacture assorted engines for various types of car.

- Gearboxes:

The output to reach 100,000 sets/year by 2010 and around 200,000 sets/year by 2020, the localization rate to reach 90% by 2010.

- Transmission details:

The output to reach 100,000 sets/year by 2010 and around 200,000 sets/year by 2020. The localization rate to reach 90% by 2010.

4. Investment orientations and requirements for investment projects

- To encourage the location of projects on manufacturing and assembling automobiles as well as manufacturing spare parts in the 3 key economic regions and their vicinities in order to make full use of existing advantages, including:

+ In Northern Vietnam: The provinces and cities lying within and adjacent to the Hanoi-Hai Phong-Quang Ninh economic growth triangle.

+ In Central Vietnam: The provinces from Thanh Hoa to Khanh Hoa.

+ In Southern Vietnam: The provinces and cities lying within and adjacent to the Ho Chi Minh city-Ba Ria Vung Tau-Dong Nai-Binh Duong economic growth quadrangle; and Can Tho city (in service of the Mekong river delta region).

- To assign the following State enterprises: Vietnam Automobile Corporation, the Motors and Agricultural Machine Corporation, Vietnam Coal Corporation and Sai Gon Transport Mechanical Engineering Corporation to play the core role in Vietnam’s automobile industry, formulate and execute investment projects on manufacturing and assembling automobiles and spare parts along the following direction:

+ Vietnam Automobile Corporation: To concentrate on manufacturing and assembling medium- and small-sized passenger cars and trucks, cars, engines, gear boxes and transmission details.

+ The Motors and Agricultural Machine Corporation: To concentrate on manufacturing and assembling medium- and small-sized passenger cars and trucks, engines, gear boxes and transmission details.

+ Vietnam Coal Corporation: To concentrate on manufacturing and assembling medium- and heavy-trucks, special-use vehicles and working accessories.

+ Sai Gon Transport Mechanical Engineering Corporation: To concentrate on manufacturing and assembling passenger cars, special-use vehicles and a number of automobile spare parts.

- To assign the Ministry of Defense and the Ministry of Public Security to participate in organizing the manufacture and assembly of vehicles of technical-strategic properties, meeting the security and defense requirements.

- For the above-said core State enterprises and the automobile-manufacturing and –assembling enterprises under the Ministry of Defense and the Ministry of Public Security:

+ Investment projects must meet the “criteria of automobile-manufacturing and –assembling enterprises”;

+ New investment projects must satisfy the high specialization assignment-cooperation requirements in conformity with the production assignment orientations mentioned in Clause 4; have advanced technologies transferred from the world’s big automobile manufacturers; the localization rate must be higher than the general oriented level;

+ Investment projects must be verified and approved according to current regulations on investment and construction management.

- For foreign-invested enterprises: The investment in manufacture development shall comply with investment licenses. To encourage the investment in manufacture of engines and spare parts on the basis of transfer of advanced technologies from the world’s famous firms.

- For other domestic enterprises:

+ Projects must be in line with the strategy and planning on development of Vietnam’s automobile industry till 2010, with a vision to 2020;

+ Meeting the “criteria of the automobile-manufacturing and –assembling enterprises”;

+ To encourage projects with export products, projects on manufacturing automobile engines, gear boxes, transmission details, and projects of big investment scale;

+ For enterprises which have manufactured or assembled automobiles and manufactured spare parts for definite periods of time, the investment in expansion of manufacture and assembly capacity must be associated with technology upgrading and equipment modernization in order to raise the localization rates according to the orientations mentioned in Clause 3;

+ For new investment projects, they must also fully meet the following conditions: having advanced manufacturing technologies transferred from the world’s automobile manufacturers; having specific plans, roadmaps and measures to achieve the localization rate targets (according to the orientations mentioned at Points a, b, c and d, Clause 3); having production technological processes as well as specific and feasible solutions to ensure that the turned-out products are up to the State-prescribed standards on technique, quality, safety, registry and environment; fully complying with regulations on copyright and industrial property.

5. Investment capital source orientations

The projected total investment capital required for implementation of the planning is as follows:

+ The 2001-2010 period: Around VND 16,000-18,000 billion. Capital sources include:

- Capital mobilized by enterprises themselves;

- Capital borrowed from commercial banks;

- Foreign investment capital;

- The State’s development investment credit capital (reserved only for key projects decided by the Prime Minister and projects eligible for the State’s development investment credit capital under current regulations).

+ The 2010-2020 period: Estimated at around VND 35,000-40,000 billion. Capital sources include mainly capital mobilized by enterprises themselves, commercial loans and foreign capital.

6. Policies and solutions in support of Vietnam’s automobile industry

a/ Tax policies for automobiles as well as automobile components and spare parts

In order to encourage the development of the industry of manufacturing automobiles and spare parts in service of the domestic demand and export, the State adopts a number of support policies as follows:

- Not to impose import tax on CKD and IKD component sets; to impose import tax on imported components and spare parts according to the Tariffs along the direction of promoting the domestic manufacture.

- To exempt enterprise income tax on trial-manufactured products for one year after the products are sold on the market.

b/ Market-related policies and solutions

- Market protection:

+ To take measures to support domestic manufacture in conformity with the international and regional economic integration progress.

+ To promulgate technical standards for automobiles and automobile spare parts in order to prevent the circulation of inferior-quality, unsafe and environment-polluting commodities.

+ To strictly handle illegally imported goods and trade-fraud goods brought into Vietnamese market.

- Market expansion:

+ To step up the investment in upgrading the road networks nationwide;

+ To encourage the automobile-manufacturing and –assembling enterprises to use home-made engines and spare parts;

+ To create conditions for enterprises in marketing and trade promotion activities in order to expand the domestic market and stretch out to foreign markets.

c/ Investment policies and solutions

- To encourage the cooperation and manufacture assignment among domestic enterprises and between domestic enterprises and foreign-invested enterprises in order to make full use of the invested technologies and equipment, reduce new investment costs and prevent overlapped investment.

- To step by step make new but concentrated, focal and rapid investment in basic technological processes decisive to product quality, suitable to the market demand.

- Foreign projects for investment in supporting industries, manufacturing automobile engines, spare parts and components, especially investment projects with large capacity scale, manufacturing high-quality products in service of programs on raising the localization and export rates, shall enjoy all preferential policies prescribed by the Law on Foreign Investment in Vietnam.

Science- and technology-related policies and solutions

- To encourage the transfer of, and investment in, advanced technologies in service of programs on manufacturing automobiles and automobile spare parts, especially engines, gearboxes and transmission details.

- The State shall provide funding support for technology transfer to projects on manufacturing engines, gearboxes and transmission details if technologies are transferred from the world’s prestigious firms.

- The State shall provide funding support for the investment in the automobile industry’s research-development activities.

e/ Human resource-related policies and solutions

To intensify investment in training and re-training of managerial officials, design officials and skilled workers in service of the automobile industry, even sending them abroad for study with the State budget capital source.

f/ Capital mobilization policies and solutions

- To encourage the equitization of enterprises manufacturing and assembling automobiles and automobile spare parts, even the sale of equities to foreigners for creation of new investment capital and diversification of capital sources.

- To encourage all economic sectors to invest in the manufacture of automobile spare parts and components.

- Enterprises which are established under law and have projects fully meeting the requirements mentioned in Clause 4 (The item “For other domestic projects”) may all invest in projects on the principle of self-responsibility for the investment efficiency. When formulating projects, investors shall base themselves on the above-said planning orientations and investment orientations (especially the market demand, the demand for additional output of each type of automobile in each period, productive force distribution orientations, etc.) as well as enterprises’ actual competitiveness to determine appropriate investment scales and locations, and at the same time take self-responsibility for their own decisions.

g/ Industry management policies and solutions

- To attach importance to the study and application of solutions to regulate supply and demand of Vietnam’s automobile market in order to ensure fair competition and efficiency for the whole industry.

- To build and perfect a legal framework in order to create conditions for enterprises to reorganize themselves or form large enterprises after the parent company-subsidiary company model and satellite companies of large enterprises in the domain of automobile manufacture and assembly; to well implement specialization and cooperation.

Article 2.- Implementation organization

1. The Ministry of Industry:

- To elaborate and promulgate immediately the “criteria of automobile-manufacturing and –assembling enterprises”.

- To direct the implementation of the program and solutions to the development of the automobile manufacture till 2010.

- To assume the prime responsibility for verifying new investment projects on automobile manufacture and assembly using the State capital of the 4 key State enterprises, then submit them to the Prime Minister for approval and implementation.

- To assume the prime responsibility for, and coordinate with the concerned ministries and branches in, examining projects on manufacturing and assembling automobiles as well as manufacturing spare parts according to the contents of the formulated projects.

- To approve the inspection work according to the industry management functions, propose to the Government measures to regulate the automobile market’s supply and demand in the course of implementation of the planning; publicize them to enterprises for implementation.

2. The Ministry of Science and Technology:

- To elaborate and promulgate a regulation on methods of calculating the localization rates of automobiles for use as basis for determination of investment support encouragement levels for enterprises manufacturing and assembling automobiles and manufacturing automobile spare parts.

- To assume the prime responsibility for, and coordinate with the concerned ministries and branches in, formulating and promulgating technical standards and quality standards of automobiles and spare parts for domestically circulated automobiles; technical-barrier regulations for prevention of the manufacture, assembly and circulation of inferior-quality and environment-polluting automobiles.

- To provide guidance on the transfer and reception of technologies to enterprises manufacturing and assembling automobiles and spare parts, ensuring that the transferred technologies are truly advanced ones.

3. The Ministry of Finance:

- To promulgate immediately import tariffs of automobile components and spare parts in replacement of tax calculation according to CKD- and IKD-form component sets to suit the international and regional economic integration progress.

- To study and submit to the Prime Minister for promulgation mechanisms for encouraging projects on manufacturing automobile engines, gearboxes and transmission details.

- To study and submit to the Prime Minister for promulgation policies on financial support for research-development and human resource training activities for the automobile industry.

- To assume the prime responsibility for, and coordinate with the concerned ministries and branches in, studying and submitting to the Government for promulgation regulations on a number of charges in order to limit the purchase and circulation of personal tourist cars in the context where road traffic infrastructure system fails to keep pace with the increase of the number of cars.

- To strictly control the collection of tax on imported automobiles, components and spare parts; to coordinate with the Ministry of Trade in stepping up the combat against smuggling and trade fraud.

4. The Ministry of Transport:

To review, perfect and promulgate immediately new regulations on standards, technical conditions and safety for automobiles delivered for sale and imported (regulations on registry of motorized means) along the direction of raising the quality and safety of automobiles, in replacement of inappropriate current regulations.

5. The Ministry of Trade:

- To assume the prime responsibility for, and coordinate with the concerned ministries and branches in, studying and taking measures to enhance the efficiency of market management work, combat smuggling and trade fraud for automobiles and spare parts in order to protect the domestic market.

- To propose solutions to intensifying export promotion activities, create conditions for Vietnam’s automobile industry to join the regional and world markets.

6. The Ministry of Planning and Investment:

To actively call for and attract foreign investment in the development of automobile industry according to the approved strategy and planning, especially in the manufacture of spare parts and components. To examine and assist foreign-invested enterprises manufacturing and assembling automobiles and automobile spare parts strictly according to the licenses and current law provisions.

7. The Ministry of Public Security:

To assume the prime responsibility for, and coordinate with the Ministry of Transport and the provincial/municipal People’s Committees in, studying and prescribing the limit of quantity of automobiles to be newly registered annually in each locality in conformity with the transport development plannings, the urban plannings, specific situation on road infrastructure system (both dynamic and static), and actual demand for addition or renewal of transport means of localities.

8. The provincial/municipal People’s Committees:

-To create favorable conditions for execution of projects on manufacturing and assembling automobiles as well as manufacturing automobile spare parts in their respective provinces or cities (if any) and supervise the execution of the projects according to the formulated and registered contents.

- To consult the ministries and branches in examining and supervising the implementation of the planning in order to ensure the synchronism and uniformity between the automobile industry development planning and the master planning on socio-economic development as well as the industrial development plannings in the localities.

- To direct the functional provincial/municipal Services, departments and branches to coordinate with one another in reviewing business registration work for enterprises engaged in automobile manufacture or assembly, ensuring the strictness, lawfulness, conformity with planning, and satisfaction of the “criteria of automobile-manufacturing and –assembling enterprises”. To direct the provincial/municipal Industry Services to periodically report to the Ministry of Industry on the operation of the automobile-manufacturing and –assembling projects.

9. Vietnam’s Association of Mechanical Enterprises, Vietnam’s Association of Automobile Manufacturers and Vietnam’s Association of Automobile Engineers:

- To study, propose and organize the coordination among mechanical enterprises manufacturing and assembling automobiles as well as manufacturing spare parts in order to raise cooperation-association and specialization in the manufacture and assembly of automobiles and spare parts.

- To study and propose to State management agencies solutions, mechanisms and policies for encouraging and promoting the development of the automobile industry strictly according to the approved strategy and planning.

10. Enterprises which are permitted by competent authorities to manufacture and assemble automobiles or organize the manufacture of special-use automobiles on the basis of automobile chassis may continue to conduct the importation and apply the tax policies according to current regulations till the Finance Ministry-issued Import Tariff of automobile components and spare parts takes effect. As from July 1, 2005, if the above-said enterprises fully meet the conditions prescribed in this Decision, they may continue to manufacture and assemble automobiles or organize the manufacture of automobile chassis.

Article 3.- This Decision takes effect 15 days after its publication in the Official Gazette.

Article 4.- The ministers, the heads of the ministerial-level agencies, the heads of the Government-attached agencies and the presidents of the provincial/municipal People’s Committees shall have to implement this Decision.