Decision No. 1829/QD-TTg dated October 28, 2015 of the Prime Minister on ratification of action plan for development of automobile and automobile part industry to implement VietNam’s industrialization strategy within the framework of Vietnam – Japan cooperation towards 2020 and an orientation towards 2030

THE PRIME MINISTER

Decision No. 1829/QD-TTg dated October 28, 2015 of the Prime Minister on ratification of action plan for development of automobile and automobile part industry to implement VietNam’s industrialization strategy within the framework of Vietnam – Japan cooperation towards 2020 and an orientation towards 2030

Pursuant to the Law on Government organization dated December 25, 2001;

Pursuant to the Prime Minister’s Decision No. 1043/QD-TTg dated July 01, 2013 on ratification of Vietnam’s industrialization strategy within the framework of Vietnam – Japan cooperation towards 2020 and an orientation towards 2030;

At the request of the Ministry of Industry and Trade,

DECIDES:

Article 1.The action plan for development of automobile and automobile part industry to implement Vietnam’s industrialization strategy within the framework of Vietnam – Japan cooperation towards 2020 and an orientation towards 2030 under the Prime Minister’s Decision No. 1043/QD-TTg dated July 01, 2013 issued with this Decision.

Article 2.This Decision takes effect on the signing date.

Article 3.Ministers, Heads of ministerial agencies, Heads of Governmental agencies, Presidents of the People’s Committees of provinces, relevant organizations and individuals are responsible for the implementation of this Decision./.

The Prime Minister

Nguyen Tan Dung

ACTION PLAN

DEVELOPMENT OF AUTOMOBIL AND AUTOMOBILE PART INDUSTRY TO IMPLEMENT VIETNAM’S INDUSTRIALIZATION STRATEGY WITHIN THE FRAMEWORK OF VIETNAM – JAPAN COOPERATION TOWARDS 2020 AND AN ORIENTATION TOWARDS 2030

I. FACTS

1.Position and role of Vietnam’s

Statistics produced by General Statistics Office in 2013 show that at the end of 2012, there are 385 enterprises engaged in the manufacture of motor vehicles and trailers which contribute 2.8% to the entire industry and create 78,906 employments. Among 385 enterprises, there are about 50 Vietnamese and foreign manufacturers and assemblers. However, Vietnam’s automobile industry is primarily controlled by 10 manufacturers being VAMA members (including 13 joint ventures and 6 Vietnamese enterprises). These manufacturers share a market of over 200,000 motor vehicles/year regardless of categories. Some major automobile brands of the world are also present in Vietnam such as Toyota, GM, Ford, Honda, Mercedes-Benz, etc.

Statistics show that in comparison with other industries, the contribution of Vietnam’s automobile industry to the economy in general and industry in particular is not significant. However, experience of other countries show that with appropriate development policies and a large enough domestic market, the automobile industry will bring enormous economic, social, and technological benefits. Vietnam is a middle income country with a large population. This makes it a potential automobile market. According to forecasts, the motorization period will take place from 2020 to 2025. Until then, if not produced at home, Vietnam will have to import automobiles to satisfy demand. Moreover, there is a dramatic shift of automobile manufactures and assemblers from Europe and America to Asia, which will change the global situation of the automobile industry. Therefore, development of the automobile industry needs to be considered a long-term solution for achievement of industrialization and modernization which will help Vietnam get deeper into the global value chain, stimulate development of relevant industries, take advantage of the global investment shift, prepare for the motorization period and satisfy demand of the people, and help reduce trade deficit.

2.Manufacture and consumption of automobiles

a) In the world and the region

According to OICA, the global production of automobiles in 2013 is 87.3 million vehicles. After the steep decrease to 61.8 million automobiles in 2009 because of the crisis in 2008, the global production has been recovered and differs from region to region. Asia is still able to maintain its leading position with the production of over 45.7 million vehicles in 2013. The second in America with 21.1 million vehicles, while the production of Europe is below 20 million vehicles.

According to a global survey of KPMG in 2012 reveals that the tendency of the automobile industry in the next 15 years will be development of electric vehicles, modified urban vehicles, and smart vehicles. Besides, the automobile industry still has to face challenges in terms of environment, urbanization, and change of consumers’ behaviors.

ASEAN is now considered one of the largest automobile factories. Most major automobile manufacturers have their factories located within this region such as Ford, GM, BMW, Daimler, Chrysler, Mitsubishi, Mazda, Toyota, Isuzu, Honda, Nissan, etc. Some of its members including Indonesia, Thailand, Malaysia, Philippine, and Vietnam have determined that automobile industry is very important to their economies.

One decade ago, the production of Thailand was only 411,000 vehicles per year, which made up 0.7% of global production. Nowadays, Thailand’s production is 2.4 million vehicles/year (2013), is among the top 10 countries with highest automobile production, and is the country with highest production of pick-up trucks which are exported all over the world. Automobile industry has become the largest manufacturing industry of this Thailand.

In Indonesia, the automobile industry has recently experience rapid growth with the average growth rate of 20% per year. Its production and sales in 2013 exceeds 1.2 million vehicles have made it one of the countries that sell 1 million vehicle/year two years ahead of schedule. In Indonesia’s economic development planning 2011 - 2015 (MP3EI) published in May 2011, Indonesia’s government determined that automobile industry plays a pivotal role in its economic development. MPV and compact ecological vehicles are given priority in order to maximize the market capacity for the automobile industry.

Malaysia’s production of automobiles reached 601,407 vehicles in 2013, which made up 0.68% of global production. Its domestic market is mostly controlled by two domestic manufacturers which are Perodua and Proton.

In the last decade, the Philippines’s automobile market stayed at 70,000 – 90,000 vehicles registered per year. In 2007, its market started to boom with 100,000 vehicles/year. In 2013, 180,000 vehicles were sold in the Philippines while its production is only 79,169 vehicles. Its market is dominated by imported automobiles because import duties on CBU vehicles from ASEAN and FTA partners are very low while domestic production is slow because of lack of support from the government. Foreign manufacturers closed the assembly lines in the Philippines and import parts from other countries in the same region.

b) Vietnam’s market

Vietnam’s automobile market is still very small in which only over 200,000 vehicles are sold per year. With the rates of import duties of 15% - 20%, domestically assembled automobiles can satisfy 60% - 70% demand. 5-seater cars and trucks are two decisive part of Vietnam’s automobile industry. In 2014, the domestic automobile market started to boom, partly because of more stable policies, and partly because 10% reduction in CEPT import duty, from 60% to 50%, according to the commitment with ASEAN. In 2014, both production and market capacity reached 120,000 vehicles; 5-seater car made up 42.1% of nationwide production, trucks 25.1%, and the other types approximately 10% each.

During the period 2009 – 2013, the value of imported automobiles and automobile parts in Vietnam reached 2.8 USD billion/year, made up 1.85% of national import turnover. The most imported products are automobile parts and components, which made up nearly 40% of turnover from import of automobiles and parts thereof. With regard to CBU automobiles, cars of fewer than 9 seats are the most imported which made up over 50% of import of CBU automobiles. Korea and China are the biggest exporting countries of Vietnam which made up 28% and 24% of Vietnam’s import turnover respectively. The next biggest countries are Thailand and Japan, each of which made up 15% of Vietnam’s import turnover.

Though the growth of the automobile industry is still insignificant, its export turnover has grown pretty quickly. The export turnover of the entire industry was only 200 million USD in 2009 and exceeded 700 million USD in 2013. The average growth rate of the period 2009 – 2013 is 28.9% per year. The primary exports are automobile parts and components, which made up 90%, and the primary importing markets are Japan and the USA.

Ancillary industries of the automobile industry are still underdeveloped. The ratio of purchase of domestic parts varies depending on the category and manufacturer (10% - 30% for vans, > 30% for trucks, > 40% for buses). Parts and components are largely manufactured in the factories. The ratio of purchase is very low. Besides, 90% of existing suppliers are FDI suppliers, only some of domestic suppliers are able to join the supply network of automobile manufacturers and assemblers in Vietnam.

Though considered an industry that need protecting and stimulating, automobile industry is still protected by high import duties under most bilateral and multilateral economic cooperation agreements. The recent inconsistency and instability of policies (mostly related to taxes and charges) have caused adverse impacts on its development. In 2014, the Government ratified the Strategy and Planning for development of Vietnam’s automobile industry by 2025 with an orientation towards 2035, which emphasizes the necessity of encouragement of its development by stable, consistent, and long-term policies.

3. Existing issues of Vietnam’s automobile and automobile components industry

Unlike apparel and textile, footwear, and electronics which are compact and easily transported around the world, manufacturers tend to gather at certain areas and export automobiles all around the world. With its large sizes and inconvenient delivery, when the domestic market is large enough, automobiles manufacturers are inclined to build assembly factories and development supplier system right in the host country to serve its market. Being aware of Vietnam’s potential market with a large population and steadily growing economy, automobile manufacturers started to build assembly factories in Vietnam 20 years ago. However, the growth of Vietnam’s automobile market is not as expected by investors because of its policies. As a result, the development of supplier network of assemblers is still slow.

2018 is considered a transitional year of Vietnam’s automobile industry as import duties on CBU automobiles from ASEAN countries into Vietnam are reduced to 0%. Vietnam has only 03 years to prepare and improve the competitiveness of its automobile industry. If this short opportunity is not seized, Vietnam will face the same consequences as the Philippines several years ago when the underdeveloped market and unclear policies made manufacturers and assemblers withdrew from the market and switched over to import. As soon as the demand for automobiles dramatically increases (motorization period), automobiles would be imported to satisfy domestic demand and cause serious trade deficit.

Vietnam’s automobile industry is facing the following issues:

- The domestic market is still small. In 2013, Vietnam’s automobile market is only one third of that of the Philippines, one fifth of Malaysia, and one tenth of Indonesia and Thailand.

- Car prices in Vietnam are higher than those in other ASEAN countries (by 50 – 300 million VND compared to Thailand and Indonesia – equivalent to 2,400 – 12,000 USD) because of higher production cost. Vietnam’s special excise tax on cars of fewer than 9 seats is also higher than that of other ASEAN countries.

- The competitive pressure from other ASEAN countries will increase at the end of tariff elimination period in under CEPT where tax on all vehicles imported from ASEAN countries is 0%. Besides, other commitments in ASEAN+6 also tend to cut taxes on automobiles more than MFN commitments.

- Ancillary industries for the automobile industry are still underdeveloped, human resources for the automobile industry in particular and the mechanics/engineering in general still fail to meet automobile manufacturers and assemblers’ requirements.

- Recent policies on automobile industry development are inconsistent and usually short-term, thus caused difficulties to manufacturers and assemblers in developing long-term production plans.

II. Orientation

Develop Vietnam’s automobile industry and automobile components industries into an important industry of the economy with satisfy most of domestic demand and participate deeply in the world’s automobile manufacturing network.

III. TARGETS BY 2020

1. Maintain manufacturing, assembly operations, and creation of domestic values till after 2018;

2. Healthily develop domestic automobile demand in a way that is appropriate for the infrastructure and avoids adverse effect on the environment and society;

3. Promote development of ancillary industries for the automobile industry;

4. Reduce production costs, logistics costs, and automobile prices;

5.Integrated into the regional and global manufacturing networks by takingVietnam’s competitive advantage; and

6. Comply with international commitments.

IV. STRATEGIC ISSUES

1. Issues related to taxes, fees and charges.

2. Low domestically-created values

3. Underdeveloped ancillary industries.

4. Unsatisfactory human resources.

5. Other issues in terms of traffic, environment, and infrastructure

V. ACTION PLAN

VI. IMPLEMENTATION AND SUPERVISION MECHANISM

1. Ministry of Industry and Trade has the responsibility to:

- Assign units under its management to implement the action plans;

- Cooperate with Ministries, regulatory bodies, and local governments in implementing the action plan; submit annual reports to the Steering Committee; review the result and effectiveness of the action plan and report to the Prime Minister.

2. The Ministry of Planning and Investment has the responsibility to:

- Take charge and cooperate with the Ministry of Finance, relevant Ministries and agencies in determining and providing funding from state budget to effectively implement the measures and supportive activities; mobilize, control foreign sources of sponsorship, capital sources from the society, and other capital sources to implement the action plan.

- Cooperate with relevant Ministries, regulatory bodies, and local governments in performing the duties set out in the action plan.

3. The Ministry of Finance has the responsibility to:

- Cooperate with relevant Ministries, regulatory bodies, and local governments in performing the duties set out in the action plan.

- Take charge and cooperate with the Ministry of Planning and Investment in proposing cost estimates to competent authority and providing sufficient funding to implement the measures and supportive activities

4. Relevant Ministries and agencies have the responsibility to:

- Take charge and cooperate with relevant Ministries and agencies in performing their duties set out in the action plan.

- Annually review the result and fulfillment of their duties, submit a report to the Ministry of Industry and Trade for reporting to the Steering Committee and the Prime Minister.

5. The People’s Committees of provinces and management boards of industrial parks have the responsibility to:

- Perform their duties set out in the action plan.

- Annually review the result and fulfillment of their duties, submit a report to the Ministry of Industry and Trade for reporting to the Prime Minister.

6. Supervise the implementation of the action plan

- The Ministry of Industry and Trade is responsible for overall supervision and evaluation of result of the action plan, submit annual reports to the Steering Committee and the Prime Minister.

- The Ministry of Science and Technology, the Ministry of Finance, the Ministry of Planning and Investment, the Ministry of Education and Training, the Ministry of Labor, War Invalids and Social Affairs, relevant Ministries and agencies are responsible for supervision and evaluation of result of the action plan within the scope of their duties set out in the action plan, submit annual reports to the Ministry of Industry and Trade for reporting to the Steering Committee and the Prime Minister.

- By December 15 every year, the Ministries appointed to take charge of the actions in teh action plan shall report the result to the Ministry of Industry and Trade.

7. Revisions to the action plan

Difficulties that arise during the implementation of the action plan, the Ministry of Industry and Trade shall propose reasonable revisions to the action plan to the Steering Committees./.