Vietnam pushes back tariff cuts
HO CHI MINH CITY - Vietnam's postponement of its tariff cuts under an Association of Southeast Asian Nations (ASEAN) free-trade area gives it a respite of a few more months, but the changes stemming from the impending cuts will inevitably mean change, as well pain and uncertainty, for local industries.
Vietnam's reduction of import tariffs on 96 percent of all items, under its entry into the ASEAN Free Trade Area (AFTA), was supposed to be in place on January 1.
But to give local industries time to prepare for the competition that lies ahead, the government announced last Saturday that the cuts would start this July. "From now to July, Vietnam still applies the import tariffs of 2002," Finance Deputy Minister Le Thi Bang Tam said.
Some businesses gave a sigh of relief, although press reports quote some industry leaders as expressing optimism that Vietnam can manage the adjustment to new market realities and take advantage of benefits a free-trade area offers.
Vietnam, along with other newer members of the ASEAN, was given a longer transition time to join AFTA. Its full integration was first set for 2006, then moved up to 2005. Over the past years, Vietnam already exempted or reduced taxes on 5,500 items of goods covered by AFTA, accounting for 85 percent of all items on import- export tariffs.
But more than a decade into its market reforms or doi moi, Vietnam now needs to be ready for more competition and to expose its industry to more rivalry and possibly, price wars - as it joins not just the smaller AFTA but has its eyes set on the bigger groups such as the World Trade Organization.
Among the sectors were lowered import tariffs cause concern - the entry of foreign goods has also wreaked havoc among small businesspeople in other Asian countries from Indonesia to the Philippines - is local electronic goods and home appliances.
Import tariffs on electrical home appliances and electronic goods will be cut from 50 percent to 20 percent, putting local products in a harder position to compete with foreign goods.
Remarked Le Dang Doanh, advisor to the Ministry of Planning and Investment, "Vietnam will lose its advantage. Electronics will not be able to compete with imports from ASEAN countries, and it will be difficult for Vietnam to call for foreign direct investment into that sector."
Doan Thanh Hai, owner of an audio-video shop at Huynh Thuc Khang, known as Ho Chi Minh City's electronic market, said that fortunately, "prices remain almost the same from now to July".
But he said he could not foretell how electrical and electronic products imported from Malaysia, Singapore and Indonesia would affect the local market after the July deadline.
Hai said that so far local products can compete with imports thanks to tariff barriers, but "I don't know what prices would be like in August, when the first wave of imported goods are sold on the market".
Vietnamese companies account for the lion's share of the mid-range electronic market, and their flat-screen television sets, compact- disc and digital video disc (DVD) players are of the same quality but sold at more reasonable prices than imported ones.
In the past few years, companies such as Vietronics, Samsung Vina, Tan Binh Electronics, Vitek-Vtb have also been investing in technology and services in preparation for the AFTA tariff cuts. "We have also focused on research and development and plan to compete for quality and variety instead of price," affirmed a representative of Samsung Vina, which has South Korean investments.
But other local companies are more uncertain because they could not sneak into the audio-visual market. Japanese, European and US audio-video products dominate the high-end sector, while smuggled products from China take the low-end share.
"No one thinks that the sector could survive when Vietnam officially joins AFTA. Although I am optimistic in nature, I can only dream of a 5 percent market share for the local industry," said Nguyen Thi Thuan, director of a television assembly line in Thu Duc. She plans to enter into joint ventures to produce high-quality products, and is considering shifting her production to computers or mobile phones because their components mostly come from South Korea and Taiwan.
"Our competitors - Thailand, Malaysia, Indonesia - also need to import components, and this places them on the same footing as us," Thuan said. Locally assembled personal computers account for 70 percent of the market, and are 50-70 percent cheaper than imported ones.
Things seem more optimistic for local agricultural products, although Pham Thi Tuoc, head of planning at the Ministry of Agriculture and Development, sees hard times ahead, especially for makers of processed products.
"To narrow the technology gap between Vietnam and ASEAN countries is not easy because the process needs systematic investment," Tuoc said.
But she was confident in the future of companies like Vinamilk and Vinacafe, which has invested heavily in upgrading technology and developing raw-material supplies.
Seafood producers do not expect to affected heavily by the new tariff cuts, because they are already competing with Thailand and Indonesia for exports to the European Union and the United States, said Nguyen Van Manh from Vietnam's Association of Seafood Processors.
AFTA could even offer new benefits to this industry. "This may be an opportunity because as Vietnamese processing firms could source the raw material they need from regional countries," Manh added.
In the end, Tran Huu The, deputy head of the department of business finance under the Finance Ministry, says industry has had time to prepare for the tariff cuts and entry of imported products.
"We have propagated the idea for seven years already. At least 30 courses have been held to prepare leaders of businesses nationwide for it," The said. "Businesses that could not follow the integration process will be crossed out."
By Tran Dinh Thanh Lam - Inter Press Service - January 16, 2003.
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