Removing Protection for Electronic Manufacturers
Removing Protection for Electronic Manufacturers
Mr FuJii, general director of Matsushita, on behalf of Japanese investors in Vietnam, has sent a proposal to the Vietnamese Government requesting that Vietnam-based electronic manufacturers be offered favourable conditions to compete with other enterprises in the region when import taxes are cut as part of the implementation of the ASEAN Free Trade Area (AFTA) scheme. As one of 247 tax reforms, the import tax rate for electronic goods will be set between 0 and five per cent in 2006. How will local electronic manufacturers cope with the removal of the tariff barrier?
Growth under protection
The implementation of Vietnam's commitment to tax cuts and tariff barrier removal in ASEAN for AFTA has become a major challenge for Vietnamese electronics manufacturers. Although electronic goods, including home appliances, electronic telecommunications equipment, PCs, software and other electronic materials fall within the CEPT/AFTA tax cut scheme in the 2001-2006 period with the import tax rate being cut from between 50 - 60 per cent to 20 per cent from July 2003, local electronic manufacturers have maintained a high growth rate. Tran Ngoc Ha, head of the Department of Investment and Development of the Vietnam ICT Company, said that despite a cut in import tax of electronic accessories, Vietnam's electronic manufacturers earned US$680 million from exports in 2003. In the first seven months of this year, the local electronic industry recorded a growth rate of more than 10 per cent. However Vu Chi Long, head of the Department of International Relations at the Ministry of Finance, admitted that the local electronics industry recorded a high growth rate in the last two years thanks to the protection offered by the 20 per cent import tariff for completely built units. Furthermore, the Vietnamese Government still applies its minimum pricing policy, with ceiling prices much higher than the market price, so as to create favourable conditions for local manufacturing and assembly enterprises. As a result, tax paid by importers is actually more than 20 per cent of a products' value.
Impacts of tax cuts
The target of ASEAN is to completely remove tariff and non-tariff barriers. For Vietnam, while the import tax rate of electronic goods (inside or outside the ASEAN list) will be cut to between 0 and five per cent in 2006, it will continue to fall to 0 per cent by 2015. In talking about the impact of the CEPT/AFTA tax cuts on the local electronic industry, Le Duong Quang, head of the Department of Planning and Investment at the Ministry of Industry, commented that there is a risk of fierce competition with products and accessories of other ASEAN countries when tax is cut as part of the AFTA scheme's implementation. Competition with Malaysia, Thailand and Singapore, which have more developed electronics industries than Vietnam, will become especially fierce. Even now, when the import tax rate for the CEPT (Common Effective Preferential Tariff) scheme has yet to be cut to between 0 and five per cent, many locally manufactured goods face stiff competition against products from other ASEAN countries. Therefore if local manufacturers do not move to consolidate their position, they may lose significant market share to their ASEAN rivals. The challenge has grown as the tariff-cut roadmap has become clearer. With local manufacturers facing imminent challenges with the removal of protection barriers, they hope the Government will create a more open and favourable investment environment, to assist them in overcoming the early challenges of the AFTA integration process.
Vietnamese
