Consumer sovereignty in the framework of social justice, economic equality and environmental balance, within and across borders

Tariff cuts across the board

November 15, 2014

– Since 2010, the Agreement on Trade in Goods of ASEAN (ATIGA) has offered an enormous benefit for local business when tariffs on a lot of materials, accessories and machines for manufacturing have been slashed to 0%. Then, in the 2015 – 2018 period, this agreement will heat up the competition when duties on many consumer goods are cut to zero.

By 2010, ASEAN-6, which includes Thailand, Malaysia, Singapore, Indonesia, the Philippines and Brunei, had lifted all their tariffs on imports from other countries in the Association of Southeast Asian Nations (ASEAN) bloc. The deadline for the remaining four (Laos, Cambodia, Vietnam and Myanmar) is 2015, though that of a number of tariff lines will be extended to 2018. For Vietnam in 2015, her market will be almost fully opened to imports from other ASEAN countries.

Impacts on all sectors

According to the Ministry of Finance, to fulfill her ATIGA commitments, since the agreement took effect on May 17, 2010, Vietnam has lowered 6,859 tariff lines (or 72% of the total number of import and export duties) to 0%. It is expected that an additional 1,720 tariff lines (about 18% of the total tariff lines) will be brought down to zero as from January 1, 2015.

The remaining 687 tariff lines (7% of the total number) will be reduced to 0% in 2018. They are mainly duties on sensitive commodities such as cars, motorcycles, automobile spare parts and accessories, milk and dairy products, vegetable oil, tropical fruits, refrigerators, air conditioners, confectioneries, animal feed, plastics, steel, automobile tires, radios and vessels. Petroleum products have an exclusive road map.

In other words, except petroleum and the aforesaid sensitive goods enjoying a longer protection time, the tariffs on the other commodities, if imported from other ASEAN countries, will be cut to zero by next year. Most of them are food and consumer goods, which have been subject to a 5% tax rate over the past three years.

Consequently, almost every industry will have a product whose import tariff is brought down to 0%, such as cooking oil, rubber products, paper, leather garments, shoes, bags, suitcases, umbrellas, ceramics, sanitary wares, bricks, ball-point pens, electric fans and jewelries, etc.

Fear of unfair competition

According to Cao Tien Vi, general director of Saigon Paper Corporation, import duties on paper products (such as toilet paper and tissues) to be slashed from 5% to 0% would bring domestic products into a fiercer competition. However, as toilet paper is lightweight and takes up much space, making shipping costs higher, it is unlikely that imports of this commodity into Vietnam will increase sharply in 2015, since it is not a premium product with great value.

Though the chance of stiff competition with imports is slim, competition among domestically-made products is quite tough. In the past few years, some foreign companies have invested in machinery processing toilet paper products in Vietnam, perhaps to take advantage of the reduction of import duties for semi-finished products, which will lower costs and enhance competitiveness.

Saigon Paper has invested in advanced technology for uniform quality. When the local market is opened wider, however, the company will encounter difficulties in competition due to high production costs because the company is now bearing multiple costs including infrastructure costs, costs related to administrative procedures, and high capital costs. Vi hoped administrative procedures would be quickly improved by the determination of the Government to remove obstacles for businesses. Also, he expected lending rates to further fall.

In addition to toilet paper, Saigon Paper is also making other paper products and industrial packages. The production costs of these items are now relatively low in other countries, which will likely make their products more competitive than Vietnam’s.

Fear of cheap Chinese goods

As for electric fans, Vu Dinh Phuong, chairman of the Board of Directors of Vietnam Fan Joint Stock Company (Asia), said the tariff cut to zero for imports from ASEAN was not his concern for now. Currently, domestic enterprises are mainly producing electric fans aimed at middle-income consumers.

Apart from Vietnam, Thailand is also a major manufacturer of electric fans, Phuong said. Electric fans made in Vietnam are no inferior to Thai counterparts as regards technology, and even enjoy cost advantage (in the average segment). A number of stages in the production of electric fans are still done manually, and Vietnam’s labor costs are lower than Thailand’s.

Furthermore, during 2011-2014, local producers’ technology has improved. Five years ago, Asia electric fans were not available in Thailand. Yet since 2011, the company has exported an increasingly larger volume of electric fans to the neighboring market. Particularly in 2013, the company exported about 100,000 units to Thailand.

Phuong said his company was not afraid of a competition with products from other ASEAN countries. What concerns him most, he said, comes from Chinese goods. Chinese electric fans are quite diverse and amazingly cheap. Lately, domestic products have been rivaled by electric fans made in China yet bearing a brand name akin to a Japanese one which are sold at dirt-cheap prices.

(By Thu Nguyet)