By Christina Toh-Pantin
HANOI, Dec 20 (Reuters) - Heated words, but few concrete results, emerged on Friday from a meeting of 11 foreign automakers and Vietnam's government to discuss surprise higher tariffs on imported parts, a move the industry bitterly opposes.
Tax department officials, part of the Ministry of Finance that signed the December 4 decision, slammed auto firms for not advancing Vietnam's tiny car industry beyond the basic assembly stage while being protected by years of low tariffs.
"On issuing investment licences to foreign auto assemblers, Vietnam made it clear that it wanted to build an auto production industry, not an auto assembling industry," Dang Thi Binh An, deputy general director of the General Department of Taxation, told reporters after the 1-½ hour meeting.
"The prolonged protection of auto assemblers in Vietnam has also not been in compliance with the international integration trend," she added.
Auto makers warned the communist-run government the fast-growing industry would be crippled and factories for cars, buses and trucks might be shuttered if the January 1, 2003 hikes that will double or nearly quadruple tariffs go into effect.
NEED TIME
"We have invested a lot of money, and so need time to get some return," said Kim Jung-In, head of Vietnam Daewoo Motor Co (Vidamco).
"I think the deadline is a little early. If the decision is implemented, most of us will have to close our plants. And this is a very serious problem."
Such unexpected actions also heighten investment risk in the southeast Asian country, which has already seen funds from foreign investors shrivel, industry experts said.
"The localisation content is an important issue, but we think how much attractive Vietnam is to foreign investors, right now, right at this moment, is also a very important issue," said Thomas Rapp, general director of Mercedes-Benz Vietnam Ltd.
Most autos in Vietnam are made from Completely-Knocked Down kits, all parts of which are shipped in and assembled on site.
The arguments from Friday's meeting will be forwarded to the finance ministry. It was unclear when, or how, the dispute might be resolved or whether Prime Minister Phan Van Khai, at whose direction the decision was signed, would intervene.
SECOND SHOCK
It was the second shock to foreign investors in three months. Limits placed in September on the importation of motorcycle components prompted the suspension of some manufacturing at foreign-owned factories in Vietnam until the curbs were eased two months later.
The auto parts tariff hike would raise retail prices by at least 15 percent next year and by 35 percent in 2004, the Vietnam Automobile Manufacturers' Association said in a December 17 letter to the prime minister.
The auto group comprises 11 auto assemblers, which are owned or partly owned by foreign companies and which import many components. Toyota local content is estimated at about 10 percent, but other carmakers are likely to be far below that.
Among the foreign players, Toyota Motor Corp has the biggest Vietnam market share, at 26 percent, with General Motor Corp's Vietnam Daewoo Motor Co (Vidamco) at 15 percent, Ford Motor Co at around 14 percent and DaimlerChrysler AG at 10 percent.
Around 26,000 autos are expected to be sold in Vietnam this year, a relatively small number given its 80 million population. Low average annual incomes of around $400 mean that most people can afford only motorcycles, 10 million of which are in use.
The push for more local content may be Vietnam's attempt to narrow a billowing trade gap of around $2 billion, or some seven percent of its gross domestic product.