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UPDATE 1-Vietnam eases tensions in motorcycle spat

(Recasts with comments from industry officials, JETRO, Honda spokesman)

HANOI, Sept 25 (Reuters) - Three weeks after suddenly imposing import quotas on motorcycle components, Hanoi might soon ease the blow by providing more parts to largest assembler Honda Vietnam so that it can restart stalled production.

Motorcycle makers can expect a reallocation of quotas to raise Honda's component ceiling, which "would be carried out in October at the earliest", Ngo Anh Dung, head of the Trade Ministry's investment department, was quoted by the Thanh Nien (Young People) newspaper on Wednesday as saying.

A Honda spokesman in Tokyo had no immediate comment on the reported quota increase.

Production at Honda Vietnam, a venture between the world's largest motorcycle maker Honda Motor Co and a local firm, was shut down last Wednesday after the government announced a 2002 import ceiling on motorcycle parts of 1.5 million sets against 1.8 million last year.

It reserved 600,000 sets for seven foreign invested producers and the balance for 55 local firms.

Honda, which operates a plant in Vinh Phuc province about 35 km (22 miles) northwest of Hanoi, has not said when it will be able to resume output.

Its 2002 quota was 280,000 sets but it has already built 281,629 motorcycles this year and says it wants to import another 306,000 component sets to meet rising demand.

The quotas also threaten to idle output at the Vietnam-based units of Yamaha and Suzuki .

DIPLOMATIC PRESSURE?

Suzuki Motor Corp has said it may have to suspend output in November and December if the curbs aren't eased. Suzuki wants to produce 50,000 units this year but its quota was just 35,000.

An executive of Suzuki's Vietnam unit, based in the southern province of Dong Nai, said the allocation was not appropriate.

"Just 21 local assemblers out of the total 55 are qualified to produce motorcycles, and they are given 900,000 sets for between now and the year end, which is not a reasonable proportion," he told Reuters.

Yamaha plans to produce 80,000 units in Vietnam in 2002 but has been allocated a quota of just 50,000.

A motorcycle industry official, who declined to be identified, said the quota row could be raised next month when Vietnam's Communist Party chief Nong Duc Manh visits Japan, his first such visit as head of the party.

"We hope that the issue will be raised and Japanese firms really hope the problem would be resolved," he said.

Hanoi has not officially announced the visit, expected in early October. Japan's envoy to Vietnam has objected to the quotas.

Reasons for the quota remain unclear.

Earlier this month state media quoted Deputy Prime Minister Vu Khoan saying foreign and local assemblers must cut bike output to limit the number of motorcycles on the road. More than nine million motorcycles struggle for road space in the country of 80 million people. Motorcycles have been blamed for more than 70 percent of accidents.

Other observers say the move was meant to boost the use of local components and to rein in a widening trade gap.

But under licensing pacts signed by the motorcycle makers and the government, Hanoi had promised to allow as many imports as the firms' production capacity required.

"So it's very natural for foreign companies to freely import based on their licence," said Yuichi Bamba, director of JETRO in Hanoi, a government agency that promotes trade and investment.