By Christina Toh-Pantin
HANOI, Dec 18 (Reuters) - Vietnam has abruptly raised tariffs on automobile components, shaking the confidence of foreign investors for the second time in three months.
Under a December 4 decision that came to light this week, tariffs on parts for the small but rapidly growing auto-making sector will at least double, and in some cases almost quadruple, from the beginning of 2003.
Limits on the importation of motorcyle components, suddenly imposed in September, led to the suspension of some manufacturing at foreign-owned factories in Vietnam until the curbs were eased two months later.
"This was unexpected," one Hanoi-based trade expert said after the latest government intervention was revealed. "This kind of government decision-making process is making the Vietnam environment totally unpredictable."
The Ministry of Finance gave no reason for its tariff hike, which covered cars, buses and trucks.
But any reduction in vehicle component imports offers to reduce Vietnam's billowing annual trade deficit of $2 billion, about seven percent of gross domestic product.
The ministry said the decision had been made at the direction of Prime Minister Phan Van Khai.
Industry players said the move would substantially increase costs for the 11 auto assemblers, which are owned or part-owned by foreign companies and which import many components. It would also reverse break-even results recently achieved by some firms.
Among the foreign players, Toyota Motor Corp has the biggest Vietnam market share, at 26 percent, with Vietnam Daewoo Motor Co (Vidamco) at 15 percent, Ford Motor Co at around 14 percent and DaimlerChrysler AG at 10 percent.
40 PERCENT TARIFF
The tariff hike would raise retail prices by at least 15 percent in 2003 and by 35 percent in 2004, the Vietnam Automobile Manufacturers Association said in a December 17 letter to the prime minister. Some firms would have to shut plants, it added.
Vietnam imposes different tariffs on different vehicles. But the tariff on parts for a five-seat car, for example, will double on January 1 to 40 percent.
The country has no homegrown car and sales are modest for its 80 million population. August sales were 2,163 units, but that was up 21.2 percent over the same month last year.
In contrast, some 10 million motorcycles are in use.
About 26,000 automobiles are expected to be sold this year in Vietnam. Most are complete-knock-down assemblies, for which all the parts are shipped in and assembled on site.
MESSAGE CONVEYED
While the scale and impact of the auto tariff rise is limited by the sector's size, the real importance of the move may be the message it seems to convey: policy can be unpredictable.
Yuichi Bamba, director of JETRO in Hanoi, a Japanese government agency that promotes trade and investment, said the move would reduce the business opportunities in the sector.
Kim Jung In, acting deputy chairman of the auto group and Vietnam general director of General Motors Korean unit Daewoo, told Reuters: "I think we will have to let them (the government) understand the impact on the industry."
Daewoo expects $70 million in Vietnam revenues this year.
There was no immediate response from the government to questions from Reuters about the decision.
When the government imposed limits on motorcyle parts, three of the biggest foreign motorbike assemblers in Vietnam -- Japan's Honda Motor Co Ltd , Suzuki Motor Corp and Yamaha Motor Co Ltd -- stopped or nearly stopped output.
Vietnam relaxed the curbs about two months later but not before they had triggered a diplomatic row with Japan, the country's biggest provider of official development aid.
Japanese participants at meetings of investors and aid donors last week said the motorcyle policy had blemished Vietnam's record on foreign investment.
Even with economic growth of seven percent a year, Vietnam relies on aid for infrastructure projects, poverty alleviation and rural and social development.
It is also fighting to lure foreign direct investment, which is being siphoned off by much larger neighbour China.