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Ministry of Industry and Trade: The Way To Calculate The Localization Rate Of Auto Parts Is No Longer Relevant

17/01/2022

Mr. Do Thang Hai said that the method of calculating the rate by clusters of locally produced details applied in the past 20 years is no longer consistent with reality and signed FTAs. 

At the regular press conference on January 12, Deputy Minister of Industry and Trade Do Thang Hai said that regulations on how to calculate the localization rate of auto parts and components have been implemented since 2004. Up to now, after nearly 20 years Many contents have shown that many contents are no longer relevant to reality and need to be revised to be consistent with signed free trade agreements (FTAs).

He added, the Ministry of Science & Technology has also noticed these shortcomings and is in the process of correcting them. “As the state management agency in the field of industry and automobile production, the Ministry of Industry and Trade will work with the Ministry of Science and Technology to amend these regulations” he said.

Four months ago, the Ministry of Science and Technology consulted ministries and branches on the draft Circular to remove documents on methods of determining the localization rate for cars and the discrete level of auto import parts. 

This agency assesses that these regulations are no longer suitable for automobile manufacturing technology after nearly 20 years and the provisions of FTAs ​​that Vietnam participates in, so it is recommended to remove them.

Many ministries and branches also agree with this. According to the Ministry of Industry and Trade, the method of determining the localization rate applied since 2004 does not fully reflect the value and technological content of auto components in the total finished product. 

For example, the same type of interior and exterior components are the same on a car, but if the materials and manufacturing technology are different, the value of the components will vary greatly in each car model and version. Like the same set of seats, there are models with mechanical seats, felt covers, but there are also models with electrically adjustable seats, leather covers, heating… However, the same car seats should be used. The localization points are the same, while the technology features, materials and prices are different. 

According to current regulations, Vietnam still uses the method of calculating the localization rate by clusters of details produced in the country. While according to international practice, countries calculate as a percentage of domestic production value. This makes it difficult for businesses to enjoy the preferential import tax rate of 0% if the localization rate within the bloc, as with ASEAN, is 40%.

In addition, regarding the discrete level of imported auto parts, according to current regulations, imported components must come in clusters, accompanied by many different details. For example, if a car seat consists of 3 pieces, the enterprise must import all 3 pieces from the same place of origin. However, in the context of integration, businesses benefit greatly from the removal of tariffs by many partner countries, so they can import discrete components from different partners or from different countries to get preferential treatment. 

Changing the way to calculate the discrete level of components according to small details, instead of “hard” regulations on the discrete level of components, will optimize production costs, in accordance with reality. 

The Ministry of Transport commented that the current regulations on the fragmentation of auto components cause overlap in management, creating more barriers for domestic manufacturing and assembling enterprises, so it is necessary to review and abolish.

“Removing the regulation on the discrete level of imported auto parts is essential to develop a sustainable auto industry and integrate with the world” The Ministry stated. 

After receiving comments from ministries and branches, the draft Circular removing the calculation of the localization rate for auto components is still being researched and completed by the Ministry of Science and Technology. 

The government has set a target that the localization rate of popular vehicles will be 30% by 2005, and increase to 60% in 2010. However, the localization rate is still very modest, about 10% for travel cars; 40-50% for trucks and about 55% for passenger cars.

Source: VnExpress

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