Visitors walk by a section displaying trucks from Russian manufacturer KAMAZ at the Vietnam Motor Show 2016, which opened in Ha Noi yesterday. Viet Nam Customs report an automobile import increase from Russia this year. — VNS Photo Doan Tung

HA NOI (Biz Hub) — Russian and Belarusian automakers are likely to face significant challenges in Viet Nam, although some of their vehicles will enjoy zero-per-cent tariffs when entering Viet Nam from yesterday, experts said.

Viet Nam lifted duties for some cars imported from Russia and Belarus as part of protocols supporting production of engine-powered transport between Viet Nam and these countries.

The protocols came into force yesterday, the same day a free trade agreement between Viet Nam and the Eurasian Economic Union – a bloc including Russia, Belarus, Kazakhstan, Armenia and Kyrgystan – took effect.

Dau tu (Vietnam Investment Review) cited a Ministry of Industry and Trade scheme, reporting that about 800 Russian cars will enjoy the preferential tariffs this year. A similar rate will be applied for 850 vehicles next year and 900 vehicles in 2018.

Products of Russian automobile manufacturers such as Gorkovsky Avtomobilny Zavod (GAZ), Kamskiy Avtomobilny Zavod (KAMAZ), Ulyanovsky Avtomobilny Zavod (UAZ) and Sollers will reportedly enjoy the tariff reductions.

For Belarus, the ministry allocated preferential tariffs to 200 units in 2016, 250 units in 2017, and 300 units in 2018. Minsk Automobile Plant will reportedly be among Belarusian automakers given the quotas.

The ministry said automobiles listed for the quotas will include sport utility vehicles (SUVs), trucks, passenger cars with 10 seats or more, and special purpose vehicles.

It said the import tax exemption for completely built units (CBUs) is to test Vietnamese customers' demand, while the protocols require Russian and Belarusian automakers to establish joint ventures with local firms to manufacture cars in Viet Nam.

The joint ventures will also enjoy tax exemptions for importing components for car assembly, with quotas, over the next five years before the tariff for spare parts falls to zero per cent in line with the Viet Nam – Eurasian Economic Union trade deal.

First Deputy Prime Minister of Russia, Igor Ivanovich Shuvalov, told news agency Sputnik that the moves would stimulate Russia's automobile exports and open up new markets for its technical equipment, boosting access to the Association of Southeast Asian Nations (ASEAN).

‘No massive imports'

However, industry insiders said no massive Russian car imports into Viet Nam will occur due to conditions in the protocols.

For example, the joint ventures have to present production plans to authorities, specifying terms related to employee training and technology transfer, and what kinds of vehicle and how much domestic content they project using every year.

By 2025, compulsory domestic content will be 40 per cent for SUVs and special purpose vehicles, 45 per cent for trucks and 50 per cent for passenger cars with 10 seats or more.

The industry and trade ministry will have to sign off on joint ventures meeting various conditions to give them the tax exemption.

No such joint ventures have been established yet, and industry insiders said imports with tax exemptions may not happen this year.

Lam Chi Quang, the former general director of the Viet Nam Engine and Agricultural Machinery Corporation, said it would be hard for Russian and Belarusian automakers to compete with global rivals in Viet Nam.

It would be difficult for their cars to compete with South Korean, Japanese and US vehicles in terms of design and fuel saving, he told Dau tu.

Further, industry insiders said cars from Southeast Asia will have an edge in terms of price because Viet Nam's import duty for CBUs from ASEAN will fall to zero per cent in 2018.

Carmakers such as Toyota, Honda and Ford, whose large-scale factories are located in Thailand and Indonesia are brand names familiar to Vietnamese customers and will have many advantages, they said.

Sources told Dau tu that the industry and trade ministry had connected Russian automobile firms with HCM City-based Truong Hai Auto Corporation to help them penetrate the local market, but to little avail.

In 2003, KAMAZ collaborated with the Viet Nam National Coal – Mineral Industries Holding Corporation (Vinacomin) to assemble automobiles in Viet Nam. They manufactured about 2,000 vehicles with highest annual sales reaching 500 units, before ceasing production in 2010.

In April 2015, KAMAZ signed a new agreement with Vinacomin, expecting to resume production and business activities in Viet Nam, but little progress has been reported.

Growing sales

The General Department of Customs reported that the quantity of cars imported from Russia was increasing, however.

Viet Nam imported roughly 68,900 cars with a total value of US$1.6 billion from 12 countries in the first eight months of this year.

As many as 1,180 cars worth a combined $66.9 million were imported from Russia in the first eight months of 2016, compared to 300 units in 2015 and 68 units in 2014.

KAMAZ General Director Sergey Kogogin told an international economic forum in Saint Petersburg, Russia last June that his company would sell 1,000 vehicles in Viet Nam this year, out of 7,000 total exports in 2016.

"Agreements we have signed and practical actions of Vietnamese distributors allow us to be confident in significant growth of sales in this market," he told international press.

Akhat Urmanov, the deputy general director of business and services at KAMAZ, told local press earlier this year that the company had a long-term strategy and planned to establish assembling, trade and service complexes in Viet Nam.

To Dinh Lam from Auto K, a distributor of UAZ in Viet Nam, told news website bizlive.vn that the first shipment of UAZ vehicles will arrive in Viet Nam on October 16, and will go on sale a few days later.

Auto K will sell SUVs named UAZ Patriot, UAZ Pickup, and terrain cars called UAZ Hunter. Prices are expected to be VND700-800 million per unit for the first type, and VND500-550 million for the second, while how much the third costs remains unknown.

Organisers of the Vietnam International Motorshow 2016 told a press conference recently that UAZ will display its vehicles at an exhibition in HCM City from October 26-30. — VNS