Indonesia's car exports now under threat from Vietnam

A new regulation from Vietnam tightened car imports from Jan 1, 2018, onwards.
A new regulation from Vietnam tightened car imports from Jan 1, 2018, onwards.PHOTO: REUTERS

THE JAKARTA POST/ASIA NEW NETWORK (JAKARTA) - As they face sluggish demand back home, Indonesia's four-wheel car manufacturers face a bleak future in exports following a new regulation from Vietnam, which is poised to build its own automotive industry.

Vietnam issued in November Decree No. 116/2017/ND-CP on car manufacturing, assembly, importation and warranty offering, a move that tightened car imports from Jan 1, 2018, onwards.

Car importers in Vietnam are now required to obtain a Vehicle Type Approval (VTA) certification, which details incoming vehicles' quality, safety and environmental protection. The VTA must be issued by the authorities of exporting countries.

In addition, one sample will be selected from every batch of imported cars for emission, quality and technical safety tests. The inspection would be repeated in the next shipment, even on the same car models.

"The new rule creates additional costs; a complete inspection may take one to two months, while other cars from the shipment will have to stay at the port and be charged daily for storage," Indonesian Automotive Manufacturers Association (Gaikindo) secretary-general Kukuh Kumara told the Post on Wednesday (Feb 22).

The new rule prompted Gaikindo to send the Industry Ministry a letter on Jan 27, which claimed that four automakers - Toyota, Suzuki, Daihatsu and Hino - had stopped the planned production of 9,337 vehicles bound for Vietnam. The units were supposed to be manufactured in the December-March period.

Indonesia sends around 30,000 cars to Vietnam annually, with the four automakers as the biggest exporters, Kukuh said.

Gaikindo's letter was sent on the same day President Joko "Jokowi" Widodo met with Vietnam Prime Minister (PM) Nguyen Xu'n Phúc during the ASEAN-India Commemorative Summit in New Delhi, India.

Jokowi expressed concern that the new policy would impact bilateral trade between the two countries, which had increased in the past three years.

Industry Ministry Airlangga Hartarto said his office had already sent the Vietnamese Ministry of Transportation a protest note.

Gaikindo co-chairman Jongkie Sugiarto said Indonesian manufacturers had no problems fulfilling the quality demanded by Vietnam, such as the Euro IV spec engine, airbags and antilock braking system. However, the sampling inspection would be a hassle, he added.

"The inspection is difficult because it must be performed on each model, in every shipment. If (the test) failed, (Vietnam) would return the shipment," he said.

According to Central Statistics Agency (BPS) data, Indonesian passenger car exports to Vietnam from January to November last year was valued at US$241.2 million, up significantly from US$17.78 million in 2016. Indonesia is also ranked among the top three passenger car exporters to Vietnam, after Thailand and China, with a market share of 13.12 percent.

The Trade Ministry's international trade director general, Oke Nurwan, said if manufacturers were reluctant to export their cars to Vietnam, Indonesia could lose around US$85 million in the December-March period.

He said the government had decided to take a soft approach on the matter by sending a delegation to lobby its Vietnamese counterpart on Feb 26.

Oke argued that Vietnam's decree had been implemented far too early, and a country that was bound to the World Trade Organization should first declare its intention to limit trade activities.

"If the country did not notify the WTO, we could approach the organization," Oke said.

As quoted by Vietnam News, The Vietnamese government has stated that the new decree was an effort to safeguard its companies as the country works to change the landscape of its automotive industry by building its first national car.

Vingroup, Vietnam's largest real estate company owned by the nation's richest man, Pham Nhat Vuong, has invested in a local car brand named Vinfast. The company recently appointed Italian-based car design studio Pininfarina to design the model. Pininfarina is known for designing cars for high-end brands like Ferrari, Bentley and Maserati.