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Vietnam Import Curbs Hit Luxury Goods Trade

Like other companies selling luxury goods in communist-ruled Vietnam, HTC Auto, a car dealer, has thrived over recent years as rapid economic growth has spurred the creation of a class of wealthy, status-conscious consumers keen to snap up everything from iPhones to Rolls-Royces.

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But new restrictions on the import of certain luxury goods, which business owners claim are a misguided attempt to contain Vietnam’s large trade deficit and control the highest inflation rate in Asia, will make life very difficult for HTC and its peers.

“Many car salons will have to close down and we will be forced to switch to second-hand cars,” said Bui Duc Canh, general director of Hanoi-based HTC Auto, which is selling a $460,000 Bentley Continental Flying Spur on its website, alongside other, relatively more affordable vehicles.

Vietnam’s hefty trade deficit, one of a number of factors that have shaken confidence in the economy, widened to $1.7 billion in May — the highest level for 17 months.

Only three months after unveiling a package of measures designed to stabilize the economy, the government has announced new curbs on the import of cars, mobile phones, cosmetics, spirits and wine.

Officials say these controls will reduce Vietnam’s trade deficit and protect consumers from poor quality and counterfeit imports. However, business owners and diplomats say that this attempt to restrict imports is potentially in violation of international trade rules.

The import curbs will increase costs for businesses and suggest Vietnam’s two-decade drive to open up its economy is stalling at a time when the export-dependent country is trying to negotiate free-trade agreements with the European Union and U.S., diplomats say.

The EU wrote last month to Vu Huy Hoang, Vietnam’s trade minister, warning him that the restrictions will “cause considerable disruption in our export patterns and major trade losses for EU exporters of these products representing millions of euros in value”, and asking for a three-month suspension.

The EU said that this latest in a long line of import restrictions “raises serious concern” about Vietnam’s desire to comply with World Trade Organisation rules and is “at odds with our common wish to engage in free-trade agreement negotiations”, according to people who have seen the letter.

Mr Hoang, the trade minister, said on Monday that the restrictions were a “necessary measure” to reduce the trade deficit, curb inflation and help stabilize the economy. He dismissed the suggestion that Vietnam was violating its WTO ­commitments.

One measure that came into force last week restricts imports of mobile phones, cosmetics, wine and spirits to three designated sea ports (Haiphong, Ho Chi Minh City and Danang) and requires importers to obtain an authorization letter notarized by a Vietnamese diplomatic mission overseas.

A similar measure will hit the auto industry on June 26, requiring all new car dealers to prove they are officially authorized distributors – an impossible task for the several thousand independent retailers such as HTC that usually import vehicles from middlemen in places such as Dubai.

In addition to the independent car dealers, other importers face an uphill battle to comply with the regulations. Nokia, which dominates the mobile phone market in Vietnam, selling millions of handsets a year, has had to re-engineer its complex supply chain in a matter of weeks.

Its phones previously came into Vietnam via road and air freight but it is now switching to the designated seaports. “There will be an impact on lead times and cost but overall we’ve managed to adjust our logistics,” said William Hamilton-Whyte, Nokia’s general manager for Indochina.

Given that the bulk of Vietnam’s trade deficit is the result of commerce with China, which imports raw materials such as crude oil and rubber from Vietnam and exports products such as fuel and electronic goods, observers doubt whether the new restrictions will have a meaningful impact.

On the contrary, foreign investors fear that while doing nothing to rebalance Vietnam’s economy, the import controls may exacerbate smuggling and corruption at customs, which is already endemic.

“The government is using luxury goods as a scapegoat for all their economic woes,” said Jim Cawood, general director of Vino, a wine distributor in Ho Chi Minh City. “It’s an easy target because you can blame the problem on wealthy people.”