New decree on car imports sends conflicting message

The BMW M3, a CBU introduced at Vietnam International Motor Show 2016

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The general public and industry insiders were taken by surprise by the regulations on the import of CBUs outlined in the draft decree on conditions for auto manufacturing, assembling, importing, and maintenance and warranty business (“the draft”) developed by MoIT and the Ministry of Transportation (MoT) in coordination with other related agencies and offices.

Overly lax conditions

Article 5 of the draft stipulates that “enterprises engaged in the automotive manufacturing, assembling, and importing business must be responsible for the recalling and disposition of defective vehicles.” However, Article 21 removes the right of importers to demand accountability from manufacturers over the recall of defective units. Specifically, the draft only requests that importers “file written commitment with MoIT in fulfilling their responsibilities in the warranty, maintenance, recall, and recollection of imported cars.”

Meanwhile, according to the website of Vietnam Register, the recall must be executed by the manufacturers, both domestic and foreign, through their authorised agencies. No commercial importers are allowed to initiate recalling efforts.

On this matter, Tran Ba Duong, Chairman of Truong Hai Auto Corporation (THACO), said it is unprecedented for a trading company that is not a representative of any manufacturer to initiate product recall due to defects, since such companies merely act as the intermediary in the recall.

Studies of the global automotive industry also point to the practice where government or governmental agencies directly request the manufacturers to issue recalls. Toyota Japan has even been fined for $16.4 million for failure to disclose information with the intention to delay a recall.

In 2016, THACO, an assembly and distribution partner to Mazda, reported a Check Engine Light defect on the Mazda 3 model. It was only after Mazda, for multiple times, delegated experts to review, assess, and collect information on the reported defect that they decided on a recall in Vietnam.

“Without permission from the manufacturer, THACO cannot initiate a recall even if we want to, due to technical and safety issues,” said Duong.

Commenting on the Draft loosening up the requirements on warranty, maintenance, and recall for imported CBUs, Le Ngoc Duc, CEO of Hyundai Thanh Cong Corporation, echoed the sentiment, saying there is no way a distributor can start a recall without the manufacturer’s consent.

“The National Assembly classified the automotive industry as one subject to conditions prescribed by the laws due to concerns over assuring the safety of users and road participants. The essential factor is to protect consumers’ rights. There needs to be coherent policies on automotive warranty, maintenance, and recall so that the vehicles satisfy technical requirements before taking to the roads, as well as ensure the safety of people and the society,” remarked Duc.

Lacking in fairness

The Vietnam Automobile Manufacturers’ Association (VAMA) proposed three categories of documents that automotive trading companies must obtain. They are: (1) authorisation by the manufacturer for import, distribution as well as the provision of warranty and maintenance services, and recall; (2) technical support agreement; (3) authorised parts and components provision agreement.

“The draft stipulates that car importers must be responsible for the provision of warranty and maintenance services as well as the recall of products. However, these activities must be carried out in accordance with the manufacturer’s permission and instructions and importers are not allowed to act on their own will. The aforementioned documents are to protect consumers’ rights and assure safety for the vehicles through providing technically appropriate maintenance, replacement with brand-guaranteed components and parts, as well as product recall upon the manufacturer’s request,” said Toru Kinoshita, chairman of VAMA.

According to a suggestion by Hyundai-Thanh Cong, there needs to be requirements for the importers to attain Certificates of Quality (CQ) provided by the manufacturers in order to assure the quality of the vehicles circulating on the market. This is also to avoid cases where cars produced experimentally, not meeting quality standards, are imported into Vietnam and circulated on the market, while consumers often lack access to adequate information to demand their rights.

“Domestically manufactured vehicles are required to attain CQ for 100 per cent domestically assembled vehicles. Therefore, CBUs must also satisfy this requirement to ensure fairness,” said Duc.

Only the manufacturer possesses precise knowledge of the systematic errors incurring in the design and production process. The diagnosis of defects related to the details, parts, and components as well as how to fix them can only be carried out by the manufacturer, with their adequate tools, equipment, and technical knowledge.

Notably, in a recent assessment of the automotive industry, MoIT remarked that MoT’s current regulations regarding quality control for imported cars have yet to hold manufacturers accountable for the protection of consumer’ rights and the environment in activities such as warranty, maintenance, recall due to defects, and collection of disposed products. The regulations on quality control of imported cars are currently not as strict and comprehensive as those imposed on domestically manufactured and assembled vehicles.

Therefore, despite the opinion that additional requirements for importers in terms of documents would be taxing and limiting the freedom to do business, it is evident that no manufacturer could entrust its reputation and quality to a profit-driven distributor.

Unrestricted automotive imports until the end of 2017

Another point considered “odd” in the draft is permitting unauthorised importers of passenger cars of nine seats or below until the end of 2017.

Circular No.20/2011/TT-BCT of MoIT on additional procedures to import passenger cars of nine seats or below, which requires authorisation from manufacturers, has been effective since May 12, 2011. However, MoIT is repeatedly pushing back the deadline to stop the operation of unauthorised importers.

In June 2014, MoIT issued Public Letter No.4582/BCT/XNK allowing unauthorised importers until May 28, 2015. The reason was that a reported number of 2,000 vehicles, valued at $17.75 million, had been imported before the issuance of Circular 20. In mid-2017, MoIT again prolonged the process until the end of 2017.

According to experts, the extension given to these unauthorised importers causes confusion and is perceived unfair amongst compliant industry players.

These “liberating” regulations for CBU imports are introduced against the backdrop that the Vietnamese government wants to attract investments from renowned international car manufacturers and to increase production capacity in Vietnam in order to prevent the economy from sinking further into trade deficit.