Constant Wave of Imports

After 21 years of the “Doi Moi” policy and 16 years of export promotions, it is recognized that excessive import is a chronic disease of Vietnam. Indeed, except for the year 1992 recording the lowest difference of 1.55 percent between import and export turnover of US$40 million, Vietnam has faced serious trade deficits for the entire 20 years of reform.

 

In the first three years of reform, the proportion of imports to exports of Vietnam was kept at two to one because of the limited scale of exports and considerable external aid. In the next three years, imports consistently dropped, but then became unpredictable after the collapse of Soviet Union and communist block. Imports dramatically rose to a peak of 53.58 percent, then suddenly fell and kept steady in the late 90s, and early in this decade slowed to bottom point of 0.71 percent in 1999. In the last 4 years, although moving moderately on the marginal sine curve, the import index still stands at 17.38 percent on average from 2001 to 2005 and 12.72 percent in 2006. The import restriction target of Vietnam, however, has been set under the required level.

Because of imports and trade deficits exceeding the other strategic targets of a proposed 5-year plan, instead of reaching export targets, the focus will be on speeding up imports in order to stretch the targeted time to the beginning of next decade and limit 2006 imports to US$3,556 billion. However, the targeted imports of US$3,188 billion in this year can not be achieved, because the import turnover of the first 8 months is already US$6,414 billion. This number is not only double the last year, but also 15.69 percent higher than the yearly target. Hence, the strategy of being an exporting country in the next decade is significantly far-fetched.

 

Firstly, long-standing import is the nature of the Vietnamese economy, which mainly relies on imported materials. While many countries, when upgrading infrastructure during rampant economic development, mainly focus on importing machines which causes their trade deficit, Vietnam spends only 30 percent of imports on machinery imports and that is likely to drop. Besides, consumption goods, taking just 15.2 percent of imports in 1995, now are falling further to make room for raw materials, rapidly growing from 59.1 percent in 1995 to 68.1 percent in 2005 and around 70 percent at the moment.

 

Because of the large amount of imported materials, Vietnam’s increasing imports have been seriously impacted by world prices. Specifically, IMF statistics show that the world materials prices rose by 26.57 percent in 2004, 29.17 percent in 2005, 21.92 percent in 2006 and 20.92 percent in 2007. According to Vietnamese statistics in the last 8 months, import turn-over of 12 essential goods including steel, metals, fertilizers, paper, plastic materials, fibre, clinker, cotton, wheat, pulp and rubber, which are valued at US$7,886 billion, rocketed up 35.03 percent compared to 2006. However, if compared to quantities of 2006, total value of these goods is just US$6,839 billion, increasing by US$999 million, or 17.10 percent. It illustrates that US$1,047 million, 17.93 percent of import turn-over, is pushed up by world materials prices.

 

Secondly, both the fever of world prices and the 17 percent average import tax of Vietnam before WTO accession will cause 17.4 percent price increase.

 

In 2007, as a WTO member, Vietnam committed to reducing import tax from 17.4 percent to 13.4 percent over three to five years, and to the 16.4 percent level in the first year. As the result, material imports will be pushed up to 24.35 percent but not 20.92 percent or 24.56 percent, with 17.4 percent import tax as expected. Such inconsiderable difference in import tax as joining WTO, therefore, cannot remove the burdens of import tax from Vietnamese enterprises.

 

Despite the first large tax cut during the last 8 months, the import price of materials in the domestic market is even higher than the world price. While the import tax is lowered from 16.4 percent - 40 percent to 10 percent, imported material prices in domestic market are just going to 23.01 percent, still 2.09 percent higher than the world price.

 

Thirdly, the relative increase of Vietnamese exports cannot take advantages from the world price fever. According to estimated value and quantities in the first 8 months, export turnover of goods categories, including crude oil, coal, rice, coffee, rubber, cashew nuts, tea, peppercorns, and peanuts is valued at US$9, 757 billion, increasing by only US$310 million or 3.28 percent over 2006. If compared to the same period price last year, total price of this year gains just US$9,828 billion, falling US$165 million or 1.75 percent from last year.

 

Fourthly, booming imports result from the increasing investment inflow, leading a boom of import turnover of machines, equipment and other goods.

 

According to statistics of the last 8 months, import turn-over of machinery and equipment in particular has climbed to US$2,109 billion or 51.40 percent, occupying 32.88 percent of the total imported goods of Vietnam. However, this is a good sign for the future prospects of economic development.