[Vnbiz] raising import taxes correlated with USD strength? [SEC=UNCLASSIFIED]

[QuangAnh.Nguyen at dfat.gov.au]

Dear brother Hoanh

Thank you so much for a quick lesson on this matter. Very clear and 
easy-understanding, indeed. 

Can I approach this matter in a different angle: why Vietnam imports so 
many things? And more importanly, whether those are necessary for the 
development of the country? 

To my perspective, not all of the imported things are to serve the 
national development. And this is some areas that we should learnt from 
other countries, esp. Eastern Asian. What have we imported: luxury cars, 
motorbike, cloths, mobile phones, etc. Our country, with an average GDP 
per capita of <800USD, has had a flood of top brand cars such as Roll 
Royce, Bentley and Lamborgini or newly-launch stylish device like Apple's 
iPhone. I remembered when I was in Australia last Mar, seeing a launch of 
Audi Q7 . Just one month later, I was surprise to see it iddly swimming 
among hundred of bikes on Hang Bong street in Hanoi. This time last year, 
when iPhone was launched, there were a fashion exciting wave of Vietnamese 
(not only the young) to buy and "crack" this phone. To own something new 
in the world, bringing those to show on our "village" street, it is 
wondered that a way to show we are standing in the same level of 
development with other countries?

I can't forget a meeting with the Chief Rep of JETRO, a Japanese 
government trade promotion agency, in HCMC some years ago. At that time, 
he said that, he can't understand, a country in which the people earn less 
than 400USD at that time, injured from a fierce war, receiving a mass of 
ODA, could afford to buy so many Honda @ (priced at 8000USD at earlier 
2000s). I could not explained. 

It is noted that those things are paid in USD and the USD has definitely 
been flowing outside. Is that because Vietnamese people are so trendy and 
love (?) to consume goods with a good appearance? Are we trying to make us 
different from Japanese and Korean people, who are said that consumption 
of their domestic-made products become a habit, a priority, and in a way, 
a proud. 

I think the policy to increase import tax is a right policy, at least at 
this moment. However, this is a short term solution. It should be noted 
that Vietnam committed a roadmap to reduce taxes in accordance with WTO 
agreements that Vietnam entered last year. With the increase of tax 
applicable for a numbers of import goods, it also mean that the Government 
shortened the roadmap to decrease such taxes. In theory, it should be 
easier to manage the roadmap if the taxes being cut down gradually. 

In this scenario, when import goods become more expensive, it is a good 
chance for domestic products to take over the market. In other word, this 
is a good opportunity for local enterprises to improve their business 
competitiveness, which is always considered weak, to prepare for a longer 
race...when the import tax would be lowered to..ZERO some day.

Have a good week
----------------------------------------------
Nguyen Quang ANH

 



"Tran Dinh Hoanh" <tdhoanh at gmail.com> 
Sent by: vnbiz-bounces at mail.saigon.com
23/06/2008 09:03 AM
Please respond to
vnbiz at vietlinks.net


To
vnbiz at vietlinks.net
cc

Subject
Re: [Vnbiz] raising import taxes correlated with USD strength? 
[SEC=UNCLASSIFIED]






[ Vietnam Business Forum ]


Dear Brother Charles,
 
You've got it all backward. Import taxes doesn't make the USD increase in 
price.  
 
The USD price increase is, first, a matter of US economy and, sometimes, 
global events like oil price increase.  That has nothing to do with 
Vietnam.  
 
Second, inside Vietnam, when the USD price is increased, import becomes 
more expensive, and consumers buy less imported products (because they are 
more expensive), importers therefore import less.  The import tax increase 
even makes import more expensive, therefore reduces import even 
further.  That is why a high USD and high import tax help reduce the 
trade deficit (or even create a trade surplus) by reducing import (and 
increasing export).  
 
(Using your line of  reasoning, this would mean that high import tax 
reduces the demand of USD for import, and therefore helps reducing the 
price of the USD.  But I wouldn't go this route, because that kind of 
effect is so small that probably no one can measure it out).
The flaw in your reasoning is that you leave out the main base of the 
economy--the ultimate consumers.  They are the foundation of all demand.  
Their behavior ultimately determines what and how much to import.
 
Now, when the USD is high, importers have a hard time buying USD, because 
of Vietnam's peculiar exchange market.  First, there are two kinds of 
exchange rates for USD: official rate is cheaper (less VND for a USD), 
free market rate is more expensive.  Importers want to buy USD at the 
cheaper rate.  But most banks refuse to sell at that rate.  So importers 
complain.  Then importers have to buy USD at the higher free market 
price.  So importers complain.  Even at the free market price, it has to 
be done under the table or going through a bunch of weird trading 
techniques. So importers complain.  That's all.
 
In sum,  when USD value increases, import decreases.  When import tax 
increases, import decreases.  When we have the combination of high USD and 
high import tax, we will reduce import quite a bit.  And that is what 
Vietnam is doing to solve the trade deficit (which ultimately solves the 
inflation crisis).  
 
Of course, some import firms will get hurt through this process.  But that 
is the nature of business and economy.  Business involves risks, 
especially risks from the economy.
 
I am not sure I understand this part: "Did the government have an idea 
that this kind of abhorrent hoarding of imports would happen with the 
import taxes rising?  In my view, many importers will not be able to sell 
these imported goods at the inflated dollar prices they were forced to use 
to buy these goods.  Many will go out of business."  Please elaborate in 
detail examples.
 
Great day, brother.
 
Hoanh

 
      
On Sun, Jun 22, 2008 at 6:55 PM, Charles Vo <cvo7651 at yahoo.com> wrote:
[ Vietnam Business Forum ]

Considering imports are all paid with dollars, the raising of import taxes 
(cars, cosmetics, electronics, gold) by the government has been a strong 
reason for dollar demand rising to a furious level especially in HCM city 
where I read the dollar supply is really, really low now.  Ships filled 
with imported goods have been blocked up the ports of Vietnam.

http://vietnamnews.vnagency.com.vn/showarticle.php?num=04ECO070608

I surmise the short-term dollar demand will decrease as soon as the 
importers have bought the huge sum of dollars needed to pay for all these 
imports.

Did the government have an idea that this kind of abhorrent hoarding of 
imports would happen with the import taxes rising?

In my view, many importers will not be able to sell these imported goods 
at the inflated dollar prices they were forced to use to buy these goods. 
 Many will go out of business.



-- 
Tran Dinh Hoanh, Esq., LLB, JD
Washington DC 
_______________________________________________
To subscribe/unsubscribe, please contact admins at
vnbizadmin at vietlinks.net
Info at http://mail.saigon.com/mailman/listinfo/vnbiz
Archive at http://groups.yahoo.com/group/vnbiz/
or http://groups-beta.google.com/group/VNBIZforum/
or http://mail.saigon.com/pipermail/vnbiz

-------------- next part --------------
An HTML attachment was scrubbed...
URL: http://mail.saigon.com/pipermail/vnbiz/attachments/20080623/223305a2/attachment.html