Proposing two solutions on knock-down levels of imported automobile parts

Automobile assembly activities of enterprises. Photo: H.Nụ

Handling legal gaps

During the implementation of the preferential export tariff schedule and special preferential import tariff schedule, the Customs authority has based on the regulations on knock-down levels of Circular No.05/2012/TT-BKHCN of the Ministry of Science and Technology on methods of determining localization rates of automobiles to implement policies for imported automobile parts. However, on August 10, the Ministry of Science and Technology issued Circular 11/2022/TT-BKHCN abolishing legal documents on methods of determining localization rates of automobiles issued by the Ministry of Science and Technology.

Circular 11/2022/TT-BKHCN also abolished regulations relating to knock-down levels for imported automobile parts. Although this affects the implementation of policies on the development of the automobile industry, currently, the Customs authority does not have a legal basis for determining preferential import policies for auto parts following Government regulations.

At item b, point 1, Notice No. 376/TB-VPCP dated December 13, 2022, of the Government Office announcing the conclusion of Deputy Prime Minister Le Minh Khai at the meeting on December 7, 2022, on the content of the draft Decree on preferential export tariff schedule and special preferential import tariff schedule, List of Goods and its flat tax, compound tariff and out of quota import tariff (referred to as draft Decree) states: the ministries and agencies agreed to deal with the legal gap related to knock-down levels in the form of legal documents to ensure that the state's policies are implemented continuously and without interruption.

The Ministry of Finance will receive and explain the opinions of the agencies attending the meeting and the appraisal opinions of the Ministry of Justice, chair and coordinate with the Ministries of Industry and Trade, Science and Technology, and Justice to urgently agree on the solution to completes regulations related to the knock-down level, without affecting the progress of decree promulgation, ensuring feasibility, efficiency, handling problems and complying with regulations; in case of necessity, the unit should consult with the Government members on the designed the content.

Implementing the above guidance, the Ministry of Finance said that, in Clause 3, Article 3 of Decree 57/2020/ND-CP, the Government stipulates: "The Ministry of Science and Technology chair and coordinate with the Ministry of Industry and Trade, Ministry of Transport, Ministry of Planning and Investment and relevant agencies to review, amend and supplement regulations on knock-down levels, ensuring it is consistent with reality".

In addition, in the Official Dispatch No. 3110/VPCP-CN dated May 20, 2022, of the Government Office, Deputy Prime Minister Le Van Thanh had a directive: "Assigning the Ministry of Industry and Trade to chair and coordinate with other ministries to promulgate a method to determine the percentage of domestic production value for automobiles, in which the regulations on the degree of fragmentation for imported auto parts are considered following the actual situation and development trend of science and technology, ensuring the interests of enterprises that have a long-term investment in Vietnam".

However, up to now, the Ministry of Industry and Trade has not submitted to the Prime Minister for promulgation a document on the method of determining the percentage of domestic production value for automobiles and the Ministry of Science and Technology has not yet issued a document amending and supplementing regulations about the knock-down levels in the above decrees.

Proposing two specific solutions

The Ministry of Finance proposes to submit to the Government to continue assigning the Ministry of Science and Technology to coordinate with the Ministry of Justice and relevant ministries and sectors to issue documents following their assigned tasks as a basis for determining preferential import tariffs for automobile parts as prescribed in Government decrees.

However, for the period from the date the draft Decree is promulgated and takes effect until the date that the document submitted by the Ministry of Industry and Trade to the competent authorities for promulgation takes effect, the Ministry of Finance proposed two solutions to deal with the current problems.

Accordingly, in option 1, submitting to the Government for stipulating in the draft Decree the direction that while the document submitted by the Ministry of Industry and Trade to the competent authorities has not been issued and takes effect, the provision on knock-down levels shall not be applied due to the abolishment of this regulation.

Accordingly, option 1 is shown that imported automobile parts enjoying preferential tariff in Chapter 98 must meet the conditions submitted by the Ministry of Industry and Trade to competent authorities for promulgation following the assigned tasks. In the case of entrusted import, there must be an entrustment contract; in the case of importation for business, it must have a sale contract with an enterprise qualified to assemble cars as prescribed when carrying out import customs procedures.

In addition, the Ministry of Industry and Trade is responsible for: "Granting a certificate of eligibility for automobile production and assembly following the Government's regulations on conditions for production, assembly, import and business of warranty and maintenance services; chairing to submit to competent authorities for promulgating regulations to implement the import tax policy for the preferential tariff program as prescribed in Article 8 of this Decree and imported items that are completely knocked down (CKD) and asynchronous parts of automobiles for automobile assembly as prescribed in Point b.5 Clause 2.2 Chapter 98 Appendix 2 to this Decree".

In option 2, submitting to the Government for stipulating in the draft Decree the direction of continuing to apply the conditions issued by the Ministry of Science and Technology for imported automobile parts, which is the foundation for determining preferential import tariff for imported automobile parts specified in Decree No. 57/2020/ND-CP.

Accordingly, option 2 shows that while the document submitted by the Ministry of Industry and Trade to the competent authorities for promulgation has not yet taken effect, the provisions of Clause 3, Article 2 of the Decree 57/2020/ND-CP amending and supplementing at Point b, Clause 3.1, Article 7a) are applied.

The Ministry of Industry and Trade is responsible for chairing and submitting to the Prime Minister for promulgation a method to determine the percentage of domestic production value of automobiles following the regulations, including the consideration of regulations on the knock-down level for imported automobile parts as a basis for implementing the import tax policy for the preferential tariff program and imported items that are completely knocked down (CKD) and asynchronous parts of automobiles for automobile assembly as prescribed in Point b.5 Clause 2.2 Chapter 98 Appendix 2 promulgated together with this Decree.

... when the Ministry of Industry and Trade submits the document to the competent authority for promulgation, it should be implemented following the provisions of Item b.5.1 and b.5.2 Point 3.2, Clause 3, Section 1, Chapter 98 enclosed with Decree 57/ 2020/ND-CP.

According to the Ministry of Finance, to implement the above two options and ensure the continuity of the policy, ministries and sectors must issue documents following their competence to maintain conditions as a basis for determining preferential tariff policy for imported automobile parts.

However, the difference is that, in option 1, the document issued by the Ministry of Science and Technology will be applied from October 1, 2022, to the effective date of the draft Decree. On the other hand, in option 2, the document issued by the Ministry of Science and Technology will be applied from October 1, 2022, to the date the document submitted by the Ministry of Industry and Trade to the competent authority to issue a replacement document specifying the knock-down level takes effect.