As trade liberalisation measures continue to reshape the automotive sector, concerns are emerging over whether the simultaneous reduction of import tariffs and technical regulations could place additional pressure on the domestic automotive industry in Vietnam.

Lowering car import taxes through trade agreements, while simultaneously removing technical standards, could increase the number of imported vehicles entering the market. At that stage, the issue extends beyond reducing administrative procedures and becomes a policy decision regarding the future of the domestic automotive industry, including whether Vietnam intends to maintain a domestic automotive sector.

Since March 31st, 2025, Vietnam has reduced import tariffs on certain automobile models under the MFN (Most Favoured Nation) mechanism, lowering rates from 64% to 50%, and to 32% for some US vehicle models.

The move has been viewed as an adjustment in trade relations, particularly with markets such as the United States, which still accounts for a relatively limited share of Vietnam's automotive market. However, the policy extends beyond the US market.

Under the European Union-Vietnam Free Trade Agreement (EVFTA), Vietnam has also committed to opening its automobile market through a phased approach. Import tariffs are being reduced according to a roadmap lasting up to nine to 10 years after 2020, depending on the vehicle category. Passenger cars with larger engine displacements are subject to a transition period of approximately nine to 10 years.

At the same time, earlier tariff reductions have been applied to various spare parts to support domestic manufacturing. The EVFTA does not require Vietnam to eliminate technical regulatory measures. An official who was previously part of the EVFTA negotiation team told media sources that, under the market-opening commitments, requirements relating to safety standards, warranties, recalls and business conditions may still be maintained, provided they are implemented transparently and without discrimination.

In other words, international trade agreements provide market access through tariff reductions rather than requiring the removal of all technical regulations. The question raised is why Vietnam is removing additional regulatory measures that were originally introduced to ensure market accountability, protect consumers and support an industry that is still developing.

Technical barriers

For many years, Decree 116 functioned as a regulatory framework linked to accountability requirements. To import automobiles, businesses were required to obtain licences. To secure those licences, they had to demonstrate the availability of qualified warranty facilities and official authorisation to conduct recalls.

Although these provisions may appear procedural, they created a regulatory structure in which market access was linked to operational capability and accountability requirements.

For businesses, these requirements represented additional costs. For policymakers, they were intended to ensure that products such as automobiles entered the market with accountability measures in place. An automobile manufacturer told medias sources that, while the company supports reform, it is concerned that some proposed reductions by the Ministry of Industry and Trade do not fully reflect market conditions.

According to the company, requirements relating to factories, production lines and testing tracks are minimum technical standards intended to ensure product quality and demonstrate investment commitments. The concern expressed related to the structure of competition.

If the system shifts entirely to post-inspection mechanisms, companies lacking sufficient capability may still be able to enter the market, while risks related to traffic safety and environmental standards may only be identified after incidents occur.

Vietnam's automotive industry has reached annual production and assembly volumes exceeding 500,000 vehicles, accounting for approximately 65-75% of the domestic market. Around 650 companies participate in the value chain, supporting employment for approximately 200,000 workers and contributing more than 3% to GDP. However, the localisation rate for passenger cars remains at around 20% after two decades of protection measures.

Opening the market?

The issue may not be whether the industry should be protected, but how that protection should be implemented. If existing protection measures have delivered limited results, the protection model itself may require revision.

In that context, opening the market through both tariff reductions and the removal of technical requirements could create disruption across the sector. As completely built-up vehicles from major manufacturing hubs enter the market with advantages in scale and cost, domestic assembly operations could face direct competitive pressure, while supporting industries may face reduced development opportunities.

While a market can be opened relatively quickly, rebuilding an industrial base from the beginning would require significant time and investment.