A paradox exists: Vietnam, the fourth biggest rubber exporter in the world, now has to import rubber to make finished products domestically.

Vietnam has been well-known in the world as a big rubber exporter. In 2010, Vietnam’s rubber export turnover reached 2.3 billion dollars, the highest peak so far, while the export volume reached 782,200 tons. The year 2010 was considered a successful year for the rubber industry with the high 94.7 percent increase in export value and the 82 percent increase in export price.

Rubber now is the second biggest farm produce export item of Vietnam. The country’s rubber output ranks the fifth in the world which accounts for 7.3 percent of the total output of the world.

However, while Vietnamese rubber producers export rubber to the world, Vietnamese tire manufacturers have to import rubber from other countries. It is the disagreement between partners in doing business, plus the unreasonable taxation scheme which make rubber producers and manufacturers unable to cooperate.

No man is a hero to his valet

Dinh Ngoc Dam, Director of the Da Nang Rubber Company, said that the manufacturers who make products from rubber like his company are facing big difficulties in accessing domestic rubber sources. Therefore, the companies have to import materials to run domestic production.

Dam said that domestic natural rubber mostly comes from the Vietnam Rubber Group (VRG) and its subsidiaries. However, the companies all prefer exporting rubber to selling domestically; therefore, it is nearly impossible for domestic companies to access the domestic rubber sources. A lot of manufacturers have been trying to seek rubber from other sources. They have also been trying to collect rubber from small-scale rubber growing areas, but this proves to be a risky business.

Meanwhile, Le Quang Thung, Chair of the Vietnam Rubber Association VRA, now Acting Chair of VRG, has denied the fact that VRG does not want to sell rubber to domestic enterprises. Thung stressed that VRG prioritizes selling rubber to domestic enterprises. However, in many cases, the enterprises cannot make deals, because they still cannot reach agreements.

According to him, rubber companies want to sign long term contracts with the prices going up and down depending on the prices of some foreign markets (Singapore or Japan). The rule is also accepted by international traders, but it is not accepted by Vietnamese enterprises. The problem is that domestic enterprises only seek to purchase rubber when the prices go up, while they try to escape from the deals when the prices go down.

Le Van Huy, Director of HCM City-based MTV Huy Anh Company, said he has more advantages when exporting rubber than selling to domestic enterprises. He can enjoy better financial support from banks. In case the rubber prices go down, rubber companies still sell products to foreign companies, while domestic enterprises will refuse to purchase. Meanwhile, the purchase schedules of foreign partners are always better than domestic enterprises.

“It sometimes takes us the whole month to get an order from domestic enterprises, while it takes us only one day to sell to foreign enterprises,” Huy said

He went on to say that processing companies like his really want to sell rubber to domestic enterprises. However, in general, only one out of every 10 enterprises the company contacts to offer to sell rubber, accepts to purchase products. Therefore, foreign partners remain the main clients for Vietnamese rubber producers.

Current tax scheme encourages export

An important thing that makes domestic enterprises unable to access domestic sources is the unreasonable taxation scheme. Rubber producers can enjoy the tax rate of zero percent when exporting rubber, but they will bear the VAT tax rate of five percent if selling to domestic enterprises. This clearly encourages producers to export rather than selling domestically.

Also, Dong Minh Toan, General Director of Binh Phuoc General Import-Export Company, said the differences in rubber import/export tax rates have prompted foreign companies to take full advantage of the cheap rubber of Indonesia, cheap labor force and low tax in Vietnam to make rubber to export to other countries. Meanwhile, the enterprises consuming domestic products cannot enjoy the advantages.

Thung agrees that the current import/export tax mechanism is unreasonable, which does not encourage domestic consumption.

Source: Dat Viet