Tài liệu Effects of asean free trade area (afta) on intra regional trade flows evidence from automotive industry

VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY LE MINH PHUONG EFFECTS OF ASEAN FREE TRADE AREA (AFTA) ON INTRA-REGIONAL TRADE FLOWS: EVIDENCE FROM AUTOMOTIVE INDUSTRY MASTER'S THESIS …………………. Master Program in Public Policy Hanoi, 2020 VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY LE MINH PHUONG EFFECTS OF ASEAN FREE TRADE AREA (AFTA) ON INTRA-REGIONAL TRADE FLOWS: EVIDENCE FROM AUTOMOTIVE INDUSTRY MAJOR: MASTER OF PUBLIC POLICY CODE: PILOT RESEARCH SUPERVISOR: Assistant Prof. TRAN LAM ANH DUONG Associate Prof. NGUYEN THI MINH Hanoi, 2020 ACKNOWLEDGEMENTS The writing of a master’s thesis is not a comfortable task. So far, the biggest accomplishment in my life is complete it. And, I would like to grab this chance to express my immense thankfulness to all those persons who gave me their invaluable support and assistance. Above all, I am greatly indebted to my supervisors, Assistant Professor Tran Lam Anh Duong who was very willing with her time and knowledge. She supported me from the first steps of the research process. Not only instructing, but she also studied with me from theory to analytical practice. And, Associate Professor Nguyen Thi Minh who gave me valuable suggestions to help me overcome the most difficult periods. Without their advice, I would definitely have ended up in chaos. I would include those who helped me in finding data - Mrs. Nguyen Thi Xuan Thuy from the Viet Nam Industry Agency (Ministry of Industry and Trade, Vietnam) and Dr. Dang Quang Vinh from the Master’s program in Public Policy of Viet Nam Japan University who assisted me during the final procedure. Especially, I am grateful to all other lecturers Dr. Thuy Anh, Prof. Naohisa Okamoto, Dr. Vu Hoang Linh who gave me helpful comments during one year of preparation for the thesis. It is also appropriate to thank, MPP program assistants Ms. Ha and Ms. Huong and staffs from the Office of Global Initiatives at the University of Tsukuba for supporting me during two years studying at VJU and to undergo the memorable threemonth internship in Japan. Last but not least, special thanks are reserved for my family and my friends for their tireless efforts and spiritual support. After all, I take full responsibility for any flaws, errors and omissions. This thesis is dedicated to the memory of my father. TABLE OF CONTENTS ACKNOWLEDGEMENTS .......................................................................................... iii LIST OF TABLES .........................................................................................................vi LIST OF FIGURES ...................................................................................................... vii LIST OF ABBREVIATIONS ..................................................................................... viii CHAPTER 1: INTRODUCTION....................................................................................1 1.1 Background ............................................................................................................1 1.1.1 AFTA overview ................................................................................................ 1 1.1.2 ASEAN economics and trade overview ........................................................... 2 1.1.3 ASEAN automotive industry ............................................................................6 1.2 Definition .............................................................................................................13 1.3 Research objectives and research questions......................................................... 14 1.4 Hypotheses ...........................................................................................................15 1.5 Method and methodology ....................................................................................16 CHAPTER 2: LITERATURE REVIEW.......................................................................18 2.1 Theoretical framework of gravity model ............................................................. 18 2.2 Effects of AFTA on intra-regional trade flows at aggregated level..................... 20 2.3 Effects of AFTA on intra-regional trade at disaggregated level .......................... 21 CHAPTER 3: DATA AND METHOD .........................................................................24 3.1 The estimation methodology and model specification ........................................24 3.1.1 The estimation methodology ..........................................................................24 3.1.2 Model specification ........................................................................................ 27 3.3 Data description ...................................................................................................31 3.4 The estimation method and common issues of panel data in gravity model estimation ...................................................................................................................33 3.5 Data processing ....................................................................................................37 CHAPTER 4: FINDINGS ............................................................................................. 38 4.1 Estimation results of trade creation and trade diversion effects by AFTA ..........38 4.1.1 Export flows ...................................................................................................38 4.1.2 Import flows ...................................................................................................40 4.2 Estimation results of trade creation effect by tariff elimination .......................... 41 4.2.1 Export flows ...................................................................................................41 4.2.2 Import flows ...................................................................................................43 4.3 Trade creation effect by tariff elimination by individual AFTA member countries ....................................................................................................................................44 CHAPTER 5: CONCLUSION ...................................................................................... 48 5.1 Research summary ............................................................................................... 48 5.2 Policy implication ................................................................................................ 49 5.3 Limitations of the thesis ....................................................................................... 50 5.4 Further research ....................................................................................................50 REFERENCES ..............................................................................................................51 Appendix 1. Average tariff under CEPT Scheme from 1993 to 2015 ....................... 55 Appendix 2. ASEAN Countries code table ................................................................ 57 Appendix 3. Regional trade agreements – AFTA and AFTA-plus-FTAs .................58 Appendix 4. Summary Statistic .................................................................................59 Appendix 5. The effects of AFTA on export trade flows by PPMLHDFE ...............61 Appendix 6. The effects of AFTA on import trade flows by PPMLHDFE ...............62 LIST OF TABLES Table 1.1: Share of total trade on GDP (%) of ASEAN countries, 1993-2018 ..............3 Table 1.2: ASEAN-5 motor vehicle production (in units), 2006-2018 ........................... 7 Table 1.3: ASEAN-7 motor vehicle sales (in units), 2006-2018 ....................................8 Table 1.4: List of ASEAN countries by GDP (PPP) per capita ranked by the World Bank (2018) ...................................................................................................................13 Table 2.1: The estimated coefficients of AFTA dummies from existing studies…….22 Table 3.1: Possible outcomes of trade effects in an AFTA ...........................................30 Table 3.2: Hypotheses of the estimated coefficients ..................................................... 30 Table 3.3: The availability of bilateral trade flows from UN Comtrade ....................... 32 Table 3.4: Description of multiple fixed effects models ...............................................36 Table 4.1: The effects of AFTA on export trade flows by REGHDFE ........................ 39 Table 4.2: The effects of AFTA on import trade flows by REGHDFE ........................ 40 Table 4.3: Trade creation effect by tariff elimination – Export flow by PPMLHDFE method ........................................................................................................................... 42 Table 4.4: Trade creation effect by tariff elimination – Import flow by PPMLHDFE method ........................................................................................................................... 43 Table 4.5: Estimation results of trade creation effect by tariff elimination ..................44 Table 4.6: Estimation results with country dummy – Export flow ............................... 46 Table 4.7: Estimation results with country dummy – Import flow ............................... 47 Table 5.1: Summary of trade creation and trade diversion effects ................................ 48 LIST OF FIGURES Figure 1.1: Real GDP growth (annual %) of ASEAN region, 1980-2020 ......................2 Figure 1.2: Total value of exports and imports of goods and services in ASEAN, 20002017 (in US$ billion) .......................................................................................................4 Figure 1.3: Trend of ASEAN total trade, extra-ASEAN trade and intra-ASEAN trade, 1993-2013 ........................................................................................................................ 4 Figure 1.4: Share of export values of goods by intra-ASEAN and its major trading partners (%), 2000-2017 ..................................................................................................5 Figure 1.5: Shares of export and import value of goods by ASEAN country, 2000-2017 (%) ...................................................................................................................................5 Figure 1.6: Trend of intra- and extra-ASEAN export of priority integration sector of automotive products, 1993-2013 .....................................................................................6 Figure 1.7: Total automotive export and import value in ASEAN countries, 1993-2018 (in US$ million) ...............................................................................................................8 LIST OF ABBREVIATIONS ACFTA ASEAN-China Free Trade Area AEC ASEAN Economic Community AFTA ASEAN Free Trade Area AIFTA ASEAN-India Free Trade Area AJCEP ASEAN-Japan Comprehensive Economic Partnership AKFTA ASEAN-Korea Free Trade Area APTA Asia-Pacific Trade Agreement ASEAN Association of Southeast Asian Nations ATIGA ASEAN Trade in Goods Agreement CBU Complete Built-Up CEPT Common Effective Preferential Tariff CIA Central Intelligence Agency CKD Completely Knocked Down CLMV Cambodia, Lao PDR, Myanmar and Viet Nam EL Exclusion List FDI Foreign Direct Investment FEM Fixed Effect Model FTA Free Trade Agreement GVC Global Value Chain HMR Helpman, Melitz and Rubinstein HS Harmonized System IL Inclusion List MFN Most Favoured Nation MNEs Multinational Enterprises NTBs Non-Tariff Barriers NTMs Non-Tariff Measures PPML Poisson pseudo-maximum likelihood PPP Purchasing Power Parity PTA Preferential Trade Agreement SL Sensitive List TL Temporary Exclusion List REM Random Effect Model WDI World Development Indicators WTO World Trade Organization ZIPPML Zero-inflated PPML CHAPTER 1: INTRODUCTION 1.1 Background 1.1.1 AFTA overview The Association of Southeast Asian Nations (ASEAN) was established in 1967 with 5 original members, namely Indonesia, Malaysia, the Philippines, Singapore and Thailand. Currently, the association consists of 10 member states, as successively Brunei Darussalam, Vietnam, Laos, Myanmar (Burma) and Cambodia. In October 2003, ASEAN leaders decided to create a single market for a huge economy of US$722 billion and nearly 550 million people (2003). The building of the ASEAN Economic Community (AEC) by the end of 2015 is a major milestone of integration effort attempted in the developing world, offering variety of opportunities for each member states to attract inward Foreign Direct Investment (FDI) and increase trade flows. AEC has been considered as successor following the completion of the ASEAN Free Trade Area (AFTA), which was signed in 1992 in Singapore by 6 original ASEAN countries. At that time, the AFTA agreement aimed to eliminate the tariff on a wide range of products between ASEAN members. The establishment of AFTA has attracted the remaining members, Vietnam has been joined since 1995, Laos and Myanmar (1997), Cambodia (1999). Under the Common Effective Preferential Tariff (CEPT) Scheme, the products are firstly classified into two different groups depending on the willingness of each member - Inclusion List (IL) and Exclusion List (EL). Those product under IL were subject to removal of tariff to between 0% and 5% by 2008 for original AFTA members. Later on, the tariff reduction schedule was revised several times. Finally, the end year of IL was moved to 2002. The EL was later devided into a Temporary Exclusion List (TL) and Sensitive List (SL). Those products in TL would be shifted to IL in the future. Whereas, additional time for both IL and TL were given to the newer member countries, namely Cambodia, Laos, Myanmar and Vietnam (CLMV) to implement their private routine of tariff reduction for products which originate from within AFTA members. In addition, non-tariff measures (NTMs) or non-tariff barriers (NTBs) were excluded under the CEPT scheme. However, since 2010 the ASEAN Trade in Goods Agreement (ATIGA) has come into effect to enhance and supersede the CEPT/AFTA with greater goal ambiguity covering both tariff and non-tariff elimination. 1 The creation of AFTA (or ATIGA) has generated a bigger internal market that each member is able to entry into lower trade cost market and attract more investment into their economy that allow producing on a large scale. 1.1.2 ASEAN economics and trade overview Nowadays, the ASEAN region has become well known in the world due to its high real Gross Domestic Product (GDP) growth in a long period of time. Figure 1.1: Real GDP growth (annual %) of ASEAN region, 1980-2020 Source: IMF DataMapper Firgue 1.1 illustrates the real GDP growth rate of the ASEAN region compared to the group of advanced economies and the average across the whole world from 1980 to 2020 (estimated data). ASEAN’s real GDP growth have increased remarkably, except during two crisis periods: the Asian financial crisis in 1998 and the Global crisis in 2008. The average growth rate of GDP in the whole period 1980-2018 of three groups ASEAN, advanced economies and the average of the world is 5.3%, 2.2% and 3.3% respectively. Followed by that data, the average value of this important indicator reveals that ASEAN is one of the fastest growing economies in the world. 2 On the other hand, trade to GDP ratios measure the relative importance of international trade in each ASEAN economy. Table 1.1 below shows the trade to GDP ratios or openness indicator of 10 ASEAN countries. In general, almost ASEAN countries open its economy to the world, partially due to its economic integration efforts. The high trade openness which trade to GDP ratios is greater than 100 percent bringing many economic benefits, from increasing technology transfer, supplying more job, enhancing the total factor productivity for the economic development. It seems that the smaller economies in land area and GDP than trade more and vice versa. That can be seen from the table 1.1, for example Singapore is the most dynamic economy in ASEAN in comparison with Indonesia which is the largest country in both land area and GDP in ASEAN region. Table 1.1: Share of total trade on GDP (%) of ASEAN countries, 1993-2018 Singapore Malaysia Viet Nam Cambodia Thailand Brunei Darussalam Lao PDR Philippines Indonesia Myanmar 357 175 149 125 118 102 90 84 55 15 Source: Author’s calculations based on WITS country profile data From the calculation formula of GDP by expenditure approach, the rapid of expansion in GDP of ASEAN region has been definitely contributed by export-import component1. The entire value of trade in goods and services in this region has been playing an important role in GDP measurement under expenditure approach. By looking at the figure 1.2, the total merchandise trade of ASEAN region has sharply increased from 2000 to 2017 equivalent to an increase of nearly 3.5 times (ASEAN Secretariat, 2018). 1 The formula for GDP by expenditure approach: GDP = C + I + G + (X-M) 3 Figure 1.2: Total value of exports and imports of goods and services in ASEAN, 2000-2017 (in US$ billion) According to report of ASEAN Secretariat (2014) in the special edition “the removal of trade barriers has been centered on the removal of intra-ASEAN tariffs through commitment CEPT under the AFTA”. Although, figures in trade indicates that “ASEAN depended a great deal on the consumption and production needs of the rest of the world” (Mahfuz Kabir et al., 2014), but intra-ASEAN trade still has been increased dramatically, even though faster than overall ASEAN trade and extra-ASEAN trade. From 1993 to 2013, the intra-ASEAN trade has surged by more than 7 times, while extra-ASEAN trade has increased more than 5 times. Figure 1.3: Trend of ASEAN total trade, extra-ASEAN trade and intra-ASEAN trade, 1993-2013 4 Regarding to a very fast increasing in intra-regional trade and the success of trade surplus in ASEAN region, from 2000 to 2017 intra-ASEAN collectively is the largest market. Figure 1.4: Share of export values of goods by intra-ASEAN and its major trading partners (%), 2000-2017 Overall, there is a significant gap in trade by export and import value among 10 ASEAN countries. Singapore is the largest exporter, followed by Thailand, Malaysia, Viet Nam, Indonesia and Philippines. Meanwhile, Brunei Darussalam, Laos, Cambodia and Myanmar are among trade less countries. Figure 1.5: Shares of export and import value of goods by ASEAN country, 20002017 (%) 5 Specially, according to ASEAN Community in Figure reported in 2014, ASEAN records a surplus in its trade of agro-based products, rubber-based products, wood-based products, fisheries products, textile products, electronic products and automotive products with its major trading partners, although the surplus was relatively small, in general. According to the report, in the case of automotive products, including both final and intermediate products, by 2013 ASEAN achieved a small surplus with Australia and New Zealand, and USA. Meanwhile, trade deficit was large with Japan, small in the case of China, Republic of Korea, and EU-28. Figure 1.6: Trend of intra- and extra-ASEAN export of priority integration sector of automotive products, 1993-2013 1.1.3 ASEAN automotive industry Regarding to the trade value of automotive industry in ASEAN, this region has remained a net importer despite its export value is closely catching up with import value. Remarkably, the value of extra-ASEAN export in the case of automotive was 2 times that of intraASEAN export compared to other industries those was 7 to 15 times (ASEAN Secretariat, 2014). This figures imply that intra-regional trade flows of automobile are increasingly significant important. However, ASEAN still import mainly from neighboring ASEAN countries such as China, Japan, South Korea, etc. Further, according to the ASEAN Investment Report (ASEAN Secretariat, 2020), steady economic growth, increasing in middle-class consumer, deepening regional integration ASEAN has attracted more the Multinational Enterprises (MNEs) increasing their value chain participation in automotive industry. 6 Therefore, AFTA was expected to accelerate easier obtaining and more efficient intraregional and intra-industry trading, creating an environment that is advantageous to achieve economies of scale in automobiles and its components. Table 1.2: ASEAN-5 motor vehicle production (in units), 2006-2018 Country 2008 2010 Indonesia 296,008 600,844 702,508 1,065,557 Malaysia 503,048 530,810 567,715 569,620 596,418 545,253 564,971 12 63,621 80,477 75,413 88,845 116,868 79,763 25 1,880,007 1,944,417 2,167,694 82 Philippines Thailand Viet Nam 2012 2014 1,188,044 1,394,029 1,645,304 2,453,717 35,087 107,918 106,166 2016 2018 % Change 2006 1,298,523 1,177,389 1,343,714 73,673 121,084 236,161 200,436 2006-2018 354 471 Note: Data for other countries are not available Source: ASEAN Automotive Federation According to figure collected from the ASEAN Automotive Federation, five largest economies in producing automobile are Indonesia, Malaysia, Philippines, Thailand, and Viet Nam produced totally over 44 million units of motor vehicles from 2006 to 2018. Meanwhile, at the national level, Thailand accounts for 52%, Indonesia (27%), Malaysia (16%), Viet Nam (4%) and the Philippines (2%). It can be stated that Thailand continues to play a dominant role in the ASEAN automotive industry. These countries are expected to continue to grow and become an important role in the global value chain (Kobayashi, 2014). Korwatanasakul, U., and Intarakumnerd, P. (2020) in the report about the global value chains in automobiles in ASEAN also emphasized that the automobile industry has been an important driving force in ASEAN, contributing at least $177 billion to ASEAN’s GDP every year and creating about 2.4 million jobs. Overall, ASEAN is considered as an important production hub for the entire automobile sector, including automobiles, motorcycles, trucks, and their parts becoming a “factory of Asia”. Therefore, the analysis of trade flows in automotive industry among ASEAN countries is necessary in this context of trade globalization. 7 Table 1.3: ASEAN-7 motor vehicle sales (in units), 2006-2018 % Change Country 2006 2008 2010 2012 2014 2016 2018 Brunei 12,522 14,680 13,589 18,634 18,114 13,248 11,226 (10) Indonesia 318,904 603,774 764,710 1,116,212 1,208,019 1,061,735 1,151,291 261 Malaysia 490,768 548,115 605,156 627,753 666,465 580,124 598,714 22 99,541 124,449 168,490 156,654 234,747 359,572 357,410 259 110,455 95,243 (31) Philippines Singapore 137,564 110,574 37,247 47,443 Thailand 682,161 615,270 800,357 1,436,335 881,832 768,788 1,041,739 53 133,588 270,820 606 Viet Nam 51,891 2006-2018 40,897 110,186 111,737 80,453 288,683 Note: Data for other countries are not available Source: ASEAN Automotive Federation During the period 2006-2018, more than 36 million units of motor vehicles have been sold in the ASEAN market of more than 650 million of population. Indonesia and Thailand are biggest important markets account for 62% in total, followed by Malaysia, the Philippines and Viet Nam. Contrarily, sales in Brunei and Singapore is very lower, even though these two countries are among richest ones. The possible reason is that because these countries have smaller scale of population. Figure 1.7: Total automotive export and import value in ASEAN countries, 19932018 (in US$ million) Note: Lack of data for Cambodia, Lao, Myanmar, the Philippines, Viet Nam and Malaysia 8 Source: Author’s collection and calculation from UN Comtrade source Brunei Darussalam is a small country in land area. Its population is only 428,962 (World Bank) in 2018. From 1990 to 2012, its real GDP has significantly increased 50% before decreasing slowly due to the Global Financial Crisis. Brunei was early ranked among industrialized countries by high GDP per capita at purchasing power parity. In 2018 World Bank ranked Brunei as the fifth-richest nation out of 182 countries, based on its petroleum and natural gas fields. Crude oil and natural gas production of Brunei account for approximately 65% of GDP and 95% of exports, with Japan as the primary export market. According to Korwatanasakul, U., and Intarakumnerd, P. (2020), Brunei Darussalam is the only ASEAN country that has not directly involved in the automotive value chain. However, Brunei was explored developing assembly plant for electric and renewable energy-powered vehicles in 2016. Besides, the total export value involving automotive industry of this country from 1993 to 2018 was lowest among ASEAN countries, only 162 million USD. Cambodia has experienced strong economic growth since 1996. Its GDP grew an average annual rate of over 8% between 2000 and 2010 and about over 7% since 2011. Its main industries are tourism, garment, textile, construction and real estate. So far Cambodia remains one of the poorest countries in the world was ranked at 138th measuring by GDP (PPP) per capita, only 4,000 USD for one people per year. Besides, the total automotive export and import value of Cambodia is also among lowest countries compared to other ASEAN ones. The automobile industry in Cambodia mainly engages in Complete Built-Up (CBU) production through Completely Knocked Down (CKD) kits. Cambodia’s automotive industry still is in its early stages, it could raise their competitiveness base on advantages of cheap and large labor force in near future. Typically, this country could have been benefiting from “China-Plus-One” and “Thailand-Plus-One” strategies, which mainly extended the automobile production of Tier-2 suppliers in China and Thailand to the CLM countries (Korwatanasakul, U., and Intarakumnerd, P., 2020). Lao PDR is the only landlocked country surrounded by Myanmar, China, Viet Nam and Thailand. Due to its central geographical location, Laos became a hub for overland trade. Initially, Lao PDR has been one of the memberships of Asia-Pacific Trade Agreement 9 (APTA) previously known as the Bankok Agreement was signed in 19752. Its population estimates at 7 million people in 2018. As Cambodia, Laos still is poor country ranked at 124th nation according to GDP (PPP) per capita in the world. The automobile and parts and components industries of the Laos are the least developed among the CLMV countries. CKD assembly plants have not been established. However, under the Greater Mekong Sub-region Economic Cooperation and Thailand-plus-one strategy, the Lao PDR is one of the key countries for suppling labor at a relatively low cost for the automotive value chain. Myanmar (Burma) has been seen as a dynamic economy in the world with the average annual rate of GDP growth at roughly 9.2% from 1992 to 2018. Its population is about 53.7 million people. Since 2011, Myanmar has experienced a comprehensive reform in economy and politics Although Myanmar still has lots of challenges to catch up other countries in ASEAN, this country is expected to receive lots of benefits from its abundance of cheap and big labor force and natural resources as well. Thailand is one of early industrialized countries in ASEAN region. Its economy highly depends on international trade, with exports accounting for 66% of GDP. The main export sector of this country focus on electronics, agricultural commodities, automobiles and parts, and processed foods. The country has experienced over the past 50 years developing automotive industry from early 1960s under the regime of import substitution and a revision of the country’s investment promotion law to attract automotive assembly to Thailand. Especially, in the late 1980s, due to the appreciation of the Japanese yen raised the production costs of automobile in Japan. There was a massive rise in FDI inflows and MNEs contribution to Thailand for both carmakers and parts suppliers. Nowadays, Thailand’s automobile was ranked 1st among ASEAN countries, 3rd in the Asian continent and 12th in the world. Indonesia is the largest economy in the region. This country consists of a thousand islands and ranked at 4th in the world’s population. As an emerging economy Indonesia has experienced a high economic growth in a long period with the average at 6.8% (1968-1996) and 5.3% (2000-2018). During the Asian financial crisis, the country’s 2 The member of Asia-Pacific Trade Agreement (APTA) include Bangladesh, China, India, Lao PDR, Mongolia, Republic of Korea, and Sri Lanka. 10 GDP growth decreased dramatically to -13% in 1998. Indonesia is also a huge domestic market and enable to supply employment for a half of population with the labor force of more than 125 million people for domestic producing. Besides, a huge domestic market makes Indonesian automotive manufacturers mainly focus on producing complete automobiles and export mostly its parts and components to the world. Japanese producers have contributed significantly to the development of Indonesia’s automobiles as Thailand. Malaysia performs impressively in GDP growth from 1963 after gaining independence from Britain. From 1960s to 2018, tts GDP grew by an average of 6.4% per year. The economic growth peaked in almost 10 years (1988-1997) with the average of 9.3% per year just before falling in 1998. Nowadays, Malaysia is an upper middle-income country with GDP per capita at PPP is above 30,000 US$. Their first national car project was launched in 1983, which produced a successful car brand for domestic market. As Thailand, exports and imports in automotive industry of Malaysia have increasingly contributed to the intra-regional trade flows. The Philippines is a country which participated early in the auto assembly industry since 1950s. As other ASEAN countries, the motor vehicle industry is principally contributed and dominated by Japanese automobile manufacturers. However, as of figure of motor vehicle production, from 2006 to 2018, the Philippines accounts only 2% on the whole total production of ASEAN region, ranked at 5th largest producers. In terms of sales, due to a small domestic automobile market, more than 2.5 million car units were sold in more than 10 years accounting for 8%. Since 2007, this country has been increasing its competitiveness by promoting investment activities inward automobile. Vietnam’ economy has impressed the intra-regional and extra-regional investors by its high economic growth and relatively stable politics. In 1989, this country shifted from a centrally planned to a market. Nowadays, Vietnam is among the most dynamic emerging countries in Asia in general with the average of annual GDP rate at 6.8% per year from 1989 to 2018. Also, Vietnam entered into production of automobile from early 1990s. In 1995, the first automotive factories were built in this country, knock-down kits to produce vehicles, starting with Japanese car brand. However, by 2018 Vietnam still is one of the most protector for domestic manufacturing by high tariffs and non11