The Indonesian government is preparing a number of diplomatic moves related to the issuance of Prime Minister of Vietnam Decision No. 116/2017/ND-CP on Overseas Vehicle Type Approval (VTA). This regulation, which came into effect in Vietnam in January 2018, potentially eliminates about USD $85 million of Indonesia's foreign exchange earnings in the automotive industry up to March 2018.
An Indonesian delegation, consisting of officials from the Ministry of Trade, Ministry of Transportation, Ministry of Industry, Ministry of Foreign Affairs, and the Indonesian Automotive Industry Association (Gaikindo), are scheduled to leave for Vietnam on 26 February 2018 in an attempt to persuade Vietnam authorities not to continue with this regulation that is harmful for Indonesian exports.
Vietnam's regulation has the potential to threaten - or completely stop - shipments of passenger cars with Harmonized System (HS) code 8703 - or completely built-up (CBU) car units - from Indonesia to Vietnam.
Through the new regulation Vietnam requires international standards for vehicle safety and emissions. Vietnam acknowledges that cars manufactured in Indonesia comply with the Indonesian National Standard (SNI). However, according to Vietnam the SNI is not in accordance with the desired international criteria.
However, Oke Nurwan, Foreign Trade Director at Indonesia's Trade Ministry, disagrees and emphasizes that the SNI for cars manufactured in Indonesia complies with international standards because both standards use the same process and test equipment.
Based on data from Statistics Indonesia (BPS), the value of exports of Indonesian passenger cars to Vietnam reached USD $241.2 million in the January-November 2017 period, up a whopping 1,256.5 percent year-on-year (y/y) from USD $17.78 million vehicles in the same period one year earlier. Indonesia is the third-biggest car exporter to Vietnam, after Thailand and China. However, the latest regulation can make Indonesia drop in the ranking.
Read more: Overview of Indonesia's Automotive Industry