Float glass case: two against 100

A safeguards investigation of float glass imports has sparked a debate between the two domestic makers which propose tariff ‘safeguards’ and 100 importers.  A report by the Competition Agency seems to favor the glassmakers.

Are imports threatening domestic production?

Vietnam’s two big makers of float glass (the flat glass that’s used in windows) think they’re in danger of being put out of business by fast-growing imports.  In 2006, Viglacera Float Glass (VIFG) and Vietnam Float Glass (VFG) between them split 97.4 percent of the market.   By early 2009, the combined share of Vietnamese makers was down to 73.6 percent and still falling.

Under Vietnam’s current regulations, which conform to WTO requirements, safeguard measures can be applied against imports when two circumstances exist.  First, there must be a sharp increase in the import of the products similar to the domestically-made products. Second, the sharp increase must seriously threaten the domestic production.

The two companies (‘petitioners’) said that float glass imports have increased dramatically, from 9,780 metric tons (MT) in 2007, to 33,765 MT in 2008 and 14,696 MT in the first three months of 2009 alone.

A preliminary report by the Competition Administration Department (CAD, a unit of the Ministry of Industry and Trade) confirmed that imports in 2008 were six times bigger than in 2006.  According to the two petitioners, the massive imports have pushed domestic producers into serious losses due to the dramatic drops in sales and sales prices. The difficulties have forced petioners to cut 5.2 percent of their labour force.

The situation has become so serious that VGI, a new domestic float glass company, had to shut down after only nine months of operations. CAD believes that if the situation cannot be improved, it is very likely that VIFG and VFG will continue facing difficulties or even have to shut down.

The two petitioners have proposed that Vietnam apply safeguard measures, a forty percent levy on top of existing tariffs, to control the imports.  If the petitioners’ proposal is accepted, glass imports from other ASEAN members will be taxed at 45 percent (vice the current five percent) and from other nations at 80 percent.

Or does handicapping imports just protect a monopoly?

Glass users (‘defendants’) are mounting a strong defense.  They point out that an increase in glass imports is a natural consequence of the development of Vietnam’s construction market and the opening of the ASEAN Free Trade Area.

Pham Thanh Tung, Chairman of Thuan Thanh Company, one of the defendants, said that the imports have benefited customers by making products available more cheaply.  Applying safeguard measures, he says, will help restore the monopoly of the two domestic producers at society’s expense.

Defendants say also that the weak competive strength of the two producers is itself a consequence of their long enjoyment of a non-competitive market.  They should not blame their troubles on importers.

A representative of the Malaysia Glass Association, during a public hearing on November 20, pointed out that the producers’ difficulties occurred during a global crisis.  The producers maintained very high sale prices while importers had flexible sale prices.  It was, he said, as though the Vietnamese companies ‘invited’ imports to enter Vietnam.

Luong Trong Tuan, General Director of Phu Phong Company, also a defendant, said that VIFG, one of the petitioners, is a joint venture.  Seventy percent of the company’s shares are owned by a Japanese company.  Meanwhile, 30 to 40 glass importers, the defendants, are domestic owned enterprises. The total investment capital of the enterprises is clearly higher than that of VIFG and VFG, and so i the total number of workers is also higher (5,000 vs 1,000). So, does Vietnam choose to protect the monopoly of the two enterprises, or support the 30 to 40 domestic enterprises?

Tung expressed fear that the safeguard measures, if implemented, may push the production cost of float glass higher and impairing the competitive strength of the Vietnamese glass users vis-à-vis imports.

VietNamNet/TBKTSG

Tags: Vietnam float glass imports