Thoi bao kinh te Viet Nam (Vietnam Economic Times) spoke to Chairman of the Viet Nam Steel Association Pham Chi Cuong about the industry's economic integration.

When will Viet Nam's steel industry comprehensively integrate globally?

Steel, like other industries, have experience in Asia Free Trade Areas (AFTAs), for instance AFTA-China, AFTA-Japan and AFTA-Korea. However, when we entered the AFTA-China it means we have integrated with the rest of the world, as China is the most powerful competitor globally.

What specific challenges do the industry face?

The biggest challenges lie in the competitiveness of products used in construction, where domestic firms have predominated, and future investment projects' products. Some products can easily compete with those of other countries in the early years of the integration process due to their low prices, except with China. However, the next step, when manufacturing is enlarged and without State protection, will be a challenging period as imported products will dominate the market.

There is an opinion that building-steel products of ASEAN countries are not of good quality and that China's products may dominate the market because of their diversity and competitive prices. What is your opinion?

This is not incorrect. China is the leading producer of steel at any price, with one-third of the world's output. This would really put big pressure on Vietnamese firms. The protection barrier for construction steel will be kept at 10 per cent and gradually reduced to zero per cent until 2015. During this period, Vietnamese firms should take the opportunity to improve their competitiveness by reducing prices and delivering higher-quality products.

Yet, the Government should set a technical barrier and take strict management actions to control the quality of imported products. If these are implemented there would be only high-quality products in the market and the competitive pressure on domestic products will therefore be reduced.

Products' competitiveness is strongest when their prices are lowest. How does the steel industry handle this situation?

Viet Nam's steel industry was established in different periods with different technologies in the former centrally-planned economy. There are therefore many manufacturing companies that use a lot of energy but have a low output. Most of them have unfeasible labour management structures that lead to low economic return.

Those factories, like Tan Thuan, Nha Be and Thu Duc, will be replaced by modern factories.

There has been investments in factories with high capacities, like the Thai Nguyen Steel Complex chain with a capacity of 300,000 tonnes per year and the Phu My ingot furnace and laminating factory with capacities of 400,000 and 500,000 tonnes, respectively.

These projects have been using modern technologies with high capacity that are also environmentally friendly.

In addition, businesses have checked and cut down on intermediate expenses and re-organised cumbersome management systems.

Factories with a capacity of less than 1 million tonnes per year have been closing down worldwide. Most businesses in Viet Nam now have capacity of around 200,000 tonnes per year. What do you think of this trend?

In reality, Viet Nam's steel industry is small and weakly-linked. Its competitiveness is still good during the first period of integration but this is not long-term. I think those furnaces should be closed after retrieving the investment amount.

At the same time, authorities should take this into account when approving new projects, in order to limit small investments. This would also force factories to co-operate on suitable assignments and utilise their highest capacity.

This is a good way to form big companies with high capacity and competitive ability.

What is your opinion of the industry's management policies?

We have been in a centrally-planned economy for a long time, when production remained mostly small-scaled. This led to the lack of fair treatment to the metallurgy sector. The long-term protection policy remains unclear. Many bilateral agreements have been signed but policy makers did not utilise to the maximum protection measures granted at initial period of integration to ensure the highest advantages for the industry. It would therefore be very hard for new generations of products to compete in future investment projects.