JAKARTA, Indonesia - The Indonesian government has announced it will reduce import tariffs on vehicles next year. The government sees this as the final cut in MFN (most favored nation) tariff rates as required under World Trade Organization regulations. Import tariffs on completely knocked down (CKD) products are reduced by 33 percent.
Some of the smaller players in this market are expected to get a boost from the news, especially those who assemble their vehicles in Indonesia and have to compete against the dominant Japanese manufacturers. Among these are Hyundai, Kia, Peugeot, and even luxury-carmakers Mercedes-Benz and BMW. For importers of luxury cars such as Volvo and Audi, the benefits will be more marginal.
The CKD tariff cuts will also provide some encouragement to those manufacturers that have expressed an interest in establishing new assembly operations in the country, including Volkswagen, China's Geely and also General Motors - which ceased local production of the Blazer SUV in the early 2000s.
Current tariffs on vehicles imported under bilateral and regional trade agreements such as the ASEAN Free Trade Agreement (AFTA) will not be affected. Duties on completely built (CBU) vehicles imported from qualifying member countries will remain at a maximum of 5 percent.
According to Budi Darmadi, director general for transportation at the Ministry of Finance, MFN import tariffs on completely built up passenger cars will be cut from the current 45 percent to 40 percent, while those on completely knocked down (CKD) imports will fall from 15 to 10 percent. The WTO requires MFN rates be no higher than 40 percent beginning in 2012.
Darmadi said his government will maintain the critical difference, now 30 percentage points, between CBU and CKD tariffs rates to ensure that local assembly remains competitive. Companies, he believes, would choose only to import cars if the gap was much smaller.