ASEAN gives KL more time to cut car tariffs

ASEAN gives KL more time to cut car tariffs

SINGAPORE (Reuters): Southeast Asian governments on Thursday gave Malaysia a two-year reprieve before it has to cut tariffs on its struggling car industry as part of a free-trade drive to sharpen the region's global competitiveness.

Economy ministers of the Association of Southeast Asian Nations (ASEAN) signed a protocol granting temporary exclusions from its timetable to slash tariffs on 85 percent of goods categories to between zero and 5 percent by the end of 2002.

Ministers, anxious not to miss out on the global boom in trade and investment, insisted that the exemption would not derail their drive for open markets.

"We have agreed that ASEAN will have to make ourselves more attractive," Supachai Panitchpakdi, Thailand's deputy prime minister and commerce minister, told reporters.

"We have to be more persistent with our own free trade arrangement and with our own domestic macroeconomic policies," Supachai, already picked as the next head of the World Trade Organization (WTO), added.

Ministers were meeting to clear the way for an ASEAN summit that starts with a working dinner on Thursday.

The 10 leaders of the bloc, many of them mired in political trouble at home, will be joined on Friday by their opposite numbers from Japan, China and South Korea.

Malaysia will now have until 2005 to slash tariffs, which can reach 300 percent on imported cars. Tariffs on imported auto components range from 42 percent to 70 percent except for the national carmaker, Perusahaan Otomobil Nasional Bhd., or Proton, which pays just 13 percent.

Malaysia's move has angered Thailand, where multinational car makers have invested heavily and are banking on increased exports to countries such as Malaysia. The two governments will meet next month to discuss compensation.

Officials fear other countries, still not fully recovered from a financial crisis in 1997 that plunged wide swathes of Asia deep into recession, will also take advantage of the exemption clause to delay opening up sensitive sectors.

As well as Malaysia, ASEAN groups Singapore, the Philippines, Thailand, Brunei and Indonesia plus four poorer countries that joined more recently -- Myanmar, Laos, Cambodia and Vietnam.

Although any ASEAN country can apply for a time-out, the protocol was drafted after Malaysia asked for more time to prepare Proton for the onslaught of foreign competition.

Tengku Mahaleel Ariff, Proton's chief executive officer, said last week that the auto maker, which has about 65 percent of its home market, would find it hard to compete if the high tariff walls were torn down right away.

Malaysia distrusts the accelerating trend toward integrated global markets and swam against the tide following the Asian crisis by imposing capital controls to deter foreign speculators.

But Malaysian officials, while wary of the rush to free markets, insist they are four-square behind ASEAN's drive for free trade and investment.

In last month's budget the government said it would permit foreign equity ownership in Proton and Malaysian Airline System, another national status symbol.

By and large, Malaysia's neighbors are sympathetic to its plea for more time.