Car policy row may lead to trade war: Economist

JAKARTA (JP): A senior economist warned yesterday that the dispute between Indonesia and the world's three trading powers over the former's controversial national car policy may lead to a trade war.

Mohammad Sadli, a former cabinet minister who is now chairman of the Indonesia Forum, said here yesterday if the three powers -- the European Union (EU), Japan and the United States -- win the case at the World Trade Organization (WTO) and Indonesia remains defiant over its national car policy, they may retaliate against Indonesia.

He said under the WTO scheme, they are allowed, for example, to slap additional import duties or surcharges on Indonesian goods.

"This might result in a trade war," Sadli told journalists after announcing his forum's plan to host a three-day conference of the Asian Region International Association of Cooperating Organizations here beginning tomorrow.

Asked to comment on the possibility of Indonesia winning the case, Sadli said: "The government said it has trump cards. But I don't know."

Minister of Industry and Trade Tunky Ariwibowo is upbeat about the possibility of Indonesia winning the case, saying that Indonesia has trump cards.

Indonesia is currently engaged in formal consultations -- a preliminary step of the WTO's dispute settlement mechanism -- with the EU, Japan and the United States under the auspices of the WTO over its controversial national car policy, which they say breaches WTO rules.

Indonesia's national car policy, announced in February, gives duty and luxury tax breaks to PT Timor Putra Nasional, owned by President Soeharto's youngest son Hutomo Mandala Putra, in producing the national car under the local brand name Timor in cooperation with Kia Motors Corp. of South Korea.

In order to qualify for duty and luxury tax exemptions, Timor Putra must reach a 20 percent local content level in its Timor cars by the end of the first year of production, a 40 percent level by the end of the second year and 60 percent level by the end of the third year.

This is seen as unfair discrimination by the big three, whose own car companies dominate a large part of the booming automobile market in Indonesia.

Tolerance

Economist Faisal H. Basri from the University of Indonesia predicted that the three big powers will eventually tolerate Indonesia's car policy, as long as Indonesia promises them that it will stop giving additional facilities to the national car producer, Timor Putra.

"I think the parties which have filed complaints with the WTO over the Timor car project will accept that kind of solution because they believe the project will not survive without such unlawful facilities.

"For the Indonesian government, such a solution will keep it from losing face," he said in a one-day seminar on the car dispute, organized by the senate of Atma Jaya Catholic University's School of Economics.

Faisal believes that the government will be trapped into giving more facilities to Timor Putra if it wants to see the national car program achieve success.

He contended that at present, the EU, Japan and the United States are not mainly concerned with the national car policy itself, but more with the facilities given by the government to the company, including the importation of duty-free assembled cars from Kia in South Korea.

Faisal also criticized the local content requirements set by the government's national car policy as inconsistent with the globalized world trends of auto manufacture.

Supporting Faisal's argument, Herman Z. Latief, chairman of the Indonesian Automotive Industry Association, noted that multi- sourcing of components will be much more efficient in auto manufacture than local sourcing.

The world's giant automakers, Herman added, are now keen on forming alliances all over the world and, as a result, decrease local content. (13/jsk)