Car policy row may lead to trade war: Economist

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)