EU move on Timor car
It is now simply a matter of time before the United States, which has always claimed to be the vanguard of free trade, joins the move led by Japan and the European Union in asking the World Trade Organization panel to judge Indonesia's controversial national car policy. The EU has decided to seek a WTO panel at the monthly meeting of the WTO Dispute Settlement Body next week. Indonesia can block the EU move as it did with Japan's motion late last month, but that will only delay the panel's formation for one month.
What a pity and waste of government resources for defending a private company, which has so far contributed nothing to the development of the country's automobile industry. In fact, PT Timor Putra Nasional, a complete newcomer to the industry, has yet to complete its assembling plant in West Java within the next two years. Timor Putra's competitive advantage now in the domestic car market is the February 1996 government regulation that classifies it as the only company qualified for what the government calls a national car program.
This classification, decided arbitrarily by the government to the disgust of other domestic car companies and sharp criticisms of almost all private-sector analysts, has entitled Timor Putra to import, without paying import duty and luxury sales tax, 45,000 fully assembled Timor sedans from its South Korean joint venture partner, Kia Motors Corp.
Worse still, the Timor car, though its price is supposed to be 60 percent lower than domestic competitors due to its duty and tax relief, has performed poorly in the market. Timor Putra has been able to sell less than 50 percent of the 45,000 fully assembled Timor sedans it has been licensed to import since last August.
The poor sales, however, have not discouraged the government from mobilizing three state banks and 10 major private banks to put up a syndicated loan of almost US$700 million to speed up the completion of the Timor car program. Given the power of the government, and in view of the "national" label put on the Timor car program, those banks will have no other choice but to give the required loans at the great risk of suffering bad credit. Publicly listed banks which will take part in the loan syndication will be well-noted by the government but may likely be punished by the Jakarta stock market. Further down the road, the central bank will have to review the target of bank lending growth this year.
The decisions by Japan and the EU to bring the allegedly discriminatory car policy to the WTO panel has propelled the Timor car issue into a new stage with big economic risks for Indonesia itself. Timor's car development has now seemingly been guided more by nationalistic sentiment and politics than by industrial logic.
Building the Timor car assembly plant, however, will not end the problems related to the national car program. Many parties, especially other car industrialists, are now nervously waiting for other market distortions the government may create in order to push Timor's marketing.
Many analysts are still wondering why the government had picked the sedan for the national car program in the first place, and not a light commercial car or utility vehicle whose use would be much more productive and supportive of national economic development. The problem is that sedans account for only 10 percent to 15 percent of 450,000 automobiles sold annually in the country. The Timor car, its image already devastated by the publicity around its special treatment and by international disputes, is surely facing an uphill battle to make significant sales in the market. Timor has to compete with at least six other sedan makes in the 1,600 cc market.
A more dreaded consequence is looming ahead pending the completion of the dispute settlement process within 16 to 18 months. If the government loses -- which is seen by most analysts as highly probable -- it will have to withdraw or correct its national car policy, otherwise the complainants will have the right to take retaliatory measures against Indonesian export commodities.