EU to take issue of controversial car policy to WTO

JAKARTA (JP): The European Union (EU) announced yesterday its decision to bring the issue of Indonesia's controversial national car policy to the World Trade Organization (WTO) following similar threats aired by the United States and Japan on Wednesday.

A statement issued yesterday by the European Commission Representation in Indonesia said the EU has requested formal WTO consultations with Indonesia concerning "trade-distortion measures in the automotive sector".

"This decision has been prompted by the duty-free importation into Indonesia of a consignment of automobiles from Korea which took place this week, and follows informal talks on the issue," the statement read.

"The measure is meant to uphold the rules of the multilateral trading system."

The EU said that although it respects Indonesia's wish to develop a national car industry, aspects of the measures adopted by the government are contrary to basic principles of the multilateral trading system.

"The European Union's main concerns relate to a discrimination between so-called 'national vehicles' (which are either assembled in Indonesia or in Korea) and vehicles imported from the EU; a discrimination against imported parts and components by way of local content requirements and through the granting of favorable tax treatment to certain domestic products," the statement read.

The EU described Indonesia's need for discriminatory measures to protect the automotive industry as "paradoxical," given the fact that import tariffs are currently as high as 125 percent.

The national car policy has sparked controversy ever since it was made public in February.

Under the policy, the government granted a so-called national car tax breaks from import duties and luxury taxes that otherwise push car prices up as much as 60 percent.

The national car is required to have a local content of at least 60 percent after the third year of production.

The government gave the tax exemptions to a sole beneficiary, PT Timor Putra Nasional -- controlled by President Soeharto's youngest son, Hutomo Mandala Putra -- which then linked up with South Korea's Kia Motors Corp. to develop the car under the brand name Timor.

Because Timor Putra's production and assembly plant are not yet finished, the government has allowed the Timor to be manufactured at Kia's plant in South Korea. It is now being imported with the same special tax breaks as a national car under a countertrade arrangement with the Kia.

The government earlier this week released 6,000 units of the South Korean-made Timor cars, which will be sold free of import duties and luxury taxes. (pwn)