Government to cut import duties on truck, bus components

By Sylvia Gratia M. Nirang

TOKYO (JP): Indonesia is to cut the import duties imposed on components to be used in heavy commercial vehicles, such as trucks and buses, to below 15 percent.

Agus Tjahajana, the director general of metal, machinery, electronics and automotive industries at Indonesia's Ministry of Industry and Trade, said here on Tuesday that the lower duties would be imposed on components which could not be produced locally.

He said the lower duties are intended to address a growing concern among Japanese car manufacturers that Indonesia's new automotive policy, which eliminates tax incentives given to automotive producers with high local content, would increase the price of trucks and busses in Indonesia.

"Japanese car manufactures fear they will pay import duties of 15 percent regardless of how much local content in their products," Agus said after a private meeting with Japanese car manufacturers.

Under the current automotive policy, Agus said, the government imposes no import duties on components imported for heavy commercial vehicles with local content over 30 percent.

But under the new automotive policy to be issued soon, the local content requirement would be abolished. All automotive companies, as a consequence, have to pay import duties according to the existing import tariffs.

The import tariffs for components used for heavy commercial vehicles is 15 percent.

"They (Japanese car makers) fear that the 15 percent import tariff will burden them and jack up the prices, which would drag down the sluggish domestic sales further," he said.

"The government has agreed to lower the import tariffs on components. But it will be applied only to those which can not be produced locally. This decision is made after considering that trucks and buses are economical vehicles and are used to carry goods and people. The price increase would have an effect on the distribution of goods."

The meeting with Japanese car manufacturers was held as part of the Indonesian trade and investment mission to Japan. The mission, joined by 35 Indonesian companies, is led by Minister of Industry and Trade Rahardi Ramelan.

The meeting was attended by the Japanese Automobile Manufacturers Association (JAMA), Isuzu, Toyota Motor Corporation, Honda Motor Co., Mitsubishi Motor Corporation and Hino Motors.

Japan has one of the world's strongest car manufacturing industries, with annual production reaching 10 million vehicles.

The country's car makers with partnership operations in Indonesia are Daihatsu, Hino, Honda, Isuzu, Mazda, Mitsubishi, Nissan and Nissan Diesel, Suzuki and Toyota.

Partnerships are in the form of joint ventures, technical assistance schemes and production contracts.

Rahardi said that Japanese car manufacturers also warned the government that the new automotive policy should not increase the price of small commercial vehicles and small sedans.

He added that the Japanese companies also asked the government not to differentiate the tariffs on diesel and gasoline engines.

"They also urged us to implement the new policy gradually. But we cannot do it because the new policy is needed to create a more effective and efficient Indonesian automotive industry," Rahardi said.

Rahardi said Japan's automotive manufacturers believe the future of the Indonesian car market will remain bullish despite the current sluggish market.

He said the Japan-based parent companies would inject their Indonesian operations with fresh capital, providing loans or advance payments to assembly plants for car components.

"They are also interested in buying Indonesia's idle assembly plants," he said.

Rahardi said the Japanese car producers have arranged a number of approaches, such as shifting the market to overseas and improving workers' productivity during the crisis.

Many Japanese companies, he said, have told him that they would use the production slowdown to improve the technology and human resources of their local partners by providing extensive training for their workers.

He said Japanese-based car makers would also try to raise exports of complete vehicles and auto parts products from Indonesia to offset the sharp drop in domestic sales.