Govt protection for car industry reduced

Govt protection for car industry reduced

JAKARTA (JP): The government yesterday promised to gradually
lower the levels of import tariffs on automotive products in a
bid to prepare the country's automobile industry to compete on
the global market.

"This year, we will again lower our import tariffs on
assembled vehicles and automotive components. And We will further
lower them gradually every year," Director General of Metal,
Machinery and Electronic Industries Effendi Sudarsono told
journalists after addressing an automotive seminar yesterday.

Last October, the government lowered the import duty on
assembled vehicles whose type is not assembled in Indonesia by 25
points to 175 percent.

On top of the duty, imported assembled vehicles are also
subject to a 100 percent surcharge.

When asked, Effendi declined to reveal when and by how much
the government would cut the import tariffs this year, saying
that his office had no authority to disclose that information.

He explained that such planned deregulatory measures are
intended to make the automotive industry more efficient and thus
increase the competitiveness of the industry.

"The protection given to the automotive industry has been too
much and for too long," Effendi told the seminar. "And
consequently the industry is not able to grow well and is not
ready to compete in an open market."

The government has given protection to the automotive industry
since the early 1970s. Analysts claim that the protection has
been misused by car assemblers, who have used the huge profits
gained from selling their products at far above the real prices
to expand their businesses into other sectors.

"The people are complaining about the high prices of
automobiles in Indonesia, as compared to those in neighboring
countries," Effendi said.

Domestic sales of automotive vehicles, whose production costs
include import duties on components, are subject to a 10 percent
value added tax and a luxury tax of up to 35 percent.

Open

Meanwhile, Herman Z. Latif, chairman of the Indonesian
Automotive Industry Association, called on domestic car
assemblers to prepare themselves for entry into an open market
because Indonesia has committed itself to opening its market
considerably by 2020 as stipulated by the Bogor Declaration of
the Asia Pacific Economic Cooperation (APEC) forum.

At the forum's second summit, held in Bogor last November,
APEC leaders agreed to completely liberalize trade and investment
in the region by 2020. Developed members have until 2010 to
remove all barriers, while APEC's developing members have until
2020.

Once the Indonesian market is open, Herman said, many foreign
automotive manufactures will try to sell their vehicles here
because Indonesia, with its large population (currently more than
190 million people) is a very attractive market.

Herman predicted that the Indonesian market will absorb at
least 500,000 automobiles per annum by the year 2000. Last year,
320,563 units were sold here, representing an increase of 52
percent from 210,679 units in 1993.

To support the automotive industry, Effendi said, the
government has adopted an incentive policy for local
manufacturers of car components by cutting import tariffs on sub-
components, in some cases removing them altogether. Previously,
all imports of car components and sub-components had been subject
to a 100 percent duty and a 10 percent value added tax.

Effendi said the growth of local automotive manufacturing
continued to be hindered because of difficulties faced in the
sub-contracting of component manufacture.

Local content of automotive vehicles currently ranges from
seven percent to 51 percent, while imports of car components last
year reached US$2.1 billion. (rid)