House members question controversial car project

JAKARTA (JP): House of Representatives members suggested yesterday the government revise its automotive development policy, a policy which allows "national cars" to be manufactured in South Korea by a foreign company.

"Regulations related to the national project are inconsistent and contradict each other," a member of the House Commission VI for industry, Frans Kerra, said during a hearing with Minister of Industry and Trade Tunky Ariwibowo.

Frans contended that Presidential Decree No. 42/1996, which allows the "Timor" car to be made in South Korea as long as production involves Indonesian workers and includes Indonesian components, contradicts previous regulations requiring the cars to be produced in Indonesia by a company wholly owned by Indonesian citizens.

In February, the government offered to drop import duties and luxury sales tax on cars containing 20 percent local content by the end of the first year of production. The domestic carmaker had to increase this to 40 percent by the end of its second year, and 60 percent by the end of the third year of production.

The government then appointed PT Timor Putra Nasional, a company owned by President Soeharto's son Hutomo Mandala Putra, as the only company eligible to produce the "national car". Timor agreed to make the car in cooperation with Kia Motors Corp. of South Korea.

Timor Putra, which didn't have a functioning assembly plant, found it difficult to convince competitors to help assemble its privileged automobiles. The President therefore issued Decree No. 42/1996, allowing Timor Putra to have the car manufactured in Kia's South Korean industrial complex and then imported fully assembled.

Yesterday, Minister Tunky said the government requires Kia and Timor Putra to reach a countertrade arrangement. Kia must buy Indonesian components worth 25 percent of the value of the cars Timor will import.

He said the government required Timor Putra to establish a banking guarantee equivalent to the duty and luxury tax that would have been imposed on the tax-exempt cars.

If Timor Putra fails to meet the Indonesian component condition, it will have to pay the unpaid duty and luxury tax on each car imported, he said.

He said state-owned surveying company PT Sucofindo will be in charge of verifying the local content of Timor Putra's cars.

Another commission member, Soenaryo Haddade, said the government should drop the "national car" title because the vehicles are obviously being made in South Korea, not Indonesia.

Responding to the commission members' suggestions, the minister defended the regulations, saying the national car project is not contradictory.

"The regulations are probably questionable if you read them sentence by sentence," he reasoned. "But the idea is consistent -- to develop the national car project." (kod)

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