KL duties on car may penalize carmakers

KL duties on car may penalize carmakers

Agence France-Presse, Nusa Dua, Indonesia

Japan is worried Malaysia's plan to impose excise duties on imported cars despite a regional free trade pact will penalize its carmakers, a top official said on Wednesday.

Malaysia has not unveiled details of the new tax structure but there are fears it will discriminate between national and non- national cars, said Sadahiro Sugita, Japan's trade policy director for the Asia-Pacific.

"We are worried about plans to introduce excise duties for imported cars. If it is implemented unfairly between national and non-national cars, it will be penalizing and discriminatory to Japanese carmakers," he told AFP on the sidelines of the Association of Southeast Asian Nations (ASEAN) summit here.

"We want a level playing field."

Tariffs on imported cars in Southeast Asia fell below five percent in January under the ASEAN Free Trade Area (AFTA) but Malaysia has delayed opening its car market until 2005.

Veteran Prime Minister Mahathir Mohamad last month said Malaysia would levy excise duties on imported cars from January to offset losses in revenues from import tariffs. Critics said the move was aimed at evading AFTA and protecting national carmaker Proton, which is already feeling the heat.

Sugita said Japan's trade ministry had voiced its concern to the Malaysian side during preparatory talks this year on a bilateral free trade pact.

Negotiations on the Malaysia-Japan Free Trade Area are expected to begin next month in Kuala Lumpur and the issue of excise duties on imported cars will be central to the discussions, he said.

Japan's Honda earlier this year launched its own production facility in Malaysia to benefit from AFTA but Sugita said "other Japanese carmakers are still watching closely Malaysia's policy decision."

Despite the government's reminder that car prices will not fall under AFTA, sales have dropped in Malaysia as consumers held back purchases to await details of the tariff adjustment.

But sales of foreign makes rose 19 percent in the first half of this year at the expense of nationally-built cars, Proton and Perodua, due to the introduction of new models and the lifting of price controls by the government in January.

Sugita said giant auto-makers like Toyota and Isuzu have centered operations in Thailand, which has emerged as ASEAN's vehicle assembly and export hub due to its efficient supply chain and liberalized market rules.

Japanese carmakers have a combined market share of 80 percent in Thailand but have been constrained in Malaysia by tariff protection for Proton since 1985.

"Malaysia is still not competitive in this sense. It must open up," he said.

ASEAN's plan to create a single market of 530 million people by 2020 is a crucial factor for investment by Japanese carmakers. But the uncertainty in Malaysia made it tough for them to plan their long-term production strategy, he added.

Malaysia is currently the biggest passenger car producer in ASEAN but research firm Automotive Resources Asia said it believed Thailand would take over the number one spot by 2006.

It predicts Thailand will by then have a 48 percent share of total vehicles produced in ASEAN, with exports of around half a million.