KL urged to review AFTA auto policy

KL urged to review AFTA auto policy

Agence France-Presse, Kuala Lumpur

U.S. car giant Ford Motor Co. on Thursday urged Malaysia to review its plan to delay opening up its auto industry by two years under a regional free trade area agreement.

Under the ASEAN Free Trade Area (AFTA), most countries in the 10-member Association of Southeast Asian Nations (ASEAN) must cut import tariffs to a maximum of five percent by 2003.

Malaysia has won a reprieve for its auto industry until 2005 to give more time to national carmaker Proton, which is protected by high tariffs on imported cars, to prepare for liberalization.

Ford Malaysia's corporate affairs director Aishah Ahmad said Malaysia currently imposed import tariffs of between 42 and 80 percent on passenger cars.

Under AFTA, the tariffs would drop to 20 percent in 2005 and gradually to five percent only by 2008, she told reporters on the sidelines of an AFTA conference.

"Free trade in CBU (completely built-up) vehicles only starts at five percent (tariff), so we would like to request the Malaysian government to consider a gradual phasing in," Aishah said.

"If the government is saying 20 percent in 2005, don't just reduce the duties from 2005 but do it in 2003, do it in 2004 -- a step-by step slow gradual phase-in to reduce tariffs."

Such an approach would actually benefit Proton by giving it some experience in dealing with an open market before full liberalization, Aishah added.

She said she believed Proton, which now commands more than 65 percent of the local market, could survive competition under AFTA but tying up with a foreign partner "would help the company even further."

Prime Minister Mahathir Mohamad has told Proton to cut its production costs to stay competitive ahead of AFTA and said the government is prepared to authorize the sale of up to 30 percent of the company.

Aishah said AFTA was the key for ASEAN markets to unlock regional volumes as many manufacturers were operating below 60 percent of their capacity.

Under AFTA, manufacturers can eliminate duplicated vehicle assembly and supply bases by focusing production of one model in just one plant to be exported to the region, she said.

"Vehicles can be specialized in one plant, one country and traded in ASEAN. This will give higher economies of scale, reduced cost, reduced complexity and increased quality," she said.

For example, Aishah said Ford has made Thailand its hub to produce pickup trucks and Philippines the Laser and Lynx models.

It was keen to produce a Ford model in Malaysia, which is the third largest car market in the Asia-Pacific after Japan and South Korea, but has to wait for AFTA to gain a level playing field, she added.

On a more cautious note, Aishah said AFTA would only work if there was a "healthy balance of trade" between the ASEAN countries.

The ASEAN members -- Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam -- range widely in wealth and trading prowess.