Lower import duties may hurt RI's auto industry: Tunky

JAKARTA (JP): Minister of Industry and Trade Tunky Ariwibowo said yesterday that meeting the requests of Japan, the European Union and the United States to cut import duties and luxury taxes on car components may cause problems to the country's automotive industry.

Speaking to reporters after meeting with President Soeharto at the Bina Graha presidential office yesterday, Tunky said the government had to be cautious because the domestic automotive industry was already "running smoothly".

He said if reductions were made on import duties and luxury taxes, car-manufacturing costs, and their sales prices, would be affected.

"But the question is, will it affect the price of the Timor car?" he said.

Secondly, he said, any reduction in import duties and luxury taxes would also reduce state revenues.

"We always assess the issue from these two aspects. But on the other hand, we are aiming to complete the national car program by 1999," he said.

"Thus, aside from dealing with the (World Trade Organization's) dispute panel, we also have to make sure the program runs well," he added.

The WTO agreed last week to create a panel to look into complaints from Japan and the EU that Indonesia's national car policy violated open trade rules.

The U.S. is also scheduled to request a similar panel at the next meeting of the WTO's dispute settlement body (DSB) on June 25.

This may be blocked by Indonesia as it will be the first time Washington has formally asked for a panel. Next time, the request would be approved by the DSB automatically.

Tunky said yesterday that by succumbing to Japanese, EU and U.S. requests, the government would have to change its policies in the automotive industry.

"According to WTO rules, all policies must be applied on a most-favored-nation basis... This means we would have to change the whole system," he said.

He explained that a government ruling in 1993 stipulated that local car assemblers should continue to increase the local content of their products.

Thus, a car made entirely up of imported parts would be subject to 65-percent import duty. If the car's local content increased to 35 percent, the import duty could come down to 50 percent and, as a result, the car's sales price would also decline, Tunky said.

"We have to be careful if we want to change anything, because the 1993 ruling benefits our automotive industry. It ensures that local content in cars will continue to increase and, in turn, guarantees that we will have a solid automotive industry in the future," he said, adding that the ruling would end on Jan. 1, 2000.

Japan, the EU and the U.S. have argued that the national car policy, aimed at giving a boost to Indonesia's domestic car industry -- so far only aiding a firm headed by one of President Soeharto's sons -- ran against several WTO accords.

Indonesia has denied that import and luxury tax concessions enjoyed by PT Timor Putra Nasional, which currently produces its Timor sedan in South Korea at a plant of South Korean Kia Motors Corp, breached WTO rules.

Indonesia has said the creation of the panel would not stop it from continuing bilateral talks with the three complainants. (pwn)