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

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)