Malaysia urges SE Asia to rethink AFTA car plan

Malaysia urges SE Asia to rethink AFTA car plan

KUALA LUMPUR (Reuters): Malaysia urged its Southeast Asian neighbors on Tuesday to reconsider plans to open the region's car markets as liberalization could hurt its two domestic producers.

"We have a lot of disadvantages if we open up our markets," Prime Minister Mahathir Mohamad said.

"Naturally, we wouldn't be very competitive," he told a meeting of Asian and European businessmen when asked about the Malaysian auto industry's commitment to the ASEAN Free Trade Agreement (AFTA).

AFTA is a pact among the 10 member countries of the Association of South East Asian Nations (ASEAN), which groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Under AFTA, ASEAN members have agreed to cut tariffs, including those on cars, to between zero and five percent by 2003.

But Malaysia -- with Southeast Asia's only domestic car makers now that Indonesia's national car project has stalled -- has made a special request that it be allowed to maintain protective tariffs on automobile imports until 2005.

ASEAN economic ministers meeting in Yangon earlier this month agreed to consider Malaysia's request, saying Kuala Lumpur would have "real problems" meeting the AFTA obligation, and to take a decision on the matter in October.

Malaysia has kept heavy tariffs on imported cars and components since the late 1980s after venturing into automobile production.

Mahathir said on Tuesday that the AFTA plan has hit Malaysia's two car makers -- Perusahaan Otomobil Nasional Bhd (Proton) and the smaller Perusahaan Otomobil Kedua Sdn Bhd (Perodua).

Proton, which makes its range of cars under a joint venture with Japan's Mitsubishi Motors Corp, has to buy technology and components at high costs, he said.

Such indigenous production is different from merely assembling cars using components made elsewhere, he said.

"What we have seen is people moving into other ASEAN countries and setting up plants to produce cars and calling them products of (that particular) country," Mahathir said.

"And they are having the privilege of exporting to other ASEAN countries by paying little tax and competing with car manufacturers like Proton."

He suggested that the production of components should be shared among AFTA members to ensure the region's automobile industry benefits as a whole. But he did not say how this could be done.

"We should sit down and see whether there can be some kind of division of labor where some countries produce some things and some other countries produce the others," he said.