Only one car firm to get protection

Only one car firm to get protection

JAKARTA (JP): The government is turning down new proposals from automotive firms to develop "national cars", in order to benefit from its newest policy which grants luxury tax and duty breaks.

Minister of Industry and Trade Tunky Ariwibowo told local and foreign journalists at his office here yesterday that the government will extend such luxury tax and tariff breaks to only one car firm at a time.

"We want one at a time. We want to see how this company progresses, at least for a three year period," Tunky said, referring to PT Timor Putra Nasional, which is controlled by President Soeharto's youngest son, Hutomo Mandala Putra.

Tunky said recently that Timor Putra was the only company that met the conditions set by the government's newest regulations on the automotive sector.

The regulations -- a Presidential instruction, a government regulation and two ministerial decrees -- grant import duty and luxury sales tax exemptions to cars which use Indonesian brand names, are produced by domestic companies and are developed with domestic technology, engineering and design.

Timor Putra announced last month that it planned to build a sedan under the Indonesian brand name "Timor" in cooperation with Kia Motors Corp. of South Korea.

The new policy gives Timor Putra three years to develop the Timor car. The car has to contain local components of 20 percent by the end of the first year, 40 percent by the end of the second year and 60 percent by the end of the third year.

Tunky said yesterday if the company fails to meet the required local content, the government will penalize it by requiring it to pay the duty and luxury sales taxes after all.

He confirmed that during the first year of the development of the Timor car, Timor Putra can import 100 percent of the components without having to pay duties.

Keen interest

A number of local car firms have expressed their interest in developing similar national cars to gain duty and tax exemptions. These include PT Citra Mobil Nusantara, a subsidiary of the Bimantara Group which is controlled by Bambang Trihatmodjo -- another son of President Soeharto -- General Motors Buana Indonesia, which is controlled by Soeharto's half-brother Probosutedjo and the Indomobil Group, the second largest local car assembler which is controlled by business tycoon Liem Sioe Liong, also known as Sudono Salim.

Bambang said recently that his group hopes to start producing sedans with 1500 cc or 1600 cc engines, to be called Bimantara, later this year, in cooperation with Hyundai of South Korea.

"If the government grants such tax and duty exemptions to other companies, it will jeopardize its tax revenues," Tunky argued yesterday.

From the automotive sector alone, the government receives over US$2 billion in tax payments per annum. "If we had more than one firm like Timor, it would reduce our tax revenues substantially," Tunky said.

"It could also jeopardize existing car makers, because there would be more cars offered to customers at lower prices," he continued.

Indonesia has long suffered a lop-side trade imbalance in the automotive sector. Imports of automotive products reached US$3.6 billion last year, about 10 percent of the country's total non- oil imports. Meanwhile, exports of automotive products totaled less than $250 million.

The government's move to grant tax and duty exemptions to Timor Putra, however, has hit existing car assemblers. In response to the new policy, Japanese and U.S-affiliated car firms have halted investment here.

Japanese cars dominate Indonesia's automobile market with a share of more than 90 percent.

The Japanese government has said it is investigating the new policy to determine whether it conflicts with international rules on fair trade. Japan is also considering a complaint to the World Trade Organization (WTO) to air its grievance.

The first secretary for commerce at the Japanese Embassy here, Koji Toyokuni, told The Jakarta Post yesterday that Ambassador Taizo Watanabe met with Minister Tunky on Thursday and expressed concern about the new policy.

"The policy does not reflect the principles of transparency and equality. It can create problems relating to WTO agreements and may have a negative impact on the investment climate in Indonesia," Toyokuni quoted his ambassador as saying.

Tunky, however, contended that Indonesia had not violated WTO rules by introducing the new measures. "I have studied the rules. We are not violating WTO rules."

He argued that article 18 of the WTO allows developing countries to protect their domestic industries until the year 2000.

"We must be able to use this opportunity. If we do nothing to strengthen our industrial base, how can we win with open competition," Tunky said, adding that the policy is aimed at strengthening the domestic car industry. (kod/rid)

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