Protection for upstream industry kept to minimum

PANDEGLANG, West Java (JP): Tariff protection for upstream industrial products will be limited to a maximum of five percent to avoid heavy burdens on consumers, a senior official says.

"The government would actually prefer to help improve the competitiveness of domestic industries against imports by introducing incentives rather than imposing import duties which would burden downstream industries and consumers," Director General of Chemical Industries Sujata said at the opening of a four-day seminar on Wednesday night.

The seminar, organized by PT Chandra Asri, a company currently constructing a giant olefin center in West Java, discusses the development of the country's petrochemical industry.

Sujata said the government, which supports the implementation of the new principles of the General Agreement on Tariffs and Trade (GATT), is committed to imposing import tariffs of no more than five percent on upstream industrial products and a maximum tariff of 30 percent on downstream industrial products in protecting domestic industries.

Tariffs on other products will range between five percent and 30 percent, he said.

However, because imposition of duties will increase production costs which in turn will affect the interest of consumers, the government would rather introduce incentives in the form of tax exemption and other facilities, he said.

The government has been under fire since State Minister of Investment Sanyoto Sastrowardoyo said recently that the government would likely protect Chandra Asri against imports because the establishment of its olefin plant costs a lot of money and its operation can help the country reduce spending for imports of olefins.

Sujata said the government, for example, is considering reintroducing tax respites -- exemption of tax payments for the first few years of operation -- for certain industries in a bid to attract more private investments and to improve the competitiveness of the country's products.

According to Tax Director General Fuad Bawazier, the tax bills currently being deliberated by the House of Representatives (DPR) will, if enacted, allow the reintroduction of tax respites. The revival of such a tax facility is regarded necessary because many countries in the region also offer such a facility.

Efficiency

Sujata said the government, before effecting protectionism for any particular industrial company, will ask a company to show its financial structure and the efficiency of its operation.

"When the financial structure of a company is weak, a protectionist measure will only result in inefficiency."

If the main cause of uncompetitiveness of a company's products is the weak structure of its finance, for example, the company will be required to improve that structure before asking protection from the government, he said.

When asked about the possible protection for Chandra Asri, Sujata said: "Up to now, I haven't been informed at all about its financial structure nor about its production costs."

Chandra Asri is scheduled to start commercial production in June next year with an initial annual production capacity of 1.3 million tons of olefin products.

Sujata, however, revealed that even if the government extends protection to Chandra Asri, it cannot impose tariffs on imports of olefin products because it has been committed to not increase their tariffs from the current levels.

"If the protection were given in the form of tariffs, it will only burden downstream industries, which will in turn diminish the competitiveness of their products on the world market," he explained.

Chandra Asri's vice president, Peter F. Gontha, who was present at the seminar along with the company's president Prajogo Pangestu, said that if the government gives his company a tax respite for a certain period of time it will be enough.

"If we are freed from paying income tax for a certain period of time, for instance, we will be able to cut production costs by 20 percent," Gontha said.(rid)