Proton unable to compete in AFTA

Proton unable to compete in AFTA

Agence France Presse, Kuala Lumpur

Malaysia's national carmaker Proton may not be able to compete if a local content rule under the ASEAN Free Trade Area (AFTA) is not reviewed, Prime Minister Mahathir Mohamad said Monday.

Mahathir said the 40 percent local content requirement for companies to take advantage of tariff cuts under AFTA would put products with higher local content at a disadvantage.

"Malaysia finds that our national car, for example, which has 90 percent local content, may not be able to compete with cars assembled in other countries that has only 40 percent local content," he told reporters.

"That is why we have to give some due consideration for products with higher local content."

However Mahathir said Malaysia's auto sector "should become more efficient and cost-effective" by 2005.

The premier was elaborating on his comments earlier to the Pacific Basin Economic Council meeting where he called for a review of certain aspects in AFTA which comes into force next year.

"Some of the things in AFTA need to be relooked at... by and large, Malaysia subscribes to AFTA and we will honour our commitments," he said.

Under AFTA, most members must cut tariffs on imports for agreed products to a maximum of five percent. Malaysia has obtained a two-year reprieve for its auto industry until 2005.

Mahathir said the 40 percent local content rule would also affect rice farmers in Malaysia, whose production costs were double that of those in neighbouring rice-producing countries.

"These problems had not surfaced when we signed the agreement... our farmers are concerned (that) they all will have to close shop unless the government subsidises them," he said.

Asked if Malaysia would seek a review of the local content rule under AFTA, he added: "I would like to keep an open mind on this."

On the same occassion, Mahathir Mohamad took a swipe at unbridled globalization Monday and said that nations should break free from economic straitjackets to deal with problems in their own way.

The Malaysian leader has long spoken against what he sees as powerful nations - particularly the United States - establishing economic control over poor countries through institutions like the IMF.

Mahathir has taken pride in Malaysia's rapid rebound from the financial crisis five years ago compared to neighbors like Thailand and Indonesia, who followed painful IMF restructuring programs and have never fully recovered.

The move was criticized but has proven successful. Malaysia's economy dipped into recession in 2001, reflecting the U.S. downturn, but is expected to grow 4.5 percent this year.

"Today, only those who are blind refuse to acknowledge that we have recovered better and faster than those who applied the recommended formula," Mahathir said.

Mahathir said that governments and businesses should not be constrained by systems or ideology but should trust their own judgment.

Malaysia is not against globalization, Mahathir said, adding that foreign investments and free trade have contributed to national growth.

But the benefits of globalization should be shared fairly, he said. Trade rules should be strengthened to provide "a predictable, fair and stable multilateral trading system."