RI uncompetitive compared to neighbors

RI uncompetitive compared to neighbors

Adianto P. Simamora, The Jakarta Post, Jakarta

Some leading electronics and car producers are planning to
relocate their production bases or set up new plants in one of
the ASEAN countries to take advantage of the low import tariffs
under the ASEAN free trade area (AFTA).

Indonesia, however, will likely fail to compete with the other
ASEAN countries, particularly Thailand, in attracting investors,
several industry players warned.

South Korean electronics giant LG Electronics, for instance,
is considering relocating its air conditioner production to one
of the ASEAN countries.

"Our headquarters will likely prioritize Thailand as its
production base in the ASEAN countries," Shun Khiun, marketing
manager of PT LG Electronics Indonesia, told The Jakarta Post
over the weekend.

"Some problems, such as the continued political uncertainties
and labor policies, have been the main factors discouraging our
headquarters from entering Indonesia," he said.

Thailand has a better labor policy and "more conducive"
investment climate, Shun said, but he did not provide details.

LG now exports air conditioners to the ASEAN countries from
South Korea with high import tariffs.

AFTA came into force on Jan. 1 in six ASEAN member states,
namely Indonesia, Malaysia, Thailand, Brunei Darussalam,
Singapore and the Philippines.

The four other ASEAN countries -- Laos, Myanmar, Cambodia and
Vietnam -- have delayed the implementation of AFTA until between
2006 and 2010.

In line with AFTA, the six ASEAN countries have reduced import
tariffs on almost all products to between zero percent to five
percent.

Lee Khan Hyun, general manager of PT Samsung Electronic
Indonesia concurred with Shun Khiun, saying that Indonesia would
even be unable to compete with Vietnam in attracting investors in
the electronics sector.

Lee particularly criticized smuggling and the government's tax
policies.

"Our headquarters is very concerned about the high level of
smuggling and the luxury tax imposed on electronics products."
Lee told the Post.

The Indonesian Electronics Association has repeatedly called
on the government to curb the smuggling of electronics products
and to revoke luxury taxes on such products so as to enable them
to compete with an influx of cheaper electronics products.

"We can't calculate our potential share in the domestic market
because about 50 percent of the electronics products traded here
are illegal," Lee said.

The government has imposed luxury tax of between 10 percent
and 75 percent on electronics products, but smuggled products are
sold free of such taxes.

In the automotive sector, Japan's Honda Motor Co Ltd has
decided to invest US$30 million in setting up a new car plant in
Karawang, West Java, to strengthen its presence in the Southeast
Asian market. The construction of the plant started Thursday.

The company said that Honda would utilize Indonesia as its
first and only production base in the ASEAN countries for its new
Stream minivan.

"We will export Stream minivans to the other ASEAN countries
based on the lower import tariffs," Satoshi Okamoto, vice
president of PT Honda Prospect Motor, said, adding that the new
plant would have a production capacity of 40,000 units per year.

Thailand, however, for many automotive companies is still more
attractive than Indonesia.

Honda has established a plant in the country to produce
various top Honda models, including the Honda City, Civic, Accord
and CR-V with a total capacity of 70,000 units per year,
according to the company's website.