Tunky dismisses Japan's threat on car project

Tunky dismisses Japan's threat on car project

JAKARTA (JP): Minister of Industry and Trade Tunky Ariwibowo
said that the government will go ahead with its controversial
national car project despite the Japanese threat to approach the
World Trade Organization (WTO) about it.

The Indonesian government will not negotiate with Japan about
its plan to manufacture national cars and will, instead, ask for
a stronger commitment from South Korea's Kia Motors Corp. to make
the project a success,

"In the recent meetings here with Japanese officials, we just
informed them of our new automotive policy. We never negotiated
with them," he said of his response to Japan's threat.

He was speaking to journalists Wednesday following a meeting
with executives of PT Timor Putra Nasional and Kia Motors
Corporation.

The minister made it clear that the government will go ahead
with the national car project even though Japanese car
manufacturers have threatened to take the matter to the WTO.

"We have asked for full support and assurance from Kia to
ensure that the national car project will be a success and they
agreed with that," Tunky said.

Timor Putra's president, Hutomo Mandala Putra, and Kia's
chairman, Kim Sun Hong, submitted a new proposal in the
development of the national car project during the meeting with
Tunky.

Both Hutomo, more popularly called Tommy, and Kim refused to
explain about the proposal. However, sources said that the two
companies, which will jointly develop the national car, have
asked for more favors from the government for the project.

In February, the government granted pioneer status to Timor
Putra to produce a national car with Kia Motors. The pioneer
status will allow the company to receive tax breaks, including
exemption from import duties and luxury tax sales. The tax
incentives will enable the company to sell its cars at half the
price of Japanese makes of the same class (1,600 cc engine
capacity) in the country.

Sedans are normally subject to 100 percent to 200 percent
import duties, and luxury tax rates of 25 percent to 35 percent.

Timor Putra will start operations by importing all car
components from South Korea and assembling the cars here.

Tommy, President Soeharto's youngest son, acknowledged that
the implementation of the national car project has not been as
smooth as expected because Timor Putra's assembling facilities
are not ready.

He, however, said that the problem would not affect the
production schedule as the cars will be, instead, assembled by
the Astra Group and Indomobil Group, the Indonesian partners of
Japanese car manufacturers.

The national car is expected to hit the roads in September
despite the assembling problem, he said.

Japan's auto industry, which at present dominates the car
market in Indonesia, wants to take the issue of the national car
project to the WTO.

"We have told Indonesian government officials that the trade
issue should be taken to the WTO for a smooth resolution under
fair trade rules," the vice president of the Japan Automobile
Manufacturers Association (JAMA), Takao Tominaga, was quoted by
AFP news agency as saying in Tokyo.

Newly-appointed JAMA chairman Yoshfumi Tsuji, the president of
Nissan Motor Corp., called Indonesia's auto policy "a serious
problem," but added he had no specific plan to pursue the issue.

Tunky said early this week that the national car policy was
launched as a breakthrough for the future of the country's
automotive industry.

He noted that the development of the country's car industry,
which started over 20 years ago, has shown no significant
progress.

The minister did not directly blame the industry's slow
progress on Japanese car manufacturers, but analysts said that
the slow growth was partly caused by Japanese carmakers'
reluctance to share their technology with their local partners.

In addition, the Japanese car principals also impose
restrictions on the sales of the cars in overseas markets.

On a separate occasion, Japanese Ambassador to Indonesia Taizo
Watanabe did not rule out the possibility of Tokyo's foreign aid
decreasing this year, but said this would be prompted by factors
other than the current vehicle row.

Japan determines the size of its Overseas Development
Assistance (ODA) to Indonesia and other countries on the basis of
the recipient countries' macroeconomic management, rather than
microeconomic factors, Ambassador Watanabe told a luncheon with
the Jakarta Foreign Correspondent Club.

"There are more important factors taken into consideration
than what you've just mentioned," Watanabe said responding to a
question whether the vehicle row would lead to less Japanese aid
this year.

He added that success in managing the economy could also lead
to a decline in the size of ODA from Japan, pointing to the
smaller amount now given to Malaysia and South Korea as examples.

Tokyo has been Indonesia's largest foreign aid donor. This
year's amount of Japanese aid will be determined at the upcoming
meeting of the Consultative Group on Indonesia, an international
aid consortium led by the World Bank, in Paris in July. Last
year, Japan accounted for $2.14 billion of the $5.36 billion
pledged by the consortium.

Indonesia is also one of the largest recipients of Japan's
ODA.

Watanabe said pressure is growing from Japanese taxpayers to
reduce the overall size of aid to developing countries,
especially in view of the fact that ODA does not necessarily
secure contracts for Japanese companies.

The Japanese government, however, is committed to maintaining
the size of its ODA, in spite of the public outcry. "We're now
having an uphill battle," he said.

The size of Japan's ODA for Indonesia this year therefore
depends on how far Indonesia has developed its economy and also
on how much aid is available in Japan, he said. (hen/emb)