Introduction • Analyzing the effects of Malaysia’s Protectionist • Policy involving the automobile industry: • AFTA • ASEAN Leadership • WTO • Domestic Consumers
Background • 1960 - Malaysian automotive industry begins • 1984 - Perusahaan Automobil Nasional (PROTON), national car maker is established • 1985 - Proton Saga is launched • 1992 - Second national car maker PERODUA is established (primary focus on compact cars) Proton Saga Perodua
Background • The Malaysian government has taken a number of precautions to compete with imported cars: • National Cars receive 50% reduction in excise tax • Import duty: 140 - 300 % on passenger cars • Import duty: 5 - 30% on automotive parts & components • 10% Sales Tax on all assessed vehicles • Import quota on completely built up units (CBU)
Analysis: Implications Delay Implementation of ASEAN Free Trade Area (AFTA): • Malaysia is part of the Association of South East Nations (ASEAN). • 4th ASEAN Summit, AFTA was initiated with the objective of creating a free trade area in ASEAN by 2010. • Malaysia promised to remove all protection relating to the national car industry by 2003. • In 2003, Malaysia asked for an extension till 2005. • Malaysia has not removed current taxes and tariffs as of 2006. • Retaliation by Thailand: Delay in removing tariffs and taxes on palm oil. • Singapore and Thailand have both enacted bilateral Free Trade Agreements with the United States in retaliation.
Analysis: Implications ASEAN Leadership: Malaysia, as founding nation needs to lead via example, otherwise it will lose credibility. WTO Membership: WTO requires all member states to dismantle all trade barriers. Domestic Market: Limited choice and poor quality.
Analysis: Case Study • Indonesia’s National Car Timor • “I made it clear that in our view, this [i.e.,tax incentives and tariff exemptions] was a policy that was discriminatory against European car manufacturers and also that it was contrary to the obligations Indonesia has undertaken with the WTO…” • ~ European Union Commissioner for External Affairs, Sir Leon Brittan, following an April 23, 1996 meeting with Indonesia President Soeharto • 1996 - Launched Timor • Indonesia’s National Car industry was exempt fromimport duty on automobile parts and received preferential treatment • 1998 - Project abandoned due to inability to compete and complaints from EU & US to WTO.
Recommendation: • Removal of import duty on imported automobiles and components. • Reduction of excise tax on imported automobiles. • Removal of excise tax rebates on national automobiles. • Government sell off shares in national car producers (i.e. Proton).
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