Automobile Industry Of Malaysia Essay

1021 words - 4 pages

AUTOMOBILE INDUSTRY OF MALAYSIAMalaysia's Auto Industry: An Economic Safety NetPrime Minister Mahathir prizes development of an indigenous auto industry as his pet project. He has sought to develop the auto sector to avoid a huge trade deficit and to reduce the effects of volatile changes in rubber and palm oil prices on the economy and promoted the sector to help speed recovery from the Asian economic crisis. The Malaysian government also believes that a strong motor industry brings employment, technology, economic development, and prestige. Malaysia's two national car makers, Proton and Perodua, dominate the local market, with over 90 percent market-share of passenger-vehicles due to the government's protective policies.U.S. Automakers Face a Multitude of Trade BarriersMalaysia maintains several measures to protect the local automobile industry: the highest import duties on autos and motorcycles in Southeast Asia and in the world (passenger car duties ranging from 140% to 300%), a 10 percent sales tax, a graduated excise tax that ranges from 25 to 65 percent (with national cars receiving a 50 percent reduction in the tax), import quotas, an unclear and non-transparent licensing system that requires an "Approval Permit" on imported autos, and local content requirements for autos produced in Malaysia by foreign companies that range from 45 to 60 percent for vehicles and motorcycles, and incorporates a "deletion list" of parts which must be sourced in Malaysia. Most import duties are based on engine size and capacity. This "national car policy" prevents American cars from competing on a price basis, particularly for larger sized, American cars and motorcycles.Domestic Industry Thrives Under ProtectionMalaysia argues that the national car industry needs more preparation time to compete globally and is not ready to reduce or abolish protective measures. As recent statistics prove, the domestic auto industry is obviously benefitting from monopolizing the largest passenger car market in ASEAN. In 2000, the total sales of component parts rose 31 percent from 1999 to US$1.04 billion. Exports of automotive parts also increased 21.3 in 2000. In 2001, domestic car sales grew in eleven of the twelve months and rose overall by 15.7 percent. Also to Malaysia's benefit, many foreign companies continue to comply with local content requirements and invest in Malaysia. Between 1999 and September 2001, a total of 88 automotive component manufacturing projects, worth US$ 329 million, were approved, 80 percent were foreign investments, a majority of which were Japanese.Fighting LiberalizationMalaysia is by far the most outspoken ASEAN nation in voicing concern over pursuing an automotive trade liberalization agenda in a number of fora including the WTO Agreement on Trade-Related Investment Measures (TRIMs), the ASEAN Free Trade Area (AFTA), and the APEC Auto-Dialogue. Malaysia received an extension to the TRIMs Agreement deadline, and will delay removing local...

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