View Full Version : No cheaper car price after AFTA

08-11-2002, 11:23 AM
November 8, 2002

<font size="+1">M'sians to bid for car COEs?</font>
Dr M moots idea for offsetting revenue fall when import tariffs are cut

By Eddie Toh
In Kuala Lumpur

MALAYSIA might implement a COE system - just like Singapore's - to help make up for the fall in revenue when tariff barriers on imported automobiles come tumbling down in two years' time under the Asean Free Trade Agreement.

Malaysian Prime Minister Mahathir Mohamad said the government will find new ways to collect revenue when import tariffs are lowered to 5 per cent in 2005.

'Certificate of fitness can be introduced,' he told reporters yesterday after launching two new models of the national car, Proton. He was asked if Malaysia will introduce Certificates of Entitlement, which entitle successful bidders to own cars in the Republic.

Dr Mahathir dashed the hopes of car buyers waiting for prices to ease when import duties are slashed. 'Sorry, some people are waiting for the price to go down but it's not going to happen,' he said.

'Under Afta, we will not impose import tax that is high. But within the country, other taxes will be introduced,' he added.

He stressed that the new tax will be applied to all cars - domestically produced cars like Proton as well as imported cars.


09-11-2002, 09:47 AM
Saturday, November 09, 2002

Government working on post-Afta measures for auto Industry

KUALA LUMPUR: The Government is still working on the guidelines and measures for the local automotive industry in preparation for the Asean Free Trade Area, said International Trade and Industry Minister Datuk Seri Rafidah Aziz.

“We are working on the measures, not necessarily tax measures but measures that need to be parallel with those of tax measures,’’ she said during her ministry’s monthly media briefing at her office here yesterday.

As for tax measures, Rafidah said, the matter had yet to be decided by the Government, adding that Malaysia had another two years to fully work on them.


09-11-2002, 09:50 AM
Saturday, November 09, 2002

<font size="+1">Don’t forget the consumers in post-Afta period</font>

PETALING JAYA: The interest of consumers should not be forgotten by the Government following its decision to impose other taxes on imported cars after the implementation of the Asean Free Trade Area (Afta) in 2005.

Federation of Malaysian Consumers Associations (Fomca) legal adviser T. Indrani said while the decision was meant to protect the local automotive industry, there should also be a “balancing act” to protect Malaysians as there were no proper regulations in place for them.

“Consumer bodies are worried as globalisation and free trade are not working out to benefit the people. Talk of self-regulation resulting in cheaper prices is not seen to work out as there are ways to work around it,” she said yesterday.

Indrani also said that the Government had to ensure that the taxes it was planning to impose were not discriminatory on foreign-made cars.

“There has to be a careful study on the matter because Malaysia could be taken to task by other Asean member countries if they feel that the taxes are a protective measure for locally manufactured cars,” she added.


09-11-2002, 12:03 PM
yells volumes for ill intentions.

why join afta, wto, etc when the ultimate spirit of these agreements, i.e. max benefit to consumers, is not on the agenda! :confused:

begs the question again - :( what the hell is afta, wto, globalizaiton, etc all about, if not just a license to kill for the existing global giants. eventually there will be a microsoft in every industry, thats my bet. :rolleyes:

09-11-2002, 12:27 PM
Useless Useless...

This is a big joke to protect the local carmakers...

AFTA my F_ _ T ......!!!!@#$#%


09-11-2002, 10:34 PM
don't have to wait 'til 2005 to buy a car. Get the car that meet your expectation and built quality now.


10-11-2002, 11:29 AM
2:42pm Fri Nov 8th, 2002

<FONT SIZE="+1">Car prices an act of highway robbery?</FONT>

When the government launched Proton in 1985, import duties on
completely-built-up (CBU) cars were jacked up, and Prime Minister Dr
Mahathir Mohamad told us then:

"Well, we have to protect the nascent locally assembled car
industry. There're lots of spin-off effects which will be good
for everybody. So if you still like to get an imported car, then
you'll just have to pay more, I'm afraid."

Never mind that there were already a few car assemblers around - they were
in private hands - and there were no useful links between them and the
dominant political party. Malaysians had to undergo all the expense of
reinventing the wheel, because it always makes for political security and
stability to have bumiputra engaged in the economy everywhere. Fair enough.

Now that WTO and Afta are breaking down protectionist barriers to free trade
everywhere, Mahathir says:

"Local taxes are going to be imposed on all cars to replace the
loss of revenues from import tariffs so sorry-lah! The price of cars
is not going to come down."

Next, will he blandly asserts the money is needed to "finance development
and pay government servants' salaries"?

Shouldn't he be looking into greater efficiency in the public services
rather than providing easygoing employment for large numbers of potential
voters? He should be well aware by now that these government servants may
well vote his party out as there are alternative channels for the bumiputra

Previously International Trade and Industries Minister Rafidah Aziz has also
said that "just like Singapore, you know, we have to find other ways to
recover the loss of import tariffs".

Please! Singapore is a tiny island with a well-designed mass transit system
and an advanced electronic traffic management system. They have no
alternative but to tighten control of car ownership. But they provided
excellent alternatives to private car transport.

In Malaysia, we certainly have plenty of room, except in the larger urban ar
eas, for the growth of vehicular traffic in suburban areas and on intercity
and interstate routes. Cars are a necessity and the second largest family
expenditure after housing.

How can Malaysian motorists get together to deal a devastating blow,
peacefully of course, to the current government through the ballot box when
the next national elections rolls around?

In the words of the passengers of Flight 93 on that fateful day on Sept 11,
"Let's roll!"

Every time your car rolls away down the driveway towards your destination,
let's imagine, just for one moment, that we're helping to roll back the
Barisan National's 45-year stranglehold on political control.

So that they'll be just a little less arrogant, a bit more careful with our
money. Let's roll!


10-11-2002, 11:33 AM
2:41pm Fri Nov 8th, 2002

<FONT SIZE="+1">Cars still on crutches post-Afta?</FONT>
Aizuddin Danian

Prime Minister Dr Mahathir Mohamad has issued a statement that imported cars
will not be any cheaper because domestic taxes will still be levied on them.
Afta only requires import taxes to be removed.

But he also goes on to say that locally-made cars (such as our venerable
Proton) will be subject to the same taxes. Taken in its entirety, Mahathir's
statement leaves some questions begging to be asked.

- What's the point of putting domestic taxes on imported and local cars?
Okay, some income will be generated for the nation from the taxes, but
surely, such 'creative taxation' policies goes against the spirit of Afta,
if not the latter?

- If our national cars are going to be equally taxed (there is some doubt in
this; at the last moment, I suspect special 'tax breaks' may be awarded to
continue the protection the national cars enjoy), how will they remain
competitive? The only reason why local cars are cheaper OTR (on-the-road) is
because import taxes double (and at times, triple) the retail price of an
imported car.

Will the "domestic taxes" proposed be higher for "imported" cars? Or will
the domestic tax be equal for all cars? If this is true, then "imported"
cars of the same class will still be cheaper than our Proton and Perodua;
foreign car makers have economics of scale on their side and can afford to
enter a loss-leader strategy to attract the Malaysian consumer.

Under such circumstances, Proton and Perodua's market share will be severely
eroded even if they are able to lower their costs of production and the
retail price of their products.

If this happens, and they both begin losing money, will the rakyat
(citizens) be called upon to bail them out? Encore, MAS; encore, Perwaja


10-11-2002, 11:41 AM
9 November 2002

<FONT SIZE="+1">Malaysians may dump Protons for popular foreign cars</FONT>
Already, many people are putting off car purchases in anticipation of cheaper foreign cars entering the market in 2005

By Leslie Lau

MALAYSIANS are still expected to eventually trade in their Protons for foreign cars despite an announcement this week that cheap foreign makes will not flood the market in 2005.

Most Malaysians have put off car purchases in anticipation of cheaper foreign cars entering the market in 2005, the year the government would be compelled to lower excessive protectionist taxes under its commitment to the Asean Free Trade Area (Afta) agreement.

But Prime Minister Mahathir Mohamad said this week that taxes would be maintained equally for both foreign and local national car companies like Proton and Perodua.

This would effectively result in national cars becoming more expensive by 2005.

...Under Afta, Malaysia cannot impose excessive taxes on foreign cars manufactured in Asean countries as part of its efforts to protect the local car industry.

Levying similar taxes on national and foreign cars by 2005 will result in Protons costing more while foreign makes may cost slightly less than now, a motoring industry analyst told The Straits Times.

He said the pent up demand among the Malaysian motoring public, nearly 60 per cent of whom drive a Proton model, will likely result in national cars losing substantial market share.

Some are even predicting dire straits ahead for Proton, Malaysia's first national car that was started in 1985 and now sells two out of every three cars in the country.

...Proton this week launched its latest model, the Arena, which is a cross between a pick-up and a saloon, a variant seen only in Australia in vehicles manufactured by Ford and General Motors, and which has received less than enthusiastic comments from the public so far.

Proton's last model, the Juara, a boxy mini city van, failed to sell well, putting pressure on company executives who have promised the government that Proton will be competitive by 2005.

It also launched a new edition this week of its Waja saloon, a model the company hopes will enable it to compete with foreign makes by 2005.

Malaysia's other national car company, Perodua, which makes mini cars like the Kancil and Kelisa, is expected to emerge unscathed in the aftermath of Afta.

Industry analysts say Perodua, which is in partnership with Daihatsu of Japan, has no rivals in selling its popular mini-cars in Asean countries.

The company will also be manufacturing Daihatsu cars for the Asean market.


10-11-2002, 11:46 AM
1:40pm Sat Nov 9th, 2002

<FONT SIZE="+1">Consumer group: Ensure domestic tax on cars not discriminatory</FONT>
Kevin Tan

A local consumer advocate group, Era Konsumer today urged the government to
be cautious with its implementation of the proposed domestic tax on cars
when the Asean Free Trade Agreement (Afta) kicks in next year to avoid being
misconstrued as discriminatory to imported cars.

...Charles Santiago, an economist specialising in globalisation issues,
explained that a free trade regime means there should be a unified trade
practice among its member countries and warned that the proposed domestic
tax could violate the practice.
Import duty and sales tax imposed on imported cars using petroleum under the
Malaysian Customs Duties Order 1996. [Duty is calculated based on the
transaction value.]

Capacity Import duty Sales tax

Not exceeding 1,000 cc 140% 10%
Exceeding 1,000 cc but not exceeding 1,500 cc 140% 10%
Exceeding 1,500 cc but not exceeding 1,800 cc 140% 10%
Exceeding 1,800 cc but not exceeding 2,000 cc 170% 10%
Exceeding 2,000 cc but not exceeding 2,500 cc 200% 10%
Exceeding 2,500 cc but not exceeding 3,000 cc 250% 10%
Exceeding 3,000 cc 300% 10%

Source: Malaysian Consumer Homepage


11-11-2002, 10:52 AM
<font size="+1">Response from the ASIAN/ASEAN neighbours</font>

Monday, November 11, 2002

ASEAN must fix its own house

The Nation

Beyond the fanfare of signing ceremonies, which were in abundance in the Cambodian capital of Phnom Penh during last week's ASEAN summit, the member nations seem to have lost sight of the fact that they need to get their house in order by knuckling down and meeting past and present obligations.

...Nobody really knows how long it will take to put the free trade zone into effect, but the time frame is expected to be about 10 years. China has successfully used this framework as a stepping stone to draw ASEAN in. Due to its domestic politics, Japan's future negotiations on closer economic cooperation with ASEAN will not be as easy as they are hoping for.

These difficulties also point to ASEAN's own shortcomings.

Its members have not taken the obligations under the Asian Free Trade Area (AFTA) seriously. Malaysia has already broken the AFTA rules in its automobile market. Now Indonesia and the Philippines are going to do the same by withdrawing sugar from the sensitive list altogether. Such a preponderance for unilateral actions among members is rocking the long-term aims of AFTA. It will hurt ASEAN's future negotiations on broad-based trade pacts. Without a fast and fully implemented AFTA, free trade deals with outsiders would be jeopardised


11-11-2002, 11:29 AM
when u wanna take on a giant, u gotta use the right tools. david used a simple sling and a stone to down goliath.

local car manufacturers gotta be more focused and use the right tools too. if their aim to make msians patriotic and but only msian made vehicles then they are on the right track.

but if ringgit and sens feature in their plans and free trade globalisation afta wto etc are in their lingo then it is time to take stock. not of how many cars roll off the assembly lines. but of how many active makes and models they have in hand. honestly, how big is the market and how cost efficient is it to mill such a wide variety of utility boxes. just so that every car buyer will have a local option :rolleyes:.

nissan sold over 6k units of ad resort under very trying (trade resisting) circumstances and over the financial crisis. judging by what i see on the roads, it is the most popular station wagon in the country, and with very very few competitors. even with that posiiton, nissan has found it appropriate to discontinue the model, and of course not just to replace it with another.

do we really need wiras to fight wajas, kancils to do battle with kelisas? do we need 4 wheeled princes and boxing champions and kembaras and kenaris to sit tall on our roads? and introduce another 2 new white elephants in really bad times :confused: ?

my bet is that if the trend continues, they will need another bmf or emron's financial mavericks to live out the decade :mad:.

11-11-2002, 03:02 PM
sigh, sigh, there goes the 2005 dream. then again, if taxes are going to be imposed on both local and imported cars, that wd mean there isn't anymore price difference (provided the taxes are on on the same level for all cars and not less tax for local cars), we can go get the imported cars instead. i have just finished my last free service, each service resulted in a new set of problems for the poor little satria that i'm just going to pay a mechanic to do a thorough one after this. if only i had opted for a kia last year, it would have saved me a lot of frustration and misery with low quality products and indifferent USPD staff who thinks i'm begging them to service my car at my own will. a toyota car owner gets to evaluate the sales and service staff and gets a reminder for servicing, a proton owner is treated like dirt at the service center, at least, the one in puchong.

12-11-2002, 09:57 AM
I fully agreed with GeneralDogsbody's comment on the kind of service you would get from USPD's (now Proton Edar) Service Centres. My personal experiences at the ones in both Section 13 and Section 14 are equally worst. They treat customers like dirts and nuts and feel they're sort of a nuisance to them. The kind of system they adopt is the worst of its kind in the world which requires long waiting at the expense of customers' time while they work 'hard' and long hours behind their back. They expect everyone to drop their cars early in the morning at their 'good' hands and collect later in the evening. For those who wish to wait, you just have to wait at their pleasure and delights. Their 'first come first serve' policy doesn't apply at all. As regards to their 'good' hands and working 'hard', for example, I found out, at my last service, that one of the air-con nuts was not replaced (most probably forgot to do so) and paint coming-out scratches appeared near the boot and elsewhere. I wonder whether the oil and filter were really changed and replaced at all. It was a great relief to me after going through the 3 ordeals on their so-called 'free' services they proudly pledged to give you when you buy their cars. Generally, their spare parts and oil costs more compared to those outside (they even got the guts to add RM3 for EVERY service bill under 'miscellaneous' and paper charges).

Till this day, they still survive and stand tall, WHY? WHEN? HOW?

12-11-2002, 11:48 AM
yes leetickseng but have u ever seen a mechanic who does not have an wide assortment of screws nuts and bolts not to mention other odds and ends whcih should rightfully have been installed from some where? anyway the subject seems to be diverting from car prices after afta. ;)

12-11-2002, 04:58 PM
Just my xperience.

The one in SS 19, I sent my car for service plus wheel alignment and you know what I found out?

They drove my car to another service center - not USPD to do it and double charge me - one on the bill the service center charge them and another for their "service".

On top of that, their so call service is just change the filter and oil, no other things. Not to mention about service reminders. Not to mention anything that is going to drop off ... That is their best customer service :confused:

The current service center that I go to, eventhough did not give me service reminders, provide a good service, brake oil already kopi susu, need to change; tayar botak, time to change; this brand has a better advantage than that brand, why ... I felt my money is well spent than in USPD, not to mention the time taken for their standard service ... and I dare to generalise that all USPD service center are the same, may be with one or two exceptions only, in Melaka, in Perak, in Shah Alam, in Puchong, in Penang ...

When AFTA comes, that's it.

13-11-2002, 07:06 AM
Despite a name change, Edaran Proton still retains its negative consumer perception earned during the days of USPD.

Even if they changed their names several more times, the perception will not go away that easily. It's a stigma they have to live with.

The root cause could be that, as a beneficiary of protectionism, they don't see much of the need to engage their customers.

'Take care of your customers, or somebody will' apprently doesn't rub an effect on them. Or they think so.

I do hope AFTA will rear its impact on duo-poly players like these, that with competition - meaning more choices at each's affordability - customers will defect from these tongkat-dependent players.

The following commentary from The Edge provides interesting read.

13-11-2002, 07:14 AM
Tuesday, November 12, 2002 11.27am

<font size="+1">Observers:
Proton needs 3-pronged strategy to compete in Afta market</font>
By Jimmy Yeow

Perusahaan Otomobil Nasional Bhd (Proton) needs a three-pronged strategy to be able to compete in the Asean Free Trade Area market involving competitive new models, quality parts and components, and up-to-standards after-sales service.

<img src="http://www.theedgedaily.com/images/default/articles/17236/PROTONCL.gif" align="left">Industry observers say the national carmaker has to pay strong attention on these three issues if it is to be able to compete in a level playing field in 2005, when the market opens up and in the absence of preferential treatment.

They say Proton, which has owed its survival so far to protectionist measures, must be aggressive in its efforts to change its "poor" image as a carmaker.

"Given the chance, most Proton car owners would opt for another vehicle from different makes," says an observer as a matter-of-fact.

An auto analyst says Proton has to come up with new models to survive come 2005. She says the new models should be built on new platforms as most of the current models have been in existence for some time.

The analyst adds that Proton could cut manufacturing cost by about 20 per cent in the absence of royalty payments with the introduction of the Campro engine, which will replace the current 1.3 litre and 1.6 litre engines to be rolled out next year.

<img src="http://www.theedgedaily.com/images/default/articles/17236/proton_arena_cover.jpg" align="left"> However, the observer says new models alone would not ensure success for Proton. The national carmaker has to set new highs for its production standards and efficiencies.

To achieve these, he says Proton would have to do a better job in sourcing for quality parts and components from the vendors and suppliers in view of the frequent complaints of sub-standard quality.

"The new Campro engine and production efficiencies will enable Proton to pass on the cost savings to consumers by coming up with a good and competitive pricing in the Afta market," he says.

The auto sector analyst says Proton, as a relatively young carmaker, has a lot of catching up to do in after-sales and maintenance services compared with other car manufacturers such as UMW Toyota, Nissan and Honda.

"The others have had a big head start. Investing in back up and after sales services requires a lot of money and trained personnel," she says.

The observers say having set a high standard in production and after-sales, it is then vital for Proton to embark on a concerted campaign to change the negative perception of the people towards the company and its products and services.

For the nine months till Sept 30, Proton has sold 168,486 units, which account for about 50.48 per cent of the total industry volume of 333,754 units.

The national carmaker posted a 65 per cent jump in net profit to RM634.87 million for the six months ended Sept 30, 2002 from the RM382.81 million the previous corresponding period.


13-11-2002, 07:17 AM
11:33am Tue Nov 12th, 2002

<FONT SIZE="+1">No reduction in car prices not a shocker, says MAA</FONT>
Kevin Tan

Prime Minister Dr Mahathir Mohamad's recent statement that car prices will
not decline when the Asean Free Trade Area (Afta) agreement comes into
effect in 2005 did not come as a surprise to the local automotive industry.

"The prime minister and (International Trade and Industry Minister) Datuk
Rafidah Aziz had always indicated that we should not expect lower prices,"
said Malaysian Automotive Association (MAA) president Aishah Ahmad when
contacted yesterday.

MAA represents the interests of motor traders in the country and liaises
with the government on important issues pertaining to the automotive

...Meanwhile, Aishah said while the industry had hoped for some reduction in
car prices, it is the consumers who will be more adversely affected by the


16-11-2002, 07:11 AM
4:14pm Fri Nov 15th, 2002

<FONT SIZE="+1">How's Dr M to slam car prices slide?</FONT>

Prime Minister Dr Mahathir Mohamad’s warning that car prices will not drop when Afta kicks in is very puzzling and it would be interesting to see how he plans to continue milking Malaysians behind the wheel.

To protect the fledgling Proton, he introduced sky-high import tariffs in the 1980s. The result was its dominance of the local car market.

Let us assume that Proton cars make up 80% of total car sales revenue and imported cars (both completely built-up and knockdown — CBU and CDU — versions) make up the balance 20%, including import tariffs.

For simplicity sake, let’s assume total car sales revenue is RM10,000. Therefore Proton cars contribute RM8,000 (assuming zero import tariffs on them) while all other cars (including import tariffs) contribute RM2,000.

Now assume that the average import tariff is 100% (it actually ranges up to 300%). This means the sales revenue from non-Proton cars consists of:

Pretax sales of RM1,000 and import tariffs of RM1,000 (i.e.100%) which add up to a total of RM2,000.

So the total import tariffs received by Malaysia, as a whole, is RM1,000. This is what the government 'loses' after Afta, in this illustration.

Now, according to Mahathir, the government is only going to “replace the loss of import tariffs with local taxes applicable to all cars”, in his actual words.

Therefore, the RM1,000 of import tariffs will have to be recovered from new local taxes levied on:

Proton sales of RM8,000 and non-Proton sales of RM1,000 which totals RM9,000.

Since 1,000/9,000 = 0.1111 or roughly 11%, this means that the new "replacement" local tax will be only 11% i.e non-Proton cars will be subjected only to a new local tax of 11% compared with an import tariff of 100% previously while Proton cars will be subject to an identical new local tax of 11%.

Therefore, a Proton car that costs RM50,000 now will cost RM55,000 post-Afta while a non-Proton car that costs, say RM200,000 now (of which RM100,000 is pre-tax sales price and RM100,000 is current assumed import tariff of 100%) will cost only RM111,000 post-Afta.

This is real good news for those waiting to buy imported cars.

So why didn't Mahathir say so openly? This would make him popular beyond his wildest dreams.

On the other hand, if the new local tax differentiates between Proton and non-Proton cars, you can bet your bottom dollar that will be hotly disputed by our Asean partners as deliberate evasion of the Afta agreement. They won't keep quiet whatever Asean's tradition in avoiding controversy.

And what about WTO (the World Trade Organisation)? When similar protectionist barriers are dismantled on a global scale, Malaysia will have to comply if it wishes to continue being a full trading partner.

Better to bite the bullet sooner rather than later. Let’s go for transparency, tell the people the facts, the truth, the whole truth and nothing but the truth. That's a good motto to run a country by. Don't the rakyat deserve it?


16-11-2002, 11:12 AM
effectively maintaining cost of acquiring new cars after afta is to me against the spirit of the agreement. tho i detest it, some figures may explain the rationale. i don't have the specifics but looking at the number of new vehicles , local or foreign, being registered day after day, it is not inconceivable to reckon that the govt is highly dependent on new motor vehicle ownership to finance the country. hence there is no way it can afford to reduce revenue from new cars, be it thru direct taxes or some other devious ingenious scheme. even with this logic, i still despise the high cost of vehicle ownership and maintainence given the atrocious standard of alternative transport.

16-11-2002, 12:18 PM
Isn't it obvious, generaldogsbody, that this protectionism is to protect and create jobs for people who otherwise would be jobless. I wonder how and when some of these people will learn to be more competitive by providing good services and lower price.

16-11-2002, 12:20 PM
Now the heavy stuff.
Let's hear it from Malaysian Institute of Economic Research.

Saturday, November 16, 2002

Mier Scope:
<font size="+1">Afta’s impact on our cars in real terms</font>
Mohamed Ariff

THE importance of Afta (Asean Free Trade Area) can hardly be exaggerated.

...Trade liberalisation punishes inefficiency and rewards competitiveness. Industries that were previously protected by tariff and non-tariff barriers stand to lose out, as increased imports at lower prices would threaten their existence, while competitive industries would gain significantly through freer access to the markets of member countries. The substitution of high-cost domestic products with low-cost partner products is actually a positive thing, labelled as "trade creation", as it brings about a more efficient allocation of resources. If, however, imports from partner countries, due to preferential treatment, displaces cheaper imports from non-member countries, the effect, dubbed as "trade diversion", is negative, as it implies a shift from a more efficient source to a less efficient one.

...Malaysia is a relatively low-tariff country, with trade-weighted average tariff rate being roughly eight per cent. Seen in these terms, the gains that consumers in Malaysia can look forward to under Afta, generally speaking, will not be as large as that of their counterparts in Thailand or the Philippines. However, such averages do conceal a lot of variations. On some specific items, tariffs in Malaysia are much higher than elsewhere in the region. A notable case in point is the high protection accorded to the national car industry.

Import duty on passenger cars in Malaysia depends on engine capacity: the applied tariff rates are 140-300 per cent for CBU (completely builtup) motor vehicles and 80 per cent for CKD (completely knocked-down) automobiles, 60-200 per cent for fourwheel drive CBU and 40 per cent for four-wheel drive CKD.

Under Afta, these tariffs will eventually be reduced to no more than five per cent. The auto sector has been given a breather in implementing the Afta tariff schedule so that tariffs will be reduced, not in 2003 as originally planned, but in stages to 20 per cent in 2005 and five per cent in 2007. With tariff rates so drastically reduced, automobiles should come substantially cheaper for the consumers depending on the depth of tariff cuts, ceteris paribus. But, other things may not remain unchanged.

There are already policy indications that the Government may impose domestic taxes to compensate for the loss of revenue from tariff cuts. Does this mean that the prices of cars will remain unchanged even under Afta? Much depends on the tax rate, which in turn would depend on the tax objective. If the objective is to fill in the revenue loss, the excise duty need not be as high as the import duty. The logic is simple. High tariffs need not necessarily mean high tariff collections. Theoretically, if the tariff rate is prohibitively high, no imports would take place and no revenue will therefore be collected. The purpose of the high tariff in this example is obviously to shut out imports completely, not to collect revenue.

In the Malaysian case, the tariff rates on automobiles are high but not prohibitive. In other words, high tariffs have discouraged, but not precluded, imports of motor vehicles. It is important to underline that the main purpose of high tariffs is not tariff revenue for the Government but tariff protection for the national auto industry. Tariff revenues are simply secondary. The amount of tariff revenue collected would equal import value times the applied tariff rate. Import value would depend on the models and number of units imported. The fact remains that imports account for less than one-third of the total number of motor vehicles sold in the country, now that the national cars claim a market share of over twothirds.

As excise duty will be imposed on all cars, including the national cars, the tax rate need not be as high as the tariff rate, if the purpose is to only recover the revenue loss arising from tariff cuts. Such reasoning would lead us to the inescapable conclusion that cars should be cheaper under Afta, despite the imposition of excise duty to recover the revenue loss.

However, it is not inconceivable that the Government may want to impose an excise duty that is high enough to prevent the car prices from falling. But, then the revenue collected will far exceed the tariff revenue the Government would forgo under Afta. This is indeed an interesting possibility, especially if the objective of the excise duty is not revenue substitution, as suggested, but limiting the number of cars on the road through the price mechanism. It is not uncommon for Governments to impose high domestic taxes on cars so as to discourage car ownership and sales for environmental reasons.

Should car prices fall markedly under Afta, notwithstanding the imposition of a revenue-substituting excise duty, the chances are that the car population would increase sharply, as demand is quite price elastic. And this may prompt the Government to artificially raise the price of cars through additional taxes.

But such a move will not be in the interest of the national auto industry.

As domestic taxes will have to be applied on all automobiles without any discrimination, there will be no exemption for the national car makers. In any case, Afta represents a major watershed for the national auto industry, as it will no longer be able enjoy the favourable treatment at home. It has to cut costs substantially not only to minimise the erosion of the domestic market share under Afta, but also to penetrate into the markets of other Asean member countries, taking advantage of the Afta access. Cost can be reduced significantly under Afta, as the national car makers will be able to source their components and parts from regional suppliers at low prices, but this will be at the expense of the current vendors. It is no secret that the 80-90 per cent high domestic content has been a drag on the competitiveness of the national cars.

The main threat to the national cars under Afta will come from Thailand, which is positioning itself as the Detroit of Southeast Asia. It has roughly 800 manufacturers of auto parts, while the number of foreign affiliates or subsidiaries in the auto parts industry exceed 230.

* The writer is executive director of the Malaysian Institute of Economic Research.