Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC Soudeh Motamedi Sumithra Rajendra

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC Analyzing the effects of Malaysia’s Protectionist Policy involving the automobile industry: 1.AFTA 2.ASEAN Leadership 3.WTO 4.Domestic Consumers Introduction

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC Background  Malaysian automotive industry begins  Perusahaan Automobil Nasional (PROTON), national car maker is established  Proton Saga is launched  Second national car maker PERODUA is established (primary focus on compact cars) Proton Saga Perodua

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC 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: % on passenger cars  Import duty: % on automotive parts & components  10% Sales Tax on all assessed vehicles  Import quota on completely built up units (CBU)

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC Analysis: Implications Delay Implementation of ASEAN Free Trade Area (AFTA):  Malaysia is part of the Association of South East Nations (ASEAN).  4 th ASEAN Summit, AFTA was initiated with the objective of creating a free trade area in ASEAN by  Malaysia promised to remove all protection relating to the national car industry by  In 2003, Malaysia asked for an extension till  Malaysia has not removed current taxes and tariffs as of  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.

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC 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.quality Analysis: Implications

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC 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  Launched Timor  Indonesia’s National Car industry was exempt from import duty on automobile parts and received preferential treatment  Project abandoned due to inability to compete and complaints from EU & US to WTO.

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC Analysis: Proton

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC Analysis: Proton v. Competitors

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC Analysis: Proton Projected Growth

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC Recommendation: I.Removal of import duty on imported automobiles and components. II.Reduction of excise tax on imported automobiles. III.Removal of excise tax rebates on national automobiles. IV.Government sell off shares in national car producers (i.e. Proton).

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC Recommendation: Proton joint partnership growth

Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC Recommendation: SWOT StrengthsWeakness - Strengthen AFTA and ASEAN - Increased competitiveness of automobile industry (Proton merger) versus China (emerging market) - Gaining favor in WTO. - Short term increased unemployment due to merger layoffs. - Short term decrease in GDP. OpportunitiesThreats - Increased export of automobiles to African markets. - Increased in GDP if automobile industry succeeds - Increased in employment - Extinction of Malaysia’s national car. - China’s ASEAN penetration.

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