ASEAN: Regional Trends in Economic Integration, Export ... - USITC

Despite the continued implementation of a national auto policy, many observers expect
that Malaysia’s industry will continue to liberalize and improve its competitiveness.
Some industry watchers see the revised NAP as significant progress towards liberalizing
the Malaysian market while also acknowledging its limitations, whereas others have
questioned its deregulatory impact. One industry association in the region, for example,
noted that the Malaysian automotive industry is now more open, but still has doubts
about the actual application of the policy and the scope of its liberalization. 63 Another
group doubted the significance of the changes to the NAP. 64 One automaker indicated
that it had pulled out of Malaysia, noting the NAP did not allow it to participate in the
market. Moreover, its small production volume was not sufficient to allow local parts
manufacturers to supply the firm. 65
Tax incentives and excise taxes are other methods used to boost local content and shield
domestic parts industries. Malaysia maintains an excise tax on vehicles 66 that favors
higher local content. The value of the local content is deducted from the vehicle’s taxable
base before the tax is applied. Therefore, the net tax amount paid by the purchaser is
lower for vehicles with higher local content, although the tax rate is the same. Such tax
policies influence the direction of vehicle demand and create market distortions that filter
down into the auto parts industry. 67
Thailand is often accused of protecting its automotive industry with more informal
measures. Its use of excise tax differentials to direct demand to pickup trucks, in which
Thailand leads the region in terms of production, is frequently noted as a barrier to
trade. 68 This approach has led foreign auto parts manufacturers to focus their investments
on components for pickup trucks. 69
Protectionist policies may help to develop component industries to support national
carmakers, but they often are not sufficient to create an internationally competitive parts
industry that can supply components of the quality, service, and delivery demanded by
global automakers. In the case of Indonesia, for example, government protection was
reportedly effective at expanding its auto parts industry, but largely in basic components
rather than in the higher-technology goods. 70
Export Competitiveness
As previously noted, the requirements to be a globally competitive supplier to the world’s
leading automakers are quite demanding, necessitating QCD capability and certification
to automakers’ manufacturing and materials specifications. 71 These qualities often require
significant financial resources, extensive R&D capability, technological know-how, and
state-of-the-art manufacturing skills that are not as widely available from local producers
63 Industry official, interview by USITC staff, Singapore, March 9, 2010.
64 Industry official, interview by USITC staff, Kuala Lumpur, March 11, 2010.
65 Industry official, interview by USITC staff, Bangkok, March 15, 2010.
66 The excise tax rate ranges between 65 percent to 125 percent, depending on the vehicle type. USTR,
National Trade Estimate Report, 2008, 381.
67 Industry official, interview by USITC staff, Bangkok, March 15, 2010
68 ECORYS, “Trade Sustainability Impact Assessment,” April 3, 2009, 125. The excise tax on pickups is
3 percent, whereas those for passenger cars with engines over 2,000 cc range from 30 percent to 50 percent.
Thailand Board of Investment Web site,
http://www.boi.go.th/english/how/tax_rates_and_double_taxation_agreements.asp (accessed April 16, 2010).
69 ECORYS, “Trade Sustainability Impact Assessment,” April 3, 2009, 122.
70 Nag, Banerjee, and Chatterjee, “Changing Features of the Automobile Industry in Asia,” n.d., 1.
71 USAID/ADVANCE, Evaluation of Proposed Target Sectors, June 2008, 26 and 30.
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