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Free trade with Malaysia chokes on car protection

Mainichi Shimbun, Japan

Free trade with Malaysia chokes on car protection

July 18 2004

Japan plans to ask Malaysia to abandon protection of its domestic car industry during free trade agreement (FTA) negotiations this week, government sources have said.

Malaysia exempts domestic car manufacturers from commodity tax by 50 to 100 percent and import tariffs on parts by 70 percent, allowing them to make cars cheaper than imported models.

As a result, Malaysia’s cars have captured an 85 percent share of the domestic market.

Japanese officials said that they planned to ask Malaysian to give up the protectionist measures on its domestic manufacturers, deeming them non-tariff barriers.

Malaysia cut trade tariffs on car parts in January based on Association of Southeast Asian Nations (ASEAN) rules.

But it hiked the commodity tax on imported cars and locally made foreign vehicles, leaving domestic manufacturers in a highly advantageous position.

"If we conclude an FTA (with Malaysia) while the price advantage for domestic cars still exists, we won’t enjoy a free market there," a Japanese official said.

But Japan faces uphill negotiations because Malaysia believes the country needs to support its car industry in the face of cutthroat competition inside the ASEAN region.

On top of that, former Malaysian Prime Minister Mahathir Mohamad, who is now an advisor to a major domestic car manufacturer, Proton, has reportedly asked the government to keep protecting domestic cars for 20 years.

Sources said the Malaysian government could ask Tokyo to open the Japanese agricultural market if Tokyo persistently urges it to give up car protection measures.

Japanese government officials are scheduled to discuss the issue with their Malaysian counterparts from Monday to Wednesday in Tokyo.