Parts makers up in arms against FTA

Bangkok Post

Parts makers up in arms against FTA

Locally made car demand could plunge

Santan Santivimolnat and Aranee Jaiimsin

3 May 2005

Thai auto parts manufacturers have expressed strong opposition to a plan to reduce tariffs on imported Japanese automobiles with engines larger than 3,000cc under the proposed Thailand-Japan free trade agreement.

The Thai Auto Parts Manufacturers Association has already petitioned Prime Minister Thaksin Shinawatra and other ministers to exclude autos and parts from the FTA framework.

Local parts suppliers say that removing import tariffs on CBU (completely-built up) cars and parts would result in sharply lower demand for locally made products.

While many analysts expect the FTA to boost the overall auto sector, the association says the actual benefits would go to Japanese manufacturers and their Thai joint ventures, not Thai companies.

Both countries hope to conclude the FTA talks in July, with a full agreement signed by the end of the year.

"Japan will be the main beneficiary of the whole deal while Thailand will receive nothing. Actually, Thailand will be severely damaged, as the local industry will be affected once tariffs on automobile and parts have been removed or reduced as demanded," said Yongkiat Kitaphanich, the association’s president.

The FTA would result in consumers shifting to purchase imported large-engine vehicles due to the reduced tariffs, he said, with import prices in some cases falling below even those of locally assembled cars with smaller engines.

According to the association, imported Japanese vehicles with engines of more than 3,000cc would face a total tax burden of 138% under the FTA, compared with a normal tariff of 328%.

The import price would be cheaper than the 196% tax burden on locally assembled cars with engines of 3,000cc or more, as well as the 150% rate for cars produced under the Asean Free Trade Area framework. The figures include excise tax, which is applied on top of the import duty.

Mr Yongkiat said the tariff reductions would result in a higher trade deficit with Thailand, possibly reaching 60 billion baht in 2006.

The bilateral trade deficit could balloon to between 150 billion and 200 billion baht over the next three to five years if the tariff privileges as requested by Japan were approved.

Lower tariffs on Japanese imports would also remove incentives for Japanese automakers to expand their local production facilities, particularly for sedans with engines of 1,800cc or more, affecting local parts manufacturers and auto workers.

The majority of Japanese investment in recent years has been to the pickup sector, reflecting consumer preferences and much lower excise taxes on trucks when compared with sedans.

Mr Yongkiat added that encouraging the purchase of large vehicles by removing tax disincentives would also increase fuel usage, conflicting with government policy to promote energy conservation.

He said the government should negotiate to extend timeframes for any tariff reductions by 10-15 years to allow local producers time to adjust themselves to greater competition in the future.

"The period requested is not long when compared with Japan, whose auto industry was developed 20-30 years before Thailand even begun," Mr Yongkiat said.

Japanese claims that the FTA would result in greater auto and parts shipments to Japan was also disingenuous, he said, given differences in product design and models as well as the fact that existing tariffs were already low.

The FTA would benefit Japanese small parts suppliers, however, as they would gain greater access to the Thai market and thus to Japanese car manufacturers with local plants, Mr Yongkiat added.

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