Transcript Malaysia and AFTA: Protectionism of the Automobile Industry

Malaysia and AFTA:
Protectionism of the
Automobile Industry
Analysis by The Perunding Group LLC
Soudeh Motamedi
Sumithra Rajendra
Introduction
Analyzing the effects of Malaysia’s Protectionist
Policy involving the automobile industry:
1. AFTA
2. ASEAN Leadership
3. WTO
4. Domestic Consumers
Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC
Background
 1960 - Malaysian automotive
industry begins
Proton Saga
 1984 - Perusahaan Automobil
Nasional (PROTON), national car
maker is established
 1985 - Proton Saga is launched
 1992 - Second national car
maker PERODUA is
established (primary focus on
compact cars)
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: 140 - 300 % on passenger cars
 Import duty: 5 - 30% 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).
 4th ASEAN Summit, AFTA was initiated with the objective of
creating a free trade area in ASEAN by 2010.
 Malaysia promised to remove all protection relating to the national
car industry by 2003.
 In 2003, Malaysia asked for an extension till 2005.
 Malaysia has not removed current taxes and tariffs as of 2006.
 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
Analysis: Implications
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.
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
 1996 - Launched Timor
 Indonesia’s National Car industry was exempt from import
duty on automobile parts and received preferential treatment
 1998 - 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
$900,000,000
$800,000,000
Revenues per
Quarter ($US)
$700,000,000
$600,000,000
$500,000,000
$400,000,000
$300,000,000
Profit (Loss)
before Taxes
$200,000,000
Profit (Loss)
after Taxes
$100,000,000
$0
Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC
Jul-06
Mar-06
Dec-05
Sep-05
May-05
Feb-05
Nov-04
Aug-04
Apr-04
Jan-04
Oct-03
Jun-03
Mar-03
Dec-02
Sep-02
May-02
Feb-02
Nov-01
Jul-01
Apr-01
Jan-01
Oct-00
Jun-00
Mar-00
Dec-99
($100,000,000)
Analysis: Proton v. Competitors
Revenues ($US)
$18,000,000,000
Proton (Malaysia)
Daihatsu (Japan)
Maruti (India)
Kia (South Korea)
Daewoo (South Korea)
$16,000,000,000
$14,000,000,000
$12,000,000,000
$10,000,000,000
$8,000,000,000
$6,000,000,000
$4,000,000,000
Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC
Mar-06
Dec-05
Sep-05
May-05
Feb-05
Nov-04
Aug-04
Apr-04
Jan-04
Oct-03
Jun-03
Mar-03
Dec-02
Sep-02
May-02
Feb-02
Nov-01
Apr-01
Jan-01
$0
Jul-01
$2,000,000,000
Analysis: Proton Projected Growth
$900,000,000
$800,000,000
$700,000,000
$600,000,000
Revenues per
Quarter ($US)
$500,000,000
$400,000,000
$300,000,000
Proton's forecasted growth based on:
2005 growth rate of -4.64%
+ Population growth rate of 1.78%
= Projected revenues
$200,000,000
$100,000,000
Dec-99
Mar-00
Jun-00
Oct-00
Jan-01
Apr-01
Jul-01
Nov-01
Feb-02
May-02
Sep-02
Dec-02
Mar-03
Jun-03
Oct-03
Jan-04
Apr-04
Aug-04
Nov-04
Feb-05
May-05
Sep-05
Dec-05
Mar-06
Jul-06
Oct-06
Jan-07
Apr-07
Aug-07
Nov-07
Feb-08
Jun-08
Sep-08
Dec-08
Mar-09
$0
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
$900,000,000
$800,000,000
$700,000,000
$600,000,000
Revenues per
Quarter ($US)
$500,000,000
$400,000,000
$300,000,000
$200,000,000
$100,000,000
Proton's forecasted growth based on:
Exponential historical growth
+ Population growth rate of 1.78%
+ Forecasted Citi GDP growth rates of:
2006e of 6.00%
2007e of 5.70%
2008e of 5.70%
+ JD Power's Sales Satisfaction Index:
2006 at 748 > 0.00%
2007e at 752 > 0.53%
2008e at 754 > 0.27%
Dec-99
Mar-00
Jun-00
Oct-00
Jan-01
Apr-01
Jul-01
Nov-01
Feb-02
May-02
Sep-02
Dec-02
Mar-03
Jun-03
Oct-03
Jan-04
Apr-04
Aug-04
Nov-04
Feb-05
May-05
Sep-05
Dec-05
Mar-06
Jul-06
Oct-06
Jan-07
Apr-07
Aug-07
Nov-07
Feb-08
Jun-08
Sep-08
Dec-08
Mar-09
$0
Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC
Recommendation: SWOT
Strengths
- Strengthen AFTA and ASEAN
- Increased competitiveness of
automobile industry (Proton merger)
versus China (emerging market)
- Gaining favor in WTO.
Opportunities
- Increased export of automobiles to
African markets.
- Increased in GDP if automobile
industry succeeds
- Increased in employment
Weakness
- Short term increased
unemployment due to merger
layoffs.
- Short term decrease in GDP.
Threats
- Extinction of Malaysia’s national
car.
- China’s ASEAN penetration.
Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC
Thank you!!
http://classes.maxwell.syr.edu/PSC783/2006/Malaysia/
Malaysia and AFTA: Protectionism of the Automobile Industry Analysis by The Perunding Group LLC