IMPORT RESTRICTIONS IN THE MALAYSIAN AUTOMOTIVE PARTS INDUSTRY

Transcription

1 IMPORT RESTRICTIONS IN THE MALAYSIAN AUTOMOTIVE PARTS INDUSTRY Research Paper November 2003 Executive Summary...1 Introduction...2 Opportunities for Foreign Auto Parts Suppliers...3 A. General...3 B. Automotive Assemblers...4 C. Components Manufacturers...4 D. Local Content Requirements...8 Tariffs and Legislation...8 A. General...8 B. Import Duties On Motor Vehicles...9 C. Import Duties On Automotive Parts and Components...9 D. Other Taxes...9 E. AP (Import License) System...10 F. Countervailing and Anti-Dumping Legislation...12 ASEAN Free Trade Area (AFTA)...12 Government Measures...13 Executive Summary Malaysia s automotive industry (as with others in ASEAN) is a prestige or strategic industry characterized by tariff protection, subsidies, local content and similar policies. Thus, imports of auto parts are restricted, in tandem with broader restrictions on vehicle imports While ASEAN nations like Malaysia have attempted to develop industries on their own, rather than developing a more rational division of labor, there are opportunities for foreign suppliers to grow within the region due to fundamental competitive reasons, including the high risk to local players of relying on their small national markets The main opportunity for foreign suppliers lies in producing automotive components for which Malaysian technology is underdeveloped. PROTON, with its 60% market share, is the obvious principal target Currently, local content requirements are 30-45% for non-national cars and about 80% for national cars, and the local content requirements for non-proton assemblers include 30 mandatory items. Under the WTO Agreement on Trade- Related Investment Measures (TRIMs) the Local Content Requirement of 45-60% 1

2 for passenger and commercial vehicles, as well as the Mandatory Deleted Item Policy, must be phased out by 1 January 2004 The principal instruments of tariff protection in Malaysia remain the various Customs regulations. In order to import motor vehicles, an Approved Permit (Import License) must be obtained from the Ministry of International Trade and Industry. Based on quotas, the system effectively limits imports of completely builtup units (CBUs). However, Import Licenses are required only for a very limited range of automotive parts or components Malaysia has been quite outspoken against rapid liberalization of the automotive sector. The country has received an extension of its TRIMs deadline, delaying the removal of local content requirements until It has been granted a two-year extension on its commitments under AFTA, to 2005, to reduce tariffs on certain vehicles to 20%, and to 2008, to reduce all tariffs to 0-5% In view of market liberalization under AFTA, the Government is implementing several measures to increase the competitiveness of the local automotive industry, including removing conditions on new and expansionary investment by foreigners. However, it has been hinted by industry representatives that the local industry may never be ready for global competition and therefore lower tariffs on unassembled cars may as well be implemented now and the emphasis placed on pursuing foreign investment to compete with rivals like Thailand Introduction The automotive industry is the world s largest manufacturing sector. The APEC region accounts for 60% of global production and 58% of sales. Seventeen percent of APEC s total exports of manufactured goods are automotive products. The automotive industries in ASEAN are prestige or strategic industries characterized by tariff protection, subsidies, local content and similar policies. Malaysia is one of a number of nations in which imports of auto parts are restricted, in tandem with broader restrictions on vehicle imports. Malaysia s automotive industry is protected through the following mechanisms: High Import Tariffs Other Taxes Local Content Requirement Mandatory Deleted Item Policy Approval Permit (Import License) 2

3 Malaysia is also considering new emissions standards for motorcycles that could restrict market opportunities for imports 1. (It is sometimes alleged that barriers exist in the form of discriminatory treatment of foreign products through additional inspections and stricter standards or certification requirements than for domestic products.) APEC s largest economy, Japan, has been substantially closed; and the overseas plants of Japanese companies, which, historically, buy only Japanese parts, have dominated the medium-sized economies like Malaysia and other ASEAN countries. In this context, ASEAN nations like Malaysia have attempted to develop industries on their own, rather than developing a more rational division of labor. However, there are opportunities for foreign suppliers to grow within the regional industries for the following reasons: Electronic commerce has enabled plants in different countries to operate on an integrated basis The Asian Economic Crisis demonstrated that the sole reliance by local players on their small national markets is too risky Japan s auto industry is developing alliances and closer relationships with U.S. and European firms Reform of the regional industry structure towards an emphasis on market forces rather than political prestige is being pursued, among others, through the APEC Auto Dialogue 2, which joins industry and government representatives from nearly all the economies with a significant auto industry, including Malaysia, to map out strategies for increasing integration and development of the automotive sector within the region. The APEC Auto Dialogue encompasses a broad range of trade, investment and environmental issues ranging from harmonization of industrial standards and customs policies; to intellectual property rights in the auto sector; traffic policies; investment issues; and trade liberalization in tariff and non-tariff areas. Opportunities for Foreign Auto Parts Suppliers A. General The main opportunity for foreign suppliers lies in producing automotive components for which Malaysian technology is underdeveloped. PROTON, with its 60% market share, 1 Malaysia has implemented many international product certification and quality systems certification schemes. In general, Malaysian products conform to both national and international product standards on quality, health, safety and the environment 2 In 1997, APEC Economic Leaders agreed to early voluntary sectoral liberalization (EVSL) in 15 sectors, including the automotive industry. Since the early stages of this initiative, trade ministers have emphasized the interests of the private sector in these discussions. 3

4 is the principal target. (Some 25 other manufacturers compete for the remaining market share.) Locally Produced Auto Components Imported Auto Components Body panels and parts Rocker arm Engine parts Cylinder head Drive Delivery pipe Transmission / steering parts Connecting rod Drive shaft Thermostat Clutch Insulator Brakes and suspension parts Valves Electrical parts Piston ring and O-ring Trim and upholstery Exhaust and manifold cover Air conditioners Connecting bearings Cables Injector Seats and carpets Drain bolt Exhaust system Source: MITI and others B. Automotive Assemblers The automotive industry in Malaysia is domestically oriented, with 85-90% of the two main players, PROTON and PERODUA s, production being sold locally. In all, there are 13 automotive assemblers in Malaysia of which PROTON, PERODUA, HICOM MTB and INOKOM (i.e. the four national automotive manufacturers) accounted for 80% of total commercial vehicles and passenger cars sold in The dominance of these companies arises directly out of the Government s policies of promoting and protecting the local industry. C. Components Manufacturers There are about 350 components manufacturers supplying the Original Equipment Market (OEM), and Replacement and Export markets and producing more than 3,000 automotive parts. 4

5 About 70% of these are suppliers to the OEM. OEM Supply to manufacturers and assemblers Parts used in new vehicles and subject to stringent quality and standards Replacement Market Supply to dealers who distribute to repair workshops Parts used as replacement for damaged parts Genuine parts account for only 30% of this market due to lower prices of alternatives Export Market Manufactured according to export market specifications and exported as original equipment (OE) components Local content levels are 30-45% for non-national cars, and about 80% for national cars. The recommended form of partnership would be a joint venture with Tier-One Suppliers of PROTON. The Tier-One Suppliers system involves set criteria that PROTON suppliers must meet. PROTON has initiated a programme of matchmaking and collaboration between local vendors and reputable overseas technical collaborators in Japan, Germany, Taiwan, Korea, France and others countries. Note, however, that PROTON s current cost-cutting programme includes the increasing local content, among others, to reduce annual royalty payments 3. 3 New Straits Times (28/11/03), B3 5

6 20 Large Manufacturers By Sales RM Millions Year of Incorporation Products 1. Kenwood Electronics Technologies (M) Sdn Bhd 2, Home audio system and equipment, car audio system and equipment 2. DENSO (Malaysia) Sdn Bhd Air-conditioner amplifiers, air-conditioners-buses and cars, alternators, programmable controllers, automotive relays, automotive voltage regulators, blowers, engine electronics control units, flashers, heaters (coreless), heaters for cars, radiator fans, radiators, starter motors, windshield washers, wiper arms (blade), wiper links, wiper motors, CDI amplifier 3. DRB-Hicom Berhad Plastic parts for automotive industry, homogeneous ceramic tiles (vitrified), spiral welded high pressure steel pipes (P1 grade), steel pipes, water pipes, metal stamped parts, die-cast parts, buses, cars, trucks, automotive metal stamping, automotive parts, motorcycle engines, motorcycles 4. Hong Leong Yamaha Motor Sdn Bhd Motorcycles, automotive parts and accessories, injection molded parts 5. Auto Parts Manufacturers Co Sdn Bhd Leaf springs (laminated), radiators, seats, shock absorbers 6. Car Seats (Malaysia) Sdn Bhd Trunk floor mats, car seats, steering wheels 7. APM Auto Electrics Sdn Bhd Magneto assembly for motorcycles, motor for radiator fans, alternators, windshield washers, wiper motors, starter motors, igniter assembly for motorcycles 8. Delloyd Industries (M) Sdn Bhd Alarm system, air press, antennas, mud flaps, wheel covers, third brake lights, side mirrors, power window mechanism, gear knobs, central locks, bumpers, cylinder key lock, column switch, inner mirror, cornering lamps, fog lamps, rear combination lamps, license plate lamp, luggage compartment lamp, door modules, door handles 9. PHN Industry Sdn Bhd Die making, automotive stamping parts, automotive subassembled parts 10. United Vehicles Industries Sdn Bhd Metal stamping, fuel tanks, band assays 11. Siemens VDO Instruments MY Sdn Bhd Transducers, conversion and transmission of signals to actuators, measuring, indicating and controlling devices for automobiles, sensors, senders for receiving 6

7 20 Large Manufacturers By Sales RM Millions Year of Products Incorporation 12. Oriental Assemblers Sdn Bhd Motor vehicles, engines, automotive transmissions 13. Sanden Air Conditioning (Malaysia) Sdn Bhd Automotive heat exchange components 14. EP Polymers (M) Sdn Bhd Crates (plastic), automotive switches, bumpers, automotive ducts, agricultural accessories, plastic parts, trims, air outlets, automotive lamps, spoilers, sprayers (knapsack), spray management valves, panel clusters, door handles for automobiles, grille radiators, grille marks, grille emblems 15. Autoliv Hirotako Safety Sdn Bhd Car seat belts c/w buckles, emergency locking retractors, air bags, steering wheels 16. UMW Auto Parts Sdn Bhd Oil filters for heavy equipment, automotive elements and housings, brake fluids, carbon canisters, air filters, coolants, oil filters, air filters for heavy equipment 17. Kein Hing Industry Sdn Bhd Metal stamping for electrical appliances and metal working industries, automotive metal stamping 18. Multi-Code Electronics Industries (M) Berhad Car remote control alarm, central lock, power window, switches, horns, door regulator, alarm sensors, reverse sensor, immobilizer, power sunshade, lamps, precision plastic/metal parts 19. Lucas Automotive Sdn Bhd Automotive displays, automotive multi function units, automotive voltage regulators, clocks for automobiles, courtesy light/delay alarms, hazard warning flashers, immobilizers, light alarms, rectifier bridges, turn signals, vehicle conditioning monitors, wiper delays, switch PCB assemblies 20. APM Air-Conitioners Sdn Bhd Condensers (serpentine type), hose sets, condensers (parallel flow), air-conditioning system for automobiles, evaporators Compiled from FMM Malaysian Industries Directory

8 D. Local Content Requirements Classification Local Content Category I Passenger vehicles up to 1,850 cc 60% Category II Passenger vehicles 1,851-2,850 cc Commercial Vehicles up to 2,500 GVW 45% Category III Passenger vehicles above 2,850 cc Commercial Vehicles above 2,500 GVW Localization of Mandatory Parts List Items Only Local content is based on a point system, not on volume. Different parts are assigned a point value. Local content requirements for non-proton assemblers include 30 mandatory items ranging from mud flaps to shock absorbers, to exhaust systems. Malaysia has not defined its policy commitment to eliminate mandatory parts and local content requirements as part of the WTO Agreement on Trade-Related Investment Measures (TRIMs). Nevertheless, the Local Content Requirement of 45-60% for passenger and commercial vehicles, as well as the Mandatory Deleted Item Policy, must be phased out by 1 January (The Mandatory Deleted Item Policy prohibits car assemblers and franchise holders from importing components listed as mandatory for use in local car assembly. Eleven items were removed from the mandatory deleted item list effective January The remaining 19 items will be removed by January 2004.) Tariffs and Legislation A. General In line with international practice, Malaysia adopts the Harmonized Nomenclature Coding System developed by the World Customs Organization. As at August 2003, the Customs Duties Order 1996 (revoking the 1988 Order of the same name) and the Customs (Prohibition of Imports) Order 1998 (revoking the 1988 Order of the same name) were the principal instruments of tariff protection in Malaysia. The 1996 Order implements the ASEAN Common Effective Preferential Tariff (CEPT) and ASEAN Preferential Tariff Arrangement (PTA). 8

9 CEPT provides for lower tariff rates or customs duties on exports between CEPT Member States. The PTA gives preferential tariff treatment to products originating from ASEAN states only. CEPT is still the major instrument moving ASEAN towards the establishment of a free trade area. It requires that the tariff rates of products included in the scheme be ultimately reduced to 0-5%. On the other hand, PTA only requires that, whatever tariff rates are applied by an ASEAN country on imports from the rest of the world, a margin of preference be given to ASEAN partners. Concessions offered under CEPT are on a reciprocal basis only, while the concessions under PTA are on an ASEAN MFN basis. The number of products included in CEPT is much larger than that covered in the PTA. Also, CEPT includes provisions for the elimination of quantitative restrictions, non-tariff barriers and other cross-border measures. PTA products can enjoy CEPT concessions if the products are in the inclusion lists (normal or fast track) of the exporting and importing countries, but the products must still have a minimum of 40% ASEAN content. B. Import Duties On Motor Vehicles CKD* CBU** Passenger Cars 42-80% % 4WDs and MPVs # 10-40% % Vans 5-40% % * CKD Completely Knocked Down **CBU Completely Built Up # 4WDs and MPV 4 Wheel Drive and Multi Purpose Vehicle Note that end-users must also pay sales tax, excise tax and road tax (see below). C. Import Duties On Automotive Parts and Components The import duty for auto parts and components ranges from 5-30% and is tied to local content regulations. The import duty for parts and components used in national cars (PROTON and PERODUA) and CKDs is 13 percent.. D. Other Taxes A 10 percent sales tax applies to all vehicles An excise tax on passenger cars is assessed on a graduated schedule: First RM 7,000 x 25% Next RM 3,000 x 30% Next RM 3,000 x 35% Next RM 7,000 x 50% Next RM 5,000 x 60% Balance x 65% 9

10 The excise tax on MPVs and 4WDs is 45% The excise tax on vans is 30% There is no excise tax for commercial vehicles National cars receive a 50% reduction in the excise tax. A road tax of RM is assessed, based on engine displacement. E. AP (Import License) System In order to import motor vehicles, an AP (Import License) must be obtained from the Ministry of International Trade and Industry (MITI). Based on quotas, the system effectively limits imports of completely built-up units (CBUs). However, the range of automotive parts or components requiring import licenses is quite limited (see Table). Malaysia also maintains import bans on motor vehicles from a limited number of countries, including Israel. The 1998 Order (see above) prohibits imports, except under Import License and/or other express conditions, as follows: 10

11 Import Prohibition Description (Selected Products) Tariff Code (HS Code) Country of Origin ASEAN CEPT Rate of Duty ASEAN PTA Rate of Duty Licensing Authority 1. Absolute No items of interest 2. Except under Import License Chassis fitted with engines and not fitted with engines (for various types of motor vehicles, including ambulances), bodies (for various types of motor vehicles, including ambulances), , , , , , , , All countries 0-5% 0% / 50% Ministry of International Trade & Industry 3. Except under Import License for protective measures 4. Except under Permit 5. Except under Permit from Free Commercial Zones to Principal Customs Area 6. Except conforming to Malaysian Standard and under Permit No items of interest No items of interest Safety seat belts All countries 5% 0% Conformity with specified Malaysian Standard (M.S.) No items of interest 11

12 The prohibitions in categories (2), (3) and (5) do not apply to importation into the free commercial zones, as established under the Free Zones Act Also, the prohibitions under category (3) do not apply to importation into the duty-free ports of Labuan, Langkawi and Tioman. Goods in transit, except those under category (1), are exempt from the 1998 Order. Import Licenses (Application Form JK69) must set out, among others, a full description of the goods, place of origin, purpose of import, tariff code number, tariff unit, quantity, unit cost (c.i.f.) and total value (c.i.f.). F. Countervailing and Anti-Dumping Legislation The Countervailing and Anti-Dumping Duties Act 1993 ( the Act ) and the Countervailing and Anti-Dumping Duties Regulations 1994 ( the Regulations ) empower a designated investigating authority to take remedial action against unfair trading by foreign manufacturers/exporters and to provide a framework for investigating allegations of injury caused by dumped or subsidized imports. (Essentially, dumping is cross-border price discrimination wherein an exporter charges more in its home market than in the targeted export market.) Malaysia s rights and obligations in this area are covered by the WTO Agreements on Anti-Dumping and Subsidies & Countervailing Measures. The Trade Practices Division (TPD) of the Ministry of International Trade and Industry was established in early 1994 to implement and enforce the Act and the Regulations, which came into force on 28 April As at 14 November 2003, Malaysian has taken no anti-dumping or countervailing action against another country in the automotive sector 4. ASEAN Free Trade Area (AFTA) Under AFTA, there will be a maximum of 5% import tax for goods imported from any of the elder six ASEAN countries (Malaysia, Singapore, Thailand, Indonesia, the Philippines and Brunei) by (The remaining four, Cambodia, Vietnam, Laos and Myanmar, are on an extended timetable.) To qualify for the low tariff under AFTA, automotive imports must satisfy the local content requirement. This means that at least 40% of the product s content must originate from any single / cumulative ASEAN member-state(s). However, Malaysia has been quite outspoken against immediate liberalization of the automotive sector, including in dialogues on the WTO Agreement on Trade-Related Investment Measures (TRIMs), AFTA and the APEC Auto-Dialogue

13 Malaysia received an extension of its TRIMs deadline, and will delay removing local content requirements until January 1, ASEAN has also granted a two-year extension on Malaysia s commitments under AFTA. As a result, Malaysia can wait to 2005 to reduce tariffs on certain vehicles to 20% (while all others are attempting to reduce tariffs to 0-5% by 2003) and it can wait to 2008 to reduce all tariffs to 0-5%. Government Measures In view of market liberalization under AFTA, the Government is implementing several measures to increase the competitiveness of the local automotive industry, including: New projects for all categories of vehicles will be allowed in order to attract new and expansionary investment in the automotive industry Special programmes to enhance competitiveness of components and parts manufacturers will be devised by the Ministry of International Trade and Industry More collaborative or joint ventures will be sought with internationally renowned automotive components manufacturers, with an emphasis upon engineering design Grants will be made to Small- and Medium-scale Enterprises (SMEs) to improve production and upgrade engineering capabilities In any event, it is noted that the Government has somewhat relaxed the country s equity restrictions and there is now a trend of foreign partners of Malaysian vehicle producers increasing their stake in the Malaysian companies. Companies such as Daihatsu, Ford Motors and Volvo have received approval to increase their equity in the respective local assemblers and distributors. Industry representatives have even hinted that the local automotive industry may never be ready to compete on a global basis and that the government may as well lower tariffs on unassembled cars now and pursue foreign investment in the sector, especially in order to compete with rivals like Thailand SCSG Corporate Services Sdn Bhd 13