Southeast Asia's partial trade liberalization should have been a dream come true for global car makers: import tariffs came crashing down and the use of local parts paved the way for bigger cost savings.
Yet most are taking only small steps as they search for ways to benefit from the new tariff scheme under AFTA, or the ASEAN free trade area.
The tariffs are being reduced slowly and in a piecemeal way. Non-tariff barriers remain stubbornly high and fragmented product lineups have made it difficult to achieve the hoped-for economies of scale.
PHOTO: REUTERS
"If the ASEAN policies moved more quickly, the auto makers will be right there, step for step," said Michael Dunne, president of consultancy Automotive Resources Asia. "They're moving at the pace of a locomotive leaving the station."
The auto industry has been waiting for over a decade for the barriers to evaporate since ASEAN first toyed with the idea of a common economic region, much like the EU.
Now, as car sales stagnate in the developed world, integration of the expanding ASEAN auto market has become critical to enable global auto makers to keep making money -- or, in some cases, simply to survive.
Vehicle demand in Japan this year is seen stagnant around 6 million units and US sales hover around 16 million to 17 million. Demand in Southeast Asia, meanwhile, is expected to rise 30 percent to around 1.8 million by 2008 from 1.377 million this year, Automotive Resources Asia estimates.
But progress has been slow. The Common Effective Preferential Tariff (CEPT) scheme under AFTA, initially slated to kick off in 2000, only includes Thailand, Indonesia and the Philippines so far, leaving Malaysia out until 2005 while it readies its national car makers for foreign competition.
Import tariffs for built-up cars are now between zero and 5 percent in the three participating nations -- down from as much as 80 percent -- but remain as high as 300 percent in Malaysia.
And non-tariff barriers are just as formidable.
"For starters, safety and emissions regulations are all over the place, while customs clearance and cross-border distribution still take a lot of time," said Yoshihisa Tabata, director for automotive policy planning at Japan's trade ministry.
Perhaps the biggest headache for the main players -- including Japan's Toyota Motor, Mitsubishi Motors, Isuzu Motors, Honda Motor, and US giant General Motors -- is the fragmented product make-up across the region.
Owing to preferential taxes, pick-up trucks are the vehicle of choice in Thailand, making it the second-biggest pick-up market in the world after the US. Thailand is the region's biggest producer, with output seen this year at 500,000, ahead of Malaysia's 420,000.
Meanwhile, Malaysia and the Philippines prefer passenger cars and Indonesians drive the so-called Asian utility vehicle, which can seat up to eight people.
For auto makers, that means concentrating production of one model in one country and exporting to the others -- a natural course of action with the lowered tariffs -- is not as cost-efficient as it could be with a common market.
"As long as [the preferential tax structure] is in place, I believe you'll still have the same type of market segmentation," said John Bonnell, a partner at Automotive Resources Asia.
That's not to say the AFTA scheme isn't helping.
Under a new worldwide supply chain network to kick off next year, Toyota will make Thailand an export base for pick-up trucks and multipurpose vehicles, supplying to over 80 countries within and beyond ASEAN. It will also raise gasoline engine production in Indonesia, earmarking over 70 percent for exports.
Honda will eventually have just one production site for each model sold in Thailand, Indonesia and the Philippines over the next few years to reap cost benefits through economies of scale.
Earlier this year, Honda began building the Accord and City sedans only in Thailand, exporting to the other two.
"We're able to do this now because of the lowered import tariff," Honda spokesman Masaya Nagai said. "Once Malaysia's [auto sector] joins AFTA, we'll be able to benefit even more."
Honda is a lucky exception, though, because it only sells cars, meaning it does not have to worry about the scattered product preferences and technical issues unique to pick-ups and trucks, such as adjusting vehicles to varying diesel regulations.
"Honda tends to either move in the opposite direction of others or they move more quickly," Dunne said. "They were also one of the last to enter, so they can be more flexible."
Players like GM and Isuzu have established Thailand as a regional and global hub for pick-up truck production, but beyond that, plans to benefit from AFTA are undecided.
Mitsubishi Motors, one of the first to set up shop in the region with more than 10 models, made Thailand a center for pick-up truck production before AFTA's tax scheme took effect.
"With the market so fragmented, it's not easy to just consolidate production in one country," said Akihiko Mizumoto, general manager of Mitsubishi's ASEAN planning department.
"It also requires money to close and open factory lines, so we're still racking our brains," he added.
NO HUMAN ERROR: After the incident, the Coast Guard Administration said it would obtain uncrewed aerial vehicles and vessels to boost its detection capacity Authorities would improve border control to prevent unlawful entry into Taiwan’s waters and safeguard national security, the Mainland Affairs Council (MAC) said yesterday after a Chinese man reached the nation’s coast on an inflatable boat, saying he “defected to freedom.” The man was found on a rubber boat when he was about to set foot on Taiwan at the estuary of Houkeng River (後坑溪) near Taiping Borough (太平) in New Taipei City’s Linkou District (林口), authorities said. The Coast Guard Administration’s (CGA) northern branch said it received a report at 6:30am yesterday morning from the New Taipei City Fire Department about a
IN BEIJING’S FAVOR: A China Coast Guard spokesperson said that the Chinese maritime police would continue to carry out law enforcement activities in waters it claims The Philippines withdrew its coast guard vessel from a South China Sea shoal that has recently been at the center of tensions with Beijing. BRP Teresa Magbanua “was compelled to return to port” from Sabina Shoal (Xianbin Shoal, 仙濱暗沙) due to bad weather, depleted supplies and the need to evacuate personnel requiring medical care, the Philippine Coast Guard (PCG) spokesman Jay Tarriela said yesterday in a post on X. The Philippine vessel “will be in tiptop shape to resume her mission” after it has been resupplied and repaired, Philippine Executive Secretary Lucas Bersamin, who heads the nation’s maritime council, said
CHINA POLICY: At the seventh US-EU Dialogue on China, the two sides issued strong support for Taiwan and condemned China’s actions in the South China Sea The US and EU issued a joint statement on Wednesday supporting Taiwan’s international participation, notably omitting the “one China” policy in a departure from previous similar statements, following high-level talks on China and the Indo-Pacific region. The statement also urged China to show restraint in the Taiwan Strait. US Deputy Secretary of State Kurt Campbell and European External Action Service Secretary-General Stefano Sannino cochaired the seventh US-EU Dialogue on China and the sixth US-EU Indo-Pacific Consultations from Monday to Tuesday. Since the Indo-Pacific consultations were launched in 2021, references to the “one China” policy have appeared in every statement apart from the
More than 500 people on Saturday marched in New York in support of Taiwan’s entry to the UN, significantly more people than previous years. The march, coinciding with the ongoing 79th session of the UN General Assembly, comes close on the heels of growing international discourse regarding the meaning of UN Resolution 2758. Resolution 2758, adopted by the UN General Assembly in 1971, recognizes the People’s Republic of China (PRC) as the “only lawful representative of China.” It resulted in the Republic of China (ROC) losing its seat at the UN to the PRC. Taiwan has since been excluded from