Friday, 17 January 2014

FTAs Will Help Liberalise Car Industry


IN Part One of this series last week, I explained about the need to liberalize the Malaysian automotive industry. As a country with a relatively small domestic market, we depend on international trade to support economic growth. As it is now, the country's exports are 120 per cent of gross domestic product (GDP).

The argument justifies the reasons why the government has been actively pursuing many free trade agreements (FTAs).
To date, Malaysia has established FTAs with Japan, Pakistan, New Zealand, India, Chile and Australia. Malaysia and its Asean partners have also established the Asean Free Trade Area (Afta) and Asean has concluded FTAs with China, Japan, Korea, India, Australia and New Zealand.

FTAs and Afta are factors Malaysia is able to sustain the average annual growth of about five per cent, despite global and regional economic uncertainties. This is due to enhanced export activities in the last few years as a result of lower tariffs.

FTAs also provide economic and technical cooperation platforms. Under the FTA with Japan, the Malaysia-Japan Automotive Industry Cooperation (MAJAICO) was established.

MAJAICO has been instrumental in enhancing quality management of automotive vendors through the MAJAICO A1 Lean Production System (LPS) implementation for competitive advantage. Recognizing the outcome of MAJAICO A1 LPS in enhancing the competitiveness of the local automotive industry, the Malaysian and Japanese governments agreed to extend it to 2015.

The recent Malaysia-Australia Free Trade Agreement (Mafta) saw a creation of a technology development and commercialization platform under the coordination of the Malaysia Automotive Institute.

In spite of Mafta being effective only from January 2013, there are already 17 technology projects worth RM45 million being developed for commercialization. Opportunities are being made available for automotive component manufacturers of both countries to cooperate and realize the potential of Australian technology and research and development for commercialization.

Human capital development, quality improvements management, processes and technology enhancement and other competitive enhancement mechanisms for the Malaysian automotive sector are also on the agenda. This platform is also being maximized to develop multi-skilled workers specializing in production, quality and autonomous maintenance.

Liberalization of the automotive industry is inevitable. It, however, will be progressive with longer phased-in periods for tariff elimination or reduction to allow Malaysian automotive manufacturers time to prepare for the increased competition.

Malaysia's economic growth largely depends on trade in goods and services boosted by FTAs. The automotive sector will become part and parcel of FTA negotiations.

The automotive sector will remain important. It contributed some RM30 billion to the national GDP last year and employed about 550,000 people throughout its value chain.

Malaysia has no alternative but to strive hard to ensure the survival of this industry. In the light of its liberalization, the local automotive industry must have a high level of efficiency, quality and competitive prices.

And the soon-to-be announced National Automotive Policy (NAP 2014) is a policy instrument that outlines directions and strategies in preparing local automotive players for liberalization. At the core of NAP 2014 are measures to attract strategic foreign and domestic investments to increase the volume game in Malaysia and to complete the automotive eco-system.

Central to these investments is the vision for Malaysia to become an energy efficient vehicle (EEV) hub.

It is an initiative to create a new arena for automotive production with the desire to fulfill the earlier vision of the nation being technological competent in the manufacturing industry.

EEV manufacturing demands new and advanced technology and requires more skilled and knowledge manpower. The new venture hopes to recreate competent manpower, which had been retarded by the currency upheaval in the late 1990.

The initiative will also help consolidate stakeholders in the automotive industry, especially the technocrats, academicians and business community, to look further to a future common objective.

A strategic approach to realizing these prerequisites is to increase the sales volume via export enhancement of completely built unit (CBU) and completely knocked down (CKD) of locally produced vehicles, along with their parts and components for the after-sales market.

Collaboration with local automotive players of the FTA partnering country can offer easy market access. Favorable tariff offerings by FTA partners will help position Malaysia's automotive exports at a competitive advantage.

Malaysia's vision to be an EEV hub is not only confined to producing green vehicles. The vision also encompasses strategies to develop the entire value chain of the automotive industry towards environment preservation and creating new economic opportunities, such as recycling, remanufacturing and others.

These strategies are about business and process transformation of the automotive industry to reduce the emission of greenhouse gases, optimize energy and achieve a sustainable framework from the standpoint of environment, economic and social pillars.

The NAP also aligns its measures to the safety requirements of the United Nations. Strategies are developed to complement the adherence to safety standards for new vehicles to include spare parts, either used or new. Directions to ensure safe levels for current running cars will also be introduced.

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