• Madani Sahari

Liberalisation vs protectionism - a tough balancing act

MARKET liberalization of economy is inevitable for our nation to remain respectable and prosper in the global community.

Malaysia, being a small economy, depends largely on its trade with other nations for overall economic sustainability.

Contributing some RM30 billion to the country's gross domestic product last year, the automotive sector is still a key economic engine. More importantly, the sector employs some 550,000 workers, making it an important sector for human capital development and employment opportunities in engineering fields.

The rise of globalization under the World Trade Organisation (WTO) and the need to cement regional trade agreements within the ASEAN Free Trade Area (AFTA) has compelled the government to gradually liberalise the automotive industry in recent years.

Since 2000, the trade requirements under the WTO’s Trade-Related Investment Measures (TRIMs) and the General Agreements on Tariffs and Trade (GATT) have been the limiting factors influencing the automotive policies of developing nations in the region.

TRIMs was viewed as positive towards attracting investment through tax concessions, but it also promotes certain requirements much in favor of foreign investors.

Following the Asian currency crisis, the region's governments were in predicaments to continue with less severe protectionist routes to stabilize their automotive sectors.

Until 2009, Malaysia's first National Automotive Policy (NAP) maintained some protectionist elements that were no longer admissible under the WTO, such as local content requirements by foreign manufacturers.

The government believed that local automotive vendors and original equipment manufacturers (OEMs) still needed some protection to continue to develop to a level of international competitiveness. Being independent of OEMs' influence was continuously encouraged among the local vendors.

Demands for market liberalization heightened as the government was formulating the NAP 2014. In cognizance of the big progress achieved by neighboring countries' automotive sectors on account of their liberalization models, NAP 2014 reviewed the nation's liberalization strategy to suit automotive developments and competitiveness.

One of these is to make the country a regional hub for energy-efficient vehicles production as well as to increase automotive exports.

The NAP 2014's status updates by the International Trade and Industry Ministry recently recorded positive support from industry players who felt that the policy is moving in the right direction, although some major issues still need to be resolved.

Protecting and advancing the 550,000 automotive employments remain the government's priority. However, accommodating mounting demands for car price reduction to ensure survival of home grown automotive OEMs and vendors versus pursuing liberalization commitments will be an extremely challenging balancing act for the government.

The window for protectionist policy will be further narrowed with the onset of the ASEAN Economic Community (AEC) in December 31.

In this respect, it is commendable that Proton has taken an initiative to collaborate with an Indonesia automotive player in the near future. The signing of a memorandum of understanding tomorrow will pave the way for the initiative.

Proton and its list of vendors, which are mostly unattached to automotive OEMs, are in the best position to work with its Indonesian counterpart to develop ASEAN brand of auto outputs.

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