The negative Side of the Tariffs / Malaysian Car Industry

The negative Side of the Tariffs

Despite the fact that high tariffs have succeeded in developing the local automotive industry, they represent obstacles to international trade because they distort markets and result in welfare losses to consumers. They promote inefficiencies among local producers and deprive consumers of affordable imports of higher quality and better variety products. The local content programs and high import tariffs on CBUs and CKD units undoubtedly lead to high production costs, and these are passed on to consumers in the form of higher prices.

Prices of motor vehicles have increased steadily since the introduction of the first national car project (NCP) in 1984 and are now beyond the reach of a sizeable proportion of the population. Therefore, consumers have viewed that the loss in static welfare outweighs any dynamic gains to the industry.

Import Bans and Quotas:

- An approval permit (license) is required for imports of motor vehicles, which limits importers total market volume for completely built-up units (CBUs), effectively acting as an import quota. It is unclear whether this is a 5 or 10 percent quota.

- Malaysia maintains an import ban on motor vehicles from Israel and South Africa.

Investment Requirements:

Foreign investors may retain up to 100 percent equity if the firm either exports 50 percent of its output or employs 350 Malaysians full-time.

Malaysian companies must be 30 percent Bumiputra (native Malay) owned.

Proton made a major step in upgrading its engineering capabilities with the acquisition of Lotus Group International Limited, a British automotive engineering company and manufacturer of luxury sports cars, in October 1996. This step allowed Proton to gain a great deal of engineering expertise, which will enhance their capability to improvise and come up with new models that are globally competitive and innovative. Currently, the factory has a capacity of producing 230,000 units per year. An important milestone in the Malaysian automotive industry was the introduction of the Proton WAJA model in May 2000, which represents the first Malaysian designed car to be manufactured and actually affordable to local customers.

Second National Car Project - Perodua

Perodua was the second national car project. Through proper planning and focus, Perodua has provided the Malaysian population with the opportunity of owning a compact, affordable and reliable vehicle, whose standard and quality are second to none. Since it’s establishment in 1994, the domestic market share of Perodua has been approximately 25%.

Human resource development

The national car project in Malaysia has also contributed to human resource development. According to the terms of their joint venture agreement, Mitsubishi Motor Corporation (MMC) was responsible for plant construction, training and supervision of preparations for production and technical assistance in localisation. The national car project has required that all Proton staff (engineers, researchers, designers, managers, mechanics) be trained according to Japanese standards and procedures. Malaysian employees of Proton — from production workers to managers — have been sent to MMC in Japan since 1983 for training. Up to 1991, around 500 have been to Japan for training, while another 178 went in 1992. Proton employees have received training in various aspects of car manufacturing, such as production control, welding, painting, trim, maintenance, tooling, engineering and quality control. The Proton workforce has been trained in Japan as well as in Malaysia, and is still supervised by the Japanese. Many specialists from MMC have also been despatched to the Proton plant to train Proton employees in Malaysia. In 1991 and 1992 alone, about 200 Japanese specialists from MMC were in Malaysia to provide training under the Technical Assistance Agreement with Proton.