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Thai automakers desperate to keep high tariff on imported cars

Region's largest car industry insists 80% duty is necessary to help business recover

Employees work at an assembly line for AutoAlliance Thailand, a Ford and Mazda joint venture plant, located in Rayong province, east of Bangkok.   © Reuters

BANGKOK -- Thailand's auto industry, the largest in Southeast Asia, worries that a recent proposal to cut import tariffs on cars could set back automakers' recovery from an economic slowdown.

The Federation of Thai Industries is insisting that the cut in import tariff could hurt automakers, adversely affect workers and disrupt the country's drive to become a regional auto hub.

The statement came on the heels of a recent proposal made by the Independent Car Importer and Distributor Association, asking the Ministry of Finance to cut the import tariff on finished car from 80% to 40%. Somsak Sriratanaprapas, the association's chairman, was quoted in Thai media as saying the tariff should be as in other countries in the region to secure a level playing field both for local auto manufacturers as well as importers.

"We want to see a realistic tariff rate that allows all parties to compete freely in a fair game," Somsak was quoted as saying. He argued that local auto makers have been well-protected by the unrealistic high duty for more than 30 years and it should be the right time to reduce the tariff.

Somsak added that the ministry is considering the association's proposal.

The association represents 60 Thai car importing companies, mostly small and medium enterprises, serving clients who want car models that are not generally available in Thailand. They are known as "grey market" players because they are not authorized dealers. 

The association's call for tariff reduction was triggered by the recent decline of grey market. Somsak was quoted in a local newspaper saying that the weak Thai economy over the past few years has led to a sharp drop in imported car sales and that a tariff cut could help their business pick up. He said the number of imported cars dropped to around 5,000 units during 2016-2017, down from 12,000 units during the previous years, when the economy was still solid.

But the association's request has rubbed local manufactures the wrong way. Although the import car market is much smaller than the number of vehicles manufactured in Thailand, local manufacturers are still struggling to recover from the dramatic market contraction observed in 2014, when a military coup toppled the government led by then-Prime Minister Yingluck Shinawatra.

Local production unit dove 23% to 1.88 million units in 2014 from 2.45 million in the previous year. In 2017, the figure grew by 2% from 2016 to 1.98 million, rising for a third straight year and making Thailand the top car producer in the Association of Southeast Asian Nations. But the figure continued to fall short of 2 million vehicles, well below the level before the coup.  

Local car makers are still concerned that any cut in tariff on car import could mean a sharp rise of imported car that would erode new auto demand at home.

Last week, Thavorn Chalassathien, head of the FTI's auto club, said the FTI was very concerned about the whole Thai auto and auto parts industry, which contributed more than 10% of the country's gross domestic product of more than $400 billion. "And that would also badly affect more than 850,000 workers employed in the Thai auto and auto parts industries," said Thavorn.

The FTI said that the cutting tariffs for imported cars would not only disrupt the development of the Thai auto industry but also discourage the ambition to nurture the next-generation car industry, contrary to the Thai government's policy.

The government aims to attract more foreign investment in the Eastern Economic Corridor. The EEC is the government's flagship investment area that spans in more than 4,800 hectares in the three eastern provinces of Chonburi, Rayong and Chachoensao and is designed to accommodate new investment in targeted industries, including next-generation electric vehicles.

A Finance Ministry spokesperson said there were talks between the ministry and the Independent Car Importer and Distributor Association about the proposal to cut car import tariff. However, it is still unclear when the ministry would take up the tariff-cutting issue for the approval of the cabinet as the ministry, the spokesman said.

The FTI's auto club groups 50 car makers in Thailand, including major foreign car assemblers that began investing in Thailand nearly half a century ago, such as Toyota Motor, Mitsubishi Motors, Honda Motor, BMW, Isuzu Motors and Mazda Motor. With the foreign investment that help developed Thai auto industry more than 50 years ago, Thailand produced its first lot of 525 units of car in 1961 and started export car for the first time in 1998 at 12,950 units, encouraging the Thai government to set a new goal of being the hub of region's auto industry.

Local analysts say that the Thai government is likely to continue supporting local car manufactures although it might eventually decide to cut the import duty on finished car in a long run.

Somchai Jitsuchon, a research director of Thailand Development Research Institute said the Thai government will continue to promote and support its local car assemblers since the auto industry has been positioned as a strategic industry in the long term and the government would try to seek for other measures to help protect local industry if it would eventually decide to cut import tariff on finished car.

"At least, I think the government would try to gradually cut the tariff to buy time and allow local car makers to adjust themselves instead of cutting from 80% to 40% immediately that would hardest hurt local industry," said Somchai.

Thai industry is desperate to keep available protections to buy time to regain its confidence.

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