AFTA: The upcoming challenges to the Malaysian automotive

Essay by jameslim1 May 2004

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AFTA: The upcoming challenges to the Malaysian automotive industry


Perusahaan Otomobil Nasional Berhad (Proton) was incorporated on May 7, 1983 to manufacture, assemble and sell motor vehicles and related products including accessories, spare parts and other components. Proton has an extensive market share in Malaysia and sells its products widely throughout the region. The home market provided it with the necessary volume and viability for its success. In the 1990's they have acquired about 65percent of the total sales in Malaysia. This was followed Perodua which is the second national car producer. They have conquered about 25percent of the Malaysian automotive market from 1995. Foreign automobile giants could not penetrate the Malaysian market because of the high tariffs and import tax imposed on foreign vehicles. However it is going to be a totally different story once AFTA was fully implemented on the automobile industry. ASEAN Free Trade Area (AFTA) was established in the fourth ASEAN summit held in Singapore in January 1992.

AFTA was initiated in order to promote intra ASEAN trade, investments and economic developments in this region. Through AFTA, the tariffs should be reduced to below 5percent by 2002 and other non-tariff barriers are to be eliminated among the ASEAN countries.

ASEAN car industry falls in these schemes too. However Malaysia has requested a minimum two-year exemption from AFTA, which is due to come into affect in 2003,for its car industry and selected agricultural products. It says it wants to make sure its industries have recovered from the effects of the economic downturn before throwing open its markets. Foreign car giants however know that ASEAN is a strategic automotive market. Currently American and Japanese auto companies have invested a lot in this region for auto industry. Further new car manufacturer especially from Europe has shown interest to...