Complaint stands over Jakarta car regime

Date: 12/03/1998

By Peter Chapman

EUROPEAN Commission trade negotiators are set to reject Indonesian calls for the EU to drop its complaint to the World Trade Organisation over unfair restrictions on car exports.

Indonesia argues that a WTO dispute panel set up in 1996 should be dissolved because the country has promised to remove the obstacles preventing EU firms from penetrating its market. But Commission officials insist the EU should wait to see if Jakarta's words turn into deeds before dropping the complaint.

“The Indonesians said they have decided to scrap their car regime, but the question is whether this is really happening. We think the panel should go ahead,” said one EU official.

The WTO panel, which reconvenes at the end of this month, has been probing allegations that Indonesia imposed huge trade tariffs on cars imported from the Union, in addition to a crippling 'luxury tax' designed to deter consumers.

In the meantime, the Indonesian government has begun implementing a 'national car programme' to substitute for the blocked imports. As the country did not have its own production facilities, it allowed tariff-free imports of Kia cars from South Korea, which were relabelled under the Indonesian 'Timor' brand, also in breach of WTO rules.

A spokesman for EU car manufacturers' lobby ACEA welcomed Jakarta's promise to end its national programme, which he claimed had resulted in taxes of up to 200&percent; on Union exports. But he said the government had also introduced strict rules forcing companies to form joint ventures with local manufacturers and use high proportions of Indonesian-produced components.

ACEA argues that the panel should not be dissolved until the WTO has had a chance to see how Indonesia responds to the financial crisis which has left it desperately short of the foreign currency needed to buy imported cars.

A key issue remains how the country will implement reforms imposed by the International Monetary Fund, such as tighter budgetary control, improved financial market supervision and reduced infrastructure spending, in exchange for a capital injection to ease the effects of the financial crisis.