Closed doors annoy big players
Singapore, Malaysia buck free-trade pact
Santan Santivimolnat and Srisamorn Phoosuphanusorn

BMW Thailand has suffered a setback from Singapore's excise tax on vehicles, compounding Malaysia's stalling on the opening of its automobile market.

Unlike BMW Thailand, DaimlerChrysler's Thai operations seem to be unaffected by Singapore's move because the company has no plan to export cars for the time being. DaimlerChrysler has hired Thonburi Assembly plant and Bang Chan General Assembly to assemble its Mercedes-Benz cars.

The reaction of General Motors (Thailand) to Singapore's tax increase was not available, but the company earlier expressed annoyance at Malaysia's decision. Company president William Botwick said the company would not have invested US$500 million to set up a plant in Thailand if it had known that it would not be able to export vehicles under the full terms of the Asean Free Trade Area.

Malaysia postponed the freeing up of its automobile market by two years to 2005 to protect its national-car programme, while Singapore wants to curb vehicle ownership and minimise congestion.

Singapore won praise when it scrapped import duty on vehicles but then surprised the industry by raising excise tax, making the overall tax level unchanged.

Karsten Engel, president of BMW (Thailand) said the company hoped that its one-billion-baht plant in Thailand would be fully utilised and its capacity would be expanded if Afta was implemented as planned.

The plant in Rayong can make 10,000 cars a year but is now running at less than 30% capacity.

"The limited prospects of exporting vehicles to Asean under Afta, especially to Malaysia and Singapore, reflects that Asean is failing to promote the spirit of Afta," he said.

Mr Engel said that in Singapore, BMW cars from Thailand could not compete against BMWs shipped from elsewhere, because of additional costs.

He did not elaborate but an industry source said BMWs from Thailand would be 20-30% dearer than those from elsewhere because BMW (Thailand) was subject to duty on kits, excise tax and shipping costs. As well, Thai parts suppliers for BMW would also be hurt by the move.

As long as BMW's plant in Thailand could not be fully utilised, the parts produced would not be commercially viable due to low production volume, Mr Engel said.

Karl-Heinz Heckhausen, chief executive and president of DaimlerChrysler Thailand, warned that if Asean did not unite to strengthen its competitive edge in the automotive market, it could be submerged by the emerging market of Northeast Asia.

"Most of the investment in manufacturing and assembly in Thailand was due to the hope of a united Asean market," he said,Mr Heckhausen urged the government to push for neighbouring countries to open their markets to Thai-made vehicles.