The Indonesian government said it will cut import tariffs on vehicles to within the World Trade Organisation's targeted range next year. The cuts will be made two years ahead of the WTO's 2012 deadline, when MFN (Most Favoured Nation) rates are required to be no higher than 40%.

Budi Damadi, Director General for transportation at the Ministry of Finance, said import tariffs on completely built-up (CBU) passenger cars will be reduced from 45% to 40% next year, and from 15% to 10% on completely knocked down (CKD) imports.

Tariffs on vehicles imported under bi-lateral and regional trade agreements such as the ASEAN Free Trade Agreement (AFTA) will not be affected. Duties on CBU vehicles imported from qualifying AFTA member countries have already been reduced to a maximum of 5%.

The 33% reduction in CKD import tariffs will provide a small boost to some of the more marginal assembly operations in Indonesia, which struggle to compete with dominant Japanese manufacturers. These include assemblers of Hyundai, Kia and Peugeot vehicles.

The cuts are also expected to encourage investments by those vehicle manufacturers that have expressed an interest in establishing new assembly operations in the country, including Germany's Volkswagen, China's Geely, and also General Motors. Mr Darmadi said his government will maintain the critical difference between CBU and CKD tariffs rates to ensure that local assembly remains competitive.

Tony Pugliese