Thailand is refusing to drop import tariffs for Malaysian cars under an ASEAN free-trade pact, accusing Malaysia of using non-tariff barriers to protect its own auto industry, trade officials told Reuters.

Malaysia has rejected the Thai contention, saying its policy on auto imports was well within ASEAN Free Trade Area (AFTA) rules.

"It's a matter of interpretation," Malaysia's trade minister, Rafidah Aziz, reportedly said after Thailand raised the issue at an ASEAN economic ministers' meeting in the Malaysian capital on Monday.

"I suppose if that's what the law says, you have to accept it," she told Reuters at the start of the week-long ASEAN meeting, adding that both sides would meet next month in Kuala Lumpur to resolve the issue.

In March, Malaysia had cut auto import tariffs to 5% from 20% for ASEAN cars, in line with AFTA rules.

But Thailand, ASEAN's biggest auto maker, said it would keep an import duty of 20% on cars from Malaysia, arguing that Kuala Lumpur's policy of requiring permits for auto imports amounted to a non-tariff barrier.

Malaysia is Southeast Asia's biggest passenger car market, accounting for 51% of total sales in the region in 2005, and locally based car makers met 92.5% of domestic demand, Reuters noted.

In a report released last week, the government said the industry needed to boost exports, which made up just 2.8% of output in 2005, and start setting up assembly plants offshore as trade barriers fall and competition intensifies.

The Malaysian market is dominated by national car-makers Proton and Perodua, Reuters added.

Rafidah told the news agency the dispute with Thailand would not derail ASEAN's free-trade goals. "This is a bilateral thing, as usual anywhere in the world. It's a matter of interpretation. We will sort it out."