Monday, April 4, 2011

PROTECTIONISM


As posted by Dr. Mahathir Mohamad at Che Det on March 31, 2011 9:35 AM

1. Recently someone complained that Malaysians have to pay high prices for cars because the Government is protecting Proton.

2. Actually the high price for imported cars was fixed before Proton to reduce gas-guzzling cars from being imported. Thus cars with big engines are taxed (import duty) by 300%. Other cars are also heavily taxed to reduce import of petrol.

3. When Proton was introduced the price fixed was lower due to lower tax being charged. The buyers profited from the lower price so that those who could not buy a car before could now buy a Proton car.

4. Still the tax on Proton yielded 18 billion Ringgit in government revenue over a 10-year period. This is simply because more people bought Protons who before could not afford to own a car. The rapid growth in the ownership of cars is due to the cheapness of the Proton.

5. Today Proton's share of the market is less than 30%. A lot of foreign cars are being imported because Malaysians are richer now. Despite Mercedes and BMW costing three times more in Malaysia than in Europe, Malaysia is one of the best markets for these huge luxury cars. They buy these cars because they just like them and do not mind the high price. It has nothing to do with protecting Proton.

6. Is the Government doing something that other Governments are not doing? I list below the measures taken by other countries to protect their economy.

7. Singapore : Buyers have to pay a high price for a certificate to import cars.

8. In America US$74 billion in Government funds were used to bail out automotive companies. (Without this bailout General Motors would close down. Americans would have to buy foreign-made cars).

9. France: Government doled out billions to automakers to keep the automotive industries alive.

10. Spain : Interest free loans were made available by the Government to support local industries.

11. UK : Millions of pounds were given to businesses and banks to prevent them from closing down. Still all British car companies have closed down.

12. Germany : Financial incentives were given to scrap older cars so that people can buy new cars.

13. Italy : Subsidies are given for purchase of "green scooter".

14. Russia : Direct subsidies are given to auto companies and tariffs imposed on used cars to protect industry.

15. China, South Korea : Policies and subsidies are used to protect local automakers.

16. Russia, India and Turkey use import tariffs to protect local industries.

17. China, India, Russia, Vietnam, Ecuador, Argentina, Brazil all have tariff barriers. The United States imposed 35% tariff on China-made tyres.

18. The G20 resolved against protectionism but all of them provide protection in various forms for their businesses, contracts and products.

19. So, is it wrong for Malaysia to protect local industries? Actually our protection is minimal.

20. We believe in competition but we are up against countries which protect their industries against foreign products. In Europe standards are raised every year to keep foreign cars out of their markets. The cars and other products we import are cheap because of subsidies and protection by their countries.

21. In America, if there is a slight defect in the product, selling the product in the US market would be stopped. Because one person got rashes from wearing gloves made of Malaysian rubber, all Malaysian gloves were banned.

22. Millions of Toyota's hybrid cars were recalled because one car had defective brakes.

23. We can close down Proton and buy only foreign-made cars. Roughly 50,000 people would be thrown out of work. Their families would be deprived of a bread-winner. Many other industries including component suppliers, transport companies etc will suffer. Economic growth would be effected.

24. If we think that without the need to protect Proton, foreign cars would be cheaper, we are wrong. Without the tax on foreign cars and on Proton cars, Government revenue would be smaller. There would be little money to finance infrastructure, universities, scholarships etc. Generally standards of living could decline. So the Government will have to continue with high taxes for imported cars. It is not Proton which is causing foreign cars to sell at high prices.