Jakarta – As would-be easy riders get revved up over the prospect of cheaper cars and motorcycles in the wake of falling import duties, the local industry sees the lower tariff regime as another threat that must be overcome if it is to survive.

"Lower import duties accompanied by a flood of imported cars will gradually damage our manufacturing sector," the Industry Ministry's director general for the automotive, information and communications industries, Budi Darmadi, said Monday.

A committee from the Finance Ministry charged with revising import duties announced last Friday that it had completed the second phase of its import duty reductions, including those on automotive products.

This year, the duty cuts will apply to completely built-up (CBU) sedans of between 1,500cc and 3,000cc, such as the Vios, Altis and Camry models from Toyota, and the Civic and Accord models from Honda. A number of BMW, Mercedes-Benz and Peugeot models are also included in this category.

The import duty on these cars has been cut to 60 percent from 70 percent last year. In the period up to 2010, the import duties on CBU cars in all categories will have to be gradually reduced to 40 percent from the current levels of between 45 and 80 percent.

Import duties on CBU motorcycles have also been cut. Compared to between 35 and 60 percent last year, importers this year will have to pay a duty of between 30 and 50 percent on such products.

Industry players have said they are concerned that lower import duties on CBU vehicles, and higher duties on components, will adversely affect domestic manufacturing – leading to higher unemployment in the long run – as it will become more profitable to import rather than manufacture.

Even with the old duties, Chinese-made motorcycles have been flooding the Indonesian market.

Indonesia imported some 75,000 CBU vehicles from other Southeast Asian countries in 2005, and another 15,000 from countries outside the region. Meanwhile, the domestic automotive industry produced 530,000 cars last year, with most of the components being imported.

Indonesia is currently an automotive manufacturing base for a number of Japanese companies. In terms of car output, Indonesia is in a neck-and-neck battle with neighbors Thailand (648,000 units per year) and Malaysia (500,000).

Indonesian Automotive Producers Association (Gaikindo) has estimated that local firms, which employ some 150,000 workers, would this year only be able to produce 500,000 units at the most due to increasing operating costs.

Gaikindo deputy chairman Jongkie Sugiarto said his association would first study the new import duty arrangements before making an assessment. "It is obvious that the automotive industry must increase its competitiveness," Budi said, adding that the problem currently faced by Indonesian manufacturers was the lack of trained and skilled staff.

Automotive manufacturers here are also still highly dependent on imported components as very few local suppliers have been able to maintain reliable supplies of high quality automotive parts.