Colombia could cut import taxes to boost local auto assembly

BOGOTA Mon Oct 21, 2013 5:24pm EDT

BOGOTA Oct 21 (Reuters) - Colombia is studying reducing or eliminating tariffs on imported automobile components to bolster the local car industry, which assembles foreign makes including Chevrolet, Renault and Mazda, the finance minister said on Monday.

Reducing or eradicating protective tariffs would make it more difficult for local component manufacturers to compete but would lower the cost of automobile assembly overall, helping locally-produced cars regain some market share lost to imports.

An overvalued peso has hindered industrial output in Latin America's No. 5 economy in the last few years, making it the laggard sector in an economy that since 2010 has achieved annual growth consistently above 4 percent.

"I think that to give some competitiveness to this sector, we will have to go in the direction of allowing auto parts to come in without restriction from any country so that the assembly of vehicles in Colombia does not disappear," Mauricio Cardenas told reporters in Bogota.

Cardenas said local assembly of cars, some of which are exported to neighboring countries in the Andean region, made an important contribution to the economy and to job creation. Colombians buy around 300,000 new cars each year.

Sales of cars made abroad overtook those of locally assembled vehicles during the peso's gradual strengthening in the last few years which lowered the cost of imports. Roughly two thirds of new cars sold in Colombia are imported.

Colombia's Colmotores assembles General Motors' Chevrolet cars while France's Renault models are made by local company Sofasa. Japan's Mazda cars are produced locally by the Colombian Automotive Company.

Colombia has been buying dollars regularly since February through the central bank and by reducing foreign debt, measures which have helped weaken the peso by 6.3 percent so far this year, undoing part of its 9 percent appreciation in 2012.

The backdrop of improving security after a 10-year U.S. backed military offensive that slashed the membership of the country's two left-wing rebel movements, the FARC and ELN, led to a wave of investment in oil and mining, one of the reasons why the peso strengthened. (Reporting by Nelson Bocanegra; Writing by Peter Murphy and David Gregorio)

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