KUALA LUMPUR - Malaysia, which has to reduce tariffs on auto and parts imports as part of a deal with Asian neighbours, is scouting for a partner for national carmaker Proton as it faces increasing foreign competition.

The Malaysian government unveiled its National Automotive Policy on Wednesday, setting a framework to deregulate the industry and end a system of import "Approved Permits", which has been blamed for encouraging corruption.

While the government said it would allow foreign carmakers producing large cars worth over 150,000 ringgit (S$61,596) 100 percent ownership of new manufacturing operations here, it would keep excise duties on completely built cars and kits.

"We would like to develop further the local industry in Malaysia, this is of strategic importance to us," International
Trade Minister Mustapa Mohamad told a press conference.

The policy, first launched in 2006, aims to liberalise an automotive sector that heavily favours Proton through steep
taxes on imported vehicles in Malaysia, the biggest car market in the Association of Southeast Asian Nations bloc (ASEAN).

Proton shares were up 0.25 percent by 0311 GMT in a broader market down 0.7 percent.

Proton, which runs its plants at 50 percent capacity, according to industry analysts, held unsuccessful talks with
Volkswagen in 2007.

Recent newspaper reports have speculated that Proton could again try for a tie-up with Volkswagen, or seek out General Motors or Peugeot as a potential partner.

There has also been speculation Proton could be taken over by a Malaysian company such as DRB-Hicom, owned by reclusive billionaire Syed Mokhtar, or by local car assembler and distributor Naza.