National carmaker Proton is expected to sign a deal this week to assemble cars for Volkswagen AG in a tie-up that would boost the German giant's presence in Southeast Asia's fast-growing auto market, a report said today.

The New Straits Times quoted sources as saying that Proton chief executive Tengku Mahaleel Ariff has flown to Germany after an emergency board meeting over the weekend to ink the pact.

Although the deal did not involve Volkswagen taking an equity stake in Proton, it is expected to drive sales for the Malaysian carmaker and increase production at its RM1.52 billion plant in Tanjung Malim in central Perak, sources said.

A Proton official told AFP that Mahaleel was now in Germany to finalise negotiations but declined to give details.

Volkswagen, Europe's largest carmaker, earlier this month confirmed it was in talks with Proton about the possibility of cooperation for it to penetrate markets in the 10-member Association of Southeast Asian Nations (Asean).

Competitve edge

Although Volkswagen is the biggest foreign auto maker in China with nearly 30 percent of the market, it has a negligible presence in Asean.

The tie-up is also seen as a bid to bolster Proton's competitiveness ahead of market opening in 2005 under the Asean Free Trade Area (Afta).

Proton used to sell six out of every 10 new cars in the country but its market share fell to 49 percent in 2003 and dipped further to 44.5 percent in the first eight months of this year as sales tumbled.

Under Afta, import tariffs for most products in the region were cut to below five percent in the past year. Malaysia obtained a two-year reprieve for its auto industry until 2005 but has since said it would defer reducing duties to the required level until 2008.