Yamaha likely to shelve plan to invest $150 million: decision-makers fail to reconcile differences

Yamaha Motorcycle Company is likely to shelve its plan to invest $150 million in Pakistan after Prime Minister Raja Pervez Ashraf, the Board of Investment (BoI), the Ministry of Commerce and Planning Commission failed to extend new entrant incentives.
Official documents showed that the ECC in its meeting on August 16 this year, constituted a committee under the Chairmanship of the BoI to prepare a presentation for the ECC regarding the domestic motorcycle industry.
The committee was authorised to associate manufactures, importers and vendors of motorcycles with its deliberation. The ECC was further informed that in pursuance of its decision, extensive consultations were held with the Pakistan Automobile Manufacturers Association (PAMA), Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM) and leading manufacturers, importers and vendors of motorcycle industry. After detailed deliberations, the committee finalised its recommendations relating to: (a) general tariff reduction for motorcycle industry; and (b) policy for new entrants of the motorcycle industry. The Committee presented its recommendation to the ECC for consideration.
During ensuing discussion, it was noted that against 113 units, only 68 units were operational. It was stated that artificial tariff barriers were allowing the corporatisation of the companies manufacturing motorcycles, which needed to be removed.
It was, however, opined that operation of 68 units is a proof that there were no barriers and the sector was thriving. On a query, it was intimated that a 70cc Japanese motorcycle costs Rs 90,000 while a similar Chinese motorcycle costs Rs 65,000. It was stressed that the proposed tariff rationalisation should not increase the cost of motorcycle, which is being used by the common man. It was further stated that this issue was being deliberated for the third time in the ECC meeting, which was not encouraging. The purpose should be to protect the interest of the consumers.
The meeting was further informed that during the meeting of the committee constituted by the ECC, it was unanimously agreed that tariff for CBU and components for assembly/ manufacture of vehicles in any kit form be reduced from existing 65% to 50% while for CKD kits not manufactured locally, the tariff would be reduced from existing 15% to 10%.
However, the summary did not reflect this decision truly and has, recommended the tariff of 40% and 5% respectively. The tariffs proposed by the Ministry of Commerce are likely to open the floodgate of imports, thus negatively affecting the local industry.
Besides, these tariffs would incentivize the new entrants to import rather than invest/utilise in local facility. The representatives of the motorcycle industry, who were specifically allowed an audience by the ECC, mostly favoured the 50% and 10% tariffs. They, however, stressed the need to provide level playing field to all the players ie new entrants as well as existing manufacturers.
It was also stated that the new technology, if brought into Pakistan either by the new entrants or by the existing manufacturers, would be Euro-II compliant. However, the fuel available in Pakistan is not Euro-II compliant. As such the new entrant will not find the local market. However, there was a huge potential for export to India, which has 5% tariff for imports from Pakistan, while 100% tariff on CBUs, if imported from other/non-Saarc countries.
It was also stated that under SROs issued by the Engineering Development Board (EDB) some parts/components when imported as built-up are subjected to reduced rate of duty as "not being manufactured locally". However, when the same parts/components are imported in other than built-up or form, these attract higher rate(s) of duty, compared to parts manufactured locally. Thus, there is a need to examine these SROs and basis there of. It was suggested that, in principle, the existing tariff should go down. However, it would be prudent to do this in a gradual manner so that the local industry can adjust itself.
At a recent meeting of a high powered committee presided over by the Finance Minister discussed prices of motorcycles of 70cc and others being assembled in Pakistan or imported from abroad, compared with prices of the motorcycles which may be manufactured locally or imported after the change in policy.
The proposed duty structure would apply equally to the new entrants and existing manufacturers so as to provide a level playing field to all the manufacturers.
SROs issued by the EDB allowing benefit to OEMs and basis there of should also be examined with a view to providing similar treatment to the parts/ components when imported as built-up for or in other than built-up units.