Competition Impact Assessment Study of auto sector: CCP to provide opportunity to stakeholders for giving feedback

The Competition Commission of Pakistan (CCP) will provide an opportunity to all stakeholders to give their feedback before finalisation of the updated Competition Impact Assessment Study of the Automobile Sector.
Sources told Business Recorder here on Wednesday that the CCP would finalise the updated Competition Impact Assessment Study of the Automobile Sector in the coming few days after expiry of deadline on January 8, 2015 for seeking comments on the said study.
It is likely that the study will be finalised in February 2015. The CCP will welcome feedback of the concerned industrial associations on the study before its finalisation.
Only a day is left for the general public to submit comments on the said study. However, the commission may further extend the deadline for seeking comments of the stakeholders.
As per CCP updated Competition Impact Assessment Study of the Automobile Sector, the CCP has strongly recommended commercial import of used cars, end to discretionary control of Engineering Development Board (EDB) over automobile industry, reduction in protection of local industry to allow foreign competition for the benefit of consumers.
The commercial import of used cars should be allowed and open to all. The prevalent scheme of allowing used car imports under the Gift, Personal and Baggage Schemes adds to transaction costs in the form of extra legal formalities, in addition to high import duties. This practice should be replaced with open commercial import of used cars.
The increase in competition will reflect in better pricing and improved quality, as well as availability of cars on demand. The CCP has also invited public comments on its updated study. Major recommendations of the report to improve competition, both in the short and long-run included: benchmarking auto policies against major developing auto producing countries such as India, Thailand and Turkey by fully implementing the Trade Related Investment Measures (TRIMs) agreement. It recommended discontinuation of auto policy formulation through Statutory Regulatory Orders (SROs) and doing away with control of the Engineering Development Board (EDB) over the materials and components used in the auto industry and the management of new entrants.
The CCP said that the recent reduction of allowable age limit for import of cars from 5 to 3 years in December, 2012 will further protect the domestic automobile industry which is already inward looking. Import of 5 year old vehicles provides a better competitive environment to the local automobile industry. However, the idea of increasing the age limit from 5 years to older than 5 years on the import of used cars may be subject to strict road worthiness tests. It is preferable for the import of used cars to be open, rather than allowed under the Gift, Personal and Baggage Schemes that add transaction costs. It is also necessary to have stringent evaluation measures to assess the depreciation and actual values of the used imported vehicles.
The CCP said that removing the entry barriers imposed by higher tariffs for imports by significantly lowering the tariffs and making them relatively more uniform across all automobile categories. This will make cars more affordable, push the local assemblers to be more competitive, and incentivize the automobile industry to strive towards international standards and pricing. The tariff structure needs to be finalized in consultation with the National Tariff Commission (NTC).
The recent measure of lowering the depreciation allowance needs to be reconsidered as it may reduce consumer welfare by increasing the price of imported used cars, it said. It recommended mandatory testing for emission and road-worthiness to be introduced as part of a regulatory regime and renewal of registration of vehicles may be contingent on passing of requisite tests in line with developed countries.
Dealerships are merely agents of the manufacturing companies and have no real incentive to compete in the market. It is proposed that strict laws should be implemented that prohibit both parties (manufacturers and dealers) from charging any premiums from the customer. Increased competition would also eliminate the premium problem, as cars will be readily available and customers will not have to wait for six months before receiving their car after having paid the full price in advance, it said.
The CCP recommended that legislation should be introduced to prohibit premiums charged by the manufacturers and the dealers and to restrict hoarding by unscrupulous investors or traders of cars. The existing booking structure negatively impacts competitiveness as well, imposing an additional burden on customers. By paying the full price of the vehicle months in advance, the customers are not just covering the product-based variable costs for the companies, but are also losing interest that they could have earned otherwise. The car manufacturers claim to oppose the charging of premiums, however, they seem to adopt a 'look the other way' policy on the issue of premiums charged by the dealers to expedite delivery of vehicles.
It also recommended ending the discretionary control of Engineering Development Board (EDB) over automobile industry particularly the EDB controls over the materials and components used by the industry etc.