The government has decided to reduce tariff for motorcycle CKD kits for new entrants from 15 percent to 5 percent for five years, arguing that the motorcycle industry is not nascent anymore, sources in the Engineering Development Board (EDB) told Business Recorder on Tuesday. The tariff on CBUs has also been reduced from 65 percent to 35 percent, they said.
These incentives have been approved by a tariffs rationalisation committee headed by the Deputy Chairman, Planning Commission, Dr Nadeemul Haq. In January this year, the committee (already constituted by the ECC) had been directed by Prime Minister Yousuf Raza Gilani, who is also the chairman of Cabinet Committee on Investment (CCoI) to decide about a proposal of Board of Investment (BoI) regarding incentives to a Japanese company Yamaha Motorcycle.
Official documents available with the Business Recorder showed that the CCoI had been informed that M/s Yamaha Motors Japan planned to establish a facility for manufacturing motorcycles in National Industrial Park, Bin Qasim Karachi at a cost of $150 million. The company will manufacture motorcycles with an engine capacity of 125cc and above and will offer electronic fuel injection (EFI) engine, automatic transmission and environment-friendly exhaust system consistent with European standards.
The Tariff rationalisation committee met on April 5, 2012, which was briefed by the Chairman of the National Tariff Commission (NTC) about the background of the case. He stated that a meeting of the tariff rationalisation committee was held on January 18, 2012, in which it was decided that NTC, in consultation with EDB, would conduct a study and suggest recommendations pertaining to rationalisation of duty on CKD kits and CBU within a month. The NTC considered the following issues in consultation with major stakeholders: (i) whether the domestic industry was adequately protected or the protection offered an industry was on the higher side and (ii) whether the incentive in the existing scheme for new entrants was adequate or not?
He further added that an in-depth analysis of issues revealed the following with regard to motor cycle industry in Pakistan:
(i) The industry survived behind high tariff walls. However, due to lack of competition the industry could not be developed as an efficient industry and remained as a 'negative value-added industry'. This conclusion is true for both motorcycle industry and the vendor industry.
ii) Due to infinite protection, which at present is prohibitive for imports of parts as well as CBU motor cycles, manufacturers did not invest in research, development and innovation.
iii) The industry is as old as 40 years and no more a 'nascent industry'. It also cannot be argued that the industry cannot achieve volume of production necessary or achieve economies of scale. The protection of the vendor industry increased over time in-spite of trade liberalisation in other sectors, after the end of 'Deletion Policy' in 2005. Insiders in the EDB argued that there was a lack of policy for new entrants in the motorcycle industry and they were heavily dependent upon clones of 'Honda 70' and Chinese parts only. The existing vendor base of parts manufacturers helped the mushroom growth of copying assemblers but discouraged Research & Development (R&D).