"The ECC sub-committee has made a mockery of the consultative process by flouting the agreement regarding duties on Completely Built Unit (CBU) and Completely Knocked Down (CKD) import for motorcycles while forwarding recommendations to ECC," the Director-General of Pakistan Automotive Manufacturers Association (Pama) said here in a statement issued here on Monday.
He said that it had been clearly agreed in the meeting on September 13 with the Chairman of the Board of Investment (BoI) heading the committee made by Finance Minister in his capacity as the Chairman of ECC, to bring down CBU tariff to 50 percent and CKD rate to 10 percent, but it is extremely disappointing to see how the process had been sabotaged. The summary moved for ECC's approval as per reports does not carry recommendations finalised in the meeting, Instead, it recommends bringing down CBU duty rate at 40% and that, too, "as agreed by industry" which is contrary to the fact.
He said that Pama, Paapam and representatives of Chinese motorcycle manufacturers are not on the same page with the sub-committee, because the summary prepared under the supervision of BOI chairman "favours imports of motorcycles". In that meeting, the sub-committee had reached an agreement with manufacturers and vendors and recommended that the duties on CBU be reduced from 65 percent to 50 percent. Industry circles say that it was a compromise as the government side proposed reducing CBU duties to 35 percent. The compromise was arrived at after the auto industry proved beyond any doubt that the rate of duty on two of the worlds largest producers of motorcycles namely India & China were 100 and 90 percent respectively.
The committee had also agreed to propose to reduce the import duty on non localised CKD parts from 15 percent to 10 percent. This was agreed after the sub-committee was confronted with documents that India, producing over 15 million motorcycles per year had a duty rate of 10 percent on CKD. The import duty on localised CKD parts was recommended to be reduced from 47.5 percent to 30 percent.
The Committee was also surprised to learn that the domestic motorcycle industry was already producing EURO II compliant vehicles. Interestingly, the ECC in its last meeting, was led to believe that the 'New Technology' a new entrant is promising to bring will for the first time introduce EURO II motorcycles in Pakistan. When the committee was presented SRO 72 (KE)/2009 which is in the field since May 16, 2009, that makes it mandatory for all vehicles produced in Pakistan to be compliant to EURO II standards, they were taken aback. It is safe to assume that this led to their deciding to allow concession to only those parts that were proven to be new technology parts, he said.
After this, it was decided that a committee comprising Secretaries of Industries, Commerce and BoI would be constituted to declare a party new entrant. It was also recommended that for new technology parts not manufactured in Pakistan, the rate of duty would be 5 percent. The new entrant would be bound to provide a deletion program for next five years. If the new investor failed to localise those parts according to the provided schedule he would pay duty of 30 percent on those imported parts, the DG said.
The committee also recommended allowing existing local players wishing to introduce new technology, import of CKD at 5 percent to the extent of new technology parts or components only.
Industry hoped that the recommendations of the committee having accent of all stakeholder would be approved by the ECC in its next meeting. With this, the BoI would again be free to attract new investment as most of energies during the past two years were concentrated on providing unprecedented and illogical favours to a single entity only. "However, it seems that we are back to square one as most critical issues already decided in the meeting have again been made controversial and the summary sent to the ECC did not reflect the agreed position with the Industry."
He said that it was made clear to the committee that there is no need to import bikes in the country where the unutilised capacity is still standing at 36 percent and local players served local markets. It was proved to the committee on strength of documents that import duty on motorcycles in CBU condition in India was 100 percent and that in China, it was 90 percent.
China, with a production of over 27 million units in 2010-11 and having customs duty of 90 percent on CBU import, does not allow everyone to import motorcycles, as its government regulates imports through issuance of import permits, he said. Whereas India, with a total production of 15.38 million units of bikes, maintains a tariff rate in the first schedule of 100 per cent on import of CBU and 10 per cent on import of CKD parts for motorcycle assembly and manufacturing. On top of such high protection rate, the local industry is supported through a very complicated "Homologation" process and an intricate web of approvals and testing.
The committee members had agreed that when such huge economies maintained tariff at such high level there was no logic in bringing down tariff to 35 percent as earlier proposed to ECC. The DG of Pama urged that the government should learn a lesson from China and India which protected their local industries and empowered them to be leading exporters of motorcycle to the world.
The local industry was developing itself to be an export-oriented industry and had successfully started exporting 70cc and 125cc models, but few individuals apparently wanted to have their pound of flesh at the cost of millions of persons associated with this industry and billions of rupees already invested in it. The ECC sub-committee should support local industry, instead of lobbying for imported motorcycle companies so that local production could flourish, providing greater employment opportunities and generate more revenue for the government, the DG said.