ISLAMABAD: Local auto sector is said to have been greatly favoured through reduction in age limit of imported used cars from five to three years despite clear opposition by Competition Commission of Pakistan (CCP). Local auto assemblers did hectic lobbying at the top level including with the Deputy Prime Minister (now former) Chaudhry Parvaiz Elahi to extend financial benefits to local assemblers.
However, MQM took up this issue at the cabinet level wherein Prime Minister directed that Ministry of Industries should brief the cabinet on this issue. The Ministry of Industries used different tactics to delay submission of detailed report and as MQM quit the government, the summary was tabled before the cabinet without any MQM representation.
Official documents available with Business Recorder show that the cabinet was briefed on March 13 this year that the Import Policy 2009 allowed import of used cars under the personal baggage, transfer of residence and gift schemes. Vehicles of more than three years age were not allowed under that scheme. To rationalise the prices of locally-manufactured cars, a proposal for increasing the age limit of imported used cars from three to five years was approved by the ECC in its meeting held on November 4, 2010 which was envisaged to facilitate Overseas Pakistanis, but was misused by unscrupulous elements by acquiring passports from Overseas Pakistanis on an agreed payment and importing cars under their names, thereby flooding the market with used cars.
The cabinet was informed that in 2011-12, 56,973 cars had been imported amounting to 37 percent of total local production against 5 percent during 2009-10 when the age limit was three years. This situation further aggravated during the first half of 2012-13, when against a total imports of 29,649 cars the local production was 51,849 cars which constituted 57 percent of total local production. Moreover, production decreased by 25 percent in July-December 2012 as compared to corresponding period in 2011.
The vendor industry also suffered due to reduced offtake of parts by the assemblers with a direct bearing on employment levels. New investment in this sector, both local and foreign, was also hampered. Due to these factors, a proposal to reduce the age limit of imported used cars was placed before the ECC in its meeting held on October 23, 2012 and the ECC constituted a Committee headed by the Deputy Prime Minister to examine the whole issue holistically and submit its recommendations to the ECC of the cabinet.
The ECC in its meeting held on November 22 last year decided to reduce the age of imported used cars from five to three years which was effective from December 15 last year. It was stated that reducing age limit from five years to three years would protect local industry and enable it to operate at their production capacity and invest further in indigenization of critical parts and higher value added components. This policy is expected to result in reduction of costs and hence the prices besides sending positive signals to prospective investors.
The cabinet was apprised that as regards the recent deterrent activity launched against smuggled vehicles in Balochistan, the requisite information from FBR is still awaited. The impact of smuggled vehicles may have marginal effect on local production/sales of automobiles.
The CCP maintains that the import of used cars older than five years may not provide effective competition to local new cars. For example, the import of 10 year old used cars may enable advanced economies to dump their discarded cars and there is high probability that these cars may have low road-worthiness. Experience shows that imports of extremely old cars often raise the issue of non-availability of spare parts as well, and these cars become unserviceable.