Pakistan's auto industry has reportedly opposed removal of available protection, arguing that reduction in present CKD tariff may spur growth, but it would discourage further localisation, sources close to Secretary Industries told Business Recorder.
An inter-ministerial committee headed by Minister for Water and Power, Khawaja Muhammad Asif is deliberating on the draft of new auto policy with the industry, which will be considered by the Economic Co-ordination Committee (ECC) of the Cabinet very soon. The ECC headed by Finance Minister, Ishaq Dar, in its meeting on October 2, 2013 had expressed disappointment on the performance of auto industry and directed the newly constituted committee to submit the new draft auto policy within 45 days.
Engineering Development Board (EDB), which is functioning without any permanent head, has drafted new auto sector development policy, which the committee's convenor discarded last week. Secretary Industries and Production, Shafqat Nagmi, who is unaware of the very basics of engineering industry, is heading the EDB temporarily. Pakistan Automotive Manufacturers Association (PAMA) representative body of auto sector has written a letter to the Secretary Industries in which woes of auto industry has been brought to his notice.
The Association is of the view in the post 2008 period the economy was in the whirlwind of global economic recession that adversely impacted the industry which later worsened by frequent policy changes and not delivering according to the Auto Industry Development Plan(AIDP) like HRD, PAII and TASS. In short, the programme was actually never put into action.
PAMA has requested the committee to look into the reasons of continued fall in production volume since 2008. The committee has also been suggested that the future auto policy should go around one point agenda; namely sustainable growth in production and sales volume.
According to PAMA, volume of locally assembled passenger cars will be 222,403 in financial year 2012-13 followed by 259,550 in 2013-14; 293,155 cars in 2014-15, 323,065 in 2015-16 and 349,176 in 2016-17 respectively. The projected production of light commercial vehicles will be as 33,138 in 2012-13, whereas 40, 232 in 2013-14, 46,177 in 2014-15 as well as 50,794 in 2015-16 and 55,873 in 2016-17.
The Association is of the view that the tariff may be designed to achieve targeted volumes with a host of non-tariff measures such as overseas Pakistanis may purchase locally manufactured cars with relief in duty and price payment in foreign exchange.
PAMA further stated that erstwhile deletion programme has since been terminated in 2006 and replaced by a new system called Tariff Based System (TBS), as such, use of this term in the present scenario would not be correct. Further the auto-related tariffs are to be so designed to achieve production volumes without compromising localisation opportunity. Accordingly, for the AIDP the tariffs were designed keeping in view volumes in 2007. For example, in case of passenger cars, the actual volume, in 2007, was 176,016 units and the growth after five years, in 2002, was targeted to be 500,000 units, with CKD tariff of 35 per cent to 30 per cent. At present, in year 2013 the volume ended with 120,332 units which is lower than the figures in 2007, implying the industry has materially stayed unchanged rather slide downward for all the previous years.
Local industry, which failed to achieve localisation threshold on one pretext or the other, has now advised the government that there is not enough room to maneuver the figures of tariffs for a stagnant industry riddled with high fixed costs and idle capacities.
PAMA has welcomed new investment in the auto sector but recommended that the existing policy of 2011 should continue except for providing it to the existing players if they bring new product/ new platform as it would be akin to new investment and provide level playing field.
Commenting on import of used cars policy, local industry has stated that any similar policy of import of used vehicles may not work if the industry is to survive and grow. PAMA has agreed to extend all possible support to the government regarding any change in the used cars import policy.
"While we ourselves do anything that the government legitimately ask us, we see a firm policy document on used vehicles imports and once agreed that may stay unchanged during the tenure of future auto policy," PAMA added.
The Association has proposed the following point to be included in future policy on used cars;(i) proof of payment by overseas Pakistanis made mandatory;(ii) three years age limit to stay and extended to SUV, LCV and HCVs;(iii) valuation under SROI 577/2005 may be indexed and updated on current international price and ;(iv) conditions of registration in the name of overseas Pakistani and driving licence be restored.
Giving an overview of motorcycle industry, PAMA has acknowledged that unfair competition in the market has almost forced out the organised sector from the industry. The few left in the organised sector may not be able to survive much longer if rampant under invoicing, outright smuggling and massive tax evasion is not checked.
At present, the unfair competition has reached a stage where the players are using all unlawful means to survive. The large unorganised sector after exhausting all avenues of tax evasion is now engaged in supporting its credit circle through delaying or in many cases, refusing payments to the vendor industry. The vendor industry is under a lot of pressure these days as they are not being paid and a huge credit has piled up resulting in stiffening of growth.
PAMA further argued that so far only one player ie Yahama has been declared new entrant, adding that the industry needs to adjust changes in policy and it should not be subject to any further jolts through further policy changes before the very recently introduced policy initiatives start bringing in the needed results.