PAKISTAN'S LIBERAL AUTO IMPORT POLICY
There are vested interests and lobbies such as the resellers and the motor dealer associations that try to curtail the government's long term plans.
By SABEEN IBRAHIM
Dec 19 - 25, 2005
It is a universally acknowledged fact that countries which have achieved major industrial growth in the last century have focused their efforts on the auto industry, e.g. USA, Japan and, in more recent times, India, Korea, Thailand, Taiwan, Malaysia, etc.
Compared to India and Thailand, Pakistan has a long history of automotive industry dating back to the days when General Motors (GM) established a bus/truck assembly plant. Unfortunately, while both India and Thailand have taken a lead in automobile manufacturing, the Pakistani auto industry has just been able to achieve double digit growth, becoming a major contributor to the economy.
The auto policies of Thailand and India are a clear manifestation of the importance placed by both the governments to the auto industry in the context of their contribution to overall economic growth. Their policies are supportive of the local industry providing adequate cushioning through strict regulations governing import of automobiles.
The Indian policy's stated vision for the industry is "to establish a globally competitive automotive industry in India and to double its contribution to the economy by 2010." The facts and figures relating to the Indian auto industry speak volumes about the importance of its role in the local economy. The size of the market has increased dramatically, from approximately 600,000 vehicles in 2002 to more than a million vehicles in 2004, numbering more than 20 manufacturers among its ranks.
The Indian government reviews the automotive tariff structure periodically to encourage demand, promote the growth of the industry and prevent the country from becoming a dumping ground for international rejects. High rate of customs and other duties, upto 180%, imposed on import of used cars in India are aimed at stopping the import of reconditioned cars. The auto policy strongly discourages import of second-hand or reconditioned cars, making it virtually prohibitive.
The Indian auto industry is protected through non-tariff barriers. Imported vehicles are tested by agencies especially set up in India to ensure that poor quality; fuel inefficient old vehicles do not enter the country. The vehicles have to conform to Indian EPA standards. These EPA standards are yet to be developed in Pakistan. Only right hand drive vehicles with speedometer in Km/hr reading and signaling system for keep left traffic system are permitted in India.) Cars no older than three years from the date of manufacture are allowed and the importer has to submit a pre-shipment certificate, confirming that the vehicle conforms to regulations specified in the Motor Vehicles Act 1988 of India and lastly the importer has to submit a pre-shipment certificate which states the vehicle conforms to the Original Homologation certificate issued at the time of registration. The Indian government has also further reduced duties from 20% to 15% on imports of auto components in the budget 05-06.
Likewise the Thai Vision for 2011 is "Thailand is the automotive production base in Asia that adds value to the country with strong domestic supplier base". The Thai objective is to produce at least one million vehicles per year (700,000 one-ton pick-up trucks and 300,000 passenger cars) with total production value of more than 500 billion bahts, 40% of which will be exported by 2006. This vision is backed by a very supportive and long term auto policy which discourages import of cars through both, tariff and non-tariff barriers.
The automotive industry in Thailand encourages automotive assembly in Thailand. From the early 1960s, when Ford first established a car assembly plant there, the major multinational automotive companies have expressed confidence in the country through substantial investment in the auto sector. Sixteen leading automotive brands have since been serviced by a diversified base of 1,637 small and medium parts manufacturing companies that continue to capitalize on the growth of billion dollar multinational automobile companies.
Thailand is expected to become the region's biggest player, as the country's investments in infrastructure support the industry, the government's policy on tax and duty, and the Board of Investment's support has all played an instrumental role in putting the country at the forefront.
The size of the market in Pakistan has increased from just about 60,000 vehicles in 2002 to 150,000 vehicles in 2004. Nevertheless it is still a very small market if compared to 1,586,400 vehicles in India and 1,092,000 vehicles in Thailand. The total number of Pakistani manufacturers amount to only 8, comparatively smaller than in India and Thailand. The number of vendor companies in Pakistan is around 300 whereas India boasts 500 and Thailand accounts for 1,809. The exports of vendors in Pakistan amounted to $ 30 million in 03-04 which is quite small as compared to $760 million and $ 817 million of India and Thailand, respectively. Investment in the industry is over Rs. 20 billion whereas the amount in India totals to US $ 10 billion. The automobile sector provides employment to around 120,000 people in Pakistan whereas in India it provides employment to 450,000 people directly and millions indirectly.
The point to be noted here is that in 2004, Pakistan was not in a position to export any car whereas 130,000 and 250,000 units were exported during the year from India and Thailand, respectively. The import of CBUs during 2004 in Pakistan amounted to 3,655 in new and 3,436 in used. This import of CBUs was sharply increased from third quarter of 2004. India and Thailand on the other hand didn't import any CBUs.
There are no conditions for the import of used cars in Pakistan whereas in India the vehicle needs to get tested from testing agencies for the adaptability to Indian conditions and protection of environment. Alongside this it should be designed for right hand drive with speed meter in km/h. Similarly, the conditions for import of used cars in Thailand state that only Thai workers living abroad for more than one year can import their cars, which are in use. The vehicle has to clear the test of exhaust emission at Environment Protection Office. Additionally, the registration of the car has to be in the name of the user and the price evaluation method exists by model and years.
Sadly, despite the huge potential, a clear strategy for the auto sector in Pakistan is still a dream; in fact, we are yet to develop a comprehensive auto policy. Every now and then, there are vested interests and lobbies such as the resellers and the motor dealer associations that try to curtail the government's long term plans.
The import policy in India aims to neutralize foreign exchange outgo on imports (CIF) by export of cars, auto components etc. (FOB). Likewise in Thailand, the local content requirement is abolished as those who import automobiles have to follow the duty structure.
In view of the exemplary growth of the Indian auto industry as well as the Thai auto sector, we need to take a lead from these countries' auto policies to provide "adequate accommodation to indigenous industry for attaining global standards".
The government should take into account the need to encourage investment for capacity expansion in order to meet the rising demand. The policy should make Pakistan a global supplier of auto components, embodying incentives to facilitate R&D and setting up of engineering educational institutions to provide trained manpower. Import tariffs should also be fixed in a manner so as to promote manufacturing of cars and auto parts in Pakistan, as opposed to gradually reducing protection of the domestic industry. While ensuring a balanced transition towards open trade, the automotive tariff structure should be reviewed periodically to prevent Pakistan from becoming an international dumping ground for used and reconditioned vehicles like Bangladesh and Sri Lanka.