Despite several observations of the Economic Coordination Committee (ECC) of the Cabinet, Planning Commission (PC) has failed to come up with a clear position on the auto industry’s tariff rationalisation. The ECC has taken serious notice of the slow working and asked the Ministry of Industries and Production (MoIP) along with the Engineering Development Board (EDB) to give a detailed presentation about the future regime of the auto industry, Profit learnt on Monday.
Four sub-committees for tariff rationalisation
Sources disclosed that the ECC in its previous meeting constituted four sub-committees for tariff rationalisation, of which one committee was asked to review auto industry tariff in consultation with different stakeholders. ECC had made several observations, while MoIP and EDB had also moved various summaries to formulate a mechanism to reduce locally manufactured car prices, but now serious effort was witnessed in the ECC meeting, sources added.
The ECC made various observations to reduce the prices of locally manufactured cars and showed concern on the deviation in deletion required under the Auto Industry Development Programme (AIDP). Sources revealed the ECC had pointed out that a Japanese car manufacturer could hardly attain 70 per cent deletion in 30 years, where the deletions should be at least 95 per cent owing to obsolete technology.
Scrutinising the auto industry
In the meeting, sources said, it was indicated that holding of the Japanese company in the market is around 99 per cent, which had created a monopolistic position. To promote a healthy competition in the market there should be no restriction in setting up of new car manufacturing units in the country, the meeting observed. The ECC also expressed dissatisfaction over the quality of locally manufactured automobiles, non-adherence to government policies, deviation from AIDP and dealership mechanism that allow dealers to charge additional money.
Sources disclosed that the ECC had underlined that there was a dire need of sustainable transport policy to support the transport system in Pakistan instead of promoting private transport culture. Relaxation of used car imports policy would encourage car manufacturers to reduce costs exploiting their full manufacturing capacity. ECC had also threatened the car manufacturers that if they did not meet the localization requirements the government would be compelled to withdraw incentives.
Revision of import tariffs
Sources said that to boost the auto manufacturing and reduce the prices of locally manufactured cars several proposals were on the table, including revision of new entrant policy to contain tariff rates for CKD first year five per cent, second year 10 per cent and third year 20 per cent. In addition, downward revision of import tariffs, incentives for the industries set up in special economic zones (SEZs), upgradation of testing and R&D facilities in the country and minimum level of standards approved by the Pakistan Standards and Quality Control Authority in consultation with stakeholders were few other proposals under serious consideration.
Speaking to Profit, a car manufacturer said that the government wanted to reduce the prices of locally manufacture cars without considering the market dynamics. He said that local manufacturers increased their production capacities during recent years but due to shift in the government economic policy these investments were rendered useless. Present market position, rate of mark-up and inflation compelled the manufacturers to curtail their production.
Local car assemblers operating into Pakistan mostly belong to japan. Japan economic advisers suggested their govt to bring down it currency rate which increasingly value would leave bad impact its exchange rate, and consequently import from japan to other country would become totally un affordable . The same scenario we can see into pakistani auto market where major cars assemblers are japanniess and japanee yen has raised from 0.50 to 1.58 approximately with two or three years . So that is true that japanees assemblers would hardly exists into pakistani auto market. Secondly , from pakistani point of views , some remidical steps should be taken to stablise auto market position. In short run they should focus upon import of car , and easier import policy of used car ( eg: 10 years used car import should be allowed as 5 years used cars import did,t make any difference to price rationalization. tariff rationalization , and deprecation rate increased should be exercised) and in long run they should invite new auto cars assemblers all over the world instead of depending upon japan only to breakup their monopoly at easy term and conditions. The local car assemblers who have consistently been blackmailing of govt about umemployment and lose of tax in case of hitting local car assemblers unfair attitude is fabricted. Being a Economist i would like to high light a basic principle of economics that " If a commodity is available to nation cheaply by import compare to local manufacturing then country should continue to import that commodity instead of local manufacturing, until the price of local manufacturing equalise to the imported commodity" the same rule we can see in pakistani automarket. Local car assemblers warning of unemployment in case of free import policy is baseless, becouse the people who get unemployed into auto industry in case of free trade policy would be absorbed into trading units, open in result of open trade. Secondly in long run when new assemblers all around the world would enter into pakistani auto market firstly breakup japani auto car assemblers cartel and normalise the price , secondly a large range of new assemblers would contribute tax revenue into pakistani economy in shape of taxes, thirdly they would cover the gap of employed- unemployed people of pakistani nations. So Govt should take some bold steps to breakup their cartel.
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