A high powered inter ministerial committee has unanimously decided to bring down the tariff for new investors in the motorcycle assembly from 15 percent to 5 percent on the completely knocked down (CKD) for a five year period along with the reduction in tariff on completely built units (CBU) from 65 percent to 35 percent. An official source said that the specially formed committee on tariff rationalization unanimously directed the Ministry of Commerce on April 5 to move a summary for the approval of the Economic Coordination Committee (ECC) of the cabinet. The ECC has constituted a committee under the Deputy Chairman Planning Commission to look into tariff rationalization in various sectors of the economy. The committee was informed that a study carried out by the Engineering Development Board and National Tariff Commission found that the existing industry was surviving due to high tariff wall. There is no competition in the industry as well as in the vendor category, both of them remain in a negative value added industry. Since there is infinite protection, in the shape of prohibition for spare parts and CBU imports, therefore no local research and development has taken place for the last 40 years. The study recommended striking down the claim of nascent industry, which is more than 40 years old and is provided undue protection even though the deletion programme ended in 2005. It says due to the barriers to the entry of new entrants in the sector, the existing local industry is heavily dependent on clones of Honda CD 70 and Chinese spare parts. Currently the raw material imports are duty free, while sub-components are allowed at 5 percent duty. It was proposed to the committee that the duty on components should be reduced from 20 percent to 5 percent and sub-assemblers from 20 to 10 percent. Deputy Chairman Planning Commission Nadeemul Haque observed that the artificial barriers need to be removed as no protection was required to be provided to the local industry which was running for the last 40 years. Chairman Board of Investment Saleem Mandviwala also noted that the high tariff was the main obstacle in the entry of new players in the market. Officials of the other concerned ministries also supported reduction in tariff to appropriate level to attract new investment. The source said a Japanese giant is looking for investment in the heavy bike category which it is also interested to export to Middle Eastern countries, while Chinese brands are looking for investment in the fuel efficient and electric bikes. However, he said that reduction in CBU is likely to mainly help the Indian brands. Under the trade liberalization with India, the government anticipates that the local motorcycle industry will not suffer as majority of motorcycle sold in Pakistan is of 70 cc capacity, whereas in India it is 100 cc. However, Pakistan Association of Automotive Parts Accessories Manufacturers (PAAPAM) is seriously opposed to the move and considers that the move could jeopardize their investment. PAAPAM estimates that the local motorcycle production has touched the level of 1.7 million units in 2010-11.
Carrot and stick for motorcycle investors
