Since Last Three Govt’s No New Auto Policy in Pakistan

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AUTO INDUSTRY POLICY 2005 – 06, TO 2015-16

The Govt. of Pakistan is going to maintain new records of Auto Sector manufacturers through Engineering Development Board (EDB), which has written a letter to the Association of Pakistan Motorcycle Assemblers, The Pakistan Automotive Manufacturers Association, the Pakistan Association of Automotive Parts and Accessories Manufacturers and to provide company-wise employment position in the sector.

The EDB said it is compiling data on employment position in the automotive sector of Pakistan. The purpose is to ascertain and update employment position in the auto sector and utilize the same in policy-making, the EDB added. The Govt. requires company-wise employment position covering permanent, contractual and daily-wagers on priority basis, the letter said.

Car and bike-assemblers also claim to have provided huge employment directly or indirectly after achieving up to 70 per cent localisation component in cars and light commercial vehicles (LCVs), 90pc in case of bikes and tractors and 45pc in heavy vehicles. “The auto world has changed a lot and leading Pakistani assemblers stand at the same old position and were rolling out two to three decade-old bikes and cars,” Chairman APMA said.

After change in government in 2008, local rupee started to losing the strength against the various currencies especially the US Dollar, Japanese Yen and Chinese Yuan. Moreover purchasing power of people started declining. As a result, the Chinese bike assemblers failed to push up the rates due to intense competition among themselves. Less than 10 assemblers managed to succeed in the stiff competition while around 40 units have been struggling to survive while some had packed up their business.
Due to lack of mass transport project in Karachi and other big cities consumers dependent on two wheeler and around 50 per cent buyers purchase bikes on installment basis.

He hailed the Metro Bus Project introduced in Lahore and Rawalpindi Islamabad recently which would benefit hugely to the general public. He urged the government to introduce similar project or circular railway for Karachi city.
Sabir Shaikh said he was much hopeful from the current government for being heard their grievances and suggestions in the policy making but the government maintained the same attitude which had been in vogue since 2006.

“I guarantee if our suggestions are given due considerations in the auto sector then this will definitely end up corruption on imports through smuggling of auto parts will also stop,’ he said adding that uniform policy will lure foreign and private investments and the industry will grow. What is uniform policy? One tax on CKD’s and Commercial Imports of Auto Sector and the other Tax on CBU’s.

“The government has to end up the monopoly of Japanese car and bike assemblers in order to flourish the local industry otherwise the situation will remain the same,” Sabir said.

For the import of CBU bikes, no separate policy had been announced for the last 25 years. This is a big segment which could generate more revenues for the government. Many assemblers are importing over 100cc bikes in 100 per cent CKDs and marketing their products as locally made products.

Since 2010-11, when the last auto policy expired (2005-06 to 2010-11), the country’s third-largest taxpaying sector has been working without updated guidelines.
The policy is said to be in the making. It is not clear how much more time the process will take, but according to high level sources, the policy draft has already been finalised and its summary has been forwarded for clearance to the Economic Coordination Committee (ECC).

The chairman Association of Pakistan Motorcycle Assemblers, Muhammad Sabir Shaikh said that we have no information about changing for motorcycle industry in upcoming Auto Policy, because no one invite us in last few meetings of new Auto Policy including August 07, meeting in EDB.

An assessment report of the Competition Commission of Pakistan (CCP), released in the month of October 2014, confirmed the undesirable dominant market position of the assemblers, to the chagrin of car users in the country.
In November 2014, the CCP had reportedly sought liberalised import of used cars and suggested increasing their age limit from three to five years to induct market competition.

The leading carmakers, operating their plants round the clock, have failed to catch up with the pace of growth in domestic demand. In the absence of options, buyers pay higher for a vehicle that lags in quality and safety standards. Often, the cars are delivered up to four months after the payment.
The said report noted that “the Pakistani automobile industry is inward-looking and tries to protect itself through the use of regulatory instruments. Pakistan needs to develop the automobile industry instead of protecting it, and in this regard imports will have a disciplinary impact on domestic firms”.

Keen to get a foothold in Pakistan’s auto market, a delegation from German auto giant Volkswagen was in the country a few weeks back. The company’s spokesman, Christoph Adomat, told the press that while “Volkswagen is constantly evaluating market opportunities on a worldwide basis, there are no decisions for an investment by the Volkswagen side in Pakistan”.

“The industry is operating in a very challenging environment. It is wrong to counterpose the interests of the local automakers and the consumers. The perception of dearer, low quality vehicles is a myth. People must not forget that the tax component in a vehicle’s price is as high as 35pc. This means that a 1000cc car priced at Rs1m currently can be sold for Rs. 650,000 if the government foregoes taxes,” the same situation in motorcycle, the 70 CC bike assembled by a small assembler costs Rs. 38,000/= including the Tax amount of Rs. 10,000/=. It means the price of small 70 CC bike is Rs. 28,000/=.

After the approval of finance bill 2015-2016 by national assembly, the new shape of SROs 656/2006, SRO 693/2006 and SRO 655/2006 also arrived. APMA Chairman, Muhammad Sabir Shaikh said the bike industry was highly hopeful from the current government that it would bring down the customs duty besides introducing unified customs duty coupled with reduction in sales tax by at least one to two percent. However, nothing was done in the budget. He hoped that finance minister must be thinking to take some steps for the bike industry on the above issues.

He expressed his concern over the persistent delay in AIP whose exercise between the industry and the government got underway from October 2013 to August 2015. He urged the government to settle the dust by announcing the policy either in the Trade Policy or separately so that the industries could make further investment.

APMA believes that FBR must understand that the government has to phase out auto sector SROs in the next two three months. Otherwise, two to three more years would again go in waste in understanding the issue.

APMA the government wants direct impact of taxation measures to reach the end users. However, it is only possible when government introduces a uniform policy for both large scale and SMEs. There is a need to remove hurdles of IORC besides bringing uniformity in valuation system, removing the hurdles like production certificates and importable lists by the EDB etc. This will help the industries to introduce new models at affordable prices.
All the policies and SROs made in the last 30 years were not in the interest of the country, not revenue-oriented and were basically following an anti localization policy and also against the industrialization and employment. Government should focus in the Auto Industry Policy on two types of duties – duty on spare parts (for OEMs, commercial market, assemblies, sub assemblies, components and sub components) and secondly on completely built up units (CBU’s).

APMA strongly urged that issuance of various permissions through EDB such as importable lists; production certificates and IORC should be done away in coming auto industry policy. All over the country the dealers of auto sector and parts should be registered in the sales tax net.

The committees formed by finance minister under FBR in which FPCCI and some other chambers were the members is not enough as there is a need to induct more experts of the field including Motorcycle Industry of Pakistan.

The government must give its due attention to the two wheeler segment this year especially and efforts should be made to pressurize leading assemblers to bring a change in the decades old 70cc models. Policy hurdles, if removed, would encourage assemblers to introduce new models in the country.

The government should realize that the main stakeholders are motorcycle assemblers of Pakistani and Chinese domestic brands who are producing more than one million units of two wheelers annually for the last many years. The more than 50 approved units of two wheelers, out of 104 are producing Pakistani brands in collaboration with Chinese assemblers. It seems that the AIP is being made at facilitating only three Japanese car and bike assemblers. Does the new auto policy really care about country’s revenue, industries, job opportunities, genuine localization etc? This is million dollar question and yet to be replied by the policymakers.

The industry is quite stunned by the media report that AIDP II policy has been finalized without bringing all stakeholders on board and will be reviewed by Economic Coordination Committee (ECC) of the federal cabinet.

They pointed out that ECC in its meeting on August 26, 2014 had deferred the decision on the policy with the direction that the policy draft should be shared with all stakeholders including relevant ministries and industries for review and comments.

Later, the policy was sporadically discussed by the architects with some stakeholders only. The industry experts expressed concern that the EDB has hoodwinked the ECC and despite its direction to share the proposed long term AIDP and record their views, “neither Pakistan Association of Auto Parts Manufacturers nor Association of Pakistan Motorcycle Assemblers, and Including Japanese Assemblers body Pakistan Automotive Manufacturers Association has received any final draft of the Auto Policy,” the stakeholders said.

They said EDB or the committee assigned to prepare the policy have the right to formulate it but they should share the final draft with all the stakeholders irrespective of the fact that the suggestions given by them are being incorporated or not.

They said views of all the stakeholders should be part of the final draft and reasons for rejecting the suggestions of each stakeholder should be discussed and justified.

The long term policies of any industrial sector are formulated with the main objective of protecting the domestic industry, they said, adding that the interests of consumers should also be given weight.
Moreover, even in cases where vendors offer to delete some auto components, the new entrants fail to provide the drawings.

The reason is that they procure parts of different manufacturers from the open market as because of very low volumes, and do not develop any auto components locally. In AIDP I (2006-11), only those entrants were allowed that produce at least 500,000 cars globally in a year outside Pakistan. “But, now even those that produce 5,000 units outside Pakistan are allowed to enter the Pakistan market on huge concessions,” the Auto Sector spokes person said.

This exclusive article on Pakistan Automotive sector published in Monthly Automark Magazine’s September-2015 printed edition

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