Automatic disappointments

LAHORE: Pakistan’s automotive industry is going through periods of slumps and booms which have also been a feature of the Pakistani economy over the past 25 years. Budget proposals from the industry, likely to revive local production, are ignored by the authorities.

The two main players in automotive production are automotive suppliers and OEMs. Both implore the government to produce a long-term policy of at least 20 years to encourage the establishment of industries of engineering raw materials which are currently imported by the engineering sector.

Pakistan Automobile Parts and Accessories Manufacturers Association (PAAPAM) Chairman Abdul Razzak Gauhar said another major issue was how importing dozens of fine and precise components like rings and pistons, fuel pumps and shafts was permitted. Duty was levied on the basis of weight.

He said those exact components were released into nominal service well below their actual cost. “You cannot determine the import value of an advanced component based on its weight.”

Component manufacturers around the world waste a lot of expensive metal while adjusting components to their final shape. Customs duty on advanced automotive components should be based on its international price based on unit basis.

He said original equipment manufacturers source the same components from local auto suppliers at a higher price because their quality is approved by their foreign principals.

However, he regretted that the same components could be sold in the domestic aftermarket because imported components pay less government taxes than local component producers due to the very low value of imports determined according to the weight of components.

This, he added, deprived local car dealers of the huge domestic market for aftermarket car components.

He said Pakistan produces an average of 300,000 cars or a little less a year, and auto dealers supply components to OEMs. But having a nominal share or no share in the 20 times larger after sales market.

The aftermarket is even more important in the case of motorcycles. Local auto sellers cannot scale because of this misguided policy. This handicaps their competitiveness in the global automotive aftermarket.

Each year, the PAAPAM pleads in vain in its budget proposals to no longer authorize imports of components per kg. This is not practiced in any other economy.

Indus Motor CEO Ali Jamali said there was a need to establish the basic raw material industries that could supply the types of steel, aluminum and copper needed by the automotive industry and to other mechanical industries.

He said long-term foreign investment would come if a 20-year stable policy was guaranteed.

Jamali said heavy investments are needed to establish basic raw material industries for the engineering sector.

The foreign investor takes 3-4 years to prepare a feasibility report and prepare a business plan. Investment heavy industries were not coming to Pakistan because planners in Islamabad were addicted to the five year maximum policy.

Former PAAPAM President Nabeel Hashmi said locally produced raw materials would be cheaper than imported raw materials, which would reduce the cost of engineering products and pave the way for exports.

Jamali and Hashmi supported the import ban on luxury cars as the national interest demands that precious foreign currency should not be wasted on luxury imports.

In its budget proposals for 2022-23, PAAPAM pointed out that the automotive industry is currently governed by the Automotive Development Policy (ADP) 2016-21

Under the above policy, customs duty rates are set for raw materials, sub-components, components, sub-assemblies, located CKDs and non-located CKDs. The above policies are governed by SROs 655, 656 and 693.

The association has proposed that all imports of raw materials for local car manufacturing be allowed at “zero duty” if the raw materials are not locally produced.

Statutory duties should be imposed on the importation of auto parts or finished vehicles. The National Tariff Commission should eliminate anti-dumping duties on “automotive engineering steel”.

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