AIRLINK 62.48 Increased By ▲ 2.05 (3.39%)
BOP 5.36 Increased By ▲ 0.01 (0.19%)
CNERGY 4.58 Decreased By ▼ -0.02 (-0.43%)
DFML 15.50 Increased By ▲ 0.66 (4.45%)
DGKC 66.40 Increased By ▲ 1.60 (2.47%)
FCCL 17.59 Increased By ▲ 0.73 (4.33%)
FFBL 27.70 Increased By ▲ 2.95 (11.92%)
FFL 9.27 Increased By ▲ 0.21 (2.32%)
GGL 10.06 Increased By ▲ 0.10 (1%)
HBL 105.70 Increased By ▲ 1.49 (1.43%)
HUBC 122.30 Increased By ▲ 4.78 (4.07%)
HUMNL 6.60 Increased By ▲ 0.06 (0.92%)
KEL 4.50 Decreased By ▼ -0.05 (-1.1%)
KOSM 4.48 Decreased By ▼ -0.09 (-1.97%)
MLCF 36.20 Increased By ▲ 0.79 (2.23%)
OGDC 122.92 Increased By ▲ 0.53 (0.43%)
PAEL 23.00 Increased By ▲ 1.09 (4.97%)
PIAA 29.34 Increased By ▲ 2.05 (7.51%)
PIBTL 5.80 Decreased By ▼ -0.14 (-2.36%)
PPL 107.50 Increased By ▲ 0.13 (0.12%)
PRL 27.25 Increased By ▲ 0.74 (2.79%)
PTC 18.07 Increased By ▲ 1.97 (12.24%)
SEARL 53.00 Decreased By ▼ -0.63 (-1.17%)
SNGP 63.21 Increased By ▲ 2.01 (3.28%)
SSGC 10.80 Increased By ▲ 0.05 (0.47%)
TELE 9.20 Increased By ▲ 0.71 (8.36%)
TPLP 11.44 Increased By ▲ 0.86 (8.13%)
TRG 70.86 Increased By ▲ 0.95 (1.36%)
UNITY 23.62 Increased By ▲ 0.11 (0.47%)
WTL 1.28 No Change ▼ 0.00 (0%)
BR100 6,944 Increased By 65.8 (0.96%)
BR30 22,827 Increased By 258.6 (1.15%)
KSE100 67,142 Increased By 594.3 (0.89%)
KSE30 22,090 Increased By 175.1 (0.8%)

Pakistan’s auto policy has been in a catch-22: import cars or make them; and at what costs. The space and scope of this column does not allow a detailed discussion but it is about time that the subject is brought fore to the public who can then decide whether this country needs to protect the consumers or the industry at the cost of consumers, or keep dillydallying between both depending upon which lobby has a stronger say in Islamabad.
To this debate, a recently updated study by the Competition Commission of Pakistan (CCP) makes some important inputs. The CCP suggests opening up of domestic market to new car import at reasonable tariffs and reducing the protection of local industry to allow foreign competition for the benefit of consumers. The watchdog says that persistent lobbying by auto assemblers has influenced policymakers to make anti-competitive policies.
Whether or not the government picks up on that suggestion, it would do well to stop using Gift, Personal and Baggage schemes for allowing auto imports.
If the government wants to allow used cars imports, then it should allow it under an explicit auto import policy rather than under such schemes.
Gift schemes do not only increase the transactions costs for consumers – thus defeating the very purpose of benefiting the consumers by allowing imports – but also makes a mockery out of the gift scheme. Gift schemes ought to be used for gifts and should have their regulations tailored accordingly.
In any case, gift schemes or not, the auto assemblers are not happy currently, nor would they be happy, with any used car import policy. Their stance is simple: support local industry by disallowing imports and reducing certain taxes so that prices of locally manufactured can be lowered, thereby benefiting both the consumer and the industry.
Only if that stance had practically worked!
The auto assemblers argue back that there was an economic downturn in recent years due to which the industry hasn’t reached critical production levels and therefore it needs further protection so it can stand on its two feet.
That seems like a valid argument, because when it comes to auto industry, size does matter. For instance, a source in a Japanese economic agency earlier told BR Research that it would require at least 100,000 units of local sales of a single make of car to attract a second-tier automobile part-maker from Japan. Given current levels of auto production, this means that Pakistan has a long way to go to bring that level of quality into its cars.
Moreover, responding to the economic downturn argument, the CCP says “granted that there was an economic downturn, but still it must be noted that the first Auto Industry Development Programme (AIDP) failed to meet the required production target by a large margin. Hence, measures that facilitate new entrants in the form of import tariff reductions and provision of favourable market conditions in their early years of entry should not be compromised on the premise that such measures would be detrimental for the already established industry”.
The auto assemblers suggest that since auto industry is the mother of all industries, there is a need of local manufacturing industry, so it can contribute to job-creation in the country.
To this argument, the CCP asserts that it is in fact the auto-parts industry which constitutes the major portion of the auto-related job market. Therefore, the commission suggests that while auto imports should be liberalised, auto-parts industry should be promoted to bring about job-creation in the country.
Be that as it may, CCP’s report focuses solely on the consumer and doesn’t look at the picture from the overall industry perspective.
For instance, to say that auto imports should be allowed, whereas job-creation can be brought about setting up auto-parts industry locally, without giving relevant background and detailed analysis behind the argument, weakens their thesis.
The report also asserts that auto makers failed to meet the required production target under the AIDP.
But it doesn’t comment on the rosy pictures that the auto policy had initially envisaged. The AIDP had envisaged half a million production volume by FY12, which was based on the simplistic assumption that growth patterns of FY02-FY07 would continue. To blame that local assemblers did not meet AIDP targets is not entirely fair when in fact the production shortfall was mostly due to exogenous economic shocks.
On that note, the auto policy had also lacked a scenario-based policy outlook, which is an essential feature of public policy to deal with volatile situations or deviations from base case. In any case, it is hoped that CCP’s study would kick start an informed debate on whether Pakistan should import or manufacture cars in the country – or let both options play out.

Comments

Comments are closed.