Steering wheels need no stumbling blocks
The Economic Co-ordination Committee of the Cabinet has disallowed import of over three-year-old cars into the country under the baggage scheme. Obviously the used car importers are unhappy. ECC has also maintained the present depreciation policy of one percent per month. The federal government took nearly 17 months to weigh in the arguments put forth by the local assemblers of the disastrous impact on their businesses due to import of used cars.
Copyright Business Recorder, 2012
We understand that the government is keen to support economical transport activities to public and therefore has to take into account consumer's interest. But long-term economic policies are the result of protracted talks and negotiations. They can be tweaked but occasionally as the policy needs to be dynamic and vibrant. Governments normally do not behave in a flip-flop manner; they are required to ensure continuation in the policy direction as inconsistency always harms the economy. The five-year plan for the automobile sector came to an end about a year ago. It envisaged local assembly to increase from 100,000 to 500,000 in five years. The industry is required to be given a new five-year plan. It should have been in place well before the expiry of the last plan. This did not happen. Instead a U-turn was taken in the trade policy last year. The consequences for local car assemblers have been disastrous. In one year, sales have plummeted by 35 percent, affecting 3,300 vendors who employ about 2.2 million workers. However, better late than never.
The question that begs an answer is whether Pakistan needs to be a manufacturer or only a trading nation. With population growing at nearly three percent a year and touching nearly 200 million and with three million coming of age-looking for jobs every year Pakistan needs to push forward with labour-intensive industries if it does not want more armies of unemployed youth - an ideal fodder for terrorist groups. Auto assembly is widely considered the backbone of engineering sector. Car assemblers, therefore, need to move towards higher automation and enhance robotic capabilities to improve quality and remain competitive. However, it is their auto part suppliers who employ a lot of people and also provide hope to become exporters for assemblies abroad. These vendors provide a stable supply to local assemblers involved in the production of branded cars. They can increase their output to provide same parts to car assemblers abroad. All the parts cannot be produce locally for some of them need enhanced precision and finesse. Therefore, there is a well-thought out deletion programme approved by the Engineering Development Board. The tariff has to correspond to the agreed programme. Here lies for greater value-addition than we find in exporting commodities or coarse yarn.
Used cars are imported under the baggage gift and transfer of residence schemes. Country's reserves must not be employed or geared towards footing the bill of these vehicles. Representatives of importers scout around for the Pakistani expatriates to use their names for undertaking commercial imports. Payment for purchase is effected through non-banking channels. Connivance of customs officials is rampant not only to steal from the exchequer but also valuable foreign exchange is wasted on imported car parts as well as complete old engines under scrap.
On the other hand, however, you have recognised and branded units paying their full dues to the exchequer. Black-marketing and premium payment for early delivery have been a menace that the assemblers need to address. They should invest in increasing output and also try to reduce cost and avoid raising prices to give the present government a face-saving for taking the right decision. It is also about time that the agreed long-term plan for auto sector for the next five years is put in place and strictly adhered to. Last but not least. One of the greatest stumbling blocks towards signing of a Free Trade Agreement (FTA) between two big emerging economies of the world - China and India - is the vulnerability of latter's auto industry in the face of a stiff challenge from abroad. India's policymakers fully appreciate the fact that mass production of their most economical car, Maruti, will come to a virtual halt if they allow the entry of non-tariff Chinese cars into the Indian auto market. In the context of Pakistan, however, there exists no such bilateral trade proposition. But the threat the mass import of used cars poses to country's infantile auto sector is no less serious.