Is the auto industry really guilty?

It is quite galling for the manufacturing sector to see much backing and filling in relation to trade policy, as the country has already stepped into the third month of the current fiscal year. Those involved in exports are fretting over the removal of subsidies, while those who need to import, such as the auto sector, are enduring uncertainty over the future of import policies.
Lately, the Ministry of Industries and Production has proposed to relax the restriction on the import of used cars, in the quest to increase the availability of low-priced cars.
One of the most resounding arguments put forward by those in favour of relaxed import rules, is that the auto industry has been living under protection for many years, and its time for automakers to become more efficient and start producing low-cost cars.
In this regard, the recently published report by the Competition Commission of Pakistan "Analysis of Competition in the Automobile Sector" has been an oft-cited document against the domestic auto making industry. And quite naturally, the report has earned a lot of backlash from industry officials.
While some of the backlash may be questionable, some points appear justified. For instance, the CCPs report argues that Pakistans automobile sector is relatively more protected than that in India.
This claim is refuted by industry players saying that auto assemblers in India are actually enjoying greater assembling benefit (the difference between customs duty on CBU and CKD) than their counterparts in Pakistan. In India, the assembling benefit is around 90 percent, while in Pakistan, it varies with car specifications, being low on small cars, increasing in tandem with engine capacity.
Similarly, CCP argues that "they (industry) shifted their attention from manufacturing small cars to importing CBUs for expensive cars". But this is a strange observation when in fact, the industrys focus on manufacturing capacity and sales is evident -considering the growth in car production in the past decade.
When asked to comment on this anomaly, the CCP officials replied that "the information pertains to a time period which does not need to be considered for this study. Hence, they will most likely be taking it out regardless of whether the information is right or wrong".
Interestingly, the CCPs overall response to the criticism by the industry on certain facts and opinion presented in the report implied that the report cannot really be used as a basis to justify auto imports.
"The report available on CCPs website is just a draft version by which CCP intends to solicit public comments", a CCP official told BR Research, adding that it is quite possible that further revisions and changes will be made prior to its finalization.
Considering that the CCPs report itself is subject to changes, and the rising manufacturing cost, which has already taken a heavy toll on the local auto industry, the relaxation of auto import rules doesn seem to be a plausible idea at the moment. Not at least, until the alleged rent-seeking is confirmed.

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                  CBU                  Assembling

                 Custom    Regulatory     benefit

                 duty (%)    duty (%)   (CBU-CKD)

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Up to 800cc        50            0           17.5

801-1000cc         55            0           22.5

1001-1500cc        60            0           27.5

1501-1800cc        75            0           42.5

Above 1800cc      100           50           67.5

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Source: CCP, auto industry