ECC to consider new steps to punish local auto industry

The Economic Co-ordination Committee (ECC) of the Cabinet, which is scheduled to meet on Tuesday, will consider new measures to punish the local auto industry by increasing the rate of depreciation on assessable value, from the existing level of 1 percent to 2 percent per month, up to a maximum level of 50 percent, on import of used cars.
Analysts believe that if this proposal is cleared by the ECC, it will lead to massive financial loss to the local auto industry, which has invested billions of rupees to expand business.
The three key auto sector companies, which are registered at the bourses, sources said, are in the negative zone due to substantial decline in sales of their different models/units.
There are also reports that during the recent visit of President Asif Ali Zardari to Japan, the Japanese investors had raised serious concerns over Pakistan government's decision to increase the age limit of reconditioned cars from three to five years.
Official summary of the Commerce Ministry, which will be considered by the ECC after a long delay, has also suggested that commercial import of buses with the capacity of 40 or more seats up to three years old may be allowed on the condition that such buses should be certified by some reputable pre-shipment inspection company to the effect that they have a road life of at least 5 years.
The Commerce Ministry has also proposed that the new entrants of auto sector may be allowed to import CKD kits for the first three year as follows: (i) components, parts and CKD kits not manufactured locally at 50 percent of the existing rate of 32.5 percent ad valerum customs duty; and (ii) components, parts and CKD kits manufactured locally at 50 percent of the prevailing rate of 50 percent ad val customs duty.
The Ministry of Industries and Production (MoI&P), however, has proposed that new entrants may be allowed to import 100 percent CKD (whether or not locally manufactured) at reduced rate of 5 percent for the first year, 10 percent for the second, and 20 percent for the third year.
Official documents show that the MoI&P, in its comments of January 4, 2011, on a summary of the Commerce Ministry, confirmed again that importation of the age limit from 3~5 years was given after long discussion and it was done only to rationalise the price of the local manufactured cars as an effective tool without effecting the local manufacture adversely as the landed cost of the cars aged 4 to 5 years is not substantially lower than the price of locally made new cares of equal capacity.
MoI&P has argued that in 2005-06 when the same scheme was "on" the local industry produced 170K vehicles without getting hurt.
According to documents available with this correspondent, MoI&P also agreed to continue with the 2~3-wheelers under same three year transfer of residence, baggage and gift schemes which are part of the Trade Policy.
Regarding depreciation, the MoI&P supported the proposal of revision from 1 percent to 2 percent with cap of 50 percent, in support of rationalisation of prices. Furthermore the reasoning is that with 2 percent depreciation, consumer will be entitled to a maximum depreciation of 50 percent even on the import of a vehicle that is only 25 months old, whereas currently a consumer is entitled to maximum of 36 months.
The MoI&P agreed to import buses not more than 3 years with a road life of at least 5 years.
On new entrants' policy, the MoI&P supports CKD 100 percent with condition that new entrants should achieve the localisation up to 50 percent in 5 years which current local assembles achieve in 2 decades. Alternative proposal is that the new entrant may be allowed to import 100 percent CKD (whether or not locally manufactured) at the reduced rate equivalent to 50 percent of the existing rate i.e. 32.5 percent or 30 percent as the case may be for the first 3 years subject to the condition that the new entrants should achieve minimum indigenisation to the extent of 50 percent within 5 years for a competitive market.
The Ministry of Commerce has also proposed that the age limit for imports of trucks, buses, vans and tractors may be increased from 3 to 5 years under the baggage and gift schemes. Industries Ministry supported the proposal. However, FBR changed its stance after withdrawal of notification allowing cars up to 5 years old.
The FBR argues that the concessions proposed by the MoI&P on CKD kits are too liberal. However, FBR supports the proposal of Commerce Ministry.