Tariff-based system: automotive sector committee to finalise recommendations on March 25

The high profile sectoral committee on automotive sector meeting has been summoned on March 25 to wind up its final recommendations on Tariff Based System (TBS) and five-year tariff plan.
The first meeting of the committee will be held on March 19, in Islamabad, to deliberate on TBS and budgetary proposals, which will be finalised in the March 25 meeting and sent to the Engineering Development Board for onward transmission to the Federal Board of Revenue (FBR) and concerned ministries for inclusion in the federal budget and trade policy for 2010-11. It will also bring up proposals of equal importance and impact for engineering industry in Pakistan.
The CEO of Engineering Development Board (EDB), Asad Elahi, who is chairman of the committee, had announced the nomination of Engr M A Jabbar, CEO of Qaim Automotive Mfg (Pvt) Ltd and former vice-president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), as convenor of the committee, at the competitive & efficiency exercise held in Islamabad on March 13, which had disposed of a heavy 11-point agenda on the subject.
According to Jabbar, manufacturing sector's share in the country's GDP is around 19 percent, which includes 18 percent share of engineering sector. Further, the share of engineering goods is 33 percent in Pakistan's total imports. Globally, the share of engineering sector is 63 percent of total global exports, whereas the share of Pakistan's engineering sector is approximately 3.6 percent of Pakistan's total exports, providing employment opportunities to 624,000 individuals.
The performance of engineering goods manufacturing sector shows that there is need to enhance engineering manufacturing capabilities of the country, which should cater to the requirements of large domestic market and increase exports to the potential markets. During 2008-09, Pakistan exported engineering goods worth $709.0 million, out of total exports of $19.22 billion. Domestic engineering industry had been operating at 35 percent to 40 percent of its capacity, he said.
Under the present circumstances, the engineering sector, whicht has the largest and strongest linkages with all sectors of the economy, could drive the required industrial growth in the country. In Pakistan, engineering sub-sectors could be categorised as under: heavy engineering and electrical capital goods; steel; automotive and parts manufacturing; consumable durables; moulds and dies; cutlery; pumps; and surgical instruments.
Addressing the meeting, he said that generally, Pakistan's engineering sector is facing the following issues due to which Pakistan's export base of engineering products is nominal: low technology levels, low value-addition, lack of marketing focus and marketing strategies, low volumes (producing and selling for local market), no economies of scale, no exposure of the international markets, and issues of international certifications and standardisation resulting as a barrier to market access.
EDB Chairman Asad Elahi said that auto sector is very important ingredient of manufacturing sector and the Board wants to make policy prospective more suitable to reconcile with the sign of recovery to help in meeting the objectives. He said that a committee has been formed to look after all issues which have to be brought in the policy framework through FBR, and the Ministries of Commerce, Industries, and Finance to sustain the growth and objectives.
The idea is to strike out the imbalance among the conflicting interests to covert into converging or compromising interests of overall objective of increasing indigenisation. "In the given situation, we have to upgrade our domestic base, which is possible through improving and increasing domestic manufacturing. We have also to look into the possible technological development to substitute imports as well as satisfy the customers on the price issue of cars, which has become a burning issue and is being debated in the government and legislators of both houses."
He said: "Our exercise is matching with the objectives of Auto Industry Development Plan (AIDP). The recommendation of the committee would filter through AIDC. The tariffs for five years have already been agreed and what we need now is to study its benefits and correct the impediments, if any."
FBR representative told the meeting that "we have to review TBS now as it has lived for a few years and we need to commission study through EDB to understand its level of benefit for the industry." Feroz Khan, convenor of the committee on review of SROs/HS Codes, said that the only way to increase the potential of auto sector is to seek reduction in taxes.
"Today, we are producing 68,000 cars, which could go up to 500,000, if taxes are reduced". On the pricing issue, the points which were debated were percentage of deletion, impact of rupee-dollar parity and the extent of price benefit passed by the assemblers to vendors.
Engr Jabbar said that while the economy is not in a good shape and manufacturing is under big pressure to keep its competitiveness and efficiency, "we have to make tangible recommendations in respect of TBS, fair valuation of imports, incentives in trade policy as initiatives, and tax dollar substitute against non-tax dollar earning of exports, needs a paradigm shift for policy support so that the import substitution converts into surplus exports through policy support."
On TBS, he said that since its operation it was held in abeyance for one year, which finds reason to seek one year more for its continuation beyond 2010-11. He said that in Hong Kong, "we were promised 30 percent co-efficient of tariff on imports which has now gone down to 20 percent, and is likely to go down further".
He suggested recommending that free trade agreements (FTAs) and preferential trade agreements (PTAs) should not provide concessional tariff reduction for those products which are indigenised as their future economy of scale would be in jeopardy and no investments would be incoming.
"We should also ask for certain measures on Non Tariff Barriers (NTBs) as other countries are using this tool to impede the imports surge of similar items which are produced in the domestic market by the local industry". He also apprised the participants that due to change in the external environment, "we have to prepare for facing the challenges as the on-going Doha Development Round (DDR) in the Non-Agriculture Market Access (NAMA) negotiations is also considering to give acceptance to imports and exports of re-manufactured goods".