Attracting leading auto makers: 'new entrant' policy to have investor-friendly measures

Investor-friendly measures to attract leading auto assemblers/manufacturers into potential market of Pakistan would be considered under the 'new entrant policy' now being given final touches by the Engineering Development Board (EDB).
The policy is expected to be submitted to the Economic Co-ordination Committee (ECC) of the Cabinet shortly. The EDB had been tasked by the ECC to consult the stakeholders, including existing original equipment manufacturers (OMEs).
Although the new entrant will be given an incentive progressive localisation regime, the government will seek some guarantees from the new entrants so that they do not wind up their business whenever they want and leave the country.
According to 'Industrial Bulletin' of EDB, the 'new entrant' under Auto Industry Development Program (AIDP) has been defined as a potential assembler/manufacturer of global significance who had no assembly/manufacturing or similar vehicles in Pakistan in the past and intends to assemble/manufacture a vehicle by himself or through an agreement with a Pakistani company.
Under the present AIDP, the 'new entrant' must have annual production of 500,000 units in countries other than Pakistan, and a significance global presence by way of manufacturing at least 25,000 units of trucks and buses separately, 40,000 LCVs and at least 50,000 units in the case of agriculture tractors annually in countries other than Pakistan.
The new entrant will also have a plan for the progressive manufacturing of vehicles and a serious and demonstrable intention to develop parts locally either in-house or through the vendors to achieve competitiveness.
Registration is required to produce roadworthy vehicles that comply with environment standards with the EDB and Ministry of Industries & Production (MoI&P) for entitlement of benefits under the scheme. The new entrants will have to submit a proof of land acquisition in the case of green held project or an agreement with the owner, in case of existing assembly facilities. A qualifying new entrant will be required to submit a detailed business plan to EDB which will verify complete in-house assembly/manufacturing facilities, etc.
In a meeting held recently on of alternator, starter motor, water pump, fuel pump, fuel filter, seat recliner, air cleaner assembly, power steering, engines and transmissions, the EDB considered OEMs responsible for non-implementation of AIDP 2006-07 and urged for indigenisation of high tech parts by 2011-12.
The government replaced the deletion programs for the automotive sector with the Tariff Based System (TBS) from July 2006 to make auto sector complaint with the Trade Related Investment Measures (TRIMS) under the World Trade Organisation (WTO) regime.
TBS has the following main objectives: (i) preservation and promotion of technologies that have been developed in the country, (ii) protection to the present job structure in the auto sector (iii), promote job creation, (iv) protect the existing and planned investment by the OEMs and vendors, (v) promote new investment, and (vi) expand the consumer base to create economies of scale.
Incentives and protection available to auto sector under TBS are as follows: cars are enjoying 32.5 percent concession in duty on non-localised parts and 50 percent localised parts (protection), light commercial vehicles not exceeding 20 percent concession on non-localised parts and 45 percent on localised parts.
Motorcycles: 15 percent concession on non-local and 47.5 percent on localised parts. Auto rickshaw: 20 percent incentives on non-localised parts and 50 percent localised. Heavy Commercial Vehicles (HCVs) exceeding five tons: 20 percent concession on non-localised parts and 50 percent on localised parts. Buses (non-CNG): five percent incentives on non-localised parts and 35 percent on localised parts. Buses (CNG): zero percent concession on non-localised and 35 percent localised parts; and similar concession for tractors.
Total investment of vendor industry is Rs 82 billion. Investment was made on the targets set in AIDP for producing 500,000 cars by 2012. However, auto industry production declined significantly during the last two years.
Vendor industry was not operating at full capacity due to reduced demand from OEMs thus affecting their return on investment. However, vendors contention was that OEMs were not allowing corresponding increase in price of components/parts and OEMs had gone into in-house production of parts.
OEMs were importing parts being produced by vendors due to TBD-tariff differential of 17.5 percent. EDB had urged car manufacturers to purchase local parts instead of importing to support the local vendor industry. The government has recently increased the age limit of used cars from three to five years to compel local auto industry from over-charging consumers.