ISLAMABAD: In a surprise move, Japanese government threatened Pakistan to take the case for forcing its three car assembling companies to export their variants to the World Trade Organisation (WTO) which, according to Tokyo, is clear violation of WTO rules, well informed official sources told Business Recorder.
Japan’s three key auto companies; i.e., Honda, Toyota and Suzuki are operating in Pakistan under the following names: Indus Motor Company (Toyota) and Honda Atlas Cars Pvt. Ltd, and Pak Suzuki Motors Limited. The share of the three Japanese companies in Pakistan’s car market is about 75 to 80 per cent.
According to the Auto Industry Development and Export Policy (AIDEP) 2021-26, it was observed that the contract agreement of most of the local vehicle manufacturers with their Principals are for Pakistan market only, which may be one of the reasons for limited exports.
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As Pakistan has acceded to United Nations Economic Commission for Europe (UNECE) WP-29, which ensures harmonised vehicle regulations, local automotive sector has a chance to enhance exports by ensuring compliance to the regulations of importing market.
In addition, all OEM contracts which forbid or restrain exports from Pakistan to any other country, need to be renegotiated/ amended to allow exports to target countries, and make Pakistan an export base, both for auto-parts and vehicles. Obligatory export of parts/ vehicles by manufacturers will be introduced under AIDEP. The OEMs were to be asked to comply, for export promotion; however meeting of targets earlier than schedule will be incentivised.
The Policy made it mandatory for the OEMs to export 2 per cent of cars in 2022-23 as ratio of total import, 4 per cent in 2023-24, 7 per cent in 2024-25 and 10 per cent 2025-26.
In October last year, Special Investment Facilitation Council (SIFC) took serious note of zero export of cars by the Japanese companies and directed Ministry of Industries and Production (MoI&P) to revalidate import quota of the three Japanese car assemblers. Subsequently, their import quotas were suspended for a few days.
The sources said, Japanese cars assemblers had been asked to submit their export plan to the government. The auto companies’ plans came under discussion at the SIFC level and they were asked to revise them.
The negotiations between the car assemblers and MoI&P were progressing on the revised export plan, but meanwhile Japanese government formally wrote to Pakistan’s Embassy in (Tokyo) Japan, Pakistan’s Mission at the WTO, Ministry of Commerce, Ministry of Industries and Production, the sources added.
“Japan has raised its Specific Trade Concern (STC) to Pakistan at four places; i.e., Pakistan Missions at WTO and Tokyo, Commerce Ministry and Industries Ministry, saying that Pakistan is forcing Japanese car companies to export their variants, which is violation of WTO agreement,” confirmed high level official sources.
However, Pakistan’s viewpoint is that whatever step the government has taken in this regard, is WTO compliant, the sources added.
“Both sides have their own justifications. First this issue will be discussed bilaterally between Japanese government and Pakistani government and if it is not settled bilaterally, then it will land at the WTO level committee,” the sources continued.
According to the WTO procedure, the matter is to be raised at the Committee on Market Access and Committee on Trade Related Investment Measures (TRIMs). The agreement in TRIMs, WTO members have agreed do not apply to certain investment measures related to trade in goods that restricts or distorts trade.
“When this issue will be raised at appropriate WTO forums, Pakistan will be asked to submit response to the concerns of Japan. Pakistan will submit its response in the next meeting of the Committee. If Japan is not satisfied with the response of Pakistani government two or three times and expresses disagreement with Pakistan, then the matter will be forwarded to the WTO dispute settlement body,” the sources further explained.
If this happens, it will take one year to start proceedings at the WTO dispute settlement forum as a complaint cannot be launched directly at the dispute settlement body, the sources said.
OEMs argue that they are non-competitive for exports due to extra tariff on Pakistan origin - parts, CBUs and used cars - due to non existence of Free Trade Agreements (FTAs) as automotive parts is not part of FTAs.
According to OEMs, second reason is absence of local raw materials make exports non-competitive and the third reason is limited avenues of right hand drive make vehicles export non-viable.
To make Pakistan origin export competitive with other countries zero-rated FTA (excluding CBUs+ localized parts to protect local vender industry) required for auto parts in ASEAN, GCC and Africa. All localised parts and investment made at vendors and OEMs to be safe guarded in signing FTA.
Other submission of auto sector are as follows: (i) extend “zero-rated” export to tier-1 and tier-II suppliers of OEMs working under SRO 655 & 656 to make localised parts competitive; (ii) establish local metal industry for base raw material such as steel, copper and aluminium (from Ore to FG); and (iii) establish local processing industry for resin/ rubber raw material such as PP, PE and PU.
Presently, 25 cases of auto sector are in local courts, of which 23 cases are related to new entrants whereas two cases have been filed by existing assemblers.
The sources said, Japanese Ambassador to Pakistan has held meetings with Commerce Minister, Jam Kamal and MoI&P Minister, Rana Tanvieer Hussain and raised the issue of quota and forced export mantra.
Copyright Business Recorder, 2024