November 4, 2003	Tuesday	Ramazan 8, 1424

KARACHI, Nov 3: The State Bank of Pakistan has expressed doubts on capability of Pakistan’s automobile industry to indigenize completely the parts and accessories production in the next two years.

The WTO agreement on TRIMs expires at the end of this year, which means member countries would not be able to impose such restrictions that bind manufacturers to use certain proportions of locally manufactured inputs and require certain products to be locally manufactured.

According to the SBP annual report for 2002-03 released on Monday, the government had sought two years extension. “The current pace of deletion in automobiles suggests that the industry will take much longer time to completely indigenize production of parts and accessories,” the SBP report observes.

Motor cars have achieved 60.3 per cent and commercial vehicles 50.1 per cent indigenization despite the most protected tariff status given to the industry. The government also offered the best import facilitation. Import of used cars was and is still disallowed. Import of raw materials, components, sub-components and assembling machinery and accessories were allowed concessionary rate of duty ranging from zero per cent to 35 per cent ad valorem.

Indigenization refers to the substitution of imported components and sub-components with locally manufactured ones. Pakistan has been pursuing indigenization in engineering industries since 1987. In 1995, the deletion programme was reviewed by the government in view of the WTO agreement on TRIMs. This agreement gave a period of five years to developing countries to phase out deletion programme.

The deletion programme was, therefore, converted into an Industry Specific Deletion Programme (ISDP) on recommendations of the Deletion Committee of the Engineering Development Board (EDB).

Automobiles and home electronics were targeted under the ISDP. The EDB set deletion targets in consultation with the manufacturers, which were linked to sale volumes of the industry. The automobiles and home electronics industries were given heavy protection with a number of incentives to assemblers and vendors. The rate of customs duty on import of cars ranged between 100 and 250 per cent.

Despite all this protection and facilitation, the SBP observes results in terms of localization not very encouraging. Electronics and apparatus achieved relatively higher level of deletion where average was 86.7 per cent. Electric transformers and electric motors achieved 100 per cent localization.

In automobiles, motorcycles and tractors exceeded 80 per cent deletion. But in motor cars it was 60.3 per cent and in commercial vehicles only 50.1 per cent. Interestingly, although the deletion targets are linked with industry’s sale volume, even the targets set during the last two years do not reflect increased volumes, the SBP report says.