Car assemblers have set their eyes on the sensitive list of commodities, which is to be negotiated, under the South Asian Free Trade Area (Safta) agreement.
The representative body of assemblers, the Pakistan Automotive Manufacturers Association (Pama) has asked the government that the automobiles - both the completely knocked-down kits (CKD) and the completely built-up units (CBU) and their parts should be excluded from the agreement for first three years of its operations for enabling local industry to study the economics and rules of the Indian auto industry.
Many assemblers feel the local industry will suffer due to opening of trade with India in case the cost of doing business in Pakistan is not brought down in due course of time.
Economic parity between Pakistan and India is not comparable. There is a significant difference in taxes, utility rates and duty structures that needs to be brought at par to enable local industry to compete with the huge Indian economy, they say.
The cost of doing business must be competitive in the region to fully benefit from Safta accord. One US dollar is equal to nearly Rs58 in Pakistan as compared to India's Rs45. The sales tax ranges between five to seven per cent (rarely 12 per cent) in India as compared to 15-18 per cent in Pakistan.
India's market size in terms of population is 1,030 million as against the Pakistan's 144 million. Pakistan depends on imports, while India has massive availability of most of the raw materials.
No presumptive tax exists in India as compared to five to six per cent tax deducted at source here. Infrastructural cost (water, power and gas rates) is about two third, while in Pakistan, it is one third higher than in India.
"This is a stark reality between Pakistan-India economic compatibility or economic parity which should be brought at par specially to face stiff challenges of free trade with India," an assembler said.
India produces one million cars and four million two wheelers, while Pakistan is likely to produce over 100,000 units and 400,000 bikes by the end of 2003-2004.
It is to be seen how the Pakistani government handles the situation in bringing at par the taxes and duty structures with India before opening its borders for free trade. Pakistan will be the gainer in case a level-playing field is available," a leading assembler said.
The local car industry could not take any benefit from the Indian car producers in any shape of technology transfer and technical expertize because they are also dependent on the same foreign sources on which the local industry is relying.
However, the Pakistani industry has only two advantages in sight - a big market potential and bigger volumes. Senior executives of the Dewan Farooqui Motors Limited (DFML) think that the opening of free trade with India means that the Indian cars would be imported and Pakistani exported without any restriction and duties". Ten times more cars are produced in India than in Pakistan and the bigger volumes will prove beneficial for the Indians.
They said that the installed capacity of the Pakistani industry is very low as compared to India. The local producers are having difficulty in meeting the country's demand let alone exporting to India.
The Indian industry has an installed capacity of 1,532,500 units per annum which is over 50 per cent more than its demand. Therefore, it can easily export the cars to countries like Pakistan where, presently, demand is more than the supply.
In these troubled times, the Pakistan government should support the local industry by maintaining protective tariff on the CBU cars, they added. Pakistani cars are slightly costlier as compared to the Indian cars due to a vast difference in taxes and duties and the rupee-dollar parity.
The price of Santro in India (Rs542,000) is three per cent or Rs17,000 cheaper as compared to Pakistan (Rs559,000). The Hyundai Santro and even other makes, produced in India, attract a CKD import duty of 25 per cent as compared to 35 per cent in Pakistan.
Also, with 20 times higher volumes, over 100,000 units, than the Pakistani sales volume, the localization is also higher, thereby, the CKD value is also lower. The compound effect of this translates into a marginally lower retail price.
Import duty on the completely built-up cars (CBU), starting from 800cc to 1,800cc in Pakistan, ranges between 75-150 per cent while in India it is 60 per cent.
Auto parts: Auto-part makers do not welcome the opening of trade between Pakistan and India under Safta because the Indian auto-part industry is well developed with cost and other advantages.
India retains a strong engineering base and as its economy till today has remained absolutely closed for the finished goods in the last 45 years. Being the most heavily protected economy in Asia, as well as in Sapta, India still retains the highest tariffs and also other miscellaneous trade barriers, the Chairman Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam), Syed Nabeel Hashmi said.
He recalled that the Chapter 87 of the Auto and Allied Industries has always been a special sector for all developing countries including India. Whilst countries opened up their borders for other industrial sectors, the auto sectors' doors remained closed for majority of the countries.
This includes the US, the Europe, Japan, Korea, Taiwan etc., who have brought down their barriers very recently. Malaysia and India even todate retain their invisible barriers in one way or the other.
Nabeel said the part makers can only think of trade with India on higher industrial local content levels up to 90 per cent with volumes of 500,000 plus cars, one million motorcycles, 70,000 tractors.
He said India would benefit from free trade due to its low raw material, electric and labour costs. Its engineering industry is working on high volumes, whereas the Pakistani parts making industries do not have such volumes. Parts making industry is only interested in procurement of raw materials from India instead of seeking any technical collaboration or the transfer of technology.
The industry, however, is now worried over the arrival of Indian components in Pakistan via Dubai. This matter is becoming very chronic in the tractor sector. Many of our companies are loosing business due to this issue. Indian parts are cheaper due to their low input costs and bigger volumes.
