WHEN the business interests of large competing economic groups clash, the consumers are usually the gainers, but seldom in Pakistan. Here, often rival local business houses join hands to safeguard their interests.
That is what is happening in the case of official permission to import used automobile parts, at a time when consumers (car drivers) are facing increasing hazards from rashly driven vehicles like buses, trucks and minibuses, causing an increasing number of fatal accidents.
Import of used motor vehicles under three liberalized schemes has recorded a rapid growth during July-October. A total of 3,574 used vehicles were imported in the four months against 762 used vehicles in the same period last year. The three schemes under which used cars are coming are: gift schemes, transfer of residence scheme and personal luggage.
No foreign exchange, either of the government or the country, is involved in these imports. In spite of import of the used cars, there is a shortage of cars in the face of rising demand. And buyers of new cars assembled in Pakistan have to wait for 5-7 months to get delivery of the vehicle of their choice.
But since they are used cars, the demand for spare parts has increased for a larger variety of cars. And the cut in customs duty of 25 per cent per year has encouraged the import of more and more used cars. And when it comes to new models of cars, 90 per cent of them were introduced in the last 16 months.
Yet the pressure of demand on Pak Suzuki is such that it invested Rs3 billion in the last two years to expand its production capacity. And now after weighing the policy of allowing re-conditioned cars, the government wants to allow the import of used and old auto parts.
The Central Board of Revenue expects to collect Rs5 billion as import duty from used auto parts. It says that already a billion dollars worth of used auto parts is being imported clandestinely. Automobile manufacturers say that if the import of used cars exceeds 15,000 in a year, they will be in serious trouble. There should be no change in the auto policy when the industry is going through its consolidation phase.
If the current policy continues, the industry will not only be a foreign exchange saver, but also a foreign exchange earner. The reversal of the policy will prevent new investment by the industry. The CBR had estimated 25,000 vehicles would be coming under the gift baggage and transfer of residence schemes. And seeing the number of cars that were coming in the first four months of the financial year, it has revised its estimate to 30,000 vehicles in the year.
The more the import of old cars, the greater the demand for used parts. And more used parts will have to be changed with far more used parts as their life is brief. If the CBR wants the used auto parts to come in because of its anticipated $5 billion gain in import duties, the ministry of commerce has no specific reason of its own to support the policy.
Minister of Commerce Humayun Akhtar presided over a meeting recently in which CBR chairman Abdullah Yusuf pleaded strongly for allowing the import of second hand parts, but the Engineering Development Board (EDB) opposed the import arguing that it will hinder the development of the auto parts industry. But as Abdullah Yusuf argues, since one billion dollars of used and old parts are already being imported clandestinely, a revised policy will only be endorsing what has actually been happening. It would be a shift from the informal to formal sector.
But while the interested groups are arguing their own case, nobody is pleading the interest of the consumers and public safety. What will happen is the old parts will be used by the repair shops as new parts and the consumers billed the cost of new parts. That will make the consumer suffer both at the financial end and the mechanical end. It was argued at the aforementioned meeting that only auto parts not manufactured in Pakistan will be allowed.
Humayun Akhtar says that the final decision will be taken after consulting the CBR, the ministry of industry and production and the EDB. But the ministry of industry and production does not have a policy of its own to present so far.
There are also differences among the automobile assemblers. Some of them say that the demand for new cars is not affected by the import of old and used cars. A Dewan Farooq Motors spokesman said at the meeting that the import of old and used cars did not affect the demand for new cars.
The demand for new cars is fuelled by the auto leasing finance available from about two dozen leasing companies. Seeing the resistance to the import of second hand auto parts, the CBR says it is agreeable to a conditional import of old auto parts. The conditions could include fixing the limit of such imports as well as certification of the import by the ministry of industry.
If old and used cars come in large numbers and they are repaired using old or repaired auto parts, we will have more smoke-emitting vehicles on the roads and that will foul up the environment further.
We are promoting fast driving on motorways, allowing the import of old cars and maintaining them by using old parts. This is a contradiction. The people are being exposed to serious risks. If one billion dollars worth of old parts are already being imported clandestinely, it is time the CBR tightens its anti-smuggling machinery.
