A new auto policy, aiming to improve the quality of locally manufactured cars and at lower prices, is expected to be put before the Economic Coordination Committee of the Cabinet in the next couple of weeks.

The policy draft has proposed better incentives for new entrants and, calls for reviving the assembly plants that have been shut down while expanding existing facilities.

The draft, redone after the ECC’s directive, mainly stands on the following pillars — incentives for new entrants, predictable import policy, tariff rationalisation, human resource development, support funds for technology acquisition, quality safety and consumers’ protection.

To attract new investments, the government will have to come up with competitive tariff incentives, while keeping the regional players in sight

A major objective is to enhance local production to 250,000-300,000 vehicles per annum from 116,680 in 2013-14. The import of used cars was 29,036 in the same period.

The Auto Policy 2008 had incentivised new entrants by fixing the tariff on 100pc import of completely knocked down (CKD) kits (localised or non-localised) at 32.5pc.

Yet, the tariff is seen as very high in the region to attract new entrants.

In India, it is 10pc for new entrants, in addition to some provincial taxes.

And other car-producing countries have much lower tariff rates than Pakistan.

Another major irritant was the presence of the local automakers in the Auto Industry Development Committee (AIDC), which had been empowered to approve a localisation plan for new entrants based on year-wise commitments. This discouraged the entry of new players. Most countries like India, Indonesia, Thailand, Philippines and China have done away with this local parts condition and have adopted liberal policies.

To attract new investments, the government will have to come up with competitive tariff incentives, while keeping the regional players in sight. It may also have to do away with the AIDC’s power of approving localisation plans for new entrants. Or its functions, it is suggested, could be given to the industries ministry and the Engineering Development Board (EDB).

In contrast with the last policy, the new policy draft also offers tariff incentives to closed units. The production lines for Santro, Revo, Nissan’s Sunny, and Joy are currently closed.

Then there are other issues, like the improper selection of local partners who were not professionally competent enough to properly handle the production line, which led to the closure of these units. Similarly, the government had opened up imports of used cars which mostly hit local car assemblers at the earlier production stages.

Under the new policy, it has been stipulated that no import of used cars will be allowed for more than three years under baggage rules, transfer of residence and gift schemes. And no tax amnesty scheme will be offered in the future.

Similarly, the three big existing auto players, it is stated, should be given the same tariff incentives for introducing new car models in place of those locally manufactured ones that have been around for over 15 years and need to be replaced.

At the same time, the tariff rate of 32.5pc on import of non-localised parts and 50pc on localised parts also needs to be brought down to a competitive level, say automakers. However, the new policy is silent about any reduction in completely built up unit (CBU) imports.

Meanwhile, the production capacity for trucks and buses is 27,000 units. Only 3,247 trucks were produced in 2013-14, against over 2,000 in the previous year. And 822 buses were produced in 2013-14. This low level of output must be addressed by the new policy.

The draft policy proposes the introduction of as anti-theft systems and down payments in instalments for the consumers’ interest. To ensure better quality of locally manufactured cars, it has been proposed that Pakistan should seek membership of the WP-29 — the UN Forum for Harmonisation of Vehicle Regulations.

There is also a need for the establishment of a training institute for human-resource development and product-designing in the country.

Published in Dawn, Economic & Business, March 23rd, 2015

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