Table of contents list of acronyms
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| % of responses (1) Develop standards to ensure import only of quality products especially parts) from India 59 (2) Reduce tariffs on imported sub-assemblies and sub-components 56 (3) Raise tariff on indigenized parts and domestically produced vehicles 53 (4) Put Indian imports on the Negative List 41 (5) Strengthen valuation and anti-dumping mechanism 38 * Chapter 87 is mostly included in the Sensitive List of Pakistan in SAFTA to avoid any reduction in tariffs in the automotive sector. The Government does envisage the reduction of tariffs in the automotive sector in a five year time frame, as per an earlier ECC decision. But this process does not seem to go for enough with only minor reduction in tariffs in the terminal year from the present level and large inter- vehicle differentials will persist according to this scheme of up to 70 percent. To reduce this spread the following recommendations are made for implementation in a medium-term setting i) The maximum tariff on vehicles should be brought down to 35 percent in a five year time frame. ii) The dispersion of tariffs among CBUs of vehicles should not exceed 15 percent in the terminal year with lower rates of 20-25 percent on trucks and buses and 35 percent on cars and motorcycles. 100 iii) The same tariff rates should apply on cars of different sizes. However, in order to discourage luxury consumption, excise duty maybe applied both on CBU imports and domestic production. The rate of excise duty maybe levied at 20 percent on cars with capacity of cc, rising to 60 percent for cars above cc. iv) The distinction between localised parts and non-localised parts needs to be removed in the tariff schedules, as is the casein most countries. In addition, SRO 656(1)/2006, meant for concessionary imports, must be withdrawn. These provisions have conferred considerable discretionary power to EDB and the Customs Department and led essentially to a reversion back to the licensing regime with scope for rent seeking. By 2016-17, the duty should be brought down to 20 percent. However, given apprehensions about the potential wide ranging competition from Indian exports in the automotive sector, we suggest that for the year, 2012-13, the present tariff rates largely be left unchanged. A subsequent review maybe conducted after an assessment is made of the actual impact on the industry following the granting of MFN status to India and the resulting expansion of trade. While competition is limited in the market for cars and is most intensive in motorcycles, with other sectors falling in between, the CCP needs to be proactive in ensuring greater competition among car and tractor manufacturers. In addition, there is need to review other policies, laws and regulations. The automotive sector of Pakistanis still at a relatively early stage of development. Dependence on imports remains high and exports have only commenced in some products with relatively small volumes. If exports are to increase manifold, the AIDP will need to be extended upto 2020 and implemented much more vigorously. As far as quality standards are concerned, these should definitely be strengthened, especially in the case of auto-parts. The replacement market is already flooded with substandard parts, both domestic and imported. These practices need to be curbed through more effective regulation, either by federal or provincial agencies. There is definitely a strong case for strengthening valuation and anti-dumping mechanisms. The problem of underinvoicing of parts, in particular, has acquired serious proportions. This may necessitate a return to the International Trade Price (ITP) system or the use of specific duty on some items, including auto-parts and other automotive products. In 101 addition, the existing laws on Safeguards and Anti-Dumping need to be reviewed. The National Tariff Commission must have greater capacity to review a larger number of cases and impose counterveiling duties wherever necessary. The overall assessment of the report is that the automotive sector is a potential growth sector of the economy, but for this potential to be realised there is need for development of an appropriate policy and enabling framework. |