FIGURE 4.1: TWO PROTECTION SCENARIOS

50

TABLE 4.2 EFFECTIVE PROTECTION RATES
(%)

1. Tariffs are effective in
determining domestic prices
2. Domestic Prices are 90% of
world price + tariffs
Car Assembly
cc
98.5 35.2 800 - cc
113.2 51.5 1000 - cc
153.4 64.2 1500 - cc
374.2 113.0

Motorcycles
196.1 75.6

Trucks

(< 5 Tons)
216.1 78.2
(> 5 Tons)
36.1 15.7

Parts
78.3 32.2

Buses (Non-CNG)
22.5 10.1 Source Authors own calculations using numbers from
Census of Manufacturing Industries, 2005-06, Pakistan Bureau of Statistics. Auto Industry Development Programme, Ministry of Industries , Production & Special Initiatives.
(viii) 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656(1)/2006, meant for concessionary imports, must be withdrawn.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. Following the scaling down of tariffs, it is likely that the levels of effective protection will be based on prices domestically corresponding to the world price and tariffs. Our calculations are that ERPs in the terminal year, 2016-17, resulting from our proposed tariff reforms will be close to 50 percent for cars. These are more moderate levels of ERPs. In addition, they will promote more competition and balanced development of the automotive sector. An obvious area of concern is the impact of tariff reforms over the next five years on the level of tax revenues, especially since the automotive sector is a major contributor to FBR revenue (see Chapter 2). Pursell, et al (2011) have argued that given the current redundancy of tariffs, a reduction in them should not necessarily effect revenues. In fact, if the proposed reforms lead to greater competition and increase the volume of sales of vehicles then the level of revenues could even rise overtime. This will increase pressure also for cost effectiveness and innovation and enable the automotive sector to make a transition to the next stage of