As local industry grows cold, under-invoicers remain out on the tiles

LAHORE: Operating without regulator the tiles industry is running from pillar to post to get its issues resolved and despite being efficient and competitive it is still is losing market to the imported tiles that are either grossly under-invoiced or are smuggled into the country.

A study of the problems faced by the tile industry reveals the way the vested interests operate to deny level-playing field to the domestic manufacturers. It also points to the connivance of the concerned officials with the smugglers and importers indulged in under-invoicing.

For instance, tiles are regularly smuggled from Iran, which though inferior in quality, are very cheap. However, if imported through proper channel the duties and sales tax on duty-paid value would make them uncompetitive.

In order to dodge custom, the smugglers bring one truck in through official channel and several others through unofficial ones. They then provide the photocopy of the duty paid invoice of the officially imported tiles to the dealers.

Numerous tile manufacturing plants have closed down despite the fact that it is one of the few industries in the country that uses domestic raw material only. The labor rates in Pakistan are much cheaper than China and the energy rates are also at par with those provided to the Chinese tile manufacturers.

The Pakistani manufacturers lodged complaint of under-invoicing/dumping of Chinese tiles with the National Tariff Commission (NTC). The NTC officials visited the premises of numerous Chinese tiles manufacturers and through proper audit found many of them were exporting tiles to Pakistan at rates well below their cost. After investigation in accordance with the WTO rules the NTC slapped anti-dumping duties on 14 Chinese tile manufacturers ranging from 9.35 percent to 36.35 percent. The anti-dumping duties were slapped in October 2018. The Chinese exporters also submitted price undertaking for different sizes of tiles that were much higher than the prices at which these were being cleared in Pakistan earlier.

The importers succeeded in obtaining stay order against the NTC decision from Lahore High Court. The NTC even after lapse of four months has not appealed for the vacation of the stay order. The manufacturers legally cannot go to court in this case as the duties were imposed by the NTC. So the tiles are still being cleared at old rates. It is interesting to note that the importers are still bringing in Chinese tiles at half the Import Tariff Price (ITP) fixed by the Customs. The Customs is charging duty on its ITP but the imports at lower rates continue.

It seems that the importers are building up their case for the courts as they would plead that ITPs have been wrongly fixed as they are still importing tiles at lower rates but have to pay higher duties due to higher ITP.

If NTC goes into appeal, it would have to satisfy the court on levy of anti-dumping duty. The court would need a WTO expert who could explain that anti-dumping duties could be imposed under WTO rules if, after investigation, it was proved that the suppliers were exporting tiles below cost or if the price at which the tiles were imported were much less than the cost of local industry, causing injury to the domestic manufacturers.

However, without a competent expert the importers may convince the court that they are paying the duties on ITP despite importing tiles at lower rates and therefore the anti-dumping duties should be withdrawn. The government would have to defeat such engineered moves to provide a level-playing field to domestic manufacturers.

Another flip side of under-invoicing is that it forces many domestic manufacturers to conceal taxes. They could either adopt the procedure adopted by Iranian smugglers by concealing 80 percent production and paying all government levies on 20 percent. Some may avoid all government levies and act like smugglers. Except one or two large manufacturers all others are sailing with the unethical tide. And those that don’t go with that flow have to fold up and there are numerous domestic tile producers that have gone into oblivion. The tile industry tries its best that its kilns remain hot 365 days a year as any cooling down results in huge losses.

Moreover, after prolonged closure reopening the manufacturing process is very expensive. Apart from raw material and other arrangements the furnace takes about a week to reach operating temperature of above 1000 centigrade. And that is pretty expensive beyond the reach of those that were forced to close down after suffering losses. Let us hope the remaining manufacturers stay in the game.