Does new auto policy seek cut in car prices?

ISLAMABAD: Why opening up market policy adopted by the government for motorcycle industry cannot be replicated in case of car industry in Pakistan?
It seems the government is not going to change the existing import policy under which three-year-old cars can be imported through specified schemes. There is need for allowing import of cars up to five and seven years old but critics argue that it will result into making the country junkyard of old cars.
In this scenario, this is big question mark if one looks surging prices of cars in Pakistan. When prices of motorcycles could be reduced by 50 percent with increased production then why it could not happen for car industry.
The Economic Coordination Committee (ECC) of the Cabinet has constituted a sub-committee on Wednesday last to further deliberate on new auto policy, which will be made public within next few weeks before tabling it before the ECC again.
The prices of motorcycles in the country has decreased significantly during the last few years but the car industry is giving different excuses to justify increasing prices without ensuring quality standards in locally manufactured cars.
The new auto sector policy has so far proposed 80 percent reduction in Customs duties for the entry of manufacturers into the Pakistani market for the next five years in order to put in place a competitive mechanism and reducing car prices in the country.
But the sources questioned that when the local manufacturers were incentivised by the government for last three decades then how new players will be able to compete them without having downstream industry.
Privatisation Commission Chairman Muhammad Zubair on Thursday said the new draft auto policy was aimed at giving incentives to new players to come into the market for ensuring competitive scenario. He promised that the new auto policy would be shared with the public before getting approval of the ECC within next few weeks.
Until 2004, Pakistan’s car market was very small and almost half of it was imported. Korean competitors tried to enter the market but small car Santro had to start with 45 percent deletion levels, but in a couple of years, it had to achieve the industry level deletion programme, which was 65 percent. New entrants were at huge disadvantage mainly because of creating parts market from scratch as well as attain deletion up to 65 percent in just two years. This kept many aspirants like Chinese or European car makers to stay out of the market. To depress imports of auto mobiles, high taxes are applied on imported automobiles through Tariff based system (TBS).
When contacted existing car manufacturers in Pakistan and inquired that why old cars beyond three year limit should not be allowed, they said that a product which has been made outside the country does not contribute to national economy.
The countries which manufacture a product (not only auto) discourage its import even in brand new form, same goes for cars. India, Thailand etc impose above 80% import duty on “new cars” let alone old cars, so that (a) local manufacturing is encouraged and foreign investment is attracted and (b) after a certain threshold the exports avenues are explored. Considering used cars a competition to new cars made locally is against global norms and practices of industrial countries.
Pakistan is probably the only country which allows used cars’ commercial import in violation of rules - offers depreciation and other allowances and yet waits for foreign renowned auto makers to invest in the country. It is basically an impediment to growth to allow a used product when you have capability to manufacture the same.
To a query regarding ensuring quality standards by existing car makers, they said all manufacturers follow production standards of their parent companies. These companies provide the drawings and manufacturing standards with each product.
In addition technical support is provided in shape of trainings in Pakistan and abroad, testing, R&D and foreign technical experts permanently stationed in Pakistan and also visits of experts in specialised areas to the production site to ensure that the products they have licensed to be made in the country comply with the standards they have provided.
When asked that why the opening up policy adopted for motorcycle industry cannot replicate in case of car makers, they replied that the fact is that more or less 1.6 million motorcycles are produced in Pakistan in a year. Out of these around 1.1 million are 70 cc bikes. Out of these 1.1 million bikes produced in the 70 cc category 100 percent are copy cat of one brand.
All that opened up industry is the result of weak Intellectual Property laws and their implementation structure. Unfortunately, it is an act of omission and not commission on part of the government.
To a query that why protection regime enjoyed by existing players should not be provided to new players for three decades, they said compare any developing country duty rates with those of Pakistan. You will have an answer. Besides let us also check whether any country rolls back its engineering development to certain years to incentivise new investment.
The auto industry welcomes new entrants as it will benefit the consumers and develop the market, however the government should invite some renowned brands to invest in Pakistan and that can only happen following consistent policies and encouragement of local production.