Import of second-hand cars

After a report by the Competition Commission on price-fixing in the automobile industry, the commerce ministry has recommended to the government that it relax rules on the import of used cars. At present, only used cars that are up to three years old can be imported; the ministry would like that increased to include five-year-old cars. The move, if implemented, could certainly benefit consumers. Even though sales of cars have slumped in recent months, prices have kept on increasing, which the auto sector is blaming on the increase in the GST. The government has been asking car manufacturers to lower prices for about six months and, since their plea has fallen on deaf ears, this move should help in doing so.

While increasing the age limit for imported cars may help consumers, it could hurt Pakistan’s fragile economy. In the last fiscal year, Pakistan had a trade deficit of over $15 billion, a figure that is already expected to rise as Pakistan will have a higher food import bill in the wake of the floods. An increase in the import of second-hand cars may be a luxury the country can ill-afford. And since congestion is a major issue in all of the major cities, an increase in the number of cars on the road may not be a good thing. Consumers should also be aware that spare parts for older imported cars may not be readily available and repairs could also be more costly. The government needs to keep in mind the lessons of the Shaukat Aziz era, when an across-the-board relaxation in duties led to an increase in the import of consumer goods, which benefited the emerging middle class but did very little to fix, and may actually have hurt, the long-term health of the economy.

Published in The Express Tribune, August 18^th, 2010.