Business

New auto policy: Government needs to maintain delicate balance

Should protect the interests of both consumers and investors.

Zafar Bhutta February 08, 2015

Contrary to the stance of carmakers, the government wants to ease conditions for the entry of new car producers and also desires to cut duties on auto part imports in an attempt to create competition and control prices. STOCK IMAGE

ISLAMABAD:

The government is in the process of framing a new auto policy that is expected to open up the market for new players and break the monopoly of existing car manufacturers.

It is facing a stiff resistance from the local manufacturers, who have intensified lobbying for a blanket ban on the import of used cars and are resisting a reduction in duties on the import of auto parts to keep their grip on the domestic market.

Will the government give in to the influence of local carmakers and dealers or bring a policy to maintain balance between the interests of consumers and investors is a question mark.

At present, the Competition Commission of Pakistan (CCP) is busy finalising an assessment study on the automobile sector and is dealing with a case alleging formation of a cartel by the car dealers. Experts suggest that the government should wait for the completion of the study and the outcome of the case as these will help in coming up with a neutral policy.

Contrary to the stance of carmakers, the government wants to ease conditions for the entry of new car producers and also desires to cut duties on auto part imports in an attempt to create competition and control prices. At present, three car manufacturers are dominating the market.

Economic managers of the Pakistan Muslim League-Nawaz (PML-N) government, in a meeting of the Economic Coordination Committee (ECC) held on October 2, 2013, had suggested that tariff protection could be given for five to seven years to new entrants in the automobile industry in order to break the monopoly of existing players, who were selling obsolete technology at high prices.

Entry restrictions

While conducting the study, the CCP is grappling with the issues of monopoly in the domestic auto market and hurdles in the way of new players.

The antitrust watchdog is seeking comments from all stakeholders before finalising the Competition Impact Assessment Study of the Automobile Sector.

In the initial draft, the CCP has strongly recommended the commercial import of used cars, end to the discretionary control of the Engineering Development Board over the automobile industry and scaling down of the protection enjoyed by the local industry to encourage foreign competition for the benefit of consumers.

However, the study has upset the local players, who have sought help from Commerce Minister Khurram Dastgir, stressing that the CCP should remove the study from its website, which has been placed there to seek inputs of different stakeholders.

The CCP is of the view that the government has not played its role in opening the car market to shield the interests of consumers. It points out that the government has a flawed policy in relation to car imports as it allowed import of five-year-old used cars and sometimes reduced the age to three years.

The market should be opened for imports to end the monopoly of local car manufacturers and dealers, the regulator says.

Dealers’ monopoly

Separately, the CCP is going to end the hearing in the case pertaining to the formation of a cartel allegedly by the auto motors dealers association.

A senior CCP official said the regulator took notice after receiving complaints that dealers of three car manufacturers had fixed the same rates of vehicles and left no choice for the consumers.

The regulator also noticed that the car manufacturers had an agreement under which they did not hire human resource of each other. It is likely that the CCP will issue its order this month.

On its part, the Federal Board of Revenue (FBR) has pointed out that the incentives given to the local car manufacturers had not led to growth in the sector. Rather, five companies have left the country and the market has been captured by three manufacturers. The FBR wants a smooth import of used cars to enhance its revenues through duties and taxes.

However, the Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) has dismissed the CCP’s findings, arguing it does not understand the dynamics of Pakistan’s auto industry and the huge investment that has already been made.

When the final CCP study comes out, it would have comments from all stakeholders. It will be better for the government to frame such a policy that safeguards the interests of consumers and market players alike. Otherwise, there will be no significant change in the market environment.

The writer is a staff correspondent

Published in The Express Tribune, February 9^th, 2015.

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COMMENTS (8)

Haroon Rashid | 9 years ago | Reply Compliment to Express Tribune for honest, truthful, report, information to the readers, industry, and the Anti-Trust/Competetion Authority of Pakistan. Sad its removed quickly from web by Tribune in just two days. I suggest the CCOP chair to please place the report/story on the web page of CCOP, in order to encourage others to write about the cartelisation of Pakistan Automobile Manufacturers Association, EDB, and the consumer groups with Brand Awards to brand which are the least safe to the extent of notority of Passenger Safety. My emails sent to Director Cartels on Antitrust fines for foreign car companies fail to stall growth" published in the Financial Times" London on November 3, 2014. The email was well received by the Cartel Director, but instead of replying/responding she refused to recieve my calls/and went on long holidays. I'm prepared to assist the CCOP with inputs on Anti trust vis a vis China where fines were paid for $41million for alleged violations of China's 2008 Anti-Monopoly Law. China anti trust authority fined $1billion to Qualcomm for violating China's anti trust law in 2013, it took a novel approach: it decided to defend itself. Qualcomm investigated by the NDRC with a fearsome reputation and a win rate "which if it is not 100%, its pretty close," says another lawyer. Pakistan Auto Industry for Kit Car Assembler is a laughing stock at OICA, dominated by family to exploit the common people, by dictating policy to policy makers with kick backs. The Toyota Corolla produced by the IMC may have brought the late Mr. Toyoda founder of the Toyota Corolla Quality standard which IMC has brought a shame to the country. The Government should allow TMC to produce FCV (Fuel Cell Vehicle) in Pakistan which has opened its patents worldwide. This will bring a revolution in the country as Toyota is most willing to give the secrets of patent for Free. Why IMC is not making a FCV and export to China, which has an FTA/PTA with Pakistan.

Waseem | 9 years ago | Reply Guys, regarding the price issue, its government who is taking 1/3 of the the price in terms of duties and taxes. Government is getting hefty amount of taxes from us and if they can reduce the rates, i think it will be more feasible for consumers in terms of price and industry can also get higher volumes.

VIEW MORE COMMENTS

Hani | 9 years ago | Reply @Woz ahmed: Nobody needs to sacrifice their lives at the altar of the auto industry. Progress comes through competition not cartels. The days when nations only achieved prosperity on the back of heavy industry are long gone. These days it's all about services exports. We do not have the market for a large car industry that can enjoy economies of scale and churn out quality and affordable cars. Why destroy the country just because you want to pretend otherwise? Foreign investors are not going to invest here anyway because of the terrible security situation.

Atif | 9 years ago | Reply Long term Solution is not relying on imports I would suggest government but put restrictions on imports but at the same time force local auto mafia to do the following: Mandatory safety testing and safety features option (airbags, abs, all seat seatbelts, immobilizer, etc) must be given in all cars Euro 5 emission standards Technologically obsolete cars (with zero export potential) must be replaced by modern vehicles being sold in the international market. Mandatory crash testing and ranking for all vehicles. No menace of OWN/PREMIUM especially at the time when industry is operating below capacity. No of years a particular model can be sold must be limited JAPANESE MANUFACTURERS must transfer modern technology (not mehran's bumper making) to the local industry. Heavy incentives for new automobile assemblers

SKN | 9 years ago | Reply The policy should favour the consumers too. The monopoly of these 3 car manufacturers should be controlled with out hurting the vendor industry which is dependent on these 3 companies.

Rizwan | 9 years ago | Reply Educated consumer is the most important entity in this circle. If people know what is available in the rest of the world so they can demand for it. As for as size of market is concern it good as we are country of two hundred million peoples. As for as monopoly and policy is concern we are damaged by following entities. 1-Illiterate Politicians 2-Corrupt Bureaucracy 3-Non professional judges 4-Jahil Public 5-Army Generals Our country overall is worst the Jungle. We are atomic power & we don't have electricity. We will be no more different in upcoming years.

Woz ahmed | 9 years ago | Reply Pakistan must heavily tax new and used car imports. In order to encourage new manufacturers and assemblers, rebates should be given based on exports outside the af-Pak region. Every car you export outside of the region , you get a tax reduction in Pakistan, depending on the local content. This will encourage the latest vehicles and encourage part makers to meet international standards. Collaborations with indian or other asian manufacturers makes sense. Let Tata etc sell cars here as long as they source an equivalent percentage of parts here, or other goods. @Hani I feel your frustrations with the overpriced crap we are sold, but with 200 million people, we can't rely on agriculture and the textile industry to lead our economy, we need to make sacrifices. To be honest to get anywhere , we need huge investments in education and skills training, but as long as defence and debt crowd out all other expenditure, we won't be able to meet our basic needs, unless your connected with the military and its industries.. As the army makes everything from cornflakes to ipad clones, maybe we should accept they have access to cheap or free resources and let them take over industry, regardless of their business skills ?

Hani | 9 years ago | Reply The Pakistani market is too small for any serious investment by another player. The government should focus on allowing used car imports. There is a huge difference in the quality of local cars and the ones manufactured abroad. The local car industry won't survice for long if imports are allowed. It is time to let this industry fail. It has cause huge oil import bills and gas crisis in this country. It has held consumers hostage. It has caused deaths because the cars it makes are unsafe and highly polluting.

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