Economists ask govt to increase deletion of auto parts
By Mansoor Ahmad
LAHORE: Economists have urged the government to increase deletion of auto parts as auto assemblers having achieved localization of 60-70 percent components still pay higher amount on the balance 30-40 percent imported components.
The Engineering Development Board has given weightage to different components of cars. Pakistan is now manufacturing almost all body parts and mechanical parts, plastic components, tyres, batteries, seats and some engine parts of cars. Some critical parts of the units are still imported by assemblers. The deletion level in cars ranges from 50-70 percent. The assemblers that have achieved higher deletion levels are correspondingly cheaper than those that have lower deletion level.
However, The News found that the cost of local components is much less than that of imported components of even those models where 70 percent deletion has been achieved. This is partly due to the fact that the high-tech parts not produced in Pakistan are costlier as well and partly due to higher cost of even low-tech parts that are produced outside Pakistan.
The government for over a decade made it mandatory for the car manufacturers to localize car components progressively for manufacturing vehicles in the country. The compulsion was imposed under the WTO’s trade-related investment measures (TRIMS). After the expiry of TRIMS, last year the government was forced to allow the import of those components that are manufactured in the country. The components that are not manufactured locally are allowed under completely knocked down mode at 35 percent import duty and those that are produced in Pakistan are importable at 50 percent duty.
Most of the local manufacturers of car, however, preferred to import only the parts that are not produced in Pakistan. One car assembler opted to import even those parts that were locally produced by paying 50 percent duty.
The result of the decision was that the cost of its models produced on hundred percent imported components increased by Rs200, 000 to Rs300, 0000 per unit over the comparable models of other assemblers. The sales of these high cost models took a nosedive. This example has convinced other local assemblers that use of locally-produced components is in their interest. The quality of these parts is checked and confirmed by the parents companies sitting mostly in Japan and South Korea.
The government on its part is also interested in localization of imported parts. It has announced a policy under which every year some components importable currently at 35 percent duty would be transferred to 50 per cent duty bracket. This would encourage the assemblers to go for local production of high duty parts. Only then would the burden of import of these components be reduced. The government desires to achieve this aim by the time the country attains 500,000 annual car production level in 2011-12.
The government expects the country to cross the production of half a million cars in the year 2011-12, though the private sector does not expect the car production to exceed 350, 000 units in five yearsí time.
They say the achievement of growth target in the automobile sector in the next five years will largely depend on higher deletion of auto-parts and affordable financing facilities similar to or little higher than those that existed in 2005.