Competing with Japan, China and India: Bike assemblers seek 15% export subsidy on FOB price
By Sajid Chaudhry
ISLAMABAD: In order to compete with Japan, China and India in the regional export markets, the local motorcycle manufacturers have sought 15 percent export subsidy on Freight on Board (FOB) price of the motorcycles, a senior customs official told Daily Times on Friday.
This study was carried out by Competitive Support Fund (CSF), in consultation with Pakistan Automotive Manufacturers Association (PAMA) to make local motorcycle industry more competitive to meet, not only local demand, but to increase its exports also.
The policy recommendations of the CSF and PAMA study were to allow export subsidy through Research and Development (R&D) of 15 percent of the FOB cost of the motorcycle to make motorcycle more competitive in the international markets.
Based on the findings of the CSF study, the industry has further recommended that customs duty on Completely Build Unit (CBU) be reduced from 90 percent to 70 percent in next four years with 5 percent annual reduction. The industry has suggested that customs duty on the import of completely knockdown (CKD) motorcycles be reduced from the current 30 percent to 10 percent in the next four-year period. It recommended application of rate of duty on import of components and parts liable to lower rate of duty for CKD condition motorcycles’ imports also. It sought reduction in customs duty on import of other inputs presently in the range of 15 percent to 35 percent to 10 percent in the next four years.
The local manufacturers feel that these incentives would make the local motorcycle industry more competitive locally as well as in the regional export markets, resulting in an increase in the exports.
The industry has hoped that the government would favourably consider these recommendations and would take decision in the interest of the industry as well as increasing the export potential of the country.
Motorcycle industry has developed during the last couple of years so as to meet the local demand of all concerned and export enabling Atlas Honda, an unusual franchise of tow of their most popular models 70cc and 125cc, to be produced exclusively in Pakistan for local use and exports.
For the purpose a factory of international standard has been set up in Sheikhupura.
The industry has informed the economic managers of the country that for export local industry has to compete with not only Japan and China but also with India with the concessions proposed by the industry. The local manufacturers would be able to export 20 percent of their production with the plant’s effective installed capacity of one million units adding strength to country’s exports’ earnings.
The production of motorcycles registered a growth of 11.65 percent with overall production of 839,224 units in the last fiscal year 2006-07 as compared to 751,667 units in the previous fiscal year 2005-06.
The first sector selected by CSF for analysis was the growing motorcycle industry in Pakistan. Other analysis will follow on the automotive and food processing sectors. Motorcycle industry’s estimates show that last year a total of over 700,000 motorcycles were produced in the country. The industry has been experiencing a healthy growth rate of around 30 percent per year for the past four to five years. It is estimated that the production will cross the million units mark by 2008. To identify the prospects, problems and obstacles of the motorcycle industry, a high-level delegation from CSF recently visited Karachi and met the key stakeholders.
Presently there are 43 motorcycle assemblers in the country that have been licensed by the Engineering Development Board (EDB). Out of these, there are three Japanese assemblers (Honda, Yamaha and Suzuki), while the remaining 40 assemble Chinese motorcycles. These assemblers buy parts, sub-assemblies and assemblies from over 200 large, medium and small vendors located in Karachi and Lahore. It is estimated that the motorcycle industry employs to more than 200,000 people directly and indirectly.
The primary objective of this study was to carry out a policy analysis of the competitive advantage of the local motorcycle industry, along with identification of the problems being faced by the sector. CSF is also facilitating the establishment of a Policy Expert Group (PEG), consisting of members from the value chain of the motorcycle industry in Pakistan.