Abstract
The auto sector in Pakistan has been a persistent opponent of trade liberalisation in the country. This has entailed losses to consumers in terms of higher prices, low safety and quality standards, and lack of innovation in this sector. The deletion programme, which was to result in indigenization of final output, has also failed to deliver expected results. The market structure of this sector, particularly in the case of cars, is narrow with only three Japanese companies monopolising the market. Even when import of older vehicles was allowed in Pakistan, it was used Japanese vehicles that were imported the most. This has prevented competition in this sector, and many respondents in our market survey have revealed that if cheaper auto sector inputs and raw material are allowed and imports are facilitated from China and India, new entrants (both domestic and foreign) may enter production. Pakistan also has a comparative advantage in several auto sector components/classifications. However, these do not find their way, for example, to India due to what the industry describes as non-tariff barriers, state-specific levies and unconventional environmental standards required by Indian authorities. This paper proposes a way forward whereby the commerce ministries of India and Pakistan can address the concerns of Pakistan’s auto sector and create a win-win milieu. However, this alone will not be enough. We explain in this paper that several institutions in Pakistan such as the National Tariff Commission, Ministry of Industries, Engineering Development Board, Federal Board of Revenue, and PSQCA will also have to play their role in challenging domestic manufacturers and opening up the auto sector for competition, which will help consumers in Pakistan and lead to job creation.
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Notes
- 1.
Updated from Jalil (2012).
- 2.
Tier 3 companies supply small auto components to tier 2 vendors for assembling. These assembled parts are then supplied to tier 1 vendors for further assembling.
- 3.
The EU countries mainly included Germany and Italy.
- 4.
Deletion programme focused on progressively increasing the proportion of local parts in vehicle manufacturing.
- 5.
Data of Chapter 87 of the Harmonised System (HS) of classification is used via ITC. HS Classification is the standardised system of classifying traded commodities.
- 6.
SRO 275 (I).
- 7.
Negative list includes products that are restricted to be imported from India whereas the sensitive list includes the products which are allowed from India but are conditional on the application of certain tariff rates. These items in the sensitive list are also exempted from concessions on the tariff rates under SAFTA..
- 8.
These consumer welfare gains are calculated only for products in the sensitive list.
- 9.
Mercosur is a trade bloc-based on a treaty signed by Argentina, Brazil, Paraguay, Uruguay and Venezuela to promote free trade. This was first signed by Argentina and Brazil. Under this treaty, automobile trade was quota based. For example, it was agreed that Brazil would export US$265 worth of duty free automobile products to Argentina for every US$100 of duty-free Argentine exports to Brazil. Each country negotiates annual bilateral import quotas for tariff free entry of automobiles. Economic conditions and the state of the auto industry in Argentina and Brazil resembled the current scenario of India and Pakistan and it proved to be a win-win situation for both countries (Ahmed 2013d).
- 10.
Certification required to confirm that a product meets a specific standard.
Abbreviations
- AIDP:
-
Auto Industry Development Programme
- ACMA:
-
Auto Component Manufacturers Association (India)
- ATT:
-
Afghan Transit Trade
- BRCA:
-
Bilateral Revealed Comparative Advantage
- CBU:
-
Completely Built Up
- CCP:
-
Competition Commission of Pakistan
- CIF:
-
Cost, Insurance and Freight
- CKD:
-
Completely Knocked Down
- CPD:
-
Convergent Parallel Design
- CVD:
-
Countervailing Duties
- EDB:
-
Engineering Development Board
- FPCCI:
-
Federation of Pakistan Chambers of Commerce and Industry
- FTA:
-
Free Trade Agreement
- IPP:
-
Institute of Public Policy
- INR:
-
Indian Rupee
- ITC:
-
International Trade Centre
- JICA:
-
Japan International Co-operation Agency
- LCVs:
-
Light Commercial Vehicle
- MFN:
-
Most Favoured Nation
- MMR:
-
Mixed Method Research
- MNC:
-
Multinational Corporation
- NTB:
-
Non-tariff Barrier
- OEM:
-
Original Equipment Manufacturer
- PAAPAM:
-
Pakistan Association of Automotive Parts Accessories Manufacturers
- PACO:
-
Pakistan Automobile Corporation
- PAMA:
-
Pakistan Automotive Manufacturers Association
- PKR:
-
Pakistani Rupee
- PSQCA:
-
Pakistan Standards and Quality Control Authority
- PTA:
-
Preferential Trade Agreement
- SAFTA:
-
South Asian Free Trade Agreement
- WHT:
-
Withholding tax
- TCI:
-
Trade Complementarity Index
- TDAP:
-
Trade Development Authority of Pakistan
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Acknowledgments
This paper has been written as part of research studies conducted under the project “Strengthening Research and Promoting Multi-level Dialogue for Trade Normalisation between India and Pakistan” led by Dr. Nisha Taneja. The authors are thankful to Dr. Nisha Taneja, Dr. Mihir Pandey, Dr. Meenu Tiwari, Dr. Sanjay Kathuria and Dr. Saikat Sinha Roy for comments.
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Annexure: Calculation of Landed Cost of Indian Cars
Annexure: Calculation of Landed Cost of Indian Cars
Car model and price in Pakistan | Car model and price in India | Calculation of landed cost of selected Indian cars | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Model | Ex-factory price (PKR) | Engine size | Model | Ex-factory price (Indian rupee) | Engine size | Price in PKR exchange rate (1 INR = 1.63 PKR) | Freight cost $400 exchange rate: 1$ = 98.10 | Insurance 1 % | (CIF = Freight + insurance) (PKR) | Tariff rate (%) | Tariff rate ∗ CIF | WHT (5 %) | Landed price of Indian Car PKR (tariff rate ∗ CIF + WHT) |
Suzuki Mehran VX | 625,000 | 796 cc | Tata Nano Std BSIII | 152,617 | 624 cc | 248,766 | 39,240 | 2880 | 290,886 | 30 | 87,266 | 12,438 | 348,470 |
Suzuki Cultus VXR-Euro II | 1,044,000 | 993 cc | Hyundai Santro Xing (Non AC) | 305,543 | 1086 cc | 498,035 | 39,240 | 5373 | 542,648 | 50 | 271,324 | 24,902 | 794,261 |
Suzuki Swift RS DX 1.3L | 1,221,000 | 1328 cc | Tata Indigo eCS LS | 540,994 | 1396 cc | 881,820 | 39,240 | 9211 | 930,271 | 55 | 511,649 | 44,091 | 1,437,560 |
Suzuki Liana RXI (Petrol) | 1,465,000 | 1328 cc | |||||||||||
Corolla XLI standard | 1,499,000 | 1300 cc | Toyota Corolla Altis Diesel D4DJ | 1,300,199 | 1364 cc | 2,119,324 | 39,240 | 21,586 | 2,180,150 | 55 | 1,199,083 | 105,966 | 3,424,373 |
Corolla GLI | 1,729,000 | 1600 cc | Toyota Etios J | 555,040 | 1496 cc | 904,715 | 39,240 | 9440 | 953,395 | 55 | 524,367 | 45,236 | 1,474,318 |
CRZ-hybrid | 3,269,000 | 1496 cc | |||||||||||
Honda City Manual Transmission | 1,548,000 | 1300 cc | Honda City i DTec E | 853,000 | 1498 cc | 1,390,390 | 39,240 | 14,296 | 1,443,926 | 55 | 794,159 | 69,520 | 2,254,069 |
Honda Civic i-VTEC Manual | 2,051,000 | 1800 cc | Honda CR V 2.0L 2WD MT | 2,089,057 | 1997 cc | 3,405,163 | 39,240 | 34,444 | 3,478,847 | 75 | 2,609,135 | 170,258 | 6,184,556 |
Camry A/T Up-Spec | 10,949,000 | 2494 cc | Toyota Camry 2.5 G | 2,526,540 | 2494 cc | 4,118,260 | 39,240 | 41,575 | 4,199,075 | 75 | 3,149,306 | 205,913 | 7,473,480 |
Fortuner | 5,742,000 | 2694 cc | Toyota Fortuner 4 × 2 Manual | 2,270,435 | 2982 cc | 3,700,809 | 39,240 | 37,400 | 3,777,450 | 75 | 2,833,087 | 185,040 | 6,718,937 |
CR-V 2.4 Litre | 7,900,000 | 2354 cc | |||||||||||
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Ahmed, V., Batool, S. (2017). India–Pakistan Trade: Perspectives from the Automobile Sector in Pakistan. In: Taneja, N., Dayal, I. (eds) India-Pakistan Trade Normalisation. Springer, Singapore. https://doi.org/10.1007/978-981-10-2215-9_5
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