Implementation Mechanism of Auto Industry Policy (2021-2026)
A cumbersome institutional mechanism is present in Pakistan to implement the auto-industry policy. As far as institutional setup is concerned almost nine institutions are linked to auto mobile industry in which eight institutions are state control entities while the last but not the least is an automotive association. These are Ministry of Industries and Production (MoI&P), Engineering Development Board (EDB), Board of Investment (BoI), Ministry of Commerce (MoCom), Pakistan Standard & Quality Control Authority (PSQCA), Pakistan Environmental Protection Agency (Pak-EPA), Ministry of Finance & Competitive Commission of Pakistan, and Federal Board of Revenue (FBR). Whereas, Pakistan Automotive Manufacturers Association (PAMA) represents the country’s largest automakers and serves as a liaison between the industry and implementation bodies, advocating for policies and standards.
Kingdon’s Model: It is important to gather the viewpoint of all the relevant stakeholders operating in the market as it is critical to know whether policy incorporates their viewpoint. It is worth mentioning that the policy is outcome of extensive consultation with all stakeholders including PAMA. However, there is one area where it appears that the viewpoint of the Original Equipment Manufacturers (OEMs) represented through PAMA was not incorporated as proposed by it. This aspect is concerned with the mandatory provision requiring a fixed percentage of annual exports of vehicles by OEMs vis-à-vis their annual production.
The other fundamental question regarding the policy is the effectiveness of solutions proposed in the policy? How useful they would be in addressing the prevailing problems in country’s Auto Development Sector? In this regard, it is pertinent to examine the policy in the light of its stated objectives. There are specific areas where this aspect has been evaluated specifically as enumerated below.
Generation of Competitive Environment: The ADP 2016-21 provided for an increased competitive environment. There were only three major OEMs in Cars (Toyota, Suzuki and Honda) operating in the country at that time. However, the incentives provided under the ADP 2016-21 provided for entry of 13 new companies in vehicle manufacturing in Pakistan. Thus, with the entry of new companies, competition increased in the market. Besides incentives were given to those companies for setting up their plants. Most of the licenses were granted to those companies in 2018 by the Ministry of Industries and Production. The present Policy 2021-26 has continued the spirit of enhancing the competition through provision of incentives for obtaining new licenses for manufacturing. Thus, it also helps in addressing the issue of wider choice for consumers.
The present policy has continued the spirit of enhancing the competition through provision of incentives for obtaining new licenses for manufacturing.
Moreover, the encouragement of new entrants in Auto Sector will also boost up the production of vehicles in the country. At present 05 lac vehicles are targeted to be manufactured in the country and the consumers have multiple options in cars, SUVs and LCVs.
Consumer Rights Protection: On the issue of consumer protection, different measures have been taken which aim at controlling the prevalent practice of Own Money in the Auto-mobile Sector. AIDEP 2021-26 has addressed this issue vide its Point 9.1 Consumer Welfare, where it is stated that delayed delivery beyond 60 days from booking, reimbursement of the deposited amount will be made to the customer at KIBOR+3%. So far Rs.5.3 billion have been recovered from various manufacturers in many cases of delayed delivery.
Removal of Irritants towards Localization of Auto Parts: A major issue confronting the growth of auto parts was the regular updating of SRO 693. This SRO provides the list of locally manufactured auto parts and accordingly mentions the rate of tariff duty on their imports. In order to promote the development of local auto parts manufacturing, the tariff rates are on the higher side on the import of those parts which are manufactured locally. Thus, import of such parts by OEMs is discouraged through levy of higher duty ultimately shifting these towards locally manufactured auto parts. In this context, a major problem earlier faced by the Local Auto Parts Manufacture Association was irregular updating of list of parts in SRO 693. This issue has been catered for in AIDEP 2021-26. It provides for bi-annual updating of SRO 693, thus maintaining the latest list so that Local Auto Parts Manufacturing Industry remains protected. Analysis of enabling measures taken for implementation: Lastly, the evaluation of suggested proposals in the policy with respect to acceptance within the political leadership is very important. It needs to be checked closely that what progress has been made on developing the mechanism for policy implementation? What practical measures have been taken for bringing about changes or improvement in legislative or administrative domain linked with policy implementation?
The review on this perspective suggests that Policy Level is cognizant of the challenges faced by the Auto Sector Industry regarding the smooth implementation of AIDEP 2021-26. Stakeholder engagement has been going on and stakeholder consultation conference took place in August 2024 under the chairmanship of federal Minister for Industries and Production. In some areas, the results were very encouraging like motorcycles where 150% of the exports have been achieved vis-à-vis the manufacturing. Similar is the case with tractors. However, in car sector, the export figures have not met the target and it has remained less than 01% of the total production. It is clear that the enforcement of this provision is mandatory in nature. Non-compliance would lead towards suspension/ cancellation of licenses and withdrawal of concessions in the form of reduced duties as provided under SRO 655. Therefore, these companies approached the legal forum and obtained stay orders against above stated measures. The matter is still under litigation. It is also pertinent to mention that Ministry of Commerce has also been involved in resolution of this issue by the concerned companies through Japan after approaching WTO
(To be concluded).
Saud Bin Ahsen works at a public policy think tank. He can be reached at [email protected].