The Ministry of Commerce could not develop new standard operating procedures (SOPs) to restrict illegal import of three-year used cars following the misuse of schemes built to facilitate overseas Pakistanis, well-placed sources told Pakistan Today.
The ministry had to formulate SOPs to restrict illegal use of the three schemes after the announcement of 2016-21 Auto Policy. Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) had also been asking the ministry for ensuring a level play field to auto sector.
PAAPAM in its letters stated that it was common knowledge that the personal baggage, gift and transfer of residence schemes that were meant to facilitate overseas Pakistanis, have been grossly misused and circumvented to undertake de-facto commercial import of used cars by unscrupulous dealers on passports of overseas Pakistanis.
Until the Import Policy Order, 2004, there were adequate safeguards to ensure that the three schemes were not misused and the domestic industry was not damaged from import of used vehicles. However, in the Import Policy Order 2005, some vested interests, supported by used cars importers’ lobby were able to incorporate major changes in import conditions for used cars. Hence, floodgates were opened and domestic auto and auto parts manufacturing industry badly suffered in the last 10 years as four auto plants were forced to shut down.
In 2015-16, due to sound economic policies of the government, the auto industry has crawled back to a production level of 216,000 vehicles, a level which was last witnessed in 2006-2007. In fact, if the special one-time production volume of 30,000 taxis was reduced, the quantity sold by domestic industry was even lower than 2006-2007.
However, import of used vehicles during 2015-16 registered a dramatic increase of 67 percent over the previous year. During 2015-16, a total of 53,600 used vehicles have been imported under gross misuse of the three schemes as compared to 32,100 vehicles imported in 2014-15.
This amounts to a business activity of Rs 75 billion per year entirely undertaken in the informal sector or black economy.
PAAPAM argued that Pakistan was only one out of 40 automobile producing countries of the world where de-facto commercial import of used vehicles was undertaken under the garb of schemes for overseas Pakistanis.
Import of used cars is the biggest impediment to bringing new investments in the auto sector, either by new entrants or by current assemblers. Even after the ADP’s announcement, the foreign investors were undecided as to why they should make long-term investments worth hundreds of millions of dollars in a country where they have to compete with over 50,000 used vehicles imported every year in blatant violation of the law, he added.
According to the association, a quantity of 50,000 vehicles per year was enough to enable investment of around $600-700 million in two plants of a size equivalent to Honda Atlas Cars Pakistan which produces around 25,000 Honda vehicles per year.