The Automotive Parts Sector in Pakistan Export performance ... Parts... The automotive industry’s

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  • September 2007

    — Export performance and potential — Implications of the WTO Agreements

    The Automotive Parts Sector in Pakistan

  • This publication has been produced with the assistance of the European Union (EU) as part of an EU-funded Trade Related Technical Assistance (TRTA) programme with the Government of Pakistan. The International Trade Centre (ITC) is implementing the programme. The content of this publication is the sole responsibility of the consultants. Facts and figures set forth in this publication are the responsibility of the consultants and should not be considered as reflecting the views or carrying the endorsement of the EC, ITC, UNCTAD, or WTO. The factual details and in-country resources in the publication have been researched and compiled by the consultants. ITC has not formally edited this report.

    © International Trade Centre (UNCTAD/WTO) Palais des Nations, 1211 Geneva 10, Switzerland Email: itcreg@intracen.org http://www.intracen.org Distribution: UNRESTRICTED September 2007

    ITC: Your Development Partner in Export Success ITC Mission ITC enables small business export success in developing countries by providing, with partners, trade development solutions to the private sector, trade support institutions and policy-makers. ITC strategic objectives

    Enterprises – Strengthen the international competitiveness of enterprises.

    Trade support institutions – Develop the capacity of trade service providers to support businesses.

    Policy-makers – Support policy-makers in integrating the business sector into the global economy.

    2

    mailto:itcreg@intracen.org http://www.intracen.org/

  • Acknowledgements

    The report was prepared by:

    • Morten Scholer, Senior Market Development Adviser, International Trade Centre (ITC), Geneva, Switzerland

    • Jan Oude Elferink, Global Automotive Consultant, the Netherlands

    • Ikram Haider, National Automotive Consultant, Karachi, Pakistan

    • Bastiaan Bijl, Trade Data Analyst, Independent Consultant, New Delhi, India

    • Madiha Butt, Senior Research Executive, Aftab Associates (Pvt.) Ltd, Lahore, Pakistan

    • Inaam ul Haque, WTO Adviser, WTO Cell, Planning & Development Department, Government of the Punjab, Pakistan

    Inputs and support were provided by:

    • H. Aftab Ahmad, CEO, Aftab Associates (Pvt.) Ltd, Lahore, Pakistan

    • Quratulain Ibrahim, COO, Aftab Associates (Pvt.) Ltd, Karachi, Pakistan

    • Arif Ahmed Khan, ITC National Programme Coordinator, Islamabad, Pakistan

    • Aizad Imdad, WTO Cell, Planning & Development Department, Government of the Punjab, Pakistan

    • Kaneez Fatima, Research Executive, Aftab associates (Pvt.) Ltd, Lahore, Pakistan

    • Mehdi Ali Rizvi, Ex-Chairman, PAPAAM, Karachi, Pakistan

    • Shariq Suhail, Chairman, PAPAAM, Karachi, Pakistan

    • Rasheed Ali, Language Editor, Lahore, Pakistan

    • Muhammad Ali, Language Editor, Lahore, Pakistan

    • Julie–Anne Lee, Business Advisory Services Consultant, ITC, Geneva, Switzerland

    • Maryam Yunus, Formatter/Proof reader, Lahore, Pakistan

    The companies that provided input to our queries (in alphabetical order): • A-One Techniques • Allwin Engineering Industries Ltd • ATA group of Industries • Automotive Spare Parts and Accessories (Pvt.) Ltd • Bolan Casting Ltd • Mir Sons Industries • FAAM Equipment (Pvt.) Ltd • Quality Casting Pvt. Ltd • Giuhar Industries • TM Enterprise

    i

  • • R.K. Gears • Hussein Engineering Works • Mumtaz Engineering • Auto Plymer Enterprise • Rubatech • Transmission Engineering Industries Ltd • Shaheen Engineering Works • Manna Shahid Forgings Ltd

    ii

  • Abbreviations

    ACGR Annual Compound Growth Rate AM After Market CBU Completely Built Up CIF Cost Insurance Freight CKD Completely Knocked Down CNG Compressed Natural Gas CSF Competitiveness Support Fund EDB Engineering Development Board EMCC European Monitoring Centre on Change FTA Free Trade Agreement GDP Gross Domestic Product GOP Government of Pakistan GSP Generalised System of Preferences IPR Intellectual Property Rights ITC International Trade Centre LCR Local Content Requirements LCV Light Commercial Vehicles LDC Least Developed Country MFN Most Favoured Nation MPV Multi Purpose Vehicle NOC No Objection Certificate OE Original Equipment OEM Original Equipment Manufacturer PAAPAM Pakistan Association of Automotive Parts & Accessories Manufacturers PAMA Pakistan’s Automotive Manufacturers Association PKR Pakistan Rupees R&D Research and Development RTA Regional Trade Agreements SAARC South Asian Association for Regional Cooperation SAFTA South Asian Free Trade Area SEZ Special Economic Zones SKD Semi Knocked Down SME Small and Medium Enterprise SMEDA Small and Medium Enterprise Development Authority SUV Sports Utility Vehicle TBS Tariff Based System TBT Technical Barriers to Trade TDAP Trade Development Authority of Pakistan TRIMS Trade Related Investment Measures TRIPS Trade Related Agreements on Intellectual Property TRTA Trade Related Technical Assistance UK United Kingdom US United States USAID United States Agency for International Development WTO World Trade Organization

    iii

  • iv

  • Table of contents

    Acknowledgements i

    Abbreviations i i i

    Executive summary 1 Industry overview 1 Findings – recommendations - conclusions 1 Implications of the WTO Agreements 4

    1 Background and objectives 7 1.1 EC TRTA Programme for Pakistan 7 1.2 Five sector studies 7 1.3 Methodology 8

    2 Autoparts sector in Pakistan 9 2.1 The sector in general 9 2.2 Production process and technologies 16 2.2 Availability, quality and price of raw materials 19 2.3 Technology and skilled labour 19 2.4 Export markets 19 2.5 Price trends of raw materials and end products 20 2.6 Growth in the sector 20 2.7 Exports/imports of autoparts 21 2.8 Price structure of the industry 21 2.9 Annual turnover and some projections 21 2.10 Rules and regulations affecting the sector (non-WTO) 22 2.11 Six studies on international trends 23 2.12 Classification and trade of automotive parts 28 2.13 SWOT analysis of Pakistan’s automotive industry 49 2.14 The role of associations – PAAPAM and PAMA 51

    3 Implicat ions of WTO Agreements 54 3.1 Background 54 3.2 Information on the WTO issues 57 3.3 Implications of the WTO Agreements 61 3.4. Trade conditions of the Pakistani automotive parts sector 73

    v

  • 4 Obstacles and shortcomings to export 77 l

    5 Export services in Pakistan 79

    tually are – expressed views

    6 Recommendations 87

    – at three levels 87

    Annexes 95

    List of Tables

    otive assembly production, 2001-02 to 2005-06 ..................................... 12

    List of Figures ure of car assembly in Europe / United States........................................ 10

    4.1 Obstacles and shortcomings – at company leve 77 4.2 Obstacles and shortcomings – at country level 77

    5.1 Export service providers 79 5.2 Export services as they ac 83 5.3 Export services as they should be – expressed views 84 5.4 Other export services - examples 84

    6.1 Overall overview 87 6.2 Recommendations 6.3 The way forward – if we had a million 90

    Annex A — Competitiveness Support Fund (CSF) 95

    Table 2.1 Autom Table 2.2 Capacity of auto assemblers ............................................................................. 12 Table 2.3 Present status of automobile assemblers and manufacturers........................... 13 Table 2.4 Number of assembler/manufacturing units in automobile sector of Pakistan.... 21 Table 2.5 Autoparts from China – Myths and realities........................................................ 24 Table 2.6 HS codes for automotive parts .......................................................................... 28 Table 2.7 Pakistan’s exports by product and major destination, 2004-2005 ..................... 31 Table 2.8 Pakistan’s imports by product and major origin, 2004-2005.............................. 33 Table 2.9 Top 10 world importers - Broad categories (US$ million) .................................. 37 Table 2.10 Top 10 World exporters - Broad categories (US$ million) ............................... 39 Table 2.11 World and Pakistan vehicle production figures, 2004-2005 ............................ 40 Table 2.12 Tariffs in export markets for autoparts (%) ...................................................... 44 Table 2.13 Import tariffs on vehicles.................................................................................. 46 Table 2.14 Import tariffs on automotive parts .................................................................... 47 Table 2.15 Import tariffs on raw material ........................................................................... 49 Table 3.1 Pakistan’s import and exports of automotive parts (US$ million) ...................... 74

    Figure 2.1 Struct Figure 2.2 Structure of car assembly in Pakistan .............................................................. 10 Figure 2.3 Sources of Chinese capital cost advantage ..................................................... 24 Figure 2.4 Pakistan’s automotive component exports and imports, 2004-05.................... 30 Figure 3.1 Functional scope of the WTO........................