Auto parts manufacturers ask govt to increase import quota

Pakistan Automotive Manufacturers Association (PAMA) and Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) have jointly written a letter to State Bank of Pakistan (SBP), the federal secretary of industries and production, and the Engineering Development Board (EDB) requesting an increase in quota for sub-components, components, and sub-assembly imports in the automotive sector.

PAMA and PAAPAM cite the difference in treatment for OEMs and parts manufacturers by the aforementioned state entities in being allocated import quotas.

According to the letter “The understanding, reached among OEMs, SBP, MOF, and EDB/MOIP for foreign exchange allocation, SBP is releasing foreign exchange at 50 per cent of 4 months average from July-2022 onward. The OEMs later started receiving funds and getting their CKD consignments cleared from the port”. “However, such understanding was not available to automotive vendors and their consignments were stuck at port, hindering the production of vehicles. A quota of $8.59 million is now allocated to vendors from September instead of July resulting in shortage of parts.” the letter continues.

Subsequently, PAMA and PAAPAM have requested their quota be fixed from July and not September like OEMs. They cite that some of their members had been allocated quotas below 50 per cent due to data entry irregularities in the ITRS system, and have requested that these anomalies be rectified.

Furthermore, they cite that the motorcycle, tractors, and trucks/buses segments require very low completely-knocked-down (CKD) imports. “about 20 per cent of the car and SUV segment”. Thus, the letter requests that parts manufacturers operating in this segment be given additional relief, “We therefore request an additional quota of just $2.00 million for this very essential segment of the auto sector” states the letter.

The letter also states that the aforementioned entities should be cognizant of how the automotive industry is on the precipice of launching new models. Therefore, “for smooth development of local parts, the trial runs are conducted months before the start of mass production. We request enhancement of quota for import of machinery and allied equipment”.

Finally, in light of the above, the letter requests that the quota be fixed at $13 million. By doing so the parts manufacturers will be able to clear the supply shortages and that “after clearance of backlog, imports will automatically be adjusted to 50 per cent of OEM production level.”

The quota in question was a rationing mechanism devised following the SBPs increased administrative oversight of CKD imports so as to balance the country’s diminishing foreign exchange reserves whilst also keeping the automobile sector afloat.

The government removed the ban on imported vehicles altogether last month via an increase in import duties, and also hinted at relaxing import restrictions for tractor manufacturers in a bid to encourage localization. However, the government has refrained from making any formal announcement on the CKD situation in the automotive sector. Automotive sales have slumped in July and August in comparison to last year’s figures.

However, the sector is likely to remain adrift in terms of quota, at least until the rupee is able to halt its downward spiral, which was also the main reason why the restrictions were levied in the first place.