Skip to main content

India–Pakistan Trade: Perspectives from the Automobile Sector in Pakistan

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.

Keywords

  • Trade
  • Automobile
  • Non-tariff barriers
  • India
  • Pakistan

JEL Classification

  • F13
  • F14
  • F15
  • L11
  • L65

This is a preview of subscription content, access via your institution.

Buying options

Chapter
USD   29.95
Price excludes VAT (USA)
  • DOI: 10.1007/978-981-10-2215-9_5
  • Chapter length: 33 pages
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
eBook
USD   129.00
Price excludes VAT (USA)
  • ISBN: 978-981-10-2215-9
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
Softcover Book
USD   169.99
Price excludes VAT (USA)
Hardcover Book
USD   169.99
Price excludes VAT (USA)
Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8
Fig. 9
Fig. 10
Fig. 11

Notes

  1. 1.

    Updated from Jalil (2012).

  2. 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. 3.

    The EU countries mainly included Germany and Italy.

  4. 4.

    Deletion programme focused on progressively increasing the proportion of local parts in vehicle manufacturing.

  5. 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. 6.

    SRO 275 (I).

  7. 7.

    These consumer welfare gains are calculated only for products in the sensitive list.

  8. 8.

    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).

  9. 9.

    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

References

  • Ahmed, M. (2013a). Presentation on ‘auto policies in Pakistan compared to other countries’. Ministry of Industries and Production.

    Google Scholar 

  • Ahmed, M. (2013b). Report on ‘trade of industrial goods with India: Opportunities and challenges for Pakistan’. International Trade Centre.

    Google Scholar 

  • Ahmed, V., Batool, S., & Khan, S. (2013a). Pharmaceutical trade with India. India-Pakistan Trade Newsletter. December 2013. Indian Council for Research on International Economic Relations.

    Google Scholar 

  • Ahmed, M., Rehman, N., & Shahid, S. (2013b). Report on ‘normalization of trade with India: Opportunities and challenges for Pakistan’. Trade Development Authority of Pakistan.

    Google Scholar 

  • Ahmed, V., Suleri, A. Q., Wahab, A., & Javed, A. (2013c). Informal flow of merchandise from India: The case of Pakistan (Working Paper No. 141). Sustainable Development Policy Institute.

    Google Scholar 

  • Ahmed, M. (2013d). Expanding India-Pakistan Bilateral Trade in Goods. India-Pakistan Trade Newsletter. June 2013.

    Google Scholar 

  • Ahmed, V., Batool, S., & Bhatti, U. (2014). Pakistan’s trade with India: Case of auto sector in Pakistan. India-Pakistan Trade Newsletter. Indian Council for Research on International Economic Relations.

    Google Scholar 

  • Auto Industry Development Program. (2006). Ministry of industries, production and special initiatives. Government of Pakistan.

    Google Scholar 

  • Ceravegna, L. (2003). Global and regional integration of production in the Mercosur automotive value chains: The case of Fiat. Working Paper for the EADI Workshop Clusters and Value Chains in the North and in the Third World. Novara: The University of Eastern Piedmont.

    Google Scholar 

  • Chatterjee, B., & George, J. (2012). Consumers and economic co-operation: Cost of economic non-cooperation to consumers in South Asia. Jaipur, India: Consumer Unity and Trust Society (CUTS).

    Google Scholar 

  • Chow, P. (2012). Trade and industrial development in East Asia: Catching up or falling behind. United Kingdom: Edward Elgar Publishing Limited.

    CrossRef  Google Scholar 

  • Competition Commission of Pakistan (CCP). (2013). Competition impact assessment report on the automobile industry of Pakistan. Government of Pakistan.

    Google Scholar 

  • Engineering Development Board. (2013). Automobile industry of Pakistan.

    Google Scholar 

  • Federal Board of Revenue. (2013). Data of used car imports. Government of Pakistan.

    Google Scholar 

  • Foundry Review Magazine. (2013). Auto and auto components industry to reach $100 billion by 2020. Available at: http://www.mmronline.com/foundry-online/auto-and-auto-components-industry-to-reach-$100bn-by-2020.asp. Accessed March 3, 2014.

  • Friedman, J. (1983). Oligopoly theory. Cambridge University Press.

    Google Scholar 

  • Gopalan, S., Malik, A., & Reinert, K. (2013). The imperfect substitutes model in South Asia: Pakistan-India trade liberalization in the negative list. South Asia Economic Journal, 14(2).

    Google Scholar 

  • Hussain, I. 2011. Prospects and Challenges for Increasing India-Pakistan Trade. Atlantic Council.

    Google Scholar 

  • The Federation of Pakistan Chamber of Commerce and Industry. (2011). Summary of factors hindering Pakistan’s trade with India.

    Google Scholar 

  • India-Pakistan Trade. (2013). Website: http://indiapakistantrade.org/. Accessed September 16, 2013.

  • Institute of Public Policy. (IPP). (2013). The automotive sector in Pakistan.

    Google Scholar 

  • International Trade Centre. (2014). Trade Map. Website. Accessed September 16, 2013.

    Google Scholar 

  • Jalil, S. (2012). Pakistan industrial growth. Rawalpindi Chamber of Commerce and Industry.

    Google Scholar 

  • Japan International Co-operation Agency (JICA). (2011). Project for Automobile Industry Development Policy in the Islamic Republic of Pakistan.

    Google Scholar 

  • Khan, R. S., Yusuf, M., Bokhari, S., & Aziz, S. (2007). Quantifying informal trade between India and Pakistan. In Z. N. Fatima, et al. (Ed.), The Challenges and Potential of Pakistan-India Trade. The World Bank.

    Google Scholar 

  • Michaely, M. (1996). Trade preferential agreements in Latin America: An ex ante assessment (Policy Research Working Paper 1583). Washington, DC: The World Bank.

    Google Scholar 

  • Nayab, D. (2011). Estimating the middle class in Pakistan (Working Paper No. 77). Pakistan Institute of Development Economics.

    Google Scholar 

  • Pakistan Automotive Manufacturers Association. (2013). Website. Accessed December 22, 2014.

    Google Scholar 

  • Rafique, M. (2011). Effect of profitability & financial leverage on capital structure: A case of Pakistan’s automobile industry. Economics and Finance Review., 1(4), 50–58.

    Google Scholar 

  • Schiff, M. (2001). Will the real ‘Natural Trading Partner’ Please Stand up?’ Journal of Economic Integration, 16(2).

    Google Scholar 

  • Serin, V., & Civan, A. (2008). Revealed comparative advantage and competitiveness: A case study for Turkey towards the EU. Journal of Economic and Social Research, 10(2), 25–41.

    Google Scholar 

  • State Bank of Pakistan. (2007). Implications of liberalizing trade and investment with India: Industry specific opportunities and threats. Government of Pakistan.

    Google Scholar 

  • Trade Development Authority of Pakistan. (2012). Website. Accessed February 10, 2014.

    Google Scholar 

  • Upendra, R., Edirisuriya, P., & Swarup, A. (2012). Regional trade and economic integration: Analytical insights and policy options. Singapore: World Scientific Publishing.

    Google Scholar 

  • Veloso, F., & Kumar, R. (2002). The automotive supply chain: Global trends and Asian perspectives. Asian Development Bank.

    Google Scholar 

  • World Trade Organization. (2012). A practical guide to trade policy analysis. Available at: http://www.wto.org/english/res_e/publications_e/wto_unctad12_e.pdf. Accessed February 16, 2014.

Download references

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.

Disclaimer Opinions and recommendations in the paper are exclusively of the author(s) and not of any other individual or institution including ICRIER.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Vaqar Ahmed .

Editor information

Editors and Affiliations

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

Rights and permissions

Reprints and Permissions

Copyright information

© 2017 Indian Council for Research on International Economic Relations

About this chapter

Cite this chapter

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

Download citation

  • DOI: https://doi.org/10.1007/978-981-10-2215-9_5

  • Published:

  • Publisher Name: Springer, Singapore

  • Print ISBN: 978-981-10-2214-2

  • Online ISBN: 978-981-10-2215-9

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)