Institute of Development and Economic Alternatives (IDEAS) Selection No. 1131805 Regional Competitiveness Studies: Research Study on the Auto Sector Draft Report Vendor ID: 152115 Prepared for: The World Bank August 4, 2016 Faisal Bari Nazish Afraz Nadia Mukhtar Usman Khan Syed Turab Hussain Umbreen Fatima Table of Contents List of Acronyms ..................................................................................................................................... iv List of Figures ........................................................................................................................................ vii List of Tables .......................................................................................................................................... xi Executive Summary ............................................................................................................................... xv 1 Overview of the auto sector ............................................................................................................. 1 1.1 Auto industry of Pakistan: A brief history ................................................................................. 1 1.2 A snapshot of the global auto industry ..................................................................................... 2 1.3 Policy framework ....................................................................................................................... 4 1.3.1 Auto Policy.......................................................................................................................... 4 1.3.2 Trade Policy ........................................................................................................................ 9 1.3.3 Tariff framework .............................................................................................................. 11 1.3.4 Investment policies .......................................................................................................... 27 1.4 Standards ................................................................................................................................. 31 2 Cars ................................................................................................................................................. 33 2.1 Market structure ..................................................................................................................... 33 2.1.1 A snapshot of the passenger car industry ........................................................................ 33 2.1.2 Market shares................................................................................................................... 35 2.1.3 Sales Volumes................................................................................................................... 41 2.1.4 Regional price comparisons ............................................................................................. 43 2.2 Trade Potential ........................................................................................................................ 46 2.3 Sector Impediments ................................................................................................................ 49 3 Motorcycles .................................................................................................................................... 51 3.1 Market structure ..................................................................................................................... 51 3.1.1 Increasing volumes and variety ........................................................................................ 52 3.1.2 Large number of competitors .......................................................................................... 53 3.1.3 Capacity utilization ........................................................................................................... 56 3.1.4 Localization and development of the vending chain ....................................................... 60 3.1.5 70 cc dominated market .................................................................................................. 60 3.1.6 Current Exports ................................................................................................................ 63 3.2 Policy environment .................................................................................................................. 64 3.2.1 Trade tariffs and policies .................................................................................................. 64 3.2.2 Standards.......................................................................................................................... 65 3.3 Regional Trade ......................................................................................................................... 65 i 3.3.1 Trade potential ................................................................................................................. 65 3.4 Sector Impediments ................................................................................................................ 69 4 Tractors ........................................................................................................................................... 72 4.1 Market Structure ..................................................................................................................... 72 4.1.1 Production ........................................................................................................................ 73 4.1.2 Localization ....................................................................................................................... 75 4.1.3 Licensing ........................................................................................................................... 76 4.1.4 Market shares................................................................................................................... 76 4.1.5 Sales Volume .................................................................................................................... 78 4.1.6 Regional comparison ........................................................................................................ 79 4.2 Policy environment .................................................................................................................. 83 4.2.1 Trade tariffs and policies .................................................................................................. 83 4.2.2 Other taxes and investment policies ................................................................................ 85 4.2.3 Standards.......................................................................................................................... 86 4.3 Regional Trade ......................................................................................................................... 89 4.3.1 Trade potential ................................................................................................................. 89 4.4 Trade challenges ...................................................................................................................... 93 4.5 Sector Impediments ................................................................................................................ 94 5 Auto parts ....................................................................................................................................... 97 5.1 Market structure ..................................................................................................................... 97 5.1.1 Competitiveness ............................................................................................................... 99 5.1.2 Licensing ........................................................................................................................... 99 5.1.3 Financing ........................................................................................................................ 100 5.1.4 Exports ............................................................................................................................ 100 5.2 Policy environment ................................................................................................................ 101 5.2.1 Trade tariffs and policies ................................................................................................ 101 5.2.2 Standards........................................................................................................................ 107 5.3 Regional Trade ....................................................................................................................... 108 5.3.1 Trade potential ............................................................................................................... 108 5.4 Sector Impediments .............................................................................................................. 123 6 Regional Policy Comparison ......................................................................................................... 126 6.1 Production and Trade ............................................................................................................ 126 6.2 Auto trade policy environment – a regional comparison ..................................................... 129 6.2.1 MFN Tariffs ....................................................................................................................