The Japanese government has issued a stern warning to Pakistan regarding the alleged coercion of three of its prominent car manufacturing companies to export their vehicle variants, a move deemed as a violation of World Trade Organization (WTO) regulations, as per media reports.
Overview of Situation:
Operating under the names Indus Motor Company (Toyota), Honda Atlas Cars Pvt. Ltd, and Pak Suzuki Motors Limited, Japan’s key auto giants—Honda, Toyota, and Suzuki—hold a significant 75 to 80 percent share in Pakistan’s automotive market.
Policy Background:
Under the Auto Industry Development and Export Policy (AIDEP) 2021-26, it’s observed that most local manufacturers’ contract agreements are limited to the Pakistani market, potentially restricting export opportunities.
Moreover, Pakistan’s adherence to United Nations Economic Commission for Europe (UNECE) WP-29 standards presents an avenue for increased exports by ensuring compliance with international regulations.
Export Mandate:
To promote exports, OEM (Original Equipment Manufacturer) contracts are to be renegotiated to facilitate exports to target countries, positioning Pakistan as an export base for both auto-parts and vehicles. The AIDEP mandates a gradual increase in car exports, starting from 2 percent in 2022-23 to 10 percent by 2025-26.
Recent Developments:
The Special Investment Facilitation Council (SIFC) previously addressed the issue of zero car exports by Japanese companies, resulting in the suspension of their import quotas temporarily.
Subsequent negotiations between the car assemblers and relevant authorities have been ongoing, with Japan officially raising concerns at multiple levels.
Implications and Dispute Resolution:
While Japan alleges Pakistan’s actions violate WTO regulations, Pakistan maintains compliance. The dispute is anticipated to undergo bilateral discussions initially, with the potential escalation to WTO committees if unresolved. However, legal proceedings at the WTO could take up to a year to commence.
Challenges and Industry Demands:
OEMs argue that existing tariffs on Pakistani origin automotive parts, alongside the absence of Free Trade Agreements (FTAs), hinder competitiveness in exports.
Additionally, challenges such as limited local raw materials and right-hand drive vehicle constraints pose further obstacles. Industry proposals include zero-rated FTAs for auto parts and investments in local material industries.
The situation underscores the complex dynamics between Pakistan and Japan regarding automotive exports, with legal implications and industry demands shaping the discourse. Bilateral discussions remain pivotal in resolving the dispute while addressing underlying industry challenges for sustainable growth.
