Key facts
- Pakistan's updated auto policy requires carmakers manufacturing in the country to export 12% of all vehicles by value.
- Japan alleges Pakistan's export-linked policies violate WTO regulations.
- Honda, Toyota, and Suzuki hold a significant 75-80% share in Pakistan's automotive market.
- The new policy draft aims for localization of complex vehicle parts like engines and transmissions.
- The policy proposes reducing tariffs on finished vehicles to potentially lower car prices and boost competition.
Pakistan's updated auto policy is poised to reignite a dispute with Japan at the World Trade Organization, as it retains rules requiring car manufacturers to export 12% of all vehicles by value. These rules, which also link export performance to licensing and concessions on imported vehicle parts, have previously drawn criticism from Tokyo.
Japanese automakers, including Honda, Toyota, and Suzuki, which collectively hold a 75-80% share in Pakistan's automotive market, have been warned by the Japanese government about these alleged coercive export mandates. Japan contends that these policies violate WTO regulations.
The Auto Industry Development and Export Policy (AIDEP) 2021-26 initially mandated a gradual increase in car exports, starting from 2% in 2022-23 to 10% by 2025-26. The Special Investment Facilitation Council (SIFC) had previously intervened by temporarily suspending import quotas for Japanese companies due to a lack of exports.
Industry stakeholders, including Original Equipment Manufacturers (OEMs), argue that existing tariffs on Pakistani automotive parts and the absence of Free Trade Agreements (FTAs) hinder their export competitiveness. They have proposed zero-rated FTAs for auto parts and investments in local material industries.
The draft for the upcoming Auto Industry Development and Export Policy (AIDEP) 2026-31, reportedly developed in alignment with IMF-backed liberalization, aims to shift focus from assembly to the manufacturing of complex parts like engines and transmissions. It also proposes reducing tariffs on finished vehicles to 15% to encourage competition and potentially lower car prices. However, challenges such as high energy costs for local industries compared to regional competitors like India and China remain significant obstacles to achieving high-tech localization.