Indo, Pak auto parts makers join hands to boost trade - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Tuesday 26 August 2014

Indo, Pak auto parts makers join hands to boost trade

Bilateral dialogue on hold, LoC aflame, but door opens for auto trade
By Ajai Shukla
Business Standard, 27th Aug 14

With the Indo-Pak dialogue in tatters and both armies exchanging fire across the Line of Control, an unexpected opportunity has emerged for boosting trade between the two countries.

The automotive sector has long presented hurdles to the liberalisation of trade, since the Pakistani automotive industry fears being swamped by their world-class Indian counterparts.

Yet, at Lahore, on Aug 22, manufacturing associations from the two countries signed a Memorandum of Understanding (MoU) that opens the doors for liberalising trade in this sector.

The meeting at Lahore, organised by the Indian Council for Research on International Economic Relations (ICRIER), brought together participants from Automotive Component Manufacturers Association of India (ACMA) and the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM).  

One challenge in trade negotiations has been to whittle down Pakistan’s negative list of 1,209 items that cannot be imported from India.  Automotive components, comprising of 385 items, constitute the largest share of these. 

To allay Pakistani apprehensions, ICRIER conducted a study to identify automotive items on the negative list where the country would face serious competition from India. To everyone’s surprise, the ICRIER study found that Pakistan would face serious competition in only 35 automotive items. Of these, 30 would enjoy protection even if the negative list were abandoned, since they fall under Pakistan’s sensitive list under the South Asian Free Trade Agreement (SAFTA).

“That really set the Pakistani side thinking. Pakistani automotive industrialists have always seen the advantage of integrating their industries with India’s global supply chain of automotive parts,” recounts Nisha Taneja, ICRIER’s points person on Indo-Pak trade and a key interlocutor between Indian and Pakistani industry and commerce ministries.

Taneja says that Pakistani automotive manufacturers have noted that the auto industries of India are setting up shop in Gujarat, and will inevitably find their way to Punjab, creating the possibility of integrated supply chains across the Wagah border. Proximity would make an already strong case for partnership into an overwhelming one.

ACMA and PAAPAM are planning their next meeting in India in October/November. The two associations are also considering the viability of setting up testing facilities in Pakistan and working together on skills development. They are also establishing a regular program of discussion and meetings, and industrialist-to-industrialist contact.

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