DG VALUATION DRAFT

LEGAL FORUM OF APMA SUBMITTED A DRAFT LETTER FOR CORRECTION IN VALUATION TO THE Directorate General of Customs valuation, Custom House Karachi


Reff: Letter No. DG (V) VAL.REV/247/2009/121 dated: January 18, 2010 DG VALUTION CUSTOM HOUSE KARACHI

Subject Issue 1-A Review against Valuation the Components of Japanese motorcycle for assembling manufacturing of Japanese motorcycles (Imported from Japan, China, Taiwan and Thailand by HONDA, YAMAHA & SUZUKI suppliers).

Subject Issue 1-B Review against Valuation the Components of Chinese clones motorcycle for assembling manufacturing of local Chinese motorcycle and for replacement market. (Imported from China only by common Chinese suppliers)

Subject Issue 1-C Review against Valuation the Components, sub components and assemblies, subassemblies by vendors under SRO 655 for assembling of local Chinese and Japanese motorcycle components for OEM’s.(Imported on 5 to 10% rate of duty as same parts also imported by local OEM’s and commercial importers on @ 35 to 47.5 % rate of duty in their CKD kits ).

D.G Valuation through departmental letter No. DG (V) VAL.REV/247/2009/121 dated: January 18, 2010. APMA wrote a letter for D.G’s support to take personal notice for the equitable and comprehensive solution of this conspiracy taking place at the level of custom officials. Moreover we suggest that differentiate the valuation of motorcycle parts imported as branded (HONDA, YAMAHA, and SUZUKI), non branded (Common Chinese suppliers) and for vendor (Import branded & non branded auto parts in dismantle condition to Assemble parts for Japanese & Chinese auto Industry) must have to be signified.

in comparison to that in our friendly country china, a number of motorcycle parts manufacturing companies are producing at low cost with higher quality comparable with Japanese motorcycle parts and exporting in the world and costing up to 80% lesser from Japanese under licensed part. It ends result the number of local Chinese motorcycle industry also establishes in Pakistan.

But unfortunately, here in Pakistan due to the monopoly of some Japanese companies and the intervention in the custom department, the import values Chinese clones parts is being charged four time higher over the true transactional values of hundred’s of Chinese clones motorcycle parts importer of Pakistan, which is extremely and totally unfair and contrary to justice.

Custom department did not accept the import value of the Chinese clones’ motorcycle parts and charge the duty as per the cost of Japanese motorcycle parts. The main reason of it is the intervention and undue influence of some local companies which are involved in the manufacturing of Japanese motorcycle among them Honda, Yamaha and Suzuki are noticeable who are misguiding the custom officials by providing them wrong information. Only because, these companies desire to hold the monopolistic position and they cannot compete with the cost and the standard of the imports from China.

Now, based on a false allegation by a Japanese bike assembler, the whole industry was suffering and it may result in closure of various factories and industries. Further, it would also discourage foreign investment because of wrong evaluation of motorcycle parts by the Customs Department, the association maintained.

Who will use his power of proclamation to restore the newly established local Chinese motorcycle industry through the fair practice by all as per fact & figure. In this regard we would like to explain you the issues of this industry and due to this the cold war ongoing by Atlas Honda through false allegation to government different department especially to custom valuation department instead of competition in market to deny the real issue.




The Basic Issue:
Japanese motorcycles such as Honda, Yamaha, Suzuki, and Kawasaki was popular in Middle East Asia including Pakistan that is attractive market for motorcycle industry. For example, word "Suzuki & Honda" was used as synonym of motorcycle in Pakistan. To have a Honda "CD-70 & CG-125" is seen was as a good investment for your money. However, Chinese manufacturers have made most motorcycles in china that have alike trademark of Japanese manufacturers. These are imitation by Chinese manufacturers. In the beginning of 1990's, these imitations were found only in Chinese market. Chinese manufacturers have registered old model of Japanese motorcycles of Japanese manufacturers to their authority to sell their imitation at Chinese & international market legally. Therefore, Japanese manufacturers have endured this situation since they thought it was beyond their control. By the late 1990's, Chinese manufacturers have begun to export their products to Southeast Asian market including Pakistan. This incident have changed attitude of Japanese manufacturers. They have decided to fight against imitation to maintain their share of Middle East Asian markets especially in Pakistan.
2. Description:
Elimination of imitation of Japanese motorcycle (Chinese Clones Motorcycle) is not only for profit of Japanese manufacturers but also for basic foundation of global free trade in East and Middle East Asia. Free trade led by WTO allows participants to compete freely in global market. China and countries in Middle East Asia including Pakistan have advantage in global competition because of cheap labor and abundance of natural resource. As many local Chinese motorcycles assembler enters in international market and successfully exported “Made in Pakistan Motorcycles.
There are reasons why Chinese Motorcycle is so popular in this region especially in Pakistan. In case of motorcycle, consumers in this region do not have enough money to buy pure Japanese motorcycle. Therefore, they usually buy Local Chinese manufactured motorcycle since price is less than half of Japanese motorcycle. Important point we need to keep in mind is that consumers know those products are imitation. They also know that qualities of most of those motorcycles are good as Japanese products. However, there is no problem for them if design and quality of motorcycle fulfill their minimum standards. Thus, consumers' low moral accelerate the spread of Local Chinese Motorcycle.
At the begriming, imitation produced by Chinese manufacturers copied only designs or trademark of Japanese motorcycle. However, complete copy of Japanese motorcycle by Chinese manufacturer has appeared in the market as time goes by. Moreover, Japanese engineers were surprised for its quality since there is no difference between those new copies and genuine Japanese products including engine design. Therefore, Honda has made strategic alliance in china with Chinese manufacturers producing copies instead of fighting at the court but in Pakistan Atlas Honda denied the fact and don’t want compete in market and for this Atlas Group misusing there position to create the problems by the government department especially by the Pakistan Customs Valuation Department.



Imitation of product is not limited in this region. Manufacturers in Japan also imitate American products after World War II. However, they imitate basic structure and engine in case of motorcycle.
It is true that few years ago motorcycles manufacturing was dream but now after great efforts of private ventures and support of Chinese clones motorcycles manufacturers in this region this dream come true. It is efforts of the entrepreneurs to provide enabling atmosphere for rapid growth of the sector. The increase in production and sale of the motorcycles has also stepped up economic activity and created employment opportunities and automotive / engineering industry is work as back bone of Pakistan’s economy.
During the year 2001/2002 Pakistan’s motorcycle population was accounts for about 10 percent of the demand of motorcycle fleet in the country but now Motorcycle manufacturing, is growing very fast due to many private ventures established in all over the country instead of three joint ventures. It, too, is growing rapidly, despite many problems facing by private ventures such as the newly introduced annually certification systems by EDB (engineering development board), license by PSQCA (Pakistan standard and quality authority) yearly audit by different department, badly delay and on higher value of clearance of CKD kits by Pakistan customs and again n again stop of registration of motorcycles assembled of private ventures of Pakistan by Excise & taxation Depart.
There were only three 3 motorcycle manufacturing plants operating in Pakistan in 2000 and were producing the less then 120000 units and price of motorcycles was Rs.70000 to Rs.80000 which was unaffordable for common man but now Taken together more then 65, the all are responsible for over 70 percent of the country’s demand and now producing the more then 850000 units in a year and price of motorcycles is about Rs.32000 to 39000. Most motor cycles manufacturing occurs in Karachi, Hyderabad, Hub, Multan, Lahore and Gujranwala are providing the direct and indirect employment and generating the huge revenues in the shape of Custom duties, sales tax, income tax ,Federal excise tax and many indirect tax
Because the number of motor cycles in Pakistan has only recently begun to expand, transportation accounts for less than 47 percent of the country's total requirements and demand & supply still have big gap but due to unnecessary restrictions by EDB and other department, the private ventures are failed to introduce new models ,new design, new products and increase of production which should caused the increase of prices of motorcycles and black marketing of motorcycles as previously did in locally assembled cars.
We all APMA members would like to notify you that Pakistani made motorcycles assembling cum manufacturing is newly established industrial sector since 2003 but till today our most moment spend to fulfill the requirements of EDB, PSQCA, Excise & Taxation department for approvals and revalidation of certificates & CM-license of assembling / manufacturing of motorcycles and clearance of components which is badly delayed by Customs department due to unsettled valuation of Chinese clones motorcycle parts instead of to make efforts in development of new products , increase in production of existing product, marketing of our products and make efforts in export of MADE IN PAKISTAN motorcycles to neighboring markets such as Sri Lanka, Nepal, Bangladesh and Afghanistan as these countries are importing motorcycles from China , Thailand and India.








3. APMA expresses concern over customs strategy on behalf of Atlas Honda.

Chinese bike makers were of the view that local motorcycle makers under various Japanese brands had only one target to create their monopoly by way of driving other competitors out of the market.

In the past (before the arrival of Chinese bikes) the Japanese bike makers had literally fleeced the consumers by charging higher prices of their choices as there was no competition in the market. With the arrival of Chinese bike, they had cut down the prices significantly which meant they were overcharging the consumers. It was a dire need to allow Chinese bike makers to survive in the market in a competitive business environment.

Chinese bike makers had taken up the case with the Customs Department of Karachi and Hyderabad which after assessing the situation refused to charged higher declared value on CKD imports as they thought that they could not act on the complaint lodged by a single Japanese bike maker (Atlas Honda Ltd).

The Association of Pakistan Motorcycle Assemblers (APMA) of Chinese bike makers had written a letter to the Chairman Central Board of Revenue (CBR) Abdullah Yousuf on October 18, 2006 urging him to issue orders to the collect orates to evaluate the CKD on their true transactional values by the Chinese bike makers but no action taken by Ex-Chairman CBR due to forcefully intervention of Atlas Honda.

The association said that huge quantities of motorcycle parts were being brought in by different importers and manufacturers-cum-assemblers as CKD. “Every importer and assembler has different specifications and qualities of the motorcycle parts they import, hence the prices, which they pay to their principals, are also different,” it elaborated.

The association had submitted a list to the Ex-CBR chief showing current higher valuation on parts by the Customs as per recommendation of Atlas Honda and three other customs values (branded, non branded and direct vendor purchase value).

It said that these prices could be verified by the Commercial Attaché of Pakistan High commission in China. However, the Customs officials were assessing the CKD on almost four times of the actual prices of the components, because of valuation advice issued on complaint of Japanese bike maker as per their transactional values instead to converse with Chinese clones motorcycle makers.

The association said the Chinese bike makers were responsible for rapid growth in the local bike industry as they were offering bikes at Rs35000 as compared to Japanese make at Rs64, 000.
4. SUMMARY
There are two kind of OEM’s first one are the Japanese joint ventures, manufacturing Japanese motorcycles with Japanese components and second one are the private ventures those manufactured the local Chinese clones with Chinese clones parts and the imported parts from china are same as imported for replacement market by hundreds of commercial importer of Pakistan so there is no difference the import of parts for replacement market or for Chinese clones motorcycle assembling. But the imported parts by Atlas Honda, Yamaha, and Suzuki are branded by manufacturers of Japanese motorcycles components.


The CKD kits or spare parts borrowing of Joint ventures such as HONDA, YAMAHA & SUZUKI of design or technology was actually done under license, the Japanese motorcycle industry and it is more interesting in light of the fact that HONDA is having so much trouble now with copied designs in China. The one difference, of course, is that China has been turning out enormous numbers of motorcycles for some time, they’re not exactly a fledgling industry trying to get started so if they want to compare Japan’s route to the motorcycle business with their own, I think the time for that justification is past.
5. APMA stipulate by Ministry of Revenue, industries & Commerce;
5-(i) The fair transactional values of imported parts should be decided through available data by Pakistan customs and in consultation with majority of OEM’s instead of single OEM’s who suggesting unjustified very high value of parts for their own motives instead of true transactional values. Implement the True transactional values of importable Parts with classification of raw material and the supplier. This is in the interest of protecting the country’s Foreign Exchange reserves because some peoples are over invoicing through imports to transfer huge amounts in their foreign bank accounts as this was common practice by multinational organization.
5-(ii) Government did not announce any policy for newly established small and medium motorcycle assembling cum manufacturing units in all over Pakistan. There is need for the limitation of Engineering Development Board’s role from motorcycle sector after approvals of any new motorcycle manufacturing setup because this role is a hurdle for small and medium motorcycle industry for making again and again lengthy paper work. The role of EDB for approvals of new setup is consistent. But after the induction of Tariff Base System by the Government for auto sector the role of EDB should be removed on the operational units. However, this institution is still working as unnecessary monitoring agency and creating hurdles for the industry instead of supporting & developing organization for this new industrial sector.
5(iii) SRO 656 dated June 22, 2006, SRO 496 dated June 9, 2007 and 490(I)/2009 dated June 13, 2009 is not in the favor of newly established motorcycle industry. These SRO’s favoring only joint ventures / largest producing units. Permission from PSQCA, Excise and Taxation Departments of all provinces and registration with sales tax department (CBR) should be enough for the running of motorcycle industry. Ministry of industries & Commerce must organize a committee to resolve the issues of the industry.

5(iv) SRO 655 is also allow to take benefit to all OEM’s as allow to all vendors to import auto parts in dismantle condition on concessionary rate of duty to pass through the parts to the real beneficiaries (Japanese & Local Chinese Motorcycle Assembler).

5(v) Introduce the speedy clearance system and allow immediate clearance on cooperate guarantee if any dispute because the cost of the imported goods had escalated due to the expenditure incurred on delay detention and hefty amounts paid as demurrage.

6. Use of two clearing systems:

It was observed that the government separate units “PRAL One Custom system” and Customs Administrative Reform (CARE) also assessing the Chinese clones components on different formulas such as CARE have




assessment by weight only and One custom by unit price of components as has described in one of old, disputed and unjustified valuation advice of motorcycle parts and without finding the facts, origin, quality and supplier imported from Japan, Far East and China which is contrary of justice.

Further an occasional discrepancy in valuation of identical goods cleared from north and south cities of Pakistan was another area of concern for traders. According to them, there have been instances where identical goods cleared from Karachi were assessed at a value different than at Haiderabad, Lahore and other dry ports due to lack of networking among the collect orates.

Similarly, the FBR should provide adequate computerization of the functions of the customs valuation department for unified valuation of Chinese parts in both “PRAL One Custom system” and Customs Administrative Reform (CARE) as it cause the huge loss of newly established local Chinese motorcycle industry of Pakistan in the shape of heavy custom duties charge on our imported unbranded components on very high value i.e. 200% higher of on our true transactional value to denied the impact of custom duty @ 47.5% already high duty and the influence of duty on our imports from 47.5 % to 200%. It was also contended that since prices of raw materials in the international market had fallen drastically, the values determined earlier needed to be revised.

In fact, valuation of parts should be determined with reference to the vehicles International Japanese brand or Local unbranded Chinese Clones in which the same are intended to be used. Further the cost of the imported goods had escalate due to the expenditure incurred on delay detention and hefty amounts paid as demurrage due to forcefully assessment on high values of local Chinese motorcycle parts is a trade restricting condition which is against the international trade law being implemented under the WTO regime and that the prices of metal / material have been internationally reduced / changed.