Pakistan Nears Approval of New Auto Policy Amid Industry Divide Over Tariff Cuts

Pakistan’s long-awaited Auto Industry Development and Export Policy (AIDEP) 2026-31 is in the final stages of approval, but proposed import tariff reductions remain a major sticking point, with auto manufacturers warning they could hurt local production unless broader structural challenges are addressed first.

The new five-year policy, which will replace the previous framework that expired on June 30, aims to promote manufacturing, accelerate electric vehicle (EV) adoption, improve affordability, and gradually liberalise trade. However, the government has yet to release the draft policy, leaving uncertainty over how it will balance industry protection with trade reforms.

According to government officials, the draft has cleared one cabinet-level committee and is undergoing final review before approval. One committee, led by Power Minister Awais Leghari, is building consensus among stakeholders, while another chaired by Deputy Prime Minister Ishaq Dar is resolving remaining policy differences.

Minister of State for Industries and Production Haroon Akhtar Khan said the draft was prepared after extensive consultations with the auto sector and described it as a forward-looking policy designed to make Pakistan a competitive manufacturing hub for automobiles and auto parts.

The key dispute centres on tariffs. The government plans to gradually reduce import duties under its broader tariff reform agenda, while the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) argues that lowering tariffs before reducing domestic production costs would severely damage local manufacturers.

PAAPAM says Pakistan’s auto parts industry faces a 34% cost disadvantage compared with regional competitors due to imported raw materials, higher energy tariffs, elevated taxes, expensive financing, and lower production volumes. The association warns that reducing tariffs to 15% by 2031 without addressing these structural issues could undermine the domestic industry.

Manufacturers also argue that frequent policy shifts have prevented the industry from achieving economies of scale, while continued uncertainty over the new policy is delaying investment, capacity expansion, and technology upgrades.

The government says consultations are ongoing to strike a balance between consumer interests, industrial development, EV adoption, emissions reduction, and trade policy. However, industry representatives maintain that final approval has not yet been communicated and are urging the government to provide policy clarity to restore investor confidence.

Industry leaders have also called for the new framework to place greater emphasis on localisation, technology transfer, and strengthening Pakistan’s domestic auto parts sector, while analysts have questioned whether recent EV tax incentives disproportionately favour higher-income consumers over buyers of affordable vehicles.