By Mashood Khan, Auto Sector Expert & Engineering Manufacturing SME Representative

Karachi- Pakistan’s forthcoming Auto Policy presents an important opportunity to bridge the gap between economic research and industrial reality. Any successful policy must address the challenges faced by local engineering SMEs, particularly in the areas of localization, technology transfer, raw materials, affordable financing, research and development, and integration into global value chains.

On 19 August 2026, I had the opportunity to participate, as an auto sector expert and representative of engineering manufacturing SMEs, in a panel discussion organized by PIDE, bringing together economists, industry representatives, academia and development experts to discuss the proposed strategy for Pakistan’s new Auto Policy and evaluate the outcomes of previous automotive policies.

The panel included distinguished economists and experts, including Dr. Manzoor Ahmed, Dr. Rubina, Dr. Usman Qadir, Hamza Sadiq Khan of the World Bank, Yasir Ahmad of NUST, Aamir from the auto sector, and other participants. Such discussions are important because Pakistan needs an open and honest dialogue between those who design policies and those who work daily on the factory floor and within the industrial supply chain.

The most important question, in my view, is not simply where Pakistan’s automobile industry should go, but also:

Why have previous policies not delivered the expected level of localization, technology transfer and development of Pakistani vendors?

The Ground Reality Must Be Considered

Economists and policy experts have argued that the proposed National Tariff Policy (NTP) can ultimately benefit industry by increasing competition, reducing costs and improving efficiency. Competition and consumer choice are important, and Pakistan should certainly remain open to investment and technological development.

However, policy must also be tested against Pakistan’s actual industrial experience and national interest.

Over the past decade, Korean and Chinese automobile manufacturers have entered the Pakistani market under relatively favorable tariff arrangements, including approximately 25% tariff structures applicable to relevant CKD imports and new entrant arrangements. Yet, despite these incentives and the growth in the number of automobile brands, the expected level of localization, technology transfer and development of local auto-parts vendors has not been achieved in many cases.

This raises a fundamental question:

If favorable tariff arrangements over the past decade have not produced meaningful localization and vendor development, what evidence suggests that further tariff reductions will automatically create greater localization in the future?

We are not against tariff reform, competition or consumer choice. Our concern is the national interest of Pakistan. The real question is whether the National Tariff Policy will strengthen Pakistan’s productive capacity and industrial base or unintentionally encourage an economy based increasingly on imports and assembly.

Lower tariffs may increase competition and provide consumers with more choices. But they can also make imported components more attractive than locally manufactured parts. If importing becomes economically easier and cheaper than investing in Pakistani factories, tooling, machinery, technology and skilled workers, the incentive for OEMs to localize may become weaker rather than stronger.

As I stated during the discussion:

“If the existing tariff regime has not delivered meaningful localization over the last decade, why should Pakistan expect further tariff reductions to produce a different result?”

The Problem Is Not Only the Vendor—The Industrial Ecosystem Is Weak

PIDE’s observation that Pakistan’s automotive assembly remains significantly import-dependent and that local vendors have limited integration into global value chains is an important diagnosis. However, we must look deeper into the reasons.

The issue is not simply that Pakistani vendors are unable or unwilling to compete. The wider industrial ecosystem supporting them also needs to become stronger.

Pakistani engineering SMEs require:

⦁ Advanced manufacturing technology;
⦁ Competitive and reliable raw materials;
⦁ Research and development facilities;
⦁ Testing and validation infrastructure;
⦁ Affordable long term financing;
⦁ Tooling and die development support;
⦁ International quality certifications;
⦁ Technical and engineering training; and
⦁ Access to international buyers and global supply chains.

It is unrealistic to expect a local SME to compete directly with highly developed international supply chains without providing the industrial ecosystem necessary to make it competitive.

Therefore, instead of asking only, “Why are Pakistani vendors not globally competitive?”, policymakers should also ask:

“What has Pakistan done to make its vendors globally competitive?”

Tariff Rationalization Cannot Be Measured Only by Cheaper Imports

The National Tariff Policy should not be judged simply by whether imported products become cheaper.

Its success must also be measured by its impact on:

Investment → Manufacturing → Employment → Local Value Addition → Exports → Foreign Exchange

If a tariff policy reduces the cost of imports but discourages investment in local manufacturing, the country may gain short-term consumer benefits while losing long-term industrial capacity, employment and foreign exchange.

Pakistan has limited foreign exchange resources. Therefore, tariff reform must be linked with a broader industrial strategy that encourages domestic production where Pakistan has the capability and potential to develop competitive manufacturing.

Lessons from India and Thailand

Countries such as India and Thailand demonstrate that automotive supplier industries can gradually develop and integrate into regional and global value chains. Their progress was not achieved by tariff policy alone. It involved the development of domestic suppliers, engineering capabilities, local raw material industries, testing infrastructure, technology partnerships, quality standards and export-oriented production.

Pakistan can follow a similar path. Pakistani auto parts engineering have decades of experience and capabilities in sheet metal, plastics, rubber, interiors, electrical components and other engineering products. What they require is a consistent and predictable policy environment that rewards investment, localization, technology upgrading and exports.

The ultimate success of Pakistan’s forthcoming Auto Policy should not be measured only by the number of new brands or assembly plants.

It should be measured by how many Pakistani SMEs become stronger vendors, how much local value is created, how much technology is transferred, how many skilled jobs are generated, and how many Pakistani components enter export markets.

Pakistan should welcome foreign investment—but foreign investment must help build Pakistan’s industrial capacity.

The future vision should be clear:

“Made in Pakistan” must mean more than assembled in Pakistan.

The real success of Pakistan’s automobile policy will come when vehicles assembled in Pakistan carry a growing share of Pakistani engineering, Pakistani technology, Pakistani suppliers and Pakistani export value.