Do not give in to EU pressure in FTA talks, it tells Govt.

The Society of Indian Automobile Manufacturers (SIAM), on Monday, said custom duties on fully imported cars and engines must not be lowered as was being proposed in the ongoing free trade negotiations between India and the European Union (EU), stating that such a step would severely damage the sector.

While releasing a ‘White Paper’ on the proposed India-EU Free Trade Agreement (FTA) and its possible implications on the automobile sector if it is included, SIAM said “it has to be avoided at all costs.’’

“Opening completely built units (CBUs) to imports/lowering import duties under the EU FTA is a retrograde step, and will have a long-term irreversible effect for the Indian economy, the auto industry and the consumer at large,” the paper said.

The list of tariff lines, comprising CBUs and engines, should be kept in the Negative List in all FTAs, it added.

“The government has consistently maintained this policy in all FTAs, including FTAs with Japan, ASEAN and South Korea. These items have also been identified in the Automotive Mission Plan 2006-16. We would like to reiterate that these tariff lines should be kept in the India’s Negative List under the India-EU FTA,” SIAM said.

Tariff reduction

SIAM further said the reduction of tariff on CBUs under the India-EU FTA would be a complete reversal of the policy of high tariffs to force investment, local manufacturing, local value addition and local employment.

“This will jeopardise the entire Automotive Mission Plan 2006-16 targets since already some manufacturers have started withholding investment because there is no clarity with respect to tariff reduction in this sector,” it added.

The industry body also pointed out that the EU was a declining market in terms of automotive exports, while India was a rapidly growing market. Therefore, the gains through this FTA would only be for the EU and not for India.

“SIAM is deeply concerned over the way the India-EU FTA negotiations are taking place. From the beginning of the negotiations, the EU had said that India-EU FTA cannot be concluded without auto CBUs being included in the FTA. India seems to have bowed down to this condition by the EU as it is still discussing with the EU despite such threat. It is understood that negotiations on reducing the import tariffs on auto CBUs are in an advanced stage,” SIAM said.

Besides, SIAM said India-EU FTA had become more dangerous with the introduction of the concept of ‘non-new goods’

“The EU is demanding that India cannot ‘apply to non-new goods requirements or other measures, including enforcement measures, which are more restrictive than to new goods. Non-new goods shall be understood to include notably used and re-manufactured goods,” it added. The auto industry body further claimed that India was under pressure to make offers to the EU on opening up of CBUs trade.

“There are talks of 50 per cent reduction of tariff on all cars from 60 per cent to 30 per cent and additionally a certain quota of cars (much more than what the EU is exporting today) that can be exported by the EU to India at a highly reduced duty of only 10-15 per cent.

“Talks are on for 10 per cent quota for large cars, which are defined in terms of more than 1,500cc cars! The EU is insisting on a roadmap for zero tariff regimes for all cars to ensure permanent opening up of the trade route with India,” it said.

In 2010-11, the EU exported around $3.4-billion worth of cars as CBUs and CKDs to India. On the other hand, India exported $1.7-billion worth of cars to Europe, SIAM said.

Imports of CBUs from the EU increased from 5,000 large cars in 2009-10 to 11,000 units in 2010-1, and imports of CKDs went up from 17,000 units in 2009-10 to 22,000 units in 2010-11.

However, during the same period, exports of India’s small cars have declined from almost three lakh units in 2009-10 to around 2.25 lakh units in 2010-11.

Scrappage scheme

Exports from India were also mainly as a result of the European scrappage scheme, which spiked export of Indian small cars to the EU in 2008-09 and 2009-10.

“The future potential of small car export from India to the EU is much less as this scrappage policy has since been discontinued by the EU,” SIAM said.

It further said, an FTA with the EU with reduced duties on auto CBUs “will be patently unfair to the auto manufacturers who have made huge investments in India for vehicle manufacturing, example, manufacturers from Japan, Korea, the U.S. as well as the Indian domestic manufacturers.’’

“The Japanese and Korean companies are already protesting against tariff reduction under the India-EU FTA, and are withholding investments. They have made India a manufacturing base and from a strong base they are today exporting to not only the EU but more than 100 other countries,” it added.