Auto industry fears tariff cut on FTA talks

The auto industry is leaving no stone unturned to express its disdain over the proposed tariff reduction under the India-European Union (EU) free trade agreement (FTA). However, the Ministry of Commerce and Industry is in no mood to relent as it believes that the industry should be ready for reduction in tariffs.

The ministry believes it is time the auto industry geared itself for tariff reduction in order to make India a truly international hub for manufacturing. 

“I have always maintained that an industry cannot become internationally competitive if it forever sits inside a tariff wall of 60-100 per cent, which is the case with the auto industry. Industrial tariffs in India have come down significantly from a level of 100-200 per cent in the 1990s. India can never be an industry leader in auto engineering. This is in the country’s best interest or we will miss the boat. And this is irrespective of any trade negotiation with any country,” Commerce Secretary Rahul Khullar told Business Standard.

Khullar, however, refused to divulge details on the state of negotiations currently underway with EU and the tariff lines offered by India.

The Society of Indian Automobile Manufacturers (SIAM) has raised serious concerns with the commerce and industry ministry over India’s offer to reduce the tariffs on automotive products in its negotiations with EU, complaining it would have an adverse impact on the Indian auto manufacturing sector.

“So far, in all other FTAs with Korea, Japan and Asean, there has been some reduction in tariffs on components and not on CBUs (completely built units). We want the status quo to be maintained in the FTA with EU too. We do not want this to be favourable only for the European countries and not the Japanese or the Koreans,” said SIAM Director General Vishnu Mathur.

CBUs currently attract an import duty of 110 per cent. However, industry stakeholders clarified that while the import duty levied on them amounted to around 60 per cent, the remaining levies were also applicable to domestic manufacturers.

Car makers such as Audi, Mercedes and BMW import CBUs to India. Other manufacturers like Maruti Suzuki (Grand Vitara), Hyundai (Santa Fe), Toyota (Fortuner) import sports utility vehicles into the country.

“India is one of the emerging markets and is growing stronger. It is better for us to have market access in India and not just Europe. Through the India-EU FTA, we are looking at various sectors in India which are important to us, such as cars, chemicals, machine tools and electric devices ,” Michael Pfeiffer, chief executive, Germany Trade and Invest — the foreign trade and inward investment agency of Germany.

The Confederation of Indian Industry (CII) has also shot off a strongly-worded letter to the commerce ministry, stating its discontent over the clandestine nature of the negotiations so far, also mentioning the issue of reduction of duties on certain tariff lines such as auto, chemicals and machine tools.

“The industry remains concerned about the exact provisions on the negotiations. There is a lack of transparency on the final draft,” said Pritam Banerjee, head (international policy and trade), CII.

According to a report published by Corporate Europe Observatory and India FDI Watch, as a result of tariff cuts in the EU-India FTA, the European Union’s impact assessments predict “significant production decrease” and job losses in India’s automobile and auto components sector due to increased imports from the EU. It has also forecast layoffs in the paper and electronics industries and a long-term decline in agricultural employment.

The draft FTA with the 27-nation economic bloc is expected to be ready by April-May, when both sides would announce their intent to sign the deal. After this, the agreement would be initiated by Commerce and Industry Minister Anand Sharma and EU Trade Commissioner Karel De Gucht. The agreement would be formally signed by early 2012 and implemented. 

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