MUMBAI – After seven years and 16 rounds of negotiations, Indian auto makers remain skeptical of the benefits of a proposed free-trade agreement between India and the European Union.
Beset by stagnant or declining sales at home, the EU is avidly pursuing new export markets. The coalition wants only nominal duties imposed on vehicles it exports to India. But Indian auto makers say that would only increase the current trade imbalance in which EU exports total $3.4 billion and Indian exports are half that amount.
Granting concessions on duties also could strain India’s relationships with Japanese auto makers, which pay standard duties on completely built-up and complete-knocked-down vehicles they export to India under an FTA. Malaysia and Korea also export CBU and CKD kits at standard duty rates under separate FTAs with India.
The EU’s desire for concessionary rates is somewhat at odds with the large investments in Indian manufacturing plants auto makers such as Mercedes, Volkswagen and Renault have established. BMW plans to develop facilities in the country, but struggling PSA Peugeot Citroen has abandoned plans for a Rs40 billion ($740 million) project at Sanand in Gujarat.
Indian import duties on CBU vehicles costing $40,000 or more are 100%, which reaches 182% after surcharges are added. The government is leaning toward a concessional duty of 30% for imported used cars, but the EU demands a 10% rate for the first 300,000 units.
Asian auto makers have invested extensively in Indian production of sedans, hatchbacks and compact SUVs, and fear a potential flood of European vehicles into the country if the tariff burden is lightened.
“We will be at a disadvantage if these concessions are granted to the EU imports,” says
Jnaneswar Sen, vice president-Honda India.
Tariff concessions to auto makers may be only a small aspect of India-EU trade, but local investment and employment nevertheless would suffer, according to the Society of Indian Auto Manufacturers. “This kind of FTA is not the right way to go,” the group says in a recent report.
SIAM fears that once the proposed FTA is signed, it will be followed by a Bilateral Trade and Investment Agreement among 27 nations that would allow imports of auto components, also at a concessional duty.
The Indian auto makers’ arguments may be in vain. “(The) Indian industry can no longer continue to seek duty protection,” a government spokesman says.
Most of the European cars imported into India are luxury and super-luxury models from Germany’s BMW and Audi. Mercedes manufactures C-, E- and S-Class sedans in the country but imports higher-end models.
An FTA would lower the price of luxury imports drastically, however, says Maruti Suzuki Chairman R.C. Bhargava, “Cheaper EU super-luxuries may get cheaper, but they are just 1% of the Indian market.”
Negotiators are to meet again in June in efforts to hammer out an FTA with the EU, which in addition to automobiles would regulate trade in areas such as food, pharmaceuticals, textiles and intellectual property.
