The recent ruling by the World Trade Organization’s (WTO) highest appeals court, the Appellate Body, against the imposition of 25 per cent import duty on auto parts by China has come as a boost to Indian auto component manufacturers. These companies’ exports to China have been declining steadily.
Indian automakers stand to benefit from the move as any cut in the duty will make their products cheaper in the Chinese market.
“Auto ancillaries from India, like any other supplier elsewhere in the world, will have relatively freer access to the Chinese market, should the import duty be scaled down. The import duty is a trade barrier,” says Vishnu Mathur, executive director, Automotive Component Manufacturers Association of India (ACMA). Mathur says the benefit will come only if China accepts the ruling and reduces the duty. “China should not bring back the duty under a new name or a new policy. If that happens, other countries can retaliate against China,” he said.
China applies 10 per cent duty on all auto components imported into the country. Indian auto component manufacturers say this could be as high as 25 per cent if vehicles built in China do not have local components to the extent of 40 per cent. India charges 7.5per cent to 10 per cent duty on all auto component imports, including from China.
In the start of the decade, Indian auto ancillaries’ exports to China were more than the imports from that country. But that edge was short-lived. Imports of Chinese auto components surged at a CAGR (Compound Annual Growth Rate) of 113 per cent between 2003 and 2008, while Indian exports to China during the period grew at a CAGR of 17 per cent.
| CHANGING GEAR | ||
| Auto component exports from India to China | Chinese auto component imports into India | |
| 2002 - 03 | 69 | 47 |
| 2003 - 04 | 126 | 214 |
| 2004 - 05 | 128 | 371 |
| 2005 - 06 | 158 | 766 |
| 2006 - 07 | 113 | 1,376 |
| 2007 - 08 | 177 | 2,052 |
| Source: ACMA Figures in Rs crores | ||
Data with the Department of Commerce and the Export Import Data Bank reveal that imports of Chinese auto components have grown faster than imports from any other country. While Chinese auto parts like wheel rims and spokes constitute about 90 per cent of the overall imports in this segment, China’s share in other imported motorcycle accessories has grown from 10 per cent in 2006 to 29 per cent in 2007.
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Similarly, China’s share in the imported ball bearing market increased from 15 per cent to 23 per cent during the period. In the pistons segment for 1000 cc cars, its share zoomed from 0.1 per cent in 2006 to 21 per cent last year.
The story does not end here. Indian tyre companies have, over the past few years, faced the onslaught of cheaper truck and bus radial tyres from China. These products are cheaper than the local products by 25 per cent to 30 per cent and currently command 15 per cent share of the replacement market. “First they dump their products into our country at prices local manufacturers can’t match, thereby ensuring that the domestic industry is crippled. Once this has been achieved, they raise prices steeply, thus making a kill in the international market,” says AS Mehta, marketing director, JK Tyres.
ACMA’s study on Chinese companies’ competitiveness conducted about two years ago revealed 15-20 per cent cost advantage by Chinese auto component manufactures based in China. “But there is another 20 per cent hidden subsidy given to Chinese companies, which are not made available to Indian auto companies based in China,” said an automobile consultant.