Automobile industry body SIAM today said custom duties on fully imported cars and engines must not be lowered as is being proposed in the ongoing free trade negotiations between India and EU, stating that such a step will severely damage the sector.
While releasing a 'White Paper' on the proposed India-EU FTA and its possible implications on the automobile sector if it's included, Society of Indian Automobile Manufacturers (SIAM) said "it has to be avoided at all cost".
"Opening the CBUs to imports/lowering import duties under the EU FTA is a retrograde step and will have a severely damaging and long term irreversible effect in several ways for the Indian economy, auto industry and consumer at large," the paper said.
The list of tariff lines, comprising completely built unit (CBU) and engines, should be kept in India's Negative List in all FTAs, it added.
"The Government of India has consistently maintained this policy in all FTAs, including FTAs with Japan, ASEAN, South Korea etc. These items have also been identified in the Automotive Mission Plan 2006-2016. We would like to reiterate that these tariff lines should be kept in India's Negative List under India-EU FTA," SIAM said.
SIAM further said reduction of tariff on CBUs under India-EU FTA will 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 2006-2016 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 EU is a declining market in terms of automotive exports, while India is a rapidly growing market. Therefore, the gains through this FTA will only be for EU and not for India.
"SIAM is deeply concerned with the way India-EU FTA negotiations are taking place. From the beginning of the negotiations, 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 EU as it is still discussing with 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 has become more dangerous with the introduction of the concept of 'Non-New Goods'.
"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 is under pressure to make offers to EU on opening up of CBUs trade.
"There are talks of 50% reduction of tariff of all cars from 60% to 30% and additionally a certain quota of cars (much more than what EU is exporting today) that can be exported by EU to India at a highly reduced duty of only 10-15%.
"Talks are on for 10% quota for large cars which are defined in terms of more than 1,500cc cars! 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, 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 EU increased from 5,000 large cars in 2009-10 to 11,000 units in 2010-11 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 3,00,000 units in 2009-10 to around 2,25,000 units in 2010-11.
Exports from India were also mainly as a result of the European scrappage scheme, which spiked export of Indian small cars to EU in 2008-09 and 2009-10.
"The future potential of small car export from India to EU is much less as this scrappage policy has since been discontinued by EU," SIAM said.
It further said, an FTA with 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, eg manufacturers from Japan, Korea, the US as well as the Indian domestic manufacturers".
"The Japanese and Korean companies are already protesting about tariff reduction under 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 EU but more than 100 other countries," it added.
