"It is quite puzzling to drag India to the WTO on rules for import of automobile components when European Union (EU) companies in India are already taking advantage of the policy," an official at the Indian embassy in Brussels dealing with EU matters said.

The official said the rules, mandatorily requiring foreign car makers to sign a memorandum of understanding (MoU) with the directorate general of foreign trade (DGFT) to import automobile kits into the country, clearly complied with the WTO requirements.

The EC, which is the executive body of the 15-nation European Union, has asked for formal consultations through the Geneva based WTO with India over the rules arguing that they discriminated against foreignproducers.

Significantly, EC's announcement of the move to approach the WTO for formal consultations was made a day after the foreign ministers of the European Union rejected on Oct 5 a proposal to impose definitive anti-dumping duties for a five-year period of imports on unbleached cotton fabrics (UCF) from India and four other developing countries.

The official also expressed surprise over the timing of the move to approach WTO when officials of India and the European Union are due to meet in Brussels later this month for discussions on bilateral issues.

The Indo-EU sub-commission on trade and investment will be holding its next meeting on October 21.

The EC has objected to requirements forcing car makers investing in India to reach agreements, on a case by case basis, to use a minimum proportion of Indian-made components, and to export a certain proportion of what they manufacture.

The case is the latest in a series of challenges by Brussels to what it believes to be discriminatory policies inthe automobile sector, followed by countries including Indonesia, Brazil and Canada.

Several EU companies, including Mercedes Benz, Fiat and Peugeot have already established car assembly ventures in India in recent years.

Mercedes-Benz India is among the joint venture car manufacturing companies which have signed MoUs with DGFT undertaking obligations of foreign equity investment, export and indigenisation.

The German car maker plans to import vehicle parts and components worth $142 million by 1999-2000 and achieve foreign exchange neutrality by way of equivalent export of cars by 2001-2002.