Car duty block cleared; PM, EU chief to make trade announcement today

Written by Ronojoy Banerjee | Ronojoy Banerjee | Anandita Singh Mankotia | Timsy Jaipuria | New Delhi | Updated: Feb 10 2012, 07:45am hrs
The government is nearing an agreement with the European Union on the contentious issue of duty treatment of completely-built units of cars from the EU under the proposed bilateral investment and trade agreement (BITA). This follows a consensus reached domestically at a high-level meeting chaired by the Prime Ministers principal secretary Pulok Chatterjee on Wednesday evening.

Top government sources told FE that a common ground has been reached on the issue of automobiles. However, India and the EU are still negotiating the final contours on the areas surrounding government procurement, services and geographical indications (GI). This means the two sides are unlikely to reveal details of the trade pact on Friday when Prime Minister Manmohan Singh and European Commission President Jose Manuel Barroso address the media in the afternoon. After meeting commerce minister Anand Sharma, European Union trade commissioner Karel De Gucht said: Tomorrow, we will present our report.

The meeting was attended by commerce secretary Rahul Khullar, finance secretary RS Gujral, foreign secretary Ranjan Mathai and heavy industries secretary S Sundareshan.

The EU is Indias largest trading partner accounting for about 14% of the country's foreign trade. Indias trade volume with the EU stood at $91.3 billion during 2010-11. Negotiations for a BITA have been under way since June 2007.

Sources said the government reached a resolution on the import duty on EU cars after it conducted a reassessment of the impact on the industry. Apart from slashing the import duty to 30% from 60%, the government will also come out with a tariff rate quota which will attract a lower import duty on certain number of cars imported from the EU. A senior commerce ministry official said: All issues on automobiles have been resolved. He, however, refused to divulge any details of the final agreement.

Sources also point out that as per the EUs initial demand, they wanted import duty on finished cars to be entirely scrapped in lieu of relaxing norms on services. However, it is learnt that New Delhi refused to give in, arguing the government does not want to tinker drastically with import duties till 2016. This is because in 2006, the heavy industries ministry had drawn up a road map for the domestic automobile industry which sought to keep the existing duty structures intact till 2016. However, the automotive mission plan (AMP) is just a vision for the industry and is not binding upon the government.

We may look at the duty structure after 2016, the source said.

The duty cut proposal has always been staunchly opposed by the automobile industry. The main opposition has come from Japanese and South Korean car makers who want a similar dispensation in their respective free trade pacts with India.

While Maruti Suzuki chairman RC Bhargava has ruled out any significant impact on mass segment cars if import duties are reduced, South Korean rival Hyundai Motor India has come out strongly against giving any concession to EU car makers, terming it unfair. According to Arvind Saxena, director (sales & marketing) Hyundai Motor India, foreign manufacturers made investments in India as per

assurances given in the automotive plan. By changing the tariff structure, the government is confusing companies about their future investment plans, he said.

Former department of industrial policy and promotion secretary Ajay Dua said while India and EU should look at a speedy conclusion of the FTA for sustaining the interest of the two sides, the country must make a distinction between the luxury and mass-segment cars. We have laid out the broad framework for import duties on major commodities in the Comprehensive Economic Partnership Agreements (Cepa) with both South Korea and Japan. Since we have not given any concession to these countries in automobiles especially the non-luxury segment which is the bulk of the sector today, why should we make an exception for EU Dua asked.