Automobile and auto component industries in India are in for another jolt, and a bigger one this time, if the revised Non Agriculture Market Access (Nama) Draft of WTO gets a go-ahead. After all, it will give developed countries far wider access to the developing nations. This in turn will mean a gush of cheaper goods into developing nations like India, hampering the growth of the automobile and the auto component industries.
According to the Automotive Component Manufacturer?s Association of India (Acma), the most damaging element that has crept into the Nama text is the proposal to severely constrain the selection of sensitive tariff lines under flexibilities. ?This so called anti-concentration clause reflected in paragraph 7(f) of the revised text will restrict the flexibility that the auto component industry had under the core mandate of the Doha Round, namely less than full reciprocity (LTFR) in reduction,? says Vishnu Mathur, executive director, Acma.
Under the LTFR principle, which was agreed in the July 2004 Frame-work Agreement and the Hong Kong Ministerial Declaration, industrialised countries are required to take bigger commitments than their developing counterparts.
?The revised Nama draft calls for a dramatic reduction in tariffs by developing countries. Instead, the Indian auto component industry wants the bound rate to be brought down from 40% to 20-25%, which is still higher than the applied rate that stands at around 7%,? says Mathur.
According to the Society of Indian Automobile Manufacturers? (Siam), there must not be any further reduction in the number of products in the sensitive list. ?The auto industry in India does not support any sectoral agreement in the automotive sector as it would mean bringing down the duties to 0% on a sectoral basis,? says Dilip Chenoy, director general, Siam, adding that the industry body is also against the linkage of the formula coefficients for cutting tariffs with the Nama flexibilities.
?If the sectoral tariff elimination programme, with sectoral initiatives for various sectors, including automotive and related parts, gets a green signal, it would mean cheaper import of finished products vis-?-vis import of raw materials and this would hit the auto component industry in India,? adds Mathur of Acma.
The auto component manufacturers in India are already facing tough competition from Thailand from where finished goods are imported at a lower rate. Hence, at times finished products in India are costlier that the ones imported and this leaves very little scope for Indian manufacturers to garner a significant market share.
Another glaring proposal in the revised text is to allow import of remanufactured goods into the country as new goods. Industry body Siam strongly opposes this proposal and any negotiations on remanufactured goods trade at WTO. ?The proposal to allow free trade in such products will lead to the flow of remanufactured/refurbished product from developed countries to poor developing countries, and not the other way round,? says Chenoy of Siam, adding that the industry body has written to the commerce ministry on the recent developments and is seeking the Centre?s support to maintain the original document of WTO.
Trade in used vehicle, under any name, is essentially the trans-boundary movement of waste of a country.
As such, countries should be free to decide how they want to treat different types of used products and not to be forced through a WTO mandate and such products should not be treated as new under any circumstance, Siam said in a statement.
According to Siam, the revised text also includes the Automotive Non Tariff Barriers (NTBs) proposal initiated by the US and EU, which refers to Global Automotive Industry Dialogue (Gaid). Despite Siam being part of Gaid, many of the Gaid points have not been included, it says. The industry body calls for consideration of the entire Gaid proposals for the elimination of NTBs.
All this has come at a time when the Indian automobile industry is reeling under the burden of continuous increase in raw material prices, increase in interest rates and lower availability of finance after major banks withdrew from the two-wheeler and commercial vehicle financing due to high delinquency.
?If the deal goes though, it will bring down the growth of the automobile as well as the component industry,? says an industry analyst. According to estimates, the auto component industry, which crossed a turnover of $18 billion in 2007-08 at a compound annual growth rate (CAGR) of 27.2%, is expected to grow at a CAGR of 10.5% till 2015 and touch a turnover of $40 billion.
The WTO has decided to hold on July 21 the crucial ministerial meeting (the highest decision making body of the WTO) to successfully conclude the seven-year-old Doha Round talks as soon as possible.
WTO director general Pascal Lamy and the US has been mounting pressure on holding the WTO ministerial meeting to seal the deal during the tenure of US President George W Bush. But India, along with other developing countries like South Africa and Argentina, which are fiercely opposing the anti-concentration clause, have been insisting that it was important to first scrap the structural flaws in the world trade paradigm for the deal to be signed.
In 2001, the Doha Development Round was launched in the capital of Qatar. Since then, there have been ministerial meetings in Cancun (that broke down) and in Hong Kong, where a declaration was made on a commitment to open up world trade.
