India-Germany ties : need to remove hiccups

Written by ASHOK B SHARMA | New Delhi | Updated: Oct 16 2010, 21:12pm hrs
One country in Europe with which India can have greater economic and strategic cooperation is Germany. Indias largest trading partner in Europe is Germany and Germany ranked 8th in the share of the inflow of foreign direct investment (FDI) to India in the period April 2000 to June 2010 amounting to $2.84 billion.

The bilateral trade amounted to about $15,717 million in 2009-10. During the visit of the German Chancellor Angela Merkel in 2007, both sides set a trade target of Euro 20 billion to be achieved by 2012. The 17th session of the India-German Joint Commission on Industrial and Economic Cooperation (IGJC-IEC) met in New Delhi on September 23, 2010 and drew up further areas of cooperation between the two countries.

Chancellor Merkel is expected to visit India early next year. As gestures of goodwill it has been announced celebration of the Year of Germany in India in 2011-12 and the Year of India in Germany in 2012-13. There are, however, several irritants in the way of closer cooperation between the two countries and both sides are busy working to remove them.

Sectors like services, chemicals other than fertilizers, automobiles, trading and electrical equipment have attracted FDI equity flows from Germany and top investing German companies were MHM Holding GMBH, DKY INIL Health Holding, Allieanz SE, Metro Cash & Carry International GMBH, Alliaz SE, Oil Tanking India GMBH, Deeree and Co, Lanxess Deutschland GMBH, Deutch Boarse AG, Thyssenkrupp Electrical Steel EBG. The Indian side wants closer cooperation in small and medium sized industries.

The German side want to sort out the problems arising out of transfer pricing and Postal Bill.

Indians are required to obtain a permit to work in Germany. Immigration rules are often unclear and seem to be arbitrary. The process, requirement and time taken varies from region to region. In some cases, consultants hired from India had to leave midway because the process to extend their visas took inordinately longer period than expected. Obtaining a business visa to Germany for long-term, say one year is very difficult. Businessmen have to apply for visa for each visit. A large number of documents have to be submitted each time which results in loss of time and is more expensive. The Indian side, therefore, wants the German visa regime to be smoothened.

Under the Double Taxation Avoidance Agreement (DTAA) between the two sides notified on November 29, 1996, both sides are permitted to exchange information on a confidential basis for use for tax purposes only, under Article 26 of the DTAA read with paragraph 7 of the Protocol. The Indian side has proposed re-negotiation of Article 26 (exchange of information) of DTAA to enable wider disclosure of information. The German side has, however, raised concerns over India proposing deletion of the provision of secrecy as set out in paragraph 2 of the Article 26 of OECD Model Convention. The German side has proposed insertion of a new Article on assistance in the collection of taxes.

Germany alongwith some European countries have jointly opposed Indias new directives on telecom security saying such requirements, which are unprecedented internationally, are very likely to be commercial deterrents for global ICT companies.

Indias directive issued in March 2010 has made it mandatory for all telecom players to get security clearances for procuring telecom equipment or software from foreign vendors within 30 working days. It has also made mandatory for equipment vendors to transfer technology to Indian manufacturers within three years of selling machines to any operator. The service providers must ensure that their networks are entirely operated and maintained by Indian engineers with minimum or nil dependence on foreign engineers within a period of two years from the date of purchase after security clearance.

Another directive issued by the Indian department of telecommunications (DoT) in July 2010 is for amendment to the Unified Access Service (UAS) License Agreement for security-related concerns. These guidelines made it mandatory for equipment suppliers to share the software source code and design details to address security-related concerns. This new security condition clause of UAS license agreement has put complete onus on telecom companies for any kind of security breach arising out of their network.

As part of the amendment, the operators will have to form a policy on security and submit it to the DoT within 30 days. The DoT has also asked the telecom operators to involve internationally accredited security audit firms in the import of the telecom gear and it said it would publish a list of these security audit firms. The operator will be fined Rs 50 crore plus the value of the purchase order if any security glitch is found in its network. An additional 100% of contract value shall be levied in the case of security breach of any manner that will be found in network of telecom service providers. Under these new norms, vendor or supplier of the telecom equipment will have to allow DoT or its designated agency to inspect hardware, software, design, development, manufacturing facility and supply chain.

All software that are to be used in telecom network will have to undergo security check at the time of procurement of equipment and at least one more time in the year of procurement and every two years thereafter. The expenditure incurred in all these cases up to 40 man days will have to be borne by the service provider or the vendor.

Likewise Indian chemical industry has expressed its concerns over the EU legislation on Registration, Evaluation and Authorisation of Chemicals (REACH). The burden of proof is shifted from authorities to the industry. The industry becomes responsible for safety of products. The registration requires a manufacturer to notify the authorities with data on properties, toxicity. Under evaluation, the data shall be carefully examined by the authorities. Under authorization, for substances of very high concern, authorities will have to give specific permission for use of such substances.

The Indian chemical industry feels that the EU legislation, REACH will have far reaching implications on them and will result in the reduction of its export competitiveness. It would act as a potential trade barrier. Indian chemical industry in the small and medium sized sectors will find difficult to register their products in EU agency due to high cost of registration amounting to Rs 100,000.

In this context, Indian government has proposed collaboration in R&D sector and for making the National Institute of Pharmaceutical Education and Research (NIPER) as coordinating agency for R&D project under a framework programme. The issue should be resolved through dialogue and Indian generic drugs should not be construed as spurious or counterfeit drugs.

Indian machine tool industry has urged for technology transfer in metal cutting machine tool technologies, metal forming machine technologies, critical component technologies and special technologies.

India public sector undertakings (PSUs) are facing difficulties due to denial or delay in issuance of export licenses by the Federal Office of Economics and Export Control (BAFA) to German companies supplying specific technology equipment or material to India.

Indian companies in Germany, particularly in the IT sector, face difficulties in obtaining work permits for their professionals. The process is lengthy and at times they find it difficult to get visas for their spouses. The unpredictability in obtaining work permits causes problems with the Indian companies clients in Germany who do not appreciate delays.

Indian producers and exporters of pharmaceuticals (especially of active pharmaceutical ingredients) face difficulties in exporting their products to Germany due to amendments in the German Code of Medical Law. The India side had proposed an Agreement on Mutual Recognition of Good Manufacturing Practices (GMPs) certificates which needs to be concluded at the EU level be effective.

German authorities do not refund VAT for Indian business and industry operating in Germany. German side expressed inability to provide reciprocity of VAT refund, which would allow to grant VAT refund for Indian companies in Germany, due to varying practices in several states in India. It has, therefore, been proposed to the Indian fianc ministry to consider possibility of working out a limited VAT refund on mutual reciprocity for participation in trade fairs by companies from both countries.

There are also market access problems affecting Indian exports to Germany and other countries of the EU. Indian exporters face the problems in exporting meat and meat products (due to alleged prevalence of foot and mouth disease in Indian cattle) and also in exporting meat and meat products, bovine animal casings, ovine, caprine casings (due to categorization of India as Geographical Risk Status (GBR) II for BSE by the European Union. Indian exporters feel the problems of exporting milk products on account of residues of Veterinary Medical Products (VMPs). There are also problems in exporting grapes, gherkins on account of differential norms for maximum pesticide residue levels (MRLs) followed by different member states of the EU and the frequent reduction in MRLs of pesticides and antibiotics without giving adequate notice. The EU stipulation that the herbal products should have a proven use of 30 years of which 15 years should be in the EU, hinders market access for Indian ayurvedic products.

The German side has alleged bureaucratic hurdles and procedural delays in India, labour market rigidities and relatively high taxes, unsatisfactory infrastructure, reservation for small scale sector hampering growth, cap on FDI in banking and insurance sector, complicated tax regime, insistence of documents that are generally not insisted upon by similar authorities in developed countries, inconsistencies in classification of products as per different laws and regulations which make the approval and taxation processes extremely complicated, uncertainty relating to introduction and applicability of VAT across Indian states and the extent of sales tax liability attributable to sales in certain states, lack of uniformity in the VAT laws prevalent in different states, tax credits are not available in case of inter-state sales, thereby making it a cost to the transaction. At present, the duty is required to be paid for each import before clearance of imported goods. Often, the process of releasing imported goods from custom-bonded warehouses gets delayed, till the correct duties on them are calculated and paid.

The German side also alleged complicated Foreigners Registration Act and problems in getting Employment Visas to India.

In mid-November, 2011 the Automotive Componenets Manufacturers Association (CMA) is organising a pavilion for India at Agritechnica - the world's largest agricultural machinery exhibition at Hanover in Germany.

Agritechnica is held every alternate year. Covering 320,000 m (800 acres) of exhibition floor-space in 18 halls, Agritechnica 2009 had 2,308 exhibitors from 46 countries and 3,55,000 visitors from 88 countries. From India, there were over 27 exhibitors and more 1,000 visitors in 2009

The exhibition covers an entire spectrum of Agriculture from Agricultural machinery, equipment and services for drilling to storage ; Methods and inputs for crop growing, Plant protection and plant care, Farm inputs (biotechnology/seed, fertilisers, plant protection, fuels and lubricants) and much more.

Agricultural machinery becomes more efficient, precise and powerful for modern farming with different concepts for different areas. The exhibition covers all aspects of bio-energy and decentralized energy supply. Also showcasing the entire value chain of the industry (production of biomass, methods of producing energy on the basis of renewable and fossil energy sources, energy services)