Auto sector wary of Bimstec FTA
Financial Express, India
Auto sector wary of Bimstec FTA
RUPALI MUKHERJEE
25 May 2005
NEW DELHI, MAY 24: The domestic auto industry has asked the government to include completely-built units of all four-wheelers (including buses, trucks, MUVs and passenger cars) and two-wheelers (up to 250 cc) in the negative list for the free trade agreement (FTA) with the Bimstec regional block.
The block includes seven countries: India, Bangladesh, Thailand, Sri Lanka, Bhutan, Myanmar and Nepal. The ministry of commerce has held discussions across industries to finalise a ‘sensitive list’, which includes items that would not qualify for customs duty reduction under the Bimstec FTA.
With regard to cars, the auto industry has said that since India is operating at a high level of capacity utilisation and manufacturers have made huge investments here, no duty reductions on completely-built units should be allowed. The industry’s main threat is understood to be Thailand, where all major car companies have their bases.
Commenting on the FTA, Ashok Leyland managing director R Seshasayee said, "In principle, I am in favour of these agreements as they promote free trade. The government should adopt a two-stage approach: open up, but with a sensitive list. In the second stage, the impact should be assessed for a specific time period, and then duties can come down."
The industry fears that there may be a possibility of investment relocation from India to Thailand in cases where car companies have operations in both the countries. This may also hold true for new companies planning to invest in the region as they may feel that Thailand is a better investment option. The industry feels that there is a manufacturing cost disadvantage of 12-17.5% between India and most Asean countries, including Thailand. India already has FTA with Thailand, which came into effect last year.
In the case of two-wheelers, those up to 250 cc have been included in the negative list. There is a mismatch between what India is producing and exporting with that of Thailand. While India’s exports are mainly 100 cc two-wheelers, Thailand’s market is of a different category of vehicles. Therefore, liberalising imports of these vehicles may not be of any significant advantage for India.
As regards buses and multi-utility vehicles, the industry has said that India produces and exports low-value buses, but the industry is now upgrading with planned investments by Tata Motors, Eicher and Ashok Leyland.
Thus, it feels that duty reductions on these vehicles should not be allowed. "Pick-up trucks and commercial vehicles are the known areas of strength, therefore there should be a clear understanding of the impact of the FTA," Mr Seshasayee added. The industry also wants engines of 50cc-1000cc in the list, saying that imports, if allowed, will create distortions in the market.
In 2004, Bimstec countries had signed an FTA that calls for tariff reduction/elimination by the member countries on goods. The ‘sensitive lists’ will be exchanged among the member countries of Bimstec at the next meeting of the trade negotiating committee to be held in June.
