India, EU Close to Deal on Auto Duty Cuts in FTA

[2011-12-30 10:32:11]


After months of hectic negotiations, India and the European Union (EU) have found common ground on the contentious issue of duty treatment of automobiles in their proposed free trade pact. As per the quid pro quo under consideration, India will cut import duty on finished cars from the EU by half to 30% while export of small cars from India will get duty-free access to the 27-nation bloc.

At present, finished cars (called completely built units or CBUs) attract an import duty of 60% in India while in Europe it stands at 6.5%.

"While we are willing to bring the import duty on large European vehicles down by half to 30%, small Indian cars should in return get preferential access to the European market. The import duty will be abolished in all probability," a government source told FE.

The agreement, if it goes through, will help several domestic and foreign carmakers. While duty cuts on CBUs will directly benefit brands like Volkswagen, Mercedes-Benz, Skoda, Peugeot and Audi, others like Honda, General Motors, Ford and Toyota also stand to gain by shipping larger vehicles to India from their European plants by paying a duty of just 30%.

The biggest advantage, however, would come to the country's largest car exporters like Hyundai Motor India and Maruti Suzuki from the "preferential access" they would enjoy in European markets. Preferential access refers to a specific quota on the number of Indian cars that would have access to the European markets at zero duty.

Though domestic automobile industry apex body Society of Indian Automobile Manufacturers was against any relaxation on the import duty front, what swung the decision in favour of the manufacturers largely based in EU nations was the support provided by the Trade and Economic Relations Committee headed by Prime Minister Manmohan Singh.

At present, India has a separate comprehensive economic partnership agreement with Japan and South Korea, but automobiles are not covered in the list of items.

Source: Financial Express
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