A carload of troubles HED (I-EU FTA)
Proposed European Union Free Trade Agreement could prove detrimental to the Indian automobile industry
European car companies such as BMW, Mercedes-Benz, Audi and Porsche want the road to India smoothed out so that
they can drive in their uber-luxury cars with minimal hurdles.
EU is said to be pushing for a concessional rate of import duty on fully built cars, known in industry jargon as completely
built units or CBU. The present tariff rate for CBUs is 60 per cent and the EU would like it halved. This will mean that
European car companies need not invest in a manufacturing facility in India but can export from their European plants
paying just 30 per cent duty. The pressure appears to be mainly from Germany where most of these luxury car
companies are based.
Mercedes, BMW and Audi have a limited assembly operation in India where they assemble CKD (completely knocked
down) and SKD (semi-knocked down) car kits for sale in the domestic market.
Import duty on CKD and SKD kits range between 10 and 30 per cent and if the EU proposal is accepted, CBU rates will
fall to that of CKD thus disincentivising even limited assembly operations in the country.
Also EU would like that “non-new goods” be treated on a par with new goods. This dangerous proposal can lead to the
country being flooded with used cars junked by European customers.
EU’s desperation is understandable given that its own auto market is in recession and is unlikely to recover anytime
soon. On the other hand, the Indian market, minus the blip in 2012-13, is promising in the long term and offers juicy
growth rates unlikely to be ever seen in Europe for a long time to come.
In the April-February 2013 period, a total of 20,947 units of luxury cars were sold in the country compared to 21,079
units in the same period in 2011-12. In comparison, sales in the immediately lower segment with models such as the
Honda Accord, Toyota Camry and Volkswagen Passat fell by a third to 3,859 units in the 11 months to February 2013, as
per data from the industry body, Society of Indian Automobile Manufacturers (SIAM).
In a recent interview to Business Line, Audi’s India head, Michael Perschke, said that by the end of this decade, his
company would sell more cars in India than in Japan, France, Spain or Italy. Is it any wonder then that the Germans and
the EU are desperate to get the rules of the game changed?
Arguments against
Problem is that India does not gain anything from changing the rules; if anything, it has a lot to lose. For one, it will hit
companies that have already invested in manufacturing facilities here such as Maruti Suzuki, Tata Motors, Hyundai,
Honda, Toyota and Ford to name a few. These companies have created millions of jobs directly and indirectly in the
country, which will stand imperilled.
Second, exports to Europe by these players have also reduced with the stimulus-related scrappage measures being
phased out there. So, Indian companies will not gain from the FTA.
Third, once the barrier is lowered, it can be guaranteed that imports into India will swell. Even at the present imposing
60 per cent duty rate, which after adding other imposts would go past 100 per cent effectively, CBU imports have been
rising. Between 2009-10 and 2010-11, CBU imports from Europe more than doubled to 11,000 units adding up to a total
value of $3.4 billion, which is also an outflow of precious foreign exchange.
Finally, the cars in this category — 3,000-5,000 cc capacity, diesel engine — are not really the ones that the country
might want to incentivise at a time when there is a raging debate on SUVs and the subsidised diesel that they guzzle.
Not so free HED (I-EU FTA)
There are genuine concerns that the Free Trade Agreement India is finalising with the European Union can prove
detrimental to health equity. Supply of low cost generic medicines to patients within the country and in less-developed
nations should not in any way be threatened by a treaty that may further tighten an already rigid global regime
represented by the Trade-Related Aspects of Intellectual Property Rights agreement (TRIPs).
History of trade agreements is replete with instances of big pharmaceutical companies lobbying to shoehorn provisions
into them to delay or stop the production and distribution of generic drugs.
Centre should pay closer attention to the report of the Planning Commission’s High Level Expert Group on Universal
Health Coverage, which calls for vigilance against FTAs containing restrictive elements.
Among the key recommendations is one that says any Data Exclusivity Clause in such an agreement should be removed,
as it would extend the life of patents and facilitate evergreening.
Also important is the suggestion to set up a National Health Promotion and Protection Trust that should, among other
things, assess the likely impact of free trade agreements on access to medicines.
Viewed from commercial perspective, any straitjacket treaty is likely to mean setback to Indian pharmaceutical exports.
Nobel laureate Joseph Stiglitz points out in analyses of globalisation, TRIPs was designed to increase price of
medicines.
Depressingly, in spite of the rising cost to patients and massive revenues for pharmaceutical companies, the profits have
not led to remedies for diseases affecting poor countries. Considerable research funding is devoted instead to
discovering drugs for lifestyle diseases. The priority for India should be to preserve the existing provisions in global
agreements and domestic patent law that facilitate production of generics, stop evergreening of drugs and enable
compulsory licensing.
