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Auto-makers seek protection by way of higher tariff on vehicle imports

The Indian automobile industry has sought short-term protection from the government in the form of high tariffs on imports of new complete vehicles as well as second-hand vehicles. This is expected to give the domestic industry enough strength to face the challenges of an open market under the World Trade Organisation regime.

The Society of Indian Automobile Manufacturers or SIAM, in a report on ''The WTO regime and its implications to the Indian Automobile Industry'', called for adoption of specific instruments, consistent with WTO provisions, which can protect the industry from a sudden surge of imports, consequent upon the removal of quantitative restrictions.

''These instruments will essentially be aimed at providing the industry with a period of transition within which the necessary adjustments can be undertaken for meeting the challenges arising out of an import surge.''

The initiatives hinge critically on the level of tariff protection that the industry can be provided with once the automobiles imports are fully under Open General Licence. A degree of flexibility in setting the tariff bindings is available in India since for all vehicle categories, except commercial vehicles, tariff ceilings have not yet been committed to the WTO.

As regards the tariff rates to be proposed on the items for which tariff binding have not yet been proposed, the SIAM said the proposed tariffs on automobiles ''can either be at par with the ceiling set for other manufactured products which is at 40 per cent ad valorem or like agricultural commodities, at rates higher than 40 per cent.''

It further stated that for automobiles, India can argue for tariff bindings of an order similar to agricultural commodities rather than the commodities in the manufacturing sector. ''Such an approach can also be justified on the basis of the fact that several developing countries, in the Uruguay round tariff negotiations, have proposed high tariff rates in certain critical segments of the automobile industry like Completely Built Units.''

Korea, it said, has proposed to bind tariffs on motorcars at 80 per cent, which is much higher than the proposed 40 per cent for the manufacturing sector as a whole in India. Accordingly, high tariffs can be in place for imports of complete vehicles and the tariff rates on automobiles can be calibrated with imports of parts and accessories having lower duty rates than complete units.

In addition to these basic duties of 40 per cent on automotive imports, the government can impose a surcharge or countervailing duties in order to provide a level playing field to the domestic industry.

Besides seeking to impose higher import tariffs for the sector as a whole, the SIAM stated that the tariff regime will also need to address the crucial issue of import of second-hand vehicles.

''This arises because an outright ban on imports of second-hand vehicles, as is currently in force in Pakistan and the Philippines, may not be strictly in conformity with the WTO regulations. However, the tariff offers made by India to the WTO are, at present, in a somewhat aggregated manner which does not make it possible to apply differentiated tariff rates to new and second-hand vehicles.''

It further stated that most of the major trading countries have offered their tariffs at higher levels of disaggregation than has India, and this provides the countries concerned a degree of flexibility in applying tariffs. India, therefore, needs to make its tariff offers in a manner that could give the country similar flexibilities as those enjoyed by the other countries.

The SIAM, however, stated that tariff protection should only be a short term measure. In order to attain competitiveness in the long run, it is imperative that the industry carries out effective technology development programmes.

The WTO, it said, allows countries to subsidise up to 75 per cent of the expenditure incurred in research and development activities and this opportunity offered by the WTO should be taken advantage of by the industry. Korea has been using this form of subsidy for development of low-emission vehicles.

The SIAM has also called for establishing networks with the automobile industries in similarly placed developing countries. This needs to be given priority by the Indian automobile industry. ''Given that a number of countries are likely to be adversely affected by the WTO ruling, there is a strong case for developing countries to evolve a common strategy for their future engagements with the WTO... This will be the surest manner to ensure that the WTO, as a democratic institution, articulates the typical needs of developing countries.''

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