European carmakers are concerned about a free trade agreement between the European Union and India that would grant immediate free-duty access for Indian passenger car exports to the EU but retain a 30% tariff on European vehicles exported to India.
“Import duties should be completely eliminated on both sides, and not just partly removed – although with reasonable transitional periods,” said the German Association of the Automotive Industry (VDA). “This is the only solution which reflects the spirit of a free trade agreement.”
Representatives from the EU will meet with their counterparts from India at a summit on February 10th to try and solve the issues blocking the proposed agreement that include a call from European carmakers to have unrestricted access to the Indian market. Negotiations with India are reported to be extremely complex as it seeks far-reaching exceptions from tariff reductions for automotive products.
Cars built in Europe for the Indian market currently face a 60% tariff, which doubles the price of imports once VAT and other costs such as logistics are added, according to carmakers. Indian car exports to Europe by contrast face a 10% tariff, which is actually lowered to 6.5% because India is a developing country. Tariffs for commercial vehicles from India to the EU are up to 22%. India exported more than 223,000 cars to Europe in 2011 but imported just more than 4,000, according to the European Automobile Manufacturers' Association (ACEA).
New passenger car registrations in India were up 6% in 2011 to 2.5m units while Europe saw a decline of 1.4% to just more than 13.6m over the same period according to figures from the VDA. German brands in particular have performed well in the country, nearly doubling market share in 2011 to 5.2% and selling more than 120,000 cars.
But while export volume has increased ten-fold over the last six years, with German car exports to India–including CKD units–rising 70% in 2011 to 25,000 units, India still has an automotive trade surplus with Germany, according to the VDA. Total exports from India for 2011 are estimated to be around 500,000 compared to 440,000 in 2010.
The VDA said it supports the successful conclusion of the free trade agreement but stated that there remained substantial import restrictions in both tariff and non-tariff areas which “massively obstruct market access for the German automotive industry”.
In an interview in the current issue of Automotive Logistics, BMW’s head of logistics, Karl May, predicted that CKD logistics would become even more important to the company in coming years as he anticipated trade barriers with countries like India to increase rather than decrease (read more here).
The high import duties have partly led many German and European brands to develop local manufacturing or CKD operations in India, including VW, Skoda and Audi in Aurangabad, Daimler in Pune and BMW in Chennai. Renault Nissan has a plant in Chennai that has begun to produce Renault models as the French brand enters the market. PSA has announced plans for a factory in Gujurat by 2014, although reports have surfaced that it may delay its investment there as it faces financial difficulties.