EU FTA: Cars may not see sharp cut in customs duty


In a move that could spell relief for the domestic auto industry, India may not offer the European Union (EU) a sharp customs duty cut to 10-30 per cent for imported premium cars as previously envisaged under the upcoming free trade agreement (FTA).

Instead, the levy is likely to be around 50-60 per cent, which is half of the 100 per cent basic customs duty currently levied on all completely-built unit (CBU) car imports, senior government officials said.

This follows around two years of lobbying by domestic auto makers, and demands from Praful Patel, Minister for Heavy Industries, who argued that any sharp cut in import duties would slow down fresh investments and job creation by global auto makers in India. EU, which is in the midst of an economic slowdown, would prefer to export to India instead, they said.

With such a strategy in mind, in the Budget 2013-14 announcements finance minister P Chidambaram had proposed to increase the duty on high-end motor vehicles from 75 per cent to 100 per cent.

"The stated logic behind the duty hikes on imported high-end motor vehicles and motorcycles may have been to garner additional revenue from the affluent class. However, the move is also intended to protect Indian manufacturers from the possible adverse impact of any FTA, encourage domestic production of these luxury vehicles as well as to generate employment locally," a finance ministry official said.

He added, "The move (to hike duties) was also influenced by representations from domestic makers who had expressed apprehensions of duty concessions on these items in FTAs adversely impacting their plans to manufacture such vehicles. While taking the final decision, the finance minister took into account the views of all stakeholders."

This plan hopes to keep both the domestic auto industry and EU trade negotiators happy. For automakers, the import duty remains at the same level as before (2009), while EU would get a drop in customs duty from the current rates and become more competitive versus other nations like Japan and US. Commerce minister, Anand Sharma, recently said that the India-EU FTA would be finalised by mid-April at a top-level meeting in Brussels.

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