India EU Free Trade Agreement (FTA): Mercedes Benz, Volkswagen, and BMW as against Maruti Suzuki, Hyundai, and General Motors

General Motors India has now gone vocal in regards to import duty reduction on European cars that would be applicable under the India-EU free trade agreement (FTA) that’s yet to be finalized. India and Israel would opt for another ‘round of negotiations’ by March end before signing the Free Trade Agreement (FTA) that will help register bilateral trade figures of USD 10-15 billion a year between both countries. While, matters are expected to be finalised by next month, things are not all that smooth in India. With Japanese car manufacturer Suzuki in association with Maruti, and and South Korean Hyundai Motor having made investments upward of Rs 10,000 crore each in India, both companies have expressed their worries too.

Vice-president of General Motors India, P Balendran had this to say. “With the India-EU trade agreement, the level-playing field is not assured. To ensure a level-playing field, duty cuts have to be applicable to other FTAs as well. We had entered the market in 1996 and have invested over $1 dollars (about Rs 4,900 crore).”
US-based automaker, GM India is the 3rd major foreign automobile investor in the country after Suzuki, and Hyundai. Keeping in mind the India-EU free trade agreement (FTA), European auto manufacturers Mercedes Benz, Volkswagen, and BMW could stand to benefit from the proposed ‘duty cut’.

At present, import duty on cars stands at 60%. The bilateral trade agreement under the India–EU FTA sees car import duties being reduced to 30%. Disparity in pricing would be more visible in high end segments with European vehicle marquees gaining on the price front at the expense of Korean and Japanese automobile manufacturers.
General Motors investments in India include their manufacturing facilities in Halol, Gujarat, and Talegaon in Maharashtra, and their technical centre in Bangalore. GM imports the Captiva sport utility vehicle (SUV) from Korea as a fully built unit. P Balendran added, “We are hoping that CBUs are in the negative list (of negotiations) under the India-EU FTA, so that business interest of all manufacturers are protected. We want to bring value addition to the country with higher investment through local manufacturing.”

The reason everyone is skeptical at the moment is that a proposed price reduction benefit could prompt European carmakers to not make additional investments in manufacturing in India. This would result in investment reductions, and stunt job creation possibilities. Industry officials believe this would result in India being relegated to an ‘import skewed’ market for high end vehicles. Currently, imported cars attribute for about 15,000 units in the Indian car market that records over 2 million units, this number would rise rapidly once the proposed India-EU FTA duty cut comes into being.