India for stricter Rules of Origin in auto sector under India, UK trade agreement

New Delhi: India is insisting on strict adherence to the 'Rules of Origin' during free trade agreement (FTA) negotiations with the UK in the automobile sector, Commerce Secretary Sunil Barthwal on Tuesday said.

He said that the 'Rules of Origin' have to be such that they do not impact the Indian automobile sector negatively.

"FTA with the UK is in the pipeline...we are negotiating. We are also very keen to see that not only do we open up the automobile market, but we also see that we do not unduly lose the level playing field vis-a-vis the UK.

"And we looked at their Rules of Origin very, very closely. We negotiated with them (the UK), and we told them that Rules of Origin have to be such that they do not impact negatively our automobile sector market," Barthwal said here while addressing leaders of the auto industry.

The 'Rules of Origin' provision prescribes minimal processing that should happen in the FTA country, the UK in this case, so that the final manufactured product may be called originating goods in that country.

Under this provision, a country that has inked an FTA with India cannot dump goods from some third country in the Indian market by just putting a label on it. It has to undertake a prescribed value addition in that product to export to India. Rules of Origin norms help contain the dumping of goods.

The secretary said that the government has rolled out the production linked incentive (PLI) scheme for the auto sector "for a certain period and it should not be disturbed through the FTA, till that phase is over".

"So, we have also taken care of that till the time the PLI scheme is there. In fact, that is a policy decision that it (PLI) should not be disturbed, and you should reap the full benefits of the PLI within the sector," he added.

The fiscal incentive scheme was approved in 2021 with a budgetary outlay of Rs 25,938 crore to boost the domestic manufacturing capabilities of the automobile industry, including electric and hydrogen fuel cell vehicles.

The scheme aims to incentivise high-value advanced automotive technology vehicles and products such as sunroofs, adaptive front lighting, automatic braking, tyre pressure monitoring systems and collision warning systems, among others.

The India-UK talks for the proposed agreement began in January 2022. The 14th round of talks stalled as the two nations stepped into their general election cycles.

The Indian industry is demanding greater access for its skilled professionals from sectors like IT and healthcare in the UK market, besides market access for several goods at nil customs duty.

On the other hand, the UK is seeking a significant cut in import duties on goods such as scotch whiskey, electric vehicles, lamb meat, chocolates and certain confectionary items.

The bilateral trade between India and the UK increased to $21.34 billion in 2023-24 from $20.36 billion in 2022-23.

Barthwal also said that there are huge export opportunities for the automobile sector in the global markets such as the European Union and the African nations.

"The US of course (is a big market but), there is protectionism which is coming. They are also keen to develop their manufacturing. But I think the market is so huge that everybody is eyeing that market, and we should also eye that market," he added.

Talking about the energy transition, the secretary said all the countries have taken the net zero commitments which offers huge opportunities for the sector.

He said that as per estimates, the market size of electric vehicles (EVs) is expected to reach about $1.5 trillion in the coming years.

Opportunities are also there in areas like design and Research and Development, he said, adding that 50-60 per cent in any vehicle is the structure and "we have the capability" in that, which the industry has to leverage, along with developing other capabilities like batteries.

He suggested the auto sector to explore all the areas of this value chain, and not just one component.

"For example, currently the auto component market is about $1.8 trillion and by 2030, there are estimates that it will grow to $2.5 trillion. So look at the kind of opportunities, which they give rise to," Barthwal said.

Further, the secretary said that the industry needs to focus on the mineral and battery chemistry of EVs.

"The value chain has extended, and we need to secure these minerals, we need to secure this battery processing technology, and we need to secure or develop the other kind of technologies," he added.

He suggested that the industry can look at developing batteries from minerals that are available in India.

Post-Covid, the world recognised that it is not a good idea to keep all "your eggs in one basket" and due to that countries are looking to diversify and they are finding that India being a democratic country with a fast-growing economy has that potential.

He also said that in international trade today, sustainability issues have become very important to other countries.

"Whenever we discuss FTAs with them, they are talking about having a sustainability chapter. They are talking about having an ERM chapter, which is energy and raw material chapter," Barthwal said.

Talking about the high cost of testing and validation, he said the ministry would look into the issue.