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Journal of International Trade Law and Policy: Global auto industry and product standards A critical review of India’s economic and regulatory experience
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Abstract
Purpose – This paper aims to analyze whether the domestic policy reforms in India would suffice, or there
is a need to conform to stricter international standards as well. The paper is arranged along the following
lines. First, the paper offers a brief review of the cooperation in the field of harmonization of vehicle
regulations which is provided by the so-called WP.29 Forum. Second, the United Nations Economic
Commission for Europe (UNECE) standards and their membership along with Indian participation in the
forum are presented. Third, reforms in India through the “Make in India” (MII) initiative and its trade in the
auto-component segment are analyzed. Fourth, the possible non-tariff barriers (NTBs) on imports of autocomponents in select partner countries is computed and presented. Fifth, the penetration pattern of partner
countries in India’s automotive sector export value chain is analyzed. Finally, based on the observations, key
policy conclusions are drawn both from global and Indian perspectives.
Design/methodology/approach – This paper blends expertise in law and economics and enables
readers to have a finer understanding of the automotive sector which is one of the most internationalized
product groups in world trade, characterized by not only cross-border movement of final products, but also of
intermediate products like auto-parts and components as well as major global investment and relocation
decisions. This paper focuses on India for four crucial reasons, which makes India both a key player (and
potential disruptor) at global level and the rather complex approach chosen by the country vis-a-vis many
regulations (including UNECE and WTO), reflecting its tendency to rely on domestic consolidation through
measures such as the 2014 MII initiative.
Findings – The data analysis in the current paper indicates that after conforming to the UNECE 1998
standard, India’s relative trade with these countries has increased both in terms of auto-components and
automobile products. Moreover, the value contribution from these partner countries in India’s exports is rising.
On the other hand, the relative share of the UNECE 1958 countries in India’s trade basket has declined and a
mixed trend is noticed for the common contracting parties (CPs). In addition, the share of the countries without
accession to any of the UNECE agreements in India’s trade has shown an upward trend. The observation
indicates that the divergence in automotive product standards might crucially influence India’s trade flows. It
seems that in the short run, an orientation for exporting to UNECE 1998 partners and non-members emerges as a
dominant strategy, underlining a specialization in medium-quality segment. Nevertheless, the long-term
robustness of such a move deserves closer analysis, particularly by focusing on whether India may need to join
the UNECE 1958 agreement to sustain its export growth. Before joining UNECE 1998, the sector has enjoyed
protection through high tariff barriers. Given the differing perspective on opening-up, automobile sector earlier
emerged as an obstacle in conclusion of EU–India Bilateral Trade and Investment Agreement (BTIA), which is
being negotiated since 2007. However, after entry into an regional trade agreement (RTA), tariff preference in
itself may not provide a country the requisite market access. The recent standard-setting exercises in ASEAN, a
group with which India is deepening trade integration since 2010, may be considered as a case in point.
Research limitations/implications – The analysis so far indicates that absence of participation in
UNECE 1958 standard may restrict future options for India. Presently, Indian vehicle exports are reaching
UNECE 1998 member countries (e.g., Ford India sending Ecosport to USA). It is also directed towards African
and Latin American countries, presently not part of any agreement. However, the ASEAN countries, currently
partnering India through free trade agreement (FTA), are increasingly moving towards UNECE 1958
standards. India’s sectoral trade surplus with ASEAN countries over 2009-2013 to 2014-2018 has declined
from US$548.44mn to US$529.53mn, respectively. The potential challenges in reaching ASEAN and other
UNECE 1958 member countries, in turn, may influence the relocation decisions of global auto majors in India,
defeating the core purpose of MII initiative.
Practical implications – Given the scenario, a number of policy choices for India emerge. First, joining
UNECE 1958 may not be a short-run option for India, but after evaluating the evolving trade pattern, in the
long run, the country may consider adopting certain core 1958 standards, in line with its economic interests.
Such a move may facilitate greater export flows from India to UNECE 1958 countries. The experience of
Indonesia and Vietnam, who have conformed to select UNECE 1958 standards in spite of not being formally
part of any agreement, deserves mention in this regard. Second, it is observed that India’s trade balance (TB)
is not improving for several Regional Comprehensive Economic Partnership (RCEP) member countries, in
spite of obtaining tariff preferences through an existing trade bloc. Part of the poor performance has been
explained by Indian exporters often using the most favoured nation route rather than the preferential route, to
avoid the associated compliance-related complexities. The standards and mutual recognition agreements
(MRAs) conformance provisions in ASEAN–India FTA are also found to be weaker vis-à-vis the comparable
provisions for other ASEAN-centric bilateral RTAs with other RCEP members. This underlines the need for
both rules of origin (ROO) reforms and agreement on MRAs, which may enhance the trade potential in general
and in automotive sector in particular. In the short run, India should therefore attempt to enhance exports to
the UNECE 1998 members and CPs, given the commonality in standards. However, in the long run, there is a
need to explore harmonization with certain core 1958 standards, to promote exports in general and even
within its RTAs in particular.
Originality/value – The automotive sector is one of the most internationalized product groups in world
trade. It is known that harmonization of product standards with partner countries can facilitate bilateral trade
flows. Presently, three agreements exist for harmonization of automotive standards relating to passenger and
vehicle safety under the aegis of UNECE – UNECE 1958, UNECE 1997 and UNECE 1998. Through a series of
reforms and launch of the MII initiative in 2014, India has deepened its presence in world automotive sector
trade and aspires to play a bigger role in coming days. Moreover, India is a WTO member and has joined the
UNECE 1998 standard in 2006, which means that several important conventions regulate and bind the
country. The current paper intends to analyze whether the domestic policy reforms in India would suffice in
promoting the exports from this sector, or there is a need to conform to stricter international standards. The
data analysis reveals that India’s relative trade orientation is deepening towards the UNECE 1998 members
and countries not part of any UNECE agreements. On the other hand, the relative trade share of the UNECE
1958 countries in India’s trade basket has declined and a mixed trend is noticed for the common CPs. The
analysis indicates that the divergence in automotive product standards might crucially influence India’s trade
flows in general and participation in international production networks in particular. The paper argues that in
the long run, India needs to consider adherence to certain UNECE 1958 standards as well as speeding up the
pending domestic reforms.
NONE
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2020
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APA Citation
Debashis Chakraborty. (2020).Journal of International Trade Law and Policy:
Global auto industry and
product standards
A critical review of India’s economic and
regulatory experience.(Electronic Thesis or Dissertation). Retrieved from https://localhost/etd