Search the Internet          Tips  Sites: Finance, Investment

WTO rules against India in trade spat with US

US Trade Representative Robert B Zoellick has announced that a dispute settlement panel of WTO has found that restrictions on US companies manufacturing cars in India violate the WTO Agreement.

The panel report confirms that WTO members cannot impose local content requirements or trade balancing requirements on companies doing business in their countries, a USTR statement said.

"Not only do such requirements make it much harder for US companies to operate abroad, they also take away export opportunities from our companies at home," Zoellick said.

"It is a priority of this Administration that Americans be treated fairly in the global trading system. I am pleased that we have won this case and that the panel has rejected India's restrictions on their automotive sector."

India maintained regulations which require auto manufacturers in India to sign memoranda of understanding that impose local content and trade balancing obligations on the signatories. These regulations are designed to protect Indian domestic auto parts manufacturers from competition.

Local content rules require that a minimum percentage of parts be used in manufacturing cars in India. Trade balancing measures require manufacturers to export Indian origin goods to offset the value of goods they import to India.

Both of these requirements apply to all companies in the auto sector (foreign and domestic), and severely restrict both foreign investors' and Indian domestic companies ability to conduct business.

Requiring companies to use local content reduces competitiveness and raises costs. By imposing a preference on local goods, these measures also make it harder for US goods to compete in India.

Unless India appeals, the WTO General Council could formally adopt the report in January, Zoellick said, after which India will be required to bring its regulations and MoUs into compliance.

Under the local content provisions, MoU signatories were required to use no more than 50 per cent imported content in their passenger car production by the end of the third MoU year, and no more than 30 per cent imported content by the end of the fifth year.

Under the trade balancing provisions, MoU signatories were required to 'balance' their imports of auto kits and components into India with exports of cars or car parts of at least equal value of those imports.

The United States and the European Communities brought a WTO dispute to challenge these requirements in summer of 1999. The WTO Dispute Settlement panel report, which was given to the parties on December 13, 2001, agrees with the United States and the EC that these practices violate the WTO Agreement, the statement said.

US hails victory

US Trade Representative Robert Zoellick on Friday hailed a victory in a World Trade Organisation dispute with India over auto trade.

He said in a statement the international trade body confirmed that WTO members cannot impose local content or trade balancing requirements on companies doing business within their borders.

"Not only do such requirements make it harder for US to operate abroad, they also take away export opportunities from our companies at home," Zoellick said. "I am pleased that we have won this case and the panel has rejected India's restrictions on their automotive sector."

India has required auto manufacturers to sign a memorandum of understanding limiting the imported content of passenger cars produced in the country to no more than 50 per cent by the end of three years and 30 per cent by the end of five years.

Additional inputs: PTI

YOU MAY ALSO WANT TO READ:
India and the WTO: News and Issues

Tell us what you think of this report