Global auto industry and product standards. A critical review of India’s economic and regulatory experience

Author:Debashis Chakraborty, Julien Chaisse, Shameek Pahari
Position:Indian Institute of Foreign Trade, New Delhi, India
Pages:8-35
SUMMARY

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 auto-components 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... (see full summary)

 
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Global auto industry and
product standards
A critical review of Indias economic and
regulatory experience
Debashis Chakraborty
Indian Institute of Foreign Trade, New Delhi, India
Julien Chaisse
School of Law, City University of Hong Kong, Kowloon Tong, Hong Kong, and
Shameek Pahari
School of Business, Ashoka University, Sonepath, India
Abstract
Purpose This paper aims to analyze whetherthe domestic policy reforms in India would sufce, 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 eld 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, reformsin 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 auto-
components in select partner countriesis computed and presented. Fifth, the penetration pattern of partner
countries in Indiasautomotive sector export value chain is analyzed. Finally, based on the observations,key
policy conclusionsare drawn both from global and Indianperspectives.
Design/methodology/approach This paper blends expertise in law and economics and enables
readers to have a ner understanding of the automotive sector which is one of the most internationalized
product groupsin world trade, characterizedby not only cross-border movement of nal 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), reectingits tendency to rely on domestic consolidation through
measuressuch as the 2014 MII initiative.
Findings The data analysis in the current paper indicates that after conforming to the UNECE 1998
standard, Indias 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 Indias exports is rising.
On the other hand, the relative share of the UNECE 1958 countries in Indias 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 Indias trade has shown an upward trend. The observation
indicates that the divergence in automotive product standards might crucially inuence Indiastradeows. 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 EUIndia 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.
JITLP
19,1
8
Received11 October 2019
Revised1 February 2020
Accepted1 February 2020
Journalof International Trade
Lawand Policy
Vol.19 No. 1, 2020
pp. 8-35
© Emerald Publishing Limited
1477-0024
DOI 10.1108/JITLP-10-2019-0063
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1477-0024.htm
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 membercountries (e.g., Ford India sending Ecosport to USA).It is also directed towards African
and Latin Americancountries, 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. Indias 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 inuence the relocation decisions of globalauto majors in India,
defeatingthe core purpose of MII initiative.
Practical implications Given the scenario, a numberof policy choices for India emerge. First, joining
UNECE 1958 may not be a short-runoption for India, but after evaluating the evolving trade pattern,in the
long run, the country may consideradopting certain core 1958 standards, in line with its economic interests.
Such a move may facilitate greater export ows from India to UNECE 1958 countries. The experience of
Indonesia and Vietnam, who haveconformed 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 Indiastrade 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
explainedby Indian exportersoften using the most favoured nation route rather than the preferentialroute, to
avoid the associated compliance-related complexities. The standards and mutual recognition agreements
(MRAs) conformanceprovisions in ASEANIndia FTA are also found to be weaker vis-à-visthe comparable
provisions for other ASEAN-centricbilateral 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 membersand CPs, given the commonality in standards. However, in the longrun, 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 thatharmonization of product standards with partnercountries can facilitate bilateral trade
ows. Presently,three agreements exist for harmonization of automotive standardsrelating to passenger and
vehicle safetyunder the aegis of UNECE UNECE 1958, UNECE 1997 and UNECE 1998. Througha series of
reforms and launch of the MII initiativein 2014, India has deepened its presence in world automotive sector
trade and aspires to play a bigger role in comingdays. 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 paperintends to analyze whether the domestic policy reforms in Indiawould sufce in
promoting the exports from thissector, or there is a need to conform to stricter international standards. The
data analysis reveals that Indiasrelative trade orientation is deepening towards the UNECE1998 members
and countries not part of any UNECEagreements. On the other hand, the relative trade share of the UNECE
1958 countries in Indias trade basket has declined and a mixed trend is noticed for the common CPs. The
analysis indicatesthat the divergence in automotive product standards mightcrucially inuence Indias trade
ows in general and participationin international production networksin particular. The paper argues that in
the long run, India needs to consideradherence to certain UNECE 1958 standards as well as speeding up the
pendingdomestic reforms.
Keywords India, WTO, Automobile, International standards, UNECE 1958, UNECE 1998
Paper type Research paper
1. Introduction
The automotive sector is one of the most internationalized product groups in world trade,
characterized by not only cross-bordermovement of nal products, but also of intermediate
products like auto-parts and components as well as major global investment and relocation
decisions (Pathikonda and Farole, 2016). It is one of the most dynamic sectors, given the
evolving changes in regulations (e.g. emission norms and fuel efciency standards,
adherence to passenger safety requirements), urban planning-oriented challenges (e.g.
growth in ride sharing service), demand for technology upgradation (e.g. electric vehicles,
Global auto
industry and
product
standards
9

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