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

• Pages: 8-35
• DOI: https://doi.org/10.1108/JITLP-10-2019-0063
• Published date: 25 February 2020
• Date: 25 February 2020
• Author: Debashis Chakraborty,Julien Chaisse,Shameek Pahari
• Subject Matter: International trade,International economics,Economics,International business

Global auto industry and

product standards

A critical review of India’s 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 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, 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 India’sautomotive 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 f‌iner understanding of the automotive sector which is one of the most internationalized

product groupsin world trade, characterizedby 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), ref‌lectingits 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, 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’stradef‌lows. 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.

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. 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 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 f‌lows 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 India’strade 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 ASEAN–India 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

f‌lows. 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 suff‌ice in

promoting the exports from thissector, or there is a need to conform to stricter international standards. The

data analysis reveals that India’srelative 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 India’s trade basket has declined and a mixed trend is noticed for the common CPs. The

analysis indicatesthat the divergence in automotive product standards mightcrucially inf‌luence India’s trade

f‌lows 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 f‌inal 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 eff‌iciency 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

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