The Economic Times Online, 7 October 2005
Thai FTA hits rules of origin roadblock
SANJEEV SHARMA & NANDINI SEN GUPTA
NEW DELHI: The much-publicised Thai FTA seems to be stuck in the first gear. According to sources in the auto industry, the FTA is stuck over the rules of origin issue, which has been a contentious issue right from the beginning. The auto industry has been divided over the Thai FTA with the component makers and non-Japanese investors dubbing it as anti-localisation.
While Japanese companies like Toyota and Honda welcomed the agreement because of their large footprint in Thailand, other domestic and MNC majors feel it will lead to component dumping and give Japanese assemblers an unfair price advantage by sourcing from Thailand rather than increasing local content. “If it (rethink on Thai FTA) happens, in many ways it will restore the dignity of manufacturing in India,” said BVR Subbu, president, Hyundai Motor India.
Other volume carmakers agreed it was better to do the “homework right” before going into the FTA. Indian component makers had voiced their unhappiness with the Thai FTA. Given the level of input duties in Thailand and the embedded costs in India, the FTA will have rendered local component makers uncompetitive vis-a-vis Thailand, went the argument.
Meanwhile, volume OEMs contended that the FTA will give a price advantage to Japanese carmakers sourcing kits and components from Thailand. Currently, Toyota Kirloskar gets Innova engines and Corolla body panels and parts from Thailand, while Honda sources body parts and other components from Thailand.
Rules of origin has been a tricky issue right from the word go prompting the government to work out a ‘sensitive list’ of items on which there was to be no tariff reduction under the Thai FTA.