NEW DELHI: India is set to bind itself to allowing import of at least 2.5 lakh cars from the European Union at a concessional tariff of 10% — a move that will come as a major relief to European auto majors who have to currently pay 100% customs duty on vehicles that cost over $40,000.

The tariff rate quota — which means allowing a specified number of a product at lower duty — can be used over a five-year period, starting 2017 under the proposed India-EU Bilateral Trade & Investment Agreement. In case of breach of the quota, European car makers will have to pay a concessional duty of 30%, which is almost half the current notified rate. The tariff rate quota will apply to large as well as small cars.

While the EU is demanding that the quota be increased to three lakh, the government has so far held its ground although there are indications that there may be some trade-off so that India can gain in other sectors. Although there is no annual cap, 2.5 lakh cars translate into annual imports of 50,000 units, which industry body Siam said is more than 20,000-22,000 completely-built units imported from Europe.

Sources argued that the concessions from India would also "open up" the EU market for made-in-India cars as the trading bloc had agreed to phase out import duty from the current level of 6.5%. Siam, the Indian lobby group, however, said the move was meaningless as car exports to Europe had come to a halt after the subsidy given to small cars.

Commerce and industry minister Anand Sharma was engaged in intense negotiations with his EU counterpart Karel de Goucht until late on Monday evening in what appeared to be the final leg of ministerial-level talks for the agreement that has been under negotiation for six years now.

The government has, however, turned down a proposal from the 27-nation trading bloc to provide further concessions for auto components as there was no relaxation on environmental rules. The government has come under intense pressure since last week on opening up the manufacturing sector to foreign competition by lowering the customs duty, while EU appears to be reluctant in opening up jobs in the services sector.

For India, a key concern is to get EU to drop the safeguard clause on services sector that will kick in when 20% of EU's committed number of professionals enter member states' territories. In addition, India wants a clause which allows movement of spouses and dependents along with professionals who get temporary entry into a EU member state.

Further, there is a strong pitch on declaring Indian companies "data secure", which will help outsourcing work to Indian IT companies, especially the SMEs. EU law mandates that European countries undertaking outsourcing business with countries that are not certified data secure have to follow stringent contractual obligations which increases operating costs and affects competitiveness.

Although almost all Fortune 500 companies have entrusted India with their critical data, EU has refused to declare India data secure despite repeated requests. India has argued that current provisions of the IT Act are adequate for protection of security of EU citizens' data.

