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Harley-Davidson exit may push auto tariff cut up in US priority list for limited trade deal

Over the last three years, several US car and motorcycle firms, including General Motors, Ford Motor Co and Cleveland CycleWerks have either restructured operations to exist as joint ventures or exited the Indian market altogether.

Written by Prabha Raghavan | New Delhi |
September 28, 2020 3:09:13 am
India had cut duties on the bike to 50% in 2018 from around 100% earlier. (File)

With the iconic Harley-Davidson motorcycles joining a list of American vehicle firms that have driven out of India, Washington might give a stronger push to auto tariff reduction in its asks while finalising a limited trade package.

Over the last three years, several US car and motorcycle firms, including General Motors, Ford Motor Co and Cleveland CycleWerks have either restructured operations to exist as joint ventures or exited the Indian market altogether. This was mainly due to low demand for their segment of vehicles, according to experts.

“The Harley-Davidson exit happening at this juncture is a signal which is not really desirable for India at this point. The exit of other auto companies in the last few years also shows that the market here is not deep enough for them to grab share from other companies like Suzuki and Hyundai, which are firmly entrenched,” said trade expert Biswajit Dhar, professor at JNU’s Centre for Economic Studies and Planning.

“Foreign investors would get attracted to India for the size of the market and the purchasing power here. When our economy was growing at around 7 per cent, there was a possibility that this market was going to expand, but the moment there is a situation where India is the slowest growing economy among major economies, then this possibility comes into question,” he said.

The exits mean that whatever little demand does exist for these products will have to be serviced mostly through imports. Though Harley’s exit is part of the firm’s global strategy, its politicisation in US-India relations over the last few years by US President Donald Trump increases the possibility of his administration pushing India to reduce duties on vehicles like large-engine motorcycles.

In the last few years, Trump has cited the Modi government’s tariffs on the iconic motorcycles multiple times as an example of why India is a “tariff king”. India did bring down duties on the bike to 50 per cent in 2018 from around 100 per cent previously, but the American president found the new tariff rate ‘still unacceptable’.

“I think what could actually happen is the Harley-Davidson issue will become more important, because what Harley tried to do by setting up India operations was tariff jumping. This hasn’t helped them succeed in getting more market share and now they’re leaving. Other companies like GM, too, would like to bring in their cars from other production bases, but they will face high tariffs on automobiles, which is already an outstanding issue,” said Dhar.

“It is likely that the pitch from the US side to bring down these tariffs will become even stronger now and, with the government talking about a limited trade deal, many of these issues could now be put on the fast track,” he added.

“The issue may very well be brought up by the Trump administration, especially given that the presidential elections in the US are coming up in November, and because Harley-Davidson is iconic for Americans,” said another trade expert on condition of anonymity.

Some experts, however, do feel that other priorities will still take precedence in how a trade package between India and the United States shapes up. The US could begin to use Harley-Davidson’s exit as a political maneuver to get India to reduce its auto tariffs, but it is unlikely that India will give in, according to Indian Council for Research on International Economic Relations president Rajat Kathuria.

“Auto tariffs may go higher on the list (of priorities for a limited trade deal), but for India, auto is not important and there’s nothing for us to gain. They (the US) might try to push it,” he said, adding that, at this point, given India’s economic situation, the demand for any luxury product is low.

“If you look at the list of issues that are important for India in the US limited trade deal, auto tariffs will also be there, but it won’t be top (priority). At the top are issues like agriculture, data flows and localisation, competition policy,” Kathuria said.

“We have to look at what is the job creator in the US, and it is more of a services rather than manufacturing industry. The ask from the US side would be more on the services side and, when you look beyond services, the other big export the US has on a global basis is agriculture … other items do not matter so much in the trade environment,” said Dr Mukesh Aghi, President, US-India Strategic Partnership Forum (USISPF).

“I think having these (firms) shut down does not impact the trade discussions between the two countries. I think the focus is still going to be on the services side issues such as e-commerce, data localisation … that’s where the US economy seems to go,” he added.

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