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Thursday, July 19, 2018

Why, in attack on ‘100 per cent tax’ on Harleys, Donald Trump may be barking up the wrong tree

Nearly all of the iconic motorcycles arrive in India in parts, and are assembled here. What the company will probably be more worried is a Budget proposal to raise import duties on these so-called CKD kits.

Written by Aanchal Magazine , Anil Sasi | New Delhi | Updated: February 28, 2018 9:03:35 am
Harley-Davidson enthusiasts at a rally to promote road safety in Chandigarh in 2013. Only very high-end Harleys are imported as fully built units. (Express Photo: Sumit Malhotra/Archive)

US President Donald Trump has referred on more than one occasion to the duty on import of completely-built American bikes such as Harley-Davidson into India as an example of “discriminatory” trade practice. In an address to a joint session of Congress in February 2017, the President hinted at mistreatment to Harley-Davidson due to high import duties of as much as 100% in foreign markets, but did not name India. And on Monday, just days after India announced an abrupt slashing of duties on imported motorcycles, Trump made it clear that he did not think that the cuts were enough.

The iconic Harley-Davidson is, of course, a great symbol of American pride, and a flagbearer of the American manufacturing story. It is only one of two American motorcycle makers to have survived the Great Depression (the other was Indian Motorcycle, America’s first motorcycle company, founded in 1901). The President’s rage over high Indian tariffs in the context of Harley-Davidson, however, may not be worth the fuss.

The duty structure

On February 12, the Finance Ministry slashed Customs duty on fully assembled motorcycles of over 800 cubic capacity (cc) that do not require any manufacturing operation after their import, to 50% ad valorem. Until then, the import duty on bikes with engine capacity of up to 800cc, and which had not been registered anywhere prior to importation, was 60%, and that on bikes with capacity of over 800cc, was 75%. However, the so-called “standard duty” on motorcycles, as reflected in the Customs tariff list, the master list of duties on all imported goods, has for long been 100% — which could, perhaps, be the basis of Trump’s reference to “100 per cent tax”.

Read | Modi ‘beautiful, fantastic man’ but US getting nothing: Donald Trump on Harley Davidson import duty

What is more relevant in the specific case of Harley Davidson, however, is not the February 12 notification, but an announcement made in the union Budget on February 1. Until the Budget announcement, motorcycles imported in a Completely Knocked Down (CKD) form — the description for import items that are not capable of being further dismantled, and which involve labour and assembling activity in India — were subject to an import duty of 10%. For motorcycles coming into India as a CKD kit where engine, gearbox and transmission mechanism are not in a pre-assembled condition, the Budget raised the import duty to 15%. For engine/gearbox/transmission mechanism coming in a pre-assembled form, without being mounted on a body assembly, the duty had, however, been changed to 25% from 30% in June last year.

Why it does not matter much

The reason why the reference to “100% tax” is largely out of context in Harley-Davidson’s India operations is that the Indian unit of the company has, since early 2011, been assembling motorcycles in India at its CKD assembly unit at Bawal in Haryana. Harley-Davidson offers a range of about 13 models in India, of which eight are assembled at the Bawal unit. These include the motorcycle major’s two best-selling models — the Street 750 and the Street Rod. Only the models that form part of Harley-Davidson’s Touring range and the CVO Limited, which carry price tags of over Rs 30 lakh, are brought into India as full imports. These models, however, are a minuscule portion of Harley-Davidson’s sales in the country.

India is the second country where Harley-Davidson has set up CKD assembly operations outside the US, after Brazil. The CKD duty would be the greater worry for it, rather than the duty on fully-built units.

What is at stake

India is a big bike market. In 2017, India edged past China to emerge as the world’s largest motorcycle market, where close to 18 million two-wheelers were sold in 12 months, even though 70% of these volumes came in by way of commuter motorcycles.

Trump has, however, kept up the pressure. In his remarks at the White House Business Session with Governors, he said: “So we want fair trade deals. We want reciprocal trade deals. (Governor) Scott Walker has a wonderful company called Harley Davidson in Wisconsin. Right? Great. So when they send a motorcycle to India, as an example, they have to pay 100 per cent tax — 100 per cent. Now, the Prime Minister, who I think is a fantastic man, called me the other day. He said, “We are lowering it to 50 per cent.” I said, “Okay, but so far we’re getting nothing.” So we get nothing, he gets 50 [per cent], and they think we’re doing, like they’re doing us a favour. That’s not a favour. And you know what I’m talking about.”

Reciprocal duties

As part of his remarks, Trump went on to say: “When I spoke with your chairman or the president of Harley, they weren’t even asking for it (duty cuts) because they’ve been ripped off with trade so long that they were surprised that I brought it up. I’m the one that’s pushing it more than they are, but it’s unfair. And India sells us a lot of motorbikes.” Trump’s threat of slapping reciprocal taxes might, however, have limited impact. The US has traditionally not been a big export market for Indian two-wheeler manufacturers, with Eicher Motors-owned Royal Enfield being the only brand from India that has some presence in the US, but that product is focused on a niche market of bike-owners who are looking at a second motorcycle. Sales are limited to just a few hundred units.

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