Breathing in WTO's world

By Anil Agarwal
Last Updated: Thursday 11 June 2015

With the world becoming a global village, there are several problems that will require a sound understanding of the ever-changing dynamics of global trade and its impact on the environment. One such issue is the dumping of old, rejected cars from the developed world into the markets of developing countries, where the growing middle class is all willing to snap them up.

The Society of Indian Automobile Manufacturers ( siam ) has warned that the import of second-hand cars will pose a threat to domestic industry and has asked the government to levy a 100 per cent tax on these imports. It reports that in countries such as Japan, government regulations like high annual car registration charges and depreciation norms make it almost impossible to own cars more than six years old. As a result, prices of second-hands are low and these cars flood other countries, destroying their domestic car industry.

For once, I agree with siam . Second-hand car import could be deadly. But I do not agree with siam 's single-minded perspective that the answer lies in raising import duties. The World Trade Organisation ( wto ) regulations, which India has accepted, provide that countries cannot discriminate against foreign goods. This could be seen as 'arbitrary' and 'unfair'. The government might not be able to impose higher custom duties, but it can ensure that this "flooding" of the Indian market with cheaper, more polluting cars will not have serious repercussions on the growing problem of air pollution in cities. This can be done through domestic norms and regulations. wto allows governments to adopt domestic regulations, standards and emission norms for the protection of the environment and the health and safety of its people, as long as these norms are used to regulate both domestic and foreign producers without discrimination.

The import of old cars could seriously impact the environment. Firstly, it is important to note that under current emission norms, only Delhi is to implement euro i norms and will move to euro ii in April 2000. Recently, the Mumbai High Court also ordered similar norms. These states can refuse to register cars that do not meet these norms. But the rest of urban India -- also reeling under smog and disease -- is still scheduled to go in for euro i norms in 2000 and euro ii in 2005.

This means that as of today, India cannot stop imports of non- euro i compliant technology, which became obsolete in Europe in 1996, and it cannot stop non- euro ii compliant technology till 2005, which will become obsolete in Europe in 2000. Unless India upgrades its emission norms urgently and makes all of India euro ii compliant by 2000, India can become the world's biggest dumpyard of obsolete and polluting technology.

Even Delhi and Mumbai, with their slight advantage, could be taken for a ride. We do not have a system of ensuring that vehicles meet emission norms after they have passed the emissions check at the factory gate. Manufacturers do not provide a warranty for the emissions over the life of the vehicle. Therefore, there is no guarantee that the imported cars -- even if they once technologically matched euro i or euro ii norms -- have not deteriorated substantially over the years, as do most cars.

Given India's past record in pollution under control certificates, I would not suggest that any government agency waste money and the public's time and patience to check the tailpipes of foreign cars. It would be more important to put into place a domestic emissions warranty system so that buyers of second-hand foreign cars can also insist on such a warranty. And the government should be able to prevent the import of vehicles without such warranties.

Thirdly, India does not have a taxation system that would ensure that old cars are phased out. This lacuna could easily make the deadly import of second-hand cars even more persistent as it basically means that once such a vehicle enters an Indian city, it will stay and pollute for life. siam 's report itself points out that the reason second-hand cars are cheaper in Japan and have no market there is because of its taxation policy, which makes driving an old car prohibitively expensive. Many other countries, concerned about the deterioration factor in older vehicles, which makes them more polluting, have similar policies. But our system is built on a one-time road tax that has no relationship with the worthiness of the vehicle.

In the post- wto world, the old ways of state protection are gone. In this new situation, we will need excellent policies of regulation and stringent standards to protect Indian citizens. Indian car exporters know only too well how they are forced to deal with the standards of the industrialised world set for the health and safety needs of their people, otherwise they cannot hope to even think of their markets. Now, Indian car manufacturers may have to protect their own life and limb here in India -- that is, their profits and investments -- by working with the interests of their consumers and the environment. But it seems that siam is yet to receive the message. It is indeed ironic that the only thing that can save India's automobile industry is high environmental standards -- something it has been fighting hard till now.

-- Anil Agarwal

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