Auto sector faces WP-29 challenge

Silently another challenge is building up for Indian automotive companies just when they are already having to deal with issues arising out of the rush towards FTAs, a lopsided tariff structure and poor infrastructure. The challenge, which is participatory and discussion-oriented, is being posed by a gradual move by most automotive industries in the world to be signatories to the Geneva-based United Nations Economic Commission for Europe’s two prime agreements which form the basis of what is the World Forum for Harmonisation of Vehicle Standards.

Termed WP-29, its work is concerned with aspects such as vehicle safety, environmental pollution, energy and anti-theft. This body processes its regulatory work through six sub-groups, called GRs, and each of which are allocated different areas. The two agreements, which are driving a “meeting of grounds” for adherence to a common pool of automotive standards, are the 1958 and the 1998 Agreements. For some years now, the Japan Automobile Standards Internationalization Center (JASIC) had been promoting the essence of WP-29 in Asia through government-industry (GI) meetings which brings together officials from JASIC and the respective governments and trade bodies.

ACTIVE PRESENCE

India has been attending these meetings where it is represented by the department of heavy industry, Society of Indian Automobile Manufacturers, Automotive Component Manufacturers Association of India etc after receiving invitations from JASIC. Most meetings were used as platforms to persuade India to join the WP-29 as a signatory member and the question of “how soon” would invariably come up. India became an observer member of WP-29 in 2003 and then later went on to sign the 1998 agreement in 2005.

The forum’s intention is to create a harmonised body of automotive standards where technical barriers to trade will get reduced and automotive products manufactured to world standards at any location of the world can be used by people in any other part. However, it does not mean that country-specific requirements cannot form part of the national standards. A nation can retain its standards depending on country-specific factors. Broadly, it is felt that if a country does not have any specific needs, it should conform to a common set of standards. While this is may seem practical theoretically, assuming that automotive industries world widehave the same kind of growth pattern and development, in reality this is not the case.

STANDARDS VARY

Actually it is not always possible to have standards that are common globally in a situation where the state of development of an automotive industry in a particular region is different. What could happen by conforming to uniform standards is that the developed world’s automotive industry will simply pervade the industries of developing and underdeveloped countries. Common standards will have severe commercial implications for these countries. Unless these nations come up to the level of sophistication as in the developed world, they will find it difficult to quickly conform to international standards. Thus WP-29 has been facing, since the 1960s, a challenge in building consensus on the harmonisation of regulations.

The essence of the 1958 Agreement is that all countries have to conform to a common set of rules and regulations and the decisions are taken by the majority. So the signatories of this agreement can vote regulation by regulation, through a majority, for the implementation of a common regulation. Once a country becomes a signatory, votes and once the regulation has been notified, it cannot refuse, for instance, the import of vehicles conforming to the particular regulation from anywhere in the world. Hence, India’s own protective non-tariff barriers could get overruled as a result.

##### Therefore India and many other countries, such as the U.S., did not sign this agreement whereas Japan, South Korea, the entire EU bloc, are some of the principal 1958 Agreement signatories – some which possess very advanced automotive industrial sectors. In the 1958 Agreement the EU holds the largest chunk of votes though most of the regulations are driven by Japan. The EU has, over the years, seen a lot of advancement in automotive technology and works closer with Japan and vice-versa and they of course have common business interests. Once a country becomes a signatory of the 1958 Agreement and has participated in the voting of a regulation, then it is required to keep the WP-29 secretariat informed about the progress to implement the regulation.

POLITICAL PRESSURES

A country may want to delay for some time but it would eventually give way to political pressures. Hence a signatory could have to undertake massive technical revisions while commercial pressures would see it redefining its supply chains. The technical and commercial consequences, coupled with the various preferential aspects given in trade agreements such as FTAs and RTAs, could have unlikable consequences for a country like India where it could find inroads being made by another country utilising the WP-29 route for products which Indian manufacturers are not yet on the same competitive level.

The 1998 Agreement, on the contrary, was floated by the US as a parallel one with the view that WP-29 should adopt a more democratic method for the formation of regulations. This agreement allows countries, which are not ready to or cannot assume the adoption and implementation of obligations of the 1958 Agreement, including mutual recognition obligations, to engage effectively in the development of harmonised global technical regulations. The 1998 Agreement is also administered by WP-29.

PRINCIPAL DIFFERENCE

Therefore, the principal difference between the 1958 and 1998 Agreements is that the regulations under the latter are made through consensus where every country has vetoing powers to vote against and thereby not allow a regulation from being formed. The 1998 Agreement will progress slower in formulation of standards as building of consensus will mean more time. This, however, will result in time being well-used by underdeveloped OR developing countries to catch up technologically and eventually sign whatever regulations are mooted.

The 1998 Agreement has started with issues which are very simple and pertain to aspects and products such as door latches, heavy commercial vehicle and two-wheeler driving cycles, among others. India has raised strong objections to the regulation being mooted for two-wheeler driving cycles because, as one of the largest producers and consumers of two-wheelers in the world, it had reservations on basing two-wheeler driving cycles on what is experienced by an industry in Europe for instance. It is understood that India’s voice has been heard and a review is underway. India, it is felt, has a better chance of expressing its concerns under the 1998 Agreement than the other for the simple reason that it is not a signatory to the 1958 Agreement and could hence, along with China, be left in the minority whereas the EU would still go forward.

STRONGER ROLE

Once a country becomes a signatory to any of or both these agreements it will get an opportunity to participate in the discussions and influence the formation of regulations. At least a signatory’s voice will be heard and its representatives can report back to the country to let it know where the rest of the world is heading. It is thought that the vehicle sector, especially its MNCs, will not be impacted much owing to the fact that it is already abreast with technological developments around the world.

##### Indian companies which do not largely form a part of the global automotive supply chains will face a challenge. The auto component sector is one segment which will be most impacted for the reason that it is where most technology resides. If the US has its way, all 1958 Agreement regulations, known as ECE, could get converted into the 1998 Agreement regulations which are called Global Technical Regulations or GTRs in short. The country’s view is that the aim should be to eventually have one main body of regulations. But this of course is a distant aspiration as it is easier said than done.

THREAT LOOMS LARGE

It is obvious that the decision of India and other underdeveloped or developing countries to join any of these agreements will definitely impact their local industries. Australia, a signatory of the 1958 Agreement, had initially not given its go-ahead to certain regulations being mooted but is understood to have changed its stance. In both agreement,s no consideration is given to the technology gaps that would be there among the signatories. How a subject is picked up, it is understood, depends more or less on a decision driven by a leading country’s main concerns.

The 1998 Agreement has recently been focusing on aspects like electronic stability control (ESC). ESC is applicable for a particular speed which is found more commonly in countries like the US rather than India. India has to be more careful in considering an eventual ESC regulation because the technology is not immediately applicable to its scenario. Both agreements thus have the potential to allow greater leverage to more developed countries to push a particular technology which some other signatory countries may not possess. Who sets the agenda is very important and this is among India's many concerns with both agreements.

India’s domestic tariff structure is not even and in such a situation if technical regulations get flattened then one could end up in difficulty and this could impact investments. The 1958 Agreement has the ingredients to encourage large investments being made by signatory countries for products which are either absent in India or which are not competitive.

SCOUTING FOR GAPS

India is currently doing an exercise pertaining to the 1958 Agreement to see what gaps exist between the ECE regulations and its own national standards. Are gaps, if any, a figment of one’s imagination and those that can be bridged and made compliant with the ECE regulations or are there some genuine cases where we need time to be prepared?

The 1958 Agreement expects that a certificate issued by a testing agency in Europe or of any other member should be acceptable to any other signatory nation. Hence mutual recognition of testing certificates is part of its agenda and the willingness to sign this agreement depends on how well prepared a country is from the point of view of testing and certification.

India’s National Automotive Testing and R&D Infrastructure Project (NATRIP) is expected to help the country bridge any gaps that may be present at the moment and later. The country’s own regulations and standards as outlined by the Central Motor Vehicle Rules, Automotive Industry Standards and the Bureau of Indian Standards would be impacted by the WP-29 regulations irrespective of whether India is or is not a signatory to any agreement. The Indian standards will eventually see an alignment with those of WP-29.

##### KICKING IT OFF

The process has already begun as a result of the country being a signatory of the 1998 Agreement. It is felt that India can streamline up to 70 to 80 percent of its regulations with those of the ECE as well as GTR. The 1958 Agreement has around 126 regulations already in place and around five or six in the 1998 Agreement. However, India could hope to influence some regulations from its own experience and expertise. Even before signing the 1958 Agreement, the country is already participating in the deliberations of WP-29’s six sub-groups and giving its inputs in the discussions.

India has its own secretariat which deals in WP-29 matters and is housed at the Automotive Research Association of India (ARAI). The ARAI has mirrored the WP-29 sub-groups at the secretariat and whose members take part in meetings of WP-29. A key and immediate action point for India is to see how effectively it could disseminate information about the happenings at WP-29 to its automotive industry. Here the government and industry associations like SIAM and ACMA will need to play a very big role.

The country also needs to work out how it can substantially contribute to the sub-groups of WP-29 and this cannot be done without having collected basic data which will require tremendous research. For instance, the driving cycle of the 1980s for two-wheelers is still being followed in the country and is required to be updated according to the new road networks, etc. The country at the moment is seeing greater consensus being built for going ahead and signing the 1958 Agreement and most stakeholders realise that India’s growing and rapidly global-embracing automotive industry cannot be away from the developments that are taking place under this agreement.

GREATER CAUTION

Industry associations are not averse to signing the agreement but advocate caution in addition to the recognition of their concerns on trade agreements and the absence of level playing fields in several areas. Exporting companies would naturally be keener on signing the 1958 agreement compared to those that are domestic sector focused. The component industry must examine the consequences closely. NATRIP aims to work on the basis of the 1958 regulations even if its certifications may not be accepted by any signatory country as India is not yet part of that agreement.

Irrespective of whether we signs the 1958 Agreement or not, component makers exporting or keen on doing so would have to be attuned to WP-29 standards. Those who are still internal looking would have to monitor developments at the WP-29 which, like any other radical development taking place in the global automotive world, could have both pros and cons.