Japan Questions Auto Joint Venture Norm

The Japanese government has written to the commerce ministry questioning the stipulations on time-bound indigenisation plans for ancillary units of auto joint ventures.

The stipulations were recently added to the memorandum of understanding (MoU) for passenger car joint ventures.

The Japanese government's letter, termed a "questionnaire" and handed over to the Indian envoy in Tokyo, was sent at the behest of auto major Honda Motor Corporation's Indian subsidiary. Only Honda-Siel and Fiat have signed up with the commerce ministry under the modified MoU guidelines.

According to official sources, the Japanese contention is that while the principal company can take care of its own indegenisation plans, it will be impossible for it to monitor the indigenisation levels of ancillary units which are independent entities.

 

The Japanese government has further pointed out that since the principal companies will only have a sourcing arrangement with ancillaries, it is unfair to make them responsible for any failure of these units in complying with the stipulations on indigenisation.

Though several overseas passenger car majors like Hyundai and Toyota are planning to bring in their own vendors from their own countries, these units will technically be independent entities with separate ownerships.

Ministry officials, however, pointed out that the clause had been included to stop the practice of auto ventures successfully getting around the mandatory indegenisation plans by showing higher levels of local sourcing of components from their ancillary units, which, in turn, are joint ventures with foreign partners. These ancillary units depend heavily on their foreign collaborators for import of both raw materials and critical components.

The commerce ministry is currently in the process of explaining to the Japanese the reasons for the inclusion of the contentious stipulations in the MoU through the diplomatic channel and is hopeful of "satisfactorily" sorting out the issue, the sources said. However, the industry circles feel the matter could well be dragged to the World Trade Organisation with other auto majors siding with Honda over the indegenisation clause.