He said the EU had not raised the bogey of foreign exchange neutrality to be maintained by intending foreign companies wishing to set up passenger car units in India as outlined in the policy since the last round of consultations between the two countries in Geneva in December 1998.

The EU had filed a petition in the dispute settlement body of the World Trade Organisation challenging India's auto policy, he said adding that the delegation had gone to Geneva as part of the consultation process. The US and Japan attended the meeting as observers.

Lakhanpal said the Indian side gave a detailed account of the provisions of the policy and since then ``we have not heard from them and we believe they are reasonably satisfied with our stand.''

Under the policy, hesaid, pasenger cars figured in the restricted list of import which included both CKD and SKD condition. Quantitative restrictions also applied on import of cars and hence were not allowed for import unless foreign auto majors signed a memorandum of understanding (MoU) with the DGFT to set shop in India.

The policy enjoined on foreign car makers to achieve indigenisation up to a minimum of 50 per cent in the third year or earlier from the date of clearance of the first import consignemnt of CKD/SKD kits/coomponents and 70 per cent in the fifth year from the third year of commencement of production.

Further, companies entering into an MoU would have to achieve broad neutralisation of foreign exchange over the entire period of the MoU in terms of balancing between actual CIF value of imports of SKD/CKD/components and the FOB value of export of cars and auto components over the said period.

The period of export obligation would start from the third year of commencement of production. This meant car makerswould have a two-year moratorium on fulfilling the obligation.

Lakanpal said that under the WTO agreement on Trade Related Investment Measures (TRIMs), India and other developing countries were free to ``temporarily deviate from Article 2 of the agreement as regards compliance of the requirement of indigenisation and export obligation for balance of payments purposes.''

This implied that India's right to impose quantatitive restrictions and export obligations under the auto policy remained unimpaired till the BOP position eased, he said.

It was because of the BOP position that India had come out with a six-year phase-out plan for removal of quantitative restrictions on imports. Barring the US, all other developed countries had reached agreements with India accepting the plan, Lakhanpal said.