The US objection is on lines similar to those voiced by the other two developed countries. These countries said that the policy requiring foreign auto giants wishing to set up car projects in India to maintain foreign exchange neutrality militates against World Trade Organisation rules.

Director-General of Foreign Trade NL Lakhanpal will represent India during the consultations due to begin in Geneva by the month-end. He will be joined by India's ambassador to the World Trade Organisation, S Narayanan.

The US call for bilateral talks comes close on the heels of the last round of consultations on the policy between India and the EU in December 1998. Then the US and Japan had participated in the meeting as observers. This followed a petition filed by the EU in the dispute settlement body of the WTO questioning India's auto policy.

During thediscussions, the Indian side gave a detailed account of the provisions of the policy and the EU "is reasonably satisfied with the explanation", Lakhanpal said, and added that he would drive home the same points at the forthcoming talks with the US as well.

Under the one-and-half-year-old auto policy, passenger cars figure in the restricted list of imports which include both CKD and SKD kits.

Quantitative restrictions also apply on import of cars and hence are not allowed for import, unless foreign auto majors sign a memorandum of understanding (MoU) with the DGFT to set up shop in India. The policy enjoins 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 consignment of CKD/SKD kits/components and 70 per cent in the fifth year from the third year of commencement of production.

Further, companies entering into an MoU will have to achieve broad neutralisation of foreign exchange over the entire period ofthe MoU in terms of balancing between the actual c.i.f. value of imports of SKD/CKD/components and the f.o.b. value of export of cars and auto components over the said period.

The period of export obligation will start from the third year of commencement of production. This means carmakers will have a two-year moratorium on fulfilling the obligation.

Under the WTO agreement on Trade-Related Investment Measures (TRIMS), India and other developing countries can "temporarily devitate from Article 2 of the agreement as regards compliance with the requirement of indigenisation and export obligation for balance of payments purposes".

This implies that India's right to impose quantitative restrictions and export obligations under the auto policy remains unimpaired till the BOP positiion eases.