The European Union and India have a longstanding relationship. India-EU relations go back to the early 1960s when India was amongst the first countries to set up diplomatic relations with the then six-member European Economic Community. Bilateral relations have been based on a series of bilateral agreements signed in 1973, 1981, and 1994. The 1994 agreement was an evolutionary agreement for the EU as it was accompanied by a Joint Statement on political dialogue, which has since led to regular ministerial level meetings culminating in the historic EUIndia summit in Lisbon in June 2000. Since then we have had two more EU-India Political Summits: the second summit in November 2001 at New Delhi and third summit in Copenhagen
in October 2002.
The European Union has a holistic relationship with India covering a wide gamut of areas. The canvas includes development cooperation, economic interlinkages and a very strong trade and investment partnership. To give a few illustrations: the EU has cooperated with India in a substantial way beginning with “Operation Flood” that has improved and made India the largest producer of milk today. The total of European Commission’s development assistance to India is reaching the landmark figure of Euro 2 billion (over Rs 80,000 million). The EC is the largest donor of grants to India and development projects account for over 95 per cent of the its total financial commitment.
EU-India Trade Relations
The cornerstone of European Union’s link with India lies in its trade and investment relationship. The EU is India’s largest trading and investment partner. India-EU bilateral trade constitutes a quarter of India’s total trade while our investment is around 14 per cent of India’s total foreign direct investment inflows received during the period 1991 to May 2002. At the Business Summit of the third EU-India Summit held in Copenhagen last October, it was decided to set a bilateral trade target between EU and India of Euro 35 billion by 2005 and Euro 50 billion by 2008. This implies a compound growth rate of around 14 per cent in the next five years. Given the trend witnessed during the 1990s, this seems an immensely realistic target and should be achieved without much difficulty.
What are major exports from India to the European Union? In the first half of 2002, the main products exported by India to EU were textiles and clothing, gems and jewellery, leather and leather goods, engineering goods, chemical and allied products and agriculture and allied products. It is interesting to note that textiles and clothing, leather and leather goods and gems and jewellery constitute more than 55 per cent of total Indian exports to the European Union.
If you look at the trends of commodity exports from India to the European Union, you will find that the composition of its exports from a predictable pattern in most years. This has been an area of concern for policy-makers on both sides and efforts have been made in recent years to widen the basket of goods that can be traded between the two trading partners. One of the major initiatives that have been launched in this context has been the Joint Sectoral Studies that have been conducted between the private sectors of both sides. So far, eight sectoral studies, viz. food processing, mechanical engineering, information technology, telecommunications, energy and power, textiles, biotechnology and financial services, have been conducted. Industry has made detailed joint recommendations to enhance increasing trade and investment co-operation between EU and India industries. Some of the recommendations have already been implemented, while Working Groups have been formed to look the other suggestions for further policy action.
Some Trade-Related Areas of Concern
Problems raised by Indian Exporters
One of the main problems that one hears from Indian exporters relate to what are called “issues relating to Sanitary and Phytosanitary measures” (SPS). These SPS issues pertain to a number of primary and processed products like milk, eggs, poultry, meat, fishery products, mollusks, etc. In the export of these products, the main problem arises due to the presence of some chemicals or antibiotics, which are not allowed into the European Union. Indian exporters also claim that food standards in the different member states vary and create complications for exporting their products.
Such problems exist, but SPS measures imposed by the EU are not a kind of protectionist tool. The European Union is the world’s largest importer as well as the largest agricultural importer from the developing world and it does not seek to prohibit Indian exports to the EU market. The reason why the European Union is very careful about its food standards is because civil society demands it, mainly because of the kind of food related problems that Europe has faced. Moreover, in order to educate the Indian exporting community of the various standards prevalent in EU, a Euro 15 million Trade and Investment Development Progamme (TIDP) is being launched in 2003 in association with the Ministry of Commerce and Industry. A major part of this TIDP initiative will provide technical assistance towards building international SPS standards in India for the benefit of its exporters.
The second kind of issues that have been emerging relate to increasing quota limits for some agricultural products like mushrooms and sugar and reduction of tariffs for products like gherkins and cut flowers. Though this is also a problem area for Indian exporters, there is a positive aspect to this problem. This shows that Indian exporters find considerable opportunities in the European Union for such products and are demanding enhanced access to its markets.
There is, of course, the third kind of problems, which relate to the controversy surrounding the GSP benefits on textiles as also on those products which are adversely affected by trade defence mechanisms like anti-dumping duties. Though India is the second largest beneficiary of the EU GSP scheme, it has requested for a panel in the WTO against the EU GSP scheme, as it feels that the drugs regime provision of the scheme discriminates against it. The EU feels that, is, indeed, extremely unfortunate as the GSP is an important instrument for EU to help the least developed and the developing countries (including India) to gain greater market access in the EU. Similarly, with regard to the anti-dumping issue, the concern is mutual. India is the largest user of anti-dumping duties against the European Union, while the EU has also reciprocated similar measures against Indian exports. Though defence mechanisms as an instrument, are likely to be debated at the DDA negotiations under the auspices of the WTO, such mechanisms, as a policy, should not be utilized to protect domestic markets.
Problems faced by EU Exporters
EU exporters, not surprisingly, also have a range of problems in exporting to India. Of these, the most important relates to what are called the Article XX and XXI restrictions. These are quantitative restrictions imposed by India on the grounds of general and security considerations. The EU has, in fact, asked for a panel at the WTO for doing away with such restrictions since we feel that there is no logic to impose them.
Moreover, there are certain product specific problems. The most widely debated issue in this regard is the cascading nature of taxes on wines and spirits. Though India is committed to lowering the very high import duty on imported liquor in a phased manner, there is also the problem of national treatment of imported liquor as different states in India have different indirect taxes and fees. Similarly, there are problems of technical barriers to trade (TBT) and sanitary and phytosanitary measures (SPS) applicable to a range of goods, such as, automobiles, foodstuff, mineral water, etc. The general problem, however, is the extremely prohibitive import duties that India levies on its imports. I am aware that the Government of India is committed to reduce the peak rates of duties as well as the average rate of import duty.
Moreover, the recent report of the Kelkar Committee on Indirect Taxes has made some very important suggestions with regard to the lowering of import duties and the procedural simplification of customs and excise practices. It is hoped that the next Indian Budget (2003) will look at the recommendations of the Kelkar Committee.
Economic Cooperation Instruments
Bilateral trade is only one aspect of the EU-India business relationship. The European Commission has designed a number of programmes to enhance economic cooperation between the EU and India. Some of the major economic cooperation instruments that have been designed to promote greater economic understanding between the two are described below.
Bilateral E conomic Programames
The European Union is implementing some important bilateral economic programmes with India in a number of critical sectors. This includes, the EU-India Ciril Ariation Project which aims at civil air safety and related procedures with a view to stimulate cooperation between EU and Indian civil aviation industries. The project has a total value of Euro 32 million (Rs 1,540 million approximately) including an EC contribution of Euro 18 million (Rs 860 million), the Indian Government contribution of Euro 8 million (Rs 320 million approximately), and the rest by the contribution from European aerospace industry. The EU-India Maritime Transport Project aims to improve the efficiency of major Indian ports and supports the Indian Government’s efforts to introduce Electronic Data Interchange in the Indian port sector. Currently, the project provides technical assistance to Jawaharlal Nehru Port Trust, Chennai and the Tuticorin Port with the aim to improve port performances.
Asia-wide Programmes
The most popular in this set of programmes is the Asia Invest Programme. A number of interesting projects have been supported in the different states of India as well as all over Asia under the Asia Invest banner. The EU will shortly be launching Asia Invest II, which as in the earlier programme, is designed to support links between European and Asian enterprises, in particular, among small and medium-sized companies. The Asia IT & C which is designed to do a similar job like in the Asia Invest Programme, but in the Information Technology and Communications sector. Another interesting programme under this set is the Asia-Urbs programme with a budget of Euro 30 million. The objective is to establish and reinforce existing links between European and Asian local government institutions.
Trade and Inestment Development Programme
The Doha Development Agenda (DDA) is at an important stage of negotiations. The European Union sincerely believes that the “development” aspect of the Doha negotiations is a crucial element of the DDA. In order to work closely with India on various DDA issues as well as to enhance bilateral trade and investment ties, the EU has developed an Euro 15 million Trade and Investment Deelopment Programme (TIDP) designed to help create greater awareness and develop technical capabilities in areas such as Sanitary and Phytosanitary Measures (SPS), technical standards, trade and investment rules and procedures, etc. This programme is likely to enable the Indian export sector to witness considerable buoyancy and enable it to better integrate its trading sector to global markets.
Cross Cultural and Small Projects Facility Programme
Though not strictly in the domain of economic cooperation, the EU-India E conomic Cross Cultural Programme was initiated in 1995 to foster civil society links and to facilitate the networking of institutions and organizations in India and the European Union. Similarly, the Small Projects Facility programme, is a new initiative designed with the purpose of reinforcing and complementing the effects of other cooperation activities taking place under the partnership between the EU and India as defined in the Joint Declaration and Agenda for Action adopted at the First EUIndia Political Summit in June 2000.
Promoting Business through Multilateral Cooperation
The potential of EU-India trade has to be seen at two levels: first, at the bilateral level, which I have discussed so far and second, at the multilateral level. Today, the World Trade Organization (WTO) has an important role to play in giving a “big push” to international trade. As many of you are aware, we are at a crucial stage of WTO negotiations, with less than eight months away from the next Ministerial Meet to be held at Cancun in Mexico.
The Doha Development Agenda has an important role in freeing up trade and investment flows in the global economic system.
The European Commission feels that the success of the Cancun Meet is an indispensable prerequisite for giving greater thrust not only to international trade flows, but to accelerate trade relations between countries like India with those of the developed markets, such as the European Union. The DDA is a comprehensive negotiation between all the members of WTO on various issues pertaining to market access of industrial products, agricultural goods, trade in intellectual property, formulation of policies governing competition, investment, trade facilitation and government procurement, etc. The EU has been in close discussion with their Indian counterparts on all these issues and are working to explore common grounds in all possible areas.