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With the recent induction of 10 new member states on 1 May 2004, the European Union has emerged as the world’s largest trading bloc, accounting for 20 percent of global trade. And though India’s annual trade revenues with the EU constitutes only a miniscule share of EU’s total volume of global trade—India accounts for approximately 1.6 percent of EU’s exports and imports—it has nevertheless burgeoned over the last two decades. From a modest 4.4 billion euro in 1980, it escalated to 28.4 billion euro in 2003. Particularly, during the nineties, India-EU trade growth has been significant. Between 1991 and 2001, India-EU trade increased from 9.97 billion euro to 25.52 billion euro, showing an escalation of about 150 percent. Today, EU is India’s biggest trading partner.
In 2003, 24.2 percent of India’s exports and 22.5 percent of its total imports were accounted for by the Union. According to provisional figures of 2004, bilateral trade between 15 member states of EU (as the latter 10 were inducted as member states only in May 2004) and the world’s largest democracy further rose to 32.2 billion euro, which was 16.7 percent over that of the previous year’s figures. India’s exports to EU also increased to 15.5 billion euro in the last year, which was 16.5 percent more than that of 2003’s figures. India’s exports in textiles increased by 6.9 per cent, whereas that of agricultural products climbed by 7.6 per cent. Here it deserves a mention that taking into account of its developing country status, India’s exports to EU benefits from reduced tariffs, under EU’s Generalised System of Preferences.
Today, trade with EU constitutes almost a quarter of India’s exports and imports. And it has the potential to grow much more. One of the reasons impeding India’s exports to the EU are the many non-tariff barriers that restrict their entry into the EU market. Besides that, EU is also India’s largest source of foreign direct investment, despite the fact that India receives only 0.2 percent of EU’s foreign direct investment inflows. Thus it may be inferred that though the flow of direct investment from EU to India is impressive, the untapped potential is much higher than present figures. EU’s investment inflows to India are mainly concentrated in the power and energy, telecommunications, insurance and banking, and transport sectors.
With liberalisation of financial services in India, the ambit of EU’s India-specific investment operations are likely to be augmented in the near future. Moreover, the present United Progressive Alliance government has already announced that it would set up economic zones with advantageous taxes, tariffs and labour laws to encourage foreign investment flows. This step would further encourage EU’s investment inflows to India.
Similarly trade between EU and India has huge scope for growth. Since the bilateral summit between EU and India in Lisbon in 2000, their trade relation has received the much deserved impetus, with both sides showing commitment and desire to explore the potential and ambit of their economies. Some of the major areas of Indo-EU bilateral trade include agricultural products, textiles and clothing, energy, machinery, transport material, and chemical products. Besides that, EU is exploring synergies between India’s top-of-the-line human resource in areas such as IT and biotechnology, and EU’s cutting edge manufacturing technologies.
The third India-EU summit also gave a fillip to the already healthy trade relationship between the two. During the third summit between India and EU, which was held in Copenhagen, Denmark in October 2002, leaders of both sides expressed their commitment “to intensify the high-level India-EU economic dialogue.” They also reaffirmed their commitment “to further promote EU-India trade relationship, bearing in mind the substantial potential for improving the current level of trade.” The leaders also expressed their “resolve to provide increased market access by working together in a constructive manner, in seeking speedy and amicable solution to a number of specific trade issues.”
The statement also read, “We confirm our commitment to the further strengthening of the multilateral trade regime of WTO, recognising that the objective of the WTO work programme launched at Doha should be to enhance market access, develop and strengthen WTO rules and disciplines, support the economic growth, development needs and integration into the trading system of developing countries, and contribute to the wider goal of sustainable development. We are therefore committed to driving forward all aspects of the Doha Work Programme in a balanced manner, including the issues of special and differential treatment and resolution of implementation of related concerns of particular interest to developing countries.”
The ongoing and continually developing economic relationships between EU and India cover a fairly exhaustive ambit. They include an Agreement on Trade and Textiles (1986, amended in 1991 and 1992), the EU-India Economic Cross-Cultural Programme (1996), Financing Agreement on Support to Health and Family Welfare Sector Development (1997), and Financing Agreement on Maritime Transport (1999) among others. There is also an agreement on sugarcane under which EU has undertaken to purchase and import at guaranteed prices a specific quantity of raw or white sugarcane originating from India. The prices are set on a yearly basis.
Furthermore, a Science and Technology Agreement was signed on 23 November 2001, which became effective on 14 October 2002. The agreement not only endeavours to increase scientific cooperation between EU and India, but its purview also extends beyond traditional subjects. The agreement covers sustainable development and also includes a legal framework to safeguard intellectual property rights. Under this agreement, both Indian and EU researchers can access each other’s research programmes.
In the more recent past, both parties have signed a Customs Cooperation Agreement on 28 April 2004. The agreement entails cooperation between the parties with the objective of making customs procedures less complex and developing trade facilitation in matters pertaining to customs in accordance with international standards. It also sets up mechanisms of mutual administrative assistance for exchanging information and carrying out inquiries, with a view to counter fraud against respective customs legislation. The agreement strengthens the combat against fraud, tax offences and counterfeiting. The agreement was introduced at the India-EU summit in Delhi in November 2003, and subsequently, it was signed in Brussels in 2004.
Other recent bilateral agreements signed by the two sides include Bilateral Investment Protection Agreements (BIPA), which India signed with 16 of the 25 EU member states. India has also signed Double Taxation Avoidance Agreements (DTAA) with 18 of the 25 EU member states. Negotiations for signing DTAAs with Lithuania, Estonia, Latvia, Slovakia and Slovenia are now in advanced stages.
To promote cooperation in the arena of information technology and communications, India and EU signed a joint vision statement, at the second India-EU summit, held in Delhi in November 2001. This provides a framework for exchange of views on regulatory practices, mutual cooperation in regulatory and industry initiatives and specific issues/projects of bilateral interest.
However, it is not only EU that is interested to invest. India also shows a similar inclination. Recently, EU got the green signal from India to participate in its multibillion dollar Galileo Navigation Satellite project, which is due to come on line in 2008, as an alternative to the US Global Positioning System (GPS). By pledging to invest 300 million euro, India has, in fact, overtaken China, who also showed its interest to become a part of this ambitious project.
In the recently held 5th India-EU summit, held in The Hague, the Netherlands, the India-EU strategic partnership was launched. Here EU’s proposal to translate its relationship with India to a strategic partnership was endorsed. In this context, this summit marked a watershed event in their relationship. Before that EU had established strategic partnerships with only five other countries, viz. USA, Canada, Russia, Japan and China. This strategic partnership is expected to give India-EU trade relations the necessary impetus.
In this summit, there was a proposal to set up an ‘energy panel’ to discourse on cooperation in energy matters and also an ‘environment forum,’ which would be a platform for business and civil society representatives to discuss environment issues and possibilities for cooperation. It was also agreed to continue negotiations with the EU side to sign the Framework Agreement to formalise India’s participation in the Galileo Satellite Navigation project. India also expressed its interest to participate in the International Thermonuclear Experi-mental Reactor (ITER) project, which has been introduced with the objective of generating energy from nuclear fusion.
However, the trade relationship between India and EU does have some irritants that need to be ironed out to foster growth in the future. For example, though India’s import tariffs have been significantly reduced, it is still high according to prevalent international standards. Besides imposition of steep import tariffs, a number of non-tariff barriers in the form of quantitative restrictions, import licensing, mandatory testing and certification for a large number of products are also deterrents to India-EU trade.
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