|
On May 1, 2004, 10 new countries- Hungary, Cyprus, Slovakia, Poland, Czech
Republic, Slovenia* Malta, Lithuania, Latvia, Estonia – acceded to the European
Union, raising the number of official languages from 11 to 20. The expansion
raised the membership from 15 nations to 25. The bloc’s population has increased
by 75 million, territory by 25% & GDP by 5%.
For India , the EU is the largest trading & investment partner- accounting for
25% of country’s total trade and 13.8% of all FDI into the country. For India
the most important question is: will removal of trade barriers among 25 EU
members result in more trade or loss? Will it be trade creating or trade
diverting?
- On paper, we should gain; at least on the trade front. After all it ought to be
much easier to deal with one common market with a single set of administrative
procedures rather than with a motley collection of countries, each with it own
tariffs, procedures & other regulations. Enlargement will extend the EU’s trade
policy regime to the ACs (Accession Countries). The current system featuring one
trade regime for the EU and a different one for each of the ACs will disappear.
India ’s total trade with the ACs is minuscule at present-just $500 million in
2002-03. But as the access quickens the pace of integration and leads to faster
growth it should lead to more demand for Indian exports.
The removal of quota restrictions for Textiles & Clothing from Jan 2005 should
also work to India ’s advantage since it will reduce the protection presently
available to ACs exports in the EU market.
It is sure that there are advantages that will flow from the fact that the
average tariff rates in those 10 countries at 9% is currently higher than the EU
average of about 3.6%. Hence making the market access easier.
- It is not all a bed of roses. Once trade barriers between ACs & original EU-15
disappears completely, the relative competitive advantages of many of our
exports to the EU will come down. Today, imports from the ACs accounts for only
about 1% of the EU’s GDP. But this is bound to change. E.g. India & Poland
compete in the EU market for 46 of the top 100 exports from India to the EU.
Enlargement has implications for our trade with the rest of the world as well.
The reason is that the EU has about 30 Free Trade Agreements with countries
outside the region. And once the ACs become part of the EU, they will also be
party to these FTAs, in which case India ’s export to 3 rd countries might lose
their existing competitive advantages vis-a-vis the ACs.
Another concern relates to non-tariff barriers especially in the area of
agriculture exports- standards, testing, labeling and certification requirements
are a major cause of concern. EU operates a sophisticated system of non-tariff &
trade defense measures.
In contrast to ACs, which rarely invoke anti-dumping measures, the EU does so
frequently. Upon enlargement the existing EU anti-dumping measures will cover
the ACs too. There is a platform of EC legislation relating to sanitary &
phytosanitary and food safety issues which are applied in most stringent manner
on imports from developing countries such as India.
Now three ACs Poland , Hungary & Czech Republic , features among the top ten
most attractive destinations for FDI along with India and they become even more
attractive destinations post accession. India will have to look sharp. It will
have to spruce up its policy regime & more importantly, its cumbersome
procedures at the grass-root level if it is to retain its ranking in the FDI
league tables.
Both Govt. & industry have their work cut out for them . Government will have to
ease up on its policy framework & Indian business will have to reposition
themselves to take full advantage of the opportunities posed by the world’s
largest economic block.
You can send us your query now on
query@nrilegalservices.com or click on
Send a Query.
|