EU still reluctant to open its markets to developing economies

Written by Malcolm Subhan | Updated: Nov 6 2004, 05:30am hrs
Prime Minister Manmohan Singh will be attending the India-European Union summit at The Hague on Monday. The talks with his opposite number, Dutch Prime Minister Jan Peter Balkenende will focus, therefore, on lofty political issues. But Dr Singh holds a PhD in economics from Cambridge University and knows better than anyone else that The economy rules, okay

International trade plays an important part in raising living standards. The World Bank has estimated that a pro-poor outcome of the current Doha Development Round of trade negotiations could increase global income in the developing countries by $160 billion. The main beneficiaries would be countries with the largest share of international trade.

At first sight, India is very well placed as regards exports to the 25-nation European Union (EU). It ranked third, for example, in textiles and clothing in 2003, with exports of just under 4 billion euro. These two products account for some 30% of its exports to the EU. But India is also a major beneficiary of the EUs generalised system of preferences (GSP). It currently ranks second, with nearly 12% of the EUs total imports under its GSP scheme.

Could Indian exporters have done much better had the EU (a) imposed fewer quotas on their textile and clothing exports and (b) introduced a GSP scheme was clearly designed to raise EU imports of manufactured products from India and other developing countries The short answer is yes.

To be fair to the EU, until Dr Singh embarked on his economic reform programme in the early 1990s, government policy hindered, rather than favoured, Indian exporters. However, in international fora, such as Gatt and the UN Conference on Trade and Development (Unctad), India insisted that but for the protectionist policies of the developed countries, its exports would be much, much higher.

Why were developed countries so protectionist as long ago as the early 1960s, when they imposed the long-term arrangement on cotton textiles on Indian and other Asian exporters Why did the six-nation European Economic Community, the forerunner to todays 25-nation EU, introduce a GSP scheme in 1971 which classified products as sensitive, semi-sensitive and non-sensitive

These questions are far from academic. The protectionism displayed by both Europeans and Americans was the product of a particular mindset, one still very much in evidence at the level of governments. There was a tendency to resist economic change, despite the far-reaching political changes which Europes colonial powers had had to accept.

In colonial times, developing countries were seen essentially as producers of raw materials and as markets for the finished products of developed countries. Unctad-III, held in Nairobi in 1972, was dominated by demands from the developing countries for better prices for commodity exports. Developed countries were strongly opposed to any attempts to tamper with world commodity markets. An exasperated German delegate told journalists that if developing countries insisted on treating raw materials as belonging to them, the industrialised countries would respond by treating scientific and technological advances as their property.

Developments in the last 30 years have shown, however, that no country has a monopoly on brainpower. Yet, individual EU countries are only now beginning to grasp the consequences of Indias rapid mastery of information technology, biotechnology and nuclear and space technologies. Even so, changing European attitudes to Indian scientists and IT professionals, for example, are driven more by an attempt to meet American competition. They are not informed by a recognition that even developing countries can develop the skills and knowhow that a technology-driven world demands.

Recognition of the dynamic role countries like India are playing in a rapidly globalising economy would have prompted the EUs policymakers to see how to team with these countries in a genuine economic partnership. The EUs response to the elimination of 30-year old import quotas on textiles and clothing has been essentially protectionist. To fend off competition from countries like China and India, the EU is focusing its energies on creating a wider Europe a bloc of nearly 40 countries within which goods, capital and human resources will move about freely, on a preferential basis.

This same protectionist mindset is evident in the revised GSP scheme which the EUs outgoing trade supremo Pascal Lamy has sent to the EU governments for approval. Thirty years after the EEC introduced its first GSP scheme, its present scheme classifies some 3,700 products out of roughly 7,000 as sensitive. The revised scheme will maintain this classification, although it has been designed to favour the least developed countries.

Trade, as the European Commission, which both initiates and implements the EUs trade policy has pointed out, can make a positive contribution to poverty reduction through its impact on economic growth and income. It is a pity that economist Manmohan Singh will not have time at the EU-India summit to help the EU translate these fine words into action.