EUs Import Policy Displays Pakistan Bias

Written by Malcolm Subhan | Updated: Aug 12 2002, 05:30am hrs
One would expect India to be on very good terms with those who set the policy for an export market worth around $950 billion a year. The truth is that trade relations between India and the European Union (EU) could not be worse, marked as they are by suspicion and rancour.

The export market in the 15-nation EU accounts for around one-quarter of Indias total exports. India was 22nd among the EUs foreign suppliers, with $11.4 billion worth of exports in 2000. However, Indias share of the EU market has been declining in recent years - it fell from 1.5 percent in 1996 to 1.2 percent in 2000.

The explanation, from Indias viewpoint, is the highly protective nature of the EU market. And yet if the World Trade Organisation (WTO) is to be believed, the EU has maintained its markets largely open. The new WTO report notes that the EU is the worlds leading exporter of goods and its second largest importer, which makes it a significant market for most WTO members, notably developing countries. The WTO report does point out, however, that the EU market is largely open - except for textiles and agriculture. And Indias quarrel with the EU is largely over the latters import policy for textiles and clothing.

India is not alone in criticising the EU on this score. The WTO report in question was prepared for the review of the EUs trade policy, which was conducted by the Trade Policy Review Body (TPRB) at the WTOs Geneva headquarters on July 24 and 26. Its Chairman, in summing up the proceedings, noted that the continued protection of the EUs textile and clothing sector received considerable attention.

The WTO report described the key features of this protectionism as: tariffs well above the average; long-standing quota restrictions on imports from a number of developing countries and transition economies, and very limited progress on integrating textiles and clothing products into the WTO.

As the WTO report points out, the EU has so far removed quotas on just 20 percent of the products whose imports were subject to quantitative restrictions in 1990. The quotas on the remaining 80 percent of products subject to these restrictions will only be removed at the end of 2004. The EU, in other words, will have respected the letter of the 1994 Agreement on Textiles and Clothing (ATC) but not its spirit.

India is in good company, therefore, in strongly challenging the EUs textile and clothing import policy. Significantly, the report prepared by the EU itself, for the TPRBs deliberations some 10 days ago, contains no reference to its textiles and clothing import policy, except to state that during the Doha negotiations for the new trade round, the EU was at pains to ensure that the round included the interests of developing countries.

According to the report, this concerns in particular negotiations to improve market access in key sectors like agriculture and textiles.

The very last paragraph of the EU report to the members of the TPRB does contain a more precise reference to textiles. This paragraph deals with EU-Pakistan relations. It notes that the EU adopted a comprehensive package of trade preferences, which includes a quota increase of 15 percent for textiles and clothing products and zero duty imports of clothing products under the GSP drug regime for the period 2002-2004.

These concessions to Pakistan have fuelled Indian resentment against the EUs import policy even further. There is no doubt that the decision to discriminate in favour of Pakistan was politically motivated: the 15 EU governments, perhaps under pressure from the United States,

felt obliged to reward Pakistan last year for its active support to the United States-led coalition against international terrorism.

But if Indias complaints against the EUs import policy are justified, it does not follow that better access to the EU market would automatically result in increased exports of Indian textiles and clothing. Not for the first time, a noted Indian economist has highlighted the difficulties Indian manufacturers and exporters face as they struggle to compete successfully against other Asian suppliers on the European and American markets.

The tremendous potential of the Indian textile and clothing sectors is not fully exploited because of government policies marked by ad hocism, fragmented vision and political opportunism, according to a study carried out by Indian Council for Research on International Economic Relations (ICRIER).

The study notes that the garment sector must make do with poor quality fabrics, because over half the countrys production of fabrics is from decentralised powerlooms. What is more, Indias textile and clothing industries have one of the longest and most complex supply chains in the world. There are no fewer than 15 intermediaries between the farmer and final consumer, resulting in higher costs and longer lead times.

This fragmented supply chain, according to other economists, is largely due to government policies, on the one hand, and a lack of co-ordination between industry and the relevant trade bodies on the other.

This does not mean that the Indian government should stop pressing the EU for better access for its garment exports in particular. But it should not lose sight of the fact that the 15-nation EU remains the worlds second largest importer. As the chairman of the TPRB pointed out at the conclusion of the two-day debate on the EUs trade policy, WTO members are very conscious of the importance of the EU to their domestic economies, as a market for their exports, source of imports and provider of foreign direct investment.

Trade figures make it clear that India is not taking full advantage of the export opportunities offered by the EU market. No fewer than six Asian countries (excluding Japan) out-performed India in 2000. While Indias share of the EUs market for imports came to just 1.2 percent, Chinas market share was a record 6.8 percent, followed by Taiwan, with 2.6 percent and South Korea (2.4 percent). Even Thailand was marginally ahead of India. Four central and east European countries (CEECs) also out-performed India.

They included Russia, with a market share of 4.4 percent, Poland (2.3 percent), Hungary (2.1 percent) and the Czech Republic (2.1 percent). Perhaps as many as eight CEECs (excluding Russia, of course) are expected to join the EU in 2004, making this considerably enlarged EU an even more attractive export market for non-EU countries. But it will also represent an even greater threat to Indian exporters, not least of all in textiles and clothing.

To be fair, the Indian government has asked the countrys two leading trade organisations, Ficci and CII, to help define strategies aimed at increasing exports to the EU in no fewer than eight key sectors. What is more, their recommendations are submitted to the Indian and EU authorities at the highest possible level - the EU-India summit meetings, which bring together the Indian prime minister and the prime minister of the country holding the EUs rotating presidency (the next summit will be held in Copenhagen in October).

By focusing more on the export opportunities offered by the EU market, India would ensure a considerable improvement in the atmosphere in which trade discussions take place. It could well follow Chinas example in this connection.

Although the EU had a trade deficit with China of over $41 billion in 2000, Beijing is viewed much more favourably than New Delhi.