The Indian Prime Minister?s announcement on purchase of aircraft by Indian Airlines worth $2.2 billion from Airbus Industrie, was timed to add value to the important India-European Union (EU) summit in New Delhi on September 7. Other, private airlines had already announced their purchase intentions at the Paris show a few months ago, and this announcement was important only because the buyer was a government airline. The PM was underscoring the importance of trade with the EU and the need to ramp up relations with the bloc.

The EU is India?s largest trading partner. India ranks as EU?s 12th trading partner, accounting for 1.7% of EU?s imports and exports. India-EU trade has grown from 4.4 billion euros in 1980 to 33 billion euros in 2004. In 2004 alone, trade increased by 17%. Given its developing country status, India?s exports to the EU benefit from reduced tariffs under the EU generalised system of preferences. EU investment outflows to India amounted to 820 million euros in 2004. Interestingly, India?s investment outflows to the EU have been increasing rapidly, and were 600 million euros in 2004.

India was among the earliest countries to recognise EU as a political and economic entity. The EU-India co-operation agreement, signed in 1993, covers wide- ranging areas such as trade, environment, agriculture, tourism, intellectual property rights, etc. In 2000, India took the initiative for an India-EU summit in Lisbon, and these summits have become an annual feature. In November 2001, a science and technology agreement was signed to cover co-operation in areas like health, agriculture, natural resources management and includes a legal framework for the protection of intellectual property rights. A customs cooperation agreement, signed in April 2004, provides for simplification of customs procedures and other trade facilitation measures.

The September 7 summit was the sixth India-EU summit and its importance stems from several geo-political developments.

First, and most important, India has come a long way since 2000, and feels increasingly confident of the sustainability of its growth path. High oil prices underscore the need for a healthy foreign exchange reserves position, and India is increasingly convinced that reform and globalisation would yield external financial stability and opportunities for growth. Trade and trade policy, which were never at the forefront of India?s external policies, have now become important in defining future relationships.

The EU has long been a trusted trading partner, and it has now become important to address several irritants to trade. Since the creation of the WTO in 1995, India has been involved in 32 dispute settlement proceedings. The EU recently requested WTO consultations with India on practically all of its anti-dumping measures (271) affecting European exports. The large number of these measures, and the low standards applied, have been frustrating EU exporters. Further, India?s import tariffs remain very high compared to EU standards. India also has a number of non-tariff barriers in the form of quantitative restrictions, import licensing mandatory testing and certification for a large number of products. There is also a growing concern that Indian technical regulations and sanitary and phytosanitary requirements do not adhere to WTO rules. India now feels the need to address these concerns with the EU.

The forthcoming WTO ministerial in Hong Kong is also very high on the agenda of both. India was concerned, at Cancun, at the seemingly bilateral agreement between US and the EU on agricultural issues and the four ?Singapore? issues. A greater understanding of each other?s position is important, since there is already a disjoint between India-EU concerns and EU-China concerns.

Since 1978, EU-China trade has increased more than 30-fold and reached around 175 billion euros in 2004. EU has been adopting a policy to engage China further, both bilaterally and on the world stage, through an upgraded political dialogue; to support China?s transition to an open society based upon rule of law and respect for human rights; to encourage its integration into the world economy and supporting the process of economic and social reform continuing in China; and, to raise EU?s profile in China.

The relationship between the two has matured significantly over the years, and the approach to the recent resolution of the textiles exports to the EU demonstrates an attitude of give-and-take that is the sign of a long-term strategic relationship. It is important for India to capture some of that flavour with the EU.

Finally, the future of multilateral trade appears hazy. There are concerns that the Hong Kong Ministerial may not achieve the level of success expected, and all countries, including the US, are aggressively pursuing their trade interests through regional, as well as bilateral, trade agreements. Some of these are strategic and political, while all the others are genuinely focused on trade enhancement. For India, EU is a natural candidate for pursuing a comprehensive trade relationship. From the point of view of the EU, the emergence of India would make it a major world player some years from now, and any exclusive relationship could be to its advantage. Further, relations between the EU and India have never been as good as now. India broke away from Brazil and others to support the candidature of Pascal Lamy, the former EU trade commissioner, as director-general of the WTO. Tony Blair, the current head of EU, is a close friend of India.

Engaging with the EU is important and the aircraft deal is symbolic of this intent.

The writer is a former finance secretary and economic advisor to the PM