Reach Out To The EU Behemoth

Updated: Apr 28 2004, 05:30am hrs
On May 1, 2004, the European Union will become a 25-member entity housing nearly half a billion people with a buying power that will be among the largest in the world. The existing 15-member Union will be joined by 10 new countries Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia.

The enlargement of the Union that has been under discussion and negotiations for years now is significant for developing countries such as India.

* The GDP of EU-15 is slightly smaller than the US. It is valued at euro 8.9 trillion as compared to euro 11.3 trillion for the US.

* EU-15 is the worlds leading exporter of goods valued at euro 985 billion in 2001 (one/fifth of the world total).

* It is also the worlds leading exporter of services valued at euro 307 billion in 2001 (one/fourth of the world total) with significant contributors being the tourism, banking, insurance and transport sectors.

* EU-15s imports from developing countries were worth euro 432 billion in 2000, which is double the figure for 1990.

Given the strengths of the newly acceding countries, all this will become better. The main question for us now is, will the enlargement benefit India

Most analysts predict that the enlargement will be beneficial for India, since most of the third country benefits will accrue to developing countries such as ours. The main benefit for Indian companies will be in the area of export of goods. The new member States will have to adopt the Community Common Customs Tariff upon accession. The average weighted industrial tariffs of the acceding countries are in general higher than the 3.6 per cent average for the EU. And as far as farm products are concerned, most acceding countries have a lower average rate, though the biggest agricultural economies such as Poland and Hungary have rates that are higher than the average tariff for EU imports of farm goods. Indian companies, therefore, will benefit from a uniform lower rate on products, especially on industrial goods.

In the area of services, third country service providers such as those in India are expected to benefit from the implementation of the single market in acceding countries, where they will get the same treatment as in the rest of the EU. Third countries will receive enhanced levels of intellectual property rights protection in the acceding countries due to their adoption of EU directives in this field upon accession.

From the Indian point of view, EU is a key trading partner and a very important investor. Indias share of EUs global trade is only about 1.36 percent which, admittedly, is far below potential. The enlargement process thus throws up greater opportunities to improve this performance.

Most Europe watchers in the country believe that there is scope for cooperation in knowledge industries, formation and communication technology, biotechnology, pharmaceuticals, auto ancillaries and chemicals. In these industries, India has a natural advantage and mutually beneficial cooperation could form the basis of Indo-EU relationship in the 21st century.

From the perspective of World Trade Organisation negotiations, the enlargement can have two implications, it is felt. The first is that with new states joining the Union, Brussels will not be in a position to dole out large subsidies to member States and will therefore be far more willing to consider substantially reducing the trade distorting domestic support regime during the ongoing negotiations.

The second line of argument is the opposite. Many analysts believe that the growing number of players in the EU negotiating team will lead to higher complications since the Trade Commissioner of the European Union will now have 25 trade ministers to consult. Perhaps the meetings to decide the negotiating mandate will be similar to the Cabinet meetings on sensitive issues in the 24-party National Democratic Alliance government where the Prime Minister has the difficult task of keeping 24 divergent views in mind while taking decisions on the future course of action.

The enlargement without doubt is bound to be beneficial for countries such as India given the fact that EU has traditionally been an important market for exporters here and the enlargement does increase the brand width for those exports.

What we will have to guard against is the new competitive edge that the EU has given the very developing country-like workforce and industry in the newly acceded members of the Union.

The author is head of CIIs Geneva Office. The views expressed herein are personal