The Hindu Business Line : India can reap larger gains with EU-25

THE formal accession of ten countries with a combined population of 75 million with eight states from Central and Eastern Europe — the Czech Republic, Latvia, Estonia Lithuania, Poland, Hungary, Slovakia, Slovenia — as well as the two Mediterranean islands of Malta and Cyprus to the 15-member European Union (EU) today in Dublin (Ireland) marked a new chapter in the chequered annals of the world's most enduring regional bloc in the post-war era.

Even as analysts and EU-watchers hail the arrival of 10 new members to enrich the European Community that had the former title as the European Economic Community (EEC), the absorption of ideologically far apart members who once belonged to the Council for Mutual Economic Cooperation (COMECON) as part of the satellite outfits of the erstwhile Soviet bloc, into the mainstream of Europe now presages "increased cultural diversity, interchange of ideas and better understanding of other peoples".

For the erstwhile communist countries, membership to the EU meant, among others, stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities, the existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the Union, and the ability to take on the obligations of membership including adherence to the aims of political, economic and monetary union.

For India, which is not a member of any of the world's powerful trading blocs such as EU, NAFTA, APEC and Mercosur other than being the single big entity in the struggling South Asian Association for Regional Cooperation (SAARC), the accession of 10 new members with most of whom India enjoyed exceptionally cordial relationship in the halcyon days of COMECON, is a welcome development for leveraging its relations to realise greater gains in its trade of goods and services.

European Commission in Brussels in a statement noted that for trade in goods, the new member states would have to adopt the Community Common Customs Tariff (CCT) from now. Thus, the new members will take on board the EU openness in external trade, as a result of which the overall tariffs will decrease from 9 to 4 per cent. The average weighted industrial tariffs of the new members were, in general, higher than the 3.6 per cent average for the EU.

In farm products, most of the acceding countries had 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 import of farm goods (10.5 per cent). Thus, in most cases, third countries, including India, would now benefit from lower tariffs in their trade with new member states.

In effect, a single tariff and a single set of administrative procedures would extend from 15 to 25 countries, simplifying dealings for Indian and other third country exporters to the EU and tangibly bringing down the transaction cost. For India, with proven services export credentials particularly in software, its service providers would benefit from the implementation of the single market in acceding countries. Harmonisation of standards applicable in all 25 countries and advantages in terms of trade facilitation for exporters of India with which the EU has concluded mutual recognition agreements (MRAs) as regard India's exports to the new member States are other advantages, the EU said.

What is noteworthy is that in the WTO, the EU would speak for the 25 members and the new States will have to shoulder the EU's multilateral trade commitments and obligations. With accession, the new members have lost their "transition economy" status and along with it the right to obtain exemptions from the WTO subsidies disciplines through the use Article 29 of the Subsidies Agreement. EU has made it amply clear that for India, the trade creation effect of EU enlargement would be greater than any putative trade diversion effect which normally regional trading bloc engenders and promotes.

Available trade figures show that EU-India trade has grown exponentially over the years from 4.4 billion euro in 1980 to 27 billion euro in 2002. Commerce Ministry's latest figures show India's exports to the 15-member EU grew up by a robust 15 per cent in dollar terms from a level of $8237.45 million in April to December 2002-03 to $9455.12 billion during the first three quarters of 2003-04 fiscal. India's import from the EU region during the period under review also shot up from $9063.87 million to $10,375.37 million, representing a growth of 14.5 per cent. Available figures also indicate an expanding trade turnover of India with the new EU members, particularly the main trading partners of India include Poland, Hungary, the Czech Republic and Slovenia.

Trade analysts contend that with the enlargement of the EU to 25 members, the dice is favourably loaded in favour of New Delhi, if only our policy planners and political leaders through their historic link with the erstwhile countries of Soviet bloc- the new entrants to the EU- sharpen trade diplomacy and promote India's case for a considerably bigger chunk of the pie.