Chapter-1

Introduction

he positive impact of international trade on economic growth has been

widely documented from both a theoretical and empirical point of
view. The classical and Neo-classical economists believed that

participation in international trade could be a strong positive force for economic

development. There are so many reasons that support the role of international
trade to economic development. One of such approach of export trade to
development is to concentrate on the industrial sector that is the core of
international trade1. Developing countries learn from imported technology and
also from technological progress embodied in imported goods. This learning
increases domestic stock of knowledge and, hence, domestic productivity and
growth. Thus, one could argue that the greater the trade volume is, the more
knowledge can be potentially accumulated.

Technological progress makes

possible to produce goods of increasing quality at each time lower costs 2.

Therefore, international trade can potentially play a crucial role in fueling
economic growth of less developed countries. In other words, it can become one
of the engines of growth for a country.

1.1 Foundation of Research Study

Bilateral economic relations refer to the economic relations between two
nations. In the current global scenario, countries can no longer afford to restrict
economic activities within the home economy. With the growth of globalization
and liberalization, countries find it advantageous to forge economic relations
with other nations. Bilateral economic relations help developed nations to
access the markets of developing countries. This is beneficial for the industries
1

of the developed nations as they can penetrate the markets of various countries.
Developing nations like India has also gained significantly from bilateral
economic relations with other countries.
(a) Economic Relations :
Bilateral economic relations play a strategic role in the growth and
development of an economy. Some of the major benefits of bilateral economic
relations are advantages of lowering cost due to technology transfers,
economies of scale and employment. Many countries across the globe have
established strong bilateral economic relations with other countries. The biggest
advantage for the developing nations from bilateral economic relations is in the
form of employment generation. With the inflow of capital to these countries,
economic activity is boosted resulting in the growth of the economy. In the case
of undeveloped economies, bilateral economic relations help them to get
economic aid and loans for development projects.
One of the major components of bilateral economic relations is bilateral
trade. The trade of goods and services between two countries help both the
participating countries to reap benefits by exporting goods and services which
are produced in excess and importing those where there is a shortfall. Bilateral
trade brings down cost of production of those goods and services for which
there is comparative disadvantage in an economy. In this era of globalization,
many countries have opened up their economy to foster bilateral trade.
Regulatory relaxations alongwith relaxations in import excise and customs play
an important role in bilateral trade. Several bilateral trade agreements have been
signed between nations.
Another important aspect of bilateral economic relations is FDI. Inflow of
foreign direct investments has proved to be beneficial for many developing
countries. Many countries across the globe have undertaken liberalization
2

policies to attract foreign direct investments for the development of the

economy.
This is also beneficial for investors since they can invest in countries
from where they can get higher returns. Bilateral economic relations also help
countries to get loans and economic aid from other countries during times of
need. This is especially beneficial for developing and underdeveloped
countries.3
(b) Basic Principles of World Trading System :
One of the basic principles in the world trading system is the principle of
nondiscrimination. This principle provides for the prohibition of discrimination
by a country between its trading partners and discrimination between its own
and foreign goods. This principle is applied in relation to like products. Thus,
the principle of non-discrimination has two aspects: the Most Favoured Nation
(MFN) rule and the National Treatment rule.
The MFN rule requires that a product made in one member country be
treated no less favourably than a like good that originates in any other
country. The rule of most favoured nation has been in existence for hundreds of
years. In the words of Jackson, most favoured nation clause apparently have at
least seven hundred- years history in trade agreements. However, the clause was
brought to the multilateral trading arena following the coming into picture of the
1947 General Agreement, GATT.4

1.2 Objectives of the Research Study :

The European Union is one of the largest trading partner of India in
goods and services. It is a large source of FDI inflows and technology transfer.
India needs FDI and technology in infrastructure and manufacturing and thus
there are strong complementarities. Indias low-cost educated workforce can
3

complement the ageing population of many EU member states such as

Germany, France, Italy, Netherlands and Sweden. India and the EU also have
commonalities in terms of multi-cultural democracy and quasi-federal
governance structure. Both economies are strong proponent of multilateral
liberalization and in recent years are actively engaged in bilateral negotiations.
Even though the EU is one of Indias largest trading partners in goods, its share
is declining. India is a relatively high tariff country and has other forms of
market protectionism such as restrictions on foreign direct investments (FDI).
Given this background, the study has the following objectives :
(i)

To examine the recent trends of bilateral trade and to assess the impact of
European Union on Indian external trade ;

(ii)

To evaluate the role of European Union in Foreign Direct Investment

(FDI);

(iii)

To highlight the major problems and difficulties faced by both sides for
removing the bottlenecks of trade relations; and

(iv)

To analyse the ways and means for stronger bilateral trade relations
between European Union and India.

1.3 Nature and Significance of Research

Study :
During the last twenty five years, the process of European economic
integration and economic liberalization in India has created tremendous
opportunities for European Union and India. Trade and economic relations with
the European Union have always been very important for India. Although, in
absolute terms, Indias trade with the EU has increased, but in relative terms it is
decreasing. There are several reasons, due to which India and European Union
trade has grown at a slower pace than Indias total trade.

The European Union is Indias vast market for agricultural goods but the
potentiality does not get fully exploited because of high level of protection in
the form of Non Tariff Barriers (NTB). In this context the present study analyses
the EUs tariff and non tariff barriers to Indias export. For this, the study
calculated International Revealed Comparative Advantage (IRCA) for both
India and European Union by using the Balassa index.

1.4 Theoretical Exposition of Trade

Agreements:
Over the last decades, numerous types of arrangements and agreements
between countries have been established. The trade arrangements and
agreements range from informal working groups to customs unions and include
anything from safe investment guarantees to environmental agreements.
Intellectual Property Rights are part of most if not all agreements. The most
common, or perhaps well-known, agreements are Bilateral Investment Treaties
and Free Trade Agreements. The road to a FTA is usually long and bumpy a
few FTAs are concluded and effective within 3 years of the first round of FTA
negotiation rounds and more than a few of those talks have taken over a
decade5.
1.4.1 Agreements without Duty Reduction :
Many of the Trade Agreements that do not include duty reduction
schemes are actually

completed with the objective to complete a Free Trade

Agreement in the future. These types of agreements include:

Bilateral Investment Treaty : A Bilateral Investment Treaty (BIT)
provides investors with various guarantees when investing in the country
of the treaty partner. The BIT partners commitment is basically extending
security on investing to foreign companies and individuals. BITs are not
5

necessarily an agreement that is the start for further reaching agreements;

they are merely common courtesy agreements for financial security.
Currently, over 2,000 BITs are in place e.g.: CanadaArgentina
Foreign Investment and Protection Agreement : The main provisions of
the Foreign Investment and Protection Agreement (FIPA) cover the
handling of foreign investments by the host country, the transfer of capital
and investment income, compensation for expropriation and procedures
for settling disputes. e.g.: SwitzerlandColombia signed in 2006.

Joint Commission : A Joint Commission (JC) is a forum where members

of the JC discuss opportunities to advance cooperation between the
members, for example, on economic cooperation, technology, or
environmental issues. e.g.: CARICOMChile.

Economic Partnership Agreement EPA : The EPA agreements are

comprehensive in scope, covering such fields as trade in goods, trade in
services, investment and economic cooperation. e.g., JapanASEAN.
Trade and Investment Framework Agreement : A Trade and Investment
Framework Agreement (or TIFA) is a trade pact that

establishes a

framework for expanding trade and resolving outstanding disputes

between countries. TIFAs are mostly negotiated with countries that are in
the beginning stages of opening up their economies to international trade
and investment, because they either were traditionally isolated or had
closed economies. e.g.: AustraliaEgypt.
Economic Framework Agreement :

An Economic Framework

Agreement is typically an agreement that highlights cooperation and

promotion at various levels and in various areas. The Agreement can and
usually does include a section on the objective to create an FTA
6

feasibility study. Typical areas included in the agreement are : trade

facilitation (inspection, quarantine, cooperation, promotion). e.g.:
AustraliaChina EFA.
Partnership Cooperation Agreement : The aim of the Partnership and
Cooperation Agreement (PCA) is to encourage political, commercial,
economic and cultural cooperation. e.g.: EU and Russia. The EURussia
PCA covers trade, commercial and economic relations and institutes
political communication up to the highest levels.
1.4.2. Agreements with Duty Reduction :
Agreements with duty reduction schemes vary both in range of duty rate
reduction and scope outside duty rate reductions. Within the type of agreements,
the level of reductions and scope can also vary. These types of agreements
include :
Economic Completion Agreement : The ECA is typically bilateral and
covers only specific sectors/products. Partial or full duty reductions are
the main components of the agreement. ECAs can be regarded as a
partial FTA or a partial preferential agreement and are very common in
Latin America.
Economic Cooperation Agreement : An Economic Cooperation
Agreement typically includes duty rate provisions and also supports
language with regard to trade facilitation and increased levels of
cooperation between signees e.g.: BIMSTEC.
Free Trade Agreement/Regional Trade Agreement : Free Trade
Agreements or Regional Trade Agreements are agreements between two
or more countries that regulate duty reduction schemes, the conditions
7

under which the duty reduction can be applied, and often times include
additional agreements regarding trade facilitation.
Common Internal/External Tariff : A common internal tariff is set up
when countries that signed a particular agreement set up a single tariff for
shipments originating in and destined for countries party to the
agreement. A common external tariff means shipments from non
agreement countries into agreement countries are classified in the same
external tariff and the duty rates applied are identical notwithstanding into
what agreement country the import takes place. Typically, common
external tariffs are in place where Customs Unions are established.

1.5 Unilateral, Bilateral and Multilateral

Trade Agreements :
Recent years have witnessed a shift in regional economic cooperation
strategy from multilateral to regional and bilateral cooperation agreements. 6
Unilateral trade agreements are trade incentives an importing country offers in
order to encourage the exporting country to engage in international economic
activities that will improve the exporting countrys economy. Typically,
unilateral initiatives are offered to developing countries or countries that are
encouraged to steer away from export of illegal drugs. The incentives typically
include reduced duty rates, for which the exporting country will qualify if
certain thresholds are met. The most common programme is the General System
of Preferences (GSP).
A bilateral trade agreement is an agreement entered into between two
countries under which the participants agree to reduce tariffs, quotas and other
restrictions on trade between them. Bilateral trade agreements are, as the name
suggests, bilateral in character7.

A multilateral trade agreement involves three or more countries who

wish to regulate trade between the nations without discrimination. They are
usually intended to lower trade barriers between participating countries and, as a
consequence, increase the degree of economic integration between the
participants. Multilateral trade agreements are considered the most effective
way of liberalizing trade in an interdependent global economy. The multilateral
trade agreements can be formed in regional basis also. There are many
multilateral trade agreements between countries, worldwide regionally, for the
development of economy of each member countries signed in each multilateral
trade agreement. SAARC (South Asian Association for Regional Cooperation),
NAFTA (North American Free Trade Agreement) etc. are some of the
multilateral trade agreements constructed geographically. Although multilateral
trade existed earlier, it was only after World War II that nations recognized the
need for a set of rules with the objective of securing market access for postwar
recovering economies. The first such set of rules came in 1947 in the form of
the General Agreement on Tariffs and Trade (GATT). Article 13 of the UN
Charter 9 states that the UN General Assembly shall: [] initiate studies and
make recommendations for the purpose of promoting international co-operation
in the political field and encouraging the progressive development of
international law and its codification8.. GATT was replaced in 1995 by the World
Trade Organization (WTO), which has more than 150 members. The WTO
agreements cover goods, services and intellectual property.
Although India has been a strong supporter of the multilateral trading
system, it started taking a keen interest in the increasing regionalism around the
world in recent past. One explanation for this is that the WTO has become
increasingly slow and comparatively ineffective as a means of establishing a
system of free trade between countries. As the trade rounds of the WTO have
become more liberal and sought to address wider issues, they have also become
9

more lengthy and difficult to conclude. Currently, India is among the top most
countries having RTAs/FTAs either in place or under negotiation. The total
cumulative number of Indias proposed or existing RTAs/FTAs is 31 of which
21 are with countries in Asia and the Pacific region. Among the first preferential
trading agreements in Asia was the Bangkok Agreement of 1975 of which India
and Korea, among other countries, were founder members. Thereafter, India has
joined various other regional trading arrangements9.

10

S.
No
1

Table1.1
Indias Engagements in Regional Trading Agreements
I. List of Indias 15 FTAs / PTAs already in force
Name of the Agreement
India - Sri Lanka FTA

Agreement on SAFTA (India, Pakistan, Nepal, Sri Lanka, Bangladesh,

Bhutan and the Maldives)

Revised Agreement of Cooperation between Government of India and

Nepal to control unauthorized trade

India - Bhutan Agreement on Trade Commerce and Transit

India - Thailand FTA - Early Harvest Scheme (EHS)

India - Singapore CECA

India - ASEAN- CECA - Trade in Goods Agreement (Brunei, Cambodia,

Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand
and Vietnam)

India - South Korea CEPA

India - Japan CEPA

10

India - Malaysia CECA

11

Asia Pacific Trade Agreement (APTA) - (Bangladesh, China, India,

Republic of Korea, Sri Lanka)

12

Global System of Trade Preferences (G S T P)-(Algeria, Argentina,

Bangladesh, Benin, Bolivia, Brazil, Cameroon, Chile, Colombia, Cuba,
Democratic People's Republic of Korea, Ecuador, Egypt, Ghana, Guinea,
Guyana, India, Indonesia, Iran, Iraq, Libya, Malaysia, Mexico, Morocco,
Mozambique, Myanmar, Nicaragua, Nigeria, Pakistan, Peru, Philippines,
Republic of Korea, Romania, Singapore, Sri Lanka, Sudan, Thailand,
Trinidad and Tobago, Tunisia, Tanzania, Venezuela, Viet Nam,
Yugoslavia, Zimbabwe)

13

India - Afghanistan
11

14

India MERCOSUR-(Argentina, Brazil, Paraguay and Uruguay)

15

India - Chile

12

II List of FTAs / PTAs under negotiations

S.
No.

Name of the Agreement and Partner Countries

1.

India - EU Bilateral Trade and Investment Agreement (BTIA)-(Austria,

Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland,
France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia,
Slovenia, Spain, Sweden, United Kingdom)

2.

India - ASEAN CECA- Services and Investment Agreement (Brunei,

Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore,
Thailand and Vietnam)

3.

India Sri Lanka CEPA

4.

India - Thailand CECA

5.

India - Mauritius CECPA

6.

India - EFTA BTIA (Ireland, Norway, Liechtenstein and Switzerland)

7.

India - New Zealand FTA/CECA

8.

India Israel FTA

9.

India - Singapore CECA (Second Review)

10.

India Southern African Customs Union (SACU) Preferential Trade

Agreement (PTA) (South Africa, Botswana, Lesotho, Swaziland and
Namibia)

11.

India - MERCOSUR PTA (Argentina, Brazil, Paraguay and Uruguay)

12.

India Chile PTA

13.

BIMSTEC CECA (Bangladesh, India, Myanmar, Sri Lanka, Thailand,

Bhutan and Nepal)

14.

India Gulf Cooperation Council (GCC) Framework Agreement

(Saudi Arabia, Oman, Kuwait, Bahrain, Qatar and Yemen.)
13

15.

India Canada CEPA

16.

India - Indonesia Comprehensive Economic Cooperation Agreement

(CECA)

17.

India-Australia CECA

Source: Annual Report 2012-2013/ Department of Commerce, Ministry of Commerce and Industry,
Govt. of India.

14

1.6 Indias Economic Relations :

India has important and strong economic relations with many countries
in the world. After the economic reforms of the early nineties, the Indian
economy was opened up to further bilateral trade relations with various
countries and to foreign Direct Investment (FDI). Import restrictions on many
items were lifted which led to expansion of Indias economic relations with
other nations.
Relations between the European Union and the Indian sub continent have
a long history that reaches back to the establishment of the first official contacts
at the beginning of the 1960s. India was one of the first developing countries to
establish relations with the European Economic Community (EEC).10
EU-India trade relations have progressed tremendously over the last
several years. India ranked 8th in the list of the EU's main trading partners in
2010, up from 15th in 2002. The EU is India's largest trading partner accounting
for approximately 96.3 billion in trade in goods and services in 2013 11.
Bilateral trade in goods alone rose by 20% between 2010 and 2011.The EU
accounted for 19% of India's total exports and 14% of India's total imports in
2010. On the other hand, India accounts for 2.6% of EU's total exports and 2.2%
of the EU's total imports.
Though economic relations between India and EU have been
strengthening, the current size of trade and investment between the two
economies

is

relatively

low

compared

to

the

size

and

structural

complementarities of the two economies. In this context, the present research

work is an attempt to analyse trade and investment relations and to explore
future areas of potential economic co-operation between India and European
Union.
15

1.7 Research Methodology and Sources of

Data:
The research methodology constitutes all those methods, which are used
by the researcher in the fact-finding mission. For any type of research
methodology the important as well as crucial aspect include the rationale in
choosing the research design. It should include not only the relevant aspects of
the plan of the study but also the possible instrument for the conduct of research
in the process of finding solution to the problem. For the present study, on the
basis of nature of the research, data structure is largely based on secondary data.
The data was extracted from the following sources :

i.
ii.
iii.
iv.
v.
vi.

Annual reports, Ministry of Commerce and Trade Govt. of India.

Hand book of statistics on the Indian Economy, RBI, various issues
Economic Survey, Government of India, various issues.
UNCTAD, WITS, various issues.
World Bank, World Development Indicators.
Periodical Reports, publications of Ministry of Commerce, Ministry of
Finance, trade related magazines and Commission of European Union.
The researcher also consulted libraries of School of International Studies,

Jawaharlal Nehru University, New Delhi, Indian Institute of Foreign Trade, New
Delhi, ICSSR New Delhi, Ratan Tata library, Delhi School of Economics,
ICRIER, Central library M.J.P. Rohilkhand University, Bareilly etc.

16

Statistical Tools :

During the course of the study, the researcher has used various statistical
techniques for the analysis and interpretation as well as presentation of data.
Data have been arranged in the proper form according the needs of the study.
The researcher has used some specific techniques to establish relationships
between a set of variables. These techniques include measures of central
tendency, time series and Revealed Comparative Advantage method. Besides
this histogram, pie diagram, and several other methods have been used for the
presentation of data.

1.8 Plan of the Study:

Chapter 1: Introduction
The areas covered in this chapter are as follows:
Foundation of Research Study
Objectives of the Research study
Nature and Significance of Research Study
Theoretical Exposition of Trade Agreements
Unilateral, Bilateral and Multilateral Trade Agreements
Indias Economic Relations
Research Methodology, Sources of Data and Statistical tools.
Chapter 2: Review of Literature
This chapter comprises a review of the major works done in the area of
Economic Union, Indias Foreign Trade and Bilateral trade Relations.
17

Chapter 3: Background Interlinkages of India and

European Union.
The issues that have been studied in this chapter are:

Background of India- EU economic Relations

History before the formation of EU
Rome Treaty
Institutions of the community
Brief political economic history of India

Chapter 4: Analytical Framework of Bilateral Trade

Relations
In this chapter, the trade relationship between the EU and India i.e.
direction, pattern, composition and volume of trade is reviewed and analysed.
In addition, Foreign Direct Investment (FDI) flows and service sector are also
examined.
Chapter 5: Shifting Paradigm of Trade Diversions
The issues that have been studied in this chapter are

Revealed Comparative Advantage

RCA of India
Revealed Comparative Advantage of European Union.
Top 10 commodities exported to EU

Chapter 6: Findings and Recommendations

18

References
1 Hogendom, J.S. (1996). Economic Development. 3rd ed. HarperCollins
2 Keller, W. (2002). Trade and the Transmission of Technology, Journal of
Economic Growth, 7, 5-24.
3 Economy Watch-Bilateral Economic Relations, 29 June, 2010.
4 Hoekman, (2002), The WTO: Functions and Basic Principles, in
Development, Trade and the WTO, The World Bank, Washington DC
(2002),
5 A.

van

de

Heetkamp

and

R.

Tusveld,

(2011)

Origin

Management, Rules of origin in Free Trade Agreements 7-6.

6

Asian Development Outlook, (2011) and World Trade Development

Report, 2007.

7 Liz Brownsell Allen & Overy Bilateral and Regional Trade Agreements
Advocates for International Development (2012).
8 Article 13, Charter of the United Nations, 1945. The full text of the UN
Charter can be found at http://www.un.org/aboutun/charter/.
9 These include agreements such as the India-Sri Lanka FTA, SAFTA, IndiaThailand FTA, and India-Singapore CECA. Currently, India is in the
process of negotiating several other regional and bilateral trade agreements
such as India- ASEAN CECA, BIMSTEC FTA, and India-GCC framework
agreement on economic co-operation, India-Australia Trade and Economic
framework agreement, India-Israel PTA, India-Chile PTA, India-Japan
CECA/CEPA and India-Korea CECA etc. Apart from these, India has set

19

up various joint study groups to see the feasibility of economic cooperation with several countries like China, Malaysia, Indonesia, etc
10 Cyril Berthod- India and the European Union: Evolution and interlinking
issues of a multi-level relationship, June 19, 2011.
11 ec.europa.eu/trade/policy/countries-and-region/countries/india.

20

Chapter-2

Review of Literature
When we study the relationship between India and European Union, We
take up the combination of different aspects to make general conclusion by the
views of various economist. A brief glance at this topic is essential for clear and
proper understanding from early time to the present age which is primary
concern of this thesis. As review of literature in the present study has been
divided into three parts respectively, Studies Related to Foreign Trade, Studies
Related To Economic Union, EU-India Economic Relation. Now we take up
each part to discuss separately.

2.1 Studies Related To Foreign Trade:

The argument concerning the role of foreign trade as one of the main
deterministic factors of economic growth is not a recent topic. It goes back to
the classical-economic theories by Adam Smith and David Ricardo, who put
their thought that international trade plays an important role in economic growth
and that there are many economic gains from specialization .This part covers
various reviews relating to Indias Foreign Trade.
Haberler1 says: "International trade has made a tremendous contribution to
the development of less developed countries in the nineteenth and twentieth
centurys, and can be expected to make an equally big contribution in the future
if it is allowed to proceed freely". Trade is preferable to aid as it could evoke
dynamic responses to competitive opportunities that would reinforce the growth
process.
21

Nayyar2(1977) revealed that India's falling share in the world market could
be due to the declining share of exports in domestic- production.
Da Costa3 demonstrates that the worlds demand has severely constrained
Indian export. The stagnation was followed by moderate expansion during
1960s, and there was a temporary decline during 1965-67, and a buoyant growth
in the seventies.
Subasat4 investigated the empirical linkages between exports and
economic-growth. The study suggested that the more export-oriented countries
like middle-income countries grow faster than the relatively less export-oriented
countries. The study further showed that export promotion does not have any
significant impact on economic growth for low and high income countries.
Bharadwaj5 sought to test empirically, with the help of Indian data, the
Hecksher Ohlin hypothesis that a countrys exports use intensively the
countrys abundant factors of production.
Vohra6 showed the relationship between the exports and economic growth
in India, Pakistan, Philippines, Malaysia, and Thailand between the period of
1973 to 1993. The empirical results indicated that when a country has achieved
some level of economic development then the exports have a positive and
significant impact on economic-growth. The study also showed the importance
of liberal market policies by pursuing export expansion strategies, and by
attracting foreign investments.
Frankena7 says that there are four types of changes that influenced export
performance in the country. They are in different shapes as, changes in material
supply, constraints on output as result of changes in import licensing and
changes in domestic demand. Changes in productive capacity and changes in

22

explicit exchange rates on exports as a result of export subsidization and devaluation.

Kletzer and Bardhan8 show that countries with relatively well developed
financial sector have a comparative advantage in industries that depend on
external finance. They revealed that even when technology and endowments are
identical between the countries and economies of scale which are absent, credit
market frictions lead to one country facing a higher interest rate or rationed
credit compared to other countries. This may lead to differences in comparative
advantages in processed goods which require more working capital, marketing
cost or trade finance. They presumed that more sophisticated manufactured
finished goods require more finance to cover selling and distribution costs than
primary or intermediate goods.
Delis and Zilberfarb9 have argued that high volatility of exchange rates
may theoretically exert either positive, negative, or no effects upon trade flow.
They suggest that the impact depends upon several important key factors
including the relative strength of income and substitution effects and the degree
of risk aversion of the trader.
Katti10 points out that for India to become a major player in world trade,
an all encompassing and comprehensive view needs to be taken for the over-all
development of the country's foreign trade. The EXIM policy was renamed as
the new Foreign-Trade Policy. The Foreign Trade Policy was built around two
major objectives. These are to double our percentage in share of global
merchandise trade within the next five years, and to act as an effective
instrument of economic growth by giving a thrust to employment generation.
She was of the opinion that the new trade policy was of immense use to India's
foreign trade.

23

Bhagwati and Krueger11(2007) in their comparative analysis of the impact

of foreign trade regimes and economic development in a number of countries,
defined a set of analytical phases with reference to the EXIM policy of a
country. These phases in the foreign trade regime were designed essentially as a
descriptive device to capture meaningfully the evolution of foreign trade regime
in terms of its restrictions content and the dimensions and pattern of its use of
control and price instruments. There are broadly five phases. Phase one is
characterized by the systematic and significant imposition of quantitative
restrictions (QRs), in response to an unsustainable balance of payments deficit.
Phase two is characterised by continued reliance upon quantitative restrictions
and generally increased restrictiveness of the entire control system. Phase three
is to systematise the changes, introduced during phase two, and initiate
liberalization .Phase four continues liberalisation introduced in Phase three and
goes a step further. Phase five occurs when the exchange regime is virtually
liberalised. There will be full convertibility on current account, and quantitative
restrictions will not be employed as a means of regulating the balance of
payments
Erfani12 (1999) examined the causal relationship between economic
performance and exports over the period of 1965 to 1995 for several developing
countries in Asia and Latin America. The results showed the significant positive
relationship between exports and economic growth. This study provides the
evidence of export-led growth hypothesis.
Rangasamy13 (2008) examined the exports and economic growth
relationship for South Africa, and provides the evidence that the unidirectional
Granger causality runs from exports to economic growth
Raju and Kurien14 (2005) analyzed the relationship between exports and
economic growth in India over the pre-liberalization period 1960-1992, and
24

found strong support for unidirectional causality from exports to economic

growth using Granger causality regressions based on stationary variables, with
and without an error-correction term

2.2 Studies Related To Economic Union:

The basic frame work for the theory of economic integration was provided
by Jacob Viner. His theory was concerned with a static analysis of the welfare
effects of Customs Union. Viner was of the view that A customs Union
increases world welfare through free trade. In order to demonstrate this, Viner
has introduced the concept of trade creation and Trade Diversion, defining trade
creation as a shift in trade from a high cost to a low cost producer and trade
diversion as a shift in the reverse direction.15
Mikesell has stated that the criterion of a customs Union or free trade
area involves relatively long time periods for fruition so that the initial impact
and perhaps the most important one, is on expectations regarding future market
opportunities rather than on existing trade patterns16
According Myrdal Integration can be regarded as a social and economic
process destroying the barriers between the participants economic activities.
The economy is not integrated unless all events are open to everybody and
remunerations paid for the productive services are equal, regardless of social
and cultural differences.17
According toTinbrgen International cooperation is possible in almost
every field of human activity. Economic cooperation is only one of its aspects.
It sometimes is the basic aspect. International economic integration relates to
the optimum of international economic cooperation.18 He further discuss
current transactions, international movements of factors of production like
labour, capital, mechanism of financial transactions, balance of payments etc.
25

According to Meade, regional trading arrangement is more likely to

increase economic welfare, if the economies of the members are very
competitive, bur potentially very complementary.19
Hansen indicate that the backwash effect and the tendency to aggravate
existing disparities in levels of development in Latin America, Africa and Asian
regional economic integration experiment indicate over politicization20.
Triffin considers economic cooperation also as integration. It is rather an
advanced type of cooperation as distinguished from the term harmonization
which refers to a mutual consultation on important isues of economic policy.
Integration is a process which brings about a greater degree of unity

2.3 India-EU Economic Relations:

Jain17 expresses that after nine summits, India and the European Union
are gradually getting used to working together. There is a widening and
deepening of political dialogue and variety of consultation mechanisms on
around 45 issues, which have enabled the two sides to better understand and
appreciate each other's positions, perspective and perceptions. However, shared
values do not necessarily translate into greater cooperation one needs to have
shared interests and priorities. Mutual long-term interest is going to be in areas
like scientific and technological cooperation, movement of skilled persons etc.
The time to build and enhance existing frame work in now.
Priyadarshi18 makes an attempt to understand that after the Free Trade
Agreement (FTA) between India and European Union coming into for what will
be the positive and adverse effects on IPR laws and the condition of common
man in India.
Sachdeva19 in his study analysis how trade and economic ties have formed
the core of India-Europe relations so far with more than US$90 billion bilateral
26

trade, the EU is India's largest trading partner. Foreign Direct Investment (FDI)
in India from the countries of the EU is higher than investments from the US
and Japan put together. Similarly, Indian companies are also buying many
European firms. Encouraged by positive trends, both the EU and India are
negotiating for a broad-based bilateral trade and investment agreement. The
main challenge facing policy makers on both sides is how to conclude a broad
based trade and investment agreement in an increasingly uncertain European
economic climate.
Chakraborthy and Animesh Kumar20 in their study throw the light on the
importance of Regional Trade (RTA) Agreement and on Bilateral Trade and
Investment Agreement (BTIA). The urge to enhance market access has therefore
forced both developed as well as developing countries to further trade
objectives through RTA's, and the tendency has become more accentuated,
especially over the last couple of years. The EU is the largest trading bloc in the
world and has forged links with a number of developing countries through trade
and partnership agreements. The proposed EU-India BTIA has many potential
benefits, but it is also rife with latent problems for India. India's approach to
negotiating with the EU should therefore be based on broad policies. The sector
identified by NMCC (National Manufacturing Competitiveness Council) could
be considered as a guideline in this context.
Nataraj21 studies the effect of FTA between India and EU. The welfare
effects amount to an additional 0.3 percent growth for the Indian economy in
the short run and 1.6 percent growth in the long run. In negotiating any bilateral
trade agreement with EU the Indian government should tread cautiously so as to
safeguard domestic concerns and the public interest. If FTA structured well, the
agreement could push India's growth for the next decade. If structured poorly, it
could de-rail it for just as long.
27

Khorana and Perdikis22 suggested to maximize potential benefits of FTA

(free trade agreement, trade barriers (tariff and non tariff) in goods and services
sectors should be addressed. This must be complemented by a mutually
agreeable time frame to conclude negotiations in areas where interests of the
partners vary
Neogi23 explains the causes behind the delay EU-India free trade
agreement and suggests how two side can forge cooperation in global peacekeeping missions and co-operation to develop civil nuclear energy.
Upadhyay24 studies the energy sector and scope of EU's investment in it.
Investment in Indias renewable market would not only promote energy access
and help fight climate change, but would also be rewarding in terms of
appreciation. India offers a huge and sustainable market for European
Companies.
Khandekar and Sengupta25 view that the BTIA will not only help alleviate
the effects of the unprecedented financial crisis, but also bolster the global case
for economic cooperation against protectionism.
Tharoor,26 in his article, studies the hurdles of FTA between India and EU.
The main stumbling block is that India prefers bilateral arrangements with
individual members states to dealing with the EU collectively because of lack of
cohesion on strategic questions.
Singh27 states that services are important for both India and EU. Since the
1990s, the rapidly expanding services sector has been contributing more to
economic growth than any other sector. The services sector contributes nearly
three quarters of Gross Domestic Product (GDP) for EU and nearly 55% of
GDP for India.
Sachdeva28 observes that trade and economic relations with Europe have
always been very important for India. In the last two decades, the process of
European Economic integration and economic liberalization in India has created
tremendous opportunities for Europe and India. Despite many positive
28

development in the economic sphere, Indian policy makers are still sceptical of
Europes role as a major strategic player in Asia. The European Union (EU) has
not been able to put together a common foreign and security policy. As a result,
the EU has not been able to move strongly on sensitive-issues with India. If
Europe wants to be relevant in the emerging Asian architecture, it has to make
some hard strategic and political choices.
Bhattacharya29 analysises the effects of the reduction of EU's tariff and
non tariff barriers on India's exports. An enlarged EU appears with plenty of
opportunities for India. An enlarged Union means more demand for India goods
in European market. But this opportunity has been marred by the labyrinthine of
NTBs, erected by EU on its imports from India.
Sikdar30 in a study, attempt to explore the potentials of having free trade
between India and the EU and aims at identifying the possible gain that would
accrue to each of the economies.
Pascal Lamy31 states that the economic link is a cornerstone in the
relationship between the EU and India, the largest economic area and the fourth
largest economy respectively. By comparison, both China and ASEANS exports
are each about five times the volume of India's exports to the EU. The EU's
exports to India are also well below the EU's usual performance in similar
markets and regions. So there is room for improvement.
Keukeleire and Bas Hoojimaaijers32 reflect on the relations between the
European Union and India. It questions whether the strategic partnership
between the EU and India is truly strategic. The article points to the EU's and
India's different views about the principles and values that are to be upheld in
global governance, about their different positions in the WTO, on the United
Nations (UN), with special attention to the voting behavior, India and the EU at
the UN General Assembly, and to the explanations for the lack of voting
cohesion between the EU and India.
Jean-Lcu Racine33 reveals in a study that enhancing India-EU cooperation
in critical areas of non-traditional security issues is an obvious necessity. There
29

is already a sound basis for expanding existing cooperation. What is lacking

perhaps is a comprehensive framework under the existing agenda, to promote
bilateral debate not just about the various issues already identified but also
about the correlations between them, and between (NTS) Non Traditional
Security and other fields that are crucial to the strategic partnership, be they
trade or traditional security.
Kastner34, states that EU and India both are sharing many common values,
on which the strategic partnership formally is founded, the investigation
revealed common interest, primarily economic interest as the driving force
behind the partnership rather than common values.
Boillat35 views that cooperation between India and EU cannot challenges
around them especially in the medium range. In this regard, the future of Africa
is a source of challenges and opportunities for both partners. Each partner of
course has specific interests with regard to the African continent, but acrossanalysis of the three continents shows that there are probably many
complementarities between India and EU vis-a-vis Africa and that there are
good reasons to initiate triangular cooperation in many areas, as already
observed in the private sector.
Price36 states that there is a clear-cut desire within the EU, and ti's
member states, to engage more closely with India. He explores the opportunities
for enhanced cooperation between the EU and India within the framework of
the G-20. There are specific issues for which the G-20 could provide a forum
for Europe and India to set the agenda. If Europe and India are to deepen their
engagement, this engagement will need to offer clear benefit to India.
Joao Cravinho37, Ambassador, Delegation of the EU to India speech at
Hyderabad, PTI Oct 21, 2013, is very optimistic about FTA between India and
EU. The bilateral trade between India and EU may touch $200 billion over the
next 4-5 years. The negotiations for a bilateral FTA between India and the EU
covering foreign investment, competition policy and government procurement
additional to trade .
30

Harling38 states that within the framework of the Global Europe strategy of
the European Union (EU) wants to enable European enterprises to gain access
to new and profitable markets in emerging nations by negotiating Free Trade
Agreements (FTA), as over the next 10 to 15 years, 90% of the world demand
will be generated outside Europe. The currently negotiated FTA between India
and EU can be regarded as a in goods and services started in June 2007. Until
2012, 14 rounds of official negotiations took place after the 12th summit held in
New Delhi on 10th Feb. 2012, both parties developed an idea that more works
are needed to be done in order to make the FTA acceptable.
Economic Times Bureau39 Jun 15, 2012. EU Crisis: Impact on India what
corporate have to say: The Euro-Zone crisis has eliminated the benefits of a
weak rupee, which is down 20% in a year. If the Euro zone crisis is not averted,
India which has about a sixth of its total exports to the European Union, will
face un- employment in the lower income category, such as textile, one of the
biggest employers.
Singh40 in his article, expresses his views that Trade with the EU
represents almost a quarter of Indian's exports and imports. But it is just 1.6% of
total EU imports of goods and 0.8% of import of services. But EU invests 10
times more in China and its trade is 5 times larger than India.

References
1

Haberler, G. (1970), Dynamic Benefits of Trade in G.M. Meier, Leading

Issues in EconomicDevelopment, Oxford University Press, London.
31

Nayyar, Deepak (1976), Indias Exports and Export Policies in the 1960s,
Cambride University Press,Cambridge, United Kingdom.

Da Costa, G.C. (1965), Elasticities of Demand for Indian Exports An

Empirical Investigation, TheIndian Economic Journal, July-September,
pp. 41-54.

Subasat, T., 2002, Does Export Promotion Increase Economic Growth?

Some Cross-Section Evidence, Development Policy Review, 20, 3, pp.
333-349.

5
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R Bhardwaj
Vohra, R., 2001, Export and Economic Growth: Further Time Series
Evidence from LessDeveloped Countries, International Advances in
Economic Research, 7, 3, pp. 345-50.

Frankena, Mark (1975), Devaluation, Recession and Non-Traditional

Manufactured Exports from India,Economic Development and Cultural
Change, October, pp. 109-137.

Kletzer, Ken and Pranab Bardhan (1987), " Credit Markets and
International Trade", Journal ofDevelopment Economics, Vol. 27 Nos. 1-2,
pp. 57-70.

Delis, H. and B.Z. Zilberfarb (1993), Real Exchange Rate Volatility and
International Trade: A Reexaminationof the Theory, Southern Economic
Journal, Vol. 59, pp. 641-647.

10 Vijaya Katti (2005), "Foreign Trade Policy - An Appraisal", Yojana, Vol. 49

No.5, May, pp.43-46.
11 Bhagwati, J.N. and A. Krueger (2007), The Foreign Trade Regime :
Analytical Phases and ChangesOvertime, quoted in IGNOU, MS3
Economic and Social Environment, New Delhi.
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12

Erfani, G.R., 1999, Export and Economic Growth in Developing

Countries, International Advances in Economic Research, 5, 1, pp. 147148

13

Rangasamy, Logan, 2008, Exports and Economic Growth: The Case of

South Africa,Journal of International Development, 21, 5, pp. 603-617

14

Raju, Sudhakar S. and Kurien, J., 2005, Exports and Economic Growth in
India: Cointegration, Causality and Error-Correction Modeling: A Note,
Indian Journal of Economics and Business, June,

15 Viner, Jacob. The Customs Union Issue, Carnegie Endowment for

International peace, New York,1950.
16 Mikesell,R.F. The theory and common Market as applied to regional
arrangements among Developing countries in International Trade theory
in a Developing world, Harrod and Hague,London,1963.
17

Myrdal Gunnar, An International Economy, New York,1956.

18

Jan Tinbergen,International Economic Integration,Elsevier,1954.

19

Mikesell, R. F, op cit.

20 Regional integration: reflection of decade of theoretical efforts world ,

January, 1969

17

R.K. Jain, "India and European Union : Perceptions and Policies" - paper
presented at Asia-Europe Institute, University of Malaysis, Kuala Lumpur,
19 June 2009.

18 Vaibhav Priyadarshi, "Analysing of free Trade Agreement between India

and EU and its impact on the IPR laws in India"

33

19 Gulshan Sachdeva, "India-EU Economic tias : strongthening the care of the

strategic partnership" - Institute for security studies European Union
(www.iss.eurioa.eu).
20

Debashis Chakraborthy and Animash Kumar, "EU-India Bilateral Trade

and Investment Agreement opportunities and challenges" in Luis Learl and
Vijay Sakhuja ed. The EU-India partnership time to go strategic pp. 57-74
pub. by ISS.Paris.

21 Geetanjali Nataraj, "Why can't India and the EU sign and FTA's - East Asia
Farum 14th June.
22 Sangeeta Khorna and Nicholas Perdikis, "EU-India Free trade Agreement
Deal or No Deal?" South-Asia Economic Journal - Sep. 2010-Vol.-11 No.
181-206.
23

Prabhuddha Neogi, "India Europe relations the way Ahead) June 24.

24 Dinoj Kumar Upadhyay, "EU-India partnership time to go strategic-e-by

Luis Learl of Vijay Sakhuja P75-86, ISS-Paris.
25

Gauri Khandekar and Jay-shree Sengupta, "EU India Free Trade make or
break" AGOAR, Asia-Europe, 10 June 2012. ISSN : 2254-0482.

26 Shashi Tharoar, "www.Project-syndicate.org. 20th.

27 Kavaljit Singh, "India-EU Free Trade Agreement : Should India open up
Banking Sector" 2009.
28 Gulshan Sachdeva, "India and European Union "Broadening strategic
partnership Beyond Economic link ages" Sage publication (2008) p- 3413567.
29 Swapan Kumar Bhattacharya, "India and The European Union - Trade and
Non-Tariff Barriers" Aakar Publication 2005.

34

30 Chandrima Sikdar, "Free Trade between India and European Union 15 : A

Theoretical and Emperical Analysis" The ICFAI_Journal of Applied
Economics, Vol. VII, No. 1, 2008.
31 Pascal Lamy, "The EU-India Economic Relations" Speech at the EU-India
Busness Summit on 22nd November at New Delhi India.
32 Stephan Kaukelere and Bas Heejimaaijers, FPRC-Journal-2013 (1) ISSN
2277-24647 "EU-India relations and multilateral governance where is the
strategic partnership".
33

Jean-Luc Racine, "The EU-India and Non-Traditional Security :

Convergences and Challenges" Edit-by L. Pearl and V. Sakhuja, ISBN978-92-9198-208-0".

34

Sebastian Kastner, "Beneath Potentials EU-India Relations) 2007.

35 Jean-Joseph Boillat, "The potential for triangular cooperation between

Europe, India and Africa "ISBN-97892-9198208-0-P-87-99.
36 Gareth Price, "The Scope for economic cooperation within the G-20"
Institute for security studies European Union Paris. iss. Europe-EU.
37 Joao Cravinho, Ambassador, "Speech at Hyderabd, PTI, Oct. 2013.
38

Hike Harling, "Negotiations Analysis : The Free Trade Agreement

Between the European Union and India". 20 Sep. 2013.

39. Economic Times Bureau, June 14, 2012, "EU crisis Impact on India".
40 K. Gajendra Singh India & the European Union - New Strategic
Partnership SOUTH ASIA ANALYSIS GROUP-2004.

35

Chapter-3

Background Inter linkages of India

and European Union
3.1 Theoretical Exposition of Economic
Union:
The theory of economic integration refers to the commercial policy of
discriminatively reducing or eliminating trade barriers only among the nations
joining together. The degree of economic integration ranges from preferential
trade arrangements to free trade areas, customs union, common markets and
economic unions.
3.1.1 Preferential Trade Arrangements :
It provides lower barriers on trade among participating nations than on
trade with nonmember nations. This is the loosest form of economic integration.
3.1.2 Free Trade Area :
It is the form of economic integration wherein all barriers are removed
on trade among members, but each nation retains its own barriers to trade with
nonmembers. The best examples are EFTA formed in 1960 by UK, the NAFTA
formed by United States, Canada and Mexico in 1993and the southern common
market (mercosur) formed in 1991.

36

3.1.3 Customs Union:

In customs union no tariff or other barriers on trade among members (as
in a free trade area), and in addition it harmonizes trade policies (such as the
setting of common tariffs rates) toward the rest of the world.
3.1.4 Common Market :
Common market goes beyond a customs union by also allowing the free
movement of labour and capital among member nations. The EU achieved the
status of a common market at the beginning of 1993.
3.1.5 Monetary Union:
Monetary union involves scrapping individual currencies, and adopting a
single, shared currency, such as the Euro. This means that there is a common
exchange rate , a common monetary policy, including interest rates and the
regulation of the quantity of money, and a single central bank, such as the
European Central Bank.
3.1.6 Economic Union:
An economic union goes still further by harmonizing or even unifying
the monetary and fiscal policies of member states. This is the most advanced
type of economic integration.
3.1.7 The supra-national union or Political Union:
Where the respective governments abandon completely their sovereignty
over the policies stated above and a supranational authority issues binding
decisions.
The ultimate economic purpose of integration is an acceleration of growth
in the partner countries. The formation of an Economic Union has two effects
on international trade.
37

1. Trade Diversion: A shift in the pattern of trade from low cost world
producers to higher- cost union members. In general, trade diversion
is viewed as welfare reducing for the world.
2. Trade Creation: Trade creation will occur when there is a reduction
in tariff barriers which lead to an increase in consumer surplus and
economic economic welfare. From a world welfare point of view,
trade creation is good.

3.2 Historical Background of India and

European Union:
The trade relationship between India and Europe is running for a long
period. At the end of the fifteenth century, European traders came to India and
began exporting goods from India to Europe and also other parts of Asia. It has
been established that as a result of these interactions, the Indian economy
expanded further and was integrated with the pre-modern global economy.
Slowly India became centre place of European trading activities in Asia and put
the foundation of new trade era through the Indian Ocean by the Portuguese,
Dutch, French and English East India companies. This market-determined
economic relationship between India and Europe changed with the advent of
British colonialism in sub-continent. At the time of independence in 1947, a
major portion of Indian trade was either with Britain or its colonies and allies.
This pattern continued for few years. After independence, Indian leadership
adapted a policy of Self reliance. As independent India established its
relations with other countries trade that was diversified1.
The creation of the European Economic Community in 1958 did not have
much significance for India. The appeals of the six countries to Britain in 1951
and 1956 failed to evoke any response and India remained quite unconcerned.
During the cold war period, India adopted a policy of non-alignment and
38

maintained a close relationship with the former Soviet Union. As a result, its
interactions with Europe became limited.2

Indias first Ambassador H.E. KB Lall presents credentials to the European

Commissions first President Walter Hallstein in 1962.

The relationship between the EU as a block and the republic of India

really took root in their present from in 1963, when India was amongst the first
developing countries to establish diplomatic relations with the then six-nation
European economic community (Subsequently the European community and
since 1992, the European Union) These relations become closer with the
accession of the U.K, Indias traditional trading partner, to the E.E.C. in 1973.
India and EEC signed commercial cooperation Agreement (CCA) followed by a
five year commercial economic cooperation agreement (CECA) in 1981. The
main objective of this new agreement were:(1) developing commercial relations
and intensified economic cooperation.(2) give a new dimension to the mutual
relationship between India EC(3) strengthening economic relationship based on
mutual cooperation and comparative advantage (4) pursuing economic
cooperation in an evolutionary and pragmatic manner(5) augmenting
39

international economic cooperation commensurate with human, intellectual and

material resources.3 In 1983, European commission established a delegation in
New Delhi, capital of India and in 1985 signed a Commercial and Economic
Co-operation Agreement. European community Investment partners scheme is
launched in 1991 in India to provide financing facility to promote EU-India
joint ventures among small and medium sized enterprise. In 1993 India and
European businessmen launched a joint initiative, the joint business forum.
The first India EU summit which took place in Lisbon in June 2000, is
generally considered to be a water shed in the evaluation of strong economical,
political and technological ties between India and EU. Here a decision was
taken to hold annual summits. The fifth summit in 2004 which took place at
Hague, India and EU agreed to forge a Strategic partnership to enable the
partners to better address complex international issues in the context of
globalization 4.
At the six summit held in 2005, both parties adopted the joint action plan
(JAP) for the strategic partnership and agreed to enhance bilateral trade and
economic relations and remove barriers inhibiting trade and investment. A high
level trade groups was setup to suggest the ways to make the relationship more
intense.
At the 7th summit in 2006 held at Helsinki, on the recommendation of
(HLTG) both parties initiate negotiation for a bilateral trade and investment
agreement. Following the agreement negotiations for an EU India (FTA) free
Trade Agreement were launched on June 2007 in Brussels.
The signing of the FTA has been delayed as differences have cropped up
between India and EU over certain issues which would be kept off the
agreement. The completion of FTA remains a strategic objective for both sides.

40

The EU as a bloc is Indias largest trading and investment partner. The

bilateral trade constitutes a quarter of Indias total trade and EU is also Indias
biggest partner in development cooperation and second largest source of foreign
direct investment. The EU is accounted for 19% of Indias total exports and
14% of Indias total imports in 2010. On the other hand, India accounts for
2.6% of EUs total exports and 2.2% of the EUs imports. India ranked 8 th in the
list of the EUs main trading partners in 2010, up from 15th in 2002.
The EU has been the biggest investor in India with a cumulative volume
of 20 billion Euros since 2000. The key EU member states for FDI are UK,
Germany, the Netherlands, France, Italy and Belgium. Many reputed European
companies are investing in India in diverse areas such as energy, civil aviation,
ports, information technology, automobiles, financial services pharmaceutical
and retail.
EU initiative towards a free trade agreement (FTA) with India is a key
component of its Global Europe policy framework based on several long-term
economic and strategic goals. Several rounds of consultation have been held
until now; therefore leaders are also expected to review progress during the
summit.

3.3 History before the formation of Union:

The history of Europe was one of a series of wars and conflicts. The
precursor to the European Union was established after World War II, and efforts
are made to unite the countries of Europe to end the period of wars between
neighbouring countries. The necessity of some type of European integration in a
new way to reorder the European political map became evident.

41

Great thinkers, like Jean Monnet, felt that another war should be avoided
at any cost. Three different realities evinced the necessity of this new orientation
towards the European integration.
Firstly, the Second World War had put a definitive end to the traditional
European hegemony in the world. The two new super powers, the USA and the
Soviet Union, had a very superior economic, political and military might than
the heterogeneous group of European states.
Secondly, the two world wars had begun as European civil wars and this
continent had been the main battle field in both. Essentially, it was a question of
searching an accommodation between France and Germany. The European
integration will paved the way to guarantee peace.
Thirdly, the extended desire among many Europeans to create a freer,
fairer and more prosperous continent in which the international relationship
were developed in a framework of concord.5
Former British Prime Minister, Winston Churchill, pronounced a speech
at Zurich University (Switzerland) on September19, 1946.
I wish to speak to you today about the tragedy of Europe. Yet all the while
there is a remedy which, if it were generally and spontaneously adopted by the
great majority of people in many lands, would as if by a miracle transform the
whole scene, and would in a few years make all Europe, or the greater part of it,
as free and as happy as Switzerland is today. What is this sovereign remedy? It
is to recreate the European family, or as much of it as we can, and to provide it
with a structure under which it can dwell in peace, in safety and in freedom. We
must build a kind of United States of Europe. The first step in the recreation of
the European family must be a partnership between France and Germany".
Many people considered it as the first step towards European integration in the
42

post war period. In 1948, the organization for European economic cooperation
(OEEC) was established. This was one of the first institutions that involved a
great part of western European countries. It helped to liberalise the trade among
the member states and enhanced economic cooperation. In 1948, the Benelux
(Customs union between Belgium, the Netherlands and Luxemburg) had started
working by introducing a common external tariff. The setting up of the council
of Europe in 1949 meant another major step forward. The council tried to incite
political cooperation among European Countries6.
The first step in the process of foundation of the European Community
was given by the French Foreign minister, Robert Schuman. He gave the bright
idea to place the entire France and German in production of coal and steel under
a Common High Authority and thereby the European Coal and Steel
Community (ECSC) came into existence in 1952. The view of Jean Monnet
inspired the thought of Schuman who proposed an idea that it is an advisable to
neutralize the bone of contention between Germany and France i.e., coal and
steel. The father of the United Europe i.e. Jean Monnet became the first
president of this high authority. The ECSC made remarkable strides in two
years with the abolition of all restrictions on trade in coal and steel among six
countries.
That same year the France Government proposed the establishment of an
European Defense Community (EDC). This project was aborted in 1954, when
the France parliament vetoed its application. The failure of the EDC had
demonstrated that political and military union was still an utopian objective. But
the thinkers like Jean moment did not keep quiet.
The foreign ministers of the six countries, met at Messina (Italy) on 1
June, 1955 under the chairmanship of Paul Henri Spaak of Belgian. He was the
first president of the UN General Assembly. The agreement, they reached there
43

meant a definitive step in the European construction. The 25th March, 1957, the
six countries signed the treaties of establishing the European Economic
Community (EEC) and the European Atomic Energy Community (Euro tom).
They came into being on 1 st January, 1958 after due ratification by the
parliament of the member countries.

3.4 The Rome Treaty:

The treaty of Rome was signed on 25, March 1957 and it came into force
with effect from 1 January, 1958, creating the European Economic Community
and allowing people and products to make throughout Europe. It is concluded
for an unlimited period of time and contains 248 articles, protocols, annexure
and declarations of intentions.
The treaty of Rome is divided into six parts covering principles, policies
of the community, institutions of the community, foundations of the community
the association of overseas countries and territories, and general and final
provisions.

3.4.1 Preamble of the Treaty:

Intention of the six signatory countries is Determined to lay the
foundations of an ever- closer union among the people of Europe. It was
resolved to ensure the economic and social progress of their countries by
common action eliminating the barriers, constant improvement of the living and
working conditions of their people; steady expansion balanced trade and fair
competition would be guaranteed, differences and the backwardness existing
between the various regions will be reduced to ensure their harmonious
development, progressive abolition of restrictions on international trade by
means of a common commercial policy, and the intention was to confirm the
solidarity which bound Europe and the overseas countries and the desire to
44

ensure the development of their prosperity in accordance with the principles of

the charter of the united nation resolved to strengthen peace and liberty by
pooling their resources and calling upon the other people of Europe who share
their ideal to join in their efforts.
Article 9 and 10 mention that the community is based upon a custom
union in which all quantitative restrictions would be abolished, imposition of
import and export duties or charges of equivalent effect between member states
are probhited. The free exchange of goods within the community would apply
not only to the goods produced in the member states but also to those which
have been imported by a member state from outside the community on which
customs duties have already been paid.
Article 19 deals with the common custom tariff. The duties under the
common external tariff were based on arithmetical average of tariff rates in
member states on 1st January, 1957. The detail of this arithmetical average, is
mentioned from list A to list G. List A duties, would the substituted for the
actual duties applied. List B deals to mainly raw materials for which the
common customs tariff may not exceed more than 3%. List C consists of semi
finished goods for which the maximum tariff is 10%. List D consists of tariff
headings in respect of which duty under the common tariff may not exceed
15%. List E mention about organic chemicals for which tariff may not exceed
25%. Goods on which tariff have been fixed by mutual agreement is mention in
list F. Items for which duties are to be negotiated is mentioned in list G of article
20. The Benelux countries were treated as a single unit.
Agriculture is also an important aspect of the Rome treaty and is
mentioned in the article 30 of the treaty. Objectives of the agricultural policy are
the regional development of agricultural production and the optimum utilization
of factor of production, particularly labour.
45

Article 91 deals, with dumping, 100 to 102 with the approximation of

laws, 103 to 116 with the Economic policy of the community, 108 with if a
member is threatened with serious balance of payment difficulties. Articles 129
and 130 dealt with the European investment Bank.
Part IV of the Rome treaty deals with the Association of overseas
countries and territories. The basic principle of the association is that the
product of the overseas territories would enter the community on equal terms
with those of member states and each territory, to the extent possible, apply to
all other member states any concession applying to the country with which it
was specially connected. The individual import quotas of the overseas territories
were converted into global quota for the benefit of all those member states with
whom the territory in question was not specially connected.
Any European country can apply for membership of the community is an
important feature of the Rome treaty.

46

(This map is not to the scale)

Source: Map downloaded from www.bbcnews.com

Fathers of the European Union

47

1886 - 1963

Robert Schuman (French Foreign Minister)

The architect of the European integration project

Jean Monnet 1888 - 1979

The unifying force behind the birth of the European Union

48

Schuman Declaration 9th May 1950

Information on EU member countries
Accessio
n

Populatio
n

Name

Capital

Area (km)

Belgium

Brussels

Founder

11,161,600

30,528

France

Paris

Founder

65,633,200

674,843

Italy

Rome

Founder

59,685,200

301,338

Luxembourg

Luxembour
g

Founder

537,000

2,586.4

Netherlands Amsterdam

Founder

16,779,600

41,543

Founder[d]

80,523,700

357,021

Germany

Berlin

Denmark

Copenhagen

1 Jan 1973

5,602,600

43,075

Ireland

Dublin

1 Jan 1973

4,591,100

70,273

United
Kingdom

London

1 Jan 1973

63,730,100

243,610

Greece

Athens

1 Jan 1981

11,062,500

131,990

Portugal

Lisbon

1 Jan 1986

10,487,300

92,390

Spain

Madrid

1 Jan 1986

46,704,300

504,030

49

Name

Capital

Accessio
n

Populatio
n

Area (km)

Austria

Vienna

1 Jan 1995

8,451,900

83,855

Finland

Helsinki

1 Jan 1995

5,426,700

338,424

Sweden

Stockholm

1 Jan 1995

9,555,900

449,964

Cyprus

Nicosia

1 May 2004

865,900

9,251

Czech
Republic

Prague

1 May 2004

10,516,100

78,866

Estonia

Tallinn

1 May 2004

1,324,800

45,227

Hungary

Budapest

1 May 2004

9,908,800

93,030

Latvia

Riga

1 May 2004

2,023,800

64,589

Lithuania

Vilnius

1 May 2004

2,971,900

65,200

Malta

Valletta

1 May 2004

421,400

316

Poland

Warsaw

1 May 2004

38,533,300

312,685

Slovakia

Bratislava

1 May 2004

5,410,800

49,035

Slovenia

Ljubljana

1 May 2004

2,058,800

20,273

Bulgaria

Sofia

1 Jan 2007

7,284,600

110,994

Romania

Bucharest

1 Jan 2007

20,057,500

238,391

Croatia

Zagreb

1 Jul 2013

4,262,100

56,594

Source: European Commission Services

3.4 Institutions of the Community:

The European Union is supranational in character and a unique entity in
the world. The EU is run not by one institution but by a series of institutions
with their own remit mentioned in Article 4 of part one of the Rome treaty.
3.4.1 Assembly (European Parliament):
Article137 to 144 of the Rome treaty deals with the EU parliament.
Initially members of the parliament were designated by the respective
parliaments from among themselves in accordance with the procedure laid
down by each member states. The Tindemans report in 1976 strongly
50

recommended direct election of the parliament. The direct election to the EU

parliament has now become a reality. The European parliament is directly
elected by the citizens of the EU. It is based in Strasburg, members of it are
known as members of European parliament (MEP) and they are elected by
voters within a member state. The current parliament has 736 members from all
27 countries and they are elected for 5 years. The latest election took place in
June 2009. The more populated member states have been allocated higher
numbers of seats, ranging from 99 for Germany to 5 for Malta. It has the
theoretical power to approve or reject the nomination of commissioners and the
power to censure the commission as whole if 2/3 of MEPs vote for this.
It has also the right to give or withhold its assent on the accession of new
member states, conclusion of international agreements and the association of
third countries.
The parliament can reject the annual budget of the EUP, but now with a
centralised currency, this would bring to a halt and bring the whole concept of a
Europe working together in disrepute.
3.4.2 The Council:
This is the EUs most powerful and main decision making body. The
foreign ministers of the member states generally constitute the council. Other
ministers from member states may have an input in topics relevant to their
expertise. As a rule, the council only acts on a proposal from the commission.
The work of the council is prepared by the committee of the permanent
representatives of the member states (COREPER). Up to four times a year the
president/prime ministers of the member states together with the president of
European commission, meet as the European Council. In Brussels each EU
member states has a permanent team that represents and defends its national
interest at EU level.
51

3.4.2.1 Qualified Majority Voting :

Before 1986, just one country represented in the council could veto a
policy but in 1986 QMV was introduced. This is a system whereby each country
has been given a block of votes dependent on its size Germany, France, Italy
and UK as the largest member have 29 votes each. Malta has 3 votes. In total,
there are 345 votes and 255 are needed to secure a majority.
In some sensitive areas such as taxation, asylum, common foreign and
security policy, enlarge membership of the union council decisions have to be
unanimous.
3.4.2.2 President Trios :

When the council was established, its work was minimal and the
presidency rotated between each of the then six members every six months.
However as the work load of the council grew and the membership is increased,
the lack of co-ordination between each successive six month presidency
hindered the development of long-term priorities for the EU. The presidency is
not a single president but rather the task is undertaken by a national
government. Three successive presidencies, known as presidency trios,
cooperate to provide additional continuity by sharing common political
programmes. This was implemented in 2007 and formally laid down in the EU
treaties in 2009 via the treaty of Lisbon.
3.4.3 The European Commission:
The European commission is the highest executive body of the EU. The
commission is comprised of 27(yet to be 28) members each member state
therefore nominates one member. A new commission is appointed every five
years, within six months of the elections to the European parliament. Jose,
Manuel Durao Barroso heads the EU executive as president of the European

52

commission since February 2010. The commission staff is divided into various
departments known as Directorates General.
The commission is important in the sense that it alone has the powers to
initiate proposal and can revise its own proposals. Hundreds of proposals are
submitted by the commission to the council every year. As the executive body
of the EU, commission is responsible for the management and implementation
of the EU budget and various funds like European Agricultural guidance and
guarantee fund, regional development fund etc. It also negotiates treaties with
other countries and participates in the meetings of the international
organizations. It also insures that member states implement the community
decisions. Commission can drags both the member states, individuals or
companies to the court of justice if any decision of the commission or the treaty
provisions are infringed after giving due opportunity to explain. Its head office
is in Brussels.
3.4.4 The court of Justice :
The European court of Justice is consists of 27 Judges appointed by the
member states, the members are appointed for a renewable period of six years.
The function of the court is to apply the laws and direction that come from the
commission. It also tasked with providing unambiguous interpretations of the
provisions of the treaties, with aim of preventing all the members from
interpreting EU law differently. The court can also hear cases against member
states and the commission itself. The number of judges in a given case depends
on the importance and impact of the case. It is located at Luxembourg. Since
2004, there has been a specialised tribunal that only handles disputed between
the EU and its staff the European Union Civil Services Tribunal (Belgian Press
Con.).

53

3.4.5. The European Court of Auditors :

The establishment of the European Court of Auditors was laid down in
the treaty of Brussels back in 1975, although it has become an institution by
itself in the treaty of European Union. It is given the important task of
monitoring the financial management of the European Union. It submits reports
which form the basis of the parliament debates. The numbers of members is
equal to the number of community members i.e. 27,one per member. It is
located at Luxembourg. The term of its members are six years, they elect a
president from amongst for three years.
In addition to these institutions the EU has a number of other bodies
which play a vital role in functioning of EU e.g. Economic and Social
Committee that represents civil society, the European Investment Bank that
finances EU investment projects and European Central Bank, which is
responsible for EU monetary policy.7

54

India Map (Political)

Source: Survey of India, (www.surveyofindia.gov.in)

3.5 Brief Political Economic History of India:

A review of Indias economic and trade policies over the last 60 years
reveals a pattern of conceptual economic theory moderated by pragmatic
political and economic considerations. Major shifts in economic policy were
typically initiated with significant changes and then followed by a period of
gradual adjustments.
55

Following its independence in 1947, the government of Prime Minister

Jawaharlal Nehru of the Indian National Congress Party (INC) adopted an
economic policy emphasizing rapid industrialization, import substitution, and
relatively high levels of government participation in economic production.
Monopolies were granted to state enterprises in a number of industries
considered of economic or strategic importance. Private companies in other
industries were often subject to licensing requirements and legally constrained
in their size of operation. The agricultural sector was a key focus of the First
Five Year Plan, with the implementation of various subsidy programes, food
price controls, and restrictions on the transport of agricultural crops. Labour
laws provided workers with protection from managerial misconduct, but also
significantly reduced labour mobility. Both exports and imports were controlled
by licenses and tariffs. Foreign direct investment was also severely restricted
both by industry and size.
Successive Indian governments, still headed by Prime Minister Nehru,
remained relatively true to these policies for both its First and Second Five Year
Plans (1951- 56 and 1956-61) with moderately successful results. Real GDP
grew at an average annual rate of 3.6% for the First Five Year Plan, and 2.5%
for the Second Five Year Plan. Agricultural production rose 44% and
manufacturing output increased 144%. However, the economic policies were
also leading to growing merchandise trade and current account deficits that
were depleting Indias foreign reserves.
For the Third Five Year Plan (1961-66), Prime Minister Nehru and the
INC made an adjustment in its economic policies, shifting focus away from
rapid industrialization over to a program of self sustained growth. At the
same time, Indias trade policy shifted from import substitution to efficient
substitution of imports, which in effect opened up new trade opportunities for
goods considered crucial to economic growth and development. This adjusted
56

economic policy remained in effect until the end of the Seventh Five Year Plan
in 1990.
In 1990 and 1991, India was struck by a number of political and
economic shocks. During the political tumult of 1990 and 1991, the combined
effects of rise in oil prices (precipitated by Operation Desert Storm in the
Persian Gulf) and the demise of the Soviet Union, a major trading partner and a
key source of foreign aid, led to a rapid devaluation of the rupee, a depletion of
Indias international reserves, and fears of an impending severe recession. In
response, Prime Minister Rao made a major and controversial change in
economic policies designed to restore faith in the rupee, replenish the nations
international reserves, and stimulate economic growth. These reforms were
overseen by his finance minister, Dr. Manmohan Singh.
The initial round of reforms included several elements. First, efforts were
made to reduce Indias perpetual fiscal deficits at both the federal and state
levels. Second, the number of sectors reserved solely for the public sector were
reduced from 18 industries to just three military aircraft and warships,
nuclear energy generation, and railway transport. Third, India liberalized
international trade by reducing import tariffs, eliminating import restrictions,
and opening up India to foreign direct investment. Fourth, India liberalized its
financial markets, by dismantling its interest rate controls, reducing government
regulations and permitting greater competition.
Following the initial round of economic reforms, Indias real GDP growth rate
accelerated from around 3-4% per year in the 1980s to 5-7% during the early
1990s. However, toward the end of the decade, Indias economic growth began
to slow. Some analysts attributed the economic slowdown to a failure of the
federal government to continue and to complete the economic reforms initiated

57

at the beginning of the decade. Other analysts argued that economic problems
generated by the reforms were creating structural barriers to continued growth.
The ensuing debate over the merits of the 1991 reforms contributed to a
second period of gradual economic reform in the second half of the 1990s and
into the current decade. Since 1991, India has made a number of significant
changes in the structure of its economy, including:
1. The termination of state monopolies for all but three industries;
2. The elimination of the License Raj prior to the reforms, there was a
rather elaborate system of licenses and regulations governing the
establishment of a business in India, making it a very timely and
expensive process to start a new concern;
3. The abolition of import licenses for most commodities;
4. A major reduction in average and peak tariff rates for imports;
5. A reduction in domestic price controls for key consumer goods; and
6. A restructuring of many of the nations various subsidy programs.
However, some analysts argue that many Indians are skeptical about
economic reforms in general, thus posing a marketing problem for the
government in a democratic system. Some suggest that even segments of the
private sector oppose reform efforts8. Still, representatives of the Indian
business community insist that all of New Delhis progress in economic reform
has been voluntary and is not made under external pressure, and that the general
path of liberalization will continue to be followed regardless of what party or
coalition is in power.

58

3.6 Indias Trade Policies:

Indias trade policies have generally been coordinated with its overall
economic policies. Prior to the economic reforms of the 1990s, India utilised a
fairly comprehensive import licensing system to control the import of goods.
The import of a number of products was banned and over 1,400 products faced
quantitative restrictions.
With the advent of the economic reforms, India started a gradual process
of transforming its import control mechanisms from quantitative restrictions to a
tariff based system that favored the import of some types of products, but
deterred the import of other types of products. In some cases, tariff rates were
significantly raised when the import restrictions were lifted. A side effect of the
change in trade policy was the rising importance of import tariffs for Indias
federal budget. In fiscal year 1996/97, tariffs provided one third of Indias gross
tax revenue9
Over the last few years, India has been simplifying its import policies by
lowering tariffs, reducing the variation in tariff rates, and eliminating import
licensing requirements. The stated goal is to reduce tariffs towards levels found
among Association of South East Asian Nations (ASEAN) members.10
However, while India has been lowering its various import barriers, it has
become a leading nation in the filing of antidumping measures with the WTO.
Following the passage of the 1995 amendment to its 1975 Customs Act, which
established Indias antidumping and countervailing duty procedures, India
began filing a large number of antidumping notifications. Between 1995 and
2001, India made 250 such notifications11.

59

3.7 Tariff Rates and Enforcement:

Indias tariff system has long had a reputation of being complex and
opaque. Besides having a comparatively high average tariff rate, India also had
a more dispersed range of tariff rates, even among similar types of products.
Moreover, India had many exemptions or exceptions to the standard most
favored nation (MFN) tariff rate, making it difficult for foreign companies to
determine the correct tariff rate for their exports. Finally, there were frequent
reports of uneven enforcement of existing tariff laws, as well as claims of
arbitrary evaluation of imported goods.
Most of these perceived problems with Indias tariff system have
improved with the lowering of its average tariff rate and the simplification of its
tariff schedule. In fiscal year 1991/92, just before the start of its economic
reforms, Indias average tariff rate was almost 130%. According to the WTO, in
fiscal year 1997/98, Indias average tariff rate was 35.3%, with a peak rate of
260%, but by fiscal year 2001/2002, the average rate had declined to 32.3%,
with a peak rate of 210%. By 2005, Indias average tariff rate was down to
19.5%.12
Two product categories that remain exceptions to Indias tariff reduction
and simplification are textiles and clothing. Prior to the elimination of import
licenses for textile and clothing imports in April 2001, India introduced specific
duties for a range of fabrics and apparel. These duties generally involved the
imposition of the higher of two tariffs one calculated on a percentage basis;
the other calculated by a fixed amount per kilogram or square meter. According
to one estimate, depending on the unit price of the imported textile or garment,
the implicit tariff rate could be as high as 63%.77 in fiscal year 2006/07, many
products in HS chapters 50 to 63 still face this two-track duty system.13

60

61

References
1

Gulshan Sachdeva India and the European Union:Broadening Strategic

Partnership Beyond Economic Linkages Swage Publications,April,2008.

G.Sundaram India and The European Union Allied Publishers

Limited,2002.

Commission of the European Union Committees, Ibid no 4.

Kavaljit Singh India-EU Free Trade Agreement: Should India Open Up

Banking Sector?madhyam, 2009.

G. Sundram Ibid, p.5

Treaty of Rome,1957.

Pranab Bardhan, Why is Reform Unpopular?, Outlook (Delhi),

October 6, 2006; V.Jayanth, Why Economic Reforms Are Unpopular,
Hindu (Chennai), January 21, 2006; N.Chandra Mohan, The AntiReform Mindset, Outlook (Delhi), November 10, 2005.

Trade Policy Review - India, WTO Trade Policy Review Body, May
22, 2002, p. 31

10

Ibid, p. 25.

11

Semi-Annual Report under Article 16.4 of the Agreement - India,

WTO Committee on Anti-Dumping Practices, November 27, 2006.

12

India & Bangladesh: Bilateral Trade, The World Bank, December

2006, p. 10.

13

Trade Policy Review - India, WTO Trade Policy Review Body, May
22, 2002, p. 31.

14

2007 Trade Policy Agenda and 2006 Annual Report, Chapter II World Trade Organization, p. 7.
62

15

Michael F. Martin, K. Alan Kronstadt India-U.S. Economic and Trade

Relations August 31, 2007

63

Chapter-4

Analytical Framework of
Bilateral Trade Relation
In this section, we look at the trade relationship between the EU and India.
In addition, we look to Foreign Direct Investment (FDI) flows and service
sector. Before we discuss the trade relation with EU, We will analysis Indias
global trade position.

4.1 Trade Trends of Indias Merchandise

Global Trade:
In the post liberalization period Indias trade has increased many folds. In
2012, Indias merchandise global trade has increased to 791137.21 millions $
from 95096.74 millions $ in 2000. Although Indias share in the world trade is
still small yet it has improve over the years. Table 4.1 shows Indias trade in
goods from 2000to 2012. In 2000 Indias merchandise export was $ 44560.29
million and in 2012 it increased to $300400.58 million. Indias merchandise
export recorded negative

growth in 2001, but after that it was increasing

regularly and remains positive except 2009 and 2012. In 2010 it rose to highest
level at 40.49percent. Indias imports have also increased since 2000. It
increased to $490736.65 million in 2012 from $50536.45million in 2000. The
table 4.1 show deficit in the balance of trade and it is has been increasing
continuously. The prime reason for this deficit is the high import bill of
petroleum products. India growth rate in total trade was increasing and in 2004
it was highest at 37.37 percent. After 2004 growth rate was not smooth it has

64

some ups and down. The reason of these ups and down was melt down in
European Union and in the leading economies of the world.
Table 4.1 Trade Trends of Indias Merchandise Global Trade
value in US $ millions
Perio
d
2000
2001
2002
2003
2004

Export
44560.29
43826.72
52719.43
63842.55
83535.94

2005
2006
2007
2008
2009
2010
2011
2012

Growth
%

Import
50536.45
51413.28
61412.14
78149.11
111517.4
3
149165.7
3
185735.2
4
251654.0
1
303696.3
1
288372.8
8
369769.1
3
489319.4
9

-1.65
20.29
21.10
30.85

103090.5
3
126414.0
5
163132.1
8
185295.3
6
178751.4
3
251136.1
9
305963.9
2

23.41

300400.5
8

-1.82

Growth
%

22.62
29.05
13.59
-3.53
40.49
22.48

1.74
19.45
27.25
42.7

Balance

Total

Growth
%

-5976.16
-7586.56
-8692.71
-14306.56

95096.74
95240 0.150
114131.6 19.83
141991.7 24.41

-27981.49

195053.4 37.37

-46075.2

252256.3 29.32

-59321.19

312149.3 23.74

-88521.83

414786.2 32.88

-118401

488991.7 17.89

33.76
24.52
35.49
20.68
-5.05
-109621.5

467124.3 4.47

-118632.9
183355.5
7
190336.0
7

620905.3 32.92
795283.4 28.08
1

28.23
32.33

490736.6
5

0.26

791137.2
1

.521

Source: Own calculations from Export Import Databank, DGFT, Govt. of India

Table 4.2 Share of India in the World Total Trade

Year

200
0

200
1

2002

200
3

200
4

2005

2006

200
8

201
0

2012

Total
export

95.

95.2

114.1

141.

195.

252.2 312.1 414.7 488.

620.

791.0

Value
US$billi
65

2007

on
Export%

0.68

0.74

0.80

0.82

0.86

0.99

1.03

1.05

1.11 1.5

1.6

Source: Ministry of Commerce & Industry, Government of India and Export Import
Databank.

Indias share in global exports rose from 0.68% in 2000 to 1.6% in 2012.
India now ranks as 19th largest global exporter, up from 32nd position in
2000 .India has overtaken Australia, Brazil, Thailand, Malaysia and Indonesia,
among others . Indias total merchandise trade increased from US$ 95.1 billion
in FY 2000 to US$ 791.03 billion in FY2012.China with 11.1 percent share is
worlds leading exporter followed by

USA-8.4, Germany -7.6 and India

occupied 19th rank with 1.6 percent as is clear from the table 4.3.
Table 4.3 Leading Merchandise Exporters in the World
(FY-2012):
Exporter
China
USA
Germany
Japan
Netherlands
France
South Korea
Russia
Italy
Hong Kong
UK
India

Share in
11.1
8.4
7.6
4.3
3.6
3.1
3.0
2.9
2.7
2.7
2.6
1.6

Rank
1
2
3
4
5
6
7
8
9
10
11
19

Source: Ministry of Commerce & Industry, Government of India and Export Import
Databank.

Indias exports cover a wide range of items Major commodities that have
registered a significant growth in their share in global exports include: mineral
products, textile and textile articles, gems and jewellery, chemicals and related
products etc.
66

67

Table 4.4-Share of India in the World service Trade (FY- 2012)

Country

Share

rank

USA

14.6

UK

6.5

Germany

6.1

France

4.9

China

4.3

India

3.3

Japan

3.3

Spain

3.1

Netherlands

3.0

Hong Kong

2.8

10

Source: Ministry of Commerce & Industry, Government of India and Export Import
Databank.

India has emerged as a major global player in services exports. Indias

share in global services exports rose from 1.1% in 2000 to 3.3% in 2012 .India
now ranks as 6th largest global exporter, up from 25th position in 2000 .India
way ahead of Thailand, Australia, Brazil, Malaysia and Indonesia in the service
sector.

68

Figure-1 Trade Trends of Indias Merchandise Global Trade

800000
700000
600000
500000
400000

Export
Import

300000

Total
Balance

200000
100000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-100000
-200000

4.1.2 Top Ten Export Destination of India in 2012:

Over the years there have been changes in Indias export and import
destinations. The export and import destinations in 2012 are in given in Table
4.5. The EU has traditionally been Indias leading export destination but its
share is falling. Indias export market is now more diversified and it is a
conscious decision of the government to diversify the export markets. In the
case of imports, China has emerged as the main destination while the share of
EU has declined.
69

70

Table 4.5 Top Ten trading partners of India- 2012

IMPORT

EXPORT

TOTAL

SN Partner
.

Percenta
ge

SN
.

Partner

percenta
ge

SN Partner
.

Percenta
ge

1
2
3
4

11.1
10.7
7.8
6.8

1
2
3
4

EU
UAE
USA
China

16.7
12.3
12.2
5

1
2
3
4

EU
UAE
China
USA

13.2
9.5
8.5
7.8

6.2

4.9

EU
China
UAE
Saudi
Arabia
Switzerla
nd
USA

4.1

Iraq

3.8

2.9

Saudi
5.3
Arabia
Switzerla 4
nd
Singapore 2.8

8 Kuwait
9 Qatar
10 Indonesia

3.6
3.3
2.9

2.3
2.1
2

8 Indonesia
9 Iraq
10 Hong
kong

5.1

Singapo
re
6 Hong
Kong
7 Saudi
Arabia
8 Japan
9 Brazil
10 Indonesi
a

Figure-2 Top Ten trade destination of India in 2012

Iraq; 2.6 Hong kong; 2.5

Indonesia; 2.6
EU; 13.2
Singapore; 2.8
Switzerland; 4
UAE; 9.5
Saudi Arabia; 5.3
USA; 7.8

China; 8.5

Figure3-Indias Major Import Destination in 2012

71

2.6
2.6
2.5

Qatar; 3.3 Indonesia; 2.9

Kuwait; 3.6
EU; 11.1
Iraq; 3.8
China; 10.7
USA; 5.1
Switzerland; 6.2
Saudi Arabia; 6.8 UAE; 7.8

Figure 4 -Top Ten Export Destination of India in 2012:

Brazil; 2.1
Japan; 2.3 Indonesia; 2
Saudi Arabia; 2.9
EU; 16.7
Hong Kong; 4.1
Singapore; 4.9
China; 5
UAE; 12.3
USA; 12.2

72

4.2 India -EU Trade:

The EU is Indias largest trading partner in goods and second largest
trading partner in services (after the US). It accounts for around one-fifth of
Indias merchandise trade (17.18 per cent in export and 11.62 in import in
2011), whereas India contributes to only around 2.6 per cent of total EU trade
and

is

its

8th

largest

trading

partner.1

(Eurostat

2008,

http://ec.europa.eu/trade/issues/bilateral/countries/india/index_en.htm) )
4.2.1 Trends of Indias Merchandise Trade with the EU
since its formation to 1969:
The trend in Indias trade with the community since its formation is
more important and significant. Data of table 4.6 shows that the exports
remained more or less at the same level since the formation of the community
till 1968-69. The percentage share of Indias export to the community of total
exports remained almost static at 7.8 percent in 1959-60 to 8.1 percent in 196869.
Table 4.6-Indo-EC Trade during (1959-69)
(Value in RS million)
Year

Indias
exports
to EEC

Indias
total
export

Exports
to EEC
as % of
total
export

Indias
imports
from
EEC

Indias
total
imports

1959-60
1960-61
1961-92
1962-63
1963-64
1964-65
1965-66
1966-67

492
494
507
465
606
565
469
887

6299
6324
6552
6781
7893
8132
6835
11528

7.8
7.8
7.7
6.9
7.7
6.9
6.9
7.7

1911
1959
1912
1580
1410
1724
1793
2983

9608
11216
10901
11315
12229
13490
12104
20784

73

Imports
from
EEC as
% of
total
imports
19.9
17.5
17.5
14.0
11.5
12.8
14.8
14.4

1967-68
1968-69

884
1108

11928
13563

7.4
8.1

2561
2336

20076
18616

12.8
12.8

Source: Compiled from UN commodity Trade Statics and EEC Analytical

tables
The main reason of this static situation was that during this period
Britain, and not the EEC, which was Indias principal trading partner till at the
middle of the 19601. In 1960-61, West European countries accounted for about
37% of Indias total trade. A large amount of this trade was till with two
countries, the U.K. and West Germany. The U.K. Accounted for about 27% of
total exports and 20% of total imports2.
Indias foreign trade over the period was quite erratic while trade with the
community was steadily increasing as indicated in table 4.3. Because of the
Government effort and the commercial cooperation agreement, exports started
looking up.
During the period of 1976-77 first times since the formation of the
community Indian exports exceed the imports. Despite the increase in our
exports to and imports from the EEC, our share in the EECs exports and
imports remained stagnant over the years.
The Commercial Cooperation Agreement (CCA) was signed by India and
EEC on 17th December 1973 and came into existence on 1st March 1973.3 It was
the first ever trade agreement by the EC with any other Asian developing
country. Both sides felt the need to diversify, deepen and diversify their
commercial and economic relations to the full extent of their growing capacity
to meet each others requirement on the basis of complementarity.
Functioning of the (CCA) had all along been reasonably satisfactory
which is revealed from the table 4.7 that since 1973-74, Indias exports to the
EC had been increasing satisfactorily. Since 1973-74, India has been importing
74

mainly capital goods, machinery (electrical and mechanical chemical and

sophisticated instruments) etc. as a move to strengthen its industrial base4.
TABLE-4.7-Indo - EC trade 1969-1979
Year

Indias
exports
to EEC

Indias
total
export

Exports
to EEC
as % of
total
export

Indias
imports
from
EEC

India
total
imports

1969-70
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80

2748
2796
3036
4077
6089
6894
8209
13935
13900
15760
66820

14139
15352
16082
19708
25234
33041
38631
51432
53630
57260
64270

19.3
18.2
18.8
20.7
24.1
20.8
21.5
27.1
25.9
27.5
26..2

2792
3187
4777
5764
7040
8390
10443
9650
15180
20820
21200

15823
16342
18245
18674
29253
44967
50179
50738
60260
68030
86880

Imports
from
EEC as
% of
total
imports
17.6
19.5
26.1
30.8
24.0
18.6
20..8
19..0
25.19
30..6
24.4

Source: Compiled from UN commodity trade statistics and EEC Analytical

Tables.
The steady growth of Indias exports was uninterrupted except in 1977-78,
when this upward movement was arrested temporarily. Since the conclusion of
the CCA, Indias exports and imports increasing reasonably well, but its imports
have surpassed its exports, resulting in a chronic balance of trade deficit. This is
shown in 4.7.
4.2.2 Trend in Indo-EC Trade (1980-2000)
Table 4.8- Trend of Indo-EC Trade (1980-2000) value in million us$
Year

EUs export

1980

2298

change over
Previous. year
5

EUs import
1799
75

change over
Previous. year
-2.0

1981

3363

46

1880

4.0

1982

3991

19..0

2572

37.0

1983

3823

-5

2196

-15.0

1984

4629

21.0

2905

32.0

1985

5560

20.0

2672

-8.0

1986

5705

3.0

2395

-12.0

1987

5678

-0.5

2761

15.3

1988

5673

00

3256

18.1

1989

7085

24.90

4180

28.4

1990

5997

-15.3

4541

8.64

1991

5219

-13.00

4557

4.75

1992

5244

0.5

4877

2.52

1993

6229

18.80

5882

20.60

1994

7053

12.91

6913

18.74

1995

9943

40.97

7794

12.74

1996

9895

4.80

8588

10.19

1997

10208

3.16

9465

10.21

1998

9539

-6.55

9790

3.43

1999

10344

8.43

10020.00

2.34

2000

13303

28.60

12341.00

12.16

Source: Calculations based on DGFT Data Bank, Ministry of Commerce and

Industry, Govt. of India. http/commerce.nic.in
After the expiry of the CCA, India and the EC decided to start fresh
negotiations with a view arriving at a new agreement in the light of the
experience gained till then. After prolonged negotiations, India and the EC
agreed to conclude a new agreement which was concluded on 23 June 1981,
known as commercial and Economic Cooperation Agreement (CECA).5
76

The new agreement extended the horizon and scope of its economic and
commercial cooperation. The CCA of 1973 continued up to 1980. Between
1973 and 1980, Indias exports to the EC increased by 210% on the other hand,
imports also grew remarkably by 284%. The compound growth rate of Indias
exports was 17.55 against the import growth of 21.22% during the same period.
Though CECA was much diversified than CCA but its performance on
the external sector was quite lackluster during this period. During CECA,
exports grew 9.54% at compound rate and imports growth was 7.97% one
interesting feature of this period was that export growth was higher than import
growth.6
The percentage change in Indias import over the previous year which
was 5% in 1980 rose to 18.80 in 1993. Indias import from the EC at 2298
million US$ in 1980 had increased to 6229 million US$ in 1993. Similarly
Indian exports to the EEC were 1799 million US$ in 1980; which increased
5882 million US$ in 1993 and percentage change from 2% in 1980 to 20.6% in
1993. The Table 4.8 shows trend in Indo EEC Trade (1980-2000).
The European community has a share about 30% of Indias export and
import. Both way Indo-EC trade was no more than 1.11% of ECs external trade
in 1992. One could easily observe that India has not been able to realize its
economic potential for exports to the member of the EC. One plausible reason
may be the in ability of the Indian exporter to conform to the European
specifications and fast changing market-trends. In order to capture the European
market, quality is the most important determinant rather than costcompetitiveness. In India, we often neglect quality aspect and tend to give
greater importance to the price factor.7
4.9 Bilateral merchandise Trade between India and EU-27 (2000-2012)
77

Year

Export

%
share

%
change

Import

%
Share

%
Change

BOT

Total
Trade
with EU

2000

10694.16

23.9993

10.64

10675.01

21.1234

-4.13

19.15

21369.17

2001

10155.37

23.1716

-5.04

10648

20.7122

-..25

-493.43

20804.17

2002

11886.41

22.5465

17.05

12834.46

20.8989

20.52

-948.05

24720.87

2003

14516.50

22.7380

22.13

15074.77

19.2898

17.46

-558.28

29591.27

2004

18249.02

21.8457

25.71

19302.08

17.3086

28.04

1053.06

37551.1

2005

23228.84

22.5325

27.29

25998.21

17.4291

34.69

2769.37

49227.05

2006

26834.45

21.2251

15.51

29856.24

16.0746

14.84

3024.79

56687.69

2007

34535.37

21.1702

28.71

38450.10

15.2790

28.78

3914.73

72985.47

2008

39351.43

21.2371

13.95

42733.41

14.0711

11.14

3381.98

82084.84

2009

36028.05

20.1554

-8.45

38433.12

13.3276

-10.06

2405.07

7446.17

2010

46039.38

18.3324

27.79

44539.93

12.0453

15.89

1499.45

90579.31

2011

17.18

11.62

109428

2012

16.7

11.1

102696p

Source: Calculations based on DGFT Data Bank, Ministry of Commerce and

Industry, Govt. of India. http/commerce.nic.in
As table 4.9 indicates that in recent years Indias total trade with combined
EU-27 have increased from about US$ 21.36 billion in 2000 to about US$
102.7 billion in 2012 out of which export to combined EU27 have increased
from about US$ 10.7 billion in 2000 to about US$ 46 billion in 2010-11.
Similarly Indian imports from the EU-27 have grown from about US$ 10.67
billion in 2000 to US$ 44.5 billion 2010-11. Data of above table (4.9) shows
that although in absolute terms, Indias trade with the EU-27 has increased in
relative terms as a percentage of Indias total export and import, it has declined
78

consistently in the last decade. As indicated in table 4.8 in 2000, share of EU-27
in export was about 24 % and in import was21.12%. However in 2012 it
declined to its lowest level i.e. export 16.7 percent and import 11.1 percent as
shown in table 4.9. In comparison, during this period Indias trade with various
other countries grow significantly. For example India-US trade grows at an
average rate of 26.3% and its trade with china registered a growth of nearly
53% per year. This rising level of trade with other regions indicate that the
European economies have not been able to take full advantage of an expanding
economy8
Figure-1EUs Share in Total Indian trade

30
25
20
15
10

23.99

23.17 22.54 22.74

21.85 22.53 21.23 21.17 21.24
21.12 20.71 20.89
20.16
19.29
18.33
17.31 17.42
17.18 16.7
16.07
15.28
14.07
13.33
12.05 11.62
11.1

5
0

2000

2001

2002

2003

2004

2005

2006

Export

2007

2008

2009

2010

2011

2012

Import

4.2.3 Indian Share in EUs merchandise trade:

In 1957 Indias share in EECs total import was 0.06 and in import was 1.09
in 1980 it was 0.35 percent of total import and 0.48 of export. Indias export and
79

import to the EEC are hardly one percent of total extra EEC export and import
in 1980.

2002

2003

2004

2006

2007

2008

2009

2010

2011

2005

2001

Import

Export

year

2000

Table 4.10 Indian share in total EU trade (%)

1.6

1.5

1.6

1.7

1.8

2.1

2.4

2.4

2.5

2.6

2.6

1.3

1.4

1.5

1.5

1.6

1.6

1.7

1.9

1.9

2.1

2.2

2.3

Source: Calculations based on DGFT Data Bank, Ministry of Commerce and Industry, Govt. of India.
http/commerce.nic.in

80

After post liberalization India-EU trade had shown impressive growth over
the last years. However India accounts for 2.6% of EUs total exports and 2.3%
of the EUs total imports in 2011. Although the share of India in EUs total
export and import is increased 1.3% in 2000 to 2.3% in 2011 in import and
1.6% in 2000 to 2.6% in 2011 in export. This growth is not satisfactory and
indicates that India has not been able to take the full advantage of the
enlargement of EU-27.
4.3 Trade in services between EU and India:
There is no denying fact that services are assuming centre stage in the
economies of both India and the European Union in recent years. Since the
1999, the rapidly expanding services sector has been giving more contribution
to economic growth than any other sector. Over the years, the share of
agriculture and manufacturing in Indias GDP is declining while the share of
services is rapidly increasing. Financial services, Tourism, Transport and
communication services have been experiencing double-digit growth since
2002.Share of the service sector in the GDP of Indian economy rises from 44.6
percent in 1991 to 58.2 percent in 2012. EU is the biggest global player in
international trade in services. India is also becoming a significant player in
global trade in services. As it can be seen from table 4.11 between 2000-2012,
trade in services almost increased five times. Datas in table 4.11 shows that
from 2000-2004, balance was in the favour of India, but since 2005-2011 trade
was in the favour of EU. India does not report bilateral trade in services data but
Eurostat data shows that India has closed to one percent share in EU trade in
services, which is lower than many Asian countries. Bilateral trade in services
between India and the EU has increased from $7.9billion in 2004 to $28.9
billion in 2012 and the EU is Indias largest trading partner in services. In 2010,
the EU contributed 11 percent to Indias services trade, followed by the US (10
81

per cent) 15. In 2006 India was put in the 6 th rank, behind EU-27, the US, Japan,
China and Canada. As far as export of services is concerned, the UK remained
Indias biggest market within the EU followed by Germany and France.

year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Table4.11-Bilateral Services Trade between India and EU

Euro Billions
EUs export to India EUs import from India Balance
2.5
2.6
-0.1
2.7
3
-0.3
2.6
2.7
-0.1
2.8
3
-0.2
3.8
4.1
-0.3
5.4
5.1
0.3
7.5
5.8
1.6
8.7
7.2
1.5
9
8.1
0.8
8.9
7.4
1.5
10
8.2
1.8
10.7
9.7
1.1
14.1
14.8
-0.7

Source: http://epp.eurostat.ec.europa.eu/portal/page/portal/-statistics/themes
*EUs exports are Indian import and EUs import is Indian export.

82

Trade in Services
16
14
12
10
8
6
4
2
0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-2
EUs export to India

EUs import from India

Balance

Figure-2
4.3.1 Importance of Services Trade in India and the EU:
Services trade contributes a significant share in total trade (including
merchandise and services trade) of India and the EU. Contribution of service
sector in 2000 was 27.6 and 20.8 in India and EUs total trade. In 2011, services
trade contributed 27.3 per cent and 21.2per cent in India and EUs total trade,
which is higher than global share of 18.4 per cent. Table also shows that while,
over time, share of trade in services in Indias total trade has increased, there has
not been much improvement in share of services trade in total trade for the EU.

83

4.3.2- Per cent Share of Services Trade in Total Trade India and the EU
year
2000
2001
2005
2008
2009
2010
2011

India
Export import Service
trade
28.8
27.1
27.6
28.6
28.5
28.5
34.5
24.9
29.2
35.5
21.6
27.5
36.1
24
29.2
35.9
26.2
30.4
33.3
22.6
27.3

EU
Export import Service
trade
21.1
20.6
20.8
21.6
21.5
21.6
22.8
20.8
21.8
23.4
20.2
21.8
25.5
22.6
24.1
23.9
20.9
22.4
22.8
19.6
21.2

Source:http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx

4.4

Foreign Direct Investment (FDI)

International capital movements, especially cross-border direct investment

inflows popularly known as foreign direct investment (FDI). FDI plays vital
role in the economic growth of a nation. According to UNCTADs World
Investment Reports (2004, 2005, 2006, 2008), FDI inflows from developing and
transition economies reached record levels in the year 2007 contributing to their
economic growth. According to Reserve Bank of India (RBI), Indian FDI
equity inflow increased from 2,347 million USD in January 2000 to 22,789
million USD in December 2012. The cumulative FDI inflows from all countries
in India during this period from January 2001 to December 2012 were 188.47
billion USD as shown in the table 4.15 . This indicates that foreign companies
are investing in India to access key resources of host country and to enter into
the bigger South Asian Countries market.

84

4.4.1 Foreign Direct Investment Inflows from EU to

India:
The EU is India's largest source of foreign direct investment with a stock of
34.4 billion Euros and India's investments in Europe is also fast reaching 7
billion Euros. "European FDI in India for instance is half the amount of that in
China, or a quarter of that in Russia, or a fifth of that in Brazil 16.The main
sectors which attracted FDI from European Union were electrical equipments,
fuels, transportation industries, chemicals and services. In 2007, the EUs
investment flows to India gained momentum and increase from about 2.5 billion
Euros in 2006 to about 4.6 Euro in 2007. In fact, India overtook China as the
leading destination for FDI inflow from the EU in 2007.However, Indian FDI in
the EU also increasing. The UK has been a major attraction for Indian
companies where more than 500 companies have invested. The Netherlands and
Cyprus have also received substantial Indian FDI.17
Table 4.13-FDI flows between EU and India
Euro billion
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

Outflows From India to EU

0.2
0.1
0.1
0.6
0
0.5
0.5
1.2
3.5
0.8
0.6

Source: Eurostat

85

Outflows From EU To India

0.7
0.4
1.1
0.8
1.6
2.5
2.5
4.6
3.3
3.1
3

Figure-3

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
inflow from india to EU

out flow from EU to India

4.4.2 Country wise FDI inflow from European Union:

The top most investing countries in India from 2001 to 2012 are given in
table 4.14. Among the EU member countries, the UK accounted for the highest
FDI inflows followed by Netherlands, Cyprus, Germany and France.

86

87

Table4.14 Country wise FDI inflow from European Union during 2001-2012
European Union
Austria
Belgium
Cyprus
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Spain
Sweden
United Kingdom

2001
303
88
74
28
68
45

2002
474
53
103
94
224

2003
457
34
69
197
157

2004
561
44
143
24
196
70
84

2005
450
13
12
45
39
50
30
261

2006
2 761
58
100
116
57
559
62
1 809

2007
2 385
570
136
486
21
15
601
48
508

Source: UNCTAD FDI/TNC database, based on data from the Reserve Bank of India.

88

2008
4 266
1 211
437
611
249
23
682
363
690

2009
4 120
1 623
283
602
40
804
125
643

2010
3 966
43
34
570
69
22
486
163
1
33
119
248
1 418
2
2
1
183
34
538

2011
7 241
20
40
1 568
23
15
589
368
1
152
89
3
1 301
10
2
4
251
43
2 760

2012
5 310
41
33
415
83
3
547
467
2
1
63
34
1 713
517
11
348
10
1 022

total
32294
104
107
6028
175
40
2809
3247
3
35
752
449
3
76836
527
15
6
1
1380
187
8741

4.4.3 Total FDI Equity Inflow to India during 2001 to 2012:

The FDI equity inflows from EU to India increased from303 million US$
in the year 2001 to 5310 million US$ in the year 2012. FDI equity inflow from
EU to India is approximately 24 percent during the period January 2001 to
December 2012.Table 4.15 shows the FDI inflows from EU to India during
2001 to 2012.

Table 4.15 FDI Equity Inflows

Year

FDI
Equity
Inflow
from
world
(million
USD)
3,520
3,359
2,079
3,213
4,355
11,120
15,921
37,096
27,044
21,007
34,621
22,789
188,471

Growth
Rate

FDI
Equity
Inflow
from EU
Countries
(million
USD)
303
474
457
561
450
2,761
2,385
4,266
4,120
3,966
7,241
5,310
32,294

Growth
Rate

FDI Equity
Inflow
from EU as
Percentage
of Total
FDI inflows
(%)
8.61
14.1
22.0
17.5
10.3
24.8
15.0
11.5
15.2
18.9
20.9
23.3
17.1

2001
2002
-4.57
56.43
2003
-38.1
-3.58
2004
54.54
22.75
2005
35.51
-19.78
2006
155.33
513.55
2007
43.17
-13.61
2008
133.
78.86
2009
-27.09
-3.42
2010
-22.32
-3.73
2011
64.8
82.57
2012
-34.1
26.66
Cumulative
Total
Source: Department of Industrial Policy and Promotion (DIPP), Ministry of
Commerce and Industry, Government of India.

89

4.4 A Time Series analysis of India and

European Union Trade Pattern
The EU is India s largest trading partner followed by US and China.
Presently the EUs contribution to Indias trade (both export and import) is
about one third of the total.
4.4.1 Trends of EUs World Imports:
Let us first see the growth scenario of the ECs world imports. In
1981, the ECs total imports were 581 billion ECU which increased to 1255
billion ECU in 1994. The compound growth rate of ECS total import was 6.09
percent from 1981to1994. The rate varies across from one member state to
another.9 Almost all member states have shown higher import growth over the
years. In table 4.16 we have shown that EUs (extra) growth of imports from
2000-2012. During this period Slovak republic showed the highest growth rate
of 16.1 percent per annum, followed by Lithuania 16.0 percent and romania
15.0 percent. Bulgaria and Latvia both has 14.4 percent growth rate. For other
member countries rates of growth of imports vary between 5 and 9 percent
except Ireland whose performance is lackluster 1.8 percent respectively. Every
other member state has much higher import growth rate.

90

TABLE 4.16- Trends of EUs World Imports

(Value in million US$.)
Belgium
France
Italy
Luxembourg
Netherland
Germany
Denmark
Ireland
UK
Greece
Portugal
Spain
Austria
Finland
Sweden
Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Slovak Republic
Slovenia
Bulgaria
Romania
EU-27

2000
176991
303758
238069
10592
198927
500830
44533
50649
374703
29487
39879
152898
68374
33886
72767

2001
178698
293866
236127
11188
195562
486022
44625
51376
358703
28434
39456
154993
70492
33268
63536

2002
198095
303831
246609
11529
194115
490450
49285
52214
NA
31299
40032
165920
72796
33440
67121

2003
234922
362517
297403
13646
233997
601761
56227
53782
425369
44855
47166
208549
91595
41572
84199

2004
286478
434242
355267
16772
284014
718150
66845
62345
502886
52810
68222
259265
111261
50658
100833

2005
319085
475857
384836
17586
310591
779819
72716
70284
528461
54894
61167
289611
119950
58473
111351
6382
76527
11018
65920
8770
15704
3865
101539
34226
19626

2006
353094
529902
442565
19640
358510
922213
84187
76621
614812
63739
66694
329976
134356
69427
127101
7046
93429
14641
76979
11427
19388
4396
125645
44759
23013

2472185

2435413

2174803

3065837

3717949

4056883

4687935

SOURCE: World Integrated Trade Solution (WITS) www.wits.com.

91

2007
413036
611364
511823
22289
421368
1059308
97445
87045
679918
76099
78326
391237
156056
81576
152823
8749
116822
16665
94660
15185
24445
4947
164172
59208
29476
30085
69946
5474073

2008
466338
695004
560960
25498
494937
1204209
109166
84953
705344
89302
90106
418728
175026
92190
168982
10849
141834
17335
108785
15775
31295
5141
210479
72612
33986
37015
82965
6148814

2009
354586
540502
414784
18771
382190
938363
80364
62566
522042
67192
69985
287502
136418
60830
119949
7933
104850
11360
77272
9337
18341
4034
149570
55160
23902
23341
54256
4595400

2010
391256
599172
486984
20400
439987
1066817
83162
60550
627618
63942
75572
315547
150593
68767
148788
8645
125691
13197
87432
11143
23378
5732
174128
64382
26592
25360
62007
5226842

2011
466349
700852
558832
25972
492838
1260298
96437
67171
717606
60832
80324
362835
182350
83862
176945
4789
150813
18963
101370
15431
31801
7396
209192
76690
31237
32494
76365
6090044

2012
437883
663269
489104
24011
501134
1173288
92297
63100
689137
62341
72293
325835
169663
76089
162709
7377
139727
19750
94266
16082
32238
7896
191430
76859
28383
32743
70260
5719164

CAGR
7.8
6.7
6.2
7
8
7.4
6.3
1.8
5.2
6.4
5.1
6.5
7.8
6.9
6.9
5.5
13
12
9.3
14.4
16
7.3
12.1
16.1
9
14.4
15

Table 4.16 revealed an interesting phenomenon that the former

communist countries or the east European countries like Slovak Republic,
Lithuania, Latvia and Estonia shows the highest import growth rate per annum.
The growth rate of these countries varies between 9 to 16 percent. On the other
hand big countries like Germany, France and Spain had import growth between
6 to 7 percent.
Table 4.17 shows the time series trends of the EUs imports from India.
Against the compound growth rate of 14 percent of India total export to the EU,
the rate was highest in case of Estonia. Indias export to Estonia grew by 31
percent per annum and 25.8 percent to Slovak Republic for Estonia it was 23.6
percent, to Spain 5.2 percent during the same period. Compared to smaller
countries, Indias export performance to the largest member states has been
some rather what disappointing except The Netherland .If we judge Indias
export performance by growth rate only, it was below average in case of
Belgium11.6 percent, Germany 11.8 and Italy 11.6 percent. Rate of growth to
Denmark 12.4 percent and to U.K. it was 11.6 percent during the same period.
Top ten partners of India in European Union, except France and The Netherland
whose growth rate was 14.4 and 23 percent respectively, has lower import
growth rate then the average growth rate i.e. 14 percent during the same period.

92

TABLE4.17:-Trend of Indias Export to the European Union

(Value in US$ Million)
Belgium
France
Italy
Luxembourg
Netherland
Germany
Denmark
Ireland
UK
Greece
Portugal
Spain
Austria
Finland
Sweden
Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Slovak Rep
Slovenia
Bulgaria
Romania
EU-27

2000
1470.6
1020
1308.8
5.58
880.09
1907.6
174.38
103.18
2298.7
113.49
146.7
666.25
81.02
58.31
176.16

2001
1390.6
945
1206.5
4.47
863.88
1788.4
151.86
102.38
2160.9
106.53
147.84
677.21
76.33
69.75
154.27

2002
1661.8
1074.1
1357.1
9.14
1047.9
2106.7
183.67
135.81
2496.4
148.7
162.12
810.49
81.11
71.14
176.29

2003
1805.7
1280.9
1729.4
14.19
1289.1
2544.6
241.89
150.93
3023.3
200.04
169.89
1002.6
106.38
111.27
219.88

2004
2509.7
1680.9
2286
11.64
1604.9
2826.3
305.74
211.99
3681.1
306.34
223.17
1389.4
117.15
143.54
241.8

2005
2871.2
2079.6
2519
10.67
2474.8
3586.1
410.28
279.77
5059.3
564.09
260.89
1605.7
132.47
204.69
326.39
32.41
96.87
13.86
84.16
28.39
33.45
121.31
226.96
21.41
76.6

2006
3478.2
2103.3
3584.7
16.92
2674.6
3984.8
458.06
226.08
5622.9
670.71
366.99
1878.7
132.01
194.36
387.7
33.39
102.66
28.24
103.8
39.81
40.61
60.8
306.57
36.24
88.63

10411

9845.9

11522

13890

17540

23120

26621

2007
4207.1
2599.6
3914
11.7
5249.1
5121.5
496.57
314.47
6705.5
530.38
495.91
2293.6
183.41
239.74
544.19
47.91
180.28
68.63
230.41
59.5
59.18
34.61
447.45
47.46
119.47
71.12
170.46
34443

2008
4480.3
3020.9
3824.6
11.56
6348.7
6388.5
583.66
449.77
6649.5
874.43
440.44
2538.2
490.67
264.89
566.69
250.01
183.3
49.31
439.69
44.93
60.26
100.08
518.45
35.83
160.7
73.69
262.55
39112

2009
3759.3
3819.8
3400.3
4.78
6397.6
5412.9
580.42
260.57
6221.4
452.8
374.57
2029.3
252.74
208.36
476.63
46.82
177.76
28.92
269.68
47.17
66.39
708.85
421.13
35.76
192.58
50.89
498.41
36196

2010
5784.4
5209.6
4551.6
18.76
7677.6
6751.2
690.74
270.34
7285
364.88
526.84
2565.3
593.7
254.92
627.73
43.31
215.77
52.91
212.85
103.19
83.3
746.78
666.22
59.47
187.42
69.71
330.81
45944

SOURCE: World Integrated Trade Solution (WITS) www.wits.com

* Indias export to European Union means unions import from India.
** Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic, Slovenia and Bulgaria became members from 2004.
*** Bulgaria and Romania became members from 2007.

93

2011
7160.8
4558.1
4883.1
9.1
9151.3
7942.8
757.51
380.26
8589.9
790.06
525.27
2999.3
341.82
314.34
825
56.62
271.85
116.48
316
96.18
134.89
848.99
787
94.36
227.02
108.77
426.03
52713

2012
5507.3
4986
4372.6
8.2
10565
7246.2
707.29
386.69
8612.5
300.13
528.46
2865.8
328.58
317.27
686.15
54.99
251.4
91.88
323.74
104.08
147.43
398.22
810.85
107.01
273.79
156.98
269.54
50408

CAGR
11.6
14.1
10.6
3.2
23
11.8
12.4
11.6
11.6
8.4
11.3
5.2
14.4
15.2
11.9
4.5
14.6
31
21.2
20.4
23.6
18.5
19.9
25.8
19.9
20.8
0.9
14

Import growth rate of the former communist countries like

Estonia31percent, Lithaunia23.6 percent, Poland 19.9 percent is higher than the
western countries of the EU like Belgium 11.6,Italy10.6, and Germany 11.8
percent.
Table 4.17 shows that Indias share in the EUs total imports has been
abnormally low over the years but has been improving later on. 10 The share of
India has been increasing but remains below 1 percent during the same period.
Its share in EUs total import was 0.45 percent in 2000, which increased to 088
percent in 2012. There may be several reasons as to why Indian share in the EU
market has been always at a low level. Inspite of having several supply
problems, demand side factors, are not less important. Factual evidence shows
that since mid seventies the EC has become more protectionist towards India
especially in areas of labour intensive goods with less value addition. 11 All
imports of textiles and garments have been under stringent quota restrictions
since 196112.A part from high tariff, it market is well-protect by a plethora of
non tariff barriers. Non- transparent barriers hurt more severely than tariff
barriers. High tariff can be absorbed through efficient production but non tariff
barriers are difficult to deal with them because in most of the cases they are non
transparent. Trade distortionary effects of NTBs are much more prominent than
higher tariffs.13

94

TABLE4.18-Indias share in EUs Total Import Country wise (%)

Year
BELGIUM
France
ITALY
LUXEMBOURG
NETHERLAND
GERMANY
DENMARK DO
IRELAND
UK
GREECE
PORTUGAL
SPAIN
AUSTRIA
FINLAND
SWEDEN
CYPRUS
CZECHREPUBLIC
ESTONIA
HUNGARY
LATIVA
LITHUNIA
MALTA
POLAND
SLOVAK REPUBLIC
SLOVENIA
BULGARIA
ROMANIA

2000
0.83
0.34
0.55
0.05
0.44
0.38
0.39
0.20
0.61
0.38
0.37
0.44
0.12
0.17
0.24
0.82
0.12
0.07
0.13
0.43
0.16
0.31
0.18
0.08
0.15
0.18
0.10

2001
0.78
0.32
0.51
0.04
0.44
0.37
0.03
0.02
0.44
0.02
0.03
0.14
0.02
0.01
0.03
0.01
0.01
0.00
0.01%
0.00
0.10
0.44
0.22
0.06
0.28
0.11
0.08

2002
0.84
0.35
0.55
0.08
0.54
0.43
0.37
0.26
NA
0.48
0.40
0.49
0.11
0.21
0.26
0.57
0.12
0.07
0.13
0.22
0.13
1.14
0.19
0.07
0.22
0.14
0.06

2003
0.77
0.35
0.58
0.10
0.55
0.42
0.43
0.28
0.71
0.45
0.36
0.48
0.12
0.27
0.26
0.63
0.17
0.08
0.19
0.31
0.18
3.47
0.20
0.07
0.26
0.23
0.11

2004
0.88
0.39
0.64
0.07
0.57
0.39
0.46
0.34
0.73
0.58
0.33
0.54
0.11
0.28
0.24
0.51
0.13
0.11
0.18
0.24
0.25
0.76
0.20
0.08
0.36
0.17
0.15

2005
0.90
0.44
0.65
0.06
0.80
0.46
0.56
0.40
0.96
1.03
0.43
0.55
0.11
0.35
0.29
0.51
0.13
0.13
0.13
0.32
0.21
3.14
0.22
0.06
0.39
0.13
0.26

2006 2007
0.99 1.02
0.40 0.43
0.81 0.76
0.09 0.05
0.75 1.25
0.43 0.48
0.54 0.51
0.30 0.36
0.91 0.99
1.05 0.70
0.55 0.63
0.57 0.59
0.10 0.12
0.28 0.29
0.31 0.36
0.47 0.55
0.11 0.15
0.19 0.41
0.13 0.46
0.35 0.39
0.21 0.24
1.38 0.70
0.24 0.27
0.08 0.08
0.39 0.41
0.17 0.24
0.17 0.24

2008 2009
0.96 1.06
0.43 0.71
0.68 0.82
0.05 0.03
1.28 1.67
0.53 0.58
0.53 0.72
0.53 0.42
0.94 1.19
0.98 0.67
0.49 0.54
0.61 0.71
0.28 0.19
0.29 0.34
0.34 0.40
2.30 0.59
0.13 0.17
0.28 0.25
0.40 0.35
0.28 0.51
0.19 0.36
1.95 17.57
0.25 0.28
0.05 0.06
0.47 0.81
0.20 0.22
0.32 0.92

2010
1.48
0.87
0.93
0.09
1.74
0.63
0.83
0.45
1.16
0.57
0.70
0.81
0.39
0.37
0.42
0.50
0.17
0.40
0.24
0.93
0.36
13.03
0.38
0.09
0.70
0.27
0.53

2011
1.54
0.65
0.87
0.04
1.86
0.63
0.79
0.57
1.20
1.30
0.65
0.83
0.19
0.37
0.47
1.18
0.18
0.61
0.31
0.62
0.42
11.48
0.38
0.12
0.73
0.33
0.56

2012
1.26
0.75
0.89
0.03
2.11
0.62
0.77
0.61
1.25
0.48
0.73
0.88
0.19
0.42
0.42
0.75
0.18
0.47
0.34
0.65
0.46
5.04
0.42
0.14
0.96
0.48
0.38

*Table 4.18 is compiled from table 4.16 and 4.17.

Table 4.18 gives detailed information of Indias share in EUs import

over the years both in average and individual states. Indias share was the lowest
in case of Luxembourg, Slovak Republic, and Czech Republic. In 2012 only.03,
0.14 and 0.18 percent respectively of their total import came from India. Picture
more or less same in case of Austria where Indias share was 0.19 percent of its
total imports during the same period. Indias share was highest in case of Malta,
where Indias contribution was 5.4, India share in Belgiums total import was
12.6 percent and with Italy it was 0.75 percent during the same period. Indias
share to The Netherlands total import was 2.11 percent and to the UK it was
1.25 percent respectively during 2012.It is also evident from the table that our
export performance to some of the EU member countries has improved in recent

95

years, which is reflected in Indias improved share in the countries market.

From 2000 to 2012, Indias export performance to countries of EU was
fluctuating, but the long run effect shows that it has improved significantly.
TABLE4.19 EU-27 Compound Annual Growth Rate of import (CAGR)
World
Belgium
France
Italy
Luxembourg
Netherland
Germany
Denmark
Ireland
UK
Greece
Portugal
Spain
Austria
Finland
Sweden
Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Slovak Rep
Slovenia
Bulgaria
Romania
EU-27
Table4.19 Based on table 4.16and4.17

India
7.8
6.7
6.2
7
8
7.4
6.3
1.8
5.2
6.4
5.1
6.5
7.8
6.9
6.9
5.5
13
12
9.3
14.4
16.0
7.3
12.1
16.1
9
14.4
15.0
na

96

11.6
14.1
10.6
3.2
23
11.8
12.4
11.6
11.6
8.4
11.3
5.2
14.4
15.2
11.9
4.5
14.6
31
21.2
20.4
23.6
18.5
19.9
25.8
19.9
20.8
0.9
14

Figure-7

70
60
50
40
CAGR from india

30

CAGR from world

20
10
0

4.3 Composition of Indian Export to the

European Union: A Sectoral Analysis:
Historical trends of the composition of the Indias export to the
European Union shows that India has never been a very prominent exporter of
hi-tech items. A close look at the composition of her exports reveals that rather
she has been exporting primary and labour intensive low value- added
manufactured goods. This is the basic feature of Indias export pattern to the
European Union in particular western countries in general 14.For analytical
purpose; we have aggregated all sectors into 16 major groups. Sixteen major
groups are as follows:
97

98

Sr.no
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

Sectors
1-5
06-15
16-24
25-26
27-27
28-38
39-40
41-43
44-49
50-63
64-67
68-71
72-83
84-85
86-89
90-99

Group
Animal
Vegetable
Food Product
Minerals
Fuels
Chemicals
Plastic or Rubber
Hides and Skin
Wood
Textile and Clothing
Footwear
Stone and Glass
Metals
Machine and Electronic
Transportation
miscellaneous

99

TABLE4.20 Indias Export to European Union 2000-2012

(Percentage Share of different Product Group)
Year

2000

2001

2002

Animal

2.08

2.19

2.49

200
3
2.68

Vegetable

8.22

6.89

6.04

5.53

Food Prod

1.43

1.63

1.45

1.09

Minerals

2.04

1.86

2.03

1.92

Fuels

0.32

1.09

0.79

1.19

Chemicals

8.02

9.1

Plast iRub

1.72

1.73

Hides
Skin
Wood

7.15

TextCloth

2004

2005

2006

2007

2008

2009

2010

2011

2012

2.14

2.05

2.22

1.93

1.65

1.92

1.65

1.57

1.71

5.5

4.97

4.51

4.24

5.03

4.57

4.35

4.53

5.23

1.1

1.13

1.41

1.53

1.52

1.37

1.51

1.74

1.95

1.76

1.64

1.47

1.18

0.78

0.8

0.73

0.8

2.34

4.64

4.5

5.68

7.73

7.11

9.51

9.28

9.23

9.55

9.84

9.94

12.5
3
11.39

1.85

1.98

2.3

2.9

2.73

3.04

2.78

10.8
8
2.4

14.2
2
10.7
8
2.65

3.07

13.4
9
12.6
9
3.05

7.76

7.16

6.09

4.98

4.62

4.22

3.91

3.77

3.82

3.39

3.29

3.44

0.58

0.6

0.68

0.78

0.77

0.73

0.66

0.61

0.55

0.6

0.52

0.43

0.49

31.7
8
3.95

31.7
2
4.59

30.7
5
4.53

29.4
4.24

27.2
8
4.26

27.6
6
3.84

26.6
8
3.94

23.4
1
3.72

20.8
2
3.41

23.5
1
3.86

19.6
8
3.59

18.5
8
3.28

16.8
1
3.05

12.0
7
5.01

13.2
8
5.47

12.1

11.89

11.59

8.6

7.85

8.38

8.84

8.24

6.04

8.73

8.33

6.8

6.72

8.17

7.78

6.82

7.88

8.43

9.19

9.52

9.53

2.52

1.98

2.38

3.23

4.35

3.7

12.8
8
4.54

12.3
6
8.16

12.5
5
6.19

11.84

Transport

12.7
3
10.5
7
4.05

11.94

MachElec

10.8
5
10.5
9
10.0
2
3.34

9.64

Metals

13.1
6
5.53

6.11

12.0
8
5.07

Miscellan

3.34

3.46

3.58

3.52

3.56

3.31

3.3

3.59

3.46

3.55

3.04

3.92

3.94

Footwear
StoneGlas

Source: Calculations based on DGFT Data Bank, Ministry of Commerce and Industry, Govt.
of India. http/commerce.nic.in

100

During 2000 textile has the highest share i.e. 31.78 percent in the export
followed by stone and Glass products having a composite share of 13.16
percent, Vegetable with a share of 8.2 percent was on the third place. Other
important categories in the export were chemicals8.02 and Hides and skin 7.15
percent. Share of mach&Elect was 6.82percent and Metals had the share of 5.53
percent of the total exports.
In 2012 the scenario is completely different Share of Textile and
Clothing has been declining since 2000 and has declined to 16.81percent during
2012. Nearly one third of Indias to the EU market is composed of textile and
clothing. Declining in share may be due to fierce competition arising from other
textile exporting countries like China , Pakistan ,Bangladesh etc .Secondly most
of the quota free items are not of any interest to India. The third reason behind
such declining trend may be attributed to child labour issue. In carpet sector Iran
and China emerges as a new competitor from the developing countries.
During this period the share of two groups declined significantly are Stone
and Glass and Hides and Skin. Export share of Stone Glass had declined from
13.16 percent during 2000 to 8.24 percent during 2012. The rationale behind
such declining trend may be the emergence of new competitors like Israel,
Brazil etc. Share of Hides and Skin has been declining since 2000 and had
declined to 3.44 percent during 2012.
Similar to Hides Skin share of Vegetable Food products and Minerals has
also declined during this period. Miracle is done by Fuel product during this
period share of fuels has increased tremendously during this period. Its share
was 0.32 percent in 2000, which increased to 13.49 percent during 2012. This
shows that it is one of the most potential items in Indo-EU trade. Machine,

101

Electronics goods, Metals and Transport items has shown significant

improvement during this period. The share of Mach&Elec has increased from
6.82 percent in 2000 to 12.08 percent during 2012.Similarly the share of
Transport items increased from 2.52 percent in 2000 to 5.07 percent in 2012.
Export of Metals increased from 5.53% in 2000 to 7.78 percent in 2012. Share
of Vegetable, Minerals and Animals products has declined during this period.
This simply because of two reasons. First is that the agricultural sectors is
heavily protected by the subsidies given in AMBER BOX*,GREEN BOX**
and BLUE BOX***. The EU has been giving heavy subsidies to protect its
farm sector from external competition. Secondly EU frequently uses stringent
sanitary and Phyto sanitary Standards (SPS) against its import of agricultural
items from India.

References

102

In WTO terminology, subsidies in general are identified by boxes which

are given the colours of traffic lights: green (permitted), amber (slow down
i.e. be reduced), red (forbidden). The Agriculture Agreement has no red
box.
TheseBoxes denote different kind of domestic subsidies provided in a
country. The three boxes are; Amber , Blue and green boxes.
Amber box*:- All domestic support measures considered to distort
production and trade (with some exceptions) fall into the amber box.
Blue box**:- Amber box with conditions It includes aid that is linked to
production limitation programmes and calculated to a fixed production data
from an earlier period.
Green box***:- It contains fully authorized aid, takes in subsidies that do
not distort trade.
1

(AK Banerji From mutual Indifference to co-operation EEC priorities and

the evaluation of Indo-EEC economic relation) Allied publishers 1983-P-76).

2 Gulshan Sachdeva, India and European Union, Broadening Strategic

Partnership Beyond Economic Linkages Sage Publication (2008).
3 Commission of the European Commission, Commercial Cooperation
Agreement,(Brussels),1973.
4

K.G. Ramanathan, Indo-EC Trade under CCA in K.B. Lall, Wolfgang

Ernst and H.S. Chopra (eds) India and the EEC, (New Delhi, 1984) P. 142

5 Commission of the European Committees, 1 bid no. 4.

6 S.K. Bhattacharya India and European Union Trade and non-Traffic
barriers New Delhi 2005.

103

7 Commission of the European communities. The cost of non-European Basicstudies : Executive summary, (Brussels, 1985), Vol. I. P. 21).
8 Business standard, 29Aug 2008.
9 Commission of the European communities; Eurostat-several issues.
10

SK.Bhattacharya ibd.

11 Alexander J Yeats Trade Barriers Facing Developed Countries, Commercial

Policy Measures And Shipping McMillan Press,1979pp.104-43.
12 Sam laird and Rene Vassenaar, why should we worried about non tariff
measures, Information Commercial Esponola, spl. Issue on non tariff
Barriers , oct.1991.pp 135.
13 Laired sam, Quantifying Commercial Policies, in Applied Trade Policy
Modelling.(Cambridge University Press,1995)pp1-45.
14S.K.Bhattacharya,IndianExportPerformance:AsectoralanalysisICRIER,worki
ngPaper .60,ICRIER,NewDelhi,1990.
15 The share is calculated

from UNCTAD Statistics on International

Trade:Services; and OECD Statistics on International Trade in Services by

Partner Country (EBPOS 2002), OECD Statistics.
16 Central Statistical Organisation (CSO) (2012), Economic Survey of India 2011-12 Central Statistical Organisation, Ministry of Statistics and
Programme

Implementation,Government

http://exim.indiamart.com/economic-survey/,

Banga,

of
Rashmi

India,
and

Bishwanath Goldar (2004), Contribution of Services to Output Growth and

104

Productivity in Indian Manufacturing: Pre and Post Reforms, ICRIER

Working Paper No. 139, July 2004.
17 S Havlik, Peter (2006), Economic restructuring in the new EU Member
States and selected Newly Independent states: Effects on Growth,
Employment and Productivity, February, Vienna Institute for International
Economic

Studies,

Austria

http://indeunis.wiiw.ac.at/index.php?

action=content&id=publications
18 Arpita MukherjeeEnhancing Bilateral Trade, Investment and Collaboration
in Services: India and European Union,November,2012.ICRIER.
19 Kemekleine, Gintare, Connolly, Heather, Keune, Maarten and Watt, Andrew
(2007),Services Employment in the Europe: Now and in the Future,
European Trade Union Institute (ETUI) and Research, Education and Health
and Safety (REHS), Brussels
20 Kemekliene, Gintare and Andrew Watt (2010), GATS and the EU Impacts
on Labour Markets and Regulatory Capacity, Report 116, European Trade
Union Institute(ETUI), Brussels
21 " European Commission President Jose Manuel Durao Barroso said at a
conference 'EU-India: A strategic relationship in an evolving world'organised
by FICC.
22 Government of India website: http/www.dipp.nic/fdi-statics/indiafdiindex.htm.

Chapter-5

105

Shifting Paradigm of Trade

Diversion
It is expected that as a country progresses on the path of development, the
comparative advantage shifts from the production of goods requiring the use of
natural resources to those requiring a higher level of technology. In the fourth
chapter, we have analyzed the growth scenario of Indian trade to European
Union as a whole and also to its members In that section we have shown the
direction of exports without showing there composition. Trade patterns are
argued to be no longer determined by resource endowment and factor content of
trade of respective countries. Rather they are dictated by trade policies. In our
study we intend to prove hypotheses on Indian and European Union Bilateral
trade:
Contribution of the commodities in total export to European Union is
decreasing in which India has higher comparative advantage.
.

106

5.1 Revealed Comparative Advantage (RCA)

of India and European Union:
In order to analyses the comparative advantage of Indian and EU exports in
the world market, we have calculated International Revealed Comparative
Advantage (IRCA) for both India and EU by using the Balassa index. This
index measures the share of a commodity in the total exports of a given country,
divided by the share of the same commodity in total world exports. The higher
the ratio is above one, the stronger is that economy's comparative advantage in a
particular commodity. Likewise, the lower the RCA below one, the weaker is
that economys comparative advantage in that commodity. When RCA equals
one, the countrys specialisation in a commodity is identical with the world
specialisation in that commodity. The Balassa Index is calculated as follows:
RCAij=(xij/Xit)/(xwj/Xwt).........................(1)
Where xij and xwj are the values of country is exports of product j and
worlds exports of product j and where Xit and Xwt refer to the countrys total
exports and worlds total exports. Based on similar logic, we also propose to
calculate RCA between two countries (RCA) i.e. India and EU. It is a modified
form of RCA looking at bi-lateral comparative advantage between countries.
This index will reflect the competitiveness of both countries in each others
market in comparison to the rest of the world. The RCA of India and EU in each
others market can be calculated as follows:

IndiasRCAin EU

107

(RCAijE)=(xijE/XitE)/(xwjE/XwtE)....................................(2)
EUsRCAinIndia(RCAEji)=(xEji/XEti)/(xwji/Xwti).......................(3)
Where
xijE= Indias export of commodity j to European Union.
XitE= Total exports of India to European Union
xwjE = Worlds export of commodity j to European Union
XwtE= Total exports of World to European Union
xEji=EUs export of commodity j to India
XEti =Total exports of EU to India
Xwji=worlds export of commodity j to India
Xwti=Total exports of world to India.

Selective Review of Literature:

Several studies have been undertaken using the concept of revealed
comparative advantage. A majority of these studies use data on export shares.
Balassa (1977) has undertaken an analysis of the pattern of comparative
advantage of industrial countries for the period 1953 to 1971. The evidence
provided in the paper supports the available evidence on trade in research
intensive products, indicating the continuous renewal of the with the degree of
technological development a reversal takes place at higher levels 1 product cycle,
with the US maintaining its ever increasing technological lead. Based on the
standard deviation of the RCA indices for different countries an association is
also seen to hold between size and diversification of exports. Balassas results
show that while the extent of export diversification tends to increase
Li and Bender (2003) however argued that instead of complimenting or
substituting exports, the change in comparative advantage of the country, leads
to gain as well as loss for the country. They studied the RCA of manufacture
exports over the period 1981-1999 of eight country groups incorporating 40

108

economies and put forth the view that a pattern of relative comparative
advantage existed2.
Yue (2001) uses the RCA index to demonstrate the fact that China has
changed its export pattern to coincide with its comparative advantage and that
there are distinct differences in export patterns between the coastal regions and
the interiors in China3.
Smyth (2005) analyzed the change in Irelands RCA over the period 1997
to2002. The study sheds light on the changing structure of the Irish economy as
indigenous industries lose their comparative advantage to high tech sectors
driven byFDI4
Karakaya and zgen (2002), by employing RCA approach, investigate the
potential trade creation and diversion effects of economic integration for Turkey
and the EU. They also use the RCA index to examine if Turkeys accession will
jeopardize the trade for southern members, i.e. Greece, Portugal, and Spain.
Results confirm that the export structures are remarkably different among
Turkey and the EU. It is pointed out that Turkey, probably, does not change the
EU position significantly since countrys low trade volume with respect to the
EU. Results indicate that Turkeys accession to the EU market with no trade
barriers may hamper the export position of the southern EU countries.5
Batra and Khan (2005) analyzed RCA at sector and product level. This
study made comparative analysis through RCA and structure changes across
sectors in China and India for the period from 2000 to 2003. By considering
Balassas (1965) to measure performance of industry and commodities at HS 2digit and HS 6-digit level of thesecountries.6
Bhattacharyya

(2011)

investigated

comparative

advantage

and

competitiveness for horticultural products of India. This study compared the

advantage in these commodities with major rivals of these commodities such as
109

North American, Asian and European Union markets. This Study concluded that
India had a comparative advantage in fruits and vegetable sectors.7

5.2 Indias Revealed Comparative

Advantage in Exports in EU Market:
At the most aggregated level of the Sections, one observes that India
enjoyed comparative advantage in the exports of 9 out of the total 16 Sections in
2002 (Table5.1)however, in the year 2005and 2011, the figure went up
marginally to 10. Hides and Skin, Textiles and Clothing and Footwear enjoyed
the maximum comparative advantage in the year2002. Textiles, has been Indias
largest export earners since time-immemorial. The availability of a variety of
raw materials has enabled the industry to produce a range of natural and
artificial fibers. So also, the prevalence of cheap labour and domestic
availability of fabrics have enhanced Indias advantage vis--vis the rest of the
world. India is thus, one of the best candidates for a thriving textile industry
since the sector requires only semi and unskilled labour to mass produce many
of its items. Thus, a developing country like India with a rich tradition is bound
to enjoy a comparative advantage. However, China is fast overtaking India and
hence domestic policies need to be spruced up if India has to compete with
China (Prasad and Chandra 2005).
The RCA Index of all sectors except Plastic or Rubber declined
continuously during the study period. Hides and Skin which was 6.74 in 2002
declined to 4.59in 2012, Textiles and clothing declined from 4.71 to 3.39,
footwear 4.27 to 3.06, Stone and Glass3.07to 1.54,Minerals 1.5 to .49
respectively.

110

In the Animal, Chemical and Metals sectors RCA remains almost constant
during the period of the study. India is gradually gaining advantage in food
products, fuels, Machine and Electronics but RCA index is less than one. Only
Plastic and Rubber has increased its RCA from .74 to 1.14 during the period.
Continuous decrease in RCA index of sectors like textiles, Stone and Glass and
Hides and Skin is really a matter of inspection.

5.3- EUS Revealed comparative Advantage

in Export in Indias Market:
In 2002 total 11 sectors had RCA greater than 1 out of 16 sectors. Except
three years2003,2005,and2009 every year RCA of EU was greater than 1 in 11
sectors out 16 sectors .If both the countries had greater than 1 RCA in the same
sector it means inter industry trade is possible between the two countries. It is
clear from the observation of the table 5.2.

111

TABLE 5.1-Indias Revealed ComparativeAdvantage in Merchandise Export in EUs Market (Sector wise)
Sector
Animal

2002
1.55

2003
1.68

2004
1.45

2005
1.43

2006
1.57

2007
1.43

2008
1.35

2009
1.33

2010
1.27

2011
1.24

2012
1.47

Chemical
food products
Footwear
Fuels
hides & skin
Mach&Elec
Metals
Minerals
Miscellaneous
Plastic or Rubber
Stone and Glass
Textile and Clothing
Transportation
Vegetable
Wood
number of section with RCA>1

1.17
0.54
4.27
0.05
6.74
0.32
1.16
1.5
0.31
0.74
3.07
4.71
0.27
1.99
0.27
9

1.23
0.41
3.92
0.72
6.15
0.36
1.23
1.48
0.31
0.77
3.11
4.54
0.36
1.85
0.33
9

1.17
0.44
3.98
0.12
5.53
0.37
1.45
1.26
0.44
0.90
3.37
4.34
0.50
1.9
0.33
9

1.25
0.44
3.62
0.19
5.56
0.39
1.44
1.07
0.44
1.16
3.62
4.73
0.45
1.86
0.34
10

1.31
0.05
3.82
0.17
5.14
0.43
1.48
0.92
0.45
1.08
3.52
4.69
0.46
1.78
0.33
9

1.34
0.66
3.64
0.25
4.71
0.46
1.58
0.80
0.37
1.12
3.04
4.2
0.63
1.48
0.29
9

1.40
0.70
3.52
0.28
5.03
0.61
1.70
0.64
0.35
1.09
3.01
4.03
0.79
1.63
0.30
9

1.33
0.57
3.29
0.33
4.96
0.57
1.4
0.61
0.27
0.95
2.66
3.84
1.31
1.41
0.34
9

1.38
0.60
3.22
0.60
4.42
0.55
1.20
0.45
0.33
0.96
1.82
3.55
0.92
1.49
0.3
8

1.45
0.66
3.14
0.45
4.28
0.57
1.34
0.38
0.46
1.06
2.62
3.37
1.13
1.43
0.268
10

1.61
0.77
3.06
0.47
4.59
0.61
1.50
0.49
0.43
1.14
1.54
3.39
0.95
1.67
0.33
9

Source: Calculations based on World Integrated Trade Solution (WITS) www.wits.com, DGFT Data Bank, Ministry of
Commerce and Industry, Govt. of India. http/commerce.nic.in
TABLE5.2-EUS Revealed comparative Advantage in Merchandise Export in Indias Market (Sector wise)
112

Sector
ANIMAL
CHEMICAL
FOODPRODUCTS
FOOTWEAR
FUELS
HIDES & SKIN
MACH&ELEC
METALS
MINERALS
MISCELLANEOUS
PLASTIC OR RUBBER
STONE AND GLASS
TEXTILE AND CLOTHING
TRANSPORTATION
VEGETABLE
WOOD
Number Of Section With RCA>1

2002
0.99
1.07
1.26
2.52
0.016
1.62
1.85
1.40
0.18

2003 2004 2005 2006 2007 2008 2009

1.56 1.78 1.60 1.40 1.67 1.59 1.81
0.967 1.00 0.88 0.91 0.78 0.74 0.92
1.30 0.68 0.86 2.15 2.23 2.06 0.70
2.18 2.06 1.85 1.46 1.55 1.60 1.79
0.011 0.01 0.01 0.01 0.01 0.01 0.02
1.78 1.84 1.70 2.15 1.94 2.14 2.25
1.61 1.82 1.68 1.91 1.78 2.50 1.92
1.46 1.47 1.62 1.42 1.49 1.75 2.08
0.22 0.17 0.19 0.09 0.08 0.10 0.22

1.34
1.41
1.35
1.25
1.86
2.06
0.56
0.58
2.19
1.10
0.13 0.063
4.60
1.03
11
10

1.65
1.43
1.73
0.59
1.30
0.06
1.15
11

1.49
1.41
1.85
0.58
1.90
0.06
1.32
10

1.53
1.47
1.92
0.62
1.67
0.28
1.39
11

2.45
1.07
1.62
0.57
2.77
0.09
1.30
11

1.55
1.33
1.71
0.61
1.33
0.11
1.83
11

2.22
1.43
0.96
0.57
1.83
0.07
1.89
9

2010
0.81
1.23
1.07
1.21
0.01
2.16
2.15
1.99
0.14

2011 2012
2.70 1.55
0.99 1.09
2.17 1.78
1.02 0.81
0.02 0.02
2.25 2.47
2.24 2.17
2.02 2.03
0.18 0.182

1.94
1.32
1.02
0.66
2.13
0.07
1.69
11

1.77
1.51
1.13
0.69
2.44
0.07
1.57
11

1.94
1.74
1.30
0.73
2.75
0.01
1.63
11

Source: Calculations based on World Integrated Trade Solution (WITS) www.wits.com, DGFT Data Bank, Ministry of Commerce and Industry, Govt. of
India. http/commerce.nic.in

113

At a slightly disaggregated level of chapters, India displayed RCA in 45 chapters, out of the total 98 in 2002. By
2006,about 49, chapters enjoyed comparative advantage. But after 2006 chapters enjoyed comparative
advantagedecreased to 42 in 2010. But after that there in 2012 chapters enjoyed comparative advantage increased to 48.
In fact, out of these, it is primarily 40 chapters, which have maintained comparative advantage throughout the period of
study. A look at the table 5.3 suggests that during study period from 2002-2012out of 98 chapters 19 chapters shows
decreasing comparative advantage , out of these 19 chapters 3 chapters RCAI decreased below 1 percent. Chapter NO.8
RCAI was 1.37 % in 2002 decreased to 0.9% in 2012, similarly C-46, and C-60has 1.55 and 2.44 RCAI in 2002
respectively decreased to 0.7 and 0.24 in 2012.
A look at the table 5.3 shows that During study period C-57 displayed highest comparative advantage ie.19.43
percent followed by C-50 and C-53 ie.18.18 and12.84 percent respectively in 2002.After 2006 RCAI of C-57 decreased
continuously from 20.58 to 12.85 percent in 2012 and same trend is displayed by C-50 and C-53, RCAI in C-50 and C53 decreased from 18.18percent and 12.84 percent in 2002 to 5.44 and 8.66 percent in 2012 respectively. Nine chapters
out of 99 chapters shows increasing RCAI. Out of these 9 chapters six chapters i.e. C-11,C-30,C-38,C-56,C-87 and C99had their RCAI less than 1% in 2002, but during the study period all these sectors improve their situation and RCAI of
these sectors reached above 1% in 2012.

114

TABLE 5.3-Indias Revealed Comparative Advantage (at 2 digits) in Merchandise Export in EUs Market

115

co
de

CHAPTER

Live animals.

Meat and edible

meat offal.

Fish and
crustaceans,
molluscs and other
aquatic invertabrates.
Dairy produce;
birds' eggs; natural
honey; edible prod.
Of animal origin, not
elsewhere spec. Or
included.
Products of animal
origin, not elsewhere
specified or
included.
Live trees and other
plants; bulbs; roots
and the like; cut
flowers and
ornamental foliage.
Edible vegetables
and certain roots and
tubers.

Edible fruit and

nuts; peel or citrus
fruit or melons.

Coffee, tea, mate

and spices.

1
0

Cereals.

1
1

Products of the
milling industry;
malt; starches;
inulin; wheat gluten.
Oil seeds and olea.
Fruits; misc. Grains,
seeds and fruit;
industrial or
medicinal plants;
straw and fodder.
Lac; gums, resins
and other vegetable
saps and extracts.

1
2

1
3

20 20 20
20
20
20
200
200 200
0
0
0
0
1 2011 1
6
8
9
3
4
5
7
0
2
0.0 0.0 0.
0.0
0.
0.0
0.0
0.0
0.00
0.00
0
0
0
0
0
0
00
00
1.07
12
361
0
5
0
0
0
4
43
24
03
9
9
6
5
7
1
9
0.0
0.
0.0
0.0
4.5
0 N
0
0
N
N
00
NA 5.80
1.67
4
1
A 0
0
A
A
11
3
3
9
2.3 1.9 1.
1.9
1.
1.9
2.1
1.78 1.79
1.71
2.1
0
7
9
5
6
8
45
53
06
437
3
6
2
9
4
5
7
41
8
52
8
5
6
9
8
7
3

200
2

0.6
21
86

0.9 1.2
0
6
5
4
9
3

1.
0
9
4

1.2
53
62

0.9
0.86 0.69
5
33
65
5
9
29
4

0.
0.2
0.14
4
5
896
8
4
1
9
4

1.5
51
38

1.7 1.6
1
3
9
3
7
4

1.
6
2
5

2.2
97
85

1.7
1.83 1.71
6
83
90
7
7
79
9

1.
1.4
1.12
5
2
881
0
0
6
7
1

0.8 0.9
0.9
9
1
68
9
5
1
7

0.
9
5
1

0.9
60
41

0.9
0.80 0.62
0
62
80
4
2
71
1

0.
0.6
6 0.56
4
1 851 3
7
4

1.1
2
0
9
1.1 1.0
1.3
1
5
72
4
3
02
1
1
4.0 3.9
4.5
2
7
79
8
5
88
7
4
3.4 2.9
3.2
1
5
58
5
7
65
8
7
0.9
0.6
0.8
2
83
5
9
59
7
9

1.
2
6
8
1.
2
8
3
3.
3
0
4
3.
8
9
9
1.
7
2
5

0.7 1.2
9
4
4
8
1
7

1.
0
9
5

1.0
58
65

0.8
1.02 0.88
4
55
54
4
6
92
7

0.
0.76 0.7
7
644 6
8
9
2
1

7.5 116
7.
6
5
8
4
5
9

8.3
89
36

7.3
6.23 6.03
2
22
53
8
5
85
9

8.
11.
7.69
3
0
717
5
4
4
6
3

1.2
1.1
94
9
17

0.8
23
05

8.1 8.6
50
0
18
1

1.2
90
94
1.2
55
76
3.6
56
47
4.2
96
99
1.5
65
35

0.9
2
6
1
0.9
3
6
5
3.0
1
8
5
2.1
7
5
3
1.4
0
7
8

1.18 1.16
90
04
6
15
0.89 0.88
00
97
7
38
2.76 2.23
09
45
1
21
2.63 4.06
76
38
7
66
1.75 2.24
82
41
7
65

1. 1.25
2 986
6
4
0.
0.73
7
632
9
9
1
2.
2.37
1
007
7
9
9
3.
1.99
4
154
4
4
8
2.
1.50
2
942
5

1.3
4
5
7
0.9
0
3
5
2.6
2
1
7
3.3
7
1
4
1.6
9
6
8

In 2002 European Union has comparative advantage in 52 sectors out of 98

sectors as shown in Table no 1 of Appendix. Every year its comparative
Advantage is increasing .It increased to 62 sectors in 2008.European Union has
comparative advantage in more sectors than India. In some sectors both the
countries shows comparative Advantage. When both the Economies have
comparative advantage in same sector it means inter industry trade (IIT) is
possible.

5.4: Indias Top 20 Export Commodities To

European Union:
The RCA analysis of Indias top 20 export commodities group(at two digit
level) to EU shows that Natural or Cultured Pearls, Precious & semi precious
Stones(HS-71) had been the topmost commodity group in the Indian export
basket to EU till 2004.The second most important export group was Articles of
Apparel and Clothing Accessories (HS-62) followed by (HS-61), Organic
Chemicals (HS-29),Articles of Leathers(HS-42). After 2004 Mineral Fuels and
Related products (HS-27) have become very prominent in Indias export to EU
and take first place in 2007. During study period Indian export to EU changed
their position some time HS-71 on second position HS-62 on third position and
in another year HS-62 on first and HS-71 on second place similarly HS-84, HS29,HS-62,HS-61 changed their position year to year but remained in top 10. But
after 2006 Mineral Fuels and Related products (HS-27) undisputedly remains on
the first place. The strange fact about (HS-27) is that in 2002, it was not even in
top 20 commodities export by India to EU.

117

to
ta
l
1
2
3
4
5
6
7
8
9
1
0
1
1
1
2
1
3
1
4
1
5
1
6
1
7
1
8

11,886.4
1

14,516.5
0

18,249.0
2

23,228.8
4

26,831.4
5

34,535.3
7

39,351.4
3

36,028.0
5

46,039.3
8

52,556.2
4

2012-2013

HSCode

2011-2012

HS Code

2010-2011

HS Code

2009-2010

HS Code

2008-2009

HSCode

2007-2008

HSCode

2006-2007

HSCode

2005-2006

HSCode

2004-2005

HSCode

2003-2004

HScode

2002-2003

HSCode

SNO.

TABLE 5.4- Indias Top 20 Export commodities to EU-27

50,421.74

71
62
61
29
42
64
52
85
63

1,397.70

71

1,473.45

71

1,845.79

27

2,478.77

62

2,222.75

27

4,091.24

27

4,238.89

27

6,141.61

27

8,700.17

27

7,822.22

27

9,206.10

1,165.19

62

1,255.88

62

1,421.96

62

2,264.78

71

2,070.96

71

2,663.61

71

3,326.26

62

2,850.74

62

3,253.83

71

4,822.68

71

3,329.10

1,070.44

61

1,205.64

61

1,250.60

71

2,045.69

27

2,003.13

62

2,406.74

61

2,712.01

87

2,503.42

71

3,151.34

62

3,654.31

62

3,077.11

570.39

29

722.8

72

1,088.71

61

1,649.77

61

1,782.91

61

2,231.95

62

2,711.82

71

2,404.58

85

3,122.35

85

2,905.31

29

2,937.40

524.24

42

637.99

29

860.9

29

1,094.03

72

1,617.42

72

2,225.01

72

2,311.62

61

2,396.09

87

2,321.04

29

2,878.23

85

2,495.44

463.04

63

611.47

27

810.27

84

998.5

29

1,407.81

84

1,816.81

85

2,304.91

29

1,814.40

61

2,225.25

61

2,624.94

61

2,430.07

442.88

64

595.64

63

761.52

63

898.88

84

1,243.98

29

1,774.53

87

2,057.65

85

1,688.28

29

2,216.59

84

2,571.08

84

2,359.64

435.02

87

572.93

84

743.66

42

796.12

85

1,005.23

85

1,443.42

29

2,016.39

84

1,544.38

84

1,911.22

87

2,179.22

87

2,242.14

431.44

85

569.71

87

705.2

64

788.57

64

968.9

64

1,178.20

84

1,976.44

64

1,209.73

72

1,853.32

72

1,984.58

72

1,718.03

99

405.36

84

557.2

42

704.07

85

738.45

63

847.56

87

1,173.60

64

1,177.67

42

1,005.03

64

1,380.15

73

1,690.16

73

1,632.08

84

369.6

52

447.75

64

698.84

72

695.15

87

830.86

73

1,059.49

73

1,145.72

30

829.36

73

1,245.84

64

1,600.42

64

1,446.44

304.19

27

408.56

85

576.18

87

676.14

42

816.23

42

979.02

42

1,089.50

73

805.8

42

1,079.41

42

1,345.18

30

1,418.75

87

248.98

73

325

73

486.95

73

579.39

73

730.38

63

894.18

30

949.27

63

792.47

30

976.59

30

1,296.52

42

1,321.14

73

235.45

57

304.41

52

420.21

52

465.34

52

573.7

30

658.66

63

856.94

72

783.33

63

958.02

63

1,179.85

63

1,033.58

57

231.2

287.95

39

377.53

57

463.18

39

540.52

39

646.93

89

752.79

511.26

39

833.17

39

917.6

39

941.1

224.44

30

265.02

30

356.32

30

404.98

499.73

52

554.87

39

572.78

39

465.58

88

638.6

838.13

772.54

30

213.85

72

252.81

350.3

400.51

57

495.57

535.13

88

563.17

88

454.29

636.98

749.83

749.79

41

204.06

244.11

57

338.28

39

361.89

30

451.82

57

520.72

38

487.74

57

442.29

52

628.65

88

723.82

40

626.05

118

1
9
2
0

39

170.48

39

220.04

252.77

331.78

79

432.58

461.72

483.92

89

433.41

602.01

52

683.22

38

617.27

32

166.08

97

194.09

228.15

286.67

389.52

32

420.47

444.69

38

413.33

32

499.03

40

635.66

88

610.1

Source: Own calculation based on World Integrated Trade Solution (WITS) www.wits.com,UNCOMTRADE and DGFT Data Bank, Ministry of Commerce and
Industry, Govt. of India. http/commerce.nic.in

119

5.5 RCA and Percentage in Total Export of

Top 10 commodities export to EU:
In 2002 Natural or Cultured Pearls, Precious & semi precious Stones(HS71) was on top with a share of 11.75 percent with 3.2RCA followed by Articles
of apparel and clothing not knitted (HS-62) with a share of 9.8 percent and (HS61) with 9 percent share in total export.(HS-99) miscellaneous goods was on
10th place . RCA of two commodities Electrical Machinery (HS-85) and (HS-99)
out of the top ten is less than unity in 2002. Share of top 10 commodities in total
export was 58.04 percent in 2002. IN 2205 (HS-71) the top most exported
commodity to EU slashed to third position with a share of 8.8percent and 3.6
RCA. Mineral fuels and product of their distillation (HS-27) took first place
with 10.67 percent in total export.The Product group of (HS27) has become the
most important export item from India as its share increased .83percent in 2002
to 18.25percent in 2012.followed by HS-71,HS-62 and HS-29. The share of top
10 commodities in total export was58.4 percent in 2002 increased to 62.26
percent in 2012.But its RCA is less than unity i.e. 0.44percent. It shows that
India has become less competitive in this sector. Three commodities have their
RCA value less than unity.

120

TABLE5.5-RCA and Percentage in Total Export of Top 10 commodities export to EU

2002
RA
NK.
1

H
S
C
71

R
C
A
3.
2

62

4.
1

61

2003
%

2004

H
S
C
71

R
C
A
3.2
2

H
S
C
71

R
C
A
3.
64

10.
15

9.8

62

3.7
6

3.
9

61

29

1.
9

4.7
9

42

8.
6

64

R
C
A
0.
2

10.
11

10.
67

8.6
5

62

3.
33

7.7
9

62

4.
2

3.6
8

8.3

61

3.
75

6.8
5

71

29

2.0
4

4.9
7

72

2.
24

5.9
6

4.4
1

42

7.7
2

4.3
9

29

1.
91

3.8
9

63

8.6
6

4.2
1

27

52

7.
4

3.7
2

64

4.4
3

4.1

85

0.
4

3.6
5

87

0.5
5

63

9.
3

3.6
29

85

10

99

0.
1

3.4
1

84

58.
049

R
C
A
4.
31

R
C
A
0.
23

8.2
8

9.7
4

71

2.
91

3.
6

8.8

27

61

4.
2

7.1

4.7
1

29

1.
9

0.
12

4.4
4

84

63

8.
57

4.1
7

3.9
4

84

0.
33

0.4
28

3.9
2

87

0.3
05

3.8
3

42

R
C
A
0.
3

11.
84

7.7
1

71

2.
52

0.
18

7.4
6

62

61

4.
34

6.6
4

4.7

72

2.
37

0.
4

4.2
9

29

63

8.
6

3.8
6

4.0
7

42

6.
8

0.
8

3.8
6

64

6.
9

3.8
5

85

R
C
A
0.
31

10.
77

7.7
1

71

3.
2

3.
51

6.9
6

61

61

3.
83

6.4
6

6.0
2

72

2.
44

2.
2

5.2
4

84

84

0.
41

4.6
3

3.4
2

85

0.
49

4.
2

3.3
9

64

0.
4

3.1
7

63

R
C
A
0.
57

H
S
C
27

R
C
A
0.
44

17.
04

18.
89

8.4
5

62

3.
66

7.9
1

62

3.
37

7.0
6

71

1.
74

3.
5

6.8
9

87

2.
25

6.9
4

71

1.
79

6.8
4

62

62

3.
4

6.8
9

71

1.
48

6.6
7

85

0.
62

6.7
8

6.4
4

72

2.
7

5.8
7

61

3.
4

6.6
5

87

1.
82

0.
49

5.2
6

85

0.
6

5.8
5

29

2.
49

5.0
3

61

29

2.
03

5.1
3

87

N
A

5.2
2

85

0.
62

4.6
8

3.7
4

85

0.
44

4.1
7

29

2.
4

5.1
2

84

0.
52

4.
46

3.6
1

64

4.
18

3.4
1

84

0.
6

5.0
2

64

7.
79

3.1
5

87

0.
76

3.3
9

64

3.
9

2.9
9

42

63.
07

2011

H
S
C
27

60.
77

2010

H
S
C
27

56.
48

2009

H
S
C
27

59.
14

2008

H
S
C
27

55.
81

2007

H
S
C
62

56.
46

2006

H
S
C
27

11.
75

2005

H
S
C
27

R
C
A
0.
44

9.17

71

1.
46

6.6

3.
3

6.95

62

3.
27

6.1

85

0.
59

5.52

29

2.
69

5.8
2

5.0
4

29

2.
45

5.47

85

0.
59

4.9
4

2.
82

4.8
3

61

2.
68

4.99

61

2.
7

4.8
1

29

2.
17

4.8
1

84

0.
6

4.89

84

0.
65

4.6
7

4.2
8

84

0.
49

4.1
5

87

1.
87

4.14

87

1.
62

4.4
4

3.
75

3.3
5

72

1.
79

4.0
2

72

2.
05

3.77

72

2.
69

3.4

5.
6

2.7
8

64

3.
6

2.9
9

73

2.
24

3.21

73

2.
61

3.2
3

65.
33

2012

65.
41

%
14.8
8

62.9
9

%
18.
25

62.
26

Source: Own calculation based on World Integrated Trade Solution (WITS) www.wits.com,UNCOMTRADE and DGFT Data Bank,
Ministry of Commerce and Industry, Govt. of India. http/commerce.nic.in

121

5.6 Top ten commodities having highest

RCA:
If RCA of a particular commodity is greater than unity it means that country
has comparative advantage in the production of that commodity.It is clear from
the analysis of table 5.6 that in 2002 (HS-57) on the top with the highest RCA
19.4 followed by (HS-50)18.2,(HS-53)12.8,(HS-63)9.2. Fifth and sixth place
was occupied by (HS- 42)and(HS-13) with 8.5 and 8.1RCA.Tenth place was
occupied by the (HS-55) with 5.75 RCA. But the strange factor about all the top
ten commodities with highest RCA is that their contribution in total export to
European Union was only 17 percent in 2002.HS-57(Carpets And Other Textile
Floor Coverings) with the highest RCA 19.4 has 1.94 percent contribution and
HS-50 (SILK) has just 0.7 percent in 2002.Out of ten commodities contribution
of five commodities is less than one percent in total export.In 2003 contribution
of top ten RCA commodities is 15 percent. Every year contribution of these
commodities is decreasing and in 2012 it was only 08percentof total export.
There are many reasons of this declining in export of these
commodities.One of the main reason is Non Tariff Barriers introduced by the
European Union.
Non-Tariff Barriers
According to UNCTAD definition that non tariff barriers encompass all
trade policy instruments that restrict free movement of goods and thus raise cost
of production.(UNCTAD1988 Consideration of the question of definition and
methodology

Employed

in

the

UNCTAD

Data

base

on

Trade

Measures(TD/BAC/42/5)Geneva, UNCTAD. Peter Lloyd defines NTBs as

non tariff barrier is an omnibus term for the set of government policy

122

instrument and practices which operate directly to restrain imports or distort

exports. In a simple language we can say that, any cost escalating measure
apart from customs duties will be treated as non tariff barriers.
UNCTAD has prepared an inventory of NTBs on the basis of information
received from its member countries. According to UNCTAD scheme, product
specific non tariff measures are grouped into 16 broad categories (A to P) and
each individual chapter is divided into groupings with depth up to three levels.
The UNCTAD classification scheme for non tariff trade control measures of a
product specific nature is described below.
A-SANITARY AND PHYTOSANITARY MEASURES
A1- Prohibitions/restrictions of imports for SPS reasons
A2- Tolerance limits for residues and restricted use of substances
A3- Labelling, marking and packaging requirements
A4- Hygienic requirements
A5-Treatment for elimination of plant and animal pests and disease-causing
organisms in the final product (e.g. postharvest treatment)
A6- Other requirements on production or post-production processes
A8- Conformity assessment related to SPS
B- TECHNICAL BARRIERS TO TRADE
B1- Prohibitions/restrictions of imports for objectives set out in the TBT
agreement
B2- Tolerance limits for residues and restricted use of substances

123

B3 -Labelling, marking and packaging requirements

B4 -Production or post-production requirements
B6- Product identity requirement
B7- Product-quality or -performance requirement
B8- Conformity assessment related to TBT
C- PRE-SHIPMENTINSPECTION AND OTHER FORMALITIES
C1- Pre-shipment inspection
C2- Direct consignment requirement
C3- Requirement to pass through specified port of customs
C4- Import-monitoring and -surveillance requirements and other automatic
licensing measures
D -CONTINGENT TRADE-PROTECTIVE MEASURES
D1- Antidumping measure
D2- Countervailing measure
D3- Safeguard measures
E-

NON-AUTOMATIC LICENSING, QUOTAS,

PROHIBITIONS AND QUANTITY-CONTROL MEASURES
OTHER THAN FOR SPS OR TBT REASONS
E1- Non-automatic import-licensing procedures other than authorizations
for SPS or TBT reasons

124

E2- Quotas
E3- Prohibitions other than for SPS and TBT reasons
E5- Export-restraint arrangement
E6- Tariff-rate quotas (TRQ)
F-PRICE-CONTROL MEASURES, INCLUDING ADDITIONAL
TAXES AND CHARGES
F1- Administrative measures affecting customs value
F2- Voluntary export-price restraints (VEPRs)
F3- Variable charges
F4 -Customs surcharges
F5- Seasonal duties
F6- Additional taxes and charges levied in connection to services provided
by the government
F7- Internal taxes and charges levied on imports
F8 -Decreed customs valuations
F9 -Price-control measures,
G- FINANCE MEASURES
G1 -Advance payment requirement
G2- Multiple exchange rates
G3- Regulation on official foreign exchange allocation
G4- Regulations concerning terms of payment for imports
H- MEASURES AFFECTING COMPETITION
H1- State-trading enterprises, for importing; other selectiveimport channels
H2- Compulsory use of national services
H9- Measures affecting competitions

125

I- TRADE-RELATED INVESTMENT MEASURES

I1- Local content measures
I2-Trade-balancing measures
I9 -Trade-related investment measures

126

J- DISTRIBUTION RESTRICTIONS
J1 -Geographical restriction
J2 -Restriction on resellers
K -RESTRICTIONS ON POST-SALES SERVICES
L -SUBSIDIES (excluding export subsidies under P7)
M- GOVERNMENT PROCUREMENT RESTRICTIONS
N -INTELLECTUAL PROPERTY
O- RULES OF ORIGIN
P- EXPORT-RELATED MEASURES
P1-Export-license, -quota, -prohibition and other quantitativeRestrictions
P2-State-trading enterprises, for exporting; other selective exportChannels
P3- Export price-control measures
P4- Measures on re-export
P5- Export taxes and charges
P6- Export technical measures
P7- Export subsidies
P8- Export credits
P9- Export measures,
There are other forms of on tariff barriers are sprouting. These are;
environmental clauses, echo labelling social clauses and anti dumping duties.
Identification of EU's NTBs Affecting Indian Exports:
Tariff rates are not very high in the EU but it protect its market through
different types of NTBs .In EU, the primary sector is five times more protected
than the manufacturing sector. In many cases, Indian export products are
subjected to multiple NTBs at a time in EU. It is very difficult to identify the
non-tariff barriers because these measures often lack transparency and are not
covered under any trade rules (Papillon, 1994).

127

List of NTBs imposed By European Union in 90s

SI.No
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23

Type of NTBs
Antidumping investigations
Antidumping duties
Countervailing duties
Retrospective Surveillance
Prior surveillance
Prior surveillance to protect human health
Prior surveillance to protect Environment
Non-automatic license
Authorization to protect environment
Authorization to protect wild life(CITES)
Authorization to drug abuse
Allocated quotas
Quota to protect human health
Quota to protect environment (Montreal protocol)
Prohibition
Prohibition on human health protection
Prohibition on the basis of origin (Embargo)
Technical requirement
Product characteristics requirement for human health protection
Product characteristics requirements to ensure human safety
Labeling requirements
Labeling requirements to protect human health
Testing , inspection and quarantine requirements
Source: UNCTAD's TRAINS database, 1990

128

Table 5.6-Top 10 Commodities having highest RCA

HS
C
57

2002
RC
A

1.9
19.4 4

50

HS
C
50

53
18.2 0.7

53

63

42

13

52

14

68

55

0.3
12.8 5

63

3.6
9.28 2

13

4.4
8.59 1

42

0.4
8.15 9

58

3.7
7.41 2

14

0.0
6.74 1

52

0.8
6.44 2

68

1.2
5.75 5

55

Total of
%

17

2003
RC
A

HS
C

0.7
18.6 2

57

0.3
10.9 7

50

4.2
8.67 1

53

0.4
2

63

4.3
7.73 9

13

0.2
7.13 1

52

0.0
6.98 2

42

3.0
6.86 8

68

0.8
6.53 5

14

1.1
5.59 2

58

8.6

15

2004
RC
A

HS
C

1.8
19.8 5

57

0.7
19.3 4

50

0.3
8.79 1

63

4.1
8.57 7

53

0.4
7.57 7

52

HS
C

1.9
20.4 9

57

0.6
17.8 2

50

3.8
8.63 6

53

0.1
8.42 8

13

13

3.8
6.91 5

42

0.6
6.03 9

58

0.0
5.97 2

14

0.2
5.77 1

68

52

0.3
7.55 9

63

3.4
6.78 2

42

0.2
6.69 8

58

0.0
6.35 1

68

0.7
6

79

13

2006
RC
A
%

HS
C

1.8
20.6 4

57

0.5
14.9 1

50

0.1
9.59 9

53

2007
RC
A

2.1
8.36 3

13

3.1
5

63

3.0
6.41 4

42

0.2
6.11 2

58

0.9
5.99 4

68

1.6
5.32 1

55

7.8

14

HS
% C
1.
5

57

20

0.
4

50

14

0.
2

53

1.
7

52

7.5

0.
2

63

7.3

2.
6

13

7.1

5.7

2.
8

5.4

52
8.39 0.3

7.72 2

7.07 2.3

14

2005
RC
A

2008
RC
A
%
1.1
18.7 2

HS
C
57

2009
RC
A
%

9.7

0.1
4

53

52
7.02 1.1

57

13.
3

0.8
2

12.
9

0.9
2

53

8.2
3

0.2

11

0.4
5

7.7

0.6
5

53

8.6
6

0.1
7

6.4
7

1.2
9

14

7.9
2

5.9
2

0.1
4

52
7.2

1.1
7

1.0
1

0.2
3

53

11.1

9.0
3

0.2

9.8
6

0.1
4

50

8.4
4

0.1
8

13

6.6
4

1.1
1

13

8.3
6

0.3
2

52

6.0
4

0.2
3

52

7.0
8

1.3
6

50

2.1
9

63

5.1
7

2.0
8

63

5.5
4

2.2
4

63

5.8

5.6
4

2.0
4

5.0
7

2.3
4

42

5.0
8

2.5
5

50

5.4
5

0.1
1

0.6
3

55

4.5
4

0.6
4

42

4.9

5.3
4

2.6
2

4.6
6

0.1
2

14

4.5
3

68
0

4.7
5

0.6
1

4.4
4

0.6
4

58

4.4
7

0.1
1

58

4.5
5

0.1
2

63

58

0.1
5.94 8

42

5.6
1

2.7
8

42

0.
2

42

2.7
5.66 6

58

5.3
7

0.1
5

68

0.
9

68

5.3
4

0.8
6

58

5.2

0.7
3

68

5.4

0.
8

55
4.7

0.5

4.0
6

0.1
8

55

5.2

129

14.
2

0.2
6.23 2

2012
RC
A

HS
C

57

13

11

2011
RC
A

HS
C

1.2
2

2.1
6.33 7

10

2010
RC
A

16.
4

50
11.8 0.3

HS
C

57

13

Source: Own calculation based on World Integrated Trade Solution (WITS) www.wits.com,UNCOMTRADE and DGFT Data Bank, Ministry of Commerce and
Industry, Govt. of India. http/commerce.nic.in

130

From the observation of table 5.6 it is clear that in the export basket,
commodities with the highest RCA are not very important or we can say that
India is not exploiting the market of these commodities and has a great potential
in these sectors. The above table shows that RCA index is higher in Textile,
Cotton, Silk, Readymade garments and some promising Agricultural goods and
all these goods are low value added goods.
Table 5.5 and 5.6proves our Hypothesis that in total export to European
Union contribution of those commodities is higher in which India had less
Relative Comparative Advantage and the contribution of those commodities is
decreasing in which Indias Relative Comparative Advantage is higher. The
major conclusion emerged from this chapter are:
(1) Indias RCA is higher in textile, silk and in some Agricultural goods
where EU does not have any natural advantage
(2) The main Indian export to European Union are low value added
manufactured goods..
(3) The majority of Indian export to European Union is facing tough
competition from other Asian countries like China, Bangladesh,
Pakistan, Iran, Brazil, Indonesia etc.
(4) Indias RCA is higher in Agricultural goods, Silk, Textile and
Garments, Carpets in all these sectors EU has high Tariff rates and Non
tariff Barriers (NTB) e.g. RAGMARK,Green labelAZO dice etc.
(5) EU agricultural sector is heavily protected by subsidies given in green
box and blue box.

131

(6) EU frequently uses stringent sanitary and phytosanitary standards

(SPS) against its import of agricultural items from India.

132

References
1- Balassa, Bela (1977) 'Revealed' Comparative Advantage Revisited: An
Analysis of Relative Export shares of the Industrial Countries, 19531971, The Manchester School of Economic & Social Studies, 1977, vol.
45, issue 4, pp. 327-44
2-

Li, Kui-Wai and Siegfried Bender, (2003), Relative Advantage of

Manufacture Exports Among World Regions: 1981-1999, APEC Study
Center Consortium Annual Conference, Phuket, Thailand

3-

Yue, Changjun (2001) Comparative Advantage, Exchange Rate and

Exports in China,paper prepared for the international conference on
Chinese economy, CERDI, France

4-

Smyth, Diarmaid Addison (2005), Irelands Revealed Comparative

Advantage, QuarterlyBulletin, Central Bank of Ireland, Dublin, No.1,
pp.101-114

5-

Karakaya, E. and F.B. zgen (2002), Economic Feasibility of Turkeys

Economic Integration with the EU:Perspectives from Trade Creation and
Trade Diversion, paper presented at the METU VI International
Conference in Economics, September 11-14 2002, Ankara

6-

Batra and Khan (2005). Revealed comparative advantage: an analysis for

India and China, Working Paper (168). Indian Council for Research on
International Economic Relations.

7-

Bhattacharyya, R. (2011). Revealed Comparative Advantage and

Competitiveness: A Case Study for India in Horticultural Products.
International Conference on Applied Economics ICOAE 2011.

133

Chapter-6

Findings and
Recommendations
6.1 Executive Summary :
Of the three forms of international economic cooperation viz, aid,
investment and trade the last was considered the most beneficial because its
advantage is speeding up the process of establishing new international economic
order. Complementarity of the economies compels a developing economy to
trade with other developed countries, and India is no exception. Among its
major trade partners European Union is selected for this study, as it has
significantly contributed to Indias economic advancement. Trade experience
with European Union is both encouraging and instructive. The Indo-EU trade
relations are sought to be understood by observing the behavior of commodity
groups in export and import. The overall objective of this study is to analyse the
trade trend and the structure of Indias trade relations with the EU during the
period 2000-2012.
Foreign trade plays an important role in the development of a country
because foreign trade is considered as engine of growth. After watching the
European Union and economic benefits reaped through integration, the
developing countries have also started thinking on the same line. Some of the
developing countries and also some developed countries have started aiming at
integration or at least economic cooperation in the interest of overall

134

development of the region. The review of literature has analysed the role of
foreign trade in the development of a country, studies on economic union and
relations of India with the European Union.
India is a traditional partner of Europe and trade relationship between
both of them is running for a long period. But the relationship between the EU
as block and India really took place in when India was among the first
developing countries to establish diplomatic relations with the then six nations
of European Economic Community (EEC). These relations become closer with
the accession of the UK, Indias traditional trading partner to the EEC in 1973.
In this chapter the researcher has discussed in detail the process of formation of
European Union, how a group of six countries develop itself into an Economic
Union of 28 countries with a single currency (Euro) in seventeen countries. All
these issues are taken up in detail in chapter III.
The fourth chapter analyses the bilateral trade relations between India and
European Union. Indo-EU trade has many dimensions and the spectrum of trade
includes not only different composition of goods but also new areas of services
and investment. In this chapter the researcher has discussed in detail the
merchandise trade; trade in service and Foreign Direct Investment (FDI)
between India and European Union. Compounded Annual Growth Rate
(CAGR) in percentage was estimated for value.
The fifth chapter basically analyses the effects of tariffs and non tariff
barriers (NTB) on Indian export to EU. Studies in this chapter show that the
share of those commodities in total export is less and decreasing in which India
has a comparative advantage. For this purpose in the study the researcher has
used the Blassas Revealed Comparative Advantage (RCA) method.

135

The last chapter is Findings and Recommendations. The study shows that
by removing and reducing some of the existing barriers bilateral trade and
investment flows can be enhanced. It will generate employment, reduce poverty
and further strengthen the economic relationship between India and European
Union.

6.2 Findings of The Study :

Bilateral economic relations between India and EU have strengthened
over years. EUs single market has opened new vistas of Indo-EU economic
relations. It is a unified market of 28 member states . However, the current size
of trade and investment between the two countries is low compared to the size
and structural complementarities of the two economies. In this context, the
present research study analyses trade, service, investment relations and future
areas of co-operation between India and EU. The increase in merchandise trade
between the two economies has been mainly because of the changing demand
structures and comparative advantages of both economies in complementary
sectors, while Indias exports mainly constitute low value-added and industrial
products. Though both India and European Union have host of grey areas in
their respective trade regime, both the economies have trade advantages in
different sectors. In this context basically an analysis of trade advantages of
India is discussed because as a developed economy European Union has more
advantages in different sectors.
6.2.1 Trade Advantage :
(a) Service Sector :

Services are the fastest growing sector of the Indian economy. It

constitutes approximately 56% of Indian GDP. Bilateral trade in services

136

between India and the EU has grown impressively - from $6.7 billion in 2003 to
$22.7 billion in 2009. The EU is Indias largest trading partner in services and
accounts for around 13 per cent of Indias services trade. Although India is
among the top 8 trading partners of the EU, its share among EUs trading
partners in services is less than two per cent. However, this share is increasing.
India has a large pool of young, educated and english-speaking work force who
can offer services at globally competitive rates while the EU is facing a shortage
of skilled work force as the population of the EU member countries is ageing.
The EU companies are facing a saturated market within their home countries,
whereas the Indian market is growing. India has shown high growth in
information technology, medical services and in business services.

By

removing the barriers trade can be increased many folds.

(b) Agriculture :

Agricultural sector is an important part of the Indian economy. This is not

necessarily due to its great contribution to the GDP but more due to its
significance for the rural population. India has comparative advantage in this
sector. But EUs agriculture sector is heavily subsidised and protected by NTB.
Any tariff reduction in this sector have great impact on the Indian agricultural
sector. By entering into FTA with EU, India's export may increase.
-

(c) Textile and Clothing :

India has comparative advantage in the textiles but because of different

types of NTBs presently, entire trade in textile and garments is guided by
different type of non tariff barriers. Once these barriers removed India will be in
better position to capture the EU market.

137

(d) Pharmaceutical Industries :

Near about 80% of generic medicines for the treatment of AIDS are
sourced from India. As a result, the cost of treatment fell significantly from
10,000 to 100 USD per person per year. But, because India does not always
recognize patents, it is believed that pharmaceutical companies have been
pressuring the EU to demand stricter rules on intellectual property protection.
Any extension of the patent and trial data protection would significantly
increase medicine spending.
6.2.2 Restrictions in Economic Relations between India
and European Union :
There are several restrictions/barriers in the IndiaEU economic relations.
The global slowdown affected them at different point in time. The EU was hit
by euro zone crisis and India has been facing high inflation and other
imbalances. Both economies have been facing demand constraints and have
adopted protectionist measures to protect the domestic industry and circumvent
the recessionary trends. There are challenges/restrictions in reaching a
consensus in trade goods, services and investment. Some restrictions are
discussed below.
I Restrictions in India :

Indian market is not free from restrictions. Different type of restrictions

in the form of tariff and non tariff barriers are in existence. Some salient
restrictions are discussed below.

138

Restrictions in Merchandise Trade :

(a) High Tariff :

Indias tariff rates are at very high level on some of the products
categories that constitute a major portion of EUs exports. In India, the average
tariffs are higher than that of the EU. In India tariff is used as a tool to protect
the domestic industry and it is also a source of revenue. In agricultural goods
tariff level is pretty high. In the automobile and auto-component sector there is a
strong opposition from the domestic industry and certain industry associations
such as Society of Indian Automobile Manufacturers (SIAM) and Automotive
Component Manufacturers Association of India (ACMA), are against the
reduction of import duties on passenger vehicles and two-wheelers.
Apart from these tariff-related barriers, there are several non-tariff
barriers that exists in India. These include poor infrastructure, the hiring,
management and dispute settlement mechanism in case of labour, high
production cost, credit retrieval, local financing and binding system, relatively
limited demand, high competitiveness, government intervention, customs and
clearance procedures and visa related problems. Issues related to the Indian
governments development, adoption, and implementation of technical
regulations, standards and conformity assessment procedures have not been
very conducive for trade in several products. There are also concerns regarding
Indias notification process for amendments of certain regulations.
(b) Restrictions in Service Sector :

There have been a plethora of barriers to foreign service providers on

insurance services, banking services, security services, motion pictures, legal
and accounting services and telecommunication services. Visa related problems,
cumbersome bureaucratic procedures and a clogged judicial system where case
139

can linger on for several years etc have been most cited barriers to trade in
services.
(c) Restrictions in Foreign Direct Investment (FDI) :

India is still not considered as an ideal place for investment. Still there
exists lot of non- transparencies in Indias policy regime for attracting foreign
investment. Frequent changes in policies, lack of proper infrastructure i.e.
power, communication etc are some of the factors prohibiting European
industries to respond favourably to India opening up to the west.
The largest bottleneck to transfer of new technologies from European
Union to India is the lack of effective protection of intellectual property rights in
India. This often discourages western companies to transfer their technologies to
India. In some sectors, price control regulations have undermined the incentives
for foreign investors to increase their equity holdings in India. (For instance,
some companies report that they are forced to renegotiate their contracts in the
power sector as a result of ruling government changes at the central and state
levels.)
II Restrictions in European Union :
Trade and investment barriers exist in European Union too. Relatively
European Union market is more open than India.
Merchandise Trade :
(a) Tariff Barriers :

European Union maintains high tariffs on several agricultural products,

which are of interest to India and is highly protected through different forms of
subsidies under green box, blue box and amber box. Within quota, tariff

140

rates are very low but over quota tariff rates are very high and prohibitive.
Another sector of interest to India is textile and apparel products. Bound tariffs
on these products in EU are significantly high. Also, EU tariff rates are very
high on some products where India exhibits maximum RCA. For example, lac,
resins gums and other vegetable group of products are among the groups with
the highest RCA for India.
Indian companies have raised concern about the higher standards in the
EU which increases the costs of companies, especially small and medium
enterprises, to adhere to those standards. One example is REACH (Registration,
Evaluation, Authorization and Restriction of Chemical substance).
(b) Non Tariff Barriers :

EU has been emerging as one of the most standard-conscious countries

in the world. EU-member states still maintain widely different standard, testing,
and certification procedures for some products. These differences may serve as
effective barriers against the free movement of products .Many of these NTBs
have adverse impact on Indias export potentiality to the European Union.
Indian companies and industry associations have pointed out that non tariff
barriers in the European Union have increased after the global slowdown and
euro zone crisis.
Another challenge to Indias export in the EU is the emergence of new
issue in the multilateral trade discussions. Recently EU passed stringent laws on
environment and eco-labeling. EU has already banned some chemicals used in
the textile industry. This ban will adversely affect Indias export prospect in the
EU. Emergence of social clause is also another area of great concern for Indian
exporters to the EU.

141

(c) Restrictions in Services Sector :

Despite the importance of the services sector and its growing share in
bilateral trade between these two partners, there are significant barriers to
services trade between the two.
(d) Visa and Work Permit Related Issues :
There are several visa and work permit related issues, faced by the Indian
service providers. In the EU, member states restrict their intra-EU mobility. For
instance, an Indian software consultant with a work permit in UK cannot offer
services in other EU countries. Although Schengen visa permits multiple entries
for business visitors into the states that are signatories of the accord, but the
service providers have to first enter the country which gives the visa. There are
other issues such as changes in the visa regime and high visa fees.

142

(e) Lack of Harmonisation in EU:

Lack of harmonisation of qualifications and professional standards have
made it difficult for Indian professionals to service the EU markets. Like goods,
the EU does not have a single market for services and most of the issues related
to the movement of people such as work permits and visas are at the Member
State Level. Regulations and conditions differ across the member states. In an
attempt to harmonise the EU labour market, the Blue Card Directive was
introduced in 2009. However, few member states such as Austria, Cyprus and
Greece have not yet transposed the provisions of the EU Blue Card into their
respective national legislations. There are also issues related to the definition of
professionals under different categories namely four categories of movement:
business visitors, intra corporate transferees, contractual service suppliers and
independent professionals.
(f) Data Protection:

India has not been accorded the status of a data secure nation by the EU.
As a result, the Indian companies and even sub-contracting parties have to meet
the lengthy and cumbersome requirements laid down under the EU directive on
data protection which increase their cost of operation.

6.3 Recommendations :
Trade and economic relations with Europe have always been very
important for India. In the last two decades, the process of European economic
integration and economic liberalization in India has created tremendous
opportunities for European Union and India. The EU is interested in growing an
unsaturated Indian market with investment potential. Similarly, India is
interested in greater investments from the EU and improved market access for
143

temporary movement of professionals. The EU can work with India to make

necessary changes in the Indian regulations so that India becomes compliant
with the safe harbour nation requirements for data protection. The EU can take
steps to streamline the work permit and visa regime across member states by
implementing directives such as the proposed directive on conditions of entry
and residence of third-country nationals in the framework of an intra-corporate
transfer. The aim of this Directive is to remove barriers to entry and movement
of intra corporate transferees into and within the EU member states. The
research study has focused on the following recommendations to further
strengthen India-EU trade and economic relations :
(i) Tariff rates in India are very high, though it has been reduced but still
very high. It should be reduced to more moderate level .
(ii)Indian market and production system are characterized with large scale
piracy of foreign products and technologies by changing process of
production and Indian market is flooded with spurious and counterfeit
goods. India should change its concept of Intellectual Property Rights
(IPR), as because of this, foreign companies hesitate to invest in India.
(iii)

FDI restrictions are very high in India. India has the 4 th highest

levels of restrictions to FDI in the world. Because of these restrictions

inflow of investment is not as much as it should be. Government
should liberalise the policies regarding FDI.
(iv)

Indias customs valuation methodologies do not reflect actual

transaction values and sometimes increase the effective tariff rates.

Also, due to a complex tariff structure and multiple exemptions, Indian
customs require extensive documentation, which leads to frequent

144

processing delay and inhibits the free flow of trade . To avoid these
difficulties, the government policies should be transparent.
(v) Infrastructure in India is weak, government intervention is high, high
cost of production, dispute settlement in case of labour is cumbersome.
Government should try to initiates (a) domestic reforms (b) regulatory
certainty and transparency. It will lead to inflow of FDI from EU as
there is a tremendous scope for EU companies to participate and
collaborate in the infrastructure and construction sectors.
(vi)

With the rise in labour cost in china India with a sound

infrastructure base can offer an alternative manufacturing base for EU

companies. So India should made its domestic manufacturing base
sound and competitive.
(vii)

There is a tremendous scope in the healthcare sector, tourism,

science and technology, construction and related services and human

resources development where collaborative relations can further
strengthen. There exist tariff and non tariff barriers and both economies
need to remove sector specific barriers to improve trade and investment
relation.
Concluding Paragraph :
One of the reasons for the lack of progress in the trade negotiations has
been the slow process of reforms in India. If India has Domestic Reforms,
Regulatory Certainty and a Transparent Regime, this will lead to inflow of FDI
from EU into infrastructure services and manufacturing and also enable India to
become a part of the production network of the EU companies. The study found
that there is significant scope for enhancing bilateral investment flows between
145

India and European Union, which will benefit companies from both economies.
If recommendations of the study are implemented, they will not only enhance
bilateral investment flows but also enhance the global competiveness of Indian
companies and increase investment inflows in the manufacturing and
infrastructure sectors, which India needs urgently.
India and European Union have a close diplomatic and economic
relationship and trade and investment flows between the two economies have
increased over time. The two economies are trying to strengthen their
relationship through a comprehensive trade agreement known as the India-EU
BTIA. Once signed, the BTIA will be the EUs first comprehensive trade
agreement with a large emerging market. If barriers to trade and investment are
removed or even reduced under the BTIA, it is likely to benefit both Indian and
European Union companies in each others market. EU companies can have
better access to the large and unsaturated Indian market. India needs investment
in infrastructure and investment by EU companies in sectors such as green
energy, construction and logistics will be beneficial for India. Despite these
benefits the progress of the India-EU BTIA negotiations is slow, Indian and EU
companies face several barriers in each others market and reforms in both
economies have slowed down, partly due to the global slowdown and other
macro-economic and political instabilities.
Though foreign investment from EU has increased over years, the share
in total FDI inflows to India has declined. There are opportunities for small and
medium-sized EU companies to synergise with Indian SMEs in the areas of auto
parts, semi-conductors, agricultural instruments, textiles, plastics, multi-media,
software etc. Since, development of infrastructure in India is a priority and
requires both advanced technology and huge investment, there is tremendous

146

scope for EU companies to participate and collaborate in the infrastructure and

construction sectors. Further, there is tremendous scope for improving trade in
services between the two countries, particularly for India. There are areas such
as

information

technology,

science

and

technology,

pharmaceuticals,

broadcasting, tourism, healthcare, construction and related services and human

resource development where collaborative relations can be further strengthened.
There exist both tariff and non-tariff barriers and both countries need to remove
sector-specific barriers to improve trade and investment relations.

147

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159

Table I: EU'S RCA IN INDIAN MARKET-2002-2012 COMMODITY

WISE
HS
Co
de
1

SECTOR

20 20 20
02 03 04

20
05

20 20 20
06 07 08

20
09

20
10

20
11

20
12

LIVE ANIMALS.

MEAT AND EDIBLE

MEAT OFFAL.

9.3
1
3.3
5

6.3 8. 6.
6 57 09
3.0 4. 5.
2 89 76

10.
16
5.1
1

6.8
3
7.0
5

7.0
6
7.7
0

5.0
5
4.5

FISH AND
CRUSTACEANS,
MOLLUSCS AND
OTHER AQUATIC
INVERTABRATES.
DAIRY PRODUCE;
BIRDS' EGGS;
NATURAL HONEY;
EDIBLE PROD. OF
ANIMAL ORIGIN, NOT
ELSEWHERE SPEC. OR
INCLUDED.
PRODUCTS OF
ANIMAL ORIGIN, NOT
ELSEWHERE
SPECIFIED OR
INCLUDED.
LIVE TREES AND
OTHER PLANTS;
BULBS; ROOTS AND
THE LIKE; CUT
FLOWERS AND
ORNAMENTAL
FOLIAGE.
EDIBLE VEGETABLES
AND CERTAIN ROOTS
AND TUBERS.
EDIBLE FRUIT AND
NUTS; PEEL OR
CITRUS FRUIT OR
MELONS.
COFFEE, TEA, MATE
AND SPICES.

5. 10 6.
92 .6 23
3. 0. 18
62 48 .9
1 8
0. 2. 0.
46 31 64
8
1

0.4
60

0.3 0. 0.
52 48 27
2 5

0.5
09

0.4
03

0.3
76

0.5
20

1. 0. 3.
16 39 38
1 7

4.0
8

2.6 2. 3.
2 91 48

1.6
5

0.6
62

4.5
1

2.1
9

N
A

4. 0.
10 40
0

0.3
39

0.3 0. 1.
22 49 54
0

0.8
43

0.3
35

0.2
42

0.6
05

2. 0. 5.
80 18 41
6 4

3.6
1

4.3 4. 5.
8 84 34

4.9
1

5.7

5.6
1

7.0
7

0. 0. 0.
39 01 10
3 4 8
0. 0. 0.
01 05 01
2 6 2

0.0
62

0.1 0. 0.
83 13 13
2 4
0.0 0. 0.
15 01 02
9 0

0.0
37

0.0
43

0.1
23

0.2
16

0.0
25

0.0
36

0.0
37

0.0
52

0.
01
7
0.

0.0
62

0.0
76

0.2
10

0.2
20

0.1
73

0.2
04

0.1

2.8

0.5

0.1

0.8

0.3

7
8

9
10

CEREALS.

11

0.
07
4
2. 1.

160

0.0
08

0. 0.
11 25
4 8
0. 0.

11

12

13

14

15

16

17
18

PRODUCTS OF THE
MILLING INDUSTRY;
MALT; STARCHES;
INULIN; WHEAT
GLUTEN.
OIL SEEDS AND OLEA.
FRUITS; MISC.
GRAINS, SEEDS AND
FRUIT; INDUSTRIAL
OR MEDICINAL
PLANTS; STRAW AND
FODDER.
LAC; GUMS, RESINS
AND OTHER
VEGETABLE SAPS
AND EXTRACTS.
VEGETABLE
PLAITING
MATERIALS;
VEGETABLE
PRODUCTS NOT
ELSEWHERE
SPECIFIED OR
INCLUDED.
ANIMAL OR
VEGETABLE FATS
AND OILS AND THEIR
CLEAVAGE
PRODUCTS; PRE.
EDIBLE FATS; ANIMAL
OR VEGETABLE
WAXEX.
PREPARATIONS OF
MEAT, OF FISH OR OF
CRUSTACEANS,
MOLLUSCS OR OTHER
AQUATIC
INVERTEBRATES
SUGARS AND SUGAR
CONFECTIONERY.
COCOA AND COCOA
PREPARATIONS.

49 38 14
2
1
1. 0. 2.
93 68 71
9

67
3.7
6

4 06 00
0 7
2.7 2. 2.
3 93 27

49

08

98

23

0.7
75

1.0

1.5

1.3
9

1. 0. 0.
18 59 91
7 0

0.9
10

1.2 0. 0.
1 77 91
2 6

0.8
88

0.8
97

0.7
98

0.9
84

0. 0. 0.
55 18 60
1 0 4

0.7
05

0.7 0. 0.
57 84 67
4 3

0.8
37

0.8
18

1.0
58

1.4
0

0. 0. 0.
49 01 31
6 6 3

0.0
62

0.4 0. 0.
87 92 64
7 9

0.2
67

0.1
94

0.1
4

0.1
65

0. 6. 0.
01 63 02
1
6

0.0
24
5

0.0 0. 0.
36 04 04
0 5

0.0
34
2

0.0
30

0.0
29

0.0
59

1. 0. 5.
74 87 24
8

5.8
9

3.2 3. 4.
8 44 39

3.1
4

3.4
6

2.6
2

5.2
7

0. 0. 0.
48 81 21
8
8
0. 0. 1.
91 64 04
4 9

0.2
96

3.0 2.
85 55

2.
0

0.1
51

0.4
63

2.4
9

0.7
01

0.7
9

0.9 0. 1.
79 69 15
9 9

1.0
4

1.1
2

1.0
4

1.3
1

161

19

20

21
22
23

24

25

26
27

28

PREPARATIONS OF
CEREALS, FLOUR,
STARCH OR MILK;
PASTRYCOOKS
PRODUCTS.
PREPARATIONS OF
VEGETABLES, FRUIT,
NUTS OR OTHER
PARTS OF PLANTS.
MISCELLANEOUS
EDIBLE
PREPARATIONS.
BEVERAGES, SPIRITS
AND VINEGAR.
RESIDUES AND
WASTE FROM THE
FOOD INDUSTRIES;
PREPARED ANIMAL
FODER.
TOBACCO AND
MANUFACTURED
TOBACCO
SUBSTITUTES.
SALT; SULPHUR;
EARTHS AND STONE;
PLASTERING
MATERIALS, LIME
AND CEMENT.
ORES, SLAG AND ASH.
MINERAL FUELS,
MINERAL OILS AND
PRODUCTS OF THEIR
DISTILLATION;
BITUMINOUS
SUBSTANCES;
MINERAL WAXES.
INORGANIC
CHEMICALS;
ORGANIC OR
INORGANIC
COMPOUNDS OF
PRECIOUS METALS,
OF RARE-EARTH
METALS, OR RADI.

0. 0. 1.
47 81 07
9 2

0.8
98

1.1 2. 2.
9 00 79

3.4
7

3.6
2

3.6
5

5.1
9

0. 2. 0.
73 04 67
7 9 4

1.5
2

1.6 1. 1.
5 38 78

2.1
6

2.0
6

2.2
7

2.5
7

0. 4. 2.
55 35 36
9
1
6. 0. 1.
64 35 24
2
0. 0. 0.
77 89 42
4 0 1

1.5
9

2.2 2. 2.
0 03 28

1.8
7

2.3
0

2.2
1

2.2
7

1.5
9

4.2 4. 3.
7 45 19

1.6
7

2.9
5

3.6
1

3.9
5

0.4
10

0.5 0. 0.
26 54 65
1 3

0.6
48

0.8
16

1.0
6

0.8
2

1. 0. 0.
10 34 43
0 3

0.5
53

1.3 1. 0.
6 10 77

0.6
29

0.5
80
5

0.7
56

1.2
3

0. 0. 0.
28 12 36
8 2 4

0.3
38

0.3 N
83 A

N
A

0.5
59

0.4
45

0.4
52

0. 0. 0.
05 01 06
0 1 8
0. 0. 0.
01 29 01
5 3 5

0.0
97

0.1
50

0.0
13
5
0.0
15
0

0.0
72
5
0.0
22
6

0.0
36

0.0
13
9

0.0 0. 0.
46 03 04
9 1 9
0.0 0. 0.
19 01 01
9 2 7

0. 0. 0.
21 84 30
7 7 0

0.2
61
1

0.3 0. 0.
31 37 36
2

0.4
36
1

0.6
50

0.5
76

0.7
02

162

N
A

0.0
30

0.0
23
2

ELEM. OR OF
ISOTOPES.
29

ORGANIC CHEMICALS

30

PHARMACEUTICAL
PRODUCTS

31

FERTILISERS.

32

TANNING OR DYEING
EXTRACTS; TANNINS
AND THEIR DERI.
DYES, PIGMENTS AND
OTHER COLOURING
MATTER; PAINTS AND
VER; PUTTY AND
OTHER MASTICS;
INKS.
ESSENTIAL OILS AND
RESINOIDS;
PERFUMERY,
COSMETIC OR TOILET
PREPARATIONS.
SOAP, ORGANIC
SURFACE-ACTIVE
AGENTS, WASHING
PREPARATIONS,
LUBRICATING
PREPARATIONS,
ARTIFICIAL WAXES,
PREPARED WAXES,
POLISHING OR
SCOURING PREP.
ALBUMINOIDAL
SUBSTANCES;
MODIFIED STARCHES;
GLUES; ENZYMES.
EXPLOSIVES;
PYROTECHNIC
PRODUCTS;
MATCHES;
PYROPHORIC
ALLOYS; CERTAIN
COMBUSTIBLE
PREPARATIONS.

33

34

35

36

0. 3. 0.
88 66 90
3
8
3. 0. 4.
15 16 16
5
0. 1. 0.
01 48 15
9
5
1. 2. 1.
43 25 57

0.8
61

0.8 0. 0.
67 83 98
4 8
3.3 2. 3.
7 73 51

1.0
7

0.9
25

0.9
40

1.0
5

3.0
9

3.7
8

4.1
7

3.7
7

0.2
37

0.3
26

0.2
76

0.1
23

1.5
4

0.0 0. 0.
99 00 24
7 4
1.7 1. 2.
0 73 01

1.7
1

1.8
4

1.7
6

2.0
7

1. 1. 2.
64 81 19

2.4
4

2.4 2. 2.
9 27 94

2.6
4

2.7
6

2.8
1

3.0
34

1. 1. 2.
55 86 02

2.0
6

2.3 2. N
7 27 A

3.0
4

3.0
1

3.2
4

3.5

2. 15 1.
14 .5 70
1

1.9
9

1.9 2. 2.
5 13 18

2.0

2.5 N
A

3.2
0

1.
30

4.6
1

3.3 1. 1.
4 67 96

1.6
2

6.0
9

10.
74

1. 6.
0 38

163

3.3
3
0.2
18

7.5
4

37
38
39

PHOTOGRAPHIC OR
CINEMATOGRAPHIC
GOODS.
MISCELLANEOUS
CHEMICAL
PRODUCTS.
PLASTIC AND
ARTICLES THEREOF.

40

RUBBER AND
ARTICLES THEREOF.

41

RAW HIDES AND

SKINS (OTHER THAN
FURSKINS) AND
LEATHER
ARTICLES OF
LEATHER,SADDLERY
AND
HARNESS;TRAVEL
GOODS, HANDBAGS
AND SIMILAR
CONT.ARTICLES OF
ANIMAL GUT(OTHR
THN SILK-WRM)GUT.
FURSKINS AND
ARTIFICIAL FUR,
MANUFACTURES
THEREOF.
WOOD AND ARTICLES
OF WOOD; WOOD
CHARCOAL.
CORK AND ARTICLES
OF CORK.

42

43

44
45
46

47

MANUFACTURES OF
STRAW, OF ESPARTO
OR OF OTHER
PLAITING
MATERIALS;
BASKETWARE AND
WICKERWORK.
PULP OF WOOD OR OF
OTHER FIBROUS
CELLULOSIC
MATERIAL; WASTE
AND SCRAP OF PAPER

0. 1. 1.
86 42 25
4
1. 1. 1.
2 39 39

1.0
0

1.0 1.
0 36

1.
2

1.3
0

1.5
8

2.1
2

3.4
4

1.5
8

1.9 1. 1.
1 90 64

1.5
7

1.7
9

1.7
8

2.0
0

1. 0. 1.
20 85 62
2
0. 1. 0.
66 52 95
0
3
1. 1. 1.
51 26 86

1.5
2

1.5 1. 1.
4 27 61

1.5
8

1.5
2

1.6
7

1.8
5

1.0
6

1.2 1. 1.
9 09 22

1.2

1.1
5

1.4
7

1.9
0

1.7
6

2.3 2. 2.
0 05 21

2.3
6

2.3
6

2.5
4

2.9
4

1. 1. 1.
23 89 42

1.1
7

1.1 1. 1.
8 33 62

1.6
1

1.3
5

1.4

1.4
5

0. 0.
73 19
0 0

2.
4

2.0
3

2.2 2. 8.
5 73 96

9.1
5

4.4
7

6.8
9

3.9
5

0. 2. 0.
24 67 22
0
8
2. 0. 3.
54 26 21
5
13 0. 0.
.9 71 05
8 7

0.3
01

0.3 0. 0.
33 31 43
6 4
4.2 3. 4.
15 20

0.3
79

0.4
87

0.4
66

0.5
25

4.6
6

6.3
9

5.9
8

5.9
9

1.2
4

0.1 0. 0.
81 33 52
7 0

0.3
70

0.1
19

0.1
41

0.3
06

0. 2. 1.
75 08 12
0

1.4
4

1.6 1. 2.
8 48 08
5

2.1
7

1.7
3

1.7
0

1.9
4

164

3.5
4

OR PAPERBOARD.
48

49

50
51

52
53

54

PAPER AND
PAPERBOARD;
ARTICLES OF PAPER
PULP, OF PAPER OR OF
PAPERBOARD.
PRINTED BOOKDS,
NEWSPAPERS,
PICTURES AND
OTHER PRODUCTS OF
THE PRINTING
INDUSTRY;
MANUSCRIPTS,
TYPESCRIPTS AND
PLANS.
SILK
WOOL, FINE OR
COARSE ANIMAL
HAIR, HORSEHAIR
YARN AND WOVEN
FABRIC.
COTTON.
OTHER VEGETABLE
TEXTILE FIBRES;
PAPER YARN AND
WOVEN FABRICS OF
PAPER YARN.
MAN-MADE
FILAMENTS.

55

MAN-MADE STAPLE
FIBRES.

56

WADDING, FELT AND

NONWOVENS;
SPACIAL YARNS;
TWINE, CORDAGE,
ROPES AND CABLES
AND ARTICLES
THEREOF.
CARPETS AND OTHER
TEXTILE FLOOR

57

1. 1. 2.
84 09 23

2.0
7

2.1 2. 2.
3 42 55

2.9

2.5
4

2.2
7

2.6
3

1. 0.
0 00
7

1.
3

1.9
4

1.4 1. 2.
5 09 82

2.9
9

2.5
1

2.7
6

1.9
2

0. 1. 0.
01 0 01
1
7
0. 0. 0.
94 45 99
8 8 4

0.0
12
2
0.9
16

0.0 0. 0.
18 01 01
7 8
0.8 0. 0.
21 69 58
4 9

0.0
19

0.0 N
22 A

0.0
35

0.5
85

0.5
55

0.5
63

0.6
48

0. 1. 0.
25 73 29
5
9
1. 0. 1.
37 23 26
9

0.3
42

0.4 0. 0.
0 43 39
7 1
0.9 0. 1.
34 85 28
0

0.4
16

0.5
17

0.5
39

0.3
19

0.6
81

0.6
72

0.4
36

0.5
64

0. 0. 0.
13 80 33
0 4 9
0. 1. 0.
51 23 95
5
7
1. 1. 1.
27 89 33

0.3
90

0.5
82

0.5
62

0.5
81

0.7
63

1.1
7

0.3 0. 0.
99 48 66
9 5
0.9 1. 1.
72 11 22

1.2
8

1.6
1

1.5
5

1.9
7

1.2
0

1.5 1. 1.
5 28 97

2.0
5

2.0
5

2.7
4

2.5
3

2. 0. 1.
35 56 43

1.3
3

1.3 1. 1.
7 12 29

0.9
7

1.3
0

1.2
4

1.3
7

165

1.7
7

COVERINGS.
58

59

60
61

62

63

64
65
66

SPECIAL WOVEN
FABRICS; TUFTED
TEXTILE FABRICS;
LACE; TAPESTRIES;
TRIMMINGS;
EMBROIDERY.
IMPREGNATED,
COATED, COVERED
OR LAMINATED
TEXTILE FABRICS;
TEXTILE ARTICLES OF
A KIND SUITABLE FOR
INDUSTRIAL USE.
KNITTED OR
CROCHETED FABRICS.
ARTICLES OF
APPAREL AND
CLOTHING
ACCESSORIES,
KNITTED OR
CORCHETED.
ARTICLES OF
APPAREL AND
CLOTHING
ACCESSORIES, NOT
KNITTED OR
CROCHETED.
OTHER MADE UP
TEXTILE ARTICLES;
SETS; WORN
CLOTHING AND
WORN TEXTILE
ARTICLES; RAGS
FOOTWEAR, GAITERS
AND THE LIKE; PARTS
OF SUCH ARTICLES.
HEADGEAR AND
PARTS THEREOF.
UMBRELLAS, SUN
UMBRELLAS,
WALKING-STICKS,
SEAT-STICKS,
WHIPS,RIDING-CROPS
AND PARTS THEREOF.

7
0. 0. 0.
91 74 62
9 5 2

0.4
90

0.6 0. 0.
48 60 71
5 4

0.6
30

0.8
69

0.6
97

0.7
13

0. 1. 0.
68 01 75
4
0

0.5
11

0.6 0. 0.
65 63 65
8 9

0.7
67

0.7
45

0.6
80

0.7
05

0. 0. 1.
62 93 10
0 9
1. 0. 2.
40 86 03
0

0.5
20

0.3
49

0.4
07

0.4
39

0.4
63

1.5
8

0.7 0. 0.
02 38 44
7 2
1.9 2. 1.
3 09 54

1.5
2

1.9
4

1.9
4

2.2
9

1. 0. 1.
79 82 73
4

1.7
6

1.6 2. 2.
8 06 32

2.2
7

2.4
3

2.1
9

2.1
1

0. 2. 0.
75 50 65
5
5

1.0
6

0.9 0. 0.
88 87 77
7 5

0.7
91

0.8
86

0.8
56

0.9
05

3. 1. 2.
11 78 41

2.1
0

1.6

1.8
3

1.1
8

1.0
5

0.8
57

0. 0. 0.
96 08 68
0 6 4
0. 0. 0.
03 18 01
3 0 0

1.1
1

1.2 2.
9 19

1.
11

0.9
53

0.7
53

1.5
8

1.5
9

0.0
57

0.1 0. 0.
07 05 04
7 1

0.1
14

0.1
46

0.1
43

0.0
87

166

1. 1.
72 69

67

68

69
70
71

72
73
74

PREPARED FEATHERS
AND DOWN AND
ARTICLES MADE OF
FEATHERS OR OF
DOWN; ARTIFICIAL
FLOWERS; ARTICLES
OF HUMAN HAIR.
ARTICLES OF STONE,
PLASTER, CEMENT,
ASBESTOS, MICA OR
SIMILAR MATERIALS.
CERAMIC PRODUCTS.
GLASS AND
GLASSWARE.
NATURAL OR
CULTURED
PEARLS,PRECIOUS OR
SEMIPRECIOUS
STONES,PRE.METALS,
CLAD WITH
PRE.METAL AND
ARTCLS
THEREOF;IMIT.JEWLR
Y;COIN.
IRON AND STEEL
ARTICLES OF IRON OR
STEEL
COPPER AND
ARTICLES THEREOF.

75

NICKEL AND
ARTICLES THEREOF.

76

ALUMINIUM AND
ARTICLES THEREOF.

78

LEAD AND ARTICLES

THEREOF.

79

ZINC AND ARTICLES

THEREOF.

80

TIN AND ARTICLES

THEREOF.
OTHER BASE METALS;

81

0. 2. 0.
49 07 16
2
0

0.2
20

0.1 0. 3.
36 25 06
7

3.9
7

3.2
8

1.5
7

0.4
39

2. 1. 2.
13 91 12

1.9

2.2 2. 2.
0 21 53

2.1
2

2.4
4

2.1
8

2.3
8

1. 1. 1.
74 90 90
1. 2. 2.
81 06 31
1. 1. 1.
71 59 72

1.8
9
2.1
4
1.8
9

1.5 1. 2.
7 46 15
2.3 1. 2.
5 87 12
1.9 1. 1.
4 63 70

2.4
3
1.9
7
0.9
50

2.1
5
2.0

1.9
6
2.3
2
1.1
2

1.9
8
1.9
1
1.2
8

1. 1. 1.
15 61 36
1. 1. 2.
50 64 25
1. 0. 1.
59 57 61
9
0. 1. 0.
52 36 68
3
3
1. 0. 1.
36 26 43
5
0. 0. 0.
23 91 31
1 5 0
0. 0. 0.
77 73 85
2 7 7
1. 1. 1.
26 49 05
1. 1. 1.

1.6
4
2.1
8
1.6
1

1.3 1. 1.
2 44 62
1.9 1. 2.
1 98 20
1.5 1. 2.
2 72 15

1.9

2.0

2.5
9
2.2
6

1.8
3
2.4
8
2.3
3

2.0
6
2.2
0
1.7
8

1. 1.
48 89

1.8
6

1.2
7

1.4
5

2.0

1.3
7

1.3 1. 1.
3 03 59

2.0
9

2.2
1

1.8
4

2.1
2

0.2
72

0.1 0. 1.
55 29 28
6
0.7 0. 0.
34 92 61
9 3
1.0 1. 1.
5 18 46
2.0 2. 1.

2.7
7

2.3
4

1.6
8

1.8
6

0.9
18

0.9
38

0.9
52

0.8
12

1.4
5
1.3

1.0
3
1.6

0.4
59
1.9

0.2
74
2.0

167

0.9 N
12 A

0.9
65
0.8
11
1.6

1.0
0

2.0
9
2.2
7

82

83
84

85

86

87

88

CERMETS; ARTICLES
THEREOF.
TOOLS IMPLEMENTS,
CUTLERY, SPOONS
AND FORKS, OF BASE
METAL; PARTS
THEREOF OF BASE
METAL.
MISCELLANEOUS
ARTICLES OF BASE
METAL.
NUCLEAR REACTORS,
BOILERS,
MACHINERY AND
MECHANICAL
APPLIANCES; PARTS
THEREOF.
ELECTRICAL
MACHINERY AND
EQUIPMENT AND
PARTS THEREOF;
SOUND RECORDERS
AND REPRODUCERS,
TELEVISION IMAGE
AND SOUND
RECORDERS AND
REPRODUCERS,AND
PARTS.
RAILWAY OR
TRAMWAY
LOCOMOTIVES,
ROLLING-STOCK AND
PARTS THEREOF;
RAILWAY OR
TRAMWAY TRACK
FIXTURES AND
FITTINGS AND PARTS
THEREOF;
MECHANICAL
VEHICLES OTHER
THAN RAILWAY OR
TRAMWAY ROLLING
STOCK, AND PARTS
AND ACCESSORIES
THEREOF.
AIRCRAFT,
SPACECRAFT, AND

30 91 48

1 39 88

1. 1. 1.
98 49 64

1.6
8

2.3 1. 2.
2 75 04

2.9
5

2.6
6

2.6
1

2.4
2

1. 1. 1.
56 94 96

2.0

2.0

2. 3.
89 16

2.4
9

1.9
2

2.4
6

2.2
3

1. 1. 2.
81 27 12

2.0
95

2.4 2. 2.
0 33 65

2.6
9

2.8
8

3.0
1

2.9
9

1. 1. 1.
50 93 52

1.2
2

1.3 1.
4 26

1.
6

1.3
4

1.5
0

1.4
6

1.3
1

N
A

1. 2.
92 42

2.5
6

3.4 2. 2.
4 14 29

3.5
9

6.1
4

2.4
6

3.0
4

2. 1. 1.
58 50 87

2.2
7

2.8 2. 2.
0 68 73

2.3
7

2.9
8

3.3
2

3.4
6

2. 0. 2.
97 02 38

2.4
0

2.1 5. 1.
3 37 65

2.3
7

3.1
3

4.4
9

8.2
3

168

PARTS THEREOF.
89
90

91
92

93

94

95

96
97

SHIPS, BOATS AND

FLOATING
STRUCTURES.
OPTICAL,
PHOTOGRAPHIC
CINEMATOGRAPHIC
MEASURING,
CHECKING
PRECISION, MEDICAL
OR SURGICAL INST.
AND APPARATUS
PARTS AND
ACCESSORIES
THEREOF;
CLOCKS AND
WATCHES AND PARTS
THEREOF.
MUSICAL
INSTRUMENTS; PARTS
AND ACCESSORIES OF
SUCH ARTICLES.
ARMS AND
AMMUNITION; PARTS
AND ACCESSORIES
THEREOF.
FURNITURE;
BEDDING,
MATTRESSES,
MATTRESS SUPPORTS,
CUSHIONS AND
SIMILAR STUFFED
FURNISHING; LAMPS
AND LIGHTING
FITTINGS NOT
ELSEWHERE
SPECIFIED OR INC
TOYS, GAMES AND
SPORTS REQUISITES;
PARTS AND
ACCESSORIES
THEREOF.
MISCELLANEOUS
MANUFACTURED
ARTICLES.
WORKS OF ART
COLLECTORS' PIECES

3
0. 1. 0.
01 98 05
1
3
1. 0. 2.
83 18 23
8

0.3
76

0.0 0. 0.
30 21 22
5 7
2.6 2. 2.
2 41 90

0.2
38

0.0
68

0.0
98

0.3
82

2.8
5

3.0
7

3.5
0

3.6
3

0. 0. 0.
19 41 18
2 1 7
1. 9. 0.
0 0 28
8

0.2
70

0.2 0. 0.
90 34 34
6 1
0.6 0. 0.
41 46 52
7 6

0.2
44

0.3
04

0.2
09

0.2
38

0.2
60

0.3
44

0.3
03

0.2
65

5. 2.
02 18

11
.6
2

40.
81

54. 41 21
70 .5 .6
9 2

24.
29

65.
54

12.
37

1.6
9

1. 0. 1.
80 44 63
9

1.6
2

1.6 1. 2.
2 62 17

2.5
7

2.3
1

2.3
7

2.4
3

0. 1. 0.
55 02 36
5 4 7

0.7
56

0.4 0. 0.
56 47 81
9 5

0.7
97

0.6
51

0.4
93

0.7
43

1. 4. 1.
34 31 38

1.0
8

1.3 1. 1.
4 32 73

1.3
8

1.6
0

1.5
46

1.3
70

2. N
32 A

2.5
8

2.1 1. 2.
3 24 45

1.1
8

9.3
3

0.9
10

3.9
0

7.
33
169

2.2
8

0.3
02

AND ANTIQUES.
98

PROJECT GOODS;
SOME SPECIAL USES.

99

MISCELLANEOUS
GOODS.

RC
A>
1

N
A

0. N N
N
31 A A
A
8
N N
0. 0.1 0.1
A A 44 54 47
0
52 51 55 56 59

170

N
A

N
A

0. 0.
27 42
8 3
59 62

N
A

N
A

N
A

N
A

0.2
54

0.2 N
11 A

0.1
81

57

58 60

60

171