India’s Trade Relations with European Countries

1. Introduction :
The European Union, which was formally established on November 1, 1993 comprises at present 27 member
countries, namely, 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. It represents just 6 % of the world’s population. But
it accounts for more than 20% of global imports and exports (European Commission, 2002). This has made the EU
emerge as the leading trade power of the world today. The European Union is specially committed to supporting
developing countries' efforts to integrate into the trading system and to help them reap the benefits of market opening,
giving them a hand where needed (Europa,2004). This applies particularly to the poorest countries, for which the
benefits of globalization remain elusive.

Trade was one of the first areas in which EU countries agreed to pool their sovereignty,
transferring to the European Commission the responsibility for handling trade matters,
including negotiating international trade agreements on their behalf.

The European Union aims at free but fair world trade. This refers to a system where all
countries are given opportunities to trade freely with one another on equal terms and without
protectionist barriers. To achieve this, the EU’s strategy is to open up its own market while
others do likewise. It seeks to remove obstacles to trade gradually and at a pace, which the
EU and others can sustain, to settle disputes peacefully and to build up a body of
internationally agreed rules.

Opening up of markets means removal of trade barriers between countries. This was a basic
goal of the union right from the days of its inception. In the 1960s, it created a ‘customs
union’ between its member countries. A ‘single external tariff’ was also introduced. Thus, any
non-EU country exporting products to the EU was charged the same tariff regardless of which
EU country was importing the goods. But although most of the tariff barriers were removed,
many ‘non-tariff’ barriers to trade still remained. For example, different EU countries had
different administrative requirements and different rules on things like packaging and
labelling — all of which hindered trade between them. That is why, in 1992, the EU launched
its ‘single market’ by removing its non-tariff barriers to trade in goods, and also by opening
up trade in services within the union. Such opening up of trade serves to stimulate the
economy as a whole. It boosts the revenues of exporting countries and offers consumers in
the importing countries a wider choice of goods and services at lower prices because of
increased competition. Ultimately it allows all countries to produce and export the goods and
services with which they are best placed to compete.

Hence, globalization can boost economic growth. But it can also have effects otherwise.
Larger and more open markets bring forth the possibility of increased competition between
different countries. Only international agreement can successfully harness globalization and
make it work for the good of all.
Thus, EU’s trade policy now covers a broader canvas, beyond trade liberalization. It is about
updating and improving international rules, and giving them a wider coverage to ensure fair
trade and harnessed globalisation. It is about promoting an international agenda that
benefits the developing world, and addressing issues of general public concern. One of the
key challenges today is to ensure that world trade rules take account of non-market
concerns, particularly the environment, public services, food safety, agriculture and culture
(European Commission, 2002).

2. EU India Trade Relations

EU-India trade has grown impressively over the years, from €4.4 billion in 1980 to over €46 billion in 2006. Trade with the EU
represents almost 20% of India's exports and imports and the EU thus as a bloc is India's largest trading partner. The EU is also
India's largest source of foreign direct investment. However, India accounts for just 1.8% of total EU trade. India attracts only
1.3% of the EU's world-wide investments.

BILATERAL TRADE RELATIONS

The EU and India are important trading partners and founding members of the World Trade Organisation (WTO) multilateral
trading system. The Commission is facilitating EU trade with India by seeking to ensure that progress is made in the Doha
Development Agenda (DDA) and by co-operating at expert level in order to remove existing trade barriers between the two
trading partners and preventing new ones from emerging.

During their Summit of 7 September 2005, the EU and India adopted the India - EU Strategic Partnership Joint Action Plan and
agreed to take positive steps to further increase bilateral trade and economic cooperation and to tackle barriers to trade and
investment.

Specifically, they agreed to set up a High Level Trade Group to study and explore ways and means to deepen and widen their
bilateral trade and investment relationship and agreed to cooperate on a number of other trade-related issues.

The High Level Trade Group reported to the 7th EU-India Summit in Helsinki on 13 October 2006, in recommending that an
expanded trade partnership be developed through the negotiation of a broad-based trade and investment agreement.

Goods and services

The EU is India's largest trading partner and main source of foreign inward investment. The EU accounted for 18.9% of India's
exports and imports in 2005. India ranks as EU's 9th trading partner accounting for 1.8% of EU exports and imports. In 2010, EU
imports from India amounted to €33 billion (covering mainly textiles/clothing, agricultural products and chemicals) while EU
exports to India amounted to €34.8 billion (covering mostly machinery and chemical products).

Given its developing country status, India's exports to the EU currently benefit from reduced tariffs under the EU Generalised
System of Preferences. India is the largest beneficiary of this scheme and in 2006 imported goods of a value of € 9.7billion
under this scheme.

Bilateral trade in services has grown substantially in recent years and in 2004 India's exports of commercial services to the EU
amounted to €3.8 billion in 2004 (up from €3.0 billion in 2003), while the EU's exports to India amounted to €3.3 billion in 2004
(up from €2.7 billion in 2003).

Investment
India's regime for Foreign Direct Investment (FDI) has been considerably simplified and liberalized, however important sectors
still remain restricted for FDI (e.g. telecommunications, retail distribution, insurance, banking, aviation) or are banned (e.g. legal
services).

The EU is India's largest source of foreign direct investment (FDI). In 2009 EU investment outflows to India amounted to €3.1
billion. EU investment has mainly taken place in the power/energy telecommunications and transport sectors.

Tariffs and non-tariff barriers

Indian import tariffs have been substantially reduced, but still remain high by international standards. In addition to the Basic
Customs Duty, various additional duties, taxes and charges apply resulting in a complex and non-transparent system.

Overall India's high tariff levels remain a genuine problem for European industry. The elimination and/or reduction of tariffs are
therefore an important goal of both the multilateral and bilateral negotiations.

India also imposes a number of non-tariff barriers in the form of quantitative restrictions, import licensing, mandatory testing and
certification for a large number of products, as well as complicated and lengthy customs procedures.

BILATERAL AGREEMENTS

Agreements in force

The EU and India already signed a number of bilateral agreements. These include the following:

• Agreement on Sugar Cane (in force since 18 July 1975)

• 1994 Co-operation Agreement (signed on 20 December 1993)
• Science and Technology Agreement (signed on 23 November 2001)
• Customs Co-operation Agreement (signed on 28 April 2004)

Agreements under negotiation

Besides the FTA, for which negotiations started on 28/29 June 2007, a 'Maritime Agreement' is currently being negotiated
between the EU and India. Formal negotiations were launched at the 4th EU-India Summit in November 2003. Such an
agreement would improve the conditions and legal framework under which maritime transport operations to and from India are
carried out for the benefit of both economies.

WTO Issues

India is one of the founding members of both the GATT and the WTO. Although India is critical of the implications of the results
of the Uruguay Round for developing countries and is sceptical of the broad agenda of the current round of multilateral
negotiations (Doha Development Agenda), it is clearly committed to advancing the multilateral trading system.

Since the creation of the WTO in 1995, India has been involved in more than 30 dispute settlement proceedings. At present
there are two pending cases between the EU and India, i.e. Anti-dumping measures on certain products from the EC and/or
Member States (DS 304) and a case launched by the EU against India's discriminatory Additional Duties and Extra Additional
duties on wines and spirits.