16-3-2012 M.

Krishna Ruthvik MBA(IB) 1226111227

BILATERAL TRADE BETWEEN INDIA AND EUROPE

Summary: India has bilateral economic Agreements with a number of individual EU countries in the areas of trade, investments and avoidance of double taxation. India has agreements for investments and promotions/protections with 22 countries of Europe, including 17 countries of EU. According to the statistical report given by European Commission EU-India trade has grown impressively and more than doubled from 28.6billion in 2003 to over 67.9 billion in 2010 and is expected to reach 160.6 billion by 2015. The paper relates to the expectations of Europe and India from one another like, EU expects India to reduce tariffs and let its companies invest "more freely" in telecoms, insurance and legal services , while India hopes the EU will grant its citizens access to the European labor market. Introduction: The relationship between India-EU started in 1960s. India was among the first countries to establish relation with the European Economic Community (EEC).the bilateral relation between India-EU got strengthened with the 1994 cooperation agreement. In 2004 India became one of the EU's "strategic partners". EU-India trade relations have progressed tremendously over the last years. The EU is Indias largest trading partner where as India is EUs 8th largest trading partner.EU-India trade has grown steadily to 67.9 billion in 2010 i.e., EU goods exports to India was 34.7billion and imports from India was 33.2billion. EUs trade in commercial services touched 17.9 billion in 2010 i.e., EU services exports to India was 9.8billion and services imports from India was 8.1billion. Bilateral trade in goods alone rose by 20% between 2010 and 2011. EU is one of the largest sources of FDI in India. However the FDI inflow from the EU to India has been drastically declining over a period of time. EU investment to India has almost declined to 3 billion in 2010 from 3.4billion in 2009 and Indias investment in EU has also marginally declined from 0.9 billion in 2009 to 0.6billion in 2010. (Europa, 2012) Bilateral agreements between India and Europe: The EU is a long-standing and trusted partner in Indias development effort, helping to tackle poverty while improving in particular healthcare and access to good education. Against the backdrop of Indias rapid economic growth, both sides are cooperating in high-technological areas such as civil aviation, solar energy, research on nuclear fusion, and information and

communication technologies. The potential sectors that drew EU investors' attention include telecommunication, insurance, banking and distribution. Further liberalization of the financial services sectors and effective implementation of telecom regulations are expected to expand the scope of EU investment in India. (Ministry of External Affairs, 2012) Issues India-EU: 1. Pharmaceutical: Issue about Patents India is one of the world's largest suppliers of generic medicines and that causes problems for Europe's big pharmaceutical firms. EU is pressurizing the Indian government to extend the period of patents beyond 20 years, which leads to the delay in the entry of a generic medicine in a market by 10-15 years even after the expiry of a patent; and the Patent-Registration Linkage, which prevents the registration of a generic manufacturer before the expiry of patent. Initial opposition to the trade deal centered on issues of intellectual property rights and market access for large European businesses. But as per the deal if it is agreed then it would be a signal for the implementation of the largest trade agreement in the world, opening the doors for research and innovation, job creation, and countless business opportunities, but will stunt the availability of affordable medicine in the developing world. Existing trade rules already limit the possibility of making generic versions of new medicines, but the EU-India FTA threatens to make this situation even worse, by creating new barriers. EU has been pressuring India to agree to several measures that will affect the production, registration and distribution of affordable generic medicines. More than 80% of the HIV medicines used to treat 6.6 million people in developing countries come from Indian producers, and 90% of pediatric HIV medicines are Indian-produced. (Amin, Tahir & Radhakrishna, Priti, 2011) 2. Indian Agriculture The European Commission is pressurizing India to open its market by reducing the agricultural tariffs to almost zero, today the major European agricultural produce beverages including wines and spirits, cereal products, fruits and vegetables, dairy and meat products which are facing tariffs of between 20 and 70% in India. The CIAA, the Confederation of EU Food and Drink industries which lobbies for companies like Unilever, Coca Cola, and Kraft Foods Nestle etc is clamoring for reducing the tariff to zero and unrestricted market access for the European products. The Indian farmers and the agricultural sector are not in a position to compete against the heavily subsidized European products. The subsidies provided to the Indian farm sector are very small when compared to that of Europeans

farmers, that too the subsidies provided by the Government are mostly appropriated by the middlemen and the fertilizer companies. The sudden removal of import tariffs is likely to have a devastating effect on millions of marginal and landless farmers, who will suddenly find their markets. The Commission document indicates that the EU is not satisfied with Indias initial tariff offer on agricultural products, particularly important sectors of poultry, dairy, olive and other oils, pasta, chocolates, biscuits, confections, food preparations including infant formula, roasted cereal preparations, some processed fruit and vegetables. The implications of lowering the tariffs on agricultural and dairy products could have a serious and long-lasting impact as the bulk of our rural population is dependent on them for employment and livelihood. It needs to be emphasized that unlike in Europe, most of the unorganized workers in India are self-employed. There is no social security net to take care of people who may lose their traditional livelihoods and jobs due to a lowering of tariffs. Non Agricultural Market: In the Non-Agricultural Market Access (NAMA) negotiations under the framework trade deal, the EU is seeking an ambitious outcome for its businesses through drastic cuts in applied tariff rates as well as reduction of non-tariff barriers. The Commission documents show that the EU is not satisfied with Indias initial tariff offer and therefore seeking further improvements. In particular, EU is insisting on elimination of duties on the additional 57 tariff lines (mostly related to automobile industry) as an essential component of the overall NAMA package of the agreement. Given the fact that Indias WTO bound and currently applied rates on NAMA are higher than EU rates, the price paid by India for the tariff concessions to EU would be much higher. The Commission document acknowledges that the potential agreement would save nearly 2.4 billion annually on custom duties on NAMA products based on Indian imports from EU in 2010 once it is fully implemented. From an Indian perspective, an annual revenue loss of 2.4 billion is enormous and cannot be overlooked by the policy makers. (Pratyush, 2011), (Singh, Kavaljit, 2012)

3. Indian Retail Sector: The retail market of Europe is being saturated hence the supermarket chains like Tesco (of UK), Metro (Germany) etc are desperately trying to expand their operations beyond the current areas. Though official estimates state that there are over 12 million small retail outlets in India. 96% of the retail trade in India is comprised of small firms which are run by local people, and the sector employs about 33 million workers. Though FDI in retail trade is not permitted, but in the FTA it has been a major component to allow 100 per cent entry for the multinationals to do business in this segment, foreign retailers have already started operations in India. But now the European retail giants, such as Tesco, Metro and Carrefour, are moving into India as its the era of expansion. A total number of 40 million people are engaged in retail trade in India. If this is going to happen then the retail trade in India mainly the small firms are going to have a tough time in operating and to sustain themselves from the heavy competition and pressure. According to the recent summit details the expectations of Europe from India in retailing are For single-brand retail, India is expected to bind the current opening, i.e. 100% foreign ownership in franchising. For multi-brand retail, India is expected to bind the already decided autonomous liberalization (allowing 51% foreign ownership) that will enter into force when published. For single-brand retail, India is expected to commit 100% foreign ownership for European single brand retailers. (Pratyush, 2011), (Solomon, Rajan, 2012) Conclusion: The EU-India partnership is tapping into the vast potential for further development. The EU and India are strategic and natural partners that share the responsibility to address the challenges the world is currently facing and is also going to create conditions towards a sustainable and inclusive development in the long run. The bilateral trade between India and Europe is expected to reach 160.6 billion by 2015.Because of the wide-ranging demands emanating from Europe, seeking deeper tariff cuts and services liberalization; it is pertinent for the Indian authorities to organize countrywide consultations with state governments, local bodies, and other stakeholders before inking an agreement with EU."

Pros due to the trade agreement are: As the recession hit the European Union hard and the markets being stagnant the corporate Europe along with the parties that protect their interest have all converged to expedite the trade agreement with India, so as to have an unlimited access and provide effective opportunity for competition in the vast Indian market. Cons due to the trade agreement are: The informal sector is going to be hit hard by the agreements which comprise ninety-two percent of Indias 457 million strong workforces with no job security and little income. The competition from subsidized EU imports will make them virtually out of their profession leading to poverty and loss of livelihood and would cause delay in delay in the entry of a generic medicine at affordable prices. India trade deficit is already high this agreement will make it more wide because EU companies have state-of art technical capabilities, robust supply chain which will make Indian product vulnerable and destroy the basic of Indian economy like Agriculture, banking.

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