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 costs2. 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.

T

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

1

economic relations help developed nations to access the markets of

developing countries. This is beneficial for the industries 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.

2

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 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

3

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. India’s low-

cost educated workforce can 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 India’s 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.

4

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, India’s 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 India’s total trade.

The European Union is India’s 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 EU’s tariff and non tariff barriers to India’s

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

5

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 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.: Canada–Argentina

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.: Switzerland–Colombia 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.: CARICOM–Chile.

Economic Partnership Agreement EPA : The EPA agreements are

comprehensive in scope, covering such fields as trade in goods,

6

trade in services, investment and economic cooperation. e.g.,

Japan–ASEAN.

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.: Australia–Egypt.

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 feasibility study. Typical areas included in the

agreement are : trade facilitation (inspection, quarantine,

cooperation, promotion). e.g.: Australia–China 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 EU–Russia 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 :

7

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. ECA’s 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 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

8

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 country’s 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

9

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 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 India’s 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

Table1.1India’s Engagements in Regional Trading Agreements

I. List of India’s 15 FTAs / PTAs already in forceS. No

Name of the Agreement

1 India - Sri Lanka FTA

2Agreement on SAFTA (India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and the Maldives)

3Revised Agreement of Cooperation between Government of India and Nepal to control unauthorized trade

4 India - Bhutan Agreement on Trade Commerce and Transit5 India - Thailand FTA - Early Harvest Scheme (EHS)6 India - Singapore CECA

7India - ASEAN- CECA - Trade in Goods Agreement (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam)

8 India - South Korea CEPA9 India - Japan CEPA10 India - Malaysia CECA

11Asia 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 - Afghanistan14 India – MERCOSUR-(Argentina, Brazil, Paraguay and Uruguay)15 India - Chile

11

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 CEPA4. India - Thailand CECA5. India - Mauritius CECPA

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

7. India - New Zealand FTA/CECA8. India – Israel FTA9. 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.)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.

12

13

1.6 India’s 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 India’s

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 201311. 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

14

to explore future areas of potential economic co-operation between India

and European Union.

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

ii. Hand book of statistics on the Indian Economy, RBI, various issues

iii. Economic Survey, Government of India, various issues.

iv. UNCTAD, WITS, various issues.

v. World Bank, World Development Indicators.

vi. 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

15

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

India’s 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, India’s Foreign Trade and Bilateral trade Relations.

Chapter 3: Background Interlinkages of India and European Union.

The issues that have been studied in this chapter are:

17

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,

India-Thailand 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-

19

Korea CECA etc. Apart from these, India has set up various joint

study groups to see the feasibility of economic co-operation 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 India’s

Foreign Trade.

Haberler1 says: "International trade has made a tremendous

contribution to the development of less developed countries in the

nineteenth and twentieth century’s, and can be expected to make an

equally big contribution in the future if it is allowed to proceed freely".

21

Trade is preferable to aid as it could evoke dynamic responses to

competitive opportunities that would reinforce the growth process.

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 world’s 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 country’s exports use intensively

the country’s 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.

22

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 explicit exchange rates on exports as a result of

export subsidization and de-valuation.

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

23

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.

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.

24

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 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

patterns”16

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

25

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.

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

26

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 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

27

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.

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

peace-keeping missions and co-operation to develop civil nuclear energy.

Upadhyay24 studies the energy sector and scope of EU's investment

in it. Investment in India’s renewable market would not only promote

energy access and help fight climate change, but would also be rewarding

28

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 development in the economic sphere, Indian policy makers

are still sceptical of Europe’s 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

29

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 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

30

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 view’s 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 across-analysis 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 .

Harling38 states that within the framework of the Global Europe

strategy of the European Union (EU) wants to enable European

31

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.

32

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Leading Issues in EconomicDevelopment, Oxford University Press,

London.

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4 Subasat, T., 2002, ‘Does Export Promotion Increase Economic

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International Trade", Journal ofDevelopment Economics, Vol. 27

Nos. 1-2, pp. 57-70.

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and International Trade: A Reexaminationof the Theory”, Southern

Economic Journal, Vol. 59, pp. 641-647.

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

147-148

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

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June,

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International peace, New York,1950.

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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

34

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"

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.

35

28 Gulshan Sachdeva, "India and European Union "Broadening

strategic partnership Beyond Economic link ages" Sage publication

(2008) p- 341-3567.

29 Swapan Kumar Bhattacharya, "India and The European Union -

Trade and Non-Tariff Barriers" Aakar Publication 2005.

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,

ISBN-978-92-9198-208-0".

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.

36

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.

37

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.

38

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.

39

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.

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.

40

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 maintained a close relationship with the former Soviet

Union. As a result, its interactions with Europe became limited.2

India’s first Ambassador H.E. KB Lall presents credentials to the European Commission’s 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, India’s 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

41

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 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 partner’s 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

42

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.

The EU as a bloc is India’s largest trading and investment partner.

The bilateral trade constitutes a quarter of India’s total trade and EU is

also India’s biggest partner in development cooperation and second

largest source of foreign direct investment. The EU is 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 imports. India ranked 8th in the list of the EU’s 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.

43

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.

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.

44

“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 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

45

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 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 1st 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

46

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 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.

47

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.

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

48

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.

(This map is not to the scale)Source: Map downloaded from www.bbcnews.com

49

Father’s of the European Union

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

50

Schuman Declaration 9th May 1950

Information on EU member countries

Name Capital Accession Population 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 Luxembourg Founder 537,000 2,586.4

Netherlands Amsterdam Founder 16,779,600 41,543

Germany Berlin Founder[d] 80,523,700 357,021

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

Austria Vienna 1 Jan 1995 8,451,900 83,855

51

Name Capital Accession Population Area (km)

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

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

52

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 EU’s 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

53

permanent team that represents and defends its national interest at EU

level.

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, it’s 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.”

54

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 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 it’s 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. It’s 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

55

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.).

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

56

India Map (Political)

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

3.5 Brief Political Economic History of India:

A review of India’s 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

57

economic policy were typically initiated with significant changes and

then followed by a period of gradual adjustments.

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 India’s

foreign reserves.

58

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, India’s 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 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 India’s 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 nation’s 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 India’s 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

59

its interest rate controls, reducing government regulations and permitting

greater competition.

Following the initial round of economic reforms, India’s 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, India’s

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 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 nation’s 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

60

segments of the private sector oppose reform efforts8. Still,

representatives of the Indian business community insist that all of New

Delhi’s 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.

3.6 India’s Trade Policies:

India’s 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 India’s federal budget. In fiscal year

1996/97, tariffs provided one third of India’s 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

61

the WTO. Following the passage of the 1995 amendment to its 1975

Customs Act, which established India’s antidumping and countervailing

duty procedures, India began filing a large number of antidumping

notifications. Between 1995 and 2001, India made 250 such

notifications11.

3.7 Tariff Rates and Enforcement:

India’s 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 India’s 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, India’s average tariff rate was almost

130%. According to the WTO, in fiscal year 1997/98, India’s 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, India’s average tariff rate was down to 19.5%.12

Two product categories that remain exceptions to India’s 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.

62

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

63

References

1 Gulshan Sachdeva “India and the European Union:Broadening

Strategic Partnership Beyond Economic Linkages” Swage

Publications,April,2008.

2 G.Sundaram “India and The European Union ”Allied Publishers Limited,2002.

3 Commission of the European Union Committees, Ibid no 4.

4 Kavaljit Singh “India-EU Free Trade Agreement: Should India

Open Up Banking Sector?”madhyam, 2009.

5 G. Sundram Ibid, p.5

7 Treaty of Rome,1957.

8 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 Anti-Reform Mindset,” Outlook (Delhi), November

10, 2005.

9 “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.

64

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.

15 Michael F. Martin, K. Alan Kronstadt “India-U.S. Economic and Trade Relations” August 31, 2007

65

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 India’s global trade position.

4.1 Trade Trends of India’s Merchandise Global Trade:

In the post liberalization period India’s trade has increased many

folds. In 2012, India’s merchandise global trade has increased to

791137.21 millions $ from 95096.74 millions $ in 2000. Although

India’s share in the world trade is still small yet it has improve over the

years. Table 4.1 shows India’s trade in goods from 2000to 2012. In 2000

India’s merchandise export was $ 44560.29 million and in 2012 it

increased to $300400.58 million. India’s 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. India’s 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

66

smooth it has 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 India’s Merchandise Global Trade

value in US $ millions

Period

Export Growth%

Import Growth%

Balance Total Growth%

2000 44560.29

50536.45 -5976.16

95096.74

2001 43826.72

-1.65 51413.28

1.74-7586.56 95240 0.150

2002 52719.43

20.29 61412.14

19.45-8692.71

114131.6 19.83

2003 63842.55

21.10 78149.11

27.25 -14306.5

6141991.

7 24.412004 83535.9

430.85 111517.

4342.7 -

27981.49

195053.4 37.37

2005 103090.53

23.41 149165.73

33.76-46075.2

252256.3 29.32

2006 126414.05

22.62 185735.24

24.52 -59321.1

9312149.

3 23.742007 163132.

1829.05 251654.

0135.49 -

88521.83

414786.2 32.88

2008 185295.36

13.59 303696.31

20.68-118401

488991.7 17.89

2009 178751.43

-3.53 288372.88

-5.05 -109621.

5467124.

3 4.472010 251136.

1940.49 369769.

1328.23 -

118632.9

620905.3 32.92

2011 305963.92

22.48 489319.49

32.33 -183355.57

795283.41

28.08

2012 300400.58

-1.82 490736.65

0.26 -190336.07

791137.21

.521

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

Table 4.2 Share of India in the World Total Trade

67

Year 2000

2001

2002 2003

2004

2005 2006 2007 2008

2010

2012

Total export

Value US$billion

95.

1

95.2

4

114.1

3

141.

1

195.

1

252.2

5

312.1

5

414.7

9

488.

1

620.

1

791.0

3

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.

India’s 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 . India’s 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 Share in RankChina 11.1 1USA 8.4 2Germany 7.6 3Japan 4.3 4Netherlands 3.6 5France 3.1 6South Korea 3.0 7Russia 2.9 8Italy 2.7 9Hong Kong 2.7 10UK 2.6 11India 1.6 19

68

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

India’s 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.

69

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

Country Share rank

USA 14.6 1

UK 6.5 2

Germany 6.1 3

France 4.9 4

China 4.3 5

India 3.3 6

Japan 3.3 7

Spain 3.1 8

Netherlands 3.0 9

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.

India’s 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.

70

Figure-1 Trade Trends of India’s Merchandise Global Trade

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

-200000

-100000

0

100000

200000

300000

400000

500000

600000

700000

800000

ExportImportTotalBalance

4.1.2 Top Ten Export Destination of India in 2012:

Over the years there have been changes in India’s export and import

destinations. The export and import destinations in 2012 are in given in

Table 4.5. The EU has traditionally been India’s leading export

destination but its share is falling. India’s 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.

71

Table 4.5 Top Ten trading partners of India- 2012

IMPORT EXPORT TOTALSN.

Partner Percentage

SN.

Partner percentage

SN.

Partner Percentage

1 EU 11.1 1 EU 16.7 1 EU 13.22 China 10.7 2 UAE 12.3 2 UAE 9.53 UAE 7.8 3 USA 12.2 3 China 8.54 Saudi

Arabia6.8 4 China 5 4 USA 7.8

5 Switzerland

6.2 5 Singapore

4.9 5 Saudi Arabia

5.3

6 USA 5.1 6 Hong Kong

4.1 6 Switzerland

4

7 Iraq 3.8 7 Saudi Arabia

2.9 7 Singapore

2.8

8 Kuwait 3.6 8 Japan 2.3 8 Indonesia

2.6

9 Qatar 3.3 9 Brazil 2.1 9 Iraq 2.610 Indonesi

a2.9 10 Indones

ia2 10 Hong

kong2.5

Figure-2 Top Ten trade destination of India in 2012

EU; 13.2

UAE; 9.5

China; 8.5USA; 7.8

Saudi Arabia; 5.3

Switzerland; 4

Singa-pore; 2.8

In-done-sia; 2.6

Iraq; 2.6 Hong kong; 2.5

Figure3-India’s Major Import Destination in 2012

72

EU; 11.1

China; 10.7

UAE; 7.8

Saudi Arabia; 6.8

Switzer-land; 6.2

USA; 5.1

Iraq; 3.8

Kuwait; 3.6

Qatar; 3.3

Indonesia; 2.9

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

EU; 16.7

UAE; 12.3USA; 12.2

China; 5

Singapore; 4.9

Hong Kong;

4.1

Saudi Arabia;

2.9

Japan; 2.3

Brazil; 2.1

Indonesia; 2

73

4.2 India -EU Trade:

The EU is India’s largest trading partner in goods and second

largest trading partner in services (after the US). It accounts for around

one-fifth of India’s 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 India’s Merchandise Trade with the EU since it’s formation to 1969:

The trend in India’s 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 India’s export to the

community of total exports remained almost static at 7.8 percent in 1959-

60 to 8.1 percent in 1968-69.

Table 4.6-Indo-EC Trade during (1959-69)

(Value in RS million)

Year India’s exports to EEC

India’s total export

Exports to EEC as % of total export

India’s imports from EEC

India’s total imports

Imports from EEC as % of total imports

1959-60 492 6299 7.8 1911 9608 19.9

1960-61 494 6324 7.8 1959 11216 17.5

1961-92 507 6552 7.7 1912 10901 17.5

1962-63 465 6781 6.9 1580 11315 14.0

1963-64 606 7893 7.7 1410 12229 11.5

1964-65 565 8132 6.9 1724 13490 12.8

74

1965-66 469 6835 6.9 1793 12104 14.8

1966-67 887 11528 7.7 2983 20784 14.4

1967-68 884 11928 7.4 2561 20076 12.8

1968-69 1108 13563 8.1 2336 18616 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 India’s principal trading

partner till at the middle of the 19601. “In 1960-61, West European

countries accounted for about 37% of India’s 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

imports”2.

India’s 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 EEC’s 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

75

extent of their growing capacity to meet each other’s 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,

India’s exports to the EC had been increasing satisfactorily. Since 1973-

74, India has been importing mainly capital goods, machinery (electrical

and mechanical chemical and sophisticated instruments) etc. as a move to

strengthen it’s industrial base4.

TABLE-4.7-Indo - EC trade 1969-1979

Year India’s exports to EEC

India’s total export

Exports to EEC as % of total export

India’s imports from EEC

India total imports

Imports from EEC as % of total imports

1969-70 2748 14139 19.3 2792 15823 17.6

1970-71 2796 15352 18.2 3187 16342 19.5

1971-72 3036 16082 18.8 4777 18245 26.1

1972-73 4077 19708 20.7 5764 18674 30.8

1973-74 6089 25234 24.1 7040 29253 24.0

1974-75 6894 33041 20.8 8390 44967 18.6

1975-76 8209 38631 21.5 10443 50179 20..8

1976-77 13935 51432 27.1 9650 50738 19..0

1977-78 13900 53630 25.9 15180 60260 25.19

1978-79 15760 57260 27.5 20820 68030 30..6

1979-80 66820 64270 26..2 21200 86880 24.4

Source: Compiled from UN commodity trade statistics and EEC Analytical Tables.

76

The steady growth of India’s exports was uninterrupted except in

1977-78, when this upward movement was arrested temporarily. Since

the conclusion of the CCA, India’s 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 EU’s export

change over Previous. year

EU’s import

change over Previous. year

1980 2298 5 1799 -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

77

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

The new agreement extended the horizon and scope of it’s

economic and commercial cooperation. The CCA of 1973 continued up

to 1980. Between 1973 and 1980, India’s exports to the EC increased by

210% on the other hand, imports also grew remarkably by 284%. The

compound growth rate of India’s exports was 17.55 against the import

growth of 21.22% during the same period.

Though CECA was much diversified than CCA but it’s

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 India’s import over the previous year

which was 5% in 1980 rose to 18.80 in 1993. India’s 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;

78

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 India’s export

and import. Both way Indo-EC trade was no more than 1.11% of EC’s

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 cost-competitiveness. 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)

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

79

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 India’s 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, India’s trade

with the EU-27 has increased in relative terms as a percentage of India’s

total export and import, it has declined 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 India’s 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

80

European economies have not been able to take full advantage of an

expanding economy8

Figure-1EU’s Share in Total Indian trade

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

5

10

15

20

25

30

23.99 23.17 22.54 22.7421.85 22.53

21.23 21.17 21.2420.16

18.3317.18 16.7

21.12 20.71 20.8919.29

17.31 17.4216.07 15.28

14.07 13.3312.05 11.62 11.1

Export Import

4.2.3 Indian Share in EU’s merchandise trade:

In 1957 India’s share in EEC’s 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.

India’s export and import to the EEC are hardly one percent of total extra

–EEC export and import in 1980.

Table 4.10 Indian share in total EU trade (%)

year

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Exp

ort

1.6 1.5 1.6 1.7 1.8 2 2.1 2.4 2.4 2.5 2.6 2.6

Impo

rt 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

81

82

After post liberalization India-EU trade had shown impressive growth

over the last years. However India accounts for 2.6% of EU’s total

exports and 2.3% of the EU’s total imports in 2011. Although the share of

India in EU’s 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 India’s 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. Data’s 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 India’s largest trading

83

partner in services. In 2010, the EU contributed 11 percent to India’s

services trade, followed by the US (10 per cent) 15. In 2006 India was put

in the 6th rank, behind EU-27, the US, Japan, China and Canada. As far as

export of services is concerned, the UK remained India’s biggest market

within the EU followed by Germany and France.

Table4.11-Bilateral Services Trade between India and EUEuro Billions

yearEU’s export to India

EU’s import from India Balance

2000 2.5 2.6 -0.12001 2.7 3 -0.32002 2.6 2.7 -0.12003 2.8 3 -0.22004 3.8 4.1 -0.32005 5.4 5.1 0.32006 7.5 5.8 1.62007 8.7 7.2 1.52008 9 8.1 0.82009 8.9 7.4 1.52010 10 8.2 1.82011 10.7 9.7 1.12012 14.1 14.8 -0.7

Source: http://epp.eurostat.ec.europa.eu/portal/page/portal/-statistics/themes

*EU’s exports are Indian import and EU’s import is Indian export.

84

Figure-2

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

-2

0

2

4

6

8

10

12

14

16

Trade in Services

EU’s export to India EU’s import from India Balance

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 EU’s total trade. In

2011, services trade contributed 27.3 per cent and 21.2per cent in India

and EU’s 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

India’s total trade has increased, there has not been much improvement in

share of services trade in total trade for the EU.

85

4.3.2- Per cent Share of Services Trade in Total Trade - India and the EU

year India EUExport import Service

tradeExport import Service

trade2000 28.8 27.1 27.6 21.1 20.6 20.82001 28.6 28.5 28.5 21.6 21.5 21.62005 34.5 24.9 29.2 22.8 20.8 21.82008 35.5 21.6 27.5 23.4 20.2 21.82009 36.1 24 29.2 25.5 22.6 24.12010 35.9 26.2 30.4 23.9 20.9 22.42011 33.3 22.6 27.3 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

UNCTAD’s 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.

86

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

Brazil16.The main sectors which attracted FDI from European Union were

electrical equipments, fuels, transportation industries, chemicals and

services. In 2007, the EU’s 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 Outflows From India to EU Outflows From EU To India2000 0.2 0.72001 0.1 0.42002 0.1 1.12003 0.6 0.82004 0 1.62005 0.5 2.52006 0.5 2.52007 1.2 4.62008 3.5 3.32009 0.8 3.12010 0.6 3

Source: Eurostat

87

Figure-3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

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.

88

Table4.14 Country wise FDI inflow from European Union during 2001-2012

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

European Union

303 474 457 561 450 2 761 2 385 4 266 4 120 3 966 7 241 5 310 32294

Austria - - - - - - - - - 43 20 41 104

Belgium - - - - - - - - - 34 40 33 107

Cyprus - - - - 13 58 570 1 211 1 623 570 1 568 415 6028

Denmark - - - - - - - - - 69 23 83 175

Finland - - - - - - - - - 22 15 3 40

France 88 53 34 44 12 100 136 437 283 486 589 547 2809

Germany 74 103 69 143 45 116 486 611 602 163 368 467 3247

Greece - - - - - - - - - 1 - 2 3

Ireland - - - - - - - - - 33 1 1 35

Italy 28 - - 24 39 57 21 249 - 119 152 63 752

Luxembourg - - - - - - 15 23 40 248 89 34 449

Malta - - - - - - - - - - 3 - 3

Netherlands 68 94 197 196 50 559 601 682 804 1 418 1 301 1 713 76836

Poland - - - - - - - - - - 10 517 527

Portugal - - - - - - - - - 2 2 11 15

Romania - - - - - - - - - 2 4 - 6

Slovakia - - - - - - - - - 1 - - 1

Spain - - - - - 62 48 363 125 183 251 348 1380

Sweden - - - 70 30 - - - - 34 43 10 187

United Kingdom

45 224 157 84 261 1 809 508 690 643 538 2 760 1 022 8741

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

89

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)

Growth Rate

FDI Equity Inflow from EU Countries (million USD)

Growth Rate

FDI Equity Inflow from EU as Percentage of Total FDI inflows (%)

2001 3,520 303 8.612002 3,359 -4.57 474 56.43 14.12003 2,079 -38.1 457 -3.58 22.02004 3,213 54.54 561 22.75 17.52005 4,355 35.51 450 -19.78 10.32006 11,120 155.33 2,761 513.55 24.82007 15,921 43.17 2,385 -13.61 15.02008 37,096 133. 4,266 78.86 11.52009 27,044 -27.09 4,120 -3.42 15.22010 21,007 -22.32 3,966 -3.73 18.92011 34,621 64.8 7,241 82.57 20.92012 22,789 -34.1 5,310 26.66 23.3Cumulative Total

188,471 32,294 17.1

Source: Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India.

90

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 EU’s contribution to India’s trade (both export and

import) is about one third of the total.

4.4.1 Trends of EU’s World Imports:

Let us first see the growth scenario of the EC’s world

imports. In 1981, the EC’s total imports were 581 billion ECU which

increased to 1255 billion ECU in 1994. The compound growth rate of

EC’S 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 EU’s (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.

91

TABLE 4.16- Trends of EU’s World Imports(Value in million US$.)

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

Belgium 176991 178698 198095 234922 286478 319085 353094 413036 466338 354586 391256 466349 437883 7.8

France 303758 293866 303831 362517 434242 475857 529902 611364 695004 540502 599172 700852 663269 6.7

Italy 238069 236127 246609 297403 355267 384836 442565 511823 560960 414784 486984 558832 489104 6.2

Luxembourg 10592 11188 11529 13646 16772 17586 19640 22289 25498 18771 20400 25972 24011 7

Netherland 198927 195562 194115 233997 284014 310591 358510 421368 494937 382190 439987 492838 501134 8

Germany 500830 486022 490450 601761 718150 779819 922213 1059308 1204209 938363 1066817 1260298 1173288 7.4

Denmark 44533 44625 49285 56227 66845 72716 84187 97445 109166 80364 83162 96437 92297 6.3

Ireland 50649 51376 52214 53782 62345 70284 76621 87045 84953 62566 60550 67171 63100 1.8

UK 374703 358703 NA 425369 502886 528461 614812 679918 705344 522042 627618 717606 689137 5.2

Greece 29487 28434 31299 44855 52810 54894 63739 76099 89302 67192 63942 60832 62341 6.4

Portugal 39879 39456 40032 47166 68222 61167 66694 78326 90106 69985 75572 80324 72293 5.1

Spain 152898 154993 165920 208549 259265 289611 329976 391237 418728 287502 315547 362835 325835 6.5

Austria 68374 70492 72796 91595 111261 119950 134356 156056 175026 136418 150593 182350 169663 7.8

Finland 33886 33268 33440 41572 50658 58473 69427 81576 92190 60830 68767 83862 76089 6.9

Sweden 72767 63536 67121 84199 100833 111351 127101 152823 168982 119949 148788 176945 162709 6.9

Cyprus 6382 7046 8749 10849 7933 8645 4789 7377 5.5

Czech Republic 76527 93429 116822 141834 104850 125691 150813 139727 13

Estonia 11018 14641 16665 17335 11360 13197 18963 19750 12

Hungary 65920 76979 94660 108785 77272 87432 101370 94266 9.3

Latvia 8770 11427 15185 15775 9337 11143 15431 16082 14.4

Lithuania 15704 19388 24445 31295 18341 23378 31801 32238 16

Malta 3865 4396 4947 5141 4034 5732 7396 7896 7.3

Poland 101539 125645 164172 210479 149570 174128 209192 191430 12.1

Slovak Republic 34226 44759 59208 72612 55160 64382 76690 76859 16.1

Slovenia 19626 23013 29476 33986 23902 26592 31237 28383 9

Bulgaria 30085 37015 23341 25360 32494 32743 14.4

Romania 69946 82965 54256 62007 76365 70260 15

EU-27 2472185 2435413 2174803 3065837 3717949 4056883 4687935 5474073 6148814 4595400 5226842 6090044 5719164

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

92

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 EU’s 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. India’s 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, India’s export performance

to the largest member states has been some rather what disappointing

except The Netherland .If we judge India’s 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.

93

TABLE4.17:-Trend of India’s Export to the European Union (Value in US$ Million)

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

Belgium 1470.6 1390.6 1661.8 1805.7 2509.7 2871.2 3478.2 4207.1 4480.3 3759.3 5784.4 7160.8 5507.3 11.6

France 1020 945 1074.1 1280.9 1680.9 2079.6 2103.3 2599.6 3020.9 3819.8 5209.6 4558.1 4986 14.1

Italy 1308.8 1206.5 1357.1 1729.4 2286 2519 3584.7 3914 3824.6 3400.3 4551.6 4883.1 4372.6 10.6

Luxembourg 5.58 4.47 9.14 14.19 11.64 10.67 16.92 11.7 11.56 4.78 18.76 9.1 8.2 3.2

Netherland 880.09 863.88 1047.9 1289.1 1604.9 2474.8 2674.6 5249.1 6348.7 6397.6 7677.6 9151.3 10565 23

Germany 1907.6 1788.4 2106.7 2544.6 2826.3 3586.1 3984.8 5121.5 6388.5 5412.9 6751.2 7942.8 7246.2 11.8

Denmark 174.38 151.86 183.67 241.89 305.74 410.28 458.06 496.57 583.66 580.42 690.74 757.51 707.29 12.4

Ireland 103.18 102.38 135.81 150.93 211.99 279.77 226.08 314.47 449.77 260.57 270.34 380.26 386.69 11.6

UK 2298.7 2160.9 2496.4 3023.3 3681.1 5059.3 5622.9 6705.5 6649.5 6221.4 7285 8589.9 8612.5 11.6

Greece 113.49 106.53 148.7 200.04 306.34 564.09 670.71 530.38 874.43 452.8 364.88 790.06 300.13 8.4

Portugal 146.7 147.84 162.12 169.89 223.17 260.89 366.99 495.91 440.44 374.57 526.84 525.27 528.46 11.3

Spain 666.25 677.21 810.49 1002.6 1389.4 1605.7 1878.7 2293.6 2538.2 2029.3 2565.3 2999.3 2865.8 5.2

Austria 81.02 76.33 81.11 106.38 117.15 132.47 132.01 183.41 490.67 252.74 593.7 341.82 328.58 14.4

Finland 58.31 69.75 71.14 111.27 143.54 204.69 194.36 239.74 264.89 208.36 254.92 314.34 317.27 15.2

Sweden 176.16 154.27 176.29 219.88 241.8 326.39 387.7 544.19 566.69 476.63 627.73 825 686.15 11.9

Cyprus 32.41 33.39 47.91 250.01 46.82 43.31 56.62 54.99 4.5

Czech Republic 96.87 102.66 180.28 183.3 177.76 215.77 271.85 251.4 14.6

Estonia 13.86 28.24 68.63 49.31 28.92 52.91 116.48 91.88 31

Hungary 84.16 103.8 230.41 439.69 269.68 212.85 316 323.74 21.2

Latvia 28.39 39.81 59.5 44.93 47.17 103.19 96.18 104.08 20.4

Lithuania 33.45 40.61 59.18 60.26 66.39 83.3 134.89 147.43 23.6

Malta 121.31 60.8 34.61 100.08 708.85 746.78 848.99 398.22 18.5

Poland 226.96 306.57 447.45 518.45 421.13 666.22 787 810.85 19.9

Slovak Rep 21.41 36.24 47.46 35.83 35.76 59.47 94.36 107.01 25.8

Slovenia 76.6 88.63 119.47 160.7 192.58 187.42 227.02 273.79 19.9

Bulgaria 71.12 73.69 50.89 69.71 108.77 156.98 20.8

Romania 170.46 262.55 498.41 330.81 426.03 269.54 0.9

EU-27 10411 9845.9 11522 13890 17540 23120 26621 34443 39112 36196 45944 52713 50408 14

SOURCE: World Integrated Trade Solution (WITS) www.wits.com* India’s export to European Union means union’s 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.

94

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 India’s share in the EU’s total import’s 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. It’s share in EU’s 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 NTB’s are much more

prominent than higher tariffs.13

95

TABLE4.18-India’s share in EU’s Total Import Country wise (%)

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

BELGIUM 0.83 0.78 0.84 0.77 0.88 0.90 0.99 1.02 0.96 1.06 1.48 1.54 1.26

France 0.34 0.32 0.35 0.35 0.39 0.44 0.40 0.43 0.43 0.71 0.87 0.65 0.75

ITALY 0.55 0.51 0.55 0.58 0.64 0.65 0.81 0.76 0.68 0.82 0.93 0.87 0.89

LUXEMBOURG 0.05 0.04 0.08 0.10 0.07 0.06 0.09 0.05 0.05 0.03 0.09 0.04 0.03

NETHERLAND 0.44 0.44 0.54 0.55 0.57 0.80 0.75 1.25 1.28 1.67 1.74 1.86 2.11

GERMANY 0.38 0.37 0.43 0.42 0.39 0.46 0.43 0.48 0.53 0.58 0.63 0.63 0.62

DENMARK DO 0.39 0.03 0.37 0.43 0.46 0.56 0.54 0.51 0.53 0.72 0.83 0.79 0.77

IRELAND 0.20 0.02 0.26 0.28 0.34 0.40 0.30 0.36 0.53 0.42 0.45 0.57 0.61

UK 0.61 0.44 NA 0.71 0.73 0.96 0.91 0.99 0.94 1.19 1.16 1.20 1.25

GREECE 0.38 0.02 0.48 0.45 0.58 1.03 1.05 0.70 0.98 0.67 0.57 1.30 0.48

PORTUGAL 0.37 0.03 0.40 0.36 0.33 0.43 0.55 0.63 0.49 0.54 0.70 0.65 0.73

SPAIN 0.44 0.14 0.49 0.48 0.54 0.55 0.57 0.59 0.61 0.71 0.81 0.83 0.88

AUSTRIA 0.12 0.02 0.11 0.12 0.11 0.11 0.10 0.12 0.28 0.19 0.39 0.19 0.19

FINLAND 0.17 0.01 0.21 0.27 0.28 0.35 0.28 0.29 0.29 0.34 0.37 0.37 0.42

SWEDEN 0.24 0.03 0.26 0.26 0.24 0.29 0.31 0.36 0.34 0.40 0.42 0.47 0.42

CYPRUS 0.82 0.01 0.57 0.63 0.51 0.51 0.47 0.55 2.30 0.59 0.50 1.18 0.75

CZECHREPUBLIC 0.12 0.01 0.12 0.17 0.13 0.13 0.11 0.15 0.13 0.17 0.17 0.18 0.18

ESTONIA 0.07 0.00 0.07 0.08 0.11 0.13 0.19 0.41 0.28 0.25 0.40 0.61 0.47

HUNGARY 0.13 0.01% 0.13 0.19 0.18 0.13 0.13 0.46 0.40 0.35 0.24 0.31 0.34

LATIVA 0.43 0.00 0.22 0.31 0.24 0.32 0.35 0.39 0.28 0.51 0.93 0.62 0.65

LITHUNIA 0.16 0.10 0.13 0.18 0.25 0.21 0.21 0.24 0.19 0.36 0.36 0.42 0.46

MALTA 0.31 0.44 1.14 3.47 0.76 3.14 1.38 0.70 1.95 17.57 13.03 11.48 5.04

POLAND 0.18 0.22 0.19 0.20 0.20 0.22 0.24 0.27 0.25 0.28 0.38 0.38 0.42SLOVAK REPUBLIC

0.08 0.06 0.07 0.07 0.08 0.06 0.08 0.08 0.05 0.06 0.09 0.12 0.14

SLOVENIA 0.15 0.28 0.22 0.26 0.36 0.39 0.39 0.41 0.47 0.81 0.70 0.73 0.96

BULGARIA 0.18 0.11 0.14 0.23 0.17 0.13 0.17 0.24 0.20 0.22 0.27 0.33 0.48

ROMANIA 0.10 0.08 0.06 0.11 0.15 0.26 0.17 0.24 0.32 0.92 0.53 0.56 0.38

*Table 4.18 is compiled from table 4.16 and 4.17.

Table 4.18 gives detailed information of India’s share in EU’s

import over the years both in average and individual states. India’s 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 India’s share was 0.19 percent of it’s total imports during the same

period. India’s share was highest in case of Malta, where India’s

contribution was 5.4, India’ share in Belgium’s total import was 12.6

percent and with Italy it was 0.75 percent during the same period. India’s

share to The Netherland’s 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

96

that our export performance to some of the EU member countries has

improved in recent years, which is reflected in India’s improved share in

the countries market. From 2000 to 2012, India’s 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)

Table4.19 Based on table 4.16and4.17

97

World IndiaBelgium 7.8 11.6France 6.7 14.1Italy 6.2 10.6Luxembourg 7 3.2Netherland 8 23Germany 7.4 11.8Denmark 6.3 12.4Ireland 1.8 11.6UK 5.2 11.6Greece 6.4 8.4Portugal 5.1 11.3Spain 6.5 5.2Austria 7.8 14.4Finland 6.9 15.2Sweden 6.9 11.9Cyprus 5.5 4.5Czech Republic 13 14.6Estonia 12 31Hungary 9.3 21.2Latvia 14.4 20.4Lithuania 16.0 23.6Malta 7.3 18.5Poland 12.1 19.9Slovak Rep 16.1 25.8Slovenia 9 19.9Bulgaria 14.4 20.8Romania 15.0 0.9EU-27 na 14

Figure-7

Belgium

Italy

Netherl

and

Denmark UK

Portuga

l

Austria

Swed

en

Czech Rep

ublic

Hungary

Lithunia

Poland

Slove

nia

Romania

0

10

20

30

40

50

60

70

CAGR from india CAGR from world

4.3 Composition of Indian Export to the European Union: A Sectoral Analysis:

Historical trends of the composition of the India’s 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 India’s

export pattern to the European Union in particular western countries in

general14.For analytical purpose; we have aggregated all sectors into 16

major groups. Sixteen major groups are as follows:

98

Sr.n

o

Sectors Group

1 1-5 Animal

2 06-15 Vegetable

3 16-24 Food Product

4 25-26 Minerals

5 27-27 Fuels

6 28-38 Chemicals

7 39-40 Plastic or Rubber

8 41-43 Hides and Skin

9 44-49 Wood

10 50-63 Textile and Clothing

11 64-67 Footwear

12 68-71 Stone and Glass

13 72-83 Metals

14 84-85 Machine and Electronic

15 86-89 Transportation

16 90-99 miscellaneous

99

TABLE4.20 India’s Export to European Union 2000-2012

(Percentage Share of different Product Group)

Year 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Animal 2.08 2.19 2.49 2.68

2.14 2.05 2.22 1.93 1.65 1.92 1.65 1.57 1.71

Vegetable

8.22 6.89 6.04 5.53

5.5 4.97 4.51 4.24 5.03 4.57 4.35 4.53 5.23

Food Prod

1.43 1.63 1.45 1.09

1.1 1 1.13 1.41 1.53 1.52 1.37 1.51 1.74

Minerals 2.04 1.86 2.03 1.92

1.95 1.76 1.64 1.47 1.18 0.78 0.8 0.73 0.8

Fuels 0.32 1.09 0.79 1.19

2.34 4.64 4.5 5.68 7.73 7.11 14.22

12.53

13.49

Chemicals

8.02 8 9.1 9.51

9.28 9.23 9.55 9.84 9.94 10.88

10.78

11.39

12.69

Plast iRub

1.72 1.73 1.85 1.98

2.3 2.9 2.73 3.04 2.78 2.4 2.65 3.07 3.05

Hides Skin

7.15 7.76 7.16 6.09

4.98 4.62 4.22 3.91 3.77 3.82 3.39 3.29 3.44

Wood 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

TextCloth

31.78

31.72

30.75

29.4

27.28

27.66

26.68

23.41

20.82

23.51

19.68

18.58

16.81

Footwear 3.95 4.59 4.53 4.24

4.26 3.84 3.94 3.72 3.41 3.86 3.59 3.28 3.05

StoneGlas

13.16

12.07

13.28

12.1

11.89

11.59

10.85

9.64 8.6 7.85 8.38 8.84 8.24

Metals 5.53 5.01 5.47 6.04

8.73 8.33 10.59

12.73

11.94

6.8 6.72 8.17 7.78

MachElec

6.82 7.88 8.43 9.19

9.52 9.53 10.02

10.57

12.88

12.36

12.55

11.84

12.08

Transport 2.52 1.98 2.38 3.23

4.35 3.7 3.34 4.05 4.54 8.16 6.19 6.11 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

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 India’s 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

101

percent during 2012. This shows that it is one of the most potential items

in Indo-EU trade. Machine, 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 it’s farm

sector from external competition. Secondly EU frequently uses stringent

sanitary and Phyto sanitary Standards (SPS) against its import of

agricultural items from India.

102

References

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.

103

6 S.K. Bhattacharya “India and European Union Trade and non-Traffic

barriers” New Delhi 2005.

7 Commission of the European communities. The cost of non-European

Basic-studies : 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

,workingPaper” .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

104

and Programme Implementation,Government of India,

http://exim.indiamart.com/economic-survey/, Banga, Rashmi and

Bishwanath Goldar (2004), “Contribution of Services to Output

Growth and 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/india—

fdi-index.htm.

105

Chapter-5

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 economy’s

comparative advantage in that commodity. When RCA equals one, the

country’s 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 i’s exports of product j

and world’s exports of product j and where Xit and Xwt refer to the

country’s total exports and world’s 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 other’s market in comparison to the rest of the

world. The RCA of India and EU in each other’s market can be calculated

as follows:

107

India’sRCAin EU

(RCAijE)=(xijE/XitE)/(xwjE/XwtE)………....................................(2)

EU’sRCAinIndia(RCAEji)=(xEji/XEti)/(xwji/Xwti).......................(3)

Where

xijE= India’s export of commodity j to European Union.

XitE= Total exports of India to European Union

xwjE = World’s export of commodity j to European Union

XwtE= Total exports of World to European Union

xEji=EU’s export of commodity j to India

XEti =Total exports of EU to India

Xwji=world’s 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 levels1 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. Balassa’s results show that

while the extent of export diversification tends to increase

108

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 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 Özgen (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 Turkey’s 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 country’s low trade volume with respect to the EU.

Results indicate that Turkey’s 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

109

2003. By considering Balassa’s (1965) to measure performance of

industry and commodities at HS 2-digit 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 North American, Asian and European Union

markets. This Study concluded that India had a comparative advantage in

fruits and vegetable sectors.7

5.2 India’s 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 India’s 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 India’s

advantage vis-à-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

110

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.

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- EU’S Revealed comparative Advantage in Export in India’s 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-India’s Revealed ComparativeAdvantage in Merchandise Export in EU’s Market (Sector wise)

Sector 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Animal 1.55 1.68 1.45 1.43 1.57 1.43 1.35 1.33 1.27 1.24 1.47

Chemical 1.17 1.23 1.17 1.25 1.31 1.34 1.40 1.33 1.38 1.45 1.61food products 0.54 0.41 0.44 0.44 0.05 0.66 0.70 0.57 0.60 0.66 0.77Footwear 4.27 3.92 3.98 3.62 3.82 3.64 3.52 3.29 3.22 3.14 3.06Fuels 0.05 0.72 0.12 0.19 0.17 0.25 0.28 0.33 0.60 0.45 0.47hides & skin 6.74 6.15 5.53 5.56 5.14 4.71 5.03 4.96 4.42 4.28 4.59Mach&Elec 0.32 0.36 0.37 0.39 0.43 0.46 0.61 0.57 0.55 0.57 0.61Metals 1.16 1.23 1.45 1.44 1.48 1.58 1.70 1.4 1.20 1.34 1.50Minerals 1.5 1.48 1.26 1.07 0.92 0.80 0.64 0.61 0.45 0.38 0.49Miscellaneous 0.31 0.31 0.44 0.44 0.45 0.37 0.35 0.27 0.33 0.46 0.43Plastic or Rubber 0.74 0.77 0.90 1.16 1.08 1.12 1.09 0.95 0.96 1.06 1.14Stone and Glass 3.07 3.11 3.37 3.62 3.52 3.04 3.01 2.66 1.82 2.62 1.54Textile and Clothing 4.71 4.54 4.34 4.73 4.69 4.2 4.03 3.84 3.55 3.37 3.39Transportation 0.27 0.36 0.50 0.45 0.46 0.63 0.79 1.31 0.92 1.13 0.95Vegetable 1.99 1.85 1.9 1.86 1.78 1.48 1.63 1.41 1.49 1.43 1.67Wood 0.27 0.33 0.33 0.34 0.33 0.29 0.30 0.34 0.3 0.268 0.33number of section with RCA>1 9 9 9 10 9 9 9 9 8 10 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-EU’S Revealed comparative Advantage in Merchandise Export in India’s Market (Sector wise)

112

Sector 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012ANIMAL 0.99 1.56 1.78 1.60 1.40 1.67 1.59 1.81 0.81 2.70 1.55CHEMICAL 1.07 0.967 1.00 0.88 0.91 0.78 0.74 0.92 1.23 0.99 1.09FOODPRODUCTS 1.26 1.30 0.68 0.86 2.15 2.23 2.06 0.70 1.07 2.17 1.78FOOTWEAR 2.52 2.18 2.06 1.85 1.46 1.55 1.60 1.79 1.21 1.02 0.81FUELS 0.016 0.011 0.01 0.01 0.01 0.01 0.01 0.02 0.01 0.02 0.02HIDES & SKIN 1.62 1.78 1.84 1.70 2.15 1.94 2.14 2.25 2.16 2.25 2.47MACH&ELEC 1.85 1.61 1.82 1.68 1.91 1.78 2.50 1.92 2.15 2.24 2.17METALS 1.40 1.46 1.47 1.62 1.42 1.49 1.75 2.08 1.99 2.02 2.03MINERALS 0.18 0.22 0.17 0.19 0.09 0.08 0.10 0.22 0.14 0.18 0.182MISCELLANEOUS 1.34 1.41 1.65 1.49 1.53 2.45 1.55 2.22 1.94 1.77 1.94PLASTIC OR RUBBER 1.35 1.25 1.43 1.41 1.47 1.07 1.33 1.43 1.32 1.51 1.74STONE AND GLASS 1.86 2.06 1.73 1.85 1.92 1.62 1.71 0.96 1.02 1.13 1.30TEXTILE AND CLOTHING 0.56 0.58 0.59 0.58 0.62 0.57 0.61 0.57 0.66 0.69 0.73TRANSPORTATION 2.19 1.10 1.30 1.90 1.67 2.77 1.33 1.83 2.13 2.44 2.75VEGETABLE 0.13 0.063 0.06 0.06 0.28 0.09 0.11 0.07 0.07 0.07 0.01WOOD 4.60 1.03 1.15 1.32 1.39 1.30 1.83 1.89 1.69 1.57 1.63Number Of Section With RCA>1 11 10 11 10 11 11 11 9 11 11 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 C-53 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 C-99had 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-India’s Revealed Comparative Advantage (at 2 digits) in Merchandise Export in EU’s Market

code

CHAPTER2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1 Live animals. 0.00043

0.0009

0.0056

0.005

0.00024

0.0007

1.070.00120

30.00

10.00361

90.004

9

2 Meat and edible meat offal. 4.540.001

3NA

0.003

0.00011

0.0009

NA 5.80 NA 1.67 NA

3 Fish and crustaceans, molluscs and other aquatic invertabrates. 2.13

2.3065

1.9726

1.999

2.14541

1.9548

1.785381.79065

21.65

71.71437

81.987

3

4 Dairy produce; birds' eggs; natural honey; edible prod. Of animal origin, not elsewhere spec. Or included.

0.62186

0.9059

1.2643

1.094

1.25362

0.9554

0.863390.69652

90.48

90.14896

10.254

4

5 Products of animal origin, not elsewhere specified or included.

1.55138

1.7197

1.6334

1.625

2.29785

1.7679

1.838371.71907

91.50

71.12881

61.420

1

6 Live trees and other plants; bulbs; roots and the like; cut flowers and ornamental foliage.

0.9680.899

10.915

70.95

10.9604

10.904

10.80622

0.628071

0.617

0.568510.643

4

7 Edible vegetables and certain roots and tubers.

1.29417

1.191.120

91.26

81.2909

40.926

11.18906

1.160415

1.261.25986

41.345

7

8 Edible fruit and nuts; peel or citrus fruit or melons.

1.37202

1.1141

1.0531

1.283

1.25576

0.9365

0.890070.88973

80.79

10.73632

90.903

5

9 Coffee, tea, mate and spices. 4.57988

4.0287

3.9754

3.304

3.65647

3.0185

2.760912.23452

12.17

92.37007

92.621

7

10 Cereals. 3.25865

3.4158

2.9577

3.899

4.29699

2.1753

2.637674.06386

63.44

81.99154

43.371

4

11 Products of the milling industry; malt; starches; inulin; wheat gluten.

0.68359

0.9299

0.8571.72

51.5653

51.407

81.75827

2.244165

2.25 1.509421.696

8

115

12 Oil seeds and olea. Fruits; misc. Grains, seeds and fruit; industrial or medicinal plants; straw and fodder.

0.82305

0.7941

1.2487

1.095

1.05865

0.8447

1.025560.88549

20.78

10.76644

90.762

13 Lac; gums, resins and other vegetable saps and extracts.

8.15018

8.6017.568

57.54

98.3893

67.328

96.23225

6.035385

8.356

7.697174

11.043

14 Vegetable plaiting materials; vegetable products not elsewhere specified or included.

6.73666.977

45.966

6.345

5.03654.270

32.98457

2.896924

4.027

4.532381

7.924

15 Animal or vegetable fats and oils and their cleavage products; pre. Edible fats; animal or vegetable waxex.

2.25583

2.1906

2.7537

2.079

1.15909

1.181 1.499240.88026

11.31

81.36606

71.097

4

16 Preparations of meat, of fish or of crustaceans, molluscs or other aquatic invertebrates

0.16577

0.1955

0.2214

0.298

0.34712

0.3015

0.327680.34801

40.31

80.27205

70.279

7

17 Sugars and sugar confectionery.

1.90106

0.6345

0.4573

0.267

0.86403

2.8519

1.829030.32609

90.53 1.10644

1.8886

18 Cocoa and cocoa preparations. 0.00624

0.0030.039

40.01

20.0189

60.068

70.02658

0.029383

0.028

0.069464

0.0434

19 Preparations of cereals, flour, starch or milk; pastrycooks products.

0.21877

0.2507

0.5174

0.662

0.68726

0.6262

0.997980.90864

70.55

90.51230

70.479

20 Preparations of vegetables, fruit, nuts or other parts of plants.

1.09294

0.0011

1.0435

1.167

1.38575

1.2966

1.192591.29826

11.37

81.15382

41.305

9

21 Miscellaneous edible preparations.

1.01068

1.0461

1.1494

1.184

1.34467

1.4137

1.403081.35548

51.37

71.19867

41.487

3

22 Beverages, spirits and vinegar. 0.03544

0.0185

0.021 0.020.0411

20.079

10.14534

0.084338

0.055

0.052736

0.0443

116

23 Residues and waste from the food industries; prepared animal foder.

0.20093

0.0524

0.1330.06

60.0528

80.122

70.5004

0.268851

0.107

0.572565

0.6542

24 Tobacco and manufactured tobacco substitutes.

1.48915

1.4979

1.7195

1.859

2.24895

1.9929

2.43822 NA3.35

22.84602

42.869

6

25 Salt; sulphur; earths and stone; plastering materials, lime and cement.

4.42908

4.1073

3.4028

3.387

3.40843

3.1122

2.249922.46781

22.00

41.84792

82.168

8

26 Ores, slag and ash. 0.33621

0.4988

0.5826

0.459

0.40415

0.2781

0.236670.12530

60.15

90.11601

80.188

4

27 Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes.

0.04804

0.0728

0.1210.19

80.1808

50.239

40.27002

0.310873

0.567

0.437314

0.437

28 Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, or radi. Elem. Or of isotopes.

0.41688

0.4373

0.3662

0.320.3619

40.501

30.30862

0.449467

0.341

0.297808

0.3367

29 Organic chemicals 1.94815

2.0499

1.9161.91

22.2021

2.0398

2.41692.49240

42.17

32.45267

72.695

3

30 Pharmaceutical products 0.42231

0.4403

0.5504

0.705

0.68424

0.8464

0.783110.63296

40.91

10.97350

21.036

31 Fertilisers. 0.09613

0.0264

0.0306

0.024

0.0306 0.033 0.02389 0.045160.03

10.03500

50.021

8

32 Tanning or dyeing extracts; tannins and their deri. Dyes, pigments and other colouring matter; paints and ver; putty and other mastics; inks.

3.64163.597

53.530

23.65

83.7636

44.124

44.22992

3.568613

3.928

3.924175

4.1778

33 Essential oils and resinoids; perfumery, cosmetic or toilet

1.30757

1.2178

1.2399

1.235

1.36446

1.2959

1.367791.02866

31.06

61.28306

91.406

5

117

preparations.34 Soap, organic surface-active

agents, washing preparations, lubricating preparations, artificial waxes, prepared waxes, polishing or scouring prep.

0.39073

0.3849

0.3213

0.430.6149

10.653

50.66754 0.62774

0.666

0.825204

0.809

35 Albuminoidal substances; modified starches; glues; enzymes.

0.91062

0.6164

0.6682

0.747

0.66555

1.2603

1.51716 0.933331.50

50.97144

80.870

4

36 Explosives; pyrotechnic products; matches; pyrophoric alloys; certain combustible preparations.

0.39713

0.2489

0.2161

0.315

0.36791

0.5689

0.474890.77169

10.48

80.39092

90.440

6

37 Photographic or cinematographic goods.

0.08340.073

40.054

90.08

50.0553

90.075 0.07687

0.085944

0.092

0.059668

0.0387

38 Miscellaneous chemical products.

0.66348

0.8548

0.7159

1.191

1.16009

1.0163

1.168781.05894

61.04

20.94945

21.036

6

39 Plastic and articles thereof. 0.59142

0.5844

0.7461

1.093

0.96515

1.0407

0.88198 0.74680.83

41.02902

50.964

7

40 Rubber and articles thereof. 1.16158

1.1872

1.2365

1.408

1.46442

1.3846

1.503841.48759

21.21

61.16949

41.541

4

41 Raw hides and skins (other than furskins) and leather

4.48931

4.0919

3.7021

4.063

4.01247

3.6353

3.944943.42367

63.04

3.162941

3.6988

42 Articles of leather,saddlery and harness;travel goods, handbags and similar cont.articles of animal gut(othr thn silk-wrm)gut.

8.59006

7.7259

6.9067

6.777

6.40963

5.6589

5.664295.60855

25.06

75.07875

5.3391

43 Furskins and artificial fur, manufactures thereof.

0.46813

0.2716

0.3196

0.373

0.29675

0.2873

0.224460.29400

80.26

30.16107

30.200

1

44 Wood and articles of wood; 0.3176 0.311 0.262 0.25 0.2449 0.201 0.22445 0.24100 0.20 0.17516 0.243

118

wood charcoal. 8 7 8 9 5 4 1 2 2 5

45 Cork and articles of cork. 0.00573

0.0032

0.1504

0.129

0.12909

0.0648

0.05177 0.056710.04

50.08922

40.098

7

46 Manufactures of straw, of esparto or of other plaiting materials; basketware and wickerwork.

1.55236

1.7502

1.8065

1.433

1.38875

1.0519

0.886510.83054

50.75

50.66204

40.702

47 Pulp of wood or of other fibrous cellulosic material; waste and scrap of paper or paperboard.

0.00385

0.0023

0.0091

0.002

0.00314

0.0006

0.002570.00098

60.00

20.00044

10.000

7

48 Paper and paperboard; articles of paper pulp, of paper or of paperboard.

0.26562

0.4016

0.4511

0.528

0.55665

0.4717

0.44550.44696

40.41

50.40557

60.465

49 Printed bookds, newspapers, pictures and other products of the printing industry; manuscripts, typescripts and plans.

0.49663

0.5301

0.6871

0.770.7327

10.700

40.67302

0.779887

0.794

0.724111

0.8921

50 Silk 18.1841

18.648

19.291

17.79

14.9242

14.194

11.768411.0899

88.44

45.91840

45.445

51 Wool, fine or coarse animal hair, horsehair yarn and woven fabric.

1.74072

1.2155

1.5796

1.699

1.78703

1.7551

2.032772.83346

92.28

62.17732

52.538

3

52 Cotton. 7.41392

6.8585

7.0673

7.716

8.36081

7.5361

7.01892 6.642197.08

26.46674

37.200

3

53 Other vegetable textile fibres; paper yarn and woven fabrics of paper yarn.

12.8416

10.914

8.7916

8.417

9.58773

9.0314

9.699299.86446

49.03

38.23116

78.660

4

54 Man-made filaments. 2.48142.465

82.225

42.18

92.2975

12.078

62.31434

2.043247

2.309

2.165294

2.3834

119

55 Man-made staple fibres. 5.75039

5.5934

5.5562

4.474

4.94295.154

74.69564

4.041942

4.444

4.540294

4.1102

56 Wadding, felt and nonwovens; spacial yarns; twine, cordage, ropes and cables and articles thereof.

0.66195

0.9643

0.7477

0.853

0.85706

0.8445

1.044290.96550

30.97

1.068774

1.2742

57 Carpets and other textile floor coverings.

19.4344

NA19.75

220.4

20.5808

19.555

18.668316.4398

914.1

813.2619

912.85

3

58 Special woven fabrics; tufted textile fabrics; lace; tapestries; trimmings; embroidery.

5.36361

7.1333

5.7654

6.686

6.10728

5.4227

5.942495.36514

74.65

74.47403

44.554

7

59 Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use.

1.4421.549

81.214

91.42

1.29564

1.2568

1.134821.13961

90.96

51.02234

51.304

2

60 Knitted or crocheted fabrics. 2.44531

0.0003

2.6039

1.463

1.31568

0.7212

0.500330.38204

10.39

40.39064

50.248

6

61 Articles of apparel and clothing accessories, knitted or corcheted.

3.85065

3.6893.754

44.23

24.3497

63.830

43.51233

3.409321

2.828

2.683719

2.7048

62 Articles of apparel and clothing accessories, not knitted or crocheted.

4.05162

3.7642

3.3384

4.213

4.31645

3.5105

3.415373.66070

93.37

73.30112

43.271

8

63 Other made up textile articles; sets; worn clothing and worn textile articles; rags

9.28443

8.6673

8.5736

8.626

7.79653

7.0595

6.327675.79686

95.17

45.54116

95.644

9

64 Footwear, gaiters and the like; parts of such articles.

5.01804

4.4344.592

84.19

34.4655

14.181

53.91823

3.750682

3.602

3.636778

3.5017

65 Headgear and parts thereof. 0.36360.369

80.344

50.34

0.37845

0.3792

0.364480.35941

60.34

10.35215

30.380

5

120

66 Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips,riding-crops and parts thereof.

0.05888

0.0748

0.0608

0.074

0.07490.061

50.05646

0.055215

0.067

0.039896

0.0432

67 Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair.

0.43737

1.7052

2.3132

2.824

2.78344

2.2191

2.418842.39032

62.09

41.44922

11.612

9

68 Articles of stone, plaster, cement, asbestos, mica or similar materials.

6.43723

6.5314

6.0337

5.998

5.99151

5.3548

5.20399 5.344994.90

34.44806

94.746

5

69 Ceramic products. 0.66470.721

30.703

40.59

70.5155

30.520

40.48871

0.445928

0.576

0.635927

0.8457

70 Glass and glassware. 1.44835

1.4995

1.3541.32

21.4668

11.359

81.22079

1.116044

1.039

0.098081

1.1866

71 Natural or cultured pearls, precious or semiprecious stones,pre.metals,clad with pre.metal and artcls thereof; imit. jewlry; coin.

3.22675

3.2266

3.6473.59

22.9154

12.520

13.19457

1.480784

1.792

1.741311.460

1

72 Iron and steel 1.16376

1.4315

2.2466

1.989

2.37074

2.4441

2.659162.12477

71.79

32.05938

52.269

73 Articles of iron or steel 2.11212

2.1629

2.2723

2.472

2.28663

2.2136

2.258192.05077

22.04

72.24306

52.609

2

74 Copper and articles thereof. 0.67987

0.7262

0.5140.50

40.7466

10.442

20.39438

0.375993

0.285

0.284338

0.3655

75 Nickel and articles thereof. 0.03770.031

40.043

90.05

80.0420

30.036

30.03547

0.047099

0.033

0.041999

0.062

76 Aluminium and articles thereof.

0.24231

0.250.269

30.29

20.3116

90.423

90.38466

0.321221

0.263

0.383966

0.3356

78 Lead and articles thereof. 0.03322

0.0342

0.2370.12

30.2158

90.221

60.14623

0.064155

0.071

0.084359

0.0673

121

79 Zinc and articles thereof. 0.27903

0.2438

0.1780.75

55.3230

64.488

71.30538 2.67402

0.436

0.669211

0.6162

80 Tin and articles thereof. 0.10726

0.0507

0.0805

0.159

0.06159

0.1162

0.063450.16336

70.05

50.29101

60.129

7

81 Other base metals; cermets; articles thereof.

0.09214

0.1201

0.0876

0.180.2427

20.199

10.21518

0.175556

0.212

0.237058

0.3473

82 Tools implements, cutlery, spoons and forks, of base metal; parts thereof of base metal.

1.51971.512

11.453

61.61

61.5873

41.401

51.29059

1.202041

1.205

1.190471

1.2859

83 Miscellaneous articles of base metal.

4.49765

4.0991

3.8133.83

53.3525

62.850

12.57707

2.184624

2.068

2.000036

2.165

84 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof.

0.28394

0.3059

0.3338

0.382

0.41780.491

90.57635

0.528172

0.491

0.599965

0.6472

85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts.

0.38787

0.4281

0.4210.42

80.4922

10.448

20.64927 0.62088

0.624

0.587173

0.5907

86 Railway or tramway locomotives, rolling-stock and parts thereof; railway or tramway track fixtures and fittings and parts thereof; mechanical

0.05319

0.0637

0.1003

0.133

0.20688

0.2127

#######

0.421199

0.604

0.386030.431

1

87 Vehicles other than railway or tramway rolling stock, and parts and accessories thereof.

0.45311

0.5540.802

60.79

50.7343

30.760

4######

#2.25215

41.82

41.87616

71.623

5

88 Aircraft, spacecraft, and parts thereof.

0.15959

0.2419

0.2664

0.137

0.06650.401

70.28363 0.06795 0.12

0.127757

0.1555

122

89 Ships, boats and floating structures.

0.01696

0.0382

0.0023

0.001

0.14216

0.0896

0.0092 0.11345 0.070.03540

30.000

8

90 Optical, photographic cinematographic measuring, checking precision, medical or surgical inst. And apparatus parts and accessories thereof;

0.21641

0.2237

0.2355

0.24 0.25760.328

70.28945

0.266758

0.272

0.284012

0.336

91 Clocks and watches and parts thereof.

0.07839

0.0806

0.0874

0.083

0.06297

0.0503

0.053460.03967

20.03

90.03410

20.035

6

92 Musical instruments; parts and accessories of such articles.

0.36046

0.3113

0.6113

0.558

0.48861

0.2096

0.197390.18224

10.17

40.18205

20.210

2

93 Arms and ammunition; parts and accessories thereof.

0.07210.214

30.380

20.12

70.1663

80.175 0.36841 0.21243

0.189

0.115315

0.1663

94 Furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishing; lamps and lighting fittings not elsewhere specified or inc

1.64956

1.5281.467

51.42

71.4048

91.264

21.12734

1.070686

0.931

0.909947

1.0403

95 Toys, games and sports requisites; parts and accessories thereof.

0.35038

0.3008

0.3437

0.305

0.32033

0.212 0.188950.17143

10.19

20.17557

10.237

5

96 Miscellaneous manufactured articles.

1.79092

1.6508

1.4888

1.508

1.49318

1.3526

1.310111.08317

10.99

90.96949

71.044

97 Works of art collectors' pieces and antiques.

0.04382

0.0454

0.0557

0.054

0.13366

0.1699

0.21042 0.123670.14

50.14397

80.097

3

98 Project goods; some special uses.

NA NA NA NA NA NA NA NA NA NA NA

99 Miscellaneous goods. 0.0611 0.6080.148

7NA

0.09422

0.1995

0.409580.31712

90.44

11.46946

41.051

3

123

No. Of Chapters with RCA>1 45 41 46 49 49 47 49 44 42 45 48

124

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: India’s Top 20 Export Commodities To European Union:

The RCA analysis of India’s 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 India’s 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,

HS-29,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.

125

TABLE 5.4- India’s Top 20 Export commodities to EU-27

SN

O.

HS

Cod

e

2002

-20

03

HS

cod

e

2003

-20

04

HS

Cod

e

2004

-20

05

HS

Cod

e

2005

-20

06

HS

Cod

e

2006

-20

07

HS

Cod

e

2007

-20

08

HS

Cod

e

2008

-20

09

HS

Cod

e

2009

-20

10

HS

Cod

e

2010

-20

11

HS

Cod

e

2011

-20

12

HS

Cod

e

2012

-20

13

total

11,886.41

14,516.50

18,249.02

23,228.84

26,831.45

34,535.37

39,351.43

36,028.05

46,039.38

52,556.24

50,421.74

1 71 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

2 62 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

3 61 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

4 29 570.39 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

5 42 524.24 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

6 64 463.04 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

7 52 442.88 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

8 85 435.02 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

9 63 431.44 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

10

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

11

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

12

3 304.19 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

13

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

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

15

57 231.2 3 287.95 39 377.53 57 463.18 39 540.52 39 646.93 89 752.79 3 511.26 39 833.17 39 917.6 39 941.1

16

9 224.44 30 265.02 30 356.32 30 404.98 3 499.73 52 554.87 39 572.78 39 465.58 88 638.6 9 838.13 9 772.54

17

30 213.85 72 252.81 3 350.3 3 400.51 57 495.57 3 535.13 88 563.17 88 454.29 9 636.98 3 749.83 3 749.79

18

41 204.06 9 244.11 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

126

19

39 170.48 39 220.04 9 252.77 9 331.78 79 432.58 9 461.72 9 483.92 89 433.41 3 602.01 52 683.22 38 617.27

20

32 166.08 97 194.09 8 228.15 8 286.67 9 389.52 32 420.47 3 444.69 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

127

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(HS-71) 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 (HS-61) 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 it’s 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.

128

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

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

RANK.

HSC

RCA

% HSC

RCA

% HSC

RCA

% HSC

RCA

% HSC

RCA

% HSC

RCA

% HSC

RCA

% HSC

RCA

% HSC

RCA

% HSC

RCA

% HSC

RCA

%

1 71 3.2

11.75

71 3.22

10.15

71 3.64

10.11

27 0.2

10.67

62 4.31

8.28

27 0.23

11.84

27 0.3

10.77

27 0.31

17.04

27 0.57

18.89

27 0.44

14.88

27 0.44

18.25

2 62 4.1

9.8 62 3.76

8.65

62 3.33

7.79

62 4.2

9.74

71 2.91

7.71

71 2.52

7.71

71 3.2

8.45

62 3.66

7.91

62 3.37

7.06

71 1.74

9.17 71 1.46

6.6

3 61 3.9

9 61 3.68

8.3

61 3.75

6.85

71 3.6

8.8

27 0.18

7.46

62 3.51

6.96

61 3.5

6.89

87 2.25

6.94

71 1.79

6.84

62 3.3

6.95 62 3.27

6.1

4 29 1.9

4.79

29 2.04

4.97

72 2.24

5.96

61 4.2

7.1

61 4.34

6.64

61 3.83

6.46

62 3.4

6.89

71 1.48

6.67

85 0.62

6.78

85 0.59

5.52 29 2.69

5.82

5 42 8.6

4.41

42 7.72

4.39

29 1.91

4.71

29 1.9

4.7

72 2.37

6.02

72 2.44

6.44

72 2.7

5.87

61 3.4

6.65

87 1.82

5.04

29 2.45

5.47 85 0.59

4.94

6 64 5 3.89

63 8.66

4.21

27 0.12

4.44

84 0.4

4.29

29 2.2

5.24

84 0.49

5.26

85 0.6

5.85

29 2.49

5.03

61 2.82

4.83

61 2.68

4.99 61 2.7

4.81

7 52 7.4

3.72

64 4.43

4.1

63 8.57

4.17

63 8.6

3.86

84 0.41

4.63

29 2.03

5.13

87 NA

5.22

85 0.62

4.68

29 2.17

4.81

84 0.6

4.89 84 0.65

4.67

8 85 0.4

3.65

87 0.55

3.94

84 0.33

4.07

42 6.8

3.42

85 0.49

3.74

85 0.44

4.17

29 2.4

5.12

84 0.52

4.28

84 0.49

4.15

87 1.87

4.14 87 1.62

4.44

9 63 9.3

3.629

85 0.428

3.92

87 0.8

3.86

64 4.2

3.39

64 4.46

3.61

64 4.18

3.41

84 0.6

5.02

64 3.75

3.35

72 1.79

4.02

72 2.05

3.77 72 2.69

3.4

10 99 0.1

3.41

84 0.305

3.83

42 6.9

3.85

85 0.4

3.17

63 7.79

3.15

87 0.76

3.39

64 3.9

2.99

42 5.6

2.78

64 3.6

2.99

73 2.24

3.21 73 2.61

3.23

58.049

56.46

55.81

59.14

56.48

60.77

63.07

65.33

65.41

62.99

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

129

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

130

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 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

131

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

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

E2- Quotas

132

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

133

I- TRADE-RELATED INVESTMENT MEASURES

I1- Local content measures

I2-Trade-balancing measures

I9 -Trade-related investment measures

134

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 NTB’s .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

135

difficult to identify the non-tariff barriers because these measures often

lack transparency and are not covered under any trade rules (Papillon,

1994).

List of NTBs imposed By European Union in 90s

SI.No Type of NTBs1 Antidumping investigations 2 Antidumping duties 3 Countervailing duties 4 Retrospective Surveillance 5 Prior surveillance 6 Prior surveillance to protect human health 7 Prior surveillance to protect Environment 8 Non-automatic license 9 Authorization to protect environment 10 Authorization to protect wild life(CITES) 11 Authorization to drug abuse 12 Allocated quotas 13 Quota to protect human health 14 Quota to protect environment (Montreal protocol) 15 Prohibition 16 Prohibition on human health protection 17 Prohibition on the basis of origin (Embargo) 18 Technical requirement 19 Product characteristics requirement for human health

protection 20 Product characteristics requirements to ensure human safety 21 Labeling requirements 22 Labeling requirements to protect human health 23 Testing , inspection and quarantine requirements

Source: UNCTAD's TRAINS database, 1990

136

137

Table 5.6-Top 10 Commodities having highest RCA

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012HSC

RCA %

HSC

RCA %

HSC

RCA %

HSC

RCA %

HSC

RCA %

HSC

RCA %

HSC

RCA %

HSC

RCA %

HSC

RCA %

HSC

RCA %

HSC

RCA %

57 19.4

1.94

50 18.6

0.72

57 19.8

1.85

57 20.4

1.99

57 20.6

1.84

5720

1.5

57 18.7

1.12

57 16.4

1.22

57 14.2

1.01

57 13.3

0.82

57 12.9

0.92

50 18.2 0.7

53 10.9

0.37

50 19.3

0.74

50 17.8

0.62

50 14.9

0.51

5014

0.4

50 11.8 0.3

50 11.1

0.23

53 9.03 0.2

53 8.23 0.2

1311

0.45

53 12.8

0.35

63 8.67

4.21

53 8.79

0.31

63 8.63

3.86

53 9.59

0.19

539

0.2

539.7

0.14

53 9.86

0.14

50 8.44

0.18

137.7

0.65

53 8.66

0.17

63 9.28

3.62

138.6

0.42

63 8.57

4.17

53 8.42

0.18

13 8.39 0.3

527.5

1.7

52 7.02 1.1

52 6.64

1.11

13 8.36

0.32

52 6.47

1.29

14 7.92 0

42 8.59

4.41

42 7.73

4.39

13 7.57

0.47

52 7.72 2

52 8.36

2.13

137.3

0.2

63 6.33

2.17

13 6.04

0.23

52 7.08

1.36

50 5.92

0.14

527.2

1.17

13 8.15

0.49

58 7.13

0.21

52 7.07 2.3

13 7.55

0.39

637.8

3.15

637.1

2.6

13 6.23

0.22

635.8

2.19

63 5.17

2.08

63 5.54

2.24

63 5.64

2.04

52 7.41

3.72

14 6.98

0.02

42 6.91

3.85

42 6.78

3.42

42 6.41

3.04

425.7

2.8

58 5.94

0.18

42 5.61

2.78

42 5.07

2.34

42 5.08

2.55

50 5.45

0.11

14 6.74

0.01

52 6.86

3.08

68 6.03

0.69

58 6.69

0.28

58 6.11

0.22

585.4

0.2

42 5.66

2.76

58 5.37

0.15

684.9

0.63

55 4.54

0.64

42 5.34

2.62

68 6.44

0.82

68 6.53

0.85

14 5.97

0.02

14 6.35

0.01

68 5.99

0.94

685.4

0.9

685.2

0.73

68 5.34

0.86

58 4.66

0.12

14 4.53 0

68 4.75

0.61

55 5.75

1.25

55 5.59

1.12

58 5.77

0.21

686

0.76

79 5.32

1.61

555.2

0.8

554.7 0.5

10 4.06

0.18

55 4.44

0.64

58 4.47

0.11

58 4.55

0.12

Total of % 17 15 14 13 14

11 9 9 9 9 8

138

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

139

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 India’s Relative Comparative

Advantage is higher. The major conclusion emerged from this chapter

are:

(1) India’s 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) India’s 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.

140

(5) EU agricultural sector is heavily protected by subsidies given in

“green box” and “blue box”.

(6) EU frequently uses stringent sanitary and phytosanitary

standards (SPS) against its import of agricultural items from

India.

141

References

1- Balassa, Bela (1977) “'Revealed' Comparative Advantage

Revisited: An Analysis of Relative Export shares of the Industrial

Countries, 1953-1971”, 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), Ireland’s Revealed Comparative

Advantage, QuarterlyBulletin, Central Bank of Ireland, Dublin,

No.1, pp.101-114

5- Karakaya, E. and F.B. Özgen (2002), “Economic Feasibility of

Turkey’s 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.

142

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 India’s 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 India’s 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

143

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 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, India’s

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.

144

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 Blassa’s Revealed Comparative Advantage

(RCA) method.

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. EU’s 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 India’s 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

145

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

between India and the EU has grown impressively - from $6.7 billion in

2003 to $22.7 billion in 2009. The EU is India’s largest trading partner in

services and accounts for around 13 per cent of India’s services trade.

Although India is among the top 8 trading partners of the EU, its share

among EU’s 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 EU’s agriculture sector is heavily subsidised

and protected by NTB. Any tariff reduction in this sector have great

146

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 NTB’s 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.

(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 India–EU 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

147

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.

Restrictions in Merchandise Trade :

(a) High Tariff :

India’s tariff rates are at very high level on some of the products

categories that constitute a major portion of EU’s 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 government’s development,

148

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 India’s 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 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 India’s 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

149

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 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).

150

(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 NTB’s have adverse impact on India’s 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 India’s 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

India’s export prospect in the EU. Emergence of social clause is also

another area of great concern for Indian exporters to the EU.

(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

151

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.

152

(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

153

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 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.

154

(iv) India’s 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 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 it’s 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.

155

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 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 EU’s 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

other’s 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

156

and EU companies face several barriers in each other’s 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 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.

157

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

HSCode

SECTOR 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1 LIVE ANIMALS. 5.92 10.6 6.23 9.31 6.36 8.57 6.09 10.16 6.83 7.06 5.05

2 MEAT AND EDIBLE MEAT OFFAL. 3.62 0.481 18.98 3.35 3.02 4.89 5.76 5.11 7.05 7.70 4.5

3 FISH AND CRUSTACEANS, MOLLUSCS AND OTHER AQUATIC INVERTABRATES.

0.468 2.31 0.641 0.460 0.352 0.482

0.275 0.509 0.403 0.376 0.520

4 DAIRY PRODUCE; BIRDS' EGGS; NATURAL HONEY; EDIBLE PROD. OF ANIMAL ORIGIN, NOT ELSEWHERE SPEC. OR INCLUDED.

1.161 0.397 3.38 4.08 2.62 2.91 3.48 1.65 0.662 4.51 2.19

5 PRODUCTS OF ANIMAL ORIGIN, NOT ELSEWHERE SPECIFIED OR INCLUDED.

NA 4.10 0.400 0.339 0.322 0.490

1.54 0.843 0.335 0.242 0.605

6 LIVE TREES AND OTHER PLANTS; BULBS; ROOTS AND THE LIKE; CUT FLOWERS AND ORNAMENTAL FOLIAGE.

2.806 0.184 5.41 3.61 4.38 4.84 5.34 4.91 5.7 5.61 7.07

7 EDIBLE VEGETABLES AND CERTAIN ROOTS AND TUBERS.

0.393 0.014 0.108 0.062 0.183 0.132

0.134 0.037 0.043 0.123 0.216

8 EDIBLE FRUIT AND NUTS; PEEL OR CITRUS FRUIT OR MELONS.

0.012 0.056 0.012 0.008 0.015 0.019

0.020 0.025 0.036 0.037 0.052

9 COFFEE, TEA, MATE AND SPICES. 0.017 11 0.074 0.062 0.076 0.114

0.258 0.210 0.220 0.173 0.204

10 CEREALS. 0.492 2.38 1.141 0.167 2.84 0.060

0.007 0.549 0.108 0.898 0.323

11 PRODUCTS OF THE MILLING INDUSTRY; MALT; STARCHES; INULIN; WHEAT GLUTEN.

1.93 0.689 2.71 3.76 2.73 2.93 2.27 0.775 1.0 1.5 1.39

12 OIL SEEDS AND OLEA. FRUITS; MISC. GRAINS, SEEDS AND FRUIT;

1.18 0.597 0.910 0.910 1.21 0.772

0.916 0.888 0.897 0.798 0.984

171

INDUSTRIAL OR MEDICINAL PLANTS; STRAW AND FODDER.

13 LAC; GUMS, RESINS AND OTHER VEGETABLE SAPS AND EXTRACTS.

0.551 0.180 0.604 0.705 0.757 0.844

0.673 0.837 0.818 1.058 1.40

14 VEGETABLE PLAITING MATERIALS; VEGETABLE PRODUCTS NOT ELSEWHERE SPECIFIED OR INCLUDED.

0.496 0.016 0.313 0.062 0.487 0.927

0.649 0.267 0.194 0.14 0.165

15 ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PRE. EDIBLE FATS; ANIMAL OR VEGETABLE WAXEX.

0.011 6.63 0.026 0.0245 0.036 0.040

0.045 0.0342 0.030 0.029 0.059

16 PREPARATIONS OF MEAT, OF FISH OR OF CRUSTACEANS, MOLLUSCS OR OTHER AQUATIC INVERTEBRATES

1.74 0.878 5.24 5.89 3.28 3.44 4.39 3.14 3.46 2.62 5.27

17 SUGARS AND SUGAR CONFECTIONERY.

0.488 0.81 0.218 0.296 3.085 2.55 2.0 0.151 0.463 2.49 0.701

18 COCOA AND COCOA PREPARATIONS. 0.914 0.649 1.04 0.79 0.979 0.699

1.159 1.04 1.12 1.04 1.31

19 PREPARATIONS OF CEREALS, FLOUR, STARCH OR MILK; PASTRYCOOKS PRODUCTS.

0.479 0.812 1.07 0.898 1.19 2.00 2.79 3.47 3.62 3.65 5.19

20 PREPARATIONS OF VEGETABLES, FRUIT, NUTS OR OTHER PARTS OF PLANTS.

0.737 2.049 0.674 1.52 1.65 1.38 1.78 2.16 2.06 2.27 2.57

21 MISCELLANEOUS EDIBLE PREPARATIONS.

0.559 4.35 2.361 1.59 2.20 2.03 2.28 1.87 2.30 2.21 2.27

22 BEVERAGES, SPIRITS AND VINEGAR. 6.64 0.352 1.24 1.59 4.27 4.45 3.19 1.67 2.95 3.61 3.95

23 RESIDUES AND WASTE FROM THE FOOD INDUSTRIES; PREPARED ANIMAL FODER.

0.774 0.890 0.421 0.410 0.526 0.541

0.653 0.648 0.816 1.06 0.82

24 TOBACCO AND MANUFACTURED TOBACCO SUBSTITUTES.

1.10 0.340 0.433 0.553 1.36 1.10 0.77 0.629 0.5805 0.756 1.23

172

25 SALT; SULPHUR; EARTHS AND STONE; PLASTERING MATERIALS, LIME AND CEMENT.

0.288 0.122 0.364 0.338 0.383 NA NA NA 0.559 0.445 0.452

26 ORES, SLAG AND ASH. 0.050 0.011 0.068 0.097 0.0469 0.031

0.049 0.150 0.0135 0.0725 0.036

27 MINERAL FUELS, MINERAL OILS AND PRODUCTS OF THEIR DISTILLATION; BITUMINOUS SUBSTANCES; MINERAL WAXES.

0.015 0.293 0.015 0.0139 0.0199 0.012

0.017 0.030 0.0150 0.0226 0.0232

28 INORGANIC CHEMICALS; ORGANIC OR INORGANIC COMPOUNDS OF PRECIOUS METALS, OF RARE-EARTH METALS, OR RADI. ELEM. OR OF ISOTOPES.

0.217 0.847 0.300 0.2611 0.331 0.37 0.362 0.4361 0.650 0.576 0.702

29 ORGANIC CHEMICALS 0.883 3.66 0.908 0.861 0.867 0.834

0.988 1.07 0.925 0.940 1.05

30 PHARMACEUTICAL PRODUCTS 3.15 0.165 4.16 3.33 3.37 2.73 3.51 3.09 3.78 4.17 3.77

31 FERTILISERS. 0.019 1.48 0.155 0.218 0.099 0.007

0.244 0.237 0.326 0.276 0.123

32 TANNING OR DYEING EXTRACTS; TANNINS AND THEIR DERI. DYES, PIGMENTS AND OTHER COLOURING MATTER; PAINTS AND VER; PUTTY AND OTHER MASTICS; INKS.

1.43 2.25 1.57 1.54 1.70 1.73 2.01 1.71 1.84 1.76 2.07

33 ESSENTIAL OILS AND RESINOIDS; PERFUMERY, COSMETIC OR TOILET PREPARATIONS.

1.64 1.81 2.19 2.44 2.49 2.27 2.94 2.64 2.76 2.81 3.034

34 SOAP, ORGANIC SURFACE-ACTIVE AGENTS, WASHING PREPARATIONS, LUBRICATING PREPARATIONS, ARTIFICIAL WAXES, PREPARED WAXES, POLISHING OR SCOURING PREP.

1.55 1.86 2.02 2.06 2.37 2.27 NA 3.04 3.01 3.24 3.5

35 ALBUMINOIDAL SUBSTANCES; 2.14 15.51 1.70 1.99 1.95 2.13 2.18 2.0 2.5 NA 3.20

173

MODIFIED STARCHES; GLUES; ENZYMES.

36 EXPLOSIVES; PYROTECHNIC PRODUCTS; MATCHES; PYROPHORIC ALLOYS; CERTAIN COMBUSTIBLE PREPARATIONS.

1.30 1.0 6.38 4.61 3.34 1.67 1.96 1.62 6.09 7.54 10.74

37 PHOTOGRAPHIC OR CINEMATOGRAPHIC GOODS.

0.864 1.42 1.25 1.00 1.00 1.36 1.2 1.30 1.58 2.12 3.44

38 MISCELLANEOUS CHEMICAL PRODUCTS.

1.2 1.39 1.39 1.58 1.91 1.90 1.64 1.57 1.79 1.78 2.00

39 PLASTIC AND ARTICLES THEREOF. 1.20 0.852 1.62 1.52 1.54 1.27 1.61 1.58 1.52 1.67 1.85

40 RUBBER AND ARTICLES THEREOF. 0.660 1.52 0.953 1.06 1.29 1.09 1.22 1.2 1.15 1.47 1.90

41 RAW HIDES AND SKINS (OTHER THAN FURSKINS) AND LEATHER

1.51 1.26 1.86 1.76 2.30 2.05 2.21 2.36 2.36 2.54 2.94

42 ARTICLES OF LEATHER,SADDLERY AND HARNESS;TRAVEL GOODS, HANDBAGS AND SIMILAR CONT.ARTICLES OF ANIMAL GUT(OTHR THN SILK-WRM)GUT.

1.23 1.89 1.42 1.17 1.18 1.33 1.62 1.61 1.35 1.4 1.45

43 FURSKINS AND ARTIFICIAL FUR, MANUFACTURES THEREOF.

0.730 0.190 2.4 2.03 2.25 2.73 8.96 9.15 4.47 6.89 3.95

44 WOOD AND ARTICLES OF WOOD; WOOD CHARCOAL.

0.240 2.67 0.228 0.301 0.333 0.316

0.434 0.379 0.487 0.466 0.525

45 CORK AND ARTICLES OF CORK. 2.54 0.265 3.21 3.54 4.2 3.15 4.20 4.66 6.39 5.98 5.99

46 MANUFACTURES OF STRAW, OF ESPARTO OR OF OTHER PLAITING MATERIALS; BASKETWARE AND WICKERWORK.

13.9 0.718 0.057 1.24 0.181 0.337

0.520 0.370 0.119 0.141 0.306

47 PULP OF WOOD OR OF OTHER FIBROUS CELLULOSIC MATERIAL; WASTE AND SCRAP OF PAPER OR PAPERBOARD.

0.750 2.08 1.12 1.44 1.68 1.48 2.085 2.17 1.73 1.70 1.94

48 PAPER AND PAPERBOARD; ARTICLES OF PAPER PULP, OF PAPER OR OF

1.84 1.09 2.23 2.07 2.13 2.42 2.55 2.9 2.54 2.27 2.63

174

PAPERBOARD.49 PRINTED BOOKDS, NEWSPAPERS,

PICTURES AND OTHER PRODUCTS OF THE PRINTING INDUSTRY; MANUSCRIPTS, TYPESCRIPTS AND PLANS.

1.0 0.007 1.3 1.94 1.45 1.09 2.82 2.99 2.51 2.76 1.92

50 SILK 0.011 1.0 0.017 0.0122 0.018 0.017

0.018 0.019 0.022 NA 0.035

51 WOOL, FINE OR COARSE ANIMAL HAIR, HORSEHAIR YARN AND WOVEN FABRIC.

0.948 0.458 0.994 0.916 0.821 0.694

0.589 0.585 0.555 0.563 0.648

52 COTTON. 0.255 1.73 0.299 0.342 0.40 0.437

0.391 0.416 0.517 0.539 0.319

53 OTHER VEGETABLE TEXTILE FIBRES; PAPER YARN AND WOVEN FABRICS OF PAPER YARN.

1.37 0.239 1.26 1.77 0.934 0.850

1.28 0.681 0.672 0.436 0.564

54 MAN-MADE FILAMENTS. 0.130 0.804 0.339 0.390 0.399 0.489

0.665 0.582 0.562 0.581 0.763

55 MAN-MADE STAPLE FIBRES. 0.515 1.23 0.957 1.17 0.972 1.11 1.22 1.28 1.61 1.55 1.9756 WADDING, FELT AND NONWOVENS;

SPACIAL YARNS; TWINE, CORDAGE, ROPES AND CABLES AND ARTICLES THEREOF.

1.27 1.89 1.33 1.20 1.55 1.28 1.97 2.05 2.05 2.74 2.53

57 CARPETS AND OTHER TEXTILE FLOOR COVERINGS.

2.35 0.567 1.43 1.33 1.37 1.12 1.29 0.97 1.30 1.24 1.37

58 SPECIAL WOVEN FABRICS; TUFTED TEXTILE FABRICS; LACE; TAPESTRIES; TRIMMINGS; EMBROIDERY.

0.919 0.745 0.622 0.490 0.648 0.605

0.714 0.630 0.869 0.697 0.713

59 IMPREGNATED, COATED, COVERED OR LAMINATED TEXTILE FABRICS; TEXTILE ARTICLES OF A KIND SUITABLE FOR INDUSTRIAL USE.

0.684 1.01 0.750 0.511 0.665 0.638

0.659 0.767 0.745 0.680 0.705

60 KNITTED OR CROCHETED FABRICS. 0.620 0.939 1.10 0.520 0.702 0.387

0.442 0.349 0.407 0.439 0.463

175

61 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES, KNITTED OR CORCHETED.

1.40 0.860 2.03 1.58 1.93 2.09 1.54 1.52 1.94 1.94 2.29

62 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES, NOT KNITTED OR CROCHETED.

1.79 0.824 1.73 1.76 1.68 2.06 2.32 2.27 2.43 2.19 2.11

63 OTHER MADE UP TEXTILE ARTICLES; SETS; WORN CLOTHING AND WORN TEXTILE ARTICLES; RAGS

0.755 2.50 0.655 1.06 0.988 0.877

0.775 0.791 0.886 0.856 0.905

64 FOOTWEAR, GAITERS AND THE LIKE; PARTS OF SUCH ARTICLES.

3.11 1.78 2.41 2.10 1.6 1.72 1.69 1.83 1.18 1.05 0.857

65 HEADGEAR AND PARTS THEREOF. 0.960 0.086 0.684 1.11 1.29 2.19 1.11 0.953 0.753 1.58 1.5966 UMBRELLAS, SUN UMBRELLAS,

WALKING-STICKS, SEAT-STICKS, WHIPS,RIDING-CROPS AND PARTS THEREOF.

0.033 0.180 0.010 0.057 0.107 0.057

0.041 0.114 0.146 0.143 0.087

67 PREPARED FEATHERS AND DOWN AND ARTICLES MADE OF FEATHERS OR OF DOWN; ARTIFICIAL FLOWERS; ARTICLES OF HUMAN HAIR.

0.492 2.07 0.160 0.220 0.136 0.257

3.06 3.97 3.28 1.57 0.439

68 ARTICLES OF STONE, PLASTER, CEMENT, ASBESTOS, MICA OR SIMILAR MATERIALS.

2.13 1.91 2.12 1.9 2.20 2.21 2.53 2.12 2.44 2.18 2.38

69 CERAMIC PRODUCTS. 1.74 1.90 1.90 1.89 1.57 1.46 2.15 2.43 2.15 1.96 1.9870 GLASS AND GLASSWARE. 1.81 2.06 2.31 2.14 2.35 1.87 2.12 1.97 2.0 2.32 1.9171 NATURAL OR CULTURED

PEARLS,PRECIOUS OR SEMIPRECIOUS STONES,PRE.METALS,CLAD WITH PRE.METAL AND ARTCLS THEREOF;IMIT.JEWLRY;COIN.

1.71 1.59 1.72 1.89 1.94 1.63 1.70 0.950 1.00 1.12 1.28

72 IRON AND STEEL 1.15 1.61 1.36 1.64 1.32 1.44 1.62 1.9 1.83 2.0 2.06

73 ARTICLES OF IRON OR STEEL 1.50 1.64 2.25 2.18 1.91 1.98 2.20 2.59 2.48 2.09 2.20

74 COPPER AND ARTICLES THEREOF. 1.59 0.579 1.61 1.61 1.52 1.72 2.15 2.26 2.33 2.27 1.78

176

75 NICKEL AND ARTICLES THEREOF. 0.523 1.36 0.683 0.912 NA 1.48 1.89 1.86 1.27 1.45 2.0

76 ALUMINIUM AND ARTICLES THEREOF.

1.36 0.265 1.43 1.37 1.33 1.03 1.59 2.09 2.21 1.84 2.12

78 LEAD AND ARTICLES THEREOF. 0.231 0.915 0.310 0.272 0.155 0.296

1.28 2.77 2.34 1.68 1.86

79 ZINC AND ARTICLES THEREOF. 0.772 0.737 0.857 0.965 0.734 0.929

0.613 0.918 0.938 0.952 0.812

80 TIN AND ARTICLES THEREOF. 1.26 1.49 1.05 0.811 1.05 1.18 1.46 1.45 1.03 0.459 0.27481 OTHER BASE METALS; CERMETS;

ARTICLES THEREOF.1.30 1.91 1.48 1.69 2.01 2.39 1.88 1.31 1.62 1.95 2.06

82 TOOLS IMPLEMENTS, CUTLERY, SPOONS AND FORKS, OF BASE METAL; PARTS THEREOF OF BASE METAL.

1.98 1.49 1.64 1.68 2.32 1.75 2.04 2.95 2.66 2.61 2.42

83 MISCELLANEOUS ARTICLES OF BASE METAL.

1.56 1.94 1.96 2.0 2.0 2.89 3.16 2.49 1.92 2.46 2.23

84 NUCLEAR REACTORS, BOILERS, MACHINERY AND MECHANICAL APPLIANCES; PARTS THEREOF.

1.81 1.27 2.12 2.095 2.40 2.33 2.65 2.69 2.88 3.01 2.99

85 ELECTRICAL MACHINERY AND EQUIPMENT AND PARTS THEREOF; SOUND RECORDERS AND REPRODUCERS, TELEVISION IMAGE AND SOUND RECORDERS AND REPRODUCERS,AND PARTS.

1.50 1.93 1.52 1.22 1.34 1.26 1.6 1.34 1.50 1.46 1.31

86 RAILWAY OR TRAMWAY LOCOMOTIVES, ROLLING-STOCK AND PARTS THEREOF; RAILWAY OR TRAMWAY TRACK FIXTURES AND FITTINGS AND PARTS THEREOF; MECHANICAL

NA 1.92 2.42 2.56 3.44 2.14 2.29 3.59 6.14 2.46 3.04

87 VEHICLES OTHER THAN RAILWAY OR TRAMWAY ROLLING STOCK, AND PARTS AND ACCESSORIES THEREOF.

2.58 1.50 1.87 2.27 2.80 2.68 2.73 2.37 2.98 3.32 3.46

177

88 AIRCRAFT, SPACECRAFT, AND PARTS THEREOF.

2.97 0.023 2.38 2.40 2.13 5.37 1.65 2.37 3.13 4.49 8.23

89 SHIPS, BOATS AND FLOATING STRUCTURES.

0.011 1.98 0.053 0.376 0.030 0.215

0.227 0.238 0.068 0.098 0.382

90 OPTICAL, PHOTOGRAPHIC CINEMATOGRAPHIC MEASURING, CHECKING PRECISION, MEDICAL OR SURGICAL INST. AND APPARATUS PARTS AND ACCESSORIES THEREOF;

1.83 0.188 2.23 2.28 2.62 2.41 2.90 2.85 3.07 3.50 3.63

91 CLOCKS AND WATCHES AND PARTS THEREOF.

0.192 0.411 0.187 0.270 0.290 0.346

0.341 0.244 0.304 0.209 0.238

92 MUSICAL INSTRUMENTS; PARTS AND ACCESSORIES OF SUCH ARTICLES.

1.0 9.0 0.288 0.302 0.641 0.467

0.526 0.260 0.344 0.303 0.265

93 ARMS AND AMMUNITION; PARTS AND ACCESSORIES THEREOF.

5.02 2.18 11.62 40.81 54.70 41.59

21.62 24.29 65.54 12.37 1.69

94 FURNITURE; BEDDING, MATTRESSES, MATTRESS SUPPORTS, CUSHIONS AND SIMILAR STUFFED FURNISHING; LAMPS AND LIGHTING FITTINGS NOT ELSEWHERE SPECIFIED OR INC

1.80 0.449 1.63 1.62 1.62 1.62 2.17 2.57 2.31 2.37 2.43

95 TOYS, GAMES AND SPORTS REQUISITES; PARTS AND ACCESSORIES THEREOF.

0.555 1.024 0.367 0.756 0.456 0.479

0.815 0.797 0.651 0.493 0.743

96 MISCELLANEOUS MANUFACTURED ARTICLES.

1.34 4.31 1.38 1.08 1.34 1.32 1.73 1.38 1.60 1.546 1.370

97 WORKS OF ART COLLECTORS' PIECES AND ANTIQUES.

2.32 NA 7.33 2.58 2.13 1.24 2.45 1.18 9.33 0.910 3.90

98 PROJECT GOODS; SOME SPECIAL USES.

NA 0.318 NA NA NA NA NA NA NA NA NA

99 MISCELLANEOUS GOODS. NA NA 0.440 0.154 0.147 0.278

0.423 0.254 0.211 NA 0.181

RCA>1 52 51 55 56 59 59 62 57 58 60 60

178

179