India and the EU must address the issues of domestic regulations and trade facilitation to truly benefit from the agreement
Later this month, Commerce Minister Anand Sharma will meet his European counterpart, European Union (EU) Trade Commissioner Karel De Gucht, in Brussels to take forward the Bilateral Trade and Investment Agreement (BTIA). The two sides have evinced interest in completing the negotiations by the end of the year so that all the requisite internal clearances are received and the bilateral pact can be implemented by the middle of 2013.
For both partners, BTIA holds importance, especially since the current economic situation across the globe presents very little possibility of building exports to boost domestic economic growth. The euro-zone countries are fighting a recession, with Germany alone showing signs of growth. The German model in the recent years has been supported by exports to emerging markets. This has not been received well by other EU countries that believe that Berlin needs to do more to help intra-EU trade. Pacts like the India-EU BTIA can help other EU countries tap large developing country markets like India better.
For India, the recent months have not yielded much in terms of growth and a bilateral agreement with one of the largest trade and investment partners – the EU – can help take growth back to the earlier estimates of close to 10 per cent.
The two sides have in the recent months said they have been able to iron out most differences on issues such as tariffs, including in the more sensitive areas of automobiles and wines and spirits. This is certainly important since these issues have been on top of the agenda for these negotiations for long.
However, two important areas have not found mention in any of the announcements made by the two sides in the run-up to the final round of discussions that are expected to begin following the meeting between the Indian minister and EU trade commissioner.
The two issues which have the capability to derail the best of agreements are domestic regulations and trade facilitation.
Trade facilitation has been a core area of focus for the EU for long at different forums. Trade facilitation, according to some studies, is important to tackle since quicker exchange of goods can help bring down costs of trade by about 10 per cent. Every extra day of turnaround time for goods can hurt trade by about four per cent, according to figures provided by the World Trade Organisation (WTO). Therefore, for ensuring that trade remains free, it is important to focus on harmonisation of procedures between the two partners.
In a speech, Pascal Lamy, director general of WTO, had brought together some data to show how countries differ in the time taken for clearing papers for export or import. According to him, “for OECD countries it takes on average about four separate documents and clearing the goods in an average of ten days at an average cost of about $1,100 per container. By contrast, in sub-Saharan Africa almost double the number of documents are required and goods take from 32 days (for exports) to 38 days (for imports) to clear at an average cost per container of between $2,000 (for exports) and $2,500 (for imports). However, the overall world champion at trade facilitation is Singapore, where four documents are required and goods are cleared in, at most, five days at an average cost of around $456 per container”.
This contrast clearly brings about the need for New Delhi and Brussels to discuss the possibility of ensuring that trade facilitation remains a top priority.
The other area that can trip the bilateral agreement is the plethora of technical regulations. Europe, with 27 countries, provides a big challenge for exporters. For instance, in countries like Spain, exporters point out that it is mandatory to label required information in Spanish. Moreover, exporters find that there are some voluntary standards adopted by consumer groups or by supermarkets and so on. These standards are not notified at the WTO. These voluntary standards are typically higher than international standards and exporters find it difficult to comply since there is lack of transparency in such standards. Therefore, while tariffs may come down, it will still be difficult for Indian exporters to tap the EU market to its maximum potential if such barriers remain.
The next three to four months are crucial to put together a pact that will benefit both sides. Though the two sides have worked to converge on some key issues, it is equally important that barriers such as regulations and trade facilitation are tackled adequately so that BTIA remains beneficial for business on both sides.
The author is Principal Adviser with APJ-SLG Law Offices