What will be the Impact of Enlargement of the European Union for India?

The benefits of enlargement can be looked at from two perspectives: internal and external. By internal, I mean the benefits that would arise to existing and new members of the EU, while by external, I refer to the benefits that would arise to third countries, like, say, India. Let me elaborate a little more on these benefits.

The benefits of enlarging the Union internally are political, economic, and cultural. These are:

1. The extension of the zone of peace, stability and prosperity in Europe will enhance the security of all its people.

2. The addition of around 85 million people, in rapidly growing economies, to the EU’s market of 370 million will boost economic growth and create jobs in both old and new member states.

3. There will be a better quality of life for citizens throughout Europe as the new members adopt EU policies for the protection of the environment and the fight against crime, drugs and illegal immigration.

4. The arrival of new members will enrich the EU through increased cultural diversity, interchange of ideas, and the better understanding of other peoples.

5. Enlargement will strengthen the Union’s role in world affairs — in foreign and security policy, trade policy, and the other fields of global governance.

Already, some of the benefits are visible. For instance, in Central and Eastern Europe, stable democracies have emerged, with democratic institutions and increased respect for minorities.

The economic reforms in these countries have led to high rates of economic growth, in fact, higher than the EU and better employment prospects. As a result, the European Union enjoys growing trade with these countries. I have a figure of €17-billion trade surplus in 2000, and this generates employment and growth in the member states.

Now, for third countries, the benefits of enlargement are, among others, the following:

In Europe, an even larger market than before: with a population of almost 455 million and a GDP of around € 10000 billion, the enlarged EU will account for some 20% of world trade and be the source of 46% of world outward FDI and host to 24% of inward FDI.

The current European Union is already the largest single market in the world. There are no internal borders between the Member States and the harmonization of regulations and standards ensures a freer circulation of goods and services than is possible within some countries. Enlargement will extend these characteristics to the acceding countries.

Third countries will benefit from an increased single market, and a simplified and enhanced access to the current acceding countries’ markets.

I would also like to draw your attention to the Trade Policy Impact of enlargement of the European Union. Enlargement will extend the EU’s trade policy regime to the acceding countries.

The current system featuring a single trade regime for the EU and a different ‘regime for each of the candidates, will disappear. A single set of trade rules, a single tariff, and a single set of administrative procedures will apply not just across the existing enlarged Union of twenty-five.

This will greatly simplify the dealings that third country operators have within Europe.

For trade in goods, the new member states will have to adopt the Community Common Customs Tariff (CCT) upon accession. The average weighted industrial tariffs of the acceding countries are in general higher than the 3.6% average for the EU.

It is of course true that in some cases, tariffs are lower, while for most part they are higher than in the EU; the same applies to agricultural tariffs. Thus, in most cases, third countries’ business will benefit from lower tariffs in their trade with new member states.

In the case of services, third countries’ services providers will benefit from the implementation of the single market in acceding countries, where they will get the same treatment as in the rest of the EU.

There is also the issue of tariff quotas. These are some sectors where the European Union maintains some limited quantitative restrictions with third countries, notably in the cases of textiles and steel.

Although the new member states will apply these restrictions as of their accession, the effect on third countries is likely to be limited. Indeed, WTO rules foresee that all textiles and clothing quotas shall be phased out by 31 December 2004.

Also, Third countries will receive enhanced levels of intellectual property rights (IPR) protection in the acceding countries due to their adoption of EU directives in this field upon accession.

Now, what will be the Impact of Enlargement for India?

I hope that you are convinced that it will be possible to dispel the unfounded fear that the EU enlargement implies an enlargement of “Fortress Europe.” It’s not true. On the contrary, enlargement is likely to bring larger welfare gains for the member states of EU as also the rest of the world.

What can therefore be its impact on India? A one-word answer would be “beneficial”, since most of the third country benefits that I enumerated earlier will accrue to India as well. But it may be worthwhile to look at in a little more concrete terms, what these benefits could be for the vibrant Indian economy.

1. Export figures clearly show that India’s trade with the Candidate Countries is on the increase. Taking into account the data for the last three years from 1999–2000 to 2001–02, exports have increased from Rs. 10 billion to Rs.13.7 billion. Share of candidate countries in India’s total exports has been constantly growing at rates of 7%, 12% and 17% respectively for the last three years. Thus, though the share of these ten countries in India’s total exports are small, these figures only prove that the candidate countries are a growing market, and needs to be explored further.

2. India imports goods worth Rs. 7 billion 2001–02 as compared to Rs. 6 billion in 2000–01 and Rs. 6 billion in 1999–2000 respectively. Imports in the year 1999- 2000 marked an impressive growth rate of nearly 30% followed by a negative growth rate of (-) 5% in 2000–01. However, it bounced back and in the year 2001–02, it made a remarkable comeback to register a growth rate of 16%.

3. The main trading partners of India in the candidate countries are Poland, Hungary, the Czech Republic and Slovenia, though trade between all the ten countries exist and needs to be nurtured. Some of the main exports from India to these countries are: gems & jewellery, drugs & pharmaceuticals, leather & leather products, agricultural commodities like tea, coffee, sesame seeds, tobacco, textiles and garments, plastics & linoleum products, machinery & instruments, manufacture of metals, organic & inorganic chemicals, electronic goods, etc. The major imports by India are leather and readymade garments, medicinal and pharmaceutical products, fertilizer, electronic goods, rubber, chemicals, industrial machinery and metal scrap.

4. It seems to me that since bilateral trade between India and these ten countries are in India’s favor, Indian exporters are going to benefit more from an integration of these countries with European Union. This is also because the European Union is India’s largest trading partner and Indian exporters are already aware of what it takes to export to EU. Thus, the new rules of the game for these ten countries are already known to Indian exporters who will use their experience and knowledge to expand their market in these countries.

5. On the investment side, between 1991 and 2002, FDI approved by India from these ten countries was to the tune of Rs 4000 million Euro 43 million. Though, this amount to a very low share of total FDI approved into India, it is possible that flows may go up once the enlargement takes place. Investment flows are, however, difficult to predict and the Doha Development Round through the Singapore Issues is looking at possible ways to strength the international investment regime. Thus, enlargement in consonance with a successful Cancun meet should help at least in creating a favorable environment from greater investment tie ups between Indian companies and those belonging to these ten countries.

6. Finally, I must add that even though the enlargement of EU does not mean the extension of the Euro to all the ten countries immediately, it is a question of time before Euro becomes the legal tender in these countries as well. Indian companies will then realize the benefits associated with the use of a single currency in a very important market.

So, to conclude I have tried to place before you the historical context, the process of transition and the benefits of enlargement. However, as it is said that the ‘taste of the pudding lies in its eating’.

Yes, I agree. Though there will be opportunities, there will also be challenges and once the actual enlargement takes place, a year from today, all of us will get the taste of the pudding. Nonetheless, the prime objective of ensuring peace and stability is beyond doubt as this has been the primary factor behind the continuous enlargement of the European Union since the 1950s.




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Originally published at mohanmekap.com on September 18, 2018.