The Hindu Business Line : Exporters cautioned on stiff fight from new EU nations

THE Government has hinted at easing its policy framework to facilitate Indian businesses to remain competitive in the export market, following the accession of ten East European nations into the European Union (EU).

Admitting that the enlargement of the European Union is likely to impact the competitive advantage of Indian exports in sectors such as textiles, leather, chemicals, iron and steel and automotive parts, the Economic Survey 2003-04 said Indian business might have to reposition itself to take advantage of the new opportunities and challenges.

Ten nations, including Poland, Czech Republic, Hungary, Latvia and Lithuania joined the EU from May 1 this year, taking the membership of the world's largest economic block to 25. The Survey has noted that since the new members are predominantly labour abundant and low-income countries, Indian companies may face stiffer competition with respect to business process outsourcing opportunities from the older and more developed EU nations.

Countries like Poland and Czech Republic compete with India in selling textiles and apparel, footwear and leather, chemical compounds, iron and steel and automotive parts in the EU, the Survey said. Quoting an estimate, the Survey said India and Poland compete in the EU market for 46 of the top 100 exports from India to the EU.

The Survey warned of exports of textiles being adversely affected with low cost production in Central and East European Countries (CEEC) eating into India's EU markets under the outward processing traffic (OPT) programme, even as Indian suppliers grapple with customs duties and procedures.

Under the OPT programme, preferential trade access is accorded to CEEC nations on their exports to the 15 developed EU nations.

The Survey has also said that strict non-tariff barriers like azo dye certification for textile and leather and quality standards for agricultural goods would now apply to exports to the 10 new EU nations. The Survey has said that on the FDI front, three new EU nations — Poland, Hungary and Czech Republic — compete with India in the top ten most attractive destinations.

On the flip side, the integration could result in reduced transaction costs for Indian exporters due to standardisation and harmonisation of trade policy rules across the 25 countries.

Also, availability of new ports in the larger EU could result in savings in transportation costs. Adoption of single tariff rates in the 10 new EU states is likely to facilitate easier market access to Indian exports, the Survey said.

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