DOING BUSINESS WITH EUROPEAN UNION

Pan European Movement has fructified and finally European Union has become a mega bloc. Ever-growing Europe, since the colonial and imperial days never lagged behind in trade, investment and diplomatic ties with all the nations in the world. Currently, in every nation there are companies originated from Europe and playing as a catalyst to the host economies.

Learning Values:
After reading this chapter the reader can evaluate the business potential and explore avenues for their business operation: 1. Salient features of European Union. 2. Europe advantages in technology, infrastructure and trade. 3. Main European Countries in the trade front. 4. India-European trade and investment. 5. Future strategies for Indian business in Europe.

Overview of EU:

After the Second World War, Europe was completely shocked and transfer to second place in the international arena due to the rising power of the United States and the Soviet Union. In view of the growing rivalry between the two superpowers, several western European leaders came to the conclusion that lasting peace could be guaranteed only if their nations were to come together in both political and economic terms. Cooperation between states was seen as the best means to prevent armed conflicts.

In 1950, French Minister for Foreign Affairs put forward the idea of a European Coal and Steel Community (ECSC). At that time, coal and steel production were the main war industries. Pooling these industries would prevent any new war between European neighbors. The ECSC was founded in 1951 by six countries: Belgium, France, Germany, Italy, Luxembourg and the Netherlands. In 1957, "the Six" signed the Treaties of Rome, establishing the European Atomic Energy Community (EAEC or EURATOM) and the European Economic Community (EEC). In this way, the Member States take apart the trade barriers that separated them and formed a ‘common market’. In 1967, the institutions of the three European Communities merged. From then on, there was only one Commission, one Council of Ministers and the Assembly (European Parliament). ‘The institutional triangle’, as it is known today, was established. Attracted by its success, the European Communities were joined by Denmark, Ireland and the United Kingdom in 1973, followed by Greece in 1981, Spain and Portugal in 1986, Austria, Finland and Sweden in 1995. In May 2004, the European Union celebrated a historic event with its expansion into Central and Eastern Europe. Ten new countries joined the EU: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Bulgaria and Romania plan to join in 2007, while Croatia and Turkey are also candidates. Date History of Country's Membership

25 March Belgium, France, West Germany, Italy, Luxembourg, 1957 Netherlands, founding members 1 January Denmark, Ireland, United Kingdom 1973 1 January Greece 1981 1 January Portugal, Spain

1986 3 October (The territory of the former German Democratic Republic as 1990 part of unified Germany also becomes part of the European Community) 1 January Austria, Finland, Sweden 1995 1 May 2004 Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia

1 January Bulgaria and Romania 2007

EUROPEAN UNION

The Union currently has a common single market consisting of a customs union, a single currency managed by the European Central Bank (so far adopted by 12 of the 25 member states), a Common Agricultural Policy, a common trade policy, and a Common Fisheries Policy. A

Common Foreign and Security Policy were also established as the second of the three pillars of the European Union. The change agreement abolished passport control, and customs checks were also abolished at many of the EU's internal borders, creating a single space of mobility for EU citizens to live, travel, work and invest.

 Stages towards European Union
European Union First Stage European Communities (EC) Second Stage Common Foreign and Security Policy (CFSP) Foreign policy:
• • •

Third Stage Police and Judicial Co-operation in Criminal Matters (PJCC)

• • • • • •

• • •

• • • •

Customs Union and Single market Common Agricultural Policy Common Fisheries Policy EU competition law Economic and monetary union EU-Citizenship Education and Culture TransEuropean Networks Consumer protection Healthcare Research (e.g. Sixth Framework Program) Environmental law Social policy Asylum policy Schengen treaty Immigration

Human rights Democracy Foreign aid

• • •

Security policy:

Drug trafficking and weapons smuggling Terrorism Trafficking in human beings Organized crime Bribery and fraud

• •

European Security and Defense Policy EU battle groups European Rapid Reaction Force Peacekeeping

policy

Member States and their status.
Population Population in millions % of EU
454.9 8.2 10.3 0.8 10.2 5.4 1.4 5.2 60.2 82.4 10.7 10.0 3.9 58.0 2.3 3.5 0.5 0.4 16.3 38.6 10.1 40.2 5.4 1.9 8.9 60.2 100% 1.8% 2.3% 0.2% 2.2% 1.2% 0.3% 1.1% 13.2% 18.1% 2.4% 2.2% 0.9% 12.8% 0.5% 0.8% 0.1% 0.1% 3.6% 8.5% 2.2% 8.8% 1.9% 0.4% 2.0% 13.2%

Member State
European Union Austria Belgium Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Spain Slovakia Slovenia Sweden United Kingdom

Area km2
3976952 83858 30510 9250 78866 43094 45226 337030 547030 357021 131940 93030 70280 301320 64589 65200 2586 316 41526 312685 92931 504782 48845 20253 449964 244820

Area Pop. density % of EU People/km2
100% 2.1% 0.8% 0.2% 2.0% 1.1% 1.1% 8.5% 13.8% 9.0% 3.3% 2.3% 1.8% 7.6% 1.6% 1.6% 0.1% 0.0% 1.0% 7.9% 2.3% 12.7% 1.2% 0.5% 11.3% 6.2% 115 98 340 84 130 126 29 15 111 231 81 108 57 193 35 55 181 1 261 395 124 114 80 111 99 20 243

Capital
Vienna Brussels Nicosia Prague Copenhagen Tallinn Helsinki Paris Berlin Athens Budapest Dublin Rome Riga Vilnius Luxembourg Valletta Amsterdam Warsaw Lisbon Madrid Bratislava Ljubljana Stockholm London

OBJECTIVES OF THE EU

The Union shall set itself the following objectives:     To To To To promote social and economic progress establish an area of freedom, security and justice enhance the environment of Europe and the world secure and defend the Union

 The single market and common commercial policy The single market refers to the creation of a fully integrated market within the EU, which allows for free movement of goods, services and factors of production.  Competition Policy This was designed to prevent price fixing, collusion and abuse of monopoly or significant market power.
 Free movement of the goods

A customs union covering all trading goods was established and common customs tariff was adopted with respect to countries outside the union.  Free movement of the persons Any citizen of an EU member state can live and work in any other EU member state. There will be a phased in period for this right for those from accession countries.  Services

Any member state national has the right to provide services in other member state.  Capital There are no restriction on the movement of the capital, and on payments, within the EU and between member state and third countries.  Taxation Member state agreed that Value Added Tax (VAT) will be applied at a rate of not less than 15%.

EU and INDIA
Last year 2006 marks 43 years of formal EU Indian relations. However, relations between Europe and India can be traced back to at least 2000 years to the trade between the ancient Indian, Greek and Roman Empires, Or even earlier with the arrival of Alexander the Great to the Indus valley. Since the beginning of the 16th century the Portuguese, the Dutch, the French, the Danes and then the British all were present in various regions in India.

 Unity in Diversity
Both EU and India has an ancient civilizations and modern political formations, both geographical entities of continental proportions with similar land area and vast range of landscapes and climates.

 Modern ties
Formal EU India relations began in 1963 when India was amongst the first developing country to setup diplomatic relation with what was then a 6 member European Economic Community (EEC). As the EEC grew up from the 6 to 25, its relationship with India evolved and matured. The economic integration of Europe proceeded from custom Union (1968) to European monitory system (1973) to the single market (1993)

and the economic and monetary union culminating in the launch of the Euro on 1st January 1999 (Euro notes and coins from 1st January 2002). During the same period India has made notable social and economic progress catalyzed by technology advancement and on set of the economic reforms in the last decade. This has paved the way for evaluation of the bilateral relations between the EU and India. Today, the EU and India are indeed important partners in the emerging multipolar world. The two biggest democratic entities in the world share common values – respect for human rights and individual freedom, upholding the role of law, and concern for the social and economic well being of their citizen.

 EU-India trade – facts and figures
 The EU is India's largest trading partner accounting for a fifth of India’s trade. EU imports from India came to US $ 23,120.38 million in 2006 covering mainly textiles and clothing, agricultural products and chemicals. EU exports to India amounted to US $ 25,704.03 million, of which the majority was machinery, chemical products and gems and jewellery. Since 2001, bilateral trade between the two has grown by 11 % on average.
 A good example of this trend is trade in services between

India and the EU, which has increased significantly in recent years — in both directions. In 2004, India's exports of services to the EU were valued at €3.8bn, whilst the EU's exports of services to India came to €3.2bn. This is an economic area with rich potential for future EU–India bilateral business, which would create strong prospects in terms of trade, job creation and economic growth. also a major destination for Indian investors. In 20052006, the EU was the main destination of Indian FDI with one in four dollars invested by an Indian company going to the EU. The EU invested €1.1bn in India in 2004, which represented 1.4% of total EU outflows. EU investment has mainly taken place in the power/energy, telecommunications and transport sectors

 The EU is both the leading foreign investor in India and

 There is enormous growth potential in a number of other

fields, such as financial services, especially banking and insurance; mechanical engineering, and biotechnology with India being the world’s largest market for vaccines of all types.

 Indian companies are rapidly expanding abroad, with $10 billion worth of investments abroad since 2000. Indian firms now operating in the EU include India’s IT giants — Infosys, Tata Consultancy Services, HCL Technologies, Wipro and Birla Soft — but also a range of firms from various sectors, like Bharat Forge, Thermax, Tata Tetley, Compact Disk India Ltd, Mastek and Bank of India. Indian foreign investment to the EU has increased fivefold in the last ten years.
 Indian textiles and clothing, a traditional staple industry,

has significantly benefited from the removal of textile quotas. Indian textile and clothing exports to the EU reached €5.2 billion in 2005, as compared to €4.4 billion in 2004, reporting an impressive growth of around 20%.
 Indian trade is defined by huge untapped potential. India

accounts for only 1.5% of world services trade and 1% of global merchandise trade – yet Indians make up 1 in six of the people on the planet. Unlike the growing economies of China and South East Asia the Indian economy’s growth rate of around 8% is driven chiefly not by exports but by domestic demand.  India combines first world capacities with third world poverty. Services trade accounts for more than 50% of India’s GDP – but 60% of Indians still work in agriculture, most at a subsistence level. India Main Indicators

 India’s commodity wise Imports from EU
SECTORS
Agro & Food Chemicals/Pharma /Plastic Leather / Wood & Paper Textiles/ Garments etc

Total from April to June Percentage increase over 2006 (in Euro) last yr in the same period
4,12,24,940 73,13,75,097 18,46,44,796 7,85,64,577 21% 24% 5% -3%

Stones/ Ceramics Glass Automotive Optical/photograph/ Musical /Ammunition Other Products Total

/ 3,28,29,48,269 1,05,88,63,514 26,83,98,723 3,98,57,955 5,76,89,41,543 4% 20% 33% 20% 11%

India’s commodity wise Exports to EU.
Total from April to June 2006 (in Euro)
45,49,92,823 93,08,97,208 23,66,52,057 1,67,57,98,382 1,24,74,83,691 47,14,47,494 4,85,79,119 14,30,64,707 5,20,89,15,481

SECTORS

Percentage increase over last yr in the same period
7 5 6 7 13 10 19 8 9

Agro & Food Chemicals/ Pharma /Plastic Leather / Wood & Paper Textiles/ Garments etc Stones/ Ceramics / Glass Automotive Optical/photograph/ Musical /Ammunition Other Products Total

DESTINATION INDIA-EU’s AGENDA 1. Since the beginning of the nineties, India has successfully achieved several reforms aiming at liberalizing and modernizing its economy. This has entailed dynamic performances in numerous sectors such as Food Processing, Information technology, Engineering or Telecommunication. This trend is infrastructure and an important growth of consumption. Its huge market, stimulated by a relevant part of the population whose consumption is close to European standards, represents an attractive target for European businesses. Its democratic background and its sound domestic and external sector are positive factors that can cheer up investors even if infrastructures and trademark protection are still in an early stage.

2. During the last ten years, the country has finally managed to integrate world trade and investment flows. India is now finishing its reforms to meet the WTO demands, and could be considered as a fair player of global exchanges. It ensures a continuous path toward further trade liberalization and openness to foreign direct investment. The consolidation of its trade and cooperation with the EU, now catching up with the US influence, will offer numerous opportunities for European companies. The effort of both the European community and the Indian government to enhance those exchanges should benefit businesses that may find support or help in the political process. 3. Low labour costs, English speaking proficiencies, a solid educational system that forms highly qualified workers, a top Information technology sector, a diversifying and developing domestic market, a relevant share of the population with income comparable to that of Europe (above 35 million), a growing integration into world and regional trade flows, are all major arguments in favor of considering India as a prime location for business operations and investments. Incentives and supports from the government for export-oriented units, as well as a reasonably simplified taxation on profits and dividends, can attract further investment. 4. The huge potential of the Indian Food processing sector, still widely under exploited, leaves many opportunities for European companies, especially in the development of Bio semi-processed food. 5. The Engineering sector benefits from a wide and complete capacity of production. With a growing domestic market and low production costs, it remains an attractive sector for European investment. 6. The Telecommunication sector is enjoying a high growth rates both because of a low initial teledensity and of a deregulation of the sector. European participation is demanded mainly for technology and knowledge support, which offers plenty of opportunities for business operation. 7. The Indian IT sector is one of the world top industries of its domain. It is now looking for extension toward other countries and for the establishment of research and knowledge cooperation.

8. Partners and forms of investment. Administrative difficulties should also be assessed and considered before starting any operation for a good knowledge of Indian ways may considerably simplify procedures. Variation of states policies and characteristics may add to the complexity of choosing the right location for investment. 9. Initial procedures (licensing) have been simplified and strengthened to generate more foreign investment, especially for export-oriented operations that benefit from numerous incentives from the government. Difficulties and hurdles may still arise in dealing with local authorities or when trying to reach the domestic market. 10. Managing the local human resources and dealing with Indian partners require a deep understanding of local conditions and ways of thinking. Still, the general satisfaction of European companies settled in Asia is significant evidence that, provided those key elements have been taken into account, pay-backs and returns on investment compare favorably with many other potential location for investment.

India: prospects and potential for further growth A major factor in this new drive is Indian industrial importance in a number of key sectors, many of them high tech. India is a world leader in information and communications technology (ICT), in particular in the field of outsourcing. Soft-ware is projected to become India’s largest industrial sector, contributing 28 % of GDP by 2020; by 2008, the sector is expected to grow to USD 80 billion. This is one area that offers considerable opportunities for EU–India business partnerships. There is enormous potential for growth in a number of other fields, such as: • Financial services, especially banking and insurance; • Power and energy supply, where economic and population growth create growth in demand; • Telecommunications, both fixed and cellular lines and Internet usage; • Mechanical engineering, where there is significant expansion and improvement of the infrastructure base and major projects in the pipeline; • Biotechnology, India being the world’s largest market for vaccines of all types; • Textiles and clothing, a traditional staple industry that, as long as certain conditions armed (such as modernization, improved competitiveness and deregulation), should benefit significantly from the end of textile quotas. Because the EU is India’s main trading partner, Indian economic growth is inevitably reflected in growth in trade with the EU. This is particularly evident because the EU is the most open market in the world and so the most accessible to Indian products. A good example of this trend is trade in services between India and the EU, which has increased significantly in recent years — in both directions. This is an economic area with rich potential for growth and, in particular, for future EU–India bilateral business, which would create tremendous prospects in terms of trade, job creation and economic progress. India service exports to the EU were EUR 2.5 billion in 2001: the EU exported EUR 2.4 billion in return The EU is the world’s most open market for India Other sectors also hold major potential.

European Commission India: prospects and potential for further growth similarly; the EU is both the leading foreign investor in India and also a major destination for Indian investors. About 40 % of Indian overseas investment flows into Europe, compared to 20 % to the United States. Indian firms now operating in the EU include India’s IT giants — Infosys, Tata Consultancy Services, HCL Technologies, Wipro and Birla Soft — but also a range of firms from various sectors, like Bharat Forge, Thermax, Tata Tetley, Compact Disk India Ltd, Mastek and Bank of India. SO, these trend shows more and more are entering EU market to get benefits of single largest market in the world. Also INDIA is the only country which takes the maximum benefits of GSP of EU. We cannot deny that EU countries are entering INDIAN market. They are also getting benefits from INDIAN market.  EUROPEAN UNION DESTINATION – AN IMPORTANT EXPORT

According to FICCI, There is a strong view amongst the industry members on the importance of EU as an export destination. A strong 71% of the participating companies have said that their organization perceives EU as an important export market for their products.
 PRESENT STATUS OF DOING BUSINESS WITH CENTRAL

AND EASTERN EUROPE As per the industry response here presents a different picture from what is obtained in the previous question. While a little over 55% of the respondents replied in the affirmative, 45% said that they are not currently exporting to EU.

 PLANS FOR EXPORTING TO EU Of the companies that are not presently exporting to EU, 85% intend to export to this region in the near future. Companies, which are currently exporting to EU, have also mentioned that they would like to engage this region more in their export business and cater to the domestic requirements in the European economy.
 COMPOSITIONS OF INDIAN EXPORTS TO EU

 Automobiles (light commercial vehicles), auto engines and components  Metals and metal based products  Leather products  Chemicals and pharmaceuticals  Handicrafts  Engineering goods like diesel engines  Textile yarns, Woolen and cotton fabrics  Agricultural products  IT products and services  Consumer durables  Biotech products  STRATEGIES TO ENTER INTO THE EU There are tremendous opportunities for the Indian Industry in the EU markets. As per FICCI India’s trade volume with each country can easily be doubled in less than three years. There are great opportunities as there would now be o uniform trade regulations o uniform duty structure o common technical specification

In those countries that have joined the European Union. Our respondents saw a big possibility for entering into joint ventures in the EU countries as well as outsourcing of services from these countries to India. Many respondents felt that it is a good time to set up representative offices in these countries and undertake tailor made marketing campaigns for each of these countries.
 Indian companies can capitalize on the above opportunities

by:  Setting up / establishing offices in these countries  Joining hands with Joint Venture partners for production and/or marketing  Appointing agents for introducing and familiarizing Indian products in these markets  Developing regular contacts through participation in buyer seller meets  Enlisting in the local trade directories and advertising in the local trade journals and media  Creating greater awareness about Indian products by participating in all their trade fairs.  Indian companies should also focus on Quality Certification (QC) Service reliability (SR) Competitive Pricing (CP) Strategic alliances with local /companies/collaborations/partnerships (SA)  Knowledge of local languages (LL)
   

 PROBLEMS FACED OR FORESEEN WHILE EXPORTING TO CENTRAL & EAST EUROPE
No.
1 2 3 4 5

Barriers
Trade barriers (import duties & customs) Language & cultural barriers Labor laws (Compensation package) Security problems concerning payments Work permits & visa problems

High
86% 14% 29% 57% 59%

Medium
14% 43% 29% 28%

Low
14% 72% 28% 14% 13%

6 7

Competition from Local Companies Lack of business information

29% 57%

56% 29%

15% 14%

 RECOMMENDATIONS TO OVERCOME THE BARRIERS  Indian banks should open their operations in this bloc  There should be direct air links with these countries  Visa problems have to be addressed without which business cannot be carried out.  Visa issuance should be made simple for business applicants.  Some special cell should be formed for issue of visa to those going for business promotional activities.  A centralized business office should be formed where the business community can contact to initiate business.  EXIM bank should extend at least 10 million US$ credit line between these countries.  Detailed information on trade / industries of these respective countries should be made available.  There should be a display center for Indian products in Indian embassies.  Respondents also saw a major role that can be played by the respective Joint Business  Councils for further expansion of trade and investment linkages.  All the EU countries and India must make JBC a business tool and treat JBC  Recommendations as important suggestions, which must be implemented.  STEPS NEEDED FOR INCREASING EXPORTS TO EU The steps, which the Industry should take, include the following  Organize buyer-seller meet  Participate in overseas trade fairs  Open local offices  Make an effort to identify reliable local partners  Must take initiatives to start dialogues with like minded Joint Venture partners on the other side to look at possibilities of business

 Must develop a compendium of information relating to Indian industry’s capabilities and export potential and circulate the same amongst businessmen in the EU countries to establish and further business connectivity  Create INDIA TRADE CENTRES in the EU countries on a self-supporting and cooperative basis.  SECTORS WHERE TECHNICAL / FINANCIAL COLLABORATION
IS POSSIBLE

Some respondents from their knowledge have indicated the sectors where technical and/or financial collaboration is possible between India and Central & East European Countries. These sectors include –             Automobile sector Steel Information Technology Food Processing Banking Heavy equipment and machinery Defense Equipments Metallurgy & Exploration activities in Hydrocarbon, Gas, Oil Aviation sector Power projects Architectural & Engineering Services Construction

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