The ongoing global economic downturn has increased the importance of India's non-traditional export markets, in particular Latin America (and Africa and Developing Asia). Buoyed by the performance of engineering goods (78 per cent year-on-year) and petroleum and crude products (48 per cent ), India increased its export by 37.6 per cent (YoY) to $246 billion in 2010-11, largely because of increased export to these non-traditional markets, despite the global slowdown.. Now, almost 70 per cent of India's shipments are to markets other than the European Union and the United States.
Realising the potential of Latin America for diversifying its export products and market mix, the Government is contemplating the expansion of its limited preferential trading arrangement (PTA) with Mercosur into a full-fledged free trade pact. Latin American trade bloc, Mercosur, comprises Argentina, Brazil, Paraguay and Uruguay. Venezuela is to be its newest member subject to the ratification by Paraguay. Export to the trade bloc posted 74 per cent (YoY) growth in 2010-11, yet it accounted for just 2 per cent of India's export.
India's exports to Mercosur including Venezuela stood at $5.1 billion in 2010-11. Brazil is the India's largest export market in Mercosur, accounting for more than 80 per cent of India's export to the bloc.
Impediments to Trade
High import duties are imposed by Mercosur nations on many of the products of India's export interest e.g. most readymade garment items and motor vehicles (35 per cent), gems and jewellery items (18 per cent), viscous filament yarn (18 per cent), tools and cutlery of base metals (16-18 per cent), mechanical appliances and electrical goods (14-20 per cent), footwear (20-35 per cent), bags (20-35 per cent), perfumes, beauty and make-up preparations (18 per cent) and kitchenware of porcelain (20 per cent).
Most imports from Mercosur are subject to relatively low duties in India, except a few sensitive items such as liquors (150 per cent, coffee, tea and motor vehicles (100 per cent) and rice (70-80 per cent). Cumbersome export-import formalities, inefficient port and terminal handling characterise the whole Latin American region and suitably reflected in its poor set of ranking in World Bank's Trading across Border s report. The ranks are illustrative: Argentina (115), Brazil (114), Paraguay (152), Uruguay (132) and Venezuela (167). India's record (100) is equally unimpressive and compares badly with Republic of Korea (8) or Thailand (12).
Unlike China, India faces a dearth of direct shipping service, so goods must travel to Singapore or Europe first and then to Latin America. As a result, shipping time increases by as much as 33 per cent. This pushes up cost of shipment and inventory management.
Turnaround time in Indian ports is very high (24-72 hours compared with nine hours in Hong Kong/Singapore and 35-50 hours in Brazil). Besides, there is inter-port variation also. Pre-berthing waiting time is another area of concern both in India and in Latin America, which adds to shipment cost and adversely affects export of items operating on thinner margin, such as readymade garments.
Non-tariff barriers such as the process of registration and licensing of pharmaceuticals and medical devices or labelling requirements of distilled spirits in Brazil or India's regulations on import of cosmetics or insistence on testing of tyres to be done only by Central Institute of Road Transport (CIRT) restrict bilateral trade flows by increasing the cost of compliance.
Trade Prospects
A full-fledged free trade pact will promote mutually beneficial trade between India and Latin American trade bloc Mercosur, which has 300 million people and a Gross Domestic Product of $2.5 trillion. Mercosur which accounts for 50 per cent of the total trade of the region is in expansion mode. resources. A comprehensive trade pact with Mercosur will help India to further reduce dependency on troubled EU, Japan and the US and strengthen the process of diversification of export markets, evolve post-FTA common technical and professional standards or mutual recognition of such standards and will lead to reduction in time taken from production and export of a product, import scarce inputs at zero duty such as copper concentrates and improve cost competitiveness of import-dependant Indian copper smelters and downstream industries.
(The author is Subject Matter Expert, International Trade, Aditya Birla Group.)