The India-Mercosur initiative constitutes a recognition of the potential for interregional South-South trade. An India-Mercosur framework agreement signed in June in 2003 led to a free trade area for goods and was later extended to trade in services. In January 2004, a preferential trade agreement was signed with three annexes on rules of origin, safeguard measures and dispute settlement. The agreement aims to evolve gradually into a free trade agreement, starting with fixed preferences for a number of tariff lines and cooperation initiatives in various fields. It could be an important precursor of other such agreements among developing countries. Under this agreement some 2,000 products have been notified for tariff reductions or preferences with a view to gradually extending the list of products.

Trade by itself, however, will not bring about the expected outcome. It is important to include investment and technology and other forms of economic cooperation to ensure the strengthening of bilateral relationships. There was a consensus among the speakers that the India-Mercosur trade initiative and other new-age South-South cooperation should be more open, more market-driven and more business-oriented. The potential for India-Mercosur trade has barely been exploited. The current level of trade is low - at US$ 1.3-1.8 billion - where the largest trade is in crude petroleum. India has also become an important market for soya oil and sunflower oil from Argentina, while many products in which India is competitive are absent from the Brazilian market.

There are considerable complementarities in agricultural products, marine products, drugs and pharmaceuticals, creative industries, software and information technology (IT), telecommunications, railways, timber and forest products, aviation and shipping. Nevertheless, concerns were expressed about whether the trade pattern between Mercosur and India could be changed to one dominated by sharing of technology, investment and joint ventures in a range of sectors such as forestry, poultry farming, chemicals dyes and intermediates; drugs and pharmaceuticals; hydro- and nuclear power; compressed natural gas; ethanol; telecommunications; and IT. Already, some joint ventures have been created by India with Mercosur countries, for example in pharmaceuticals (Brazil), automobiles (Brazil and Uruguay) and IT (Uruguay).

There is also scope for cooperation in development-oriented science and technology. Two examples were cited: aircraft, where Embraer is cooperating with India&apo;s largest aircraft manufacturer; and fuel (ethanol), where India has adopted a decision to use ethanol in the sugar-producing states. A Brazilian company is working in India on the latter project.

The bilateral trade between India and Mercosur is inhibited by various factors, including (a) partners&apo; lack of information about the potential, policies and import regulations of the other partners; (b) poor air and sea transportation links; (c) trade restrictions; (d) inadequate banking and insurance facilities; (e) high transaction costs; and (f) language problems (not insurmountable). If these problems are addressed, bilateral trade between India and Mercosur could grow 16-fold in both directions, reaching US$13 billion.

Both Mercosur and India are engaged in several other bilateral and plurilateral agreements, which makes the scope and markets for an India-Mercosur agreement much more attractive and provides an incentive to invest in each other&apo;s territory. The hub and spoke methodology under which each country has preferential relations with other countries, but these do not have such treatment among themselves, could be beneficial for the hub. However, the dangers and complications associated with a "spaghetti bowl" configuration of agreements were highlighted.

Participants emphasized the issue of how to move forward the India-Mercosur agreement. The issue of the trade priorities of both countries should be taken into account, placing this initiative in its context. For example, in the case of Brazil it was stated that the current trade priorities are in the region and in the Mercour-EU agreement being negotiated. Cooperation could begin in a few areas to build confidence and contacts, and avoid areas of conflict. The focus should be on doing what is possible, rather than trying to achieve the ideal situation from the outset. In this process, priority should also be given to investment: trade must be followed by investment, otherwise trading alone will not be sustainable. In this regard, in India the Federation of Indian Chambers of Commerce and Industry (FCCI) has set up a help desk to promote investment, and supplement the efforts of the Government.

The involvement of businesses was considered critical for the processes. Business contacts should be promoted and the creation of private-public working groups was suggested for ensuring adequate private-sector involvement. Also, the need to increase mutual knowledge, inter alia by disseminating adequate information through cultural exchanges and business missions, was stressed. Some concrete areas that could receive immediate attention were harmonization of standards, customs procedures, financing issues, and transport availability and costs.

Participants agreed that UNCTAD should play a role in supporting South-South initiatives such as the one being launched by Mercosur and India. It could provide support by (a) constituting a platform or an institutional mechanism for the exchange of experiences among developing countries; (b) providing a forum for exchange of views among policy makers, economists and the private sector at the national or subregional level; (c) generating and disseminating adequate and timely information; (d) helping in institutional capacity building at the national and regional levels; (e) training negotiators; (f) analytical work evaluating the trade agreements and their implications; and (g) facilitating technical cooperation projects between developing countries, for example between Inmetro (Brazil) and BIS (India) on cooperation on standards.