Pacing the FTA with China

Sify | 5 January 2008

Pacing the FTA with China

One of the objectives of the Prime Minister, Dr Manmohan Singh’s forthcoming visit to Beijing is to push for a free trade accord between India and China, preliminary work on which has begun.

Among other things, a report by the joint task force, entrusted with studying the pros and cons of an FTA and making recommendations, is to be released during the visit. Considering the larger perspective of the Prime Minister’s “Look East” policy - a recent indication of the strong interest which Dr Singh has on the subject being his resolve to get the free trade accord with Asean operationalised by the middle of this year - there could be nothing better than a trade agreement with China.

Clearly, a free-trade agreement is always to be preferred because in the long run it leads to a reduction in costs, resulting in a better standard of life for the people concerned. There is also a rational allocation of resources between the economies concerned, leading to higher productivity and efficiency. This is applicable to an FTA with China despite the apprehension that unregulated opening up of the Indian market will lead to a flood of low-priced Chinese products, which would hurt business interests.

The fear is understandable given the prowess of Chinese manufacturers in churning out low-priced manufactured goods, which have had a “tsunami effect” on markets the world over. This is probably why the joint task force report is expected to recommend that the accord be deferred till the Indian concerns are addressed satisfactorily. In fact, a “freer-trade” agreement between the two countries, as opposed to a conventional FTA, is likely to produce the best results, but this means that complex negotiations are inevitable before such an accord can materialise.

Even now, before FTA negotiations can seriously begin, New Delhi has a problem with high tariff and non-tariff barriers vis-À-vis such products as agricultural goods and coke. There is also the issue of granting “market-economy” status to China, a step that will make the establishment of anti-dumping charges under the WTO rules problematic.

All this apart, there is the nagging fear that, unless New Delhi takes specific long-term measures to restructure its export basket, China will gain much more than India from the free-trade exchange. As of now, a basket of low-value primary products, the bulk of it iron-ore still dominates Indian exports, which does not augur well for FTA spin-offs for New Delhi. The progress on the Information Technology front too has been unimpressive. On the other hand, the potential of the Indian market for Chinese telecom, electronics, office appliances and scientific products is considered sky-high, which means that any lowering of tariff on imports will be a boon for Chinese producers. Since bilateral trade has been doing well (the $40 billion target for 2010 may be attained earlier), there seems no need to hurry through the FTA, even though Beijing may press for it.

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source: Sify