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India, China exchange tariff cut offers under RCEP

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Financial Express | 16 March 2016

India, China exchange tariff cut offers under RCEP

Plans to liberalise trade between India and China, the world’s two fastest-growing large economies, have gathered momentum with both sides exchanging offers on removal of a chunk of tariff lines on goods imports. Against India’s offer to remove 42.5% of tariff lines under the 16-country Regional Comprehensive Economic Partnership (RCEP), China has expressed its willingness to abolish equivalent amount of tariff lines for India.

Although analysts said given Beijing’s huge trade surplus (around $50 billion) with India, its offer is hardly attractive (China should have offered to eliminate a much higher number of tariff lines), what’s happened was still seen by some as a forward movement. Removal of tariff lines would mean that the import taxes on the items would be reduced to zero over a specified period of time.

India could press for a greater commitment from China in goods, apart from stepping up its demand for a liberalisation of the services sector in Perth in Australia where the 12th round of RCEP negotiations are scheduled to take place from April 22, a source said.

Although a final call on the products India would like China to scrap the import duties, trade experts say India may seek duty relief for its textile exports, among others.

Cotton fibre and yarn, copper and some organic chemicals are the major items that India has exported to China this fiscal, while its imports from China include electronic items, mechanical appliances, organic chemicals,

fertiliser and iron and steel. Earlier, India used to export huge quantities of iron ore to China before curbs were placed on their mining.

India’s merchandise exports to China stood at a mere $11.9 billion in 2014-15, while China’s exports to India were to the tune of $60.4 billion. Even if the likely damaging impact of cheaper imports from China on domestic industry such as steel is discounted, the potential customs revenue loss for the country as a percentage of its gross domestic product (GDP) will be much higher than China’s, also because of the fact that China’s GDP is more than four times of India’s.

Interestingly, China is seeking a greater commitment in terms of tariff removals for its goods from some other countries in the grouping, confirmed a foreign diplomat who is privy to such talks. China argues that the economies of such nations (for instance, Japan) are in more advanced stages of development than that of the communist nation itself, so they should commit more, he added. India may be tempted to use the same argument to seek more concessions from China than what it is willing to offer at the moment.

Successful RCEP negotiations would essentially pave the way for a virtual free trade agreement (FTA) between India and China, as India already has FTAs with other members in the grouping. RCEP comprises 10 Asean nations and six others with which these countries have already forged FTAs. According to an initial assessment made in 2013, RCEP nations included more than 3 billion people, have a combined GDP of about $17 trillion, and makes up for roughly 40% of the global trade.

Already, there are serious differences among negotiating members in services talks, which India has been pushing for. On top of that, even negotiations on goods are proving to be difficult at a time when pressure mounts on the grouping to clinch a deal following the Trans-Partnership Partnership between the US and 11 others. The differences could mar prospects of an early conclusion of the negotiations, sources had said earlier.

 source: Financial Express