Cautious approach needed on FTA with China: Assocham

Economic Times, India

Cautious approach needed on FTA with China: Assocham

5 April 2008

PTI/NEW DELHI: India should be cautious while signing free trade agreements (FTAs), specially with China as it could affect the interest domestic industry, a report released by industry chamber Assocham said on Saturday.

According to the report titled ’India’s FTAs and the Indian Industry’, India Inc should be taken into confidence before the government went ahead with FTA with China.

"Preferential Trade Agreement (PTA) should first be concluded before FTAs are finalised to protect interests of Indian Inc. Trade and comprehensive economic agreements have been signed in the past with various countries and regional blocks that have resulted into a few fallacies and hurt economic interest of domestic industry," Assocham President Venugopal Dhoot said while releasing the report here.

He said the mistake should not be repeated in case of the proposed FTA with China.

"Since India’s tariff levels are much higher than China, any reduction in tariff will open the floodgate of cheaper imports from China. Also, a large share of Singapore’s exports is in form of re-exports of the products from other countries," he added.

"The high tariff regime in India at about 12.5 per cent and low tariff regime of China of less than 6 per cent, and FTA between India and China might affect the economic efficiency between these countries as they would exclude and discriminate other counties," Dhoot said.

This discrimination will work against India because of high tariff barriers. When India gives duty free access to China, tariff revenue previously collected on import from China turns into export revenues for export firm from China.

In the process, Chinese firms will gain more compared to Indian exporters as Indian exporting firms have less to gain from the tariff free access in China, he said

Citing that China has devalued its currency, allowing free imports from there would lead to dumping of goods which would hurt the domestic industry, Dhoot said.

The Chamber prescribed a minimum period of 5 years before India and China finalise their FTA with extreme caution towards to help India nurture its business.

"The ultimate goal should be an FTA with free flow of products and capital but in view of comparative disadvantage of India’s manufacturing sector, a much lower tariff structure in China and its higher degree of openness, India-China FTA trade cooperation should start with a PTA with reduced tariff in a phased manner," he said.

In view of the comparative disadvantage of India’s manufacturing sector, a much lower tariff structure in China and its higher degree of openness, a India-China FTA trade cooperation should start with a PTA with reduced tariffs in a phased manner, the report pointed out.

It, however, says that India and China trade has been growing very rapidly. In 1994-95, India’s export to China was $254.3 million which increased to $5,344.88 million in 2004-05. India’s imports from China went up to $6,768.92 million in 2004-05 from $761.04 million.

Total trade between India and China was $18 billion in 2005 and is expected to reach $50 billion by 2010.

The chamber emphasised that the problem for India was that the trade deficit with China has been growing from $506.74 million in 1994-95 to $1,424.04 million in 2004-05.

India’s export to China consists of iron ore, primary and semi-finished iron and steel, plastic and linoleum products and processed minerals among others. India’s imports from China have been generally electronic goods, coal, coke and lubricants as well as organic chemicals.

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