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India: BIPA with China?

The Financial Express
Edits & Columns
20 September 2004

BIPA With China?

Its objective needs to be articulated

Notwithstanding border and other political problems and the low base, India’s trade with China has increased phenomenally. A preliminary study has been done on a possible free trade agreement (FTA) with China. Compared to three years ago, the paranoia about Indian manufacturing going down under, thanks to Chinese competition, has disappeared. There has also been increased co-operation with China at the WTO, G-20 being the most visible.

Trade liberalisation is mutually beneficial and, since multilateral liberalisation is always on slow-track, there is an argument for fast-tracking it through regional agreements. Whether it should be done bilaterally or through a regional forum like ASEAN is the moot point. There isn’t much coherence to India’s present spaghetti bowl of FTAs. Since an FTA with ASEAN is eventually likely, and since ASEAN is certain to include South Korea, Japan and China, why negotiate a parallel bilateral FTA with China? More importantly, multilateral investment liberalisation isn’t that likely and the greater potential with China is not in trade, but in cross-border investments. It should, therefore, not be a surprise that the Ministry of External Affairs (MEA) is pushing for a Bilateral Investment Promotion and Protection Agreement (BIPA) with China, along the lines of the 60-plus BIPAs India has with other countries. Details of the BIPA are yet to be negotiated. Clearly, post-establishment, national treatment or recourse to international arbitration will never be an issue. India’s FDI policy already incorporates those principles and there is nothing non-MFN (most favoured nation) in India’s treatment of China, post-establishment. Nor are there issues about freely repatriating profits or dividends.

Negotiations will be about pre-establishment and India’s desire to exclude certain sectors. For instance, the Union home ministry may be paranoid about opening up information technology or telecom. However, the more substantive issue is the conceptual one. Unilateral or multilateral liberalisation of FDI policy is preferable.

What then is the cost-benefit rationale for a BIPA with China? Since MEA seems to be driving the idea, rather than the Union commerce ministry, is there a political objective? Or does one think that a BIPA with China will raise fewer political hackles? The objective function needs clear articulation.

 source: Financial Express