India yes to Bipa, no to FTA/RTA
P VAIDYANATHAN IYER & AMITI SEN
April 11, 2005
NEW DELHI, APRIL 10: The government is set to initial a Bilateral Investment Promotion and Protection Agreement (Bipa) with China with the two pending issues on security and legal jurisdiction being sorted out by the National Security Adviser in the Prime Minister’s Office. A free trade agreement, however, looks distant with the domestic industry raising serious concerns.
According to government officials, the external affairs and the finance ministry have held 6-7 rounds of meeting with the Chinese side on Bipa. Bipa entails providing China a most favoured nation status and allowing free repatriation and transfer of returns on investment. India has signed Bipas with over 60 countries till date.
The officials said Bipa accords post-establishment national treatment to companies from a partner country. It, however, retains flexibility to exclude a company from investing in India. For instance, once a company sets up operations in India, it would have recourse to domestic dispute resolution and international arbitration for investor-state and state-state disputes.
As far as a free trade agreement is concerned, India Inc has serious reservations. A commerce ministry official explained the Chinese definition of an FTA thus: “They would want India to allow 90% of items at nil imports duty. This would put the Indian industry on the mat.”
While China is very keen on an FTA with India, the commerce ministry sees reason on the objections raised by Indian companies. “If one looks at the trade pattern in China, over 90% of its exports to the United States of America is of manufactured goods. Were it to be the case with India, the domestic companies will be ill-prepared to take on such competition,” said a functionary from a leading industry chamber.
The joint study group on economic cooperation between India and China, which finalized its report in March-end, had suggested a detailed study before the two countries can sign an FTA. The officials, however, said India is not ready even to agree for a feasibility study at the moment. “Once a feasibility study is undertaken, it automatically becomes part of the bilateral agenda,” explained a government official.
China has suggested that India may like to think about a regional trade agreement if not an FTA in the immediate future. Indian officials, however, said there was not much logic of an RTA between India and China since they did not strictly represent two regional blocks, so to say. The two are distinct countries and an RTA may not be the right approach, they said.