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Industry sees only troubles, no gains from China FTA

Economic Times, India

Industry sees only troubles, no gains from China FTA

22 March 2008

NEW DELHI: The government has been urged to adopt a cautious stand on free trade agreement (FTAs), especially in the case of countries like China, and discourage export of raw materials. Import duties should come down gradually under such pacts and India Inc should be enabled to face global competition, says a study by industry chamber Assocham. While acknowledging that India cannot shy away from globalisation, the government has been asked to beef up infrastructure and provide a favourable exchange rate mechanism to ensure a level playing field.

“The government should consult the industry before signing FTAs. It is important to take industry representatives into consideration,” Assocham president Venugopal Dhoot said. The debate generated by the chamber is timely since India is negotiating a flurry of trade deals at this juncture. Since the Doha round talks at the World Trade Organization (WTO) are not progressing, most member countries are focusing on bilateral and regional agreements to boost market access.

In the case of China, the Assocham study has pointed out that India has a trade deficit and there are apprehensions about cheap imports from the neighbouring country swamping the Indian market. There will be no benefit for Indian industry from the deal, the chamber feels. Most of India’s anti-dumping cases are against China and ‘market economy’ status has not been granted to the country even after it joined WTO. At the same time, China is emerging as India’s top trading partner and is likely to overtake the US soon to capture the apex slot.

“The apprehensions are that since India’s tariff levels are much higher than China, any reduction in tariff will open the floodgates of cheaper imports from China. On the other hand, China’s tariffs are already fairly lower than India.

Therefore, Indian producers can expect no serious market benefits from China through a FTA,” says the study.

Apart from China, India is now negotiating FTAs with the European Union, ASEAN, Mercosur, SAARC, Gulf countries, South Korea, Thailand, South Africa and a number of neighbouring countries.

India should start with preferential trade agreements (PTAs) before going on to FTAs, feels Assocham. In the meanwhile, the government should improve infrastructure, bring down import duty levels gradually and reduce income-tax rates. “There should be a gradual lowering of tariffs with some time table so that Indian industry can take appropriate steps. Technology purchases and research programmes should be initiated to take advantage of economics of scale as well as to increase employment,” says the study.

“Threshold of corporate tax be raised and the percentage tax be reduced. The import duty tax and various local taxes should be reduced on fuel so that the prices of petrol and diesel are more comparable to that of other countries,” it has been emphasised. The study is being submitted to the commerce department and the likely to be disseminated for wider debate.