The Times of India | 8 November 2006
TODAY’S EDITORIAL: Trading freedom
India has good reasons to be apprehensive about a free trade agreement (FTA) with China, even as Beijing is more than eager.
An FTA, or an arrangement where two countries reduce or eliminate tariffs for each other in relation to the rest of the world, will benefit China hugely without commensurate gains accruing to India.
A comparison of the economic profile of the two countries makes this evident. China’s manufacturing and construction account for 50 per cent of its gross domestic product, while services and agriculture account for about 30 per cent and 15 per cent, respectively.
India’s services account for 60 per cent of GDP, while agriculture and industry account for 19 per cent and 21 per cent, respectively. China’s GDP, at about $1.5 trillion, is roughly twice India’s; its trade amounts to 5 per cent of world trade, as against 0.8 per cent in India’s case.
An FTA with India would help China consolidate its position as the factory of the world, particularly in textiles and steel, where its output and exports are at least 10 times India’s.
That would scuttle an ongoing impetus in India in these two sectors, given China’s ability to produce 30 per cent cheaper, with the help of non-transparent subsidies. Can’t we similarly flood the Chinese market in our areas of strength such as information technology, pharmaceuticals, biotechnology?
In manufacturing, China’s average tariffs are low; hence, an FTA will not significantly divert Chinese imports in India’s favour. In services, non-tariff barriers that fall outside the scope of an FTA restrict access.
India would find it hard to challenge these barriers or probe the pricing of Chinese products because of the non-transparent nature of the Chinese government. Moreover, its average tariffs would be high in relation to FTA rates, and this could cause a major diversion of imports.
An FTA could cause a major trade imbalance in China’s favour. This, however, does not rule out the scope for a fair commercial deal with China. Bilateral trade grew by 37.5 per cent in 2005 to touch $18.73 billion; it is expected to cross $20 billion in 2006.
A trade and investment pact, as opposed to an FTA, would further the momentum without conferring undue advantage to one country.
While the difficulties in dealing with a non-democratic regime cannot be wished away, India can urge China to loosen regulatory curbs on services, while doing its own bit to facilitate movement of Chinese people and investment in infrastructure.
As commercial ties deepen, India can push the envelope further, urging China to relax its labour movement norms. Compulsions of commerce could, in fact, persuade China to become a freer society.