Non-tariff barriers are stymieing India’s effort to correct its huge trade imbalance with China. Beijing’s policy has adversely affected not only the exports of agriculture and food items like bovine meat, but also Bollywood, an important Indian export, noted the Indian industry as it readies for the India-China Trade and Investment Cooperation Forum that convenes in Beijing on Tuesday.
The forum brings together top government and business leaders from both countries. The Indian delegation is being led by commerce and industry minister Anand Sharma. Ficci president Harsh Pati Singhania, sought to give the meeting a positive spin, said, “We don’t believe in India versus China but India and China. There is enough room for both,” a sentiment fairly close to the Indian government’s own position on the sometimes difficult relationship between the two countries.
But behind the general bonhomie, Indian industry intends to lay some thorny issues on the table.
At the base of Indian industry’s concern is the rather lopsided trading relationship with China. A disproportionate amount of India’s exports to China are essentially raw commodities with little value addition. Nearly 60% of India’s total exports to China are in ores, slag and ash. Another 10% is in cotton. India’s imports from China, on the other hand, are higher value added manufacturing items?electrical machinery constitute 28.1% of imports from China, followed by nuclear reactors, boilers, machinery and mechanical appliances at 17.8%. Processed iron and steel make up about 14% of imports from China.
This pattern of trade naturally makes for a big trade deficit with China. Some of it may have to do with China’s obvious manufacturing advantage over India. But Indian industry does not buy this argument. They instead argue that restrictive Chinese policy plays a major role in blocking competitive Indian exports something they want to bring to the attention of both the Indian and Chinese trade ministers.
In power equipment, for example, Ficci estimates that tariff and non-tariff barriers amount to 20-39% of the equipment cost. Indian companies like Bhel and L&T, which would otherwise be competitive in middle-level power equipment loose out. India, on the other hand, does not impose barriers on machinery from China. Even in wind energy, where some Indian firms can potentially make a dent in China, Ficci argues that barriers are high—China has not even committed to binding its tariffs on wind power equipment.
Outside manufacturing, China maintains strict non-tariff barriers on the import of agricultural produce and meat from India. Bovine meat from India is now exported to 60 countries, including in the developed world, but China, with a potentially massive market, does not allow it. Despite written assurances of standards from the government of India, Chinese authorities have done little to ease the barriers, say industry leaders.
Interestingly, even Bollywood, now an important Indian export, finds itself on the wrong end of Chinese policy. The country maintains a peculiar annual quota under which only 30-40 overseas films can be legitimately exhibited in China. Unsurprisingly, Hollywood films get most of the quota leaving Indian films to pirated viewing. The Chinese movie and entertainment industry was worth just under $1 billion in 2007 and is growing at CAGR of 20%.
There is little doubt that the Chinese side will also have its share of concerns about policy towards Chinese goods and services in India. That should make for an interesting exchange on Tuesday.