In regional economic pact, India faces a Chinese import risk

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New Delhi | Published: December 2, 2014 1:05:07 AM

India has no direct free-trade agreement with China as vast sections of the domestic industry are not equipped to take on competition from Chinese companies.

The proposed regional comprehensive economic partnership (RCEP) that involves India, China and 14 other countries in the Asia-Pacific region could be detrimental to many sectors of the Indian economy, analysts feel.

RCEP, unless negotiated with caution and keen attention to details, could result in entry of Chinese goods into the Indian market, escaping import taxes. Many segments of the Indian manufacturing sector which are in the throes of acquiring competitiveness could be adversely impacted as RCEP could potentially lead to influx of duty-free Chinese goods through the back door, they say.

Abhijit Das, head and professor, Centre for WTO Studies, Indian Institute of Foreign Trade, said India should try to see what type of investment linkages can be built in with tariff reduction when it comes to China so that Indian industry doesn’t lose out.

He said that unless India manages to improve its infrastructure, it will be difficult to get investments into sectors such as manufacturing as part its ‘Make in India’ campaign.

Incidentally, India has no direct free-trade agreement with China as vast sections of the domestic industry are not equipped to take on competition from Chinese companies.

India’s proposal for one set of schedule of duty concessions for China (including a different implementation period for the duty cuts) and another single set of such concessions for 14 other member countries of the RCEP grouping has not been accepted so far, official sources said. “There are certain concerns with respect to China and we are trying to address those,” a government official said.

Already, citing factors such as its lack of transparency in minimum wages, property rights, government subsidies and loan rates, as well as absence of proper business accounting standards/ principles, India has declined to grant China the coveted “full-fledged market economy” status.

A consequence of the lack of market economy status for China is the large number of anti-dumping cases against products from that country.

As on June 30 this year, of the 690 anti-dumping investigations initiated by India against products from various countries so far (since 1992), 166 pertained to China.

In these cases, following findings of dumping, duty was imposed in 535 cases of which 134 were on products from China.

Of the bilateral trade of $66 billion in 2013-14, imports from China were worth $51 billion as against India’s exports to that country which was just $15 billion, leading to a whopping $36-billion trade deficit. New Delhi has been trying to get Chinese companies to set up shop in India, of late, as part of the ‘Make in India’ initiative. However, nothing significant has materialised so far. Some major imports from China include organic chemicals ($5.4 billion), fertilisers ($2 billion), plastics ($1.3 billion), iron and steel articles ($1.2 billion), electrical machinery and equipment ($14.2 billion), mechanical appliances and boilers ($9.4 billion).

Government sources said since China already has an FTA (with Asean) or is in talks for an FTA (with Japan and South Korea), it will be “foolish” and “impractical” to not engage with China for the regional FTA and take advantage of the duty benefits that it will offer for Indian industries.

The sixth round of RCEP negotiations between the 10-member Asean bloc — China, Japan, Korea, Australia and New Zealand, is being held in Greater Noida from December 1 to 5 to liberalise trade in goods and services between them besides finding ways to further boost investment. The aim is to conclude RCEP negotiations by December 2015.

The 16 countries, in this round of talks, will attempt at fixing timelines for “initial offers” to reduce tariffs in goods aiming for a greater slice of their combined market size of over three billion people. Though the ultimate objective of RCEP is to create a common duty-free market over a period of time, commerce ministry sources said India will give adequate protection to its sensitive sectors including agriculture (products such as spices, vegetables, fisheries, oils, fruit/nuts, rubber, tobacco), automobile, fisheries, chemicals, petroleum products and textiles in the RCEP agreement like it had earlier done in FTAs with Asean-member countries, Japan and Korea.

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