Commerce ministry opposes China FTA

Backs India Inc over pricing of Chinese imports.

The commerce ministry has endorsed India Inc's stand against signing a free trade agreement (FTA) with China until it becomes a market economy that follows transparent pricing of manufactured goods and services.

The ministry is also in favour of banning export of iron ore to China till it lowers duties on products like coke and agricultural items.

In a communiqué to the Trade and Economic Relations Committee (TERC), headed by Prime Minister Manmohan Singh, the commerce ministry said: "There are real issues with China as it does not function as a normal market economy."

This comes nearly a month after the prime minister's visit to Beijing. The commerce ministry's stand is expected to throw a spanner in the proposed FTA talks between India and China.

Official sources said India was not ruling out an FTA with China at this stage (the country is India's largest trading partner) as it would hurt the ties between the two. "The FTA negotiations will be deferred for the time being," a source said.

The FTA was suggested by a joint task force set up to look into the possibility of enhancing trade ties between the two countries.

India, the US and the European Union have not yet granted market economy status to China because of its non-transparent pricing mechanism, which leads to cheap exports.

China will have to become a market economy by 2015, according to its WTO commitments.

Meanwhile, more than 30 countries have granted the market economy status to China. The Indian industry has been opposing an FTA with China until it gets this status.

"The pricing mechanism in China is not very transparent and hence we do not understand it. Until then, it should not be granted market economy status. The CII is working with its Chinese counterparts in this regard," said TS Vishwanath, head (international trade policy division), CII.

Commerce Minister Kamal Nath had recently said that negotiations on the India-China FTA were unlikely to start this year. According to Nath, the prime ministers of India and China have forwarded the report of the task force to their respective trade ministers, who will discuss it in the joint economic group.

A study done by industry body Ficci found that cheap imports from China had made deep inroads into sectors like electronic goods, machinery items and auto components.