Dumping, political issues blocking Indo-China FTA

Despite booming bilateral trade, an early establishment of a China-India free trade agreement (FTA) has hit roadblocks in the form of unresolved political issues, anti-dumping duties on Chinese goods and high manufacturing costs in India, according to experts here.

"Although an FTA between China and India will be hard to achieve in the short term, its significance in forming a multi-party regional free trade system is apparent, given the size of the two countries," the director of Sichuan University's Institute of South Asian Research, Wen Dehai, said.

However, the strong trade ties and complimentary economic structures cannot ensure the quick establishment of an FTA between the two Asian giants, Wen was quoted as saying by the official China Business Weekly in its latest issue.

During a meeting of the Joint Study Group (JSG) here on March 21 and 22, senior officials from India and China formally held their first meeting to discuss the issue of signing a FTA and a Comprehensive Economic Cooperation Agreement (CECA).

The JSG was set up after Prime Minister Atal Bihari Vajpayee's visit to China in June last year to draw up a programme for the development of India-China trade and economic cooperation for the next five years.

In 2003, bilateral trade touched a record $7.6 billion, up 53.6 per cent over 2002.

However, the article noted that the 2003 bilateral trade volume only accounted for 5 per cent of India's foreign trade and 0.8 per cent of China's foreign trade, which touched an all-time high of $851.2 billion.

"Whether priority can always be given to the FTA negotiations between China and India remains questionable, especially when regional trade blocs are increasingly replacing the role of the World Trade Organisation," Wen, who is based in Chengdu, the capital of the southwest Chinese province of Sichuan, said.

India's "growing resistance" to inexpensive Chinese goods is another challenge to the forging of a FTA between the two nations, he said, citing that in the latter half of 2001, nine out of 25 anti-dumping investigations against Chinese goods were initiated by New Delhi.

In 2002, 10 anti-dumping litigation were launched by Indian companies against Chinese firms, involving products like batteries and silk, the article noted.

"When cheap Chinese commodities flood the Indian market, they will naturally be charged with dumping," an expert with the Chinese Academy of International Trade and Economic Cooperation, a think-tank under the Chinese ministry of commerce, said.

"If the FTA negotiation is to be advanced, Indian manufacturers have to improve their competitiveness and patience, but this is very hard to be accepted by Indian manufacturers," Wen said, adding that Indian political parties may also take the trade disputes to the political level, increasing the difficulties towards a trade compromise.

Another South Asia expert, Professor Sun Peijun said the establishment of a China-India FTA and enhanced trade ties can help ease potential tensions in other areas, including the unresolved boundary dispute.

"The tightening economic ties between China and India can also help ease the potential political conflicts caused by border disputes and other thorny issues," Sun, who is with the Chinese Academy of Social Sciences, said.

Sun, also president of the Chinese Association Of South Asian Studies, however, said that potential for political conflicts cannot be completely eliminated.