The Hindu Business Line : On a new dimension

A CAREFUL READING of the joint statement issued at the end of the Chinese Prime Minister, Mr Wen Jiabao's visit to India suggests that the entire exercise has been to give a new dimension to economic relations. The process began in June 2003 with the signing of the Declaration of Principles for Relations and Comprehensive Cooperation, and since then "profound changes (have taken place) in the regional and international situation," necessitating a new vehicle for collaboration — the India-China Strategic and Cooperative Partnership for Peace and Prosperity.

The joint statement emphasises the economic aspect of the "strategic and cooperative partnership" by focusing on the need to step up the annual trade turnover to $20 billion "or higher" by 2008 from $13.6 billion in 2004 (it was just $7.6 billion in 2003 and $338 million in 1992). Importantly, it has zeroed in on the Joint Study Group recommendations on "comprehensive trade and economic cooperation" which include the establishment of a "regional trading arrangement" for "trade in goods and services, investments, identified understandings for trade and investment promotion and facilitation, and measures for promotion of economic cooperation in identified sectors". But the proposal (not quite a free trade arrangement) has a long way to go as a task force is to study it.

That Beijing is in a hurry to expand business contacts was clear with its Premier expecting the mutual trade to touch $30 billion by 2010. This apart, a week before coming to India, Mr Wen Jiabao had declared that "... to move bilateral trade and economic ties to a new level, ... an FTA has become logical... " The FTA not figuring in the joint statement points to New Delhi's firm opposition to the idea; Indian businessmen prefer a go-slow on it given the not-unreasonable fear of cheap Chinese goods out-pricing their products. Indeed, the Joint Study Group's report shows clearly that on "import-weighted average tariffs" the Indian economy is much more protected than China's, which means in an FTA regime the former would be at a greater "disadvantage" to the latter. New Delhi's reticence in according China a market-economy status (under the WTO framework) is also to be welcomed in view of the advantages this would give Chinese negotiators, especially on anti-dumping and subsidy issues.

Going by the joint statement, mutual trade is expected to grow by around $6.4 billion in the next three years. But the question is how. The Joint Study Group has focussed on the complementarity of the two economies, stating that while China's is manufacturing-oriented, India's forte is services. The reality, however, is different as is suggested by the Joint Study Group's finding that in 2003-04 iron ore, primary and semi-finished iron and steel, and plastic and linoleum products comprised nearly 57 per cent of India's exports. Other studies underscore diversification, with a focus on the services sector and the need to set up production bases in China. But all this will take time though certain measures, such as reviewing the procedures for allowing Chinese businesses to set up subsidiaries/representative offices, or doing away with anachronistic procedures on business visas, need not. Beijing would like New Delhi to move quickly on these issues so as to expand trade ties.

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