The Hindu Business Line : FICCI against free trade pact with China now

New Delhi, Oct 22 Industry chamber FICCI has suggested that India should neither enter into an FTA with China, nor grant it ‘market economy status’ for the time being.

The chamber has said that the idea of a full-blown free trade agreement with China is much ahead of its time, and India must wait before considering ‘market economy status’ for its eastern neighbour, which is characterised by a different operating environment for business and range of subsidies.

It is imperative to have a level playing field between the business of the two countries before embarking on negotiations towards a possible bilateral trade agreement.

The Chinese industry enjoys ‘unfair advantage’ over their Indian counterparts due to several factors like an array of tax exemptions and artificially undervalued Chinese currency. There is also massive across-the-board state support for domestic companies.

The practice of managing the Chinese Yuan at a low level and preventing it from moving upwards, amounts to an “effective export subsidy” and consequently Indian business is put at a relative disadvantage vis-À-vis supplies from China.

Because of Government support, industry estimates that the Chinese products could enjoy a price advantage up to 30 per cent over Indian manufactured goods.

Gradual approach

The chamber is in favour of a careful and gradual approach on this issue so that the growth momentum of two-way trade remains sustainable.

Any sudden, ambitious or deep tariff cuts would disrupt the process and make the fast-growing bilateral trade relations unsustainable.

On ‘market economy status’, the chamber has observed that despite improvements made in last few years, China would need to take effective measures to make its pricing and accounting systems more transparent and market-oriented.

Unless these issues are adequately addressed, controls over various prices removed and level playing field established, market economy status should not be accorded to China.

Even though 76 countries have recognised China as a market economy, it is critically important to note that this status has not been granted by China’s top trading partners such as the US, EU and Japan which together account for 48 per cent of China’s total exports.

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