Preferential Trade Agreement should follow India-China FTA: study

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New Delhi, Mar 24 (UNI) Opposing the country's Free Trade Agreement (FTA) with China, an industry body today said in view of the comparative disadvantage of India's manufacturing sector, a much lower tariff structure in China and its higher degree of openness, the FTA should be followed by Preferential Trade Agreement (PTA).

In a study on India's FTA and the Indian Industry, the Assocham has prescribed a minimum period of five years before the country and China finalise their FTA.

The high tariff regime in India at about 12.5 per cent and low tariff regime of China of less than six per cent, and FTA between the two countries might affect their economic efficiency as they would exclude and discriminate other countries.

''The ultimate goal should be an FTA with free flow of products and capital but in view of comparative disadvantage of India's manufacturing sector, a much lower tariff structure in China and its higher degree of openness, India-China FTA trade cooperation should start with an PTA with reduced tariff in a phased manner,'' Assocham president Venugopal N Dhoot said in a statement.

''This discrimination will work particularly against India because of its high tariff barriers. When India gives duty free access to China, tariff revenue previously collected on its import from China turns into export revenues for the exporting firm from China. In the process, Chinese firms will gain more compared to Indian exporters as Indian exporting firms have less to gain from the tariff free access in China,'' added Mr Dhoot.

Since India's tariff levels are much higher than China, any reduction in tariff will open the floodgate of cheaper imports from China. On the other hand, China's tariffs are already fairly lower than India. Thus, Indian producers can expect no serious market benefits from China through FTA. Any reduction in China's tariff will not increase India's imports to China in a significant way.

In 2004, China's simple mean tariff was 9.8 per cent and weighted tariff was 6.0 per cent whereas the corresponding figures for India were 28.3 per cent and 28 per cent respectively.

India has reduced its peak tariff to 12.5 per cent which is nearer to the ASEAN level. Even then Indian exporters cannot expect significant market benefits after an FTA whereas Chinese exporters can expect good gain from their exports, the study pointed out.

In 1994-95 India's export to China was 254.3 million dollars which increased to 5344.88 million dollars in 2004-05. India's imports from China went up to 6768.92 million dollars in 2004-05 from 761.04 million dollars.

Total trade between India and China was 18 billion dollars in 2005 and is expected to reach 50 billion dollars by 2010.

The problem for India is that the trade deficit with China has been growing from 506.74 million dollars in 1994-95 to 1,424.04 million dollars in 2004-05.

India's export to China consists of Iron ore, primary and semi-finished iron and steel, plastic and linoleum products, processed minerals among others while imports comprises electronic goods, coal, coke and lubricants as well as organic chemicals, silk yarn and fabrics, non-electrical machinery among others.

According to the study, the two countries formed a Joint Study Group (JSG) in June 2003 to expand trade and economic cooperation between them. In March 2005, the JSG prepared a report and recommended a China-India Regional Trading Arrangement.

UNI SG PBB VC1628

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