Industry urges govt to go slow on FTAs

New Delhi, Apr 5: Industry chamber Assocham today urged the government to go slow towards Free Trade Agreements (FTAs) with various countries, especially China unless Indian Inc is taken into confidence.

Assocham President V N Dhoot said trade and comprehensive economic agreements have been signed in the past with various countries and regional blocks that have resulted into a few fallacies and hurt economic interest of Indian industry. He added that this should not be repeated as far as proposed FTA with China is concerned.

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

''Chinese currency is devaluated and in this way gives indirect subsidy to the local companies, whereas the Indian companies do not get such benefits,'' Mr Dhoot said releasing the study on 'India's FTA's and the Indian Industry 2008' here.

He argued that the high tariff regime in India is at about 12.5 per cent and low tariff regime of China is of less than six per cent and FTA between India and China might affect the economic efficiency between these countries as they would exclude and discriminate other counties.

This discrimination will work particularly against India because of its high tariff barriers, he said, adding that when India gives duty free access to China, tariff revenue previously collected on its import from China will turn into export revenues for the exporting firm from the country.

He opposed FTA with China in one go, advising the government that a comprehensive prior consultation with Indian Inc is necessary before such an FTA is agreed upon, which ought to be preceeded by Preferential Trade Agreement (PTA).

The chamber president said 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 a PTA with reduced tariff in a phased manner.

The chamber has prescribed a minimum period of five years before India and China finalise their FTA with extremely cautious approach towards it to help India nurture its business interests since India's tariff structures are much higher as compared to China and can flood India with China's products. The study points out that apprehensions are that 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. Therefore, 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 six per cent, whereas the corresponding figures for India were 28.3 per cent and 28 per cent respectively.

India has reduced it 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, further points the Study.

In view of the comparative disadvantage of India's manufacturing sector, a much lower tariff structure in China and its higher degree of openness, an India-China FTA trade cooperation should start with PTA having reduced tariffs in a phased manner.

The chamber, however, said India and China trade has been growing very rapidly. In 1994-95 India's export to China was 254.3 million dollars which increased to 5,344.88 million dollars in 2004-05.

India's imports from China went up to 6,768.92 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 etc. India's imports from China have been generally electronic goods, coal, coke and lubricants as well as organic chemicals, silk yarn and fabrics, non-electrical machinery.

UNI