An important component in Chinese President Hu Jintao’s visit will be a push India to grant it a “market economy” status through a free trade agreement (FTA), something that most developed economies have so far refused. At the 2007 China Industrial Development Forum in Beijing , Chinese Assistant Minister of Commerce Fu Ziying said that in his country’s desire to “follow economic
globalization trends and push for the liberalization and facilitation of trade,” it is “considering FTA talks with India.”
Observers see this as a ruse by China to gain legitimacy as a “market economy” through a pact with India , widely respected world-over for its transparency in economic dealing and enjoying a good amount of respect with developing and developed nations. By getting India to accede on this issue, China hopes to rope in other developing nations with whom India has strong economic ties-- such as South Asian Free Trade Association, India-Brazil-South Africa, etc.
India is cagey about these discussions because of many reasons. Firstly, India has filed the largest number of parent violation cases against Chinese companies at the World Trade Organization. Secondly, despite Chinese denials, most countries feel that China excessively subsidizes its exportable products and is therefore not a free market economy. Thirdly, despite large Chinese grants and development assistance, only 15 of 53 African nations have granted China the status of free market. Fourthly, despite the opening of the Nathu La pass in July, trade through that pass is restricted only to a limited number of products because of fear that China will use the pass as means to reach the Bangladesh market. Fifthly, there is very little transparency in investments coming from China (and Honk Kong) and it is not known the means of earnings of the investors or their end game.
While India has agreed to begin process of FTA talks between two countries and the 1st round took place between the joint task force formed last September by the two nations, the agenda was limited to exploring terrific and investment oriented agreements and protocol. An FTA between India and China , two of the world’s most populous nations, will theoretically benefit more than 2.4 billion people (or about 50% of the world population).
China ’s growing influence in Asia , Africa , and South America has largely guided India ’s desire to make peace with China and also rebuilt millennium old relationship on economic grounds. It is mulling a Regional Trade Arrangement with China but also apprehensive on what this will end up as.
While India must strengthen its relationship with China , it needs to resolve many issues that would create a true long-term platform. Firstly, it must insist a quick resolution to flagrant plagiarization of Indian brands and products by Chinese manufacturers and must insist on mechanisms that will prevent such incidence in the future. Secondly, it must ask for more transparency in Chinese investment such as tax filings, sources of funding, etc. Thirdly, it must seek Chinese assistance to get an FTA with ASEAN going—talks have stalled primarily due to a recalcitrant Malaysia which wants great benefits for its own palm oil based products. Fourthly, there must be a cap on the number, quantity, and scope of products through Himalayan passes so Indian interests in Bangladesh and Myanmar are protected. Fifthly, there must be great dialogue and resolution on water management—a recent spate of media reports suggested a potentially disastrous proposal in China to divert a majority of the water from Brahmaputra to China . Sixthly, there must be transparency in subsidy mechanisms for its exportable products. Seventhly, China must eschew its unsustainable policy of importing raw materials to export value-added products.
India must ensure that these considerations are factored into negotiations