China and India between trade cooperation and competition

At the first meeting of the Joint Study Group (JSG) in 2003, India and China had commended a China-India Regional Trading Arrangement, comprising of trade in goods and services, and investments; identified understandings for trade and investment promotion and facilitation; and measures for promotion of economic cooperation in identified sectors.
The JSG recommended the two governments to appoint a Joint Task Force to study in detail the feasibility of, and the benefits that may derive from the China-India Regional Trading Arrangement.
Wen Jian Bao in his 2005 visit had shown China's support for the establishment of a Free Trade Area between the two countries. The agreement would allow China and India to work beyond the conventional framework of World Trade Organization, to reduce tariffs even further and boost commercial bilateral trade.
According to the 2007 Joint Task Force's final feasibility report on the China-India Regional Trading Arrangement (RTA), the RTA would be mutually beneficial. Despite the efforts carried on by the governments, Chinese experts had doubts on the feasibility of the Free Trade Area in the short term and its importance: "Although an FTA between China and India will be hard to achieve in the short term, its significance in forming a multi-party regional free trade system is apparent, given the huge population and size of the two countries." China is enjoying a trade surplus with India. At the time of the first discussions, the surplus amounted to US$ 1.5 billion, but by now has reached US$ 20 billion. Indian commerce ministry officials have stated that if China does not address the Indian trade deficit issue, the FTA will fail to materialize. Indian politicians also feared that the FTA would favour Chinese exports over Indian domestic products. China needs to lower non-tariff barriers to facilitate the increased movement of goods over the border in the other direction, argues India.

Some trade frictions that might discourage a FTA have also came up. India has continued to impose anti-dumping duties on Chinese products, the highest by any country at the World Trade Organization in 2009, claiming that the prices of some imported goods from China are less than their normal value. On the other hand, China has raised objections to India's stringent regulations in sourcing power and telecom equipment, calling them discriminatory. Some analysts also consider that a competitive disadvantage and poor quality of transport infrastructure in India may be one reason why India is opposed to the idea of an FTA with China. China is on the first position in terms of global manufactured goods production, it is the most competitive country in the world. India, which is at second place but far behind China, has a long way to go before the two countries can be comparable. Furthermore, China is a non-market economy, therefore the amount of subsidy it provides to its manufacturing sector is uncertain. China, having officially joined WTO in September 2001, will only be treated as a market economy starting 2016, according to WTO rules. The non-market economy status allows other countries to impose additional duties on China's products until 2016. Indian exports to China are also limited by the inflexible Chinese currency, because the price in yuan is an artificial price and it makes it difficult for Indian exporters to match it; as well the time-consuming process for registration by pharmaceutical companies, a process which in other parts of the world takes only ninety days, in China it takes more than a year. In conclusion, discussions for the implementation of the Free Trade Agreement are progressing, but before it can be implemented both countries need to address several challenges. In the last 2010 meeting, China stressed its commitment to the realization of the FTA: "The free trade agreement is the next stage. It is our hope that we can start the process," said Zhang Yan, Chinese ambassador in India; But India seems more cautious: "It is premature to talk of an FTA with China at this moment", said FIEO director general Ajay Sahai.
Bilateral trade is a strong tie between China and India. It has been a tool to mediate and solve border dispute, but it is not possible to definite it a cooperation. Collaboration could be plausible because the two countries are specialized in two different sectors: India in services and China in manufacturing, but considering the recent Chinese investments in IT and biotechnology and Indian investments in industry it appears that there is no intention of truly letting one country prevail in a sector. Considering the composition of the bilateral trade basket it is clear that China has an edge on India: China imports raw materials, while India needs to import manufactured products due to the underdevelopment of its industries. India's exports to China are overwhelmingly dominated by low-value, primary products which means that the benefits of value addition including increased employment, higher profitability, technological up gradation, and so on are lost. The trade deficit between the two countries represents the main obstacle to the completion of a Free Trade Area. Despite the many meetings and agreements, the numerous Joint Working Groups and the high figures of bilateral trade, China and India have not built a balanced partnership: both of them compete for leadership, but China keeps strengthening its dominant position and India needs to act in order to avoid its trade dependence from China from becoming an instability issue. Widening the analysis to the world context, China and India have come to play an increasingly significant role: every nation is aware of the importance and the relevance of the two Asian giants. Considering their long history, but their recent and fast economic development, China and India accomplishments in world commerce are beyond doubt remarkable; but again, their performance is not comparable: China advantage over India is shown also in world trade.