Three economists--Valerie Cerra of the IMF Institute, Sandra A. Rivera of the US International Trade Commission and Sweta Chaman Saxena of the University of Pittsburgh--have analysed the issue in the study titled: "Crouching Tiger, Hidden Dragon: What are the Consequences of China's WTO Entry for India's Trade?" The two countries have comparative advantages in sectors like textiles and clothing but tend to compete in different sub-groups, the study says.
India, it says, has some revealed comparative advantage in agricultural products and metals, while China has RCA in manufacturing of instruments, arms, toys and other products.
"Textiles and clothing represent the area in which India and China have the predominant revealed advantage. India has relatively higher comparative advantage in basic materials while China has a stronger comparative advantage in produced articles of clothing using textiles," it says.
Discussing the issue, the study says, "The US is the largest export destination for both countries, accounting for about 20 to 22 percent of their exports. Thus, India may be one of the countries most likely to experience trade diversion to China. Conversely, India may gain from opportunities to access the Chinese market as a result of China's commitments to reduce trade barriers.
"Accession will require China to substantially reduce tariffs on agricultural and industrial goods. In return, China will receive permanent most-favoured nation status with the US," it said.
The study further says that, "India's potential to export articles of metal and transport vehicles, beverages, fuels, chemicals and pharmaceuticals has been growing.
"Also India is expected to increase exports of its wood products, other manufacturing, beverages and tobacco, clothing, other food, light manufacturing, and process industries to China.
"India and China compete in third markets with a roughly one quarter overlap of products. They both have strong comparative advantage in textiles and clothing, but tend to specialise in different subgroups.
"Most regions of the world are expected to expand their trade with India, demanding more of their exports. Out of the 22 aggregated composite sectors, 19 Indian sectors are expected to export more after China's WTO accession.
"The overall trade picture for India is expected to be somewhat discouraging on a sectoral basis, although overall it is more hopeful than many other studies suggest.
Most sectors experience modest export growth, with the exception of textiles, clothing and electronics. The strongest growth sectors are light manufacturing, wood products and food grains, with light manufacturing sector experiencing an increase of 2 per cent in exports.
India is likely to lose export shares in markets, such as the US and EU, particularly for textile. Overall, India's economic welfare is expected to decline modestly owing to loss of market share and deterioration in terms of trade.
However, the simulations also demonstrate that other sectors are likely expand to partially offset these declines," it said.
