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FICCI warns against FTA with China

October 18, 2007 22:18 IST

Apex business chamber FICCI on Thursday said India should not rush into a Free Trade Agreement with China, warning that ambitious tariff cuts can derail the growth momentum in bilateral trade.

FICCI said India should also not grant the 'Market Economy Status' to China for the time being.

"The idea of a full-blown FTA with China is much ahead of its time and India must wait before considering market economy status for its eastern neighbour, which is characterised by a different operating environment for business and range of subsidies," the chamber said.

It is imperative to have a level-playing field between businesses of India and China before initiating negotiations towards a possible bilateral trade agreement, FICCI said in its study on 'Granting Market Economy Status to China: Views from Corporate India'.

The Chinese industry has an unfair advantage over its Indian counterpart due to factors like across-the-board state support for domestic companies, array of tax exemptions and artificially undervalued Chinese currency.

"The practice of managing the Chinese Yuan at a low level and preventing it from moving upwards amounts to an effective export subsidy, putting Indian businesses at a relative disadvantage vis-à-vis supplies from China," the industry body said.

It quoted a research paper which stated that an FTA would lead to sizable welfare gains for China and losses for India.

While welcoming the upswing in trade between the two nations, FICCI said a careful and gradual approach should be adopted for the FTA to ensure that the growth momentum of two-way trade remains sustainable.

Any sudden, ambitious or deep tariff cuts would disrupt the process and make the fast-growing bilateral trade relations unsustainable, FICCI said. It further said India should not grant 'market economy status' till China makes its pricing and accounting systems more transparent, market-oriented and a level playing field is established between the two nations.

While 76 countries have recognized China as a market economy, this status has not been granted to it by its top trading partners such as USA, EU and Japan which together account for 48 per cent of its total exports. The two economic powerhouses initiated a joint feasibility research in April 2005 for a proposed FTA.

Trade between China and India grew 56.8 per cent year-on-year in the first four months of 2007 to 11.4 billion dollars.

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