India in the WTO

I have earlier blogged about trade relations between India and China. Mr. Mao Siwei, Consul General of China in Kolkata made some interesting remarks recently at an Industry chamber meeting. Here is what he said about India-China trade:

Ladies and gentlemen, after talking so long about world meltdown, let’s talk about something exciting. That is about China-India economic relations. For the first time, China has become India’s largest trading partner and the bilateral trade reached 51.8 billion US dollars in the calendar year 2008. Ten years ago, the figure of China-India trade in 1998 was only 1.9 billion US dollars. This is a nearly 30-fold increase in just ten years. And also the first time in history, India has become the biggest overseas market for Chinese companies undertaking contract projects. Last year, Chinese companies were awarded contracts worth 12.9 billion US dollars for various construction projects in India.

We are in the era of globalization where economic ties constitute the basis of overall relations between countries. It is very much true for China and India.

China and India are two of the largest economies and both have established their comprehensive industry systems. But at the same time, the economic strengths of our two countries are very much complementary to each other.

India is strong in knowledge-based industries, especially in IT and pharmaceuticals. So many Indian companies in these sectors have established their offices, laboratories and factories in China and their business is doing quite well.

China is strong in manufacturing and infrastructure and many Chinese companies are doing business in these fields in India.

Mr Siwei does not give any figures for Indian businesses operational within China. These would have been interesting too.

Here is what he said about energy security and India-China cooperation in the power sector:

Recently I have found a phenomenon in economic cooperation between our two countries, which has been emerging in the power sector. Here I would like to talk a little bit more about it.

Indian economic growth has been on fast track these years and the issue of shortage of electricity needs to be addressed in a very urgent manner. The Government of India has set up an ambitious target with a time frame of ten years. That is: by year 2012, all electricity demand will be fully met; per capita availability of electricity will be increased to over 1000 units; and accordingly new electricity generation capacity of 100,000 MW will be added during the period from 2002 to 2012.

Now I am sure that this target will be achieved on time or even before the due date. One of the reasons is that the Electricity Act 2003 of India has opened the door for international competition and China’s major power equipment producers and power plant builders have been quite active in the Indian market since then. Now Chinese companies have obtained many contracts for power equipment and EPC power projects. According to an incomplete statistics, over 30,000 MW of equipment will be supplied by Chinese companies in the coming few years, which accounts for over 30 per cent of the capacity addition target of 100,000 MW.

This is really a new phenomenon in the history of China-India economic relations and is a win-win situation.

For China, after 20 years’ hard efforts, its capacity of producing power equipment and building power plants is now much larger than the domestic demand. At the end of last year, the total installed power capacity in China was almost 800,000 MW, which was 5.4 times that of India at the same time. And last year also, 133,000 MW of equipment was manufactured in China, which was nearly as much as the total installed power capacity of 147,000 in India at the beginning of this year. So to maintain and develop the capabilities of power equipment manufacturing and power plants construction, Chinese power industry has to go abroad. They have found many large markets in the world, but the Indian market is one of the largest.

For India, to achieve the target of addition capacity of 100,000 MW by 2012, international cooperation is very much needed and China is a natural choice for many reasons: one, nowadays in the world, only China and India are two large economies which still rely heavily on coal-fired power generation, and in this field major Chinese companies have the latest know-how; two, Chinese equipment is reasonably cheap while its quality is comparably good; and three, because of their large capacity and rich experiences, Chinese companies can deliver goods on time and do the job faster.

Power plant is a strategic project in terms of its long life of about 30 years and its significance to millions of people. So it is understandable that the Indian side has to attach great importance to the quality issue. Recently a few Indian newspapers reported some problems of power projects constructed by Chinese companies and suspected the quality of Chinese equipments. According to my knowledge, the reported problems are teething problems and all the power equipment producers and power plant builders, no matter they are Indians or foreigners, might have the same problems. But it may not be fair that just because you are newcomers, your problems are easily the news to the media. As I know, most of the contracts the Chinese companies obtained have been awarded by Indian companies in the private sector. Definitely, it is not an easy decision for private business people to make to invest billions of Rupees in a power plant. They have to do their homework seriously and have to make their research all over the world. Finally they have been convinced that to choose Chinese equipment is in their best interests. We don’t need to doubt about their wisdom.

Recently our Indian friends have been talking very much about energy security. Now I have a feeling that in a short term, or in next ten to twenty years, if there is one foreign country which will contribute the most to the development of India’s power sector, that country must be China.

Here is an interesting Business Standard story about little Chinatowns coming up in the Indian countryside for Chinese workers building power plants in India. I have highlighted some interesting bits.

Little ‘Chinatowns’ are springing up at different locations in India as more and more Chinese companies bag contracts to build steel and power plants in the country.

“We have executed, for a major secondary steel company, a township for 2,000-odd Chinese workers at a location in Jharkhand, where they would be erecting, commissioning and operating a combined steel and power unit,” the chairman of a leading architecture and civil engineering firm told Business Standard.

“The quarters are quite spartan, with basic sleeping and recreation rooms, and shower ranges and attached toilet units, but with the requisite engineering to permit a large number of people to use the facilities simultaneously,” added the architect.

He said it was the largest such township to be built in the country and the standards and designs were different and much closer to the Western designs than similar complexes built for Indian workers at offsite project locations.

While the steel company refused to be identified, or to name the Chinese party (saying it was commercially sensitive information), the chief financial officer (CFO) of the company confirmed that the Jharkhand unit would be using Chinese technology and rely on a core manpower team from that country to operate at the levels of efficiency promised by the Chinese equipment supplier. “We understand that the Chinese government has unofficially told their equipment suppliers that if they desired to draw support from government agencies like their export financing institutions, they would do well to use Chinese workers at offsite locations instead of using local workers as it would support jobs and families in their country,” said the CFO.

He said he estimated 3,500 Chinese workers were in East India alone, and another couple of thousand more in other locations in the country. Such residential zones for Chinese workers were coming up at three locations in West Bengal, with as many as five plants being set up using technology from the communist nation.

When contacted, two Chinese supervisors with English-speaking skills serving at projects in Bengal, said while they had problems with the quality and speed of work done by Indian workers, they found the working and living conditions comparable to the Chinese facilities.

“We find many of the foods we prefer and have collectively hired domestic staff from our country, while 60-70 of us have moved our families to Kolkata as well,” said Jin Bao, one of the two engineers. Chinese contractors acquired a formidable reputation after the EPC firm, Dongfang Electric Corporation, won at Rs 2,750 crore, the contract for the West Bengal Power Development Corporation’s 2×300 Mw Sagardighi coal-based power plant in the Murshidabad district.

The first Sagardighi unit began power generation in end-2008 with power load factor of 80-90 per cent, while the second unit’s synchronisation is due.

When contacted, sources in the Chinese consulate in Kolkata refused to comment.

Foreign teams working at projects is not new — Russians worked to build the Bokaro Steel Plant and some ordnance factories, the Germans set up the Bhilai and Rourkela steel plants and the British built the Durgapur steel plant in the past.

However, these expatriates usually lived in mixed areas in bungalows comparable to those provided to Indian officers, and not usually in separate enclaves. Besides, they were usually highly skilled supervisory staff and not expatriate blue-collar workers completely manning project erection responsibilities.

The Business Standard report also mentions allegations of violent conflict with local workers over and this is quite interesting “the quality and integrity of the work executed by local workers”. 

Interestingly, a secondary steel project in Bengal recently acquired sudden notoriety after 70-odd Chinese engineering workers allegedly beat up Indian workers following sharp differences over the quality and integrity of the work executed by local workers like fabricators and welders.

The conflict was so violent that the local police had to intervene, hospitalise a group of Indian workers and arrest some Chinese supervisors on specific assault charges, said a highly-placed bureaucrat in the West Bengal government. But he added that he did not expect such an incident to slow down the rush of Chinese project teams coming to India.

More from the Financial Times on Chinese involvement in India’s power infrastructure development.

The sixth round of India-EU FTA negotiations in New Delhi has Indian NGOs demanding access to “secret” FTA negotiating texts. The Times of India reports that protestors were detained outside the office of the European Commission in New Delhi. A body called the Forum on FTAs (described elsewhere as an umbrella group of 75 organizations) is spearheading these Indian civil society protests. An entity called FTA Watch-India has sprung up recently.

While I cannot comment specifically on the demands of this group in the EU-India FTA context, a discussion on how India makes its trade policy and whether it adequately consults with domestic stakeholders in formulating negotiating positions is much needed. Domestic stakeholders who ought to be consulted include not only NGOs, but also parliament, business, labor unions, farmers groups and consumers. Not much literature is available on the Indian trade policy-making process. There is however an interesting paper by Biswajit Dhar on this in a publication by IISD available here.  See Biswajit Dhar and Murali Kallummal, “Trade policy off the hook: The making of Indian trade policy since the Uruguay Round”, in Halle and Wolfe (eds.) Process Matters: Sustainable Development and Domestic Trade Transparency, IISD 2007.

I had earlier posted on a news report on the low appetite in India these days for new FTA commitments given imminent elections and the domestic impact of the global economic downturn. An Economic Times story shows that the concerns about the EU-India negotiations are not limited to civil society, but also emanate from business and agricultural economic interests.

Speaking to ET last week, a commerce ministry official sought to allay the growing concerns in domestic circles over the proposed India-EU economic agreement. “There are strong complementarities between the EU and India. After all, we have not yet reached the stage of making the trade-offs and so the fears being expressed now are unfounded,” said the official, who was busy preparing for the sixth round of India-EU bilateral talks beginning Tuesday.
This, however, could be an over-simplistic view. There is clearly a need for greater involvement of all stakeholders in the negotiation process. The high-level trade group which had drawn the broad contours of the agreement was not representative enough.
The EU is India’s largest trading partner, accounting for a fifth of India’s total trade and also one of the largest sources of foreign investment in India. As opposed to this, India currently accounts for less than 2% of the EU’s total trade.
Clearly, as things stand now, India has much to lose (or gain) from the agreement as compared to the EU. Note that the agreement would cover a gamut of areas—trade in goods and services, IPRs, cross-border investments, competition policy, government procurement etc. So India’s policymakers ought to be more chary of the proposed pact than their European counterparts. There is a need for more transparency as well as greater involvement of all stakeholders in the negotiations.
Going by the high-level group’s report, India might need to go WTO-plus in the area of trade in goods, with no commensurate reciprocal gestures from the EU side. The agreement would, as things stand now, allow India to keep just 10% of the tariff lines—which include both agricultural and industrial goods—outside its scope.
It may be noted that India has been resisting the multilateral (WTO) trade liberalisation deal even as it did not have to cut tariffs on 5%f agricultural tariff lines and only make less-than-average reductions in another 7%, and looked close to getting the freedom to keep 5% of industrial tariff lines outside tariff reduction formula. Besides, India has already got preferential (zero) access to EU in case of several tariff lines under the GSP system, which reduces the scope for India to gain in terms of reduction in tariff barriers by the EU.

India and China are in bilateral official-level talks in New Delhi. China is now India’s largest trading partner and India is China’s 10th largest trading partner. There is a huge trade surplus favoring the Chinese side, but China says it does not intentionally seek a trade surplus with India. From the new developments it seems unlikely that China will go in for formal WTO dispute settlement on the toy imports issue. The Indian government has admitted that the safety standards applicable at present exclusively to toy imports from China, need to be extended to imports from other countries and that comparable standards need to be put into place for Indian-made toys as well.

Xinhua reports:

During the talks, both sides agreed to set up a joint working team to coordinate and communicate regularly on the problems of bilateral trade, said the sources

    The Chinese side expressed great concern over India’s frequent trade remedy probes against Chinese products, especially the prejudicial restrictive measures against Chinese toys, and asked India to avoid abusing trade remedy measures to over-protect its domestic products, and to uplift the restrictive measures on Chinese products, which were imposed merely out of prejudice and contradicted the WTO rules, said the sources.

    The Chinese side also hoped that the two sides should solve bilateral trade disputes through government-to-government communications and coordination and strengthening of dialogue between the industrial sectors of the two countries, said the sources.

    Vice Minister Zhong said at a media conference that China reserves the right to resort to the WTO dispute solution authorities over India’s ban of Chinese toys, but still believes the two sides have the capability and wisdom to solve this problem through communications and coordinations

    Secretary Pillai said that according to Chinese statistics, bilateral trade between India and China has attained a volume of 51.8 billion U.S. dollars in 2008, so China has overtaken the United States as India’s largest trade partner.

    Pillai expressed his hope that both sides expand bilateral trade and investment, and stand up against trade protectionism, saying India is willing to solve the problem of on-going anti-dumping and anti-subsidy investigations against Chinese products through coordination at the level of the joint working team.

    In order to avoid possible prejudice against Chinese toys, India will also study and make up as soon as possible the safety standards for toy products, so that all imported toys and domestically made toys will all abide by the standards, he added.

    The Indian side also hopes that China will solve as soon as possible the problem of quarantine and safety tests for Indian agricultural products and beef products bound for Chinese market, and take concrete measures to expand import of such products from India.

    The Chinese side said that China does not intentionally seek trade surplus with India and wants to have a balanced development of bilateral trade and push forward the solution of the problem of quarantine for Indian food products.

    According to statistics of Chinese Ministry of Commerce, from October 2008 to February 2009, India has launched 17 trade remedy probes, including those of anti-dumping and anti-subsidy, against Chinese products, covering industrial salt, steel, auto parts, coal products, porcelain products, textile and rubber products, which means a total loss of more than 1.5 billion U.S. dollars for the Chinese producers and traders.

    Moreover, the Indian government has imposed restrictions on imports of Chinese steel, chemical and textile products and declared a six-month ban of Chinese toys in January. But due to opposition of home toy dealers, India has eased the ban on boys and allows import of products with international safety certificates.

The USTR has released its 2009 Trade Policy Agenda and 2008 Annual Report (these can be accessed here) and the section on India would be of interest to this blog’s readers. This is extracted below: 

5. India

a. General

The United States and India completed another year of active dialogue on trade policy in 2008. The bilateral trade agenda continued to expand to support the significant opportunities for bilateral trade and investment that U.S. and Indian companies are pursuing. The Civil Nuclear Agreement signed on October 10, 2008, opens the door even wider for U.S. exports to help India meet its tremendous energy needs. That said, many challenges to trade and investment in India persist, and USTR continued to work with the Indian government to address such concerns as India’s tariff and tax regime, intellectual property rights policies, investment climate and regulatory hurdles. India continues to limit market access in various sectors through non-tariff barriers such as high border taxes and tariffs, foreign direct investment caps, non-transparent procedures, and discriminatory treatment of imports. Despite these barriers, trade expanded rapidly. In 2008, bilateral goods trade totaled $45 billion. Bilateral services trade totaled $19 billion in 2007.

b. Trade Dialogue

Ambassador Schwab and India’s Minister of Commerce and Industry Kamal Nath convened the fifth ministerial-level meeting of the United States-India Trade Policy Forum (TPF) in February 2008 in Chicago, Illinois. The discussions under the TPF cover bilateral trade, investment and related issues and also address multilateral issues such as the ongoing WTO Doha Round negotiations. The TPF is part of the overall Economic Dialogue between India and the United States. Through regular dialogue under the TPF, the United States and India seek to remove impediments to bilateral trade and investment by anticipating potential trade problems and jointly resolving concerns.

The TPF serves as the umbrella for five Focus Groups: Agriculture, Tariff and Non-Tariff Barriers, Services, Investment, and Innovation and Creativity (focusing on intellectual property rights issues). Ongoing Focus Group discussions in 2008 addressed priority issues such as foreign direct investment caps, intellectual property rights protection and enforcement, restrictive Indian telecommunications policies and market access for a wide range of manufactured and agricultural products and services. Noteworthy developments in 2008 included the agreement to launch negotiations on a bilateral investment treaty and India’s withdrawal of certain import restrictions on fresh fruit.

Another development in the 2008 bilateral U.S.-India trade dialogue was the Private Sector Advisory Group’s (PSAG) identification of key policy issues on which it would provide strategic recommendations and insights to the TPF. The membership of the PSAG includes trade experts and representatives of private sector organizations in the United States and India with in-depth knowledge of international economic and trade policy. The PSAG identified completion of a bilateral investment treaty as its top recommendation.

In addition to the February 2008 TPF meeting, Ambassador Schwab and Minister Nath met a number of times in the context of the Doha Round negotiations in an effort to find common ground in the pursuit of an ambitious outcome.

With regard to intellectual property rights, the United States has been working constructively with India to improve its IPR regime. The U.S. dialogue with India takes place through the TPF’s Focus Group on Innovation and Creativity, the Commerce Department-led High-Technology Cooperation Group, and work by the U.S. Government’s Intellectual Property attaché stationed in New Delhi and other government officials from multiple U.S. Government agencies. There has been some progress in India’s protection of intellectual property rights, including through the introduction of the proposed Drugs and Cosmetics (Amendment) Bill 2008 that will increase penalties for spurious and adulterated pharmaceuticals, and create a Customs recordation system. However, India still needs to improve its copyright regime to address issues related to protection of digital works on the Internet, strengthen its patent regime, including by clarifying the scope of patentable subject matter, provide effective data protection for pharmaceutical and agricultural chemicals, and increase enforcement against piracy and counterfeiting.

The Business Standard has an article with an update on India’s FTA negotiations. The outgoing government has only signed 1 out of the 15 proposed FTAs on which it initiated talks.

Here’s the article in full:

UPA’s FTA success rate 1 out of 15

Rituparna Bhuyan / New Delhi February 25, 2009, 0:56 IST

The United Progressive Alliance (UPA) government, which initiated talks on about 15 free trade agreements (FTAs), could sign only one of them during its current tenure.

Opposition from the domestic industry lobby in some FTAs and inconclusive negotiations in other cases were reasons for slow progress in finalising FTAs with trade partners, experts said.

Government sources said that at least three of the proposed trade treaties, negotiations on which were concluded last year, would be cleared by the new government that takes charge at the Centre in a few months.

The present regime signed the Comprehensive Economic Partnership Agreement (CEPA) — which covers goods, services and investment — with Singapore in mid-2005.

* Talks Completed with Asean (FTA on goods), South Korea and Sri Lanka

* Ongoing talks with Japan, European Union, European Free Trade Association, Southern African Customs Union, Gulf Co-operation Council, Malaysia, Thailand and New Zealand

* Joint study group formed with China, Australia , Russia and Indonesia

“The fact that not many FTAs were sealed shows the cautious approach of the policy makers,” said Ram Upendra Das, fellow, Research and Information System for Developing Countries (RIS). “But India has recognised that these duty-free agreements are the order of the day as other countries are engaging in similar deals. Indian exporters will be left out if the nation does not engage in these type of agreements with its trading partners”, he added.

Government sources said that the ambitious FTA with the Association of South-East Asian Nations (Asean) and a CEPA with South Korea were unlikely to be cleared by the Union Cabinet. Talks on both these agreements were concluded successfully in 2008. After successful conclusion of talks, the agreement has to be approved by the Union Cabinet before it can be signed.

“The call on these two agreements is likely to be taken by the next government,” said a government official, adding the Cabinet had met probably for the last time on Monday before dates for the elections are announced next week.

There was no announcement on the South Korean and Asean duty-free agreements. Once elections are announced, the Cabinet will not be able to clear any proposals.

Sources added that the government was facing a lot of opposition from the industry on these two FTAs, as it is wary of any cheap imports at a time when the domestic economy is going through a downturn in the wake of the global economic crisis. The Asean FTA was to be signed in December 2008, but was postponed because of a domestic strife in Thailand, an Asean member.

Moreover, a separate CEPA with Thailand could not materialise as India first wants to sign the deal with Asean. “Thailand has also asked for some additional concessions,” officials said. Meanwhile, Both the countries have are trading through a Early Harvest Scheme (EHS), which translates to duty free trade of about 84 goods.

Experts maintain that given the present economic situation, FTAs could wait. “We do not know how things will shape up in the near future. It probably makes sense at times of uncertainty to calibrate policy to suit domestic needs,” said Bishwajit Dhar, head of centre for WTO studies at Indian Institute of Foreign Trade.

But Das feels that as the United States and Europe see a downturn, India needs to diversify its exports and imports.

Significantly, a CEPA with Sri Lanka could not materialise because of the political developments in the island nation. The agreement was to be signed on the sidelines of the SAARC meeting in Colombo in August 2008. Government officials maintained that Sri Lanka did not want the CEPA due to opposition by some political parties. Both the countries already have an operational FTA, covering goods, since 1998.

An agreement with Japan, which was scheduled to be concluded by the end of 2008, is also stuck. The bone of contention was the reluctance of the island country to allow easy market access of Indian pharmaceutical products.

IPS in a report on the EU’s ambitions on FTAs with Asian partners writes about the FTA with India that the EU is currently negotiating. Some excerpts:

Mauro Petriccione, a director in the European Commission’s trade division, said on Oct. 6 that the lack of progress made in discussions with ASEAN has meant that the idea of negotiating a deal with just a few of its 10 member countries is being explored. ASEAN groups Singapore, Malaysia, Thailand, Burma, Vietnam, Laos, Cambodia, the Philippines, Brunei and Indonesia.
And while the European Parliament, the EU’s only directly-elected institution, called last month for an FTA with India to be finalised by the end of 2008, Petriccione acknowledged that attaining such a deal will be very difficult.
One of the problems is that the EU had started the negotiations on the tail of a reform movement in India, he told a seminar organised by the European Policy Centre, a think tank in Brussels. ‘’If it (the movement) is not stopping, it is at least slowing down.’’”
Petriccione was alluding to an economic liberalisation process initiated by Manmohan Singh, now India’s prime minister, when he held the finance portfolio in the 1990s. Under this process, the country’s investment rules were relaxed in order to entice multinational firms into the country.
In recent times, however, the Indian government has adopted a more cautious approach towards international commerce. India’s demand that it be allowed to restrict food imports in order to protect its farmers was blamed by the United States for the failure of efforts to revive the Doha round of world trade talks in July.
India has also taken a tough line in its bilateral dealings with the EU. It has, for example, been urging that the liberalisation of trade in services should enable its skilled professionals to work freely in the EU, despite efforts by the Union to curb immigration.
A paper published by the European Commission last year predicted that securing trade deals with Asia would bring major benefits to both continents. The combined effect of agreements with India, South Korea and ASEAN should be worth an extra 40 billion euros (54 billion dollars) to EU exporters per annum, the paper predicted. The Asian economies, meanwhile, should see their exports to the Union grow by between 18 and 36 percent, according to the Commission.
But a new analysis by ‘Traidcraft’, a British organisation promoting fair trade, contends that a free trade deal with India could have harmful consequences for the country’s poor. Losses in government revenue due to a lowering in tariffs on imports could lead to cutbacks in spending on health and education, says the report, while the opening up of the economy to large retail chains could jeopardise up to 40 million small shopkeepers or hawkers.
Sophie Powell, a Traidcraft campaigner and author of the report, said that the EU is wrong to depict India as its economic equal. Even though it has more than double the EU’s population size, India’s gross domestic product is only about six percent of the Union’s. Powell noted, too, that the EU’s own assessments of the likely implications of a free trade deal forecast that millions of Indians will lose their jobs in sectors ranging from paper to car-making.
The EC’s gung-ho approach to trade negotiations with India present clear risks to millions of India’s most marginalised people, she said. A fundamental rethink of EU trade policy is needed.”
Razeen Sally, an academic working in the University of Hong Kong, said it was probably a mistake to launch free trade negotiations between the EU and India.
India is not serious about FTAs, he claimed. Its unilateral reforms have stalled under the present government since 2004. India has been very defensive in the WTO (World Trade Organisation) and its track record on existing FTAs, except for one with Singapore, has been very bad, he added. ”

The Traidcraft report can be found here.

Continuing on the topic of the previous post, an American Professor of Strategy and Organization, School of Business, University of Maryland, (Ralph J Tyler) had an interesting opinion piece in the Economic Times earlier this year in January. He writes that by 2050, the bilateral trade relationship between India and China will be the most important economic relationship in the world. Tyler argues that India should grant China market economy status because:

While government subsidies do remain an issue in some industries in China, there is no evidence that this problem is endemic throughout large sectors of the Chinese economy. Also, other countries (such as Russia) which suffer from similar problems already enjoy a Market Economy Status.
Whether or not a country grants MES to China has minimal impact on trade balance with China. Take the US as an example. Even though the US has not granted MES to China, its trade deficit with China was $162 billion in 2004, $202 billion in 2005, and $232 billion in 2006. Thus, from China’s point of view, whether or not a country grants MES to it has little substantive value. The value is entirely “symbolic” and, as we know well, symbolism is a hugely valued commodity in China.
In any case, China will automatically get the Market Economy Status around 2015-16. Thus, for China, the symbolic value of getting MES goes down with each passing year. If India were to grant MES to China now (rather than after Japan, the US, or the EU have done so), the symbolic value to China will be much greater than if India were to be a mere follower.
Granting MES to China will not take away India’s rights to file legitimate anti-dumping cases. Even after China is granted MES, it has to provide verifiable information to the country filing an anti-dumping complaint. If such information is not provided, the latter retains the right to use the best information available, including third-country (surrogate) information. As it is, the current anti-dumping cases filed by India against China total less than 5% of China’s annual exports to India. In short, the substantive value of granting or not granting MES to China is insignificant not just for China but also for India. Yes, India will have a $9-10 billion trade deficit with China in 2007; however, MES has little if anything to do with the trade deficit.
Substance aside, if India were to grant MES to China before Japan, the US, and the EU do so, the symbolic value to China will be very high. If India is smart, it should exploit this opportunity to the maximum by getting quid-pro-quo concessions from China on issues that matter enormously to India (e.g., a settlement of the border disputes). In essence, India should look at MES for China as an issue whose salience rests almost totally in non-economic rather than economic domains.
We agree that, at the margins, granting MES to China will put greater pressure on Indian manufacturers to become more efficient (and on the Indian government to accelerate the elimination of India’s disadvantage in infrastructure).
However, this pressure is likely to be a net plus. India’s political and business leaders have always responded with vigour to external economic pressures and competition. Look at the country’s response in 1991. Or, look at the accelerated pace with which India’s IT giants are globalising their footprint and moving up the value chain in response to an appreciation of the rupee and growing competition from other countries.

On the growing importance of India China trade he writes:

Each country’s aggregate international trade is expanding by 23-24% annually. In comparison, India-China trade grew at a 50% rate during 2002-2006 and will increase by a further 54% during 2007 to reach $37 billion.
Second, after adjusting for partner GDP (i.e., bilateral trade divided by the trading partner’s GDP), India’s trade with China is greater than that with Japan, the US, or the entire world. After similar adjustments, China’s trade with India is only slightly below that with Japan, the US, or the entire world.
Third, China already is (or will shortly become) India’s number one trading partner. From China’s side, India already is one of its top ten trading partners. Also, China’s trade with India is growing much faster than with any of the other nine. Thus, India is rapidly becoming an increasingly important trading partner for China.
Fourth, India’s overall international trade is significantly below that of China’s, in terms of both absolute figures (for 2006, $306 billion vs $1,760 billion) as well as relative to GDP (34% of GDP vs. 65% of GDP).
Fifth, even if the growth rate in India-China trade slows down to 25% annually (a conservative projection) from the current rate of over 50%, bilateral trade between them will be almost $75 billion in 2010 and $225 billion in 2015, i.e., as large as China-US trade just three years ago. These are very large numbers. Political and business leaders need to start getting ready now for this radically different world.
Trade theory tells us that, in an increasingly flat world, trade between two countries should be a multiplicative function of their GDPs. Since it is almost certain that, by 2050, China and India will be the two largest economies in the world, it is inevitable that bilateral trade between them will become the most important economic relationship in the world.

Tyler offers an interesting stance on investment ties between India and China:

At present, investment links between the two countries are relatively modest. Haier and Huawei have significant presence in India. Similarly, Bharat Forge, TCS, and Infosys are building a noteworthy presence in China.
These types of greenfield investments will continue to grow. However, the quantum leap will come as some of the bigger companies from India and China acquire third-country companies that already have a significant presence in the other country (e.g., if an Indian auto company were to acquire a western auto company with significant presence in China). It is certain that, over just the next five years, we will see a growing number of foreign acquisitions by Indian and Chinese companies. As these acquisitions materialise, it is inevitable that investment linkages between India and China will grow rapidly.

According to CCTV.com, India China trade was 39 billion US dollars in 2007 (a 50% increase over 2006). Both countries want to raise this to 60 billion US dollars by 2010. A high level business delegation is visiting India and a number of deals have been signed to help achieve this. CCTV.com writes:

The deals signed covered different sectors including textile machinery, garments, steel, agriculture, and electronics. The total value was about 370 million US dollars.

Besides bolstering two way trade, the deals are also considered a way to escape the deadlock that scuppered ministerial talks at the World Trade Organization in July.

G. K. Pillai Indian, Commerce Secretary, said, “India and China have had a very close cooperation in the WTO as we have supported each other in ensuing a development dimension to the Doha round of talks and we hope to take this cooperation further in our bilateral relationship to increase trade between our two countries.”

The Chinese delegation says the documents signed can help reduce the trade deficit, by at least nine billion dollars, if not more. India has accused China of dumping at WTO conferences, and the Chinese side said increased negotiation and cooperation is important to resolve the problem.

The Financial Express has more:

Opening a new chapter in the India-China business relations, the two countries are expected to sign at least 36 memorandum of understandings (MoU) in different sectors that would be worth $370 million during the maiden Chinese business delegation’s visit to India scheduled for next week.

Talking to FE, sources in Ficci said that the 60-member delegation coming from China will be inking MoUs in various sectors including: Textile machinery, garments, steel, agriculture, science and technology and electronics.

Business delegation from China, comprising all the major Chinese companies, is arriving here next week on the first-ever ‘government procurement’ mission to India that Beijing hopes will reduce the nine-billion dollar plus trade gap that exists between the countries. Chinese vice minister of commerce Gao Hucheng is leading the impressive delegation that will have senior executives of China Chemicals, China Petrol, China Machinery, China Grid and Sino Steel, Sinochem Corporation—all leading state-owned enterprises—as well as other representatives of key Chinese companies.

Representatives from some of the Indian companies which will be signing the MoUs include Reliance Industries Ltd, Allianz India, Bharat Mining Co, Ranbaxy Laboratories Ltd and Kotak Ginning and Pressing Ind Ltd.

The EU is at present India’s largest business partner with trade worth 56 billion Euro. Indian trade with both China and the EU is targetting 100 billion $/Euro by 2013. It is also being reported that a feasibility study for an India China FTA is now complete.

The Economic Times had a few weeks ago, reported on how Indian buyers were increasingly sourcing from low-cost China to beat inflation.

India importers are looking to China manufacturers more and more to fight rising costs, according to dual surveys released by trade publisher and trade show organizer Global Sources.
The surveys, conducted in July and August, tracked the views of thousands of volume importers and purchasing managers who supply India’s retail distribution channels. The surveys focused on consumer electronics and hardware and building materials – two of India’s fastest growing segments.

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“Supply-chain management is becoming more efficient in India. And these buyers are looking to China manufacturers to supply this ever-changing need for products.” Around 90 percent of survey respondents said they felt China suppliers offered end-consumer a wider selection of products at reasonable prices. Over 95 percent of respondents to both surveys indicated they would increase their purchases of products from China in the coming year.

This report also has some more statistics on India China trade:

Last year, China became India’s largest trading partner – overtaking the United States. While Indo-US aggregate international trade is expanding by 23-24 per cent annually, India-China trade grew at 50 per cent during 2002-2006 and increased by 54 per cent during 2007 to reach 37 billion dollar.

And here the Economic Times writes about how China and India need to understand each other better:

Two “distant” neighbours. Decades of communication gap. Lack of connectivity. Inadequate understanding of each other’s cultures, systems and orientation. This is the India-China relationship, or lack thereof, since the early 60s.

In the late 90s, Indian Industry was running scared of competition from China, partly out of ignorance and partly because of lack of competitiveness.
Much of this is past — trade and investment have taken quantum leaps. From $40 bn bilateral trade in 2007 its heading towards $60 bn now. But the basic problem remains. There is still lack of understanding of the Chinese — and China — in India, among Indians.

The role of the Indian parliament in trade policy making has mostly been marginal. While many countries (both developed and developing) struggle with ensuring democratic control over trade policy making through parliamentary supervision, the issue in the Indian context, needs to be considered in the light of the low quality of parliamentary governance in India in policy making overall. While some (perhaps rightly) argue that more parliamentary supervision in India of trade policy making will make any policy reform impossible and create efficiency concerns, the need for democratic control over trade policy making – a component of governance that affects every citizen, is also an issue that cannot be ignored in the long term.

This call from one of India’s leftist political parties for the India-EU FTA to be debated in Parliament is therefore important. According to the Hindu newspaper:

Ahead of the ninth India-European Union Summit in Marseille, the Communist Party of India (Marxist) on Saturday asked the United Progressive Alliance Government not to make any commitment on the Free Trade Agreement without a debate in Parliament.

As Prime Minster Manmohan Singh leads the Indian delegation for the summit on Monday, the Polit Bureau, in a statement, said it was a matter of concern that while the European Parliament had already discussed the issues related to the proposed FTA, the Indiangovernment was yet to share details of the negotiations with Parliament and people.

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The draft proposals, existing negotiating positions and studies conducted by the Indian government on the India-EU FTA should be placed and debated in Parliament before it initiated any further step, the statement said.

Kamal Nath and the Singapore trade minister announced the successful end of the talks in Singpore today. Read more here. Some facts:

Total trade between the 10-member ASEAN and India amounted to 37 billion US dollars in 2007, up 29 percent from the previous year.

India is seventh on the list of ASEAN’s biggest trading partners, trailing Australia, South Korea, China and others, according to ASEAN figures.

The FTA covers only goods, but talks are expected to follow on a services and investment agreement.

The Business Standard reports on the renewed urgency that the Geneva Doha failure of July lent to these talks being finally concluded after having been delayed. It also has more information on what the deal contains:

India, on its part, has agreed to lower import duties on nearly 96 per cent of the items it trades with Asean, while protecting nearly 490 highly sensitive products in the agriculture, textile and chemicals sectors. Asean, too, has shown ample flexibility in accepting some Indian positions though it had, in the last annual India-Asean summit in Singapore in November, virtually ruled out further negotiations until India came up with substantially better offers. Most of the group’s members were unwilling to allow protection for over 400 items and especially not to the ones of interest to them in agriculture as well textile and chemicals. These included, besides palm oil, items like pepper, tea and coffee. However, all that is past, though in the process Asean has also got concessions from India to shield its turf when it comes to automobiles and steel. In the case of the almost intractable issue of duties on palm oil and its derivatives, equally critical for a major importer like India as it is for exporters like Malaysia and Indonesia, the two sides have agreed to follow a middle path, agreeing to a tariff ceiling of 37.5 per cent for crude palm oil and 45 per cent on its refined version. In the event, this turned out to be the clinching point for the pact.

Is the future an Asian common market, with Asean already having signed agreements with South Korea, China and Japan, and negotiating with Australia and New Zealand?