China’s demand on tariff elimination may mar India’s regional trade pact hopes

27 May 2016


An aggressive stance by China that India eliminate duties on almost all categories of items, including sensitive ones such as steel, electronics and chemicals, may mar on-going negotiations for the Regional Comprehensive Economic Partnership (RCEP) pact.

China's demand has gone much beyond the initial understanding between the two countries on eliminating tariffs on 42.5 per cent of trade items.

Given the economic conditions and trade prospects in a low demand environment, the two countries have taken an initial decision to keep ambitions low, at least in the first round of negotiations.

''We have already held bilateral discussions with China on the sidelines of the last RCEP meeting in Australia asking it to be realistic and bring down its demand. But we have not yet received a positive response,'' commerce ministry officials point out.

New Delhi is in a dilemma as the Indian industry is still dependent on imported technology and is unable to find its own moorings while China is producing for the world. China can churn out products at prices that no other producers in any other parts of the world can match and this is a big threat for any country wanting to enter into a trade pact with China.

''What has made matters worse for India at the RCEP is the fact that most members want tariffs on goods (the agreed number of items) to be reduced to zero within a ten-year time-frame, in line with the ambitious Trans Pacific Partnership agreement between the 12 Pacific Rim countries led by the US,'' reports quoted officials as saying.

The RCEP has set a 1 June deadline for all members to give their first round of requests to other members, based on the initial offers made by each, as efforts are on to wrap up the pact this year. ''While there are a number of items, including agriculture products, pharmaceuticals, auto components, marine products and metals where our industry has aggressive interests in China, we are apprehensive about asking for too much as it may lead to China justifying its own high demands placed before us,'' the report quoted the official as saying.

In the first round of offers, India agreed to eliminate tariffs on 42.5 per cent of items for China, Australia and New Zealand, 65 per cent for Japan and South Korea and 80 per cent for the ASEAN.

RCEP is important for India as it would be a counter to the bigger Trans Pacific Pact proposed by US and other major traders in the region.

At the next round of RCEP in New Zealand next month, India will try to negotiate for a longer implementation time-frame for goods as well as reiterate its demand for a good deal in services, especially related to free movement of workers.

The RCEP, being negotiated between 16 countries, including the 10-member ASEAN bloc, seeks to create one of the largest free trade blocs in the world, as the countries together account for 45 per cent of the world population and over $21 trillion of gross domestic product.

India's trade deficit with China has already crossed $52 billion in 2015-16 with its imports increasing 2 per cent to $61.7 billion and exports decreasing 24 per cent to $9 billion. RCEP could only widen that gap under present circumstances.

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