India Resisting Economic Pacts In The Region

Economy

India Resisting Economic Pacts In The Region

India's next generation free trade agreement - the Economic and Technical Cooperation Agreement (ETCA) - with Sri Lanka seems to be running into rough weather. Sri Lanka's trade and industry has not been happy with the earlier FTA that was signed in 2000 with India.

"The actual working experience of the FTA for the past 17 years is responsible for the opposition. A variety of means have been resorted to, that make it difficult for Sri Lankans - import licenses, restrictions on ports, times of the year they are allowed to use the ports, certification and quarantine times," said G L Peiris, the leader of the Joint Opposition (JO), who visited India recently. He went on to warn of opposition protests if Prime Minister Wickremsinghe "shut his eyes to the problems."

Acknowledging the problems, a Commerce Ministry official said India had sent a three member team to visit three or four cities in Sri Lanka recently to make presentations on the benefits of widening the FTA and has formally asked the SL government for a list of perceived "Non-Tariff Barriers (NTBs)" that businessmen were complaining about.

Sri Lanka's exports to India have grown 275% since 2005-06 to US$ 5309.53 million. And India's exports to Sri Lanka have grown 96.48% to US$ 742.79 million, during the same period. Meanwhile, negotiations on both sides are on to iron out differences on the upgraded Free Trade Agreement of 2000 to include services, investment and technological trade.

China fear could be stalling India-Sri Lanka deal

India has said it would proceed "at a pace comfortable for Colombo" to complete the ETCA negotiations. But there are other, bigger reasons for India to guard its flanks while negotiating a second generation free-trade agreement (FTA) with Sri Lanka.

China has evinced interest in an FTA with Sri Lanka as well. This has given India pause, as it wants to see the details of that deal. This could include, according to sources, Chinese companies setting up manufacturing bases in Hambantota and Monaragala areas of Sri Lanka and using the India-Lanka FTA to push Chinese goods into India. Instead, India will focus more on infrastructure development in Sri Lanka, and is working on projects in roads, railways, ports etc. India is also collaborating with Japan, Singapore in these projects.

South Asia trade integration a far dream

A GIZ project on developing textile value chains in SAARC region has also brought to fore the many bureaucratic difficulties of integrating trade in the region. Tariff and non-tariff barriers to protect local industries, visa regulations, entry barriers to investment are some of the important reasons for South Asian regional trade being disintegrated.

A number of such trade pacts where India can benefit or has an important role to play are getting delayed. BBIN (Bangladesh, Bhutan, India, Nepal) Initiative has gone slow, even after trial runs which demonstrated the benefits of the initiative for trade between the countries. There are efforts to revive another similar corridor - BCIM - Bangladesh, China, India, Myanmar Economic Corridor.

A third meeting of a joint study group of BCIM was recently concluded in Kolkata, India, where countries considered 11 sectors for cooperation and integration - general principles on objectives and modalities; connectivity; energy; investment and finance, trade, and trade facilitation; human resource development; sustainable development; and the institutional mechanisms.

But India and China could be holding back progress of the region. India is cautious about opening up its markets to China for fear of imports of cheap goods. This is despite the fact that in many segments, Chinese products have already flooded Indian markets. Meanwhile, Bangladesh and Myanmar have shown interest in beginning construction of connectivity infrastructure in the economic corridor. For China, BCIM is important as it is part of the larger Belt and Road Initiative.

RCEP without India?

The Indian textile and apparel industry has been looking forward to the Regional Comprehensive Economic Partnership, a proposed FTA between 16 countries - China, India, Japan, Korea, Australia, New Zealand and much of Southeast Asia. The RCEP could provide the Indian industry with an important market near home, especially when Europe and US are visibly slowing down.

India's exports to ASEAN at around US$ 25154 million, have grown only marginally since 2010. India's imports from ASEAN during the period have witnessed a growth of over 30% to around US$ 40,000 million. Textiles and clothing account for a negligible share of this trade, and opportunities for this industry could be many. However, there are now hints and murmurs that RCEP could proceed without India, as India remains cautious of opening its markets to China.

Talking specifically about the textile and clothing industry, China dominates India's imports of fabrics, where the Indian industry is unable to supply to garmenters. However, this forms a small portion of the total requirement of fabrics by the Indian industry, most of which is met indigenously. And opening up imports from China could possibly lower the costs for Indian apparel exporters, who are facing stagnant exports and stiff international competition for some years now. Textile products where Indian companies enjoy a near monopoly situation are being well regulated and protected anyway.

Moreover, we have talked a lot about how China is moving up the value chain. One has to see if there is a real threat in opening up markets under RCEP. Every FTA provides safeguards too for the local industry. The Indian government has been nurturing the textile and clothing industry for almost two decades now. It is time to let it face the competition. RCEP is very much in line with the Indian government's `Act East' slogan. The RCEP countries account for 46% of the world's population and 30% of global GDP in 2016.

Due to China's efforts to actively promote negotiations on the RCEP, it is viewed as a China-led FTA to fight against competition from the TPP in terms of seeking dominance in global trade. However, given India's free trade history and the concerns expressed about its own national interests, there is slim possibility that India would agree to the deal under the existing framework and mechanisms. So trade experts have begun looking at a sub-optimal goal of reaching an RCEP deal without India. For China and the others, it would still be an important deal that would open up trade with ASEAN and others.

There are four main reasons for India being reluctant to promote the RCEP: First, India fears the flood of cheap Chinese commodities into its markets, endangering its domestic manufacturing industry. Second, India has different degrees of trade deficit with other RCEP members including Japan, South Korea, Indonesia, Malaysia and Australia. The export volume of India to ASEAN in 2014-15 was about US$ 31 billion, accounting for 10.2% of India's total export turnover. However, the completion of RCEP negotiations still cannot guarantee Indian enterprises would be able to enter the ASEAN market easily.

Third, India is worried that domestic companies would be less competitive than foreign enterprises after opening the market, especially in the pharmaceutical and textile sectors. Fourth, India is worried that the RCEP clauses on intellectual property and services will not be conducive for India. Lalit Mansingh, a former foreign secretary of India said that India's free trade agreements have reduced tariffs, allowing foreign companies to have a large market share in India's market, but the country failed to make full use of tariff preferences in other markets because India's manufacturing industry is not advanced enough. Or has been happy to export to traditionally easy markets.

Turkey suggests FTA with India

Meanwhile, India's FTA negotiations could be happening with other countries. Turkish President Recep Tayyip Erdogan has pitched for free trade agreement with India as a starting point to expand the ambit of bilateral economic ties. Erdogan, who was recently in India, said the two countries should also explore the possibility of trade in local currency to deal with exchange rate fluctuations.

Addressing the India-Turkey Business Summit he said, "We should increase our business and economic relationship... If we can also start comprehensive economic relations negotiations, that would be great." He, however, noted that the bilateral trade volume is skewed against Turkey. Of the total US$ 6.5 billion trade, Turkey's exports were only about US$ 650 million.

Turkish companies have pumped in about US$ 212 million, whereas India's investment in Turkey reads nearly US$ 100 million. Erdogan termed Turkey as "an ideal hub" for investment and production, given its geographic location.

India, Georgia begin free trade agreement talks

India has begun the process of negotiating a free trade agreement (FTA) with Georgia and the two countries will launch a joint feasibility study for the same. "In this regard, the Joint Feasibility Study Group consisting of the officials of the two countries has been established," commerce ministry said in a statement after Georgia's Minister of Economy and Sustainable Development Giorgi Gakharia met India's Commerce and Industry Minister Nirmala Sitharaman.

The high level group will give its report in six months after discussing the possible scope of a potential FTA and analysing the sensitiveness of specific sectors, while recommending possible ways to address them. India has a positive trade balance with Georgia. In 2015-2016 the total export from India to Georgia was US$ 82.57 million and import from Georgia was US$ 24.47 million.