FTA Strategies in China and India

Ganeshan Wignaraja
Principal Economist, Office of Regional Economic Integration, Asian Development Bank

Slow progress in the WTO Doha Round trade talks has seen China and India have focussing on free trade agreements (FTAs) as a vehicle of trade strategy and economic diplomacy. By mid-2011, the two Asian giants were among Asia's leaders in FTA activity with 11 each in effect in both China and India. The number of FTAs under negotiation and proposed suggested that such activity will rise in the future, as China has another 13 agreements in the pipeline and India another 20. China has FTAs with ASEAN, Hong Kong, Macao, Chinese Taipei, Pakistan, New Zealand, Chile and Peru, among others.

Meanwhile India's agreements include  those with Sri Lanka, South Asia, Korea, ASEAN and Chile.  Such regional and bilateral FTAs aim to provide preferential market access for goods and services as well as lay the foundation for deep integration in the future.

Yet concerns have been expressed in some quarters that the Asian giants' FTAs can have a detrimental impact on exports due to shallow coverage and the problem of the Asian noodle bowl of multiple overlapping FTAs. Recent research has examined trade and FTA policies in China and India and provides insights.

The findings suggest that on balance China’s and India’s FTAs do not seem to be having detrimental effect on exports. The giants’ FTA strategies still appear to be in the formative stages. China’s FTAs with regional developing economies are geared towards supporting its role as the global factory and the deepening its production networks. From an initial focus on South-South trade, India has recently moved towards seeking market access to East Asia and major developed countries. China’s FTAs seem to have better coverage in terms of goods and services. FTA use at least in China also seems higher than expected. Nonetheless, both countries can improve the coverage of Singapore issues in future FTAs (government procurement, trade facilitation, competition and investment) and adopt best practices in designing rules of origin and origin administration.

More details of the research on China and India's trade and FTA strategies can be found in:

Ganeshan Wignaraja (2011), "Will India Overtake China in the Next Decade?", VoxEU, 29 September 2011
http://www.voxeu.org/index.php?q=node/7036

Ganeshan Wignaraja (2011) Economic Reforms, Regionalism and Exports: Comparing China and India, Policy Studies No 60, East-West Center.
http://www.eastwestcenter.org/publications/economic-reforms-regionalism-and-exports-comparing-china-and-india