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Trade policies of both India and the PRC are evolving toward deepening integration through
regional trading arrangements as a complement to multilateral trading system under the
auspices of the WTO. However, there is no official text of any pre-FTA agreement yet. Both
countries are now aggressively concluding FTAs with neighboring countries and developing
countries in other regions, such as Latin America and Africa. The PRC signed an FTA with Chile
in November 2005 and is currently negotiating FTAs with eight countries/regions, such as the
ASEAN, Australia, Iceland, Malaysia, New Zealand, Pakistan, Singapore, and Thailand. On the
other hand, India signed PTAs with Afghanistan and Chile, a Compressive Economic
Cooperation Agreement (CECA) with Singapore, and limited FTAs with Sri Lanka and Thailand.
It is also negotiating six agreements with ASEAN, Bangladesh, Chile, Mauritius, Thailand, and
Mercado Común del Sur
(MERCOSUR).
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The PRC is studying the feasibility of FTAs with India,
Japan-PRC-South Korea (trilateral), Gulf Cooperation Council, and Southern African Customs
Union (SACU) whereas India has proposed FTAs with Brazil-India-South Africa (trilateral),
Egypt, PRC, Indonesia, Japan, South Korea, Malaysia, and SACU. The PRC signed the Closer
Economic Partnership Arrangement with Hong Kong, China and Macao, China effective from 1
January 2004. Initial frameworks of agreements are now in place with the ASEAN, Australia,
and New Zealand. As a result of these bilateral trade and cooperation agreements, the PRC
and India are becoming more open, undertaking more domestic structural reforms, and creating
open and competitive market environments.
The acrimonious relationship between the PRC and India due to their border dispute is now a
thing of the past. The initiative to foster economic relations started after the Indian Prime
Minister’s visit to the PRC in June 2003. In a declaration, both countries expressed their
intention for good bilateral relations through enhancing economic cooperation. In the area of
trade, the PRC and India plan to take measures consistent with national laws and international
obligations to remove impediments to bilateral trade and investment. Both countries have
started discussing possible bilateral trade arrangement on preferential tariffs more than most
favored nation tariffs on a wide range of products including paper, steel, chemicals, and food.
The list includes 217 Indian exports and 188 Chinese exports facing lower-than-average tariffs
in the other market.
The China Council for Promotion of International Trade, the largest trade and investment
promotion organization of that country, called for expediting the process of an FTA. India is
seriously interested to finalize a Bilateral Investment Promotion and Protection Agreement
(BIPA) with the PRC but is still hesitant to sign an FTA. BIPA, a necessary precondition for an
FTA, would give the PRC a most favored nation status and allow free repatriation and transfer
of returns on investment. One of the problems delaying the signing of the proposed BIPA is the
delay in amending the Foreign Exchange Management Act (FEMA), which contains restrictions
on setting up a branch or liaison office in case of Chinese citizens.
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In view of the presence of substantial complementarities and unexploited potentials, a PTA/FTA
in manufacturing, services, and investment will significantly enhance bilateral trade between the
two countries. This will help poverty reduction in these countries, particularly in border regions,
where a relatively high incidence of poverty exists. They can form a partnership by pooling
financial and manpower resources to compete with other developing countries in the world
market in several manufacturing and service areas, such as information technology (IT) services
and textiles.
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Southern Common Market.
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Business Standard, India, 8 August 2006. Available:http://www.bilaterals.org/article.php3?id_article=5455.