India’s hopes of co-opting WTO’s newest entrant as a whole-hearted ally of developing countries would be impractical

China’s accession to WTO was watched even more closely by India, not only because the country has offered a handy market for cheap Chinese products but also because India could soon lose its status as the largest market among WTO members — its strongest bargaining position in the multilateral trade set-up. As a senior commerce ministry official puts it, “We will have to make a little more noise at WTO if our point of view is to be heard.”

But besides being more vociferous, does China’s entry really mean anything for the cause of developing countries? The Indian government has been trying for a long time — with limited success — to forge a common negotiating plank for developing countries on multilateral trade issues. China now becomes an active part of that effort.

Trade experts are divided on whether this is practicable. Some point out that India and China do have a lot in common. “Not in degree but in content China and India have a common profile. Both are labour-intensive economies, both are big exporters of textiles and our exports are low on technology,” says Anwarul Hoda, professor at Indian Council for Research on International Economic Relations (Icrier) and a former deputy director general of WTO. And China, like India, has developing country status in the WTO.

But that is where the similarity ends. In reality, China’s status defies a clear-cut definition. “The bargain China has got from WTO puts it somewhere between the developed and the developing world,” says a commerce ministry official.

That apart, China’s negotiating stance on several key emerging issues is unclear (see chart). Given that, India can at best hope for partial cooperation. “At this point, we don’t really know what negotiating strategy China will adopt on a number of issues including investment and competition policy. We can forge an alliance on some issues, not all,” says Biswajit Dhar, professor at Research and Information Systems for Non-Aligned and Developing Countries.

As things stand, the issues on which India and China can work out a similar strategy are far fewer than the ones on which the world’s two most populous countries can have differences.

Says T K Bhaumik senior advisor (policy) at the Confederation at Indian Industry (CII), “If you look at the commitments made by China then you realise that most WTO members have not undertaken such obligations. Given this, China would be interested in ensuring speedy liberalisation by the others. India, on the other hand, has hardly made any commitments and, therefore, we have to be more pragmatic in future negotiations.”

Financial services and agriculture are cases in point. These are two areas where China’s commitments for speedy reforms are more focused. Before its entry into WTO, China followed a not-so-open policy in the insurance sector; it would only issue four or five licences at a time. But just days after its formal accession on December 11, China issued a licence to New York Life and announced that the sector would be opened up.

Next in line is the banking sector where competition from foreign players is expected to be unrestricted. Sectors like retail and wholesale trading are to follow.

By contrast, India has agreed to give only 12 branch licences for foreign banks (although India has exceeded that target by issuing 16 or 17 branch licences in the last two years). In other services, India has agreed to limited access — even as it pushes for freer movement of professionals.

Similarly, on agriculture, China has undertaken to bring down tariffs in the 6 per cent to 20 per cent range by 2005 and also agreed to reduce export subsidies and domestic support to farmers.

China has submitted a list of its subsidies in all its sectors to the WTO secretariat in Geneva. This has encouraged Indian policy-makers to think that India and China could come together in negotiating with the European Union (EU) on the removal of export subsidies and reduction in domestic support.

But as Bhaumik points out, India’s own negotiating stance is weak because it has negotiated higher bound rates for many of its agricultural commodities. If the country were to make common cause with China over EU subsidies, it could well have to reduce tariffs on agri-imports first by way of reciprocity.

The biggest area of concern for India is market access for industrial products. China has committed itself to fairly steep tariff reduction obligations, whereas India’s tariffs are still above the Asian average. In any case, China could well side with developed countries in the negotiations on market access for industrial products, since it has a major export-oriented industry.

If agriculture, services and market access represent clear-cut differences in negotiating stance, environment represents a divergence that is not as apparent. India has been firm in its position that environmental issues cannot be linked with trade. And China? “One doesn’t really know given the fact that they do not have much concern for the environment,” says Dhar. That could suggest that India can expect little support from China on this issue.

What about China’s stance on foreign investment? Again, it has not yet been spelt out, but one factor has to be considered. China’s trade with the US is approximately four times larger than India’s trade with the US. This could influence China’s position on investment. Add to that the obligations undertaken by China and the balance is likely to shift towards the developed countries.

So what are the points of common self interest? Labour is one. As with environment, India has consistently opposed a linkage between trade and labour. Everyone from Udyog Bhawan — which houses the commerce ministry — to trade experts believe that China will oppose the issue when it comes up again at the WTO since it wants to effect some internal reforms.

TRIPs is another issue where India could get some support from China. “Like us, they also have a lot of problems with the high cost of medicines. If we want further changes in TRIPs, China will be an useful ally,” says Dhar. Ditto for anti-dumping, where both are sufferers, though India has used the weapon repeatedly against Chinese imports.

On the whole, it would be wasted effort for India to look for whole-hearted cooperation between the two countries. For one, the multilateral trading system has established that there are no permanent friends or enemies, only permanent interests.

Thus, as Hoda predicts, “Countries like China will not go by pre-determined alliances. They are much cleverer. A formal alliance is not a very realistic solution but an alliance on an individual basis looks more possible.”

And that seems to be the tack China is taking. Experts say that China is busy trying to find issue-based support and learn the tricks of the trade after its entry into WTO. “There has been any number of delegations that have come visiting India in the last few months but there has not been much exchange by India,” says a trade expert. Dhar suggests that India should also look at issue-based partnerships.

“We should try and build as many bridges as possible with China, at all possible levels and follow a proactive agenda. We need to find out the extent to which we can hope for support from China,” he says. If India succeeds partially, its voice in WTO would be even louder.