India-China To Set Up High-Level Economic And Trade Dialogue Mechanism

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A notable decision at the informal summit between Prime Minister Narendra Modi and President XI Jinping at Mamallapuram was to establish a high-level ‘Economic and Trade Dialogue’ Mechanism. This decision is similar to the Special Representatives appointed between India and China to address the border issues. Indian Finance Minister Nirmala Sitharaman and Chinese Vice-Premier Hu Chun Hua would be co-chairing the Mechanism.

The purpose of the informal Summit is to deepen the bilateral relationship at the highest leadership level. The creation of the mechanism suggests that the two sides have decided to deal with a matter that has attained salience and urgency; with the trade deficit ballooning over $50 billion in Beijing’s favour. While more details about this mechanism haven’t been shared, the question that arises is: whether the Indian industry will find an opportunity to put forward its views?

One possible reason why this bilateral mechanism has been established is that multilateral forums like the World Trade Organisation are unable to address such matters. The dispute settlement panel of the WTO is now left with three judges, which is the minimum for the system to function. It will potentially be paralysed in December 2019 when two more judges are set to retire.

In a report submitted by the Parliamentary Standing Committee on Ministry of External Affairs, on the matter of India-China trade issues, observed that the trade deficit is totally loaded against India which is over $ 56 billion and Indian goods and services face non-tariff barriers from China. In addition, dumping of goods and a lack of genuine investment profile on part of China makes this trade relationship problematic. A new dimension to trade relations arises from the security imperatives that are posed by the potential rollout of 5G services by Huawei in India. In a recent conference on China’s Digital Silk Road, organized by the Institute of Chinese Studies, New Delhi, data shows that Huawei and ZTE have a 42% of market share in the telecommunication sector backbone and Chinese brands have a 66% share of the smartphones sales in India. This is coupled with more than $10 billion worth of investment by venture capitalists from China.

If and when the mandate of the mechanism is elaborated, it remains to be seen how the mandate squares off with the mandate of the Regional Comprehensive Economic Partnership (RCEP) which is being negotiated at the moment. Here again, India is concerned with the potential flooding of the Indian market with Chinese goods; investment without transfer of technology and data localisation requirements for e-commerce. China already has a commanding presence in the Indian IT sphere.

On the nature of the constitution of the mechanism questions remain as a recent experience with Japan has not shown much yields. In 2014, the Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry, Government of India, set up ‘Japan Plus’, a special management team to facilitate and fast track investment proposals from Japan to achieve better results. Since then there has been slow progress. The proposed Chennai- Bengaluru Industrial Corridor is still under the development stage and some progress has been achieved in 12 Japan Industrial Township projects in 9 states of India. The proposed mechanism hence has been devised to insulate against the shortcomings faced in the Indo-Japan experiment.

This bilateral mechanism will have to address such concerns, which are similar to the concerns that the US has with China. The US is positioned in a strongly vis-à-vis China and is able to withstand some losses. India needs to develop some leverage against China. Here, the inclusion of Indian companies from the services and pharmaceutical sectors in the proposed mechanism can help India push for a better bargain with Beijing. Any progress towards addressing India’s genuine trade concerns is a good proposition and the ‘Economic and Trade Dialogue’ mechanism can create win-win outcomes that China has suggested. It also remains to be seen whether the proposed mechanism would aim to address the current problems or whether it would seek to find new areas of economic engagement.


Script: Dr. Rajdeep Pakanati, Strategic Analyst on Chinese Affairs.

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