Chinese Trade Minister Gao Hucheng (l.) shakes hands with his South Korean counterpart, Yoon Sang-jick, after the signing of the agreement on June 1, 2015 in Seoul. [Xinhua] China`s free trade agreements include Hong Kong and Macao, with the Hong Kong version known as the Closer Economic Partnership Agreement (CEPA), whose regular updates on its benefits, which we have long talked about on China Briefing. The CEPA agreement between China and Hong Kong offers many advantages to foreign investors who create local businesses in Hong Kong, which reduce (after a qualification phase) the source taxes and dividends on funds that are re-injected from the mainland to the territory. Macau offers similar benefits and especially in the services sector and the financial sector – extremely useful given Macau`s evolution towards an important tourist and casino destination. Our analysis shows that a free trade agreement on narrow products will be strongly favourable to China and is unlikely to be accepted by Indian industry. Any bilateral agreement between the two countries must be comprehensive and cross-cutting, in addition to covering goods, but also services, investments, research and development cooperation, and be supported by framework conditions on issues such as anti-dumping, standards and dispute resolution. Only then will India be able to benefit from a bilateral agreement with China. That is why our work suggests that a comprehensive study is needed to assess how India and China can engage in these other areas, particularly in services trade, cross-border investment and research and development efforts before India pursues a free trade agreement with China. Finally, the role of trade and trade in moderating bilateral relations should not be ignored.

A free trade agreement with China could have benefits that are beyond quantification and transcend the economy. On 28 April 2009, the Chinese and Peruvian authorities signed the free trade agreement between China and Peru in Beijing. The China-Peru Free Trade Agreement, which came into force on January 15, 2010, is China`s first comprehensive free trade agreement with a Latin American country. A V Naga Chaitanya (PGP 2009-11) earned a bachelor`s degree in electrical engineering from the Indian Institute of Technology, Delhi and is available under chaitanya.a09@iimb.ernet.in-iimb.ernet.in Asean`s share of India`s total trade deficit rose from about 7 percent to 12 percent over the same period. The country also bled in its comprehensive economic partnership agreement with South Korea, where its deficit rose from $5 billion in 2009-10 to $12 billion in 2018-19. The story is similar with the Indeinem and Japanese free trade agreement called CEPA, which came into force on August 1, 2011. Chinese President Hu Jintao (right, back) and former Chilean President Sebastian Pinera will participate in the signing ceremony of a complementary investment agreement in Vladivostok, eastern Russia, on September 9, 2012. [Xinhua] India should aim to build a more diversified trading basket. It should gradually move away from resource- and labour-intensive goods and shift to more value-added product categories. This would require significant progress in manufacturing. Therefore, a free trade agreement with China should include the phasing out of customs barriers in order to make timely adjustments and improvements to the Indian industry.

Our results also suggest that India should strive for a broader mandate for negotiations beyond goods, so that India can exchange concessions that have been made with profits in other areas, such as services where India is more competitive than China.