INDIA and CHINA in WTO Building Complementarities and Competitiveness in the External Trade Sector
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INDIA AND CHINA IN WTO Building Complementarities and Competitiveness in the External Trade Sector Report of a Study Sponsored by Planning Commission Government of India Study Team Prof. T P Bhat, Team Leader Mr Atulan Guha Dr Mahua Paul ISID Institute for Studies in Industrial Development 4, Institutional Area, Vasant Kunj, New-Delhi-110070 April, 2006 C O N T E N T S Contents i Acknowledgements vi Executive Summary vii Chapter 1 Introduction 1 Data Sources 6 Methodology 6 Plan of the Study 7 Chapter 2 India and China Trade policy Developments 9 Section I Trade Policy Development of China 9 Foreign Trade Regime of India 13 Trade Policy Comparison 19 Section II China in WTO 24 Chapter 3 Indo-China Bilateral Trade: A Survey 33 Two-Way Trade 33 Trade Intensity 36 Major Exports from India to China 37 Major Exports of China to India 44 Comparison between Major Exports of India and China 51 Reasons behind Increase in Indo-China Bilateral Trade 54 Chapter 4 Structure and Potential of Indo-China Bilateral Trade 63 Section I Complementarity of Indian Export to Chinese Import 65 Section II Competitiveness of Indian products into China Market 72 Potential of Indian Export to China 76 Tariff Faced by Indian Products 94 Section III Structure of Chinese Export to India 96 Chapter 5 Competition in Third Market 151 China’s WTO accession and Impact on India 174 India and China as Competing Countries 180 Third Market Competitiveness of India and China 182 India and China in the U.S. Market 183 India and China in the Japanese Market 185 India and China in ASEAN Market 186 India and China in EU Market 187 Chapter 6 Role of FDI in Foreign Trade 189 Export-orientation in FDI 204 Indian Investment in China 216 Chapter 7 India and China in AFTA 218 Chapter 8 Conclusion 235 References 244 List of Tables Table 2.1 Mean Weighted and Unweighted Tariffs-India and China 20 Table: 3.1 India- China Bilateral Trade —1997 to 2003 35 Table: 3.2 India-China Bilateral Trade-1997 to 2003 35 Table 3.3 Importance of India and China as Trade Partners of each other 36 Table 3.4 Trade Intensity Index for China and India 37 Table 3.5 Top Ten Indian Exports to China, 1997 40 Table 3.6 Top Ten Indian Exports to China, 2000 41 Table 3.7 Top Ten Indian Exports to China, 2003 42 Table 3.8 India’s Exports to China, Product Concentration 43 Table 3.9 India's Import from China, 1997 48 Table 3.10 India's Import from China, 2000 49 Table 3.11 India's Imports from China, 2003 49 Table 3.12 India's Import from China 50 Table 3.13 Product Analysis of Indian Exports to China 52 Table 3.14 Select Product Analysis of India and China 52 (ii) Table 3.15 Share of Technology based Manufactures in World Export of Manufactured Products 53 Table 3.16 Share of Manufacture, Medium and High tech Product of China and India in Global Exports 54 Table 3.17 Ranking of China and India in World Export of Manufactured Products 54 Table 3.18 Different Factors behind Increase in Indian Export to China (with 0.25 per cent list) 56 Table 3.19 Different Factors behind Increase in Chinese Exports to India (with 0.25 per cent list) 58 Table 3.20 Different Factors behind Increase in Indian Export to China (for all products) 59 Table 3.21 Different Factors behind Increase in Chinese Export to India (for all products) 61 Table 4.1 Trade Complementarities Index 66 Table 4.2 Trade Overlap Index 66 Table 4.3 Grubel-Lloyd Index for Intra-Industry Trade in Indo-China Bilateral Trade 67 Table 4.4 India’s market share in China’s Global Imports and Revealed Comparative Advantage 69 Table 4.5 Share of Select Indian Export Products to China 73 Table 4.6 China’s Imports from India, its Share and RCA 74 Table 4.7 Tariff Rates of Products with Substantial Share in Indian Export Basket for the Year 2003 95 Table 4.8 India’s Dynamic Export Sectors’ Tariff rate in China, 2003 96 Table 4.9 Complementarity Index between Chinese Exports with Indian Import 97 Table 4.10 Chinese Electronic and Electrical products Cheaper to Indian Products 100 Table 4.11 Chinese Organic Chemicals and Compounds Cheaper to Indian Products 101 Table 4.12 Chinese Electric and Electronic Products Cheaper to Indian Products 106 Table 4.13 Chinese Silk and Textile Products Cheaper to Indian Products 107 Table 4.14 Chinese Steel Products Cheaper to Indian Products 108 (iii) Table 4.15 Chinese Chemical and Allied Products Cheaper to Indian Products 109 Table 5.1 Ratio of wages and unit labor cost of selected countries to China for the Manufacturing – 1998* 154 Table 5.2 Ratio of hourly labor cost of selected countries to China in Textiles and clothing industry, 1998 154 Table 5.3 Indicators of the main export products of China (Average 1997─98) 156 Table 5.4 Indicators of the main product imports of China at 3-digit level average, 1997-98 159 Table 5.5 The main markets in Developed countries for China’s principal exports of manufactured goods and main developing country group exporters, 1999 162 Table 5 .6 Share in China’s total Imports (percentage) 164 Table 5.7 Some indicators of China’s trade in textiles and clothing, 1990—1999 169 Table 5.8 Rank correlation coefficients between export items of China (at SITC 3 digit level) and its main competitors in developing Countries 170 Table 5.9 Share of India and China in 2003 in four principal markets 181 Table 5.10 China and India: Competitiveness in Exports-2002 181 Table 5.11 Major Export Partners for India and China, 2003 183 Table 6.1 FDI Inflows into China and India 190 Table 6.2 Distribution of Cumulative FDI by sectors as of 2000 193 Table 6.3 Distribution of Sectoral FDI Inflows into China, 2003 194 Table 6.4 Share of FIE’s in China’s total Exports and Imports 197 Table 6.5 Sectoral Distribution of FDI 203 Table 6.6 Foreign Direct Investment-Country-wise 204 Table 6.7 Value of Exports of Commodities in China 1991, 1995 to 2001 205 Table 7.1 Relative importance of India’s trade with ASEAN 219 Table 7.2 Impact on Real GDP of ASEAN & China FTA 230 Table 7.3 Sectoral Composition of increase in ASEAN-China Export 231 List of Graphs Graph – 1 Product Composition of Indian Exports to China, 1997 38 (iv) Graph – 2 Compositions of Products in Indian Export to China, 2000 39 Graph – 3 Shares of Products in Indian Export to China, 2003 39 Graph – 4 India’s Exports to China, Hirschman Index 43 Graph – 5 India’s Import from China, Reported by India, 1997 45 Graph – 6 India’s Import from China, Reported by India, 2000 46 Graph – 7 India’s Import from China, Reported by India, 2003 46 Graph - 8 China’s Export to India, Hirschman Index 50 Graph – 9 Technology Classification of Chinese Import, 2003 72 List of Appendices Appendix 4.1 Competitiveness in Chinese market for Major Indian Exports to World, 2003 111 Appendix 4.2 China’s Import from World, 2003 116 Appendix 4.3 Comparative share in Chinese Market for Major Indian Export to China 118 Appendix 4.4 Competitiveness in Chinese Market for Major Indian Export s to China 122 Appendix 4.5 Dynamicity of Export Sectors (Growth Rate of Market Share) 126 Appendix 4.6 Potential Export of Indian Products to china 128 Appendix 4.7 Products Exported by Exporting Company 130 Appendix 4.8 Comparative share in Indian Market for Major Chinese Export to World 134 Appendix 4.9 Comparative share in Indian Market for Major Chinese Export to World 136 Appendix 4.10 Product Status of Import and Export of Indian Importing (Manufacturing Companies) 138 Appendix 4.11 Products imported by the Trading companies 143 (v) ACKNOWLEDGEMENTS This study on “India-China in WTO: Building Complementarities and competitiveness in External Trade Sector” is undertaken with financial support from the Planning Commission, Government of India, New Delhi. The Institute for Studies in Industrial Development (ISID) gratefully appreciates their kind support for this venture. We thank Dr. O. P. Sharma, the then Advisor, International Trade Division, and Mr. P. K. Aggarwal, Deputy Advisor, Socio-Economic Research Unit of Planning Commission, Government of India, for their encouragement in formulating the proposal. Prof. T. S. Papola, Director, ISID, gave most useful suggestions and comments for improving the structure and contents of the draft. We are indebted to him. Prof. S. K. Goyal, Vice-Chairman, ISID, provided critical comments in various phases of the draft. We are, indeed thankful to him. Dr. M. R. Murthy, Deputy Director, helped in organizing various activities in preparing the manuscript. We gratefully acknowledge his services. We would also like to take this opportunity to thank our colleagues at the ISID, particularly, Prof. K. S. Chalapati Rao, Dr. Jesim Pais, Dr. Partha P. Sahu, Dr. Vinoj Abraham, and Dr. Ch. Purnachandra Rao who helped us in computer programming and also with suggestions at various stages of the draft. We would also like to thank Miss Puja Mehta for editorial assistance in finalizing the report. We express our thanks Mr. Sudhir Agarwal, Mr. Dhanunjai Kumar and Mr. Sunil Agarwal for the computer support and Mr. Amitava Dey for library and documentation services. Prof. T.P.Bhat Mr.