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India, China and the WTO
Officially, policy makers in India have welcomed China's accession to the WTO. They should be worried
What does China's accession to the World Trade Organisation (WTO) mean for India? The benefit, Indian policymakers hope, will be in the enforcement of commercial accountability on Chinese industry. A longstanding Indian beef is that Indian products cannot compete with China's because of the latter's low and subsidised input costs-industrial land, credit and so on. In any case, they argue, since China already has a bilateral MFN agreement with India, its joining the WTO will not put any immediate additional pressure on India. What is more, China achieved its economic miracle without being a member of the WTO (a bit of logic used by Indian nationalists when arguing that India could replicate the Chinese model in terms of international trade if it remained outside the WTO).
India hopes to find an ally in China, one that will improve the bargaining position of developing nations within the WTO, especially on issues such as agriculture and anti-dumping. This may happen. But, more importantly, it is indicative of India's defensive mindset. India would do better to emulate China or to brace itself for China's regional economic hegemony. Indeed, China's accession to the WTO will pose several new challenges for the Indian economy, as follows:
* Attracting FDI. A subtle but important difference between China and India is the way in which each views the WTO. India views it in the context of international trade; China views it complementarily with investment because they have come to understand the close relationship between the two. The Chinese government invariably positions its accession in terms of creating an environment conducive to investment-- even though it already attracts US$40bn in foreign direct investment (FDI) every year. The same rhetoric in India, a country that attracts less investment in a year than China receives each month, would be heresy (see graphic, "Widening the gap").
Conventional wisdom has it that China, as a WTO member, will attract even greater FDI, to the detriment of other developing countries in...