The Chinese President Mr. H U Jintao landed in India with an entourage that consisted of top executives of many companies, besides political heavyweights. Reports indicate that the visit is meant for unveiling several new initiatives, notable among them could be forming an "energy-investment alliance" to jointly explore overseas oil fields and give a boost to their bargaining power to buy foreign energy assets, work out a strategy to strengthen negotiation-leverage at the World Trade Organization, besides framing more robust commercial relationships. There were also indications in the press that the scope for Free Trade Agreement (FTA) may also be discussed. No surprisingly, the idea of FTA with China has evoked negative response from many quarters, including academia.

FTAs are "agreements among two or more parties in which reciprocal preferences are exchanged to cover a large spectrum of parties' trade in goods." Although historically free trade agreements are expected to expand markets and enhance economic efficiency T N Srinivasan, Professor of Economics, Yale University, argues that theoretically, FTAs are inferior to multilateral trade liberalization. FTAs, being private agreements between two countries, the administrative mechanism, available under WTO that guarantees smooth flow of trade within a rule-based trading system, is not available for administering and settling disputes under FTAs. It is thus not feasible under FTAs to enforce anti-dumping rules, subsidiary restrictions, etc.

What is more, free trade agreements are not only antithetical but also engender a lot of problems in terms of defining and policing rules of "origin of goods". Such rules are quite essential since tariff preferences are accorded only to goods actually produced in the partner country but not to the goods from the rest of the world that could make an entry through the partner country with the lowest external tariff. The rules of origin (ROSS) that govern preferential treatment are invariably complex. According to Prof. Srinivasan, they only provide ample opportunities for bureaucrats to make non-transparent and opaque protectionist measures by manipulating the rules. For instance, the rules of origin under the FTA between the US and Singapore said to run to almost 203 pages. Despite these disadvantages, FTAs are mushrooming all over that, too, more out of non-economic considerations.

It is true that our GDP grew at an average annual rate of 6.2% during 2000-04 while that of China at 10.6% and it is also true that such high growth means increased demand for goods and services. This is already evident from the fact that the bilateral trade between India and China grew from $338 mn in 1992 to $13.6 bn by 2004 and it is projected to touch $100 bn by 2015. This obviously poses a question: When economy of both the countries is in such a pink, why not an FTA, which is a potential tool for bettering the economic cooperation between India and China.

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