India-China: resolving divergences

President Xi Jinping has flown back to Beijing, but various prickly issues remain unresolved in the India-China relationship. One of these is the uncertainty over the border, and both President Xi and Prime Minister Narendra Modi have reiterated the need to settle this issue.

In addition to working on the border, it is in India’s interest to also resolve numerous pending geoeconomic issues with China. Two vital areas, where the interests of both countries are diverging, deserve greater attention: the World Trade Organisation (WTO) and climate change.

India invited universal censure after blocking the passage of the Trade Facilitation Agreement (TFA) at the World Trade Organisation’s (WTO) General Council meeting in Geneva on 31 July 2014. The TFA is a global accord to simplify customs procedures and facilitate the trade of goods across borders. However, China’s opposition to India was unexpected—China had earlier supported India’s stand in many multilateral forums (such as the G33 and G20) and in bilateral meetings.

China’s shift could be understandable if India had acted irrationally. But India’s actions were justified. India had agreed at the Bali ministerial in December 2013 to approve the TFA on the condition that developing countries will not be penalised for their food security imperatives till a permanent solution is formalised by 2017.

But India discovered that all discussions thereafter were only focused on the TFA. This was contrary to the post-Bali work programme, and it gave India (and some other developing countries) grounds to believe that with the TFA out of the way, rich countries were unconcerned about the Doha Development Agenda and food security measures.¹

India’s principled stand was based on valid reasons: the country has a sovereign right to provide food security to its citizens. Two, the TFA will escalate infrastructure costs for poor countries. Although rich countries promised funding to meet this unplanned expense, the amount finalised is too low and the modalities are still vague. Three, the benefits of the TFA are ambiguous, with most gains likely to go to the developed world.²

China’s sovereign objectives are aligned with India’s on such issues as stockpiling of grains, since it too has to provide food at reasonable prices to its population. China is also a signatory to all G33 (a grouping of developing countries with convergent trade interests) food security negotiations.

It is not known if the Modi-Xi talks included China’s breach of trust, but the joint statement issued by both governments was anodyne: “As developing countries, India and China have common interests on several issues of global importance like climate change, Doha Development Round of WTO, energy and food security, reform of the international financial institutions and global governance. This is reflected in close cooperation and coordination between the two sides within the BRICS, G-20 and other fora.”³

One reason for China’s turnaround could be India’s lackadaisical communications strategy. India’s parleys could have conveyed that the country is interested in picking only food stockpiling from a multitude of other development issues. This may perhaps have led other large emerging economies, such as Brazil and South Africa, to also isolate India.

China now probably views itself as a world superpower and a trade behemoth competing with developed countries. In keeping with this status, the TFA makes more sense for China rather than a hankering for food security. While China is indeed a trade colossus, India must keep in mind this change in China’s self-perception when negotiating with Xi’s government in the future.⁴

The border incursion, intriguingly timed to coincide with Xi’s visit, is a reminder of China’s foreign policy dualism: an extended hand of economic friendship to mask the face of geographic expansionism.

The second issue is climate change and India would do well to keep the new Chinese psyche in mind in future multilateral and bilateral deliberations.

On the surface, India and China seem to be on the same page. Apart from a common historical stand, both Xi and Modi excused themselves from the UN Climate Summit held on September 23. But that’s where the similarities end. China has already signed a separate climate change agreement with the U.S. It reduces the policy distance between the two superpowers, but some contentious points remain: China and the U.S. agree that rich countries must provide developing nations with the wherewithal to upgrade technology, but diverge on whether the old labels of “developing” or “developed” should be upgraded.

The rest of the world’s identity—including India’s—is thus hostage to how the talks between two superpowers progress. The initiative seems to be slipping away from India’s grasp: a climate change strategy is required before the big climate summit in Paris at the end of next year. India will have to formulate a position that is consistent with its economy and stage of development.

Numerous other issues between India and China also remain unresolved—using the renminbi as an alternative currency, India’s membership in multilateral institutions such as the Asian Infrastructure Investment Bank and in groupings like the Shanghai Cooperation Organisation), discussions on how to take the BRICS Bank forward, and enhanced market access for Indian goods and services.⁵

The lessons for Modi are clear: he will have to use every opportunity to create an independent policy space for India, even if that requires striking trade and investment deals with Japan, the U.S., the European Union, Russia, and Australia.

Rajrishi Singhal is Senior Geoeconomics Fellow, Gateway House. He has been a senior business journalist, and Executive Editor, The Economic Times, and served as Head, Policy and Research, at a private sector bank, before shifting to consultancy and policy analysis.

This article was first published in The Hindu Business Line.

For interview requests with the author, or for permission to republish, please contact Reetika Joshi at joshi.reetika@gatewayhouse.in or 022 22023371.

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