Tuesday, 31 January 2017

Dealing With China--Part-II

                                        The offer of a Free Trade Agreement

      In his remarks at the University of Mumbai recently the Chinese Ambassador to India Luo Zhaohui, apart from taking the initiative for a proposed Friendship Treaty, also referred to the need for a Free Trade Agreement with India. It is not in the public domain whether the Chinese authorities have officially proposed the same to India, but nevertheless it is an important development, as far as trade relations between the two countries are concerned. Before an assessment can be made on India’s response, it is imperative to first evaluate the present state of the trade relationship between the two countries.

     India’s trade relations with China have had a checkered history and unfortunately continue to remain hostage to political developments between the two countries; albeit considerably less so now than earlier. It is to the enormous credit of Rajiv Gandhi that he was the first Indian leader to realize that a solution to the vexed issue of the boundary issue was not imminent in the near future and therefore to delay normalization of trade and economic relations with China would only be counter-productive. It was Rajiv Gandhi who took the decision to de-link the two issues. It was also during his visit to China in December 1988, that for the first time a ‘Joint Economic Group’ was established. However it must be pointed out that no one in the Indian leadership, at that time, paid much attention to this aspect of the relationship, for no one anticipated or expected that bilateral trade volumes would develop so fast. And develop they did with bilateral trade that mushroomed exponentially from a paltry US$265m in 1991 to US$ 70.73 billion by 2015-16. An interesting fact is that India’s current bilateral trade with China is larger than India’s combined bilateral trade with Britain, Germany and Japan! But the main problem area is that India’s trade deficit with China is unusually high and in 2015-16 it stands at US$52.69 billion. And it is expected that this will go up even further this year. This by itself should not be a cause for worry, as India runs deficits with sixteen out of its top twenty five trade partners. The inescapable fact is that India buys more than it sells world- wide.

    Almost everyone recognizes where the real problem lies behind this massive trade deficit. India’s trade basket consists of cotton, gems and precious metals, copper and iron ore. All are commodities. China on the other hand, exports manufactured capital goods mainly for the power and telecom sectors. The fact is that India just does not produce enough high quality manufactured goods even for its own billion plus consumers, let alone for exports and therefore it has to rely on quality imports from abroad. There are many experts who feel that the inordinately high trade deficit between India and China of US$ 52.73b, is not a very serious issue; for a country such as India that is on its way to establishing an industrial base and seeks high growth rates, a larger import profile is but unavoidable. Since China is the major source of technology intensive products that are cost effective, running a high deficit with China is but inevitable.

    However running trade deficits with China may not be necessarily inevitable as presumed. According to the Chinese, the problems faced by India are elsewhere and essentially relate to restrictive labor practices, land and tax laws, rickety infrastructure and inadequate power supply. In addition while China is a part of the global supply chain, being the last stop of the manufacturing chain in East Asia; India is no- where near being a part of this global chain.

   Therefore what would a Free Trade Agreement with China entail and what would be its implications? Empirical studies show that for India any such agreement would be a non-starter, for India is not competitive at all. A FTA would not have any major impact on increasing Indian exports to China, for the tariffs that China levies on most items, in the Indian export basket, are already near zero. Further the manufacturing skills and abilities at present available in India, as compared to those available in China are rather low. Indian manufacturing industry, as presently constituted, would be badly hit. Although overall trade between the two countries might grow at a healthy pace, yet it would be mostly to the advantage of the Chinese. If for example, tariffs levied were to be reduced to say by 5 per cent across the board, then the increase in India’s exports would be negligible, whereas those of China would increase by an estimated 18 per cent.[i] From the Indian point of view, therefore, this proposal is a non-starter. However one way forward could be to go for a selected sector wise free trade agreement, rather than one across the board. It is for this reason also that progress in negotiations in the RCEP are slow and tedious, as both India and China find it hard to reconcile their respective positions.

    One area where India needs to press the Chinese is in opening more facilities and for increasing border trade. At present the trade between India and Tibet across the land borders is very modest; in contrast to which Sino-Nepal border trade is thriving at US$542m.There are several reasons. Firstly, the lists containing items that can be traded are outmoded and not commensurate with modern requirements. Secondly, the timings when traders can conduct trade are very unsuitable, particularly since they cannot stay overnight in either country. Most border trade points are open only four days in a week. The time taken to reach border points is also a factor since the infrastructure, particularly on the Indian side is very rudimentary. For example, the road connecting Siliguri, the last railhead to Sikkim and onto Nathu La is about 143 kilometers long, it is a single lane and often subject to landslides. Sikkim has no airports, nor any railheads.

     The importance of border trade should be recognized as it is an important catalyst for poverty reduction in the border areas. Border villages are becoming de-populated on account of lack of jobs; thus posing security concerns for India. In the past many towns such as Kalimpong, Darjeeling or even Tawang, thrived due to the border trade with Tibet. Thus if border trade is revived, it can once again serve as a significant dynamic in their economic development.   

      In 1988 when a significant shift in Indian policy took place, it was the fervent hope that the goodwill thus generated with normalization in all other sectors, it would facilitate the settlement of the boundary issue. Those hopes have to some extent been belied, but what has also emerged is that the massive trade deficit generated has added an altogether new issue between the two countries. By 2030 the economies of both China and India are expected to be amongst the top four economies of the world, but unfortunately India still does not have a full time independent trade negotiator on lines of USTR.  

[i] India-China Free Trade Agreement [FTA]: Viability, Prospects and Challenges. [Rupa Chanda/IIMB Management Review]

Friday, 27 January 2017

Dealing With China--Part I

    Recently the Chinese Ambassador to India, Luo Zhaohui while speaking at a function in Mumbai said that in order to improve relations between India and China “we should negotiate the bilateral Treaty of Friendship and Co-operation, a Free Trade Agreement and gather early harvest related to border issues”. Luo also raised the rhetorical question of how to “synergize China’s One Belt One Road [OBOR] project with India’s Act East Policy”. It is not in the public domain whether Ambassador Luo has officially proposed these initiatives to the Foreign Office in Delhi or whether he was simply raising these publicly to elicit and test public opinion. Be that as it may, let us assume that these are official Chinese initiatives. In Part-1, the proposed Treaty of Friendship and Co-operation is analyzed, and some suggestions offered on what should be India’s reaction?

    Whenever the Chinese take such initiatives, the most important aspect is that such initiatives must be examined in the context of the prevailing international situation; for rarely are they bereft of such linkages. In present uncertain times any Chinese strategic analyst based in Beijing would aver that the principal threat to China would be from its eastern seaboard, in tandem with the deep anxiety and uncertainties that the new Trump Administration has raised. This would also suggest that the Chinese would be keen to cover their flanks, so as to concentrate fully on the gathering storm coming from the Asia-Pacific region. The Chinese are completely unsure on how to deal with the rhetoric emanating from Washington that suggests that the two countries maybe sliding towards a conflict situation. It is highly unlikely that this might happen, given the enormous stakes that both the US and China have in the peaceful evolution of their bilateral relations. But the Chinese are clearly worried and rarely miss the importance of being fully prepared.

   If we were to look back in history, a near similar situation had risen in the late 1950s when the Chinese were bombarding the two Taiwanese held islands of Quemoy and Matsu, but were deterred from further military action when the US warned them that it would use “all means” [indicating nuclear weapons] to defend Taiwan [Note: Not Quemoy and Matsu]. This was a bitter period in Sino-US relations and it was also a period when the final break in Sino-Soviet relations took place when the then Soviet leader, Khrushchev refused to back China in case the US used nuclear weapons. On 19 March 1959 a revolt had also broken out in Tibet that led to the flight of the Dalai Lama from Lhasa to India for personal safety. On 6 May 1959 the People’s Daily published a scathing article entitled “The Revolution in Tibet and Nehru’s Philosophy”. It was popularly believed that the People’s Daily article was personally approved by Mao and carried a personal attack on Nehru for the first time since the signing of the 1954 Tibet Agreement. Nehru was devastated by the viciousness of the personal attack.

   Despite extreme Chinese unhappiness at what had happened in Tibet and their unflinching belief that Nehru was involved in the events leading to the flight of the Dalai Lama, the Chinese never lost sight of the greater strategic threat that was gathering in the shape of US military deployment in the Straits of Taiwan and the Soviet refusal to back them in case nuclear weapons were used. It was a threat that they could not ignore. Mao had referred to it in his conversation with Nehru in Beijing in October 1954. This is what Mao told Nehru:

      Between friends, there are times when there are differences; there are also times when there are fights—even fights till we become red in the face. But this type of fight is different in character from the sort of fight we have with Dulles. China needs very much. We are a new country. Although we are counted as a large country, our strength is still weak. Confronting us is a larger power America….therefore we need friends. PM Nehru can feel this. I think India also needs friends.

   Therefore it was not surprising that Chinese Ambassador arrived at South Block on 16 May 1959 and handed over a demarche. The strategic purpose clearly was to sanitize their south-western border with India. The demarche was a long rambling litany of complaints against India and was reportedly personally drafted by Mao himself, but at the end contained a most interesting proposal. It was:

  The enemy of the Chinese people lies in the east—the US imperialists have many military bases in Taiwan, South Korea, Japan and in the Philippines which are all directed against China. China’s main attention and policy of struggle are directed to the east, to the west Pacific region, to the vicious and aggressive US imperialism and not to India....India is not an opponent but a friend of our country. China will not be so foolish to antagonize the US in the east and again to antagonize India in the west...Friends! It seems to us that you too cannot have two fronts....Is it not so? If it is, here lies the meeting point of our two sides. Will you please think it over?

     The response to the Chinese Ambassador’s demarche of 16 May 1959 was personally drafted by Nehru who assessed it as “discourteous.” The tragedy lies in the fact that this demarche and its contents were taken by Nehru as a personal affront and the hapless Foreign Secretary directed to respond within a week on 23 May 1959, to say that the statement was “wholly out of keeping with diplomatic usage and courtesies due to friendly countries.” And further the astonishing remark was made that “the government of India do not consider or treat any country as an enemy country, howsoever much it may differ from it”[Was Pakistan then a “friendly” country?].  

    But let us fast forward to present times. Placed in the historical context and considering China’s deep anxiety on developments near its eastern seaboard, what then should India make of the latest Chinese offer of a Treaty of Friendship and Co-operation? The first point to understand is that there exists in the Chinese mind the belief that Indians are by nature rather fond of “Vision Statements”, “Joint Declarations”, “Guiding Principles”, “Five Principles of Peaceful Co-existence” etc. Therefore offering a “Treaty of Friendship and Co-operation” to India, at present, would be in line with Chinese thinking about Indian nature.

 Secondly, in the Chinese mind such “lofty statements/declarations” matter for little when placed in the context of real politics. These can be easily ignored or subverted should the need arise. Take for example, the 11 April 2005 Agreement setting out the “Political Parameters and Guiding Principles” for the settlement of the boundary issues. In Para VII it was agreed that “In reaching a border settlement the two sides shall safeguard the due interests of their settled populations in border areas”. Any unbiased observer would read this to mean that in the eastern sector the two sides had agreed to settle the border on the existing status quo. And yet when the political situation turned, the Chinese referred to Para V which refers to “national sentiment” and say how could they ignore “national sentiment” and concede so much territory?  Further in May 2007 the then Chinese FM told EAM that “the mere presence of populated areas would not affect Chinese claims on the boundary”. So much for the surmise derived from Para VII.

    Therefore the question that arises is how can India pin down the Chinese in concrete terms, so that they cannot escape so easily any commitments that they might make in the proposed Treaty of Friendship and Co-operation? We too should by now be aware of the nature of the Chinese mind.
      To begin with we must not reject the Chinese initiative, as Nehru had so impetuously done in 1959; but play along for it gives us room for diplomatic maneuver not only with the US, but also in the neighborhood. And yet the Chinese must be pinned down in concrete terms. On 4 November 1962, PM Zhou clarified to Nehru in an official Note [emphasis added] that in the Eastern Sector the LAC “coincides with the McMahon Line”. Zhou further said that the Indian government must be having a copy of the original McMahon map and therefore it should be easy to read the co-ordinates of the McMahon Line. That being the case, we should insist that the Chinese live up to the initiative of their then PM Zhou Enlai and not only reaffirm that the the LAC in the Eastern Sector conforms to the McMahon Line, but insist that it be demarcated on the ground to avoid any misunderstandings.

   If the Chinese government were to agree with their own stipulation, as made by PM Zhou in November 1962, that indeed would be a concrete basis for negotiating a meaningful “Treaty of Friendship”. It would also indicate serious intent on the part of the Chinese government. Anything less than this would be another meaningless document to be "misinterpreted" as the occasion demands! 


Wednesday, 11 January 2017

The Tibetan Card

     A glance at some recent newspaper reports would suggest that the Indian authorities are being assiduously urged to “change” their policy on Tibet and that a new policy was in the offing that would enable India to play the so-called Tibetan card. All this is in riposte to China’s anti-Indian attitude most recently manifested, once again, in the blocking at the UNSC 1267 Sanctions Committee of naming the Jaish-e-Mohammad Chief Masood Azhar as a terrorist. But what is this Tibetan card; the playing of which that is so persistently advocated and what does it entail?

    When China invaded Tibet on 7 October 1950 to incorporate Tibet into the just proclaimed People’s Republic of China, it presented India with an acute dilemma. What should newly independent India do? Hitherto policy matters pertaining to India were always decided by Whitehall taking into consideration British Imperial interests, including commercial and the safety and security of the British Empire in India. Therefore it was but natural, given the long history of association between Tibet, the British Indian government and China; that PM Nehru thought it fit to consult the Attlee government in London. He did so on 27 October 1950.  Attlee’s advice to Nehru came in the form of an eight point memorandum. Points [ii] and [v] of this memorandum are most important. These were (Point ii) that ‘India should do what it can for Tibet ...short of military assistance.’ And that (Point v) ‘recognizing Tibetan independence must be ruled out’ [emphasis added]. Similarly, the British also emphasised the following points to the US. These were [a] that Britain was ‘always’ prepared to recognize Chinese sovereignty [note: use of word ‘sovereignty’ and not ‘suzerainty’] over Tibet, but on the understanding that Tibet is autonomous and [b] that Tibet’s inaccessibility makes it impracticable to do anything to stiffen military resistance to China. Tibet has long been judged as incapable of anything more than nominal resistance [emphasis added]. Nehru accepted British government advice for he maintained in a Note on 18 November 1950 that ‘neither India nor any external power could prevent the Chinese take-over of Tibet.’ Having taken this position Nehru, conscious of India’s inferior military position, now defined Indian policy as consisting of [a] to ensure the safety and security of India [b] acceptance of Chinese suzerainty/sovereignty over Tibet and [c] to advance friendship with China. It was partially due to Nehru and the machinations of Attlee that the Tibetan question in the UN, raised by the hapless Tibetans, never preceded beyond preliminaries. It died a natural death, for by then even the US had decided to play safe.

      The 17 point Agreement signed between the Tibetans and China on 23 May 1951 ended any hopes of genuine autonomy for Tibet. Further the signing of the 1954 India-China Agreement symbolized the complete formalization of all developments since the invasion of Tibet by China and the total elimination of Indian political influence in Tibet. For the first time ever, India in a formal document recognized Tibet as an integral part of China. In international legal terms, it signalled the fact that the only country that had special relations with Tibet, had now agreed to relinquish these and did so without any reference or consultation with the Dalai Lama or even with the Tibetan government. For the Tibetans, it can be said that the curtain was finally drawn on their aspirations to be an independent state or even an autonomous one.

     From this point in time till 23 June 2003, India maintained that ‘Tibet is an autonomous region of China’. Even in the 1962 conflict and thereafter, India did not waver or change its position. However when PM Vajpayee [BJP government] visited China in June 2003, the formulation to describe Tibet’s status with China underwent a significant change. The new position was that “The Indian side recognizes that the Tibetan Autonomous Region is a part of the territory of the People’s Republic of China”[emphasis added]. This position has been reiterated since in Joint Statements/Declarations on 11 April 2005 and 21 November 2006 [PM Manmohan Singh]. Thereafter there was no mention of the status of Tibet in the 15 January 2008 ‘Shared Vision of the 21st Century Statement’ or in the 16 December 2010 Joint Communique. The above formulation was revived later after May 2014.  

     By stating that India now considered Tibet Autonomous Region [TAR] to be a part of the People’s Republic of China [PRC] had certain distinct political connotations. Firstly, it was now understood to mean that India accepted that there was no ‘invasion’ of Tibet by China in 1950, since Tibet was a part of the PRC that had already been established in 1949. It also means that the entry of Chinese troops into Tibet in 1950 was only a part of territorial consolidation. Secondly, China had lopped off considerable parts of erstwhile Tibetan territory and incorporated these into other provinces. Thus by recognizing TAR, as opposed to Tibet earlier, India also recognized its new territorial limits and the incorporation of parts of Tibetan territory into other Chinese provinces; contrary to the position of the Dalai Lama. It may also be noted that China describes Arunachal Pradesh as "Southern Tibet".

   Thus if this be the stated position that India had taken all along, where is the space for playing the Tibetan card? Not only would India have to renege on all previous positions taken since 1950, but also consider that there is no other foreign state that recognizes Tibetan independence. China considers Tibet to be a “core” issue and therefore any change in position by India would mean that a challenge to China’s territorial integrity had been made. Its reaction would inevitably be violent. As far back as 1954 PM Zhou had told Nehru in Beijing that China was a ‘peace loving’ country, but if its territorial integrity was threatened it would react with full force. All those who insist on playing the Tibetan card should be mindful of what this entails and not treat this issue with a light heart!