The Expected Economic Effects Of Building China-india FTA And Its Impact On GVC Participation Of The Two Countries

In the context of the accelerated development of economic globalization and the slow progress of multilateral trade negotiations,regional economic cooperation has flourished all over the world.Free trade areas,especially bilateral,have become the main method of regional economic cooperation due to their initiative,flexibility and extensiveness.As global trade protectionism triggered by the global financial crisis heats up,many countries have turned to strengthen regional trade liberalization arrangements and concluded bilateral free trade agreements.The free trade area has become an important means for countries to avoid the risks of global trade protectionism and promote trade development.China and India,the two largest developing countries and emerging economies in the world,also expressed their intention to establish a free trade area in the early days.In June 2003,when Prime Minister Vajpayee visited China,he proposed the establishment of a China-India free trade area.China responded positively to this suggestion.When Premier Wen Jiabao visited India in April 2005,the two sides signed the "Joint Statement between the People's Republic of China and the Republic of India".The two countries should comprehensively expand economic cooperation including trade and investment,and commit themselves to establishing a China-India free trade area in 2015.However,because India does not recognize China's market economy status and the existence of India's trade protectionism,Indian political and industrial circles are very cautious and concerned about the possible competition and impact of cooperation with China,so that this matter is still in research stage.However,the trade between China and India is increasing year by year.Since the end of 2011,China has maintained the position of India's the largest source of imports and the third largest export market.In addition,with the development of globalization,both China and India have been integrated into the production of global value chain to varying degrees.However,due to the lack of obvious technological advantages of the two countries,both countries are currently at the middle and low end of global value chain,that is,the low end of the "smile curve",dominated by low-tech processing and assembly production,with low added-value.Among them,China's position in the global value chain is slightly higher than that of India.On October 10,2019,the Ministry of Commerce of China and the Ministry of Commerce and Industry of India jointly held a China-India trade project signing ceremony and matchmaking negotiations in Delhi.In this context,this paper once again focuses on the construction of China-India free trade area,deeply studies the trade structure,competitiveness,complementarity and trade dependence of China and India,and analyzes the rationality and necessity of the construction of free trade area between the two countries.At the same time,it simulates and predicts the trade creation and macroeconomic effects of China and India after the establishment of the free trade area,so as to analyze whether the establishment of the China-India free trade area can promote the improvement of the economic level of the two countries and achieve win-win cooperation;If India establishes a free trade area,China will be able to use India's huge labor market to realize the transfer of some industries,and will also focus more on independent research and development to achieve a rise in the status of the global value chain.Therefore,this paper is necessary to study the establishment of China-India free trade area and its influence on the participation of the two countries in the global value chain.It has important research significance and practical significance.This paper is divided into two parts from the research content,namely the research on the necessity and rationality of building a China-India free trade area,and the research on the impact of building a China-India free trade area on the two countries' participation in global value chain.Among them,regarding the necessity and rationality of building a China-India free trade area,this paper mainly analyzes the current situation of China-India trade and the expected economic effects brought about by the construction of the free trade area;Regarding the impact of participation in global value chain,this paper mainly studies the current status of China and India's participation in global value chain and the impact of the establishment of a China-India free trade area on the two countries' participation in global value chain.From the perspective of research time,this paper is divided into two parts: current situation research and forecast research.The current situation research part includes the current situation research of China-Indian trade and the status of the two countries' participation in global value chain.The economic effects of the two countries brought by the region and the impact and changes of participation in the global value chain are studied in the forecast research part.In order to reflect the research content of this paper more clearly and intuitively,this paper adopts the structure of research time and expands according to the logical sequence of current situation research and forecast research.The basic content of this paper is as follows: The first chapter is introduction,which introduces the research background and significance of this paper,research ideas and framework,research method and innovation points.The second chapter is a literature review and theoretical review,mainly on the literature review of research on the concept and decomposition framework of global value chain,the degree of participation and status of global value chain,China-India free trade area,the economic effects of free trade area,and the impact of free trade areas on global value chain,with a detailed combing and summary of the global value chain's value-added decomposition method and indicator construction system,and related theories of the free trade area.The third chapter is a statistical analysis of the current status of trade between China and India and the current status of participation in global value chain.In the current status of trade,this paper uses the global value chain trade decomposition method to analyze the trade structure of China and India and the difference between them from the perspective of traditional trade and value-added trade,calculates the complementarity and competitiveness of China and India,analyzes the trade dependence of the two countries and identifies sensitive industries to analyze the cooperation potential of China and India.In addition,the third chapter also analyzes the current status of the global value chain of China and India,using the global value chain value-added decomposition method to decompose the country and industry levels of China and India,and analyze participation degree in the global value chain of the two countries,the relationship between the two countries in the upstream and downstream,and the relationship with the trading partner countries,in order to draw the current status of China and India participating in the global value chain.The fourth chapter mainly introduces the theoretical mechanism of the GTAP model,and respectively introduces and analyzes the theoretical mechanism of the model construction and the theoretical mechanism of the change of the macroeconomic effect caused by the tariff shock.The fifth chapter and the sixth chapter are forecasting studies.The fifth chapter mainly analyzes the expected economic effects caused by the establishment of a free trade area between China and India.It is divided into two parts.The first part uses a trade gravity model to analyze trade potential between China and India and the trade creation effects of the establishment of a free trade area;the second part uses the dynamic GTAP model to set up a free trade area between China and India in 2021,and establish four different policy scenarios for tariff and non-tariff trade barrier reduction,analyzing changes in economic effects such as GDP,total import and export volume,terms of trade,output of various industries,and trade transfer effects between the two countries under different policy scenarios.The sixth chapter mainly analyzes the impact of the establishment of a free trade area between China and India on the participation of the two countries in the global value chain.This part will build the GTAP-GVC model,and realize the GVC decomposition under different policy scenarios by linking the GTAP model and the GVC decomposition method,so as to analyze the changes in the participation of the two countries in the global value chain.The seventh chapter is the research conclusions and policy recommendations of this paper,mainly to summarize the full text,and put forward relevant policy recommendations based on the conclusions obtained.The main research conclusions of this paper are as follows: First,the establishment of a free trade area between China and India is reasonable and necessary.Regardless of the traditional trade volume or the trade volume from the perspective of value added,the scale of trade between China and India is generally on the rise,and trade exchanges are relatively close.The trade imbalance between China and India is an important reason hindering the development of trade cooperation between the two countries.Based on the value-added trade statistics in this paper,the China's domestic value-added contained in India's import goods from China is about 20% less than that based on the traditional trade statistics.At the same time,the trade complementarity and competitiveness of China and India coexist,but the complementarity is higher than the competitiveness.China has a trade advantage in manufacturing exports,especially those in high-tech-intensive industries;India has a trade advantage in primary production sectors such as agriculture and mining,and the complementarity is obvious.In addition,China and India have a certain degree of trade dependence.In particular,India is more dependent on certain industries in China,but the two countries have not identified sensitive industries,which is more beneficial to the development of cooperation between the two countries.Second,China and India have great trade potential,and the establishment of a free trade area will promote the economic development of the two countries.This paper uses the trade gravity model to calculate that China and India have greater trade potential,and the establishment of a free trade area between China and India will bring different levels of trade creation effects to the two countries.The simulation results based on the dynamic GTAP model show that the establishment of a free trade area will significantly increase the actual GDP and import and export trade volume of the two countries,and bring about improvement in terms of trade;it will have a great impact on the industries of the two countries,especially India,and with capital flowing in the world,China will likely transfer some industries to India for processing and production;the trade flow between the two countries has increased significantly,but there is a certain trade transfer effect,leading to trade flows reduced between the two countries and other countries or regions in the world.Third,the China-India Free Trade Area will promote the adjustment of the industrial structure of both parties and give play to their respective comparative advantages.The establishment of the China-India free trade area will lead to a significant increase in the output of agricultural products in India,and most of the manufacturing output will be impacted and output will decline;the changes in China are the opposite of India.Fourth,China and India currently have a relatively low degree of participation in global value chains,and China's participation is higher than that of India.In the participation of China and India in the global value chain at the national level,both China and India are mainly involved in the future,which means that the final products produced by the two countries have more added value from abroad,and the two countries are at the low end of the production chain.The technical content is low,and labor-intensive production is the main focus.Fifth,the establishment of a free trade area will lead to increased participation in the global value chain of China and India to varying degrees.Both China and India have increased their participation in GVCs at the national and industry levels,but India has increased the rate even more and used its labor advantage to integrate more into global value chain production activities.Sixth,the adjustment of the Sino-Indian industrial structure brought about by the China-India Free Trade Area will lead to differences in the ways in which the two countries participate in global value chains.At the national and industry level,China's increase in value added through multiple cross-border exports is relatively obvious,while India's increase in value added through one-time cross-border imports and exports is more significant,which means that China and India will integrate global value in different ways.China is gradually moving closer to the upper reaches of the value chain,while India uses more downstream links in the value chain for value chain production.