An Exploration: Institutional Arranging Of China-India Free Trade Area

Regional institution arrangement of economy and trade is a major trend of the current world economic development. So far, more than 150 countries or regions on the earth has participated in regional organizations of different levels. It has been proved by many practices that the majority of countries has not only developed their national internal economy, but also expand foreign economic and trade relations. With development of China and India's economy and improvement of political and diplomatic relations day by day, The cooperation of two sides in various fields have been noticeably improved. Under the impetus of the tide of regional economic and trade arrangements, and in the face of gradually rising of trade protectionism of Western countries, China and India proposed the strategy of establishing a Sino-India Free Trade Area to further promote and deepen bilateral economic and trade relations.The paper makes a systematical analysis on the strategy of institutional arranging of China-Indian Free Trade Area (CIFTA) by means of the Transaction Cost Theory of Neo-Institutional Economics. Because of high transaction cost, the current institutional arrangement of China-India's bilateral economic and trade relations cannot in effect guarantee China and India have any way to attain our objectives of maximizing their anticipating profitability. But the institutional arrangement of China-India Free Trade Area which can overcome a variety of drawbacks of the current institutional arrangement, effectively reduce transaction cost, sufficiently excavate potentialities of the both countries' markets, and greatly improve their expectant benefit, is ideal institutional design and innovation that deepens bilateral economic and trade relationship.The paper is divided six parts. Part I first recalls the gradual history of the economic and trade relationship between China and India, and then expounds the characteristics of bilateral economic and trade relation and its current institutional arrangement; Part II explains causes why institutional supply and demand unbalance in the China-India economic and trade relationship, aimed at further illustrating that institutional design and innovation is very necessary and feasible for deepening Sino-India bilateral economic and trade relation; Part III introduces relevant principles and theoretical basis about Free Trade Area, and looks into the expecting benefits of China-India Free Trade Area. Part IV set forth aims and principals which institutional arranging of CIFTA should follow. Part V designs the framework and main contents of institutional arrangement of CIFTA; In the part VI, the author brings forward the series of tactics of institutional arrangement and system changes of CIFTA from theoretical research perspective of Public Choice Theory and Personer's Dilemma Theory.