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Wednesday, Aug. 24, 2011
The comprehensive economic partnership agreement between Japan and India went into force Aug. 1. It is Japan's 12th free trade agreement. In the field of FTAs, Japan is lagging its neighbor South Korea. The latter has already signed FTAs with the United States and the European Union. Its FTA with India went into effect in January 2010.
China, the world's second largest economy, is Japan's top trade partner, with two-way trade accounting for some 20 percent of Japan's total trade. Although India is Asia's No. 3 economy, following China and Japan, the Japan-India trade accounts for only 1 percent of Japan's total trade.
It is hoped that the new FTA will help promote the liberalization and facilitation of trade and investment between Japan and India. Japan can help improve India's infrastructure, which is relatively weak.
India, a big market with a population of 1.2 billion, has achieved annual economic growth of 6 percent to 9 percent since 2005. Its population is expected to reach 1.5 billion in 40 years. But it has such problems as complex administrative procedures and security issues stemming from terrorism.
Under the FTA, tariffs on items accounting for some 94 percent of bilateral trade will be abolished in 10 years. Japan will abolish tariffs on items covering some 97 percent of its imports from India in 10 years while India will abolish tariffs on items covering some 90 percent of its imports from Japan in 10 years.
For example, Japan will immediately abolish tariffs on most industrial and mine products from India, but will abolish tariffs on curry and tea in 10 years. To protect Japan's agricultural sector, the FTA exempts Indian exports of rice, wheat, beef and pork from Japanese rules for abolishing tariffs.
India will abolish tariffs on many steel, electronic and machinery products from Japan in five or 10 years, and roughly halve tariffs on car gear boxes and diesel engines over six to eight years. It will abolish tariffs on peaches, strawberries and persimmons in 10 years.
Japan and India have not yet signed an agreement to export Japan's nuclear power technology to India. Japan insists on inclusion of a provision that Japan immediately stop cooperation in case India tests a nuclear weapon. Japan should not compromise on this position.