The Indo-Japan Free Trade Agreement: A Step in the Right Direction

Posted on February 21, 2011 in Featured

By Pradyut Hande:

February 16, 2011 witnessed the signing of a historic bilateral Free Trade Agreement (FTA); the Comprehensive Economic Partnership Agreement; between India and Japan in Tokyo. The pact was signed by the Indian Commerce and Industry Minister Anand Sharma and the Japanese Foreign Minister, Seiji Maehara in a glittering ceremony at the Japanese Foreign Ministry, Tokyo. The FTA will abolish tariffs on 94% trade over the next decade as each country aims at expanding its investment portfolio in a rapidly morphing Asian theater.

The agreement is a positive step for India, towards pursuing an enduring strategic partnership with Japan that encompasses myriad aspects, apart from trade. According to Anand Sharma, “The agreement provides an overarching framework to promote our economic cooperation, both trade and investment, which promises to be rewarding to both nations.” Foreign Minister Maehara echoed similar sentiments.

The bilateral FTA is the product of a preliminary Economic Partnership Agreement (EPA) signed between Indian Prime Minister Manmohan Singh and his Japanese counterpart, Naoto Kan earlier in October 2010. The initial EPA also includes measures to promote cross-regional trade related investments and addressing issues pertaining to intellectual property rights. Under the new accord, Japan will improve market access in the industrial sector and multifarious products such as lumber, curry, tea leaves, shrimps etc. On the other hands, India would strive to improve Japan’s market access in sectors such as automobile parts, steel panels, electronic goods like DVD Players and certain agricultural products like Japanese yams, peaches and strawberries. In essence, tariffs on goods such as automobile parts and diesel engines will be gradually reduced while those o DVD Players, Tractors etc. will be abolished completely over the next ten years.

The long overdue agreement is indubitably a major step in facilitating the establishment of comprehensive trade relations between the two Asian behemoths and would stand them both in good stead. For India, the deal assumes notable significance as it embarks on a quest to expand and improve upon its trade in the Asian region. India’s major overseas markets are constituted in the USA and the European Union and hence, this accord bodes well for their future trade oriented aspirations. Japan on the other hand also stands to gain profoundly as it attempts to reduce its over dependence on the Chinese market to infuse greater vitality into its flagging economy. In its attempt to keep up with the runaway train that is the bustling Chinese economy and keep at bay the rapidly burgeoning South Korean economy, Japan has had to rethink, reorient and realign its strategies. Trade between India and Japan amounted to US $ 10.4 Billion in the year ending March 31, 2010; making Japan India’s 11th largest trade partner between the period of April-June, 2010. However, trade with India constitutes less than 2% of Japan’s global trade. The FTA promises to rectify that anomaly in addition to reducing their dependence on China as its Number One trade partner.

On the whole, the agreement presents a win-win scenario for both parties concerned and is a veritable step in the right direction. Fending off the world’s second largest economy that is China raises the need to forge crucial strategic cross-regional alliances and strengthening bilateral ties with the industrious Japanese is invaluable at this juncture of time.

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