PM Yoshiro Mori’s visit to India in August 2000 was the beginning of a new era of India-Japan relations, which set the precedent for visits to India by his successors Junichiro Koizumi and Shinzo Abe. Since then, the two countries sought to strengthen bilateral ties through new initiatives and programmes ranging from economic and cultural linkages to defence and security. Japan at present gives 30 per cent of its foreign aid to India and is, even in this period of global economic turmoil, committing more than US $4 billion to the Delhi-Mumbai Industrial Corridor (DMIC). The two recent mega deals between Indian and Japanese companies, namely,DAIICHI-RANBAXY MERGER (US $4.6 billion) and the acquisition of 26 per cent stakes (US $2.7 billion) in TATA Teleservices by Japanese mobile giantNTT DoCoMo, are clear instances of the growing economic ties between the two countries.
In April 2005, the two countries agreed to set up a Joint Study Group for a free trade agreement (FTA). The JSG in 2006 recommended to develop a Comprehensive Economic Partnership Agreement (CEPA), which was launched in January 2007 covering issues – trade in goods and services, investment flows, trade promotion and measures for promoting economic cooperation in identified sectors. Even after ten rounds of negotiations, a number of issues in the proposed India-Japan CEPA are yet to be resolved, including items in the negative list of products to be protected from tariff-cuts and quality control norms for import of farm goods. Tariffs (import duties) on most goods in Japan are already low at present. Thus, a critical determinant in greater market access for Indian products in the Japanese market would be the reduction of existing non-tariff barriers (NTBs). Indian concern lies over Japanese technical barriers to trade (TBT) and its stringent sanitary and phytosanitary measures (SPS), which act as NTBs to Indian export items, viz. pharmaceutical, chemicals, biotechnology, and cosmetics sector goods. Indian pharmaceutical companies have not been able to tap the Japanese market to its full potential due to the country’s stringent SPS, TBT and environmental norms. Japan provides the world’s second largest drug market. At the moment it takes an Indian pharmaceutical exporter 5-7 years to start exporting from the date of application. Japan is not agreeing a mutual recognition agreement (MRA) in pharmaceutical sector, which would enable both the countries to identify the testing procedures and standards used in the other country for their goods. India’s demand is to have standards uniform to those set by US Food and Drug Administration (FDA), but Japan contends that these are not enough and is resolutely pushing for its own set of testing measures.
Further, Japan’s interest lies in automobile and chemicals, while Indian industry seeks total protection on these items. India, on the other hand, is keen on expeditious implementation of quality control norms in Japan. As stated above export of Indian agricultural goods, chemicals and pharmaceuticals face various NTBs in Japan. Indian industry feels that the implementation process of SPS norms in Japan is so long that in case of mangoes, it took 15 years for India to get clearance. Rules of origin, which lay down how much of an imported input should be allowed in a product being traded under the CEPA, is another contentious area. In services, the major hurdle lies in the area of mutual recognition agreements (MRA) wherein both parties accept foreign professionals with degrees and diplomas offered in their home country. As such a mutually agreed MRA is desirable for clinching the deal in terms of services. Also, a 15 per cent withholding tax � a share of the payment withheld by the paying party on account of taxes � levied by Japanese authorities is also a major hurdle discouraging Indian professionals from working in Japan, and needs to be sorted out.After clinching the FTA with ASEAN and sorting out all outstanding issues with South Korea for a CEPA, India is keen to conclude the CEPA with Japan. It is expected that such an Agreement would help the two countries increase their share of Asia’s economic output in the coming years. The recent surge in Japanese FDI in India to the tune of $5 billion this year so far against less than $500 million last year indicates the increasing interest of Japanese investors in India. Indian industry expects the CEPA to lead to greater flow of technology and investments from Japan into India. However, if the current global financial crisis continued to affect the global economy for long, it would most likely impact the increasing economic relationship between India and Japan. How much the present crisis affects the India-Japan comprehensive economic relations remains an open question? Nonetheless, the CEPA between the two large economies of Asia may evolve an understanding between them for the early conclusion of the WTO’s Doha Round negotiations, which is vital for the maintenance and development of the international trade system!