India Japan CEPA

India’s textile, pharmaceutical and services sectors can gain greater market access in Japan while competition may mount for the automobile parts manufacturing industry after India signs a comprehensive trade agreement with Japan on Wednesday. The agreement, first such with a developed nation, could spur investments from Japan as India has committed to give national treatment to both pre- and postinvestment from that country, a benefit extended only to Singapore so far. This means that Japanese companies investing in India will be treated on a par with the domestic ones at every stage. “The agreement is a result of the high level of confidence that the countries have with each other, that we do not have with some other countries,” a senior Japanese trade official said. China is traditionally a big market for Japanese exports, but diplomatic ties between the two countries are not very rosy. “In India, we are sure that slogan-shouting protestors will not surround the Japanese embassy,” the Japanese official said. The agreement between India and Japan will remove tariffs on more than 90% of goods. “It is important for us to explore new markets and diversify our portfolio,” said Biswajit Dhar, director general of Delhi-based Research and Information System for Developing Countries. This agreement too will work well just like the one signed with Korea last year, he added. Commerce and Industry Minister Anand Sharma and Japan’s Foreign Minister Seiji Maehara will sign the agreement in Tokyo. It will be implemented as soon as it wins approval of the Japanese parliament. Japan has low tariffs --- between 0% and 5% -- on manufactured products, but tariffs are as high as 15% on textiles, and even higher on leather. Textile producers in India will be the biggest gainers of this agreement as Japan has agreed to eliminate tariffs completely over the next five years. Leather manufacturers, however, will not be as lucky. Leather is among the few items along with farm produce that is not covered by the agreement, and tariffs, therefore, will continue to be high. “Overall, we do expect to make substantial gains in manufacturing as our present share in Japanese trade is less than 1%,” an official with the Indian commerce department said. Japan is India’s fifth largest trading partner and bilateral trade between the two countries was pegged at $10.36 billion in 2009-10. Gains would, however, be much bigger for the services sector with Japan agreeing to liberalise temporary movement of Yoga instructors, classical music and dance exponents, English language teachers and Indian cuisine masters. This would be in addition to the existing commitments for professionals like engineers and IT professionals. While India did not take on tariff reduction commitments for automobiles and auto components, it has agreed to eliminate/reduce tariffs on auto parts made of steel, a major gain for the Japanese industry.