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Japan, India Sign Tariff-Cutting Trade Treaty

by Mary Swire,, Hong Kong

17 February 2011

The long-discussed comprehensive economic partnership agreement (CEPA) between India and Japan was signed in Tokyo on February 16 by the Japanese Foreign Minister, Seiji Maehara, and the Indian Commerce and Industry Minister, Anand Sharma.

The CEPA, negotiations for which have taken four years, will eliminate or reduce about 94% of tariffs on the countries’ bilateral trade over a ten-year period. It is hoped that it will provide a ten-fold increase to the countries’ bilateral trade, which fell to only the equivalent of USD10bn in 2009.

It is said to concentrate on the textiles, auto parts, pharmaceuticals and service sectors. Sensitive agricultural products, such as rice and wheat, the tariffs on which remain high to allay the fears of Japan’s highly-protected farmers, have been excluded from the agreement.

While India is itself trying to diversify its trade away from the United States and Europe by completing trade treaties with its Asian regional neighbours, the Japanese government is in the midst of an internal discourse over the use of free trade agreements (FTAs) to open up and boost its economy, despite the strong opposition from its agricultural sector.

In particular, it is aware of the competition in its overseas markets provided by China, to whom it has now ceded the post of second-largest global economy, and by South Korea, that has used a network of FTAs to expand its trade opportunities. Japan has reopened its FTA negotiations with Australia, and is to take a decision by June this year on whether to join talks on the Trans-Pacific Partnership (TPP), with nine Asia-Pacific countries, including the US and Australia.

The Japanese government has recently reiterated that Japan would be pursuing domestic reform – including agriculture measures – that will be necessary, particularly for its eventual participation in the TPP. Banri Kaieda, the Japanese Minister of Economy, Trade and Industry has said that the government has a “basic policy of opening up our country”.

The need for additional trade measures is also emphasized in its Japanese review, issued by the World Trade Organization this month. “While looser macroeconomic policies have helped Japan's economy to recover from the global financial crisis,” it says, “they do not address its long-standing structural problems that are reflected in sluggish growth during the past decade or so. These problems can be addressed more effectively by far-reaching structural reforms, of which trade liberalization (and the resulting stimulus to competition) is an integral part.”

TAGS: tax | free trade agreement (FTA) | India | law | tariffs | trade treaty | agreements | import duty | trade | Japan

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