The Hindu Business Line : Roadblocks to Japan accord

While several issues need to be sorted out, strengthening ties with Japan is an important component of India’s larger plan to become an economic giant.

The Prime Minister, Dr Manmohan Singh, is slated to visit Tokyo next week, by which time the India-Japan Comprehensive Economic Co-operation Agreement (CECA) ought to be ready for signing. Clearly, this is what everyone interested in closer ties between the two countries would like to see happen. The problem, however, is that the agreement may not be ready by the time of the visit. If something is indeed hammered out within the deadline, it will more than likely be an impe rfect document, many aspects of which will have been hurried through, to the detriment of the nation’s economic interests.

This apprehension stems from the fact that the negotiations conducted over the past three years are stuck on a few important issues that have not yet been settled to the satisfaction of both sides. One of these is the negative list of items to be kept out of the purview of the free trade agreement, which will be a part of the overall accord. Another is the lowering of tariffs on certain Indian farm-item exports, a subject on which Tokyo has been unusually firm in its opposition. And the third is the stiff non-tariff barriers, such as stringent quality-control thresholds, which the Japanese have set for a number of Indian exports, such as chemicals and leather. Computer and IT-related service exports, too, face tax problems in Japan, which have defied an early solution. On the other hand, and rightly, New Delhi has been firm in asking for safeguards against third country products sneaking on to the FTA bandwagon and entering the Indian market. Reports indicate that the Indian side has pitched for a double safeguard in the shape of a rules-of-origin benchmark and also tariff classification for goods (as applicable to FTAs with other countries), a stand which, reportedly, has created problems for Tokyo. An investment agreement — an integral part of the CECA — has also run into hurdles, such as (as pointed out by the India-Japan Joint Study Group, 2006) poor transparency in the application of laws and administrative procedures, and unhelpful regulations on labour and worker welfare, which cannot be sorted out in the short term.

Yet, there is no alternative but to strengthen ties with Japan, especially as part of the larger effort of reinforcing economic relations with Asia, as a whole, as indicated by the FTA recently signed with Asean. Clearly, Indian service exports to Japan and Japanese investments into India should form the two pillars of the projected CECA. Japanese direct investments in India trebled in just one year to $1.7 billion in 2007 but even that is a fraction of what they can be. There is much to aim for, and a thriving India-Japan economic partnership is a sine qua non for New Delhi’s current efforts to become an Asian economic giant in the years ahead.

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