Japan, India Sign Free Trade Pact

18 February 2011

Japan and India have inked an agreement that will eliminate tariffs on 94 percent of goods trade between the two economies over the next ten years.

The free-trade agreement was signed by Japanese Foreign Minister Seiji Maehara and Indian Commerce Minister Anand Sharma in Tokyo on Wednesday, two days after Japan was displaced by China as the world's second biggest national economy. This is India's first such agreement with a developed country; bilateral trade between the two nations was $10 billion in 2009, amidst the global drop-off in commerce in the wake of the financial crisis.  FTA talks between the two countries began in January 2007.

The accord focuses more on cutting tariffs than on addressing non-tariff policies such as regulatory standards that can serve as a barrier to trade. It does address some non-tariff measures, specifying that both sides should not apply licensing and qualification requirements or technical standards that nullify commitments made under the services chapter of the deal.

Japan will continue to protect certain politically sensitive farm products, such as rice, for which pre-existing tariff levels will remain intact.

Notably, the Japan-India FTA's chapter on intellectual property by and large defers to the WTO Agreement on Trade-related Agreement on Intellectual Property Rights (TRIPS). It includes no provisions for the protection of clinical test data used in drug trials, which has been a point of contention in India's FTA negotiations with the EU.

Analysts say that closer commercial ties with New Delhi may pave the way for Japanese investment in rare-earth resources, which are used in a variety of high tech products from iPads to solar panels.  Japan has been actively seeking new supply sources after China, which accounts for roughly 97 percent of the global supply of the metals, cut exports last year.  Although the agreement does not directly cover rare earths, the Japanese foreign ministry said it could make it easier for Japanese companies to invest in resource development in India.

In addition to the trade pact, Sharma proposed setting up a revolving fund of $9 billion with Japan to help finance the Delhi-Mumbai industrial corridor, a transportation infrastructure project that is expected to attract investment of more than $100 billion.

ICTSD reporting: "Japan and India sign free-trade deal after sales slide," BBC NEWS, 16 February 2011; "India, Japan to sign free-trade pact today," THE ECONOMIC TIMES, 16 February 2011; "Japan, India sign free-trade pact," THE WALL STREET JOURNAL, 16 February 2011; "India, Japan sign free-trade agreement," HINDUSTAN TIMES, 16 February 2011.

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