Aspects of the new agreement between India and Japan

Wednesday, February 16, the Japanese and Indian governments signed a partnership and free trade agreement in Tokyo, strengthening their political, economic, and commercial relations.

Specifically, the agreement calls for the elimination of tariffs—amounting to 94% on trade in goods—over a period of ten years. The agreement was signed by Japanese Foreign Minister Seiji Maehara and Indian Commerce Minister Anand Sharma; Japan and India will thus become each other’s most important free-trade partners.

This agreement must be read, especially from the Japanese perspective, in a specific light: the signing of the treaty was a priority for the Tokyo government. Just a few days ago, in fact, Japan ceded second place to China as the largest economy in the world. Japan's population is among the oldest in the world, and its economy has been stagnant for two decades: it was the Japanese Prime Minister, Naoto Kan himself, who emphasized that Japan must open up to revive its prospects. Japan is therefore following the path of South Korea, which through its trade agreements with other countries has managed to increase its global competitiveness.

The agreement with an emerging power like India represents an important milestone as well as a necessity for Tokyo. On the other hand, India, through its Minister of Commerce, Anand Sharma, has defined the agreement as “historic and important,” highlighting how the country is influencing global economic trends and directions.

Although they are both major economies, Japan and India had limited trade in 2010, amounting to $11 billion—just 11% of Japan’s total global trade. To put this in perspective, annual trade between Japan and China exceeds $317 billion.

The agreement provides for greater flexibility for Japanese investments in the Indian telecommunications sector and for the sale of Indian medicines in Japan. Greater access to the Japanese market will also be allowed for products such as curry, tea leaves, wood, and shrimp, while India, in turn, will reduce tariffs on Japanese automotive products, steel, DVD players, and video cameras, as well as on peaches, strawberries, and potatoes.

Strengthening relations with India could pave the way for Japanese investment in mineral resource development: as early as last October, Indian Prime Minister Manmohan Singh and Japanese Prime Minister Naoto Kan discussed potential cooperation in this area aimed at diversifying natural resources. Minister Anand Sharma also proposed the creation of a $9 billion fund to help finance an industrial corridor, an operation that highlights India's efforts to improve its infrastructure. Since 2007, a project funded by the Indian government and several Japanese companies has been underway to improve connectivity between New Delhi and Mumbai, India's financial capital.

The agreement, therefore, widely supported by Japanese industrialists and entrepreneurs, is not limited to a mere commercial exchange but also extends to other projects, intensifying relations between the two countries. In the future, a nuclear cooperation agreement could be planned that would allow Japanese companies to build new reactors in India.

From a geopolitical point of view, the signal sent by Japan and India to another major power, China, is indeed strong: it is known that Chinese influence in the region is not well viewed by Japan and that relations between Tokyo and Beijing are dire. Recent trade, currency, and territorial disputes have certainly not improved the situation, instead strengthening ties between India and Japan.

On the Asian chessboard, New Delhi is moving with determination and wisdom. A hypothetical deterioration of diplomatic and commercial relations between the two leading Asian powers could only favor the third. But India itself also views with suspicion Chinese territorial and infrastructural operations near its borders and the loans granted to Myanmar, Sri Lanka, Bangladesh, and Pakistan for the improvement of these countries' infrastructure. These are the keys to understanding the Indian-Japanese agreement.

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