Aspects of the new agreement between India and Japan

On Wednesday, Feb. 16, the Governments of Japan and India signed a partnership and free trade agreement in Tokyo, strengthening their political-economic-trade relations.

Specifically, the details of the agreement concern the ’abolition of tariffs, amounting to 94% on trade in goods, within ten years. The agreement was signed between Japan's Foreign Minister, Seiji Maehara, and India's Trade Minister, Anand Sharma: Japan and India will thus become each other's most important free trade partners.

This agreement should be read, especially from the Japanese perspective, in a certain 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 world's largest economy. Japan's population is among the oldest in the world, and its economy has been stuck for two decades now.It was Japan's prime minister, Naoto Kan, who pointed out that Japan must open up in order 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 such as India represents an important achievement for Tokyo as well as a necessity. On the other hand, India, through the voice of its Minister of Commerce, Anand Sharma, described the agreement as “historic and important,” highlighting how the country is influencing global economic trends and developments.

Despite being two large economies, Japan and India had limited trade in 2010, amounting to a figure equivalent to US$11 billion, just 1% of Japan's world trade. Suffice it to say that annual trade between Japan and China exceeds US$317 trillion.

The agreement provides greater flexibility for Japanese investment in India's telecommunications sector and for the sale of Indian medicines in Japan. It will also allow greater access in the Japanese market 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 camcorders as well as on peaches, strawberries and potatoes.

Establishing closer relations with India could pave the way for Japanese investment in the development of mineral resources.As early as last October, Indian Prime Minister Manmohan Singh speculated together with Japanese Prime Minister Naoto Kan about possible 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, a move that highlights India's efforts to improve its infrastructure situation. Already since 2007 there has been a project funded by the Indian government and several Japanese companies for an improved link between New Delhi and Mumbai, India's financial capital.

The agreement therefore, widely advocated by Japanese industrialists and entrepreneurs, is not limited to a mere trade exchange but also extends to other projects, intensifying relations between the two countries. A nuclear cooperation agreement allowing Japanese companies to build new reactors in India could be envisioned in the future.

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

In the Asian chessboard, New Delhi is moving with determination and wisdom. A hypothetical tightening of diplomatic and trade relations between the first two Asian powers could only favor the third. But even India itself does not look kindly on China's territorial and infrastructural operations near its borders and its loans to Myanmar, Sri Lanka, Bangladesh and Pakistan for infrastructure improvements in these countries. These are the keys to understanding the Indian-Japanese agreement.

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