India EPA gives firms fighting chance

The Yomiuri Shimbun | 27 Oct 2010

India EPA gives firms fighting chance

With Japan and India having finally signed an economic partnership agreement (EPA) Monday, Japanese companies are expected to go on the offensive in emerging markets where they face fierce competition from South Korean and other rivals.

Japanese steel companies welcome the EPA as it will eliminate tariffs on 98 percent of iron and steel products exported to India from Japan. The tariffs are currently around 5 percent.

Under the free trade agreement signed last year by India and South Korea, which came into effect in January, only 80 percent of South Korea’s iron and steel exports are tariff-free.

Earlier this month, Nippon Steel Corp. announced it would build a plant to make steel pipes for motorcycles and cars in Rajasthan, northern India, and begin operations there in 2012.

The plant will need high-quality steel plates from Japan, meaning it stands to make significant savings if the tariff on steel plates is lowered under the EPA.

"[The agreement] is a welcome boost for our business in India," a Nippon Steel public relations official said.

This nation’s carmakers also appreciate the EPA as auto parts, which currently attract tariffs of 5 percent to 10 percent, will be mostly tariff-free when the EPA comes into effect.

South Korean and other rivals are gaining ground on Japanese automakers in the Indian market, where 2.48 million cars were sold in fiscal 2009, 28 percent more than the year before.

According to Suzuki Motor Corp., the most popular models in India are mainly compact cars priced between 400,000 yen and 800,000 yen, many of which use engine parts imported from Japan. A slight difference in price can have a marked influence on the sales of low-priced models, so India’s current tariffs on imported Japanese parts are a concern for Suzuki.

"We’ll be disadvantaged unless [the EPA] is finalized quickly," Suzuki Chairman Osamu Suzuki has said.

Japanese companies also want to see negotiations accelerated on similar agreements with the United States and China, which have seen no major progress so far.

Chief Cabinet Secretary Yoshito Sengoku indicated Monday that the government will make moves on EPA negotiations with other countries.

"To properly open the country [to trade], we should actively proceed with EPAs," Sengoku said at a press conference.

While negotiations on EPAs with the United States, China and the European Union—all major trade partners—are yet to begin, Japan has either signed or enacted an agricultural EPA with 12 countries and regions, including India.

According to a Japanese trade official, these countries and regions are "easy to negotiate with."

But Japan’s trade with those 12 partners in fiscal 2009 accounted for only 18 percent of the nation’s total trade. South Korea’s trade with seven countries and regions with which it has EPAs—including the United States and the EU—accounted for about 36 percent of its total.

Negotiating the EPA with India took more than three years—talks began in January 2007—which is more time than any of Japan’s other 11 EPAs required.

This nation is currently in negotiations with South Korea and Australia on EPAs, but agricultural and fishery markets are proving to be sticking points and agreement with either nation looks a long way off.

Even in Japan, there is no consensus—although most people are concerned about boosting Japan’s faltering competitiveness, some within the government and the Democratic Party of Japan say protecting the domestic agricultural industry should be the greater priority.

source: Yomiuri Shimbun