Japan, India sign trade accord to cut tariffs as Asian investment expands

Bloomberg Feb 16, 2011

Japan, India sign trade accord to cut tariffs as Asian investment expands

By Sachiko Sakamaki and Tushar Dhara

Japan and India signed an economic agreement that will abolish tariffs on 94 percent of trade over 10 years as each country expands its investment in Asia.

India Trade Minister Anand Sharma and Japanese Foreign Minister Seiji Maehara signed the Comprehensive Economic Partnership Agreement today in Tokyo. Indian Prime Minister Manmohan Singh and Japanese counterpart Naoto Kan reached a preliminary deal in October.

The accord will give companies including Toshiba Corp., Hitachi Ltd. and Bridgestone Corp. greater access to the second- fastest growing major economy as Japan seeks to keep pace with China’s rising presence in the region. India, whose main overseas markets are the U.S. and the European Union, is trying to expand trade by signing agreements with Asian countries.

Trade between Japan and India totaled $10.4 billion in the year ending March 31, 2010, down 5 percent from the previous year, according to Indian government data. Japan was India’s 11th-biggest trading partner in the April to June quarter of 2010. Malaysia, where Sharma will go to sign a separate deal this week, was ranked eighteenth.

Kan has said Japan must open up to free trade to boost an economy that last year was replaced by China as the world’s second-biggest. He is seeking to join the U.S.-led Trans-Pacific Partnership trade talks with nine Asia-Pacific countries, which is opposed by Japan’s agriculture industry, a key constituency.

“Essential” for Japan

“These trade agreements that boost both exports and imports in Japan are essential for the country’s continued development,” said Yoshiki Shinke, a senior economist at Dai- Ichi Life Research Institute in Tokyo. “Japan’s been behind on signing these trade deals, as consideration to the domestic industries have made it politically difficult. But we’re past the point of being able to afford such niceties.”

Under the terms of the deal signed today, tariffs on items such as Japanese automobile parts and diesel engines will be reduced, and those on digital video disc players and tractors will be abolished over the next decade.

“I hope bilateral relations will build a win-win partnership,” Maehara said after signing the deal. Sharma said India is “fully delighted” with the agreement.

Investment Fund Proposal

Sharma last night met with Kan and proposed setting up a $9 billion joint fund to help finance an industrial corridor between New Delhi and Mumbai, according to an e-mailed statement from India’s trade ministry. Sharma told Kan India needs $550 billion in infrastructure investment over the next five years and another $1 trillion in the five years after that.

Toshiba, Japan’s largest supplier of nuclear reactors, entered the Indian power market through a joint venture with Indian power utility JSW Energy Ltd. The company is in talks with NTPC Ltd., India’s biggest power producer, to build a pilot project for capturing and storing carbon emissions.

“The gravity of economic activity is shifting to Asia and we should have as much access to these markets as we can, Rajeev Kumar, director general of the New Delhi-based Federation of Indian Chambers of Commerce and Industry, said on Feb. 14.

China and India in December pledged vowed to boost trade by two-thirds to $100 billion in the next five years after Singh met in New Delhi with Chinese premier Wen Jiabao.

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source: Bloomberg