India-Japan Economic Partnership: Potentials, Promises and Prospects

By
Shamshad Ahmad Khan, PhD

Assistant Professor
Department of Humanities and Social Sciences
BITS Pilani, Dubai Campus(This paper was written during the author’s affiliation with the Policy Research Institute as a
Visiting Research Fellow from May 28, 2019 to August 16, 2019.)

1

Acknowledgement
The author acknowledges the guidance and mentorship of Mr. Kohei Shiino, Associate Professor
at Takushoko University during the research project. The author would like to thank various
academicians including Professor Makoto Kojima and Dr. Norio Koondo for giving time to theauthor for interviews and offering valuable input to this research. The author would also like tothank the various staff of JBIC, METI and JETRO for giving various data and input for thisresearch. Special thanks to Muqbil Ahmar and Shashank Patel for giving technical support during
this research. Last but not the least, the author would like to thank the Policy Research Institutefor hosting the author as a Visiting Research Fellow from May 28 to August 16, 2019 during which
this research was given final shape. The author also thanks the head of the Department of
Humanities and Social Sciences, BITS Dubai Campus and the Director BITS Dubai Campus forallowing the author to undertake this fellowship.

2

Contents
Acknowledgement
Abstract

2
3-4

1. Introduction

6

1.1. The Structure of the Paper

7

2. India-Japan Trade and Economic Relations in Retrospect

7

3. The Prelude to CEPA: The Potentials Identified by Joint Study Group

9-10

4. India-Japan Economic Partnership Agreement: The Promises

11-15

5. CEPA: The Prospect

16-29

7. Conclusion and Suggestions

30-33

3

India-Japan Economic Partnership: Potentials, Promises and Prospects
Abstract:
When India started the process of negotiating the Comprehensive Economic Partnership
Agreement (CEPA) with Japan, this was New Delhi’s first Free Trade Agreement (FTA)
negotiation with a developed economy. India so far had relied on the WTO led-multilateral tradesystem. Various interpretations have been given regarding India’s departure from its policy ofmultilateralism and entering into various bilateral and regional FTA negotiations andimplementation. There is a general consensus among the economists that India went with theglobal trend, what they term as the “Spaghetti Bowl” phenomenon: signing bilateral and regional
FTAs following the weakening of WTO-led multilateralism. India in this process signed various
FTAs. Japan was one such country with which it signed FTA.
However, the fact cannot be ignored that when it comes to the India–Japan FTA, in addition to
the global trend, it was driven by political compulsions to uplift the abysmally low trade volume
between the two strategic partners and it was decided that the economy would be the “bedrock”
in the bilateral partnership. This realization led the two countries to forge a stronger economic
partnership which will not only be limited to trade in goods but will encompass trade in services,
investments and promotion of people-to-people partnership. This study in this context looked into
the India–Japan economic partnership, especially after the CEPA coming into effect in 2011. It
looks into various questions such as how it has performed, what kind of expectations various
stakeholders have had vis-à-vis the CEPA, what it promised to them, what are the potentials of the
CEPA and what are their expectations as the CEPA enters into its final phase of tariff elimination.
The Study examines two key official documents: the Joint Study Group, which suggested thesigning of the CEPA, identifying various complementarities between the two economies and theIndia–Japan CEPA documents which commit to eliminating various tariffs and offers various
incentives for each other’s investors. The study finds that the CEPA has achieved mixed results.
While on the one hand, the volume of bilateral trade has increased, the Japanese FDI flow towards
India is on the rise and so is the number of Japanese companies, on the other hand, the gap in thebilateral trade has widened and the concerns in the media have emerged of the low share of India’s
4

trade in bilateral trade volume. At the political level and in the policy circles, concerns of Japan
imposing ‘non-tariff barriers’ have come to the fore. There have been similar concerns about
India’s performance in other FTAs (such as with South Korea, Singapore and Malaysia) signed
around the same time. Concerns have also been raised in various studies conducted by different
institutes in India, and some of them have been asking New Delhi to review the FTAs and give a
pause to the various bilateral and regional FTAs which are under negotiation. These issues havebeen analysed in this study below and have been backed by statements and statistics.

5

1. Introduction
Despite having geographical proximity, a factor that helps propel trade and flow of capital between
the two economies, India–Japan economic engagement, especially in the post-war period, was not
as robust as it was expected. Various domestic and external factors have been blamed for weaktrade and economic links between the two Asian economies. These include India’s decision to put
the economy under state control and Japan opting for a liberalized economic system: putting thetwo Asian economies at odds with each other. India’s tilt, as perceived by Japan, towards the USSR
and Japan joining the US-led capitalist world, the diagonally opposite political system, is also
blamed as an intervening factor impeding the economic ties between the two countries. However,post 1990s, when India liberalized its economy, and this coincided with USSR’s collapse, it was
expected that trade flow will increase manifold between Japan, a major trading power, and a newly
liberalized India. But the trade between the two countries remained stagnant and so were theinvestment flows from Japan towards India.
As Japan was identified as “an important source of both investment and technology,”1 when India
adopted the liberalization process, stagnation in bilateral trade and flow of Japanese FDI, was acause of concern in New Delhi’s policy circles. In this context, both Indian and Japanese
governments constituted a Joint Study Group consisting of various stakeholders, government
officials and academic experts to identify the complementarities between the two countries andsuggest ways to uplift the bilateral economic ties.
The Study Group after its detailed deliberations identified that there remains a lot of “potentials”
between the two countries and if harnessed properly both countries can forge a complementary
economic relationship. The Study Group suggested the signing of an Economic Partnership
Agreement by the governments of India and Japan. The Economic Partnership Agreement, whichconcluded in 2010 and came into effect in 2011, was full of “promises” including elimination oftariffs and trade barriers, opening up trade in services and promoting investments. Since it was themost comprehensive Free Trade Agreement New Delhi had ever signed, it generated lots of
expectations especially in India. The simulation studies conducted by various economists
generated hope about a sizeable jump in the bilateral trade volume. However, almost after a decadeof the bilateral CEPA coming into effect, the partnership does not seem to be as bright as projected.
6

Various concerns, mostly in India from government, policy circles and various stakeholders havebeen raised including widening trade gaps between India and Japan as well as imposition of various
non-tariff barriers by Japan. Since the India–Japan CEPA has not worked up to the expectationsof India, it seems cautious to forge such similar bilateral and multilateral agreement, including the
RCEP. Naturally, the “prospects” of the CEPA do not look that bright. The paper, in this context
tries to understand the evolution of India–Japan economic partnership and identifies the problems
it faces and speculates its future.
1.1. The Structure of the Paper
Given the fact that the direction to forge a complementary economic partnership came from a highlevel joint committee of the India–Japan Study Group (JSG), the paper examines therecommendations given in the JSG. Then it looks into the CEPA document to compare therecommendation and implementation part as well as the measures the CEPA adopted to promotetrade in goods, investment and trade in services between the two countries. Consequent upon
examining the two primary sources, the paper looks at various studies to examine what kind of
expectations the economists and experts had about the CEPA and how they look at its impacts
after it came into effect. In addition to this, the paper maps the narratives that have come to thefore regarding the India–Japan CEPA especially in India and examines the political statements,
policy documents and studies conducted by different stakeholders. Since both the JSG and CEPA
hoped that following the India–Japan bilateral Free Trade Agreement, India will enter into various
regional trade agreements, a section of this paper looks at India’s endeavours to forge similarbilateral and regional FTAs. As many readers may be curious to know the state of trade ties
between India and Japan before the CEPA, the paper starts with giving a snapshot on India-Japan
trade relations highlighting the evolution of bilateral economic ties. The author employs a politicaleconomy perspective to study the subject which will be useful for policy planners studying this
topic.
2. India-Japan Trade and Economic Relations in Retrospect
Even though India signed a Comprehensive Economic Partnership Agreement with Japan in 2011,
Japan’s economic ties with India can be traced back to 1894 when the two countries signed a trade7

convention. India at that time was still under British administration. The 1894 agreement gave
fillip to the cotton trade between the two Asian nations. The trade convention also paved the way
for the opening up of the regular ocean transport between India and Japan.2 By the mid-1910s,
India became the third leading trade partner for Japan after the United Kingdom and the UnitedStates. In terms of Japanese exports, India by the 1920s became the fifth largest market after China,
the United States, Hong Kong and the United Kingdom.3 The trade and economic ties were mainly
driven by resource supply. Apart from the iron ore, other raw materials included supply of raw juteand raw cotton to Japan.4 In short, much before the onset of World War II, India and Japan had
already established complimentary and interdependent economic ties. It was because of theinterdependent nature of Indian and Japanese economies that developed during the pre-war years
that India wanted to see an economically resurgent Japan following World War II.
Various sources suggest that India was keen for on the economic revival of Japan and offered its
raw materials including iron ore needed by Japanese war-weary industries. Indian Prime Minister
Jawaharlal Nehru, while meeting a Japanese trade mission, assured them that India would assist as
much as possible in sending “raw materials to Japan.”5
As mentioned earlier, the domestic and external factors have impacted the growth of India-Japan
relations. Despite the good beginning in the early 1950s, both the countries could not take theirrelations to an upper trajectory as their investors and traders had a very different perception
towards each other. The Japanese believed that India has tilted towards the Soviet Union and has
adopted a socialist economy6 and the Japanese businessmen viewed Indian economic policies as“un-realistic and non-pragmatic.”7
Sakutaro Tanino, a Japanese ambassador to India beautifully summed up the nature of the bilateral
economic relations that existed during the entire Cold War period. Tanino noted that India’s special
relationship with the USSR and Japan’s security engagement with the US “eventually resulted in
the cooling-off of the great enthusiasm of the 50s.”8 The Official Development Assistance (ODA)9and the entry of some of Japanese companies into the Indian market, including Suzuki,10 are theonly examples which sustained the bilateral economic relationship during the Cold War period.
As India initiated economic reform in 1991,11 “Japan was identified as one of the most importantsources of both investment and technology by the government of India.”12 The Japanese side also
8viewed “economic liberalization” as a “return to the inspiring phase” of India-Japan relations.13
But Japanese investors were not satisfied with the pace and extent of India’s economic
liberalization and thus there has been no “quantum jump in Indo-Japanese economic relations. In
fact, expansion and growth patterns have been cautious and gradual.”14 Japanese automotive firms
such as Honda and Toyota set up factories in India in 1994 and 1997, respectively. But the Japaneseelectronics giants did not show similar enthusiasm in the Indian market.15
Despite the slow paced growth in economic and trade ties, political partnership between the two
Asian nations was growing at a much faster pace. A “global partnership” envisioned during
Japanese Prime Minister Yoshiro Mori’s New Delhi visit in 2000, transformed into a strategic andglobal partnership during Prime Minister Junichiro Koizumi’s visit in 2006. The economic
relationship was an essential component of this partnership.16 A joint statement signed by JapanesePrime Minister Koizumi and his Indian counterpart Manmohan Singh noted that “a strong,
prosperous and dynamic India is in the interest of Japan and vice versa.”17 But the economy still
remained a weak link and Indian Prime Minister Manmohan Singh acknowledged in his address
to the Japanese Diet that economic ties should be the “bedrock”18 of the Indo-Japan relationship.
He also noted that economic ties between the two countries remain “well below the potential.”19
As a result of strategic talks, the Indian and Japanese governments agreed in 2005 to set up a Joint
Study Group to study areas in which both the countries could complement each other and givefillip to their stagnant economic ties.
3. The Prelude to CEPA: The Potentials Identified by Joint Study GroupThe Joint Study Group consisting of government officials, stakeholders and academic experts had
rounds of discussions to assess the status of India-Japan bilateral economic relations and evaluatedits future potential. It also studied hurdles in free trade between India and Japan and recommended
the possible remedies to overcome those hurdles. It found that there exists immense potentials in
the fields of trade, investment and other areas of bilateral cooperation.
The JSG, in its findings, noted that the economies of both the countries are “highly complementaryin terms of factor endowments, capabilities, demographic profiles, convergences andspecializations.” 20 Moreover, it hoped that India’s “cost-effective human resources may
complement growing labour scarcity and rising wages.”21 It also highlighted complementarities in
9India’s software prowess and Japan’s strong capacity in IT hardware. It also noted that “India’s
capabilities in pharmaceutical industry, biotechnology, and auto components usefully complement
Japanese competence in heavy engineering, automobiles, machinery and chemical industry.”22
The group also pointed to the complementarity between India and Japan given that the earlier is amajor producer of agricultural products and the latter “imports more than 50% of its foodrequirements.”23 It also looked into India’s huge infrastructure requirements and observed thatJapan can establish a complementary relationship in this field “facilitating trade,investment and technology transfer between them.”24 As regards the FDI, the Joint Study Group
stated that FDI is “an instrument for economic development.” Even though it is growing since1991, it constitutes only 7% of the total FDI flow to India, and added in the report and expressed
concern that it is “far less than the actual potential.”25 Further, it noted that “the huge size of themarket and skilled manpower available in India can provide a fertile ground for FDI by the capitalabundant economy of Japan.”26
Notably, as regards the trade, the JSG found that even though the bilateral trade between India andJapan is on the rise (approximately USD 6.8 billion in 2005), the trade figure was not“commensurate with the two countries’ economic size and potential.”27 It also noted that bilateral
trade has stagnated “despite unilateral trade liberalization in India” and noted that “there is a great
deal of potential for expanding bilateral trade in goods.”28 Given the high tariff in India, the JSG
suggested “tariff reduction and possible elimination”29 consistent with the WTO rules. It hopedthat these measures will “increase market access opportunities for both countries.”30 The JSG also
noted that the Indian side expressed strong interest in the expansion of market access for the
agricultural and food products in which “India has competitive edge.”31 To facilitate trade in the
agricultural sector, the JSG suggested various measures including “customs cooperation,” utilizing“Export Inspection Council of India,” and more importantly “exploring the possibility of…a newmechanism on SPS-related issues in a joint consultation group…” 32
As regards the trade in services sector, the JSG identified “enormous potential” between the twocountries and suggested both the governments to “remove barriers to trade in services” addingemphasis to cover “all services sectors and all modes of supply in GATS.”33 It also highlighted
that “services liberalization should be designed to enhance the competitiveness of each economy”

10and special emphasis should be given on areas such as “IT, financial services, telecommunication
services, construction services and transportation services.”34
As India was interested in attracting more FDI from Japan, the JSG also noted “tremendous
investment opportunities in India” for Japanese companies and recommended both governments
conclude an “investment agreement to address a wide variety of issues including national treatment,
transparency, facilitation, investment promotion, protection and dispute settlement.”35
The JSG noted that the lack of human exchange between the two countries and suggested bothgovernments enhance “people-to-people exchanges” hoping that it will provide a basis for“stronger bilateral economic ties.”36
In the light of their comprehensive study and existing trade potentials, the JSG suggested
conclusion of a Comprehensive Economic Partnership Agreement which will provide a “properarchitecture for bilateral economic engagement” between the two countries. The JSG, without
naming RCEP, also hoped that “an EPA/CEPA will also serve as a building block for an evenlarger regional economic integration.”37
In its final recommendation, the JSG suggested the negotiation of a CEPA covering trade in goods
and in services, measures for trade promotion, liberalization of investment flows and other areas
covering a comprehensive economic partnership between India and Japan.
4. India-Japan Economic Partnership Agreement: The Promises
Following the recommendation of the Joint Study Group, India and Japan formally started
discussing the modalities of an Economic Partnership Agreement (EPA) also termed aComprehensive Economic Partnership Agreement (CEPA). As it covered wider areas and were
not limited to trade in goods, it took a long time to be concluded. The negotiation on the CEPA
concluded in 2010 and both the countries formally signed the CEPA in Tokyo on February 16,
2011 which came into effect from August 1, the same year. The CEPA covered trade in goods andservices, movement of natural persons, investment, intellectual property rights, custom procedureand other trade-related issues.38 The areas covered in the India-Japan CEPA were almost identicalto the areas suggested by the Joint Study Group which saw many complementarities and potentials
between the two countries in these fields. Notably, the CEPA’s preamble states that India-Japan11

“bilateral relationship will be enhanced by forging mutually beneficial economic partnership
through liberalization and facilitation of trade and investment.”39 Moreover, the CEPA noted that“the economic partnership will create larger and new market, enhance attractiveness and vibrancyof their markets, and contribute to improving efficiency and competitiveness of their
manufacturing and service industries.”40 The document hoped that the CEPA will “open a new eraof relationship” between the two countries and would “contribute to expanding trade andinvestment not only between the two parties but also the region.” The reference to the “region”
here was an apparent reference to East Asia and the creation of a trade bloc of ASEAN + 3 + 3(later named RCEP) of which the two countries are important members. In this context, some of
the important objectives identified by the countries in the CEPA are as follows:a) to liberalize and facilitate trade in goods and servicesb) to increase investment opportunities and strengthen protection for investment andinvestment activitiesc) to ensure protection of intellectual propertyd) to promote cooperation for the effective enforcement of competition lawse) to improve business environment41
The agreement made a commitment to “eliminate or reduce its custom duties on originating ofother Party”42 and laid the terms and conditions for the elimination of the custom duties. The
document has classified goods traded between the two countries in separate schedules and has
divided them into seven categories. The goods are marked as A, B5, B7, B10, B15, Pa/Pb and X.
Custom duties on goods identified as “A” has been eliminated from the date of entry into force of
the CEPA, that is August 16, 2011. The custom duties on goods identified as “B5,” “B7,” “B10,”“B15,” will be eliminated in 6, 8, 11 and 16 years, respectively. The custom duties on goods
identified as Pa and Pb shall be reduced in accordance with the terms and conditions set out in
respective notes indicated in the Schedule of India. However, there would be no duty elimination
on goods indicated as X.43
Some of the goods on which both countries will remove tariff in phases have been indicated inTable 1.

12

Table 1. Selected list of goods on which tariffs would be eliminated gradually
Period over which tariff
has to be reduced

Goods Description
Schedule of India

Schedule of Japan

Immediate Most textile products including yarn andfabric Computer printers, PCs and otherautomatic data processing machines
 Cell phones and other types of phones,
networking equipment and SIM cards
 Capacitors, diodes, specified measuring
instruments

 Specified petroleum products Ores, slag and ash
 Inorganic chemicals andspecified organic chemicals
 Machines – mechanical andelectrical and parts thereof Most textile and textile
products

Seven years

 Lubricating oil Specific types of fish and fishmeat

Ten years and above







 Specified iron and steel
products
 Certain fruits like oranges,
apples, grapes

Specified petroleum products
Most metals and articles thereofCDs, DVDs, watches, musical instruments
Arms and ammunition
Certain types of furniture

Source: CEPA pages 105 to 961/CII Study on India-Japan relations
As a result of the CEPA coming into effect, some 17.4 % of the tariff lines have been reduced to
0% by India while the Japan side has put 87% of its tariff lines under immediate reduction to
zero.44 The official CEPA document has laid down rules for elimination of custom duties in Article
19.45 It may be noted that Japan was already putting low tariffs on various products to comply with
WTO norms.
To attract Japanese investment in India, the CEPA has given Japanese investors a kind of “national
treatment” in the areas of goods (Article 18) in accordance with GATT, 46 in market access (Article60) as well as in the investment. The provision related to investment in the CEPA states:
Each Party shall accord to investors of the other Party and to their investments treatment no lessfavourable than that it accords like circumstances to its own investors and to their investments withrespect to investment activities in its Area.47
In addition to the National Treatment, both the countries have granted The Most Favoured Nation
status to each other’s investors (Article 86)48 under the CEPA. It seems, it was a calibrated moveby the two governments to give this status given the fact that Japanese investors had largely been
confined to East Asian and Southeast Asian countries. With the national treatment extended to13each other’s investors, the investors now enjoy access to courts and tribunals of the host country
in case of a trade and investment-related dispute.49 This simply means that a foreign investor can
now enjoy the right to sue the government if their rights and profit are infringed upon.50 In casethey are not satisfied with the domestic arbitration process they can approach the international
bodies for adjudication (Article 96 of CEPA).51
The CEPA has also removed any performance-related requirement for the investors in the hostcountry. The bilateral document notes that no party can impose requirements related to export at agiven level or percentage of goods or services. Moreover, they cannot be forced to achieve a given
level of domestic content.52 Ranja Sengupta argues that “countries usually impose performancerequirements on foreign investment such as limits on ownership, board membership, and on
exports; compulsory local content, etc. But under the CEPA, these restrictions are no longer
permissible.”53
As the CEPA was under discussion, it was being speculated that Japan may grant some relaxation
to India in terms of Technical Barriers to Trade (TBT) and in terms of Sanitary and Phyto Sanitary(SPS) measures. But the final CEPA maintained that the TBT and SPS will apply as per the WTO
Agreement. 54 But both the parties agreed to form a sub-committee which will undertake“consultations on issues related to technical regulations.” The committee will also undertake
consultations to “identify and address specific issues that may arise from the application of SPS
measures.”55 Considering India’s demand to allow access of its generic medicine in the Japanesemarket, the bilateral agreement noted to “exchange information concerning generic medicine”
adding that the two parties would promote cooperation in this field.56
India had been demanding from a long time from Japan to allow its rice including basmati rice toJapan but during the negotiations, New Delhi agreed to put rice sector under the “exclusion” list.
In the concluded CEPA, rice has been put in “X” category meaning there would be no tariff
relaxation for India. 57 However, a similar FTA signed with Malaysia, India has successfullybargained for allowing rice imports into Malaysia. It seems India considered the sensitivities ofJapanese farmers who remained opposed to opening these sectors. As India and Japan werenegotiating the CEPA, Japan was considering joining the Trans Pacific Partnership (TPP). The
Japanese farmers were opposing Japan’s participation in the TPP as they were wary that the14multilateral trade treaty will allow inflow of cheaper rice from the TPP member countries, affecting
their livelihood.
Another concession India made was related to nurses and caregivers. Even though the CEPA
allows movement of natural persons and highly skilled persons, India was expecting that Japan
will allow entry to its nurses and caregivers into Japan with a long-term work permit. New Delhi
was demanding treatment to its caregivers at par with Indonesia and Philippines, with whom Japan
has also signed Economic Partnership Agreements. But the Japanese side asked India to wait as it
is facing some problems as the nurses from these countries have not been able to pass the necessary
language tests after their two-year probations. The CEPA in this regard noted that “Japan shallenter into negotiation with India… regarding the acceptance of Indian qualified nurses andcertified care workers by Japan, with a view to reaching a conclusion of the negotiations within
one year if possible, but not later than two years, after the entry into force of this Agreement.”58
More than seven years have elapsed ever since the signing of the CEPA, but both the parties did
not renew their negotiation. This means that India lost the opportunity to forge a strong people-topeople contact that could have resulted following the conclusion of this agreement. As mentioned
earlier, the JSG had suggested that both the governments enhance “people-to-people exchanges”
hoping that it will provide a basis for “stronger bilateral economic ties.” Even though the Japanese
government was reluctant to accede to India’s demand in this regard, a section of the Japanese
media had urged its government to make “concessions” to India on this point. The Yomiuri
Shimbun in its editorial demanded that “to deepen economic partnership between this country andIndia, Japan should make concessions.”59 The CEPA, however, facilitates the flow of “natural
persons” and paves the way for employment opportunities in Japan and India for each other’s
citizen. Subsequent upon this development, both the countries signed a Social Security Agreementin May 2012. Under this agreement, the Japanese and Indian workers employed on short-term
contracts in each other’s territory need not pay into the pension schemes of both the countries. This
had hampered the human exchange “imposing an additional burden on individuals andcorporations.”60
On India’s part, it demanded stricter rules of origin apparently not to allow the benefits of the
CEPA to a third country. It allowed the goods of originating countries (India and Japan in thiscase) but restricted the goods produced using non-originating materials having value content less15than 35% and a change in tariff classification at the six-digit level of the Harmonized System.61
This criterion is not applicable to all products. Different rules are applied on some products under
the product-specific rule. This makes the rule of origin criteria more complex. Japan’s Ministry of
Economy Trade and Industry (METI) has brought to the notice of officials in New Delhi about the
problem faced by Japanese exporters in getting Certificates of Origin because of this strict criteria
and has demanded to ease such restrictions.62
5. CEPA: The Prospect
Both the Indian and Japanese leaderships have attached high hopes to the bilateral economic
partnership engagement. This is evident from the joint statement issued by Indian Prime Minister
Manmohan Singh and his Japanese counterpart Naoto Kan in October 2010 after the conclusionof the CEPA agreement. The statement expressed confidence that bilateral agreement “willdevelop areas of potential mutual complementarity, further strengthen the bilateral economic
relationship, and promote economic development by increasing the cross-border flows of goods,
persons, investment and services.” 63 Moreover, both were hopeful that the agreement will
“strengthen the foundation for the economic development of India and Japan.”64Both the leaders
exuded confidence that India and Japan “will be able to make maximum use of respective
competitive advantages to promote the development of both economies. This will bring about
increased prosperity and stability to the peoples of both countries, and thus, contribute to the peace
and prosperity of the Asian region and the international community.”65
Consequent upon the expectations raised by the CEPA, various simulation studies projected highpotentials of CEPA. One of the simulation studies based on Computable General Equilibrium(CGE) analysis concluded that “tariff reduction will increase India’s export to Japan by 18.25%,
while for Japan it will be only 4.65%.”66 As for the welfare effect, the Study noted that “simulation
results suggest a positive net welfare gain for both countries with an expected gain of USD 1198.67
million and USD 120.27 million for India and Japan, respectively.”67 India will gain more thanJapan if CEPA is materialized by 2020, the study emphasized.
B.S. Raghavan, a columnist with the Business Line, argued that “there is a great responsibility caston both India and Japan to make a success of it so that it becomes a path setter for CEPAs withother developed countries.”68 He cites a simulated computer study to suggest that India’s GDP can
16

grow by as much as 3.45% if New Delhi signs similar agreements with ASEAN countries and its
dialogue partners.69 C.P. Ravindaran, however, was of the view that the gains from the India-Japan
CEPA “will come eventually through competition with more efficient producers on the one handand in demanding markets, on the other.” He adds that the CEPA, through its free trade provisions,holds such possibilities for India.70
Other experts, however, cited some caution on over-optimism and expectations related to the
CEPA. They noted that despite the CEPA easing the duties on goods, Indian exports will continue
to face some non-tariff barriers such as standards and technical barriers. The Indian producers will
have to match with standards set by Japanese importers.71 Geethanjali Nataraj, points that “Japan’s
Sanitary and Phytosanitary Measures (SPS) standards are major barriers for Indian exports ofpoultry, meat, tuna, shrimp, marine products and fruits”. She suggests that both the countries
should share and facilitate “the underlying technology” to help improve Indian products sanitary
standards. 72 Similarly, Kaliappa Kalirajan and Swapan Bhattacharya noted that there remain“behind the border” constraints in India-Japan trade and the growth in trade can take place whenthese constraints are eliminated.73 Ambassador Arjun Asrani, who was part of India-Japan Joint
Study Group which recommended negotiation on a CEPA between the two countries, however,believes that the inclusion of a large number of goods in the negative list would remain an
impediment in the wider trade flows between the two countries.74
The most positive impact of the CEPA on India- Japan relations could be seen in the trade andinvestment fields. The CEPA has certainly boosted bilateral trade which was well below potential.
In FY2010-11, trade between the two countries stood at around USD 13.4 billion. However, in
FY2011-12, within months of the CEPA coming into effect, it touched USD 18.3 billion (Seegraph 1 below). It saw some downward trends two years after the CEPA’s implementation. But
during the last two fiscal years it has witnessed an upward trend and at present stands at USD 17.63
billion. As the CEPA is entering into the final phase of tariff elimination, the bilateral trade islikely to grow further.

17

Graph 1: India-Japan Export and Import Data

India‐Japan Bilateral Trade
20000
18,512.35
18000
18,327.97

17,634.37

16,294.82

15,707.57

Trade (in USD, Millions)

16000

14,513.07

13,723.27

14000

15,516.93
12,412.29

12000

10,911.97
10,363.72
10,184.40

10000

11,999.43
9,480.75

7,886.27

8000

13,600.37
9,850.22
10,131.36

12,772.64

10,973.35
9,754.64

8,632.03

6000

6,100.06
4,734.22
6,814.07
6,328.54
6,325.92
5,385.57
3,858.48
5,091.24
4,861.73
4,662.85
3,845.73
3,629.54
3,025.70

ExportImportTotal Trade

6,734.18

4000
2000
0
0

Source: Ministry of Commerce and Industry, Government of India(The dotted vertical line indicates the year of CEPA’s implementation)
The positive impact of the CEPA could also be seen on the growing Japanese investment in India.
As the CEPA promises lots of incentives including national treatment that has been mentioned in
the above section, various Japanese companies have been established or are keen to establish theirproduction bases in India. Various surveys conducted by Japan Bank of International Cooperation(JBIC) suggest that India maintains the top position as the future investment destination forJapanese investors. A 2018 survey conducted by JBIC suggests that India maintains the second
most favoured destination by the Japanese investors in the medium term followed by China. The
gap between the two, however, remains only of 6%. (See table 2 below)

18

Table 2: Promising Countries/Region for Business Development for Medium Term – FY2018
Results
Ranking
Country/Region
China
India

2018
431
225
199

2017
444
203
195

4

Thailand

160

3
5
6
7
8
9
12
16
10
10
14
13
14
20
18
17
23
32

VietnamIndonesia
US
MexicoPhilippines
Myanmar
Malaysia
Germany
BrazilKorea
TaiwanRussiaSingapore
Cambodia
Australia
TurkeyLaosFrance

146
131
124
59
43
37
36
25
24
22
19
16
15
13
12
9
7
7

2018

←

2017

1
2

－
－

1
2

3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
20

－
－
－
－
－

－

No. ofCompanies(Total)Percentage Share (%)

2018

2017

52.2
46.2

45.7
43.9

153

37.1

34.5

169
147
116
81
47
40
26
13
28
28
17
19
17
9
10
12
5
2

33.9
30.4
28.8
13.7
10.0
8.6
8.4
5.8
5.6
5.1
4.4
3.7
3.5
3.0
2.8
2.1
1.6
1.6

38.1
33.1
26.1
18.2
10.6
9.0
5.9
2.9
6.3
6.3
3.8
4.3
3.8
2.0
2.3
2.7
1.1
0.5

Source: JBICInterestingly, when it comes to “long term” investment destination, India becomes the top mostdestination surpassing China. The gap between India and China in terms of being a long-term
investment destination also remains high. It is more than 12% (See Table 3). As India was keen to
draw more FDI as a result of the CEPA, it seems the bilateral trade is serving that objective seenfrom the Indian perspectives.

19

Table 3: Promising Countries/Region for Business Development for Long Term – FY2018
Results
Ranking
Country/Region
India
China
Vietnam

2017
337
214
146
115

4

Indonesia

115

5
6
7

ThailandUS
Myanmar

8
9
10

←

2017

1
2
3

－
－
－

1
2
3

5
6
7

－
－
－
－

7
7
10

－
－

Percentage Share (%)

2018
350
205
164
115

2018

3

No. ofCompanies(Total)

2018

2017

58.6
46.9
32.9

63.5
43.3
34.1

109

32.9

32.3

105
76
41

80
78
48

30.0
21.7
11.7

23.7
23.1
14.2

Mexico

41

45

11.7

13.4

BrazilPhilippines

41
30

43
33

11.7
8.6

12.8
9.8

Source: JBIC
The JBIC survey seems consistent with the actual investment and the growing number andpresence of Japanese companies in India. The number of Japanese companies have been increasing
ever since the signing of a bilateral strategic partnership in 2006, albeit slowly. The 2017 figure,released by the Japanese embassy in India, shows that the number of these companies touched
1369. However, this is a positive trend, as in 2006, there were only 267 Japanese companies inIndia. The signing of the CEPA, which promises lots of incentives to the Japanese establishments,
seems to have generated Japanese interests in the Indian market and as a result Japanese companies
in India are growing.

20

Graph 2: Number of Japanese Companies in India

Growing Japanese industrial footprint in India (Source: Embassy of Japan, New Delhi)
In terms of the actual flow of Japanese Foreign Direct Investment towards India, there has been
inconsistency. In 2001, India attracted Japanese FDI of USD 150 million. Gradually, it reached apeak of USD 5551 million by FY2009. In FY2016–17, India attracted Japanese FDI of USD 4709
million. But by the year 2018, it again dipped to USD 3218 million. Despite the fluctuation in
Japanese FDI towards India, Japan continues to maintain its position among the top investors of
FDI in India. But India still would have to compete with ASEAN countries in attracting Japanese
FDI. Japanese investors find the corporate rate of ASEAN countries much more attractive. The
corporate rate in Thailand is only 20%. Naturally, the flow of Japanese FDI is towards the ASEAN
countries because of this reason. Even though the Indian government has reduced the basic
corporate tax rate from 30 to 25%, under certain conditions, this is less attractive than some of theASEAN countries corporate tax rate.75

21

Graph 3: Japan’s FDI towards India

Source: JETRO
Another positive development in India-Japan trade, which is not directly related to the CEPA, isbilateral currency swap agreement which continues to grow in volume. In 2011, India and Japan
upgraded their currency swap arrangement from the earlier USD 3 billion to USD 15 billion. In
2018, both the countries further upgraded the agreement up to USD 75 billion.76 The currency
swap agreement will help both countries in managing short-term liquidity problems. Seen fromthe investors’ point of view, it will help maintain financial stability, especially for India, which
foreign investors as well as Japanese investors want.
Apart from the positives, the CEPA has also generated some negative optimism. Concerns about
growing trade imbalance in Japan’s favour have also started surfacing. Indian media reportssuggest that India-Japan merchandise trade grew 38% from August 2011 to March 2012. Japanese22exports to India grew by 40.96% while India’s export to Japan managed to grow only 18.39%. A
year before the CEPA, Indian exports to Japan had grown by 43% and imports had grown by only
28%. Concern in Indian business circles that the CEPA has increased the trade balance in Japan’s
favour has started surfacing.77
Some concerns about the CEPA also came to the fore at the political and diplomatic levels. Indian
media quoted the Commerce, Industry and Textile Minister conveying to his Japanese counterpartthat India’s generic medicines’ share in Japanese markets is less than 1% of the total Japanesemarket and urged Japan to remove “non-tariff barriers” on the Indian drug companies. The thenCommerce Minister Anand Sharma, who coincidently is one of the signatories of the bilateral
CEPA, requested the Japanese government to start negotiations on nursing and healthcare. 78
Sharma’s successor, Nirmala Sitharaman has had similar concerns. In a seminar organized by
New-Delhi-based think tank; the RIS, the Commerce Minister expressed satisfaction over growthin bilateral trade post-CEPA. However, she expressed concern over the growing trade deficit
between India and Japan post-CEPA. In her words, the “trade deficit of India with respect to Japan
has also increased from USD 3.1 billion pre-CEPA to USD 5.2 billion post-CEPA.”79 She was ofthe view that both the countries must look at ways and means to address this “skewed trade.” Shesuggested that this problem can be addressed by increasing India’s exports to Japan and increasing
the pharmaceutical export to Japan could be one option adding that “the share of India in theJapanese drug market continues to be below par.”80 The Japanese experts, however, point that thelow share of consumption of Indian pharmaceuticals is due to Japanese “business customs” andnot necessarily due to “non-tariff barrier” as has been complained by India.
Echoing a similar line of concerns expressed by the Indian leadership, the Indian Embassy in its
note on Japan–India relations observed that “the negative or slow growth in trade with Japan is amatter of concern for India, in view of the fact that there is a high potential for faster progress on
goods and services trade.” 81
India’s Foreign Trade Policy Statement 2015 in a guarded response to the India-Japan CEPA
observes that “projected gains for India…have not materialised to the extent expected.”82 It also
points towards NTBs being applied by Japan. It notes that “access to the Japanese market remains
constrained by NTBs.”83 It further observed:

23

While on the one hand, the Japanese market has not seen growth in the product areas of India’s
interest, Indian business entities are facing problems in market access. These problems can be
briefly said to be arising out of language constraints faced by Indian companies in Japan, highly
demanding product and service standards, regulations that require business modalities making
market access a costly venture, and a relative lack of intensive effort on the part of Indianbusiness.84
To overcome the problem it suggests:
The other route of access of India’s export sectors into Japan will require
language proficiency, negotiating a simplified framework for market access andcontinuous trade promotion efforts on the part of businesses and thegovernment.85
The Foreign Trade Policy Statement also talks of the need to “intensify outreach work” 86 on
bilateral trade agreement with Japan.
Since India’s objective to find a complementarity with Japan has not achieved its stated goals,
some policy planners have also examined the trade agreement critically. For example, a semiofficial policy paper by the government think tank NITI Ayog pointed that India’s trade deficit
with Japan has “widened” post-CEPA. The authors are not particularly critical of the Japan CEPA
but almost all the FTAs signed by India. They have observed that the “utilization rate of India’s
FTA is very low.”87 The report cites, the “lack of information on FTAs, low margin preference,delays and administrative costs associated with rules of origin, non-tariff measures,”88 as major
reasons for this underutilization which impacts the export outflow from the country towards the
FTA partners. In the context of Japan, he cites that import into India “increased more thanexports.”89
Despite consistent efforts by the Indian and Japanese governments, bilateral trade, which was
projected to touch USD 20 billion by 2010, missed the target. Trade between India and China,
however, touched around USD 75 billion around that time despite having no FTAs and with novisible political backing to improve trade relations with Beijing. But why did the bilateral trade
not cross the USD 20 billion mark? The experts have different views on it. Masanori Kondo
believes that the reduction of tariffs on many items will take place in the “final tenth year” 90 and24thus “there will be no benefit during the first nine years.”91 Moreover, he points that “there is alarge number of items excluded from tariff reduction”92 including automobiles and automobile
parts. The Japanese manufactures had high hopes of tariff elimination and this could have led tojump in Japanese automobiles export to India.93
Kohei Shiino, Associate Professor at Takushoko University, blames the stricter “rule of origin”
criteria that restrict flow of goods between India and Japan impacting the bilateral trade volume.
He points out that while other FTAs have kept the rules of origin simpler, the India-Japan CEPA
puts the restriction of a 35% value-added criterion and change in HS code at six-digit level as a
general rule. If these two criteria are not met simultaneously, Certificates of Origin at the exporting
country cannot be issued and the exporters cannot get any tariff concession despite the India-Japan
CEPA. He also points that the stricter rule of origin policy takes longer transaction time andincreases transaction cost.94 Japanese exporters, however, have been able to effectively utilize theRule of Origin routes. This is evident from the number of Certificates of Origin (CO) issued by
Japan for goods to be exported to India (see Graph 4 below)

25Graph 4: Certificates of Origin issued by Japan for India under CEPA

'Certificates of Origin' issued by Japan for India
50000
42864

45000
37791

40000

Certificates of Origin

35000

32365

30000

26147

25000
19822

CO issued by Japan for India

20000
15000
10000

7696

5000
0
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

Source: METI, Japan
No such CO data is publically available from India to ascertain how many COs have been issued
by Indian authorities to utilize the India-Japan CEPA. A study led by V. K. Saraswat at NITI Ayog
also points that Indian exporters are not effectively utilizing COs for their exports. The Study notesthat because of the time-consuming process, the Indian exporters take the normal route rather thanutilizing COs under bilateral RTAs. The study points that “Complex rules of origin criteria, lackof information on FTAs, higher compliance costs and administrative delays dissuade exportersfrom using preferential routes. The compliance cost of availing benefits under these FTAs is sohigh that exporters prefer using the normal route. India has actively pursued FTAs with several
major trading partners in the past without benefitting much.”95

26

When it comes to bilateral trade with Japan, there are other expectations from India. One suchexpectation is to achieve complementarities in goods and services. But finding suchcomplementarities with Japan is difficult since Japan is an ageing society and consumerism
remains low in Japan. India, on the other hand, has a growing economy and a society with a large
consumer base. So in this scenario, it would be difficult to find complementarities and a tradebalance which remains in Japan’s favour is likely to grow further. Thus, it will be a challenge forboth economies to achieve a balance in trade. But surely, a trade conflict between India and Japanis not likely to emerge as was seen between the US and Japan during the late 1980s because India
is offering trade relaxation to Japan with an objective that goes beyond the economic dividend.
India wants to minimize its growing dependence on China and signed FTAs with East Asian andSoutheast Asian countries including Japan, South Korea, Malaysia, Singapore, etc. in quick
succession while denying similar treatment to China using trade gap as a pretext.
India’s Regional Economic Integration Post India-Japan CEPA
As pointed above, both India-Japan Joint Study Group and the India-Japan CEPA mentioned thatthe bilateral comprehensive partnership agreement with Japan will lead to more regional andbilateral partnership, it is pertinent to examine whether India is actually keen to go for moreregional agreement including much talked about Regional Comprehensive Economic Partnership.
It may be noted that both India and Japan are members of the RCEP which is under negotiation.
Conclusion of this agreement will pave the way for the Japanese and Indian traders to use either
the CEPA or the RCEP route for their exports to each other’s markets. But as the concerns growabout the under-utilization of the FTAs and the results show that India’s export to FTA’s and nonFTAs countries/groups do not show much difference (see the graph 5), India is treading cautiously
to conclude further bilateral and regional FTAs, including the RCEP.

27

Graph 5: India’s export to FTAs and Non-FTA countries

50
40
30
20

FTA

Overall

Source: V.K Saraswat /NITI Ayog
China is also one of the reasons of India’s slow approach as China is also one of the negotiating
partners, with which India’s trade gap is widening. It will widen further once RCEP is
implemented. 96 A NITI Ayog note in this regard has gone on suggesting that “given India’s
inability to negotiate a good deal in services in the past, RCEP negotiations especially with Chinaneed a second thought.”97 A similar study by an independent trade chamber argues that “India’s
move to enter into regional trade agreements has to be judged from the view point of promoting
trade with economies with similar economic structure and to create more stability and level playing
ground among its peers.”98
It is pertinent to note here that among the bilateral FTAs India has signed, its trade balance has
been positive only with neighbouring countries. It includes Nepal, Sri Lanka, Bhutan and
Afghanistan. India has not gained much in terms of trade balance when it comes to Southeast Asian,East Asian or European partners, with which it has signed the FTAs. These include Japan, South
Korea, Singapore, Malaysia, the Netherlands, etc. Trade balance with these countries has widened
further and India’s balance in trade shows negative. (See table 4)28

Serial No.

Table 4: India’s bilateral FTAs and overall trade performance

Partner Countries

Years of
Enforcement

India’sIndia’s

Exports

Import

FY2018–19

FY2018–19

Total
Trade
FY2018–19

TradeBalance
FY2018–19

1.

India–Nepal

1999

7,763.60

503.51

8,267.11+

2.

India–Sri Lanka

2000

4,708.50

1,472.83

6,181.33+

3.

India–Afghanistan

2003

715.44435.44

1,150.89+

4.

India–Singapore

2005

11,571.14

16,281.64

27,852.78–

5.

India–Bhutan

2006657.33369.53

1,026.86+

6.

India–Chile

2007

989.801,237.55

2,227.35–

7.

India–Finland2009

256.12

1,124.08

1,380.20–

8.

India–Korea

2010

4,705.07

16,758.76

21,463.83–

9.

India–Japan2011

4861.73

12772.64

17634.37–

10.

India–Malaysia

2011

6,435.25

10,818.60

17,253.85–

Computed by the author from Ministry of Commerce, Government of India EXIM data
The NITI Ayog’s analysis shows that India’s export to RTAs and non-RTA countries remains
almost the same. Even though there has been growth in India’s overall export, it is largely due todiversification of the export basket both in terms of destination and commodities. In the context
of these developments, India seems to be leaning towards adopting strategy to sign FTAs/RTAs
focusing on “product and services with maximum export potential.”99
Apart from the NITI Ayog, other stakeholders also have similar views as they believe that “India
is not reaping any cost advantage while importing from its respective partners.” 100 Without
mentioning Japan, a study by India’s PHD Chambers points that “Trade arrangements with somedeveloping countries have also fallen short of expectations in terms of the elimination of tariff andnontariff barriers.”101
The partnering countries have not adhered to comparative advantage theory, the core principle oftrade agreements, notes that report.102 Against this backdrop, the trade body suggests “caution inapplication” of trade arrangements given the ambiguity involved in the RTAs/FTAs. The reportnotes that “hastily negotiated agreements have only disappointed India’s export growth story.”103
29

Saurabh Sanyal, Secretary General of India’s PHD Chambers, suggests that the Government ofIndia should “strengthen its product strategy” and the focus should be on promoting export of highvalue products with a strong domestic manufacturing base.”104 The ITC has developed a tradepotential map identifying the trade potential of 25 commodities (See the map 1).
Map 1: India’s Export Potentials

Source: ITC Export Potential Map
As various stakeholders’ analyses of India’s FTAs are coming to the fore, there has been growing
realization that India’s FTAs have not yielded expecting benefit. As a result, demands are growing
not to sign further FTAs and RTAs. NITI Ayog’s note suggests in this regard that “before getting
into any multilateral trade deal India should first review existing FTAs in terms of benefits tovarious stakeholders like industry and consumers, trade complementarities and changing tradepatterns in the past decade.”105 Demand to review the FTAs by default applies to the Japan-India
CEPA as well.
7. Conclusion and Suggestions
The analysis above suggests that economic and trade ties between the two countries have deepened
ever since India and Japan signed the Strategic Partnership in 2006 following which the decision
to negotiate a CEPA was made. But the CEPA has yet to achieve “complementarities” as wasenvisioned in the India-Japan Joint Study Group and CEPA documents analysed above. As noted
above, the leaders of both the countries took a political decision to uplift the abysmally low
30bilateral trade volume between the two Asian economies by signing a Comprehensive Economic
Partnership Agreement (CEPA) in 2011. Moreover, India termed this agreement as an “alliance
between Japanese technology and capital and a young Indian labour force.” Both the countries
decided to take the low trade volume of USD 10 billion to USD 20 billion by 2012, as various
sources suggest. But even after eight years of effective implementation the bilateral trade volume
stand at USD 17.63 billion at the end of FY2018–19. This is evident that they have missed the
USD-20-billion target. Kohei Shiino, an Associate Professor at Tokushoku University, believes
that one of the reasons of this low trade volume is that the Japanese companies remain concentrated
in ASEAN and conduct trade from there with India.106 Norio Kondo believes that Japan has signed
similar such FTAs with other countries and all the countries are competing for market access andincrease their trade share. Thus, the advantages to the Japan-India CEPA have been wiped away.107
Professor Makoto Kojima who was part of India-Japan Joint Study that suggested the signing of
the India-Japan CEPA observes that the impact of the CEPA on bilateral trade has “disappointing.”
He believes that trade in pharmaceuticals and agriculture has great scope and it can lift the bilateral
trade. There remains SPS concerns about India’s agricultural products and those can be addressedwith further efforts from both sides including the sharing of the technology by the Japanese side
to uplift the SPS standards of Indian products. He is also of the view that as various Japanesecompanies including Uniqlo and Rakuten are entering into the Indian market, there are chances ofexport of their products back to Japan increasing India’s trade share.108
Moreover, as a result of the CEPA, the trade balance has grown in Japan’s favour. The gap inIndia-Japan bilateral trade has grown up to USD 8 billion. Before the CEPA came into effect in2011, the trade gap between the two countries was roughly USD 3 billion. The growing trade gap
is becoming a cause of concern both in political and policy circles in India. The critics blame that
because of some “behind the border” barriers imposed by Japan, the inflows of Indian goods inJapan remain limited even though the investment flows from Japan as well as increasing numberof Japanese companies setting up their industry in India are encouraging signs. However, acomprehensive and complementary economic relationship, which was envisioned by theleaderships of the two countries, has yet to be achieved. The section below, in this regard, offerssome suggestions to give a new fillip to the economic and trade relationships between India andJapan.

31

One of the many objectives of the India-Japan CEPA was to exponentially enhance the bilateral
trade volume between the two countries and deepen the economic ties. The CEPA did bring
impressive results and within a year of this agreement coming into effect in 2011, the bilateral
trade touched USD 18.32 billion in the FY2011–12 as compared to USD 13.72 billion in 2010–
11. However, after two consecutive years of touching new heights, the bilateral trade started
decelerating causing alarm that the CEPA’s objectives would be defeated if it continues toplummet. It has started accelerating again during the last two fiscal years. This gives cause of some
optimism also as both the countries are close to entering into the third stage of tariff elimination
and would eliminate the promised tariffs by 2021. However, the bilateral trade figure still remains
below the 2012 level (USD 18.32 billion) and the call for review of FTAs by India is growing
within the domestic constituencies in India.
Keeping this in mind, both Indian and Japanese governments should find ways to make the CEPA
much more relevant and should consider a few options in this context. One of the options could beto activate various sub-committees that the CEPA document mentions, and in addition to this, form
a select core group which should analyse the shortcomings of the CEPA and suggest remedial
measures to both governments.
The second option could be to give a rethinking of “inconclusive” parts of the CEPA signed in2010. Even though the three-year period to conclude India’s nurses and care workers entry into
Japan as mentioned in the CEPA document has expired, it may be reminded that Japan has signed
a similar CEPA (known as EPA in Japan) with Indonesia and Philippines, where it has allowed
nurses and care workers to work in Japan as part of the EPA. India was also asking similar
treatment for its nurses and caregivers in the India-Japan CEPA. Japan, in principle, had agreed togive the same treatment to Indian workers, but sought more time, as it found that majority of thenurses and care workers were finding it difficult to attain language proficiency after their two years
of internship in Japan. Passing the language test was a pre-requisite to starting fully-fledged workin the service sectors catering to the medical requirements of Japan’s ageing society. However,Japan has revisited this policy and has simplified the language tests for expats, 109 which has
resulted in a large number of those expats clearing the Japanese language test. Since Japan is no
more facing the difficulties it cited to India, it should revisit this “inconclusive” aspect of the India-

32

Japan CEPA. This will allow more Indians to work in the Japanese service sectors, as the CEPA
promises trade not only in goods, but also in services.
It is pertinent to mention here that a study based on “Revealed Comparative Advantage index”
finds lots of complementarity in India and Japan in service sectors. The Study finds that Japan has“comparative advantage in transportation, construction and royalties and license fees services,while India has the comparative advantage in commercial services, other business services andcomputer and information services.” The study concludes that “both the countries can complement
each other.”110
Here it is important to mention that the JSG noted that the lack of human exchange between thetwo countries and suggested both governments to enhance “people-to-people exchanges” hopingthat it will provide a basis for “stronger bilateral economic ties.” Given the complementarity inservice sector the simulation-based study has noted, and the JSG has pointed out, before the signingof a CEPA, both India and Japan should think of more ways to cooperate in service sectors.
Thirdly, India and Japan should look at the new avenues and openings in Japan in service sectors
and should try to tap these opportunities. Recently, Japan has announced a policy of allowing
unskilled and low skilled workers to work in Japan.111 Since the CEPA promises trade in services
and assures flow of human resources between the two countries, it would be pertinent for India torequest Japan to give preferential treatment to countries with which it has signed a CEPA.
Moreover, India should ask Japan to fix a quota for Indian high-skilled and semi-skilled workers
under this scheme.
It may be recalled that the India–Japan strategic partnership was aimed at creating a “win–win”
situation for both countries. However, in the field of economy and trade, it has brought moreadvantage to Japan than to India. The trade balance continues to grow in Japan’s favour andconcern about growing trade gap is emerging in India and this is not limited to media but has
percolated into policy, political and diplomatic circles. The efforts should be made to increase
India’s trade share in the bilateral trade so that it does not lead to “trade frictions” between the twocountries in future.
Japan has allowed the entry of some Indian vegetables, fruits, poultry and fish. However, some of
the Indian agricultural produce as well as fisheries and shrimps do not come up to the Sanitary and33

Phyto Sanitary (SPS) measures applied by Japan. There are reports that suggest that some of the
Indian shipments to Japan had to be taken back as they could not come up to the Japanese SPS
standards. Similarly, India’s generic medicines’ share in Japanese markets is less than 1% of thetotal consumption of generic drugs. It is said that the packaging of Indian medicines does not matchwith that of the Japanese ones; because of this, the local consumers shy away from buying these
medicines. Therefore, till India overcomes these Non-Tariff Barriers (NTBs) on its food products
as well as generic medicines, it would be difficult to gain access to the Japanese market and, inthat case, it would be difficult to achieve a trade balance with Japan. Technology could be a great
enabler in this context. To overcome these NTBs put in place by Japan, India should ask Japan toshare and facilitate the technologies, application of which would lead to improvement in Indian
products’ SPS measure standards as well as Indian medicines being able to match the requirementsof Japanese generic medicines.
Needless to say, Japan has acknowledged that “a strong, prosperous and dynamic India is in theinterest of Japan and vice versa.” Both the governments have undertaken various measures to
upgrade their economic relations. However, there is vast potential and opportunities, some of themcited above, which remain untapped. Collaboration in these fields between the two countries willcertainly impart momentum to their economic growth and prosperity.

1
J.N Dixit, “My South Block Years: Memoirs of a Foreign Secretary”, UBS Publishers and Distributors, New Delhi,
1996, p.254.
2
T.R. Sareen, “India and Japan in Historical Perspective” in Rajaram Panda and Yoo Fukuzawa (eds) India andJapan in Search of Global Roles, Promila and Company Publishers, New Delhi ( 2007), p.30.
3
Purnendra C.Jain and Maureen Todhunter, “India and Japan: Newly Tampering Relations”, in Purunendra C. Jaain( ed.) Distant Asian Neighbours: Japan and South Asia, Sterling Publishers Private Limited, New Delhi, 1996, p.87.
4
For a detail account of items traded between the two countries during the pre-war period, please refer to P G
Rajamohan, Dil Bahdur Rahut and Jabin T. Jacob, “ Changing Paradigm of Indo-Japan Relations: Opportunities andChallenges, Working Paper No.212, Indian Council for Research on Economic Relations, New Delhi, 2008.
5
Selected Work of Jawaharlal Nehru, Vol. 6. p 481, as quoted in Hiroshi Sato, India Japan Peace Treaty in Japan’s
Post-War Asian Diplomacy, Journal of the Japanese Association for South Asian Studies, Vol. 17, 2005, p.10.
6
Arjun Asrani, “India-Japan Relations in the 21st century”, The Japan Foundation, New Delhi, Issue No.1, October
1995, p.14.

34

7
Tarun B. Bhat, “Outlook on Trade, Investment and Technology Transfer”, in Rajaram Panda and Kazuo Ando ( ed)India and Japan: Multi-dimensional perspective, The Japan Foundation, New Delhi, 1997,
8
Sakutaro Tanino, “ Japan-India Relations: A Perspective”, Embassy of Japan, New Delhi, 1998, p.9.
9Japanese government granted first ODA yen loan to India in 1958.
10
Suzuki set up joint venture in in India in 1982 with 26% stake.
11
This was the year when India was facing balance of payment crisis and Japan provided emergency loan equivalent
to US dollar 300 million which was acknowledged by Manmohan Singh in his speeches when he became Prime
Minister.
12
J.N Dixit, “My South Block Years: Memoirs of a Foreign Secretary”, UBS Publishers and Distributors, New Delhi,
1996, p.254.
13
Toshio Yamanouchi, “India through Japanese eyes”, Sterling Publisher pvt limited, New Delhi, 2000, p. 55.
14
J.N Dixit, “My South Block Years: Memoirs of a Foreign Secretary”, UBS Publishers and Distributors, New Delhi,
1996, p.262.
15
Interview with Kohei Shiino, Associate Professor, Takushoki University, Dated July 30, 2019, Tokyo.
16
N Krishnaswamy, “India and Japan” (opinion), The Hindu, April 27, 2002.
17“Japan-India Partnership in a New Asian Era: Strategic Orientation of Japan-India Global Partnership”,( 2005),
Ministry of Foreign Affairs, Government of Japan, available online at http://www mofa.go.jp/region/asiapaci/india/partner0504 html#eight ( Accessed 28 March 2013).
18“(Indian) PM’s address to Joint Session of the Diet”, December 14, 2006, Press Information Bureau, Governmentof India, available online at http://www.pib.nic.in/newsite/erelease.aspx?relid=23318 ( Accessed 28 March 2013).
19“(Indian) PM’s address to Joint Session of the Diet”, Op.Cit n….
20“Report of the India-Japan Joint Study Group,” p. 109.
21
Ibid,p.109.
22
Ibid,p.110.
23
Ibid.p.110.
24
Ibid.
25
“Report of the India-Japan Joint Study Group,” p. 83.
26“Report of the India-Japan Joint Study Group,” p. 109-110.
27“Report of the India-Japan Joint Study Group,” p. 109.
28
JSG, p.110.
29
ibid
30
ibid
31
Ibid.
32
Ibid, p.111.
33
Ibid.
34
Ibid.
35
Ibid, p.112.
36
Ibid,p. 113.
37
Ibid, p.113.
38
Arun Goyal, Minister (Economic and Commercial), Embassy of India, Tokyo, interview with Economics Times,“CEPA: A way forward”, December 28, 2012.
39
IJCEPA, p.8
40
Ibid.
41
Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011, Ministry ofCommerce,
GovernmentofIndia,
p.23
available
onlineat
http://www.commerce.nic.in/trade/IJCEPA Basic Agreement.pdf (Accessed May 29, 2019) , p.10.
42Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011, p.23.
43
Ibid, p.103-104.
44
Pinaki Das Gupta, “India and East Asia: Towards a regional economic integration”, Keizai Koho Centre, Tokyo,
p.5, available online at http://www.kkc.or.jp/english/activities/indianscholars/KKC FINAL PAPER PDG .pdf
(Accessed 30 May 2019).
45
Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011, Ministry ofCommerce,
GovernmentofIndia,
p.23
available
onlineat
http://www.commerce.nic.in/trade/IJCEPA Basic Agreement.pdf (Accessed May 29, 2019)46
IJCEPA, p.23.
35
47“Comprehensive Economic Partnership Agreement between the Republic of India and Japan, Op. Cit n. 46 p. 66.

48

Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011, p.66.
Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011, p.67.
50“Comprehensive Economic Partnership Agreement between the Republic of India and Japan, Op. Cit. n. 46 Article
96, p.73.
51
Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011 p.74.
52
Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011, p.67.
53
Ranja Sengupta, “India’s FTA choices get more ambitious”, Economic and Political Weekly, June 25, 2011. Vol
XLVI, Nos. 26 & 27, p. 18-22.
54
Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011, p.45
55
Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011, p.46.
56
Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011, p.47.
57
Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011, p.144.
58“Comprehensive Economic Partnership Agreement Between Republic of India and Japan,” Ministry of Commerce,
Government of India, 2010, p.972.
59“Japan-India accord should lead to more EPAs”, (Editorial), The Yomiuri Shimbun, September 22, 2010.
60
Kondo Masanori, “Japan-India economic relationship: Trends and prospects,” Research Institute of Economy Tradeand Industry, 2012, p.15.
61
Comprehensive Economic Partnership Agreement between Republic of India and Japan, 2011, p.33.
62
Interview with Norio Kondo, Senior Research Fellow, Institute for Developing Economies, August 6, 2019,Chiba.
63“Joint Declaration between the Leaders of India and Japan on the Conclusion of the Comprehensive Economic
Partnership Agreement,” October 25, 2010, retrieved from, Ministry of External Affairs, India.
64
Ibid.
65
Ibid.
66
Biswa Nath Bhattacharya and Kakali Mukhopadhyay, “Economy wide Impact of the Trade Integration between
Japan and India: A Computable General Equilibrium Analysis,” CESIFO Working Paper No. 4557, December 2013,
P.18.
67
Ibid.
68
B S Raghavan, “India-Japan CEPA holds great promise”, Business Line, September 7, 2011.
69
Ibid.
70
C.P Ravindranathan,“FTA with Japan holds promise”, Business Line, June 21, 2011.
71
Ranja Sengupta,Op. Cit. n.50
72
Geethanjali Nataraj, “India-Japan Economic Partnership Agreement: Gains and Future Prospects”, Policy ResearchInstitute, Ministry of Finance, Government of Japan. 2010.
73
Kaliappa Kalirajan and Swapna Bhattacharya, “Free Trade Agreement Between India and Japan: An Exploratory
Analysis,” ASARC Working Paper 2007/09, Australia South Asia Research Centre, Australian University, 2009.
74
Interview with Arjun Asrani, India’s former ambassador to Japan, March 10, 2015, New Delhi.
75Interview with Kohei Shiino, Associate Professor, Takushoku University, July 30, 2019, Tokyo.
76
Business World/PTI, “India, Japan Sign USD 75 bn Currency Swap Pact,” October 29, 2018,
http://www.businessworld.in/article/India-Japan-sign-USD-75-bn-currency-swap-pact/29-10-2018-163131/
Accessed on January 20, 2019.
77
Timsy Jaipurya, “It’s advantage Tokyo in India-Japan economic pact”, The Financial Express, May 7, 2012.
78“India urges Japan to remove non-tariff barriers”, The Times of India, May 1, 2012.
79“Commerce Minister Says Steps have been taken to sort out the implementation issues related to CEPA and improvebilateral trade as trade balance with Japan (Press Release), Ministry of Commerce, Textile and Industry, New Delhi,
October 6, 2016.
80
Ibid.
81
“India-Japan Economic Relations,” Embassy of India, Tokyo retrieved at https://www.indembassytokyo.gov.in/jp/india japan economic relations jp html
82
Foreign Trade Policy Statement 2015, Ministry of Commerce and Industry, Government of India, p.28.
83
Ibid, p.41.
84
Ibid. p.28.
85
Ibid. p.28.
86
Ibid, p.29.
87
V.K.Saaraswat, Prachi Priya and Anirudh Ghosh, “A Note on Free Trade Agreements and their Costs,” NITI Ayog,
Government of India, p.7.
36
88
Ibid, p.8.
49

89

Ibid, p.8.
Kondo Masanori, “Japan-India economic relationship: Trends and prospects,” Research Institute of Economy Tradeand Industry, 2012, p.4
91
Ibid.
92
Ibid.
93
Ibid.
94
Author’s interview with Kohei Shiino on July 11, 2019 in Tokyo.
95
V.K.Saaraswat, Prachi Priya and Anirudh Ghosh, “A Note on Free Trade Agreements and their Costs,” NITI Ayog,
Government of India, p.15.
96
Kohei Shiino, an Associate Professor in Takushoku University in Tokyo believes that given India’s concern about
growing trade deficit with China, India can give common concession tariff table for ASEAN countries and Japan,
Australia and New Zealand and an individual tariff schedule for China. This will help address India’s concern.
97
V.K.Saaraswat, Prachi Priya and Anirudh Ghosh, “A Note on Free Trade Agreements and their Costs,” NITI Ayog,
Government of India, p.14.
98“India’s trade agreements: Dynamics and Diagnostics of Trade Prospects” India’s PHD Chambers, May 2018.p.58.
99
V.K.Saaraswat, Prachi Priya and Anirudh Ghosh, “A Note on Free Trade Agreements and their Costs,” NITI Ayog,
Government of India, p.15.
100“India’s trade agreements: Dynamics and Diagnostics of Trade Prospects” India’s PHD Chambers, May 2018.p.57.
101
Ibid.
102
Ibid.
103
Ibid, p.58.
104
Sanyal’s statement in “India’s trade agreements: Dynamics and Diagnostics of Trade Prospects” India’s PHD
Chambers, May 2018.
105
V.K.Saaraswat, Prachi Priya and Anirudh Ghosh, “A Note on Free Trade Agreements and their Costs,” NITI Ayog,
Government of India, p.15.
106
Interview with Kohei Shiino, Associate Professor at Takushoku University, July 30, 2019, Tokyo.
107
Interview with Norio Kondo, Senior Fellow, Institute for Developing Economies, August 6, 2019, Chiba.
108Interview with Makoto Kojima, Professor at Takushoku University, August 1, 2019, Tokyo.
109“Nursing exam held with English terms to help foreign hopefuls,” The Japan Times, February 21, 2011.
110
Kumar Gaurav and Nalin Bharti, “India-Japan CEPA: What RCA Index Reveals for Trade in Services?” Foreign
Trade Review, Volume 53, No.3, 2018, p.202.
111“Japan eyes more foreign workers, challenging taboo on immigration,” The Asahi Shimbun, April 26, 2016.
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