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India and Japan Finalize a Comprehensive Economic Partnership Agreement (CEPA)

Mid-month, Indian Prime Minister Manmohan Singh and Japanese Prime Minister Naota Kan finished negotiating a Comprehensive Economic Partnership Agreement (CEPA). Singh has promised to bring forward reforms in taxes, financial sector and capital markets.

Having confirmed the progress made thus far in our work, we now declare the successful conclusion of negotiations for the Comprehensive Economic Partnership Agreement between the Republic of India and Japan (hereinafter referred to as the India-Japan CEPA). We expressed our intention that the India-Japan CEPA will be signed at the earliest at Ministerial level, on completion of necessary formalities by both sides. We noted with satisfaction that India and Japan have succeeded in rendering the India-Japan CEPA truly comprehensive, as indicated by its name, by including fields that range from Trade in Goods, Investment, Trade in Services, and Movement of Natural Persons to Intellectual Property, Competition, Improvement of the Business Environment, Bilateral Cooperation and so forth. We also expressed our determination to put the India-Japan CEPA into effect soon after its signing and the completion of necessary procedures in each country.

(excerpt of a reprint of “The Joint Declaration between the Leaders of the Republic of India and Japan on the Conclusion of the Comprehensive Economic Partnership Agreement between the Republic of India and Japan” in “India-Japan CEPA Declaration” for Zolengthe, Oct. 25, 2010)

Another Indian news account notes that

New Delhi remains cautious with broad agreements, fearing its domestic market might be swamped by foreign companies and goods to the detriment of domestic producers and products. In the case of Japan, it has to consider its huge trade deficit with the land of the rising sun.

Negotiations for a CEPA went several rounds of negotiations between January 2007 and September 2010 after a feasibility report prepared by a joint India-Japan study group.

The deal, which will eliminate tariffs on a number of items, is aimed at increasing the volume of bilateral trade, which currently stands at around “only” US$10 billion.

(excerpt from “More trade and closer political ties between New Delhi and Tokyo” by AsiaNews/Agencies, Tokyo, Oct. 29, 2010)

At a luncheon hosted by Nippon Keidanren for Japanese and Indian business representatives, Indian Prime Minister Manmohan Singh said he

[..] hoped that India will return to 9 per cent growth in 2011-12. [.. H]e said “we need to close the infrastructure deficit, especially in the power, transport and communication sectors.” [..] “This is a major constraint on our development and we will give high priority to infrastructure development in the years ahead.” [..] He said during India’s next five-year plan from 2012 to 2017 “we envisage financial outlays of over one trillion US dollars on infrastructure projects.” [..]

(excerpt from “PM invites Japanese firms to invest in infrastructure projects” by Press Trust of India, reprinted by Deccan Herald, Tokyo, Oct. 25, 2010)

Indian business persons in attendance at the luncheon included:

Mukesh Ambani, Reliance Industries Chairman and Managing Director; Sunil Bharti Mittal, Bharti CMD; Fortis Chairman Malvinder Singh; and HDFC Chairman Deepak Parekh [..].

“[..] Part of the investment will come from within but we expect Japanese investments to provide substantial support to this,” Singh said [..], while asking Japanese firms to go beyond mergers and acquisitions.

He said that during the last three years, India has received cumulative Foreign Direct Investment worth over USD 100 billion. “We have seen a slow down in the recent months but I see that as temporary,” the Prime Minister said.

Singh said most of India’s investment is financed by domestic savings which has increased to 35 per cent of GDP. “I am confident that in the couple of years, it will rise to 40 per cent of GDP,” he said, but added that India’s domestic savings will have to be supplemented by foreign capital so that total domestic investment can be higher.

Reaching out to the business community of Japan, he said “today, more than ever before, India’s buoyant economy, young population and large market combine well with Japan’s technological prowess, manufacturing skills and financial resources to create a win-win situation.”

(excerpt from “PM invites Japanese firms to invest in infrastructure projects” by Press Trust of India, reprinted by Deccan Herald, Tokyo, Oct. 25, 2010)

The Indian and Japanese heads of state also agreed on a joint declaration

[..] setting out a timeframe for a next round of negotiations on civilian nuclear cooperation. India needs nuclear technology and material, Japan wants guarantees on possible military use.

New Delhi plans to build 20 nuclear powers by 2020 to deal with its chronic shortage in electric power and Japanese companies do not want to leave the field to Russian and South Korean firms.

Singh and Japanese Prime Minister Naoto Kan “expressed optimism” for greater co-operation between the two nations, something that New Delhi was eager to achieve, less so Tokyo, hitherto more interested in China. However, the recent row with Beijing over maritime borders in the East China Sea and the issue of sovereignty over the Senkaku Islands have convinced Japan to reduce its reliance on China, one of its main trading partners and a market where Japanese companies are heavily involved. For Japan, the Indian market now offers brighter prospects at a time of economic recession in Japan.

(excerpt from “More trade and closer political ties between New Delhi and Tokyo” by AsiaNews/Agencies, Tokyo, Oct. 29, 2010)

On Monday October 26, Prime Minister Manmohan Singh

met Prime Minister Naoto Kan, [Japanese industry minister industry minister Akihiro] Ohata and other Japanese officials and agreed to broadly cooperate in rare earth deals.

In a statement, the premiers “decided to explore the possibility of bilateral cooperation in development, recycling and re-use of rare earths and rare metals and in research and development of their industrial substitutes.” On Sunday, Ohata met China’s commerce minister in Tokyo and urged Beijing to normalise rare earth exports after Japan said shipments were blocked during a diplomatic row sparked by the arrest of a Chinese trawlerman in disputed waters. Japan’s stockpile of rare earth minerals, used in the manufacture of high-tech goods, could be exhausted by March or April without fresh imports from China, officials have said. China, which controls more than 95 percent of the global market, has repeatedly denied it curbed exports in retaliation over the dispute, but all 31 Japanese companies handling the minerals have reported disruption to shipments. Japanese Foreign Minister Seiji Maehara said Tuesday that he wants to raise the issue if he meets his Chinese counterpart on the sidelines of a 16-nation Asian summit in Vietnam later this week.

(excerpt from “India agrees to long-term supply of rare earths for Japan” originally by Agence France-Presse, Tokyo, reprinted by Yahoo! News, Oct 26, 2010)

Both Prime Ministers discussed

[..] political and military issues, such as the expansion of the East Asian Summit to include the United States and Russia, and reform of the United Nations, both want a permanent seat on the Security Council.

The two countries also share a common interest in containing China’s growing naval power. India is increasingly displeased by close military ties between China and Pakistan, its traditional regional rival, especially the construction of a modern port in Gwadar, on Pakistan’s southeastern coast, on the Arabian Sea, which could become a terminal for extensive trade with the entire Arabian Peninsula.’

(excerpt from “More trade and closer political ties between New Delhi and Tokyo” by AsiaNews/Agencies, Tokyo, Oct. 29, 2010)

Regarding President Obama’s later, November meeting with Prime Minister Singh:

[..] An Indian journalist then noted that Obama would go home satisfied with the 50,000 jobs generated by the deals that he struck in India, and asked what India would get out of his visit in return. Obama drew loud applause from the journalists when he answered with the kind of candour not normally associated with diplomacy.  He responded: ‘When the American people ask me why you are spending time with India after they have taken our jobs, I want to be able to say, actually, you know what, they just created 50,000 jobs and that’s why we shouldn’t be resorting to protectionist measures.’

This is a new template that Obama has prepared for boosting Indo-US relations—India has gone from beneficiary to benefactor. [..] The United States is now showing its gratitude by announcing support for India’s membership in the yet to be reformed UN Security Council. On the flip side, though, these are just words, and no timetable for change has been offered.

[..] Obama agreed to lift curbs on the export of dual-use technology, a category of exports that can be employed for military as well as civilian purposes. The Obama administration took Indian entities like Indian Space Research Organisation and Defence Research and Development Organisation off the no-exports list, although curbs remain on other Indian outfits like the Department of Atomic Energy Agency. [..] Obama offered support for India’s membership in multilateral export control regimes such as the Nuclear Suppliers Group, a group that restricts exports of technology to prevent proliferation.

(“Obama Takes Home Some Goodies” by Rajeev Sharma for The Diplomat, Nov. 10, 2010)

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