The review of the India-Japan Free Trade Agreement (FTA), officially known as the Comprehensive Economic Partnership Agreement (CEPA), has been a topic of significant discussion due to its impact on trade dynamics between the two nations.
- Review of Rules of Origin and Product Specific Rules: The FTA review is focusing on the rules of origin (ROOs) and product-specific rules (PSRs) for greater market access. The ROOs prescribe the minimum processing required in an FTA partner country for a product to qualify for duty benefits, while PSRs determine the conditions under which goods with components from a non-partner are still eligible for preferential tariff treatment.
- Trade Imbalance Concerns: The agreement, which came into effect in 2011, was intended to extend duty-free/low-duty market access for most items, hoping to benefit both countries significantly. However, Japan has seen a much larger benefit from the pact, with its exports to India nearly doubling from $8.62 billion in 2010-11 to $16.49 billion in 2022-23. In contrast, India’s exports to Japan have remained relatively static, at $5.46 billion in 2022-23 compared to $5.09 billion in 2010-11.
- Disproportionate Gains for Japan: Since the CEPA’s implementation, Japan has gained more compared to India. India’s exports to Japan declined from $6.3 billion in 2011-12 to $4.5 billion in 2019-20, while imports from Japan increased slightly. This resulted in a widening trade deficit in favor of Japan.
- India’s Push for Review and Japanese Response: India has been pressing for a review of the CEPA to address these imbalances and improve market access for Indian goods. The Indian government is also seeking input from various export promotion organizations to identify changes in the ROO and PSRs. However, Japan prefers to make corrections within the existing framework of the agreement, rather than a full-fledged review.
- Specific Issues Raised by India: India raised concerns about specific items such as mangoes, fish paste, and shrimps, and the need for greater market access for these products under the pact. Japanese officials acknowledged these problems and expressed willingness to resolve them within the existing framework.
- Focus Areas for India: India is interested in gaining tangible market access in areas like textiles, leather, and footwear. The government hopes that the Indian industry will assist in identifying how the ROOs and PSRs could be modified to result in greater market access in Japan.
- Meeting Between Indian and Japanese Officials: A review of the FTA was on the agenda during a meeting between India’s Commerce and Industry Minister Piyush Goyal and his Japanese counterpart in Los Angeles.
The ongoing negotiations and reviews are aimed at achieving a more balanced trade relationship between India and Japan, with a focus on addressing the specific needs and concerns of the Indian industry within the framework of the existing agreement.