India-Japan Free Trade Deal Likely to be Reviewed Soon

India’s 2011 free trade deal (FTA) with Japan is likely to be reviewed in the coming months, with New Delhi keen to minimize the trade deficit with Tokyo, according to sources familiar with the matter.

1: Dimension - Need for Review

• Trade Imbalance: Despite the 2011 Comprehensive Economic Partnership Agreement (Cepa) between India and Japan, the trade balance has been largely in favor of Japan, resulting in a significant trade deficit for India. Initiating a review of the deal is aimed at addressing this imbalance and ensuring more equitable trade relations between the two countries.
• Demand for Equitable Terms: India has long pursued the demand for a review of the FTA with Japan, emphasizing the need for more balanced and fair terms that benefit both nations. This includes revisiting non-tariff measures that have posed challenges for Indian companies and Micro, Small, and Medium Enterprises (MSMEs) in accessing the Japanese market.
• Impact of Economic Changes: Since the signing of the FTA in 2011, there have been significant economic changes in both India and Japan. A review of the deal is essential to align it with the current economic realities and address any disparities that may have emerged over time.

2: Dimension - Issues to be Addressed

• Non-Tariff Measures: One of the key areas of discussion in the review will be non-tariff measures, such as rules of origin (ROO) and product-specific rules (PSRs). These measures have impacted Indian businesses, particularly in terms of eligibility for preferential tariffs and determining the national source of products.
• Concerns Over Trade Deficit: India’s imports from Japan have consistently outweighed its exports, leading to a widening trade deficit. Addressing this concern requires revisiting the terms of the FTA to ensure a more balanced flow of trade between the two countries.
• Market Access: The review will also focus on enhancing market access for Indian products in Japan. This includes addressing barriers and restrictions that hinder the entry of Indian goods into the Japanese market and exploring opportunities for expanding the range of products traded between the two countries.

3: Dimension - Prospects and Challenges

• Potential Impact on Indian Exports: While renegotiating the FTA with Japan may help address some of India’s concerns regarding trade imbalances, there are doubts about its potential to significantly boost Indian exports. Low import duties in partner countries could limit the effectiveness of the renegotiation in increasing India’s exports post-FTA.
• Navigating Complexities: The review process will involve navigating complex issues related to trade regulations and market access. Addressing concerns such as rules of origin and product-specific rules will require careful negotiation and collaboration between Indian and Japanese authorities.
• Geostrategic Considerations: Beyond economic factors, the review of the FTA with Japan also has geostrategic implications. Strengthening trade ties with Japan can contribute to India’s broader strategic interests in the Indo-Pacific region, providing opportunities for enhanced cooperation and alignment on regional security and economic issues.

Mains Practice Question:

Q. There is a persistent trade deficit of India with its FTA partners. Critically analyze