As Tokyo and Beijing continue to trade barbs over their recent maritime altercation, Japan seems to be casting its trading net away from its biggest partner into what it hopes will be more pacific waters.
On Monday, Japanese Prime Minister Naoto Kan and Indian Prime Minister Manmohan Singh concluded an economic partnership agreement to cut tariffs on the flow of goods in both directions and promote bilateral investment.
India only accounts for about 1 percent of Japan’s global trade, whereas more than 20 percent of Japanese imports head to China.
The deal, which took four years of negotiations to come to fruition, will slash tariffs on 94 percent of two-way trade in the 10 years after implementation. The Indian imports under the deal will include industrial products and some agricultural products such as curry, shrimp and lumber. Japan will be able to reach further into the Indian market with goods such as video cameras, fruit and bonsai trees.
The deal, which still requires the Japanese Diet’s stamp of approval, is likely to be welcomed. Protectionism rarely brings long-term economic benefits, and the pact will help Japan to diversify its exports and reduce reliance on China, with which its relationship is notoriously difficult.
But the Nikkei, an authoritative business broadsheet, warned Tuesday that the ‘devil lies in the detail of the agreement. One problem is the slow schedule for tariff reductions. According to a similar deal between India and South Korea that took effect in January, many products will become tariff-free in as little as eight years.’
The two leaders also agreed to expedite talks over a deal that would permit Japanese companies to export civilian nuclear technology to India.
Yet Japan is also wary of a country that has refused to sign the Nuclear Non-Proliferation Treaty. Former Foreign Minister Katsuya Okada earlier this year warned New Delhi that any more nuclear weapon testing would jeopardise the implementation of such a deal.
While both sides would benefit from Japan’s nuclear expertise, Tokyo should stick to its principles and seek concrete guarantees that New Delhi won't conduct further N-tests. It would be a shame for Tokyo to miss out on the financial and diplomatic gains of cooperation. But as the only country ever to be on the receiving end of a nuclear attack, Japan should keep its conscience clean on this issue.
A report Monday also suggested that the European Union is warming to the idea of signing a free trade agreement with Japan. South Korea has already signed FTAs with the EU and the United States, and as Paul said here earlier this month, Japan can learn much from its neighbour.
As always, the biggest obstacle is Japan’s influential (stubborn?) agricultural sector. If Tokyo is to hook new trade deals, it’s going to have to take a leaf out of Seoul’s book and win farmers over. Let’s hope that this becomes reality sooner rather than later.