Why India must boost trade with Japan

A bilateral comprehensive economic partnership agreement (CEPA) with Japan has reportedly been finalised so that it can be signed when Prime Minister Manmohan Singh visits Japan next month.

This comes in the wake of similar agreements with South Korea and Asean last year, in the footsteps of a path-breaking agreement with Singapore in 2007.

A thrust in this regard, particularly looking east, has come because of the personal initiative that the prime minister has taken through Commerce Minister Anand Sharma. Bilateral and regional agreements have gained in importance even as prospects of a successful completion of the multilateral Doha round have receded and India appears to be doing none too badly by vigorously pursuing this alternative route.

For example, the agreement with Japan has reportedly been sewed up without giving in on government procurement and intellectual property. An agreement with Japan is important as access to the Japanese market for Indian manufacturers remains difficult.

Easing on that score will mean good news not just for Indian pharmaceuticals but textiles too. What may have hastened the process is the increasing attractiveness of the Indian market, with its high growth and burgeoning demand, for Japan whose domestic market is stagnating. It is important to remember that successful bilaterals on trade in goods are first steps. They need to be followed up with agreements on trade in services in which India has a competitive advantage.

Regimes that unfold over time should make it easy for knowledge professionals to move and work freely as part of service delivery. India's trade interlocutors, for their part, will be looking for agreement on investments.

While Japanese investment will bring with it advanced technology which will be highly useful to India, Japan with its aging population should be able to look to India for a steady stream of future earnings.

There is another reason for welcoming these agreements which goes beyond the immediate focus on more trade. The government is seeking to use these agreements to get Indian business to agree to lower import tariffs. While earlier opposition had often turned into a political issue, in recent exercises, the government appears to have been able to secure the consent of domestic interests by involving industry bodies very early in the negotiating process.

This has helped direct focus on what really matters and prepare better for change by being able to see what is coming. There is some urgency in the matter right now as India is poised to take the next step - emerge as a factory for global export of goods that need intensive input of higher skills like, say, higher-end machine tools.

While this has happened partially in the case of a Ford or a Hyundai, it is necessary to take it further by enabling components to be imported at nominal or zero duty. Sony had at one stage taken TV assembly back to Thailand which is even now the preferred assembly location of Japanese car companies for global exports.

Indian business has come a long way but should not, at this stage, be seen to be standing in the way of India becoming an export hub.