What Does EPA Between Japan and India Mean?

Osaka – Sunday, September 12, 2010




Nikkei, Japanese newspaper specialized in business and economy, reported on September 10 that the governments of Japan and India reached a broad agreement to conclude EPA (economic partnership agreement), as mentioned in the article Japan and India Reach a Broad EPA. This has much significance to the both countries while at the same time challenges lie ahead.



Top 5 international trade items in 2009


(Source: Nikkei that acquired the information from JETRO (Japan External Trade Organization), translated and edited by the author)

From Japan to India
Item /  % of total trade
Iron and steel / 13.0
Components of automobiles / 6.4
Metal working machinery / 4.3
Power engines / 4.1
Organic processed products / 4.0

From India to Japan
Item / % of total trade
Petroleum products / 24.4
Iron ore / 12.1
Non-metal mineral manufacture / 7.5
Sea foods / 7.5
Organic processed products 5.8

 
1. What does the EPA mean to Japan?



The EPA means that that Japan is closing the gap between Korean in terms of condition of international trade. Korea has already concluded FTA (Free Trade Agreement) with India in January this year; therefore, opinion leaders of Japan such as Mr. Suzuki, CEO/Chairman and President of Suzuki Motors, were extremely worried that Japan has handicap in global competition. With the EPA between Japan and India, they assume that competitive condition for Japanese automobile and consumer electronics compared with their Korean counterparts will improve.



Lowering/minimizing of tariff means so much and should be beneficial to Japanese automobile and consumer electronics. This is because they rely control component and　 high-precision processing components on import from Japan although they has been making efforts in increasing use of local components to reduce cost because such components are extremely difficult to source locally. Local sourcing to reduce cost is vital to grow business in India where the price range of volume zone is below 1 million yen and price competition is extremely severe.



2. What does the EPA mean to India?



The EPA means that India has made a progress in expanding their business in pharmaceutical (generic drugs). This is because Japan seems to have compromised to study to accelerate approval procedure of generic drugs in Japan. Currently it is difficult for Indian pharmaceutical companies to expand their business in Japan because of the slow speed of approval, which partially attributes to the fact that Japanese doctors and patients request high standard of quality. Some experts expect that cases in which Indian pharmaceutical companies acquire Japanese counterparts will increase in the future.



3. What are the challenges for Japan?



Japan needs to further negotiate with larger countries for EPA agreement such as China, Korea and Australia and catch up with Korea in developing and executing EPA strategy. Japan has only concluded EPA with countries and regions covering 16.5% of the total trade, and it is only 36.5% even if countries and regions in negotiation are included. On the other hand, Korea has already signed FTA with the U.S. and EU, and if countries and regions in negotiation are included it would be as much as over 60%.



The country that Japan seems to be able to agree to conclude EPA in the near future is Peru, whose negotiation is in progress. Mr. Okada, Minister of Foreign Affairs, said that Japan would like to start negotiation with EU and Korea and conclude EPA following agreement with India; however, there is no concrete EPA strategy.



4. Why Japan is behind in FTA / EPA?



It is because Japan has not been able to take bold step for market liberalization in agriculture. This is why in the EPA agreed with India main agriculture products such as rice have been excluded from items whose tariff will be abolished. However, lowering tariff of agriculture products would be inevitable if the Japanese government is to set a target of concluding EPA with the agriculture giants such as the U.S., China and Australia in the basic EPA policy to be drafted by November this year.



Scope of discussion topic of liberalization may expand beyond agriculture. Recently there have been some cases in which liberalization in items of non-tariff barriers such as standardization of safety criteria of products. What is required to initiate EPA is strong leadership of the government (ruling party) to convince stakeholders.