In line with similar agreements earlier with Singapore and South Korea, India signed a two-way Comprehensive Economic Partnership Agreement (‘CEPA’ or ‘the Agreement’) with Japan on 16 February 2011. CEPA would provide a framework for enhanced cooperation between the two countries and is aimed to facilitate trade in goods and services and increase investment opportunities, besides protecting intellectual property rights. The Agreement is likely to be implemented from 1 April 2011.

The highlights of CEPA have been provided below.

CEPA

The CEPA aims to reduce or eliminate tariffs over next 10 years on over 90 per cent of goods traded between the two countries. The Agreement inter alia provides ‘schedule for India’, a list detailing product wise plan for reduction/ elimination of duties for imports into India and a similar ‘schedule for Japan’. The quantum of duty reduction under CEPA will vary from product to product. Therefore, some products may see a complete elimination of duties on 1 April 2011 itself (or any other day on which the Agreement comes into force) while others may see a gradual reduction over years. Sensitive sectors for India and Japan are fully protected and will not see any tariff change.

An illustrative list of goods for import into India and the time period over which basic customs duty would be eliminated is given below:

Description of goods Period in which tariff to be reduced
Most of the textile products including yarn and fabric Immediate
Computer printers, PCs and other automatic data processing machines Immediate
Cell phones and other types of telephones, networking equipment and SIM cards Immediate
Capacitors, diodes, specified measuring instruments Immediate
Lubricating oil Seven years
Specified petroleum products Ten years
Most metals and articles thereof Ten years
CDs, DVDs, watches, musical instruments Ten years
Arms and ammunition Ten years
Certain types of furniture Ten years

The sensitive goods’ list which will not see any change in the rates would inter alia include most of the automobiles, TV sets, air conditioners, fruits, spices, wheat, basmati rice and edible oils.

An illustrative list of goods for import into Japan and the time period over which the customs duty would be eliminated is as under:

Description of goods Period in which tariff to be reduced
Specified petroleum products Immediate
Ores, slag and ash Immediate
Inorganic chemicals and specified organic chemicals Immediate
Machines – mechanical and electrical, and parts thereof Immediate
Most Textile and textile products Immediate
Specific types of fish and fish meat Seven years
Specified iron and steel products Ten years
Certain fruits like oranges, apples, grapes Ten/ fifteen years

The above concessions will be applicable only to goods originating from the exporting country and to determine the origin of the goods, rules of origin will be prescribed.

Apart from concessional duties on products, the CEPA envisages measures for promoting services such as financial services and telecommunication services between the two countries. Further, to provide an encouragement to movement of people between the two countries, the Agreement provides for facilitating easier temporary entry for various categories of persons.

Our Comments

Japanese investment in India has reportedly doubled in last two years and today India’s trade with Japan stands at USD 10.3 billion. Indian Commerce minister expects bilateral trade of USD 25 billion by 2014, perhaps through increase in Indian exports which today constitute less than one percent of Japanese imports. For Indian exporters, CEPA may open various sectors of Japanese economy like chemicals, pharmaceuticals, textiles while Japan too will find it easier to introduce its products into India.

The sectors like capital goods, auto parts, iron and steel, specified chemicals which comprise bulk of Japan’s exports to India will get benefited from the CEPA. However, products which are already exempt from basic customs duty today, like IT and telecom industry products, may not derive much benefit. Textile, chemicals, food industry, petroleum products which comprise over 50 percent of India’s exports to Japan may also get benefited from the CEPA.

Overall there will be positive growth in the bilateral trade between India and Japan, however, the challenge before the Government is to ensure that CEPA should not act as a deterrent to the domestic capacity creation.

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