India and Japan eye a glowing partnership
By Purnendra Jain
ADELAIDE - India for years actively sought closer ties with Japan - but Tokyo
expressed little interest. This has changed slowly but surely amid a shifting
regional landscape and momentum in bilateral ties this week gathered pace.
During his three-day official visit to Tokyo starting October 24, Prime
Minister Manmohan Singh and his Japanese counterpart, Naoto Kan, issued a joint
statement covering a wide-range of issues. While these included worthy issues
such as expansion of the East Asian Summit to include the United States and
Russia, and reform of the United Nations, all eyes were fixed elsewhere.
Progress of two important bilateral matters: an India-Japan Comprehensive
Economic Partnership Agreement (CEPA) and
cooperation on civilian nuclear technology captivated attentions. While a deal
is sealed on the first, negotiations will continue on the second.
For the record, the two prime ministers announced "the successful conclusion of
negotiations on a balanced and mutually beneficial India-Japan Comprehensive
Economic Partnership Agreement" and "expressed optimism that the India-Japan
CEPA will deepen economic engagement in terms of trade in goods and services,
investment and cooperation and contribute to mutual prosperity".
Negotiations for a CEPA began in early 2006 and went through 14 rounds of
negotiations between January 2007 and September 2010 after a feasibility report
prepared by a joint India-Japan study group.
While Japan has signed such agreements with a number of Asian countries, for
India this is only its third after Singapore and South Korea. Although the
content of the 850-page CEPA remains embargoed, it was hailed by Singh as a
"historic achievement" which would lead to a "quantum increase" in bilateral
trade and investment. The pact is likely to take three to four months to come
in effect. It will eliminate tariffs on a number of items and is aimed at
increasing the volume of bilateral trade, which currently stands at about US$10
billion.
Until the details of the agreement are made available, it is difficult to say
how India is going to address its huge trade deficit with Japan. Given Japan's
stagnant economy, India will likely seek niche markets for exports. New Delhi
will expect greater Japanese investment for infrastructure development, such as
roads, ports, airports and transportation.
Japanese companies have often complained about bureaucratic bottlenecks and
corruption in India as impediments to doing business. How these long-standing
issues are going to be addressed will be of great interest.
Prior to Singh's departure, it seemed that talks on a civilian nuclear
cooperation agreement would take a back seat, but the issue was included in the
joint declaration setting out a timeframe for the next round of negotiations.
The two leaders affirmed that the Agreement for Cooperation in the Peaceful
Uses of Nuclear Energy would lead to new opportunities and enhance bilateral
ties.
Just a few years ago, it was unthinkable that India and Japan would negotiate
on a civil nuclear cooperation agreement. Given Japan's international
pre-eminence as a voice against nuclear proliferation and its continued
criticism of India's nuclear policy - voiced most loudly in response to nuclear
tests in 1998 - what has made Japan consider a civilian nuclear cooperation
agreement?
The answers lie in a complex web of international and domestic imperatives.
Japan is in the midst of profound transition at home and within the region and
concerns about China's economic and military resurgence are a central factor
pushing the two countries closer.
While no direct mention was made of China in the joint statement, it made note
of the possibility of exploring "bilateral cooperation in development,
recycling and re-use of rare earths and rare metals". It is not difficult to
link this to the recent spat between China and Japan in the East China Sea and
China's reluctance to sell rare earths to Japan.
The real motivation behind Japan's consideration of nuclear cooperation with
India is the US–India civilian nuclear cooperation agreement concluded in late
2008. Japan is a member of the 45-nation Nuclear Suppliers Group that regulates
the transfer of nuclear technology and lifted a three-decade global ban on
nuclear trade with India just after the US–India agreement was signed. Yet
Tokyo refrained from making any bilateral commitment to India.
American and French companies, along with Russian and South Korean companies,
are now seeking to win contracts for 20 nuclear power plants India plans to
build by 2020 to deal with its chronic shortage in electric power. But since
Japanese firms are deeply entangled in the US and French nuclear industry,
Japan is an essential player.
Leading US suppliers such as GE (in consortium with Hitachi), Westinghouse
(owned by Toshiba), and French company Areva (a joint venture with Japan's
Mitsubishi Heavy Industries) are eager for Japan to see the abolition of
nuclear and high-tech export controls that forbid Japanese companies from
engaging in such transactions with India.
Pressure also comes from Japanese companies wanting to expand into India's
multi-billion dollar nuclear energy markets. If they miss out, South Korean and
Russian companies may secure most of the contracts – a situation unpalatable to
a Japan in recession, which has already lost the burgeoning Indian market to
South Korean companies in auto and white goods.
Japan's Ministry of Economy, Trade and Industry, and its Atomic Energy Agency,
have favored a nuclear deal with India despite caution from the Ministry of
Foreign Affairs. The scales appear to have now shifted towards the former's
position.
The Kan government faces two mutually irreconcilable domestic constituencies:
the influential business sector pushing for nuclear cooperation with India,
while the strong anti-nuclear and pacifist lobby opposes this concession to a
country that refuses to sign the Nuclear Non-proliferation Treaty. External
conditions and domestic pressure from powerful business groups have moved the
Kan government towards negotiating a deal with India.
Japan needs new markets for an economy in recession and India is keen to get
Japan's technological and financial assistance for its economic development.
While that provides strong logic for Japan and India to come closer, perhaps
the greatest impetus is concerns over China. China has fueled further anxiety
in Japan through its actions in the East China Sea, while Beijing's growing
influence in India's neighborhood, especially in Pakistan, is of great concern
to New Delhi.
Purnendra Jain is professor in Asian Studies at Australia's University of
Adelaide.
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