WITH AN EYE ON CHINA, JAPAN AND INDIA KICK OFF

C O N F I D E N T I A L SECTION 01 OF 03 NEW DELHI 000916

SIPDIS

SIPDIS

STATE PLEASE PASS USTR

E.O. 12958: DECL: 02/16/2017
TAGS: PREL PGOV ECON ECIN EINV JP CH IN
SUBJECT: WITH AN EYE ON CHINA, JAPAN AND INDIA KICK OFF
ECONOMIC PARTNERSHIP NEGOTIATIONS


Classified By: PolCouns Ted Osius for Reasons 1.4 (B,D)


1. (C) SUMMARY: The governments of India and Japan are
hoping to commence a new economic partnership with round one
of negotiations on the Japan-India Economic Partnership
Agreement (EPA),followed by the visit of a high-level
Japanese business delegation to India. The Economic Minister
of the Japanese Embassy said February 6 that the first round
of negotiations, held in New Delhi Jan. 31-Feb. 2, did not
address major issues, but laid the groundwork for future
negotiations centered on lower import duties and streamlined
visa processes. He said the aim of the EPA was free movement
of people, money and goods, and that, the combination of
Japan's 50% GDP share in Asia with India's 10% GDP share
(non-PPP) would be a "very dynamic bargaining tool," noting
that "it is important to maintain balance in the region among
India, Japan and China." At a high-powered Japanese business
delegation meeting February 14, Indian Union Minister for
Science and Technology Kapil Sibal invited Japanese
businessmen to India, and reportedly stated, "Let there be
joint ventures to bring together Japanese technology and the
potential Indian market, as it would enable us to access the
world market." For now, this agreement is more about the
politics of cementing an Indo-Japanese partnership to balance
China than about any real economic benefit. END SUMMARY.

Laying the Groundwork
--------------


2. (C) Toshitsugu Uesawa, Economic Minister of the Japanese
Embassy, said February 6 that the first round of negotiations
on the Japan-India Economic Partnership, agreed to when Prime
Minister Singh visited Tokyo in December 2006, had been held
Jan. 31-Feb. 2 in Delhi. Heading the Japanese delegation was
Mr. Masaharu Kono, Deputy Minister for Foreign Affairs, and
the Indian side was led by GK Pillai, Secretary of Commerce.
Uesawa said that this round had been "just a kick off,"

SIPDIS
designed to lay the groundwork for future negotiations on the
bilateral trade agreement. The primary accomplishments of
this meeting had been defining the scope of future
discussions, determining the constitution of the delegation,
scheduling future meetings, determining press guidelines and
the formation of basic principles. The two sides will meet
every two months, alternating between Japan and India, with
the next round scheduled for the week of April 9th in Japan.
According to the Government of India (GOI) Ministry of
Commerce, the EPA negotiations are likely to be concluded in
the next 18 months. (Note: This is an ambitious target for
Indian trade negotiators, and if achieved, will probably be
because the agreement contains marginal changes to GOI trade
practices. End note.)

Free Movement of People, Money and Goods
--------------

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3. (C) Uesawa said the aim of the EPA was "free movement of
people, money and goods," noting that India had stated it
wanted Japan to accept unskilled Indian workers. Uesawa
indicated that the Japanese consider their market to be free,
but that the Indians "think it is full of obstacles and
invisible barriers." He also stated that Japan will be firm
in asking India to abolish duties for 90% of its tariff line
items within ten years, declaring, "we will hold on to this
demand until the end." Outside of those issues, Uesawa
reported that there were no serious differences between Japan
and India.

Japan GDP Plus Indian GDP: A Dynamic Bargaining Tool
--------------


4. (C) Uesawa assessed that, by combining Japan's 50% share
of Asian GDP with India's 10% share (not calculating using
Purchasing Power Parity Power),the total of a 60% share
would be "a very dynamic bargaining tool." (Note: It was
unclear from Uesawa's comment whether he envisioned that this
bargaining power would be useful to India and Japan in the
WTO Doha Round or in negotiating further market access via
BTAs or regional trade agreements (RTAs) in Asia. In any
case, Uesawa likely sees greater Indo-Japanese cooperation as
a counterweight to China's growing economic clout in the
region. End note.) This sentiment was echoed at the 34th
India-Japan Joint Business Cooperation meeting, where
Japanese Ambassador to India Yasuki Enoki said that the two
countries "can corner 60 percent of the Asian GDP." Also at
the meeting, organized by the Federation of Indian Chambers
of Commerce and Industry for the Japanese business delegation
led by Mitsui Chairman and Executive Director N. Ohashi, was
Indian Union Minister for Science and Technology Kapil Sibal,
who invited Japanese businessmen to India. "India is a low
cost economy with a very high quality human resource base,
and offers much more opportunities than China," Sibal said,
according to the press.

Issues for Round Two
--------------


5. (C) Uesawa said issues to be discussed in forthcoming
rounds include:

- market access and general rules related to trade in goods
- rules of origin
- customs procedures
- trade in services
- investment
- intellectual property
- improvement of business environment and investment
cooperation.


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Comment: More Political Than Economic
--------------


6. (C) It's not altogether clear how a bilateral trade
agreement between Japan and India will benefit U.S. companies
unless the agreement tackles restrictions in difficult
sectors like agriculture, which is highly unlikely. If
anything, the trade diversion effects inherent in a WTO-plus
BTA may adversely impact U.S. exports to India of certain
high-tech and capital goods which Japan also produces.
Indian BTA negotiations usually leave out the sensitive and
highly protected agriculture sector, which is the crux of the
impasse in the Doha Round. More ambitious Indian trade
negotiations, in particular with the ASEAN countries, have
run into difficulties over sensitivities and India's negative
lists that exclude a large chunk of trade. The proposed
India-Japan EPA is likely to emulate the unwritten goals of
the India-EU BTA negotiations launched a few months earlier:
modestly increased market access for non-sensitive goods,
technical cooperation on trade facilitation, and no
discussion of agricultural trade. Where the Japan talks
differ is that the unstated goal of forging a Japan-India
partnership to counter China reflects the very real political
aim of this ostensibly economic effort. End comment.
MULFORD