FTA Japan-India (What it means?)

Free Trade Agreement

FTA aims chiefly to remove tariffs on goods and trade barriers for services, but also covers areas such as intellectual property rights and facilitation of human exchange.

Why a FTA in the first place?

The theory of comparative advantage argues that in an unrestricted marketplace (in equilibrium) each source of production will tend to specialize in that activity where it has comparative (rather than absolute) advantage. The theory argues that the net result will be an increase in income and ultimately wealth and well-being for everyone in the free trade area. (Source: Wikipedia)

In simpler words- prices of good involving import of parts or goods being exported reduces which gives a fantastic trade opportunity for companies involved in these industries. 

Usually after a FTA the immediate years affect few sectors in countries involved. At times it might lead to lifestyle changes depending upon the sector in prime focus.

Key elements of FTA with Japan

·         The FTA to be signed by Japan and India will phase out the tariffs on products that make up 90% of Japan's exports to India and 97% of India's exports to Japan within 10 years the main focus being auto parts. (Source: http://business.nikkeibp.co.jp) . 

Prime focus of FTA Japan-India: Automotive sector

The past: FTA S.Korea-India

Under the FTA signed between India and South Korea the tariffs were decided to be eliminated over a span of 8years. This agreement has already been signed in 2009. Duties on Korean auto parts, the country's biggest trading item, were decided to be slashed from the average then, of 12.5 percent to 1 percent over the next eight years.  The automotive company that will be benefited by it is Hyundai which is South-Korean automobile maker.

The future: FTA Japan- India

5to 10% of automotive parts particularly electronic parts of all Suzuki car models are supplied from Japan. The elimination of tariffs will provide them a marginal competitive advantage over other car manufacturers. Another anticipated outcome is the development in Indian automobile manufacturing capabilities. Once there is no bar on import of automotive parts Indian car makers can explore the possibility to gear up their models up to global standard.  

General supposition: Automatic cars to enter market because they will finally become affordable and Indian cars flooding global market. Small cars have already become a attractive segment and will become even more exciting, they are one of the major reason why Japan in pressing on FTA. The automotive segment will hence become very vibrant to look out for.


PS: This is a classic example of industry directing a Government decision. The Japanese automakers played a huge role in Japanese Government agreeing to sign FTA.