Japan-US trade pact holds lessons for India

ATRADE agreement between the European Union and the United States on Sunday and a similar one between Japan and the US on July 23 have raised hopes of restoring a degree of global economic stability, which has been under threat since Donald Trump became US President six months ago.In one week, Japan's agreement with the US to framework their $230-billion two-way annual trade and expand their overall business relations has become a template for other similar trade deals as many countries, including India, try to avert the big tariffs threatened by Trump, effective from August 1.Talks with Japan, which consummated the second biggest trade deal — after the EU — of Trump's presidency, offer valuable insights into Nippon's negotiating style. Embedded in that style are lessons for India in its present phase of hectic trade policy contretemps.One incident is worth recalling. Prime Minister Narendra Modi and the then Japanese PM Shinzo Abe were late for Modi's address to the Keidanren, Japan's foremost national business federation, on September 2, 2014. To be late for a public event offends sensibilities in Japan. But Modi's schedule was so crowded during his first bilateral visit outside the Indian subcontinent as the new Head of Government that the Japanese obsession for punctuality was overwhelmed.To ease the discomfort of delay, Japan's corporate leaders at the Keidanren engaged their Indian guests in small talk. One business leader said that he had come to remind Modi of his promise as Gujarat CM to exempt a planned Japanese industrial township in that state from prohibition. The anecdote has its beginnings during Abe's visit to India as Chief Guest for the Republic Day in 2014. Eight townships were proposed and Gujarat, through Modi's efforts, procured one. But there was a condition. Big investors said their Japanese employees and their families would agree to live in the township in Gujarat only if alcohol was available. Total prohibition would be a drag on their social lives. The perseverance of that individual entrepreneur in attempting to remind Modi of his promise is typical of how Japan conducts its external negotiations — a combination of firmness and persuasion.Japan's insistence on ease of expatriate living conditions during subsequent dialogues changed Gujarat forever. Mahatma Gandhi's homeland, which traditionally disallowed liquor consumption, agreed to amendments to this rule. Not only in Japanese townships, but also in Gujarat International Finance Tec-City (GIFT City) in Gandhinagar, alcohol is now available through a permit system.Maharashtra still has an antiquated permit system for alcohol consumption in its rule books, but it is observed more in its breach than in its enforcement. It is only a matter of time before Gujarat follows in the footsteps of its neighbouring union territory of Dadra, Nagar Haveli, Daman and Diu, which presently draws imbibers crossing the state's borders in their thousands on weekends. They will have Japan and Modi's pragmatism to thank when that happens.Japan and the US agreed on their trade deal after eight intense rounds of talks in 13 weeks. The stage for these talks was set by Prime Minister Shigeru Ishiba visiting Trump in the White House Oval Office. Before flying to the US, Ishiba rehearsed what he would say to Trump with his predecessor Fumio Kishida. Ishiba even consulted the widow of Shinzo Abe, who had played numerous rounds of golf with Trump over many years.That was the way to go if India wanted to conclude a trade agreement with the US early and set at rest worries in India's corporate boardrooms.United Kingdom's Prime Minister Keir Starmer played a similar role, like Ishiba. Japan, the UK and the EU are the only three important economies to have successfully concluded trade agreements with the Trump administration. Deals with the other two are not significant.India has conducted only five rounds of talks since April 2, all of them with the US Department of Commerce and none in the White House. Japan's chief trade negotiator Ryosei Akazawa met Trump even last Tuesday.In his authoritative book, Negotiation and Dynamics of the WTO: An Insider's Account, Mohan Kumar, former ambassador and one of India's few genuine trade policy experts, has a hilarious account of how Indian negotiators keep repeating that India has red lines. During the release of his book, Kumar recalled that at one negotiating session, the Americans asked their Indian counterparts why they have come for any talks at all if their positions are full of red lines and holy cows.India's ongoing trade talks with Washington have been no different. Red lines on most things. Nothing irritates Trump more than stubbornness from other countries. Commerce and Industry Minister Piyush Goyal claimed "fantastic progress" in India-US trade talks last week. It would be a miracle if New Delhi and Washington were to reach a deal by the August 1 deadline for slapping a 26 per cent duty on India.Bilateral trade agreements are easier when there are extraneous factors. Last week's India-UK free trade pact was proof of this, although the extraneous elements did not get the attention they deserved in the excitement over duty cuts for Scotch whisky and Bentley cars. A key factor that hastened the agreement after three years of talks was the UK's government change in 2024 and the new Labour PM's priority to get a better foothold in India's defence market. The UK's share of India's arms procurement has shrunk to such an extent that it now makes up a mere 3 per cent. The last big arms purchase by India from the UK happened 11 years ago. Starmer's government made concessions with an eye on future defence sales to India.The first of the several free trade agreements that the Modi government has signed was with the United Arab Emirates three years ago. It was also hastened by tangential elements, such as energy security and people-to-people engagement.Security was the elephant in the room when Japan and the EU held trade talks with the US, which led to agreements. India's defence relationship with the US, including arms transfers, is growing, but it is still small compared to Russia, France or Israel.It is moot whether India and the US would have concluded a trade pact by now had India been America's treaty ally, like Japan or Europe.

Japan-US trade pact holds lessons for India

KP Nayar

KP Nayar

Japan-US trade pact holds lessons for India

KP Nayar

KP Nayar

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