Introduction and Background
The Comprehensive Economic Partnership Agreement between India and Japan represents a significant milestone in the economic relations between the two major economies of Asia. The agreement was signed on February 16, 2011, in Tokyo and came into force on August 1, 2011.
This bilateral agreement was a commitment made by the Prime Ministers of both the countries in October 2010. For India, the Japan CEPA marked the third comprehensive economic agreement of its kind, following similar agreements with Singapore and South Korea. However, it stood out as the first such comprehensive agreement with one of the world’s largest economies.
The relationship between India and Japan has been built on mutual understanding, respect, and shared economic interests. Prior to this CEPA, Japan had already been one of the major sources of foreign direct investment to India, while Indian industry offered substantial human resource potential with massive market opportunities for Japanese technology and goods. However, the two nations faced problems to deeper economic exchange, including high tariffs, bureaucratic customs protocols, and regulation of service providers. CEPA was designed to address these challenges and open a new phase of economic cooperation.
Aims of the CEPA
CEPA goes beyond a traditional Free Trade Agreement, which primarily focuses on tariff reduction in merchandise trade. As a comprehensive economic partnership, CEPA covers a much wider range of areas including merchandise trade, services trade, investment, intellectual property rights, mobility of people, and government procurement.
The main objectives set forth in the India-Japan agreement include liberalization and facilitation of trade in goods and services between the two countries, enhancing opportunities and improving provisions on investments and their protection, ensuring intellectual property protection, promoting cooperation for effective enforcement of competition laws, improving the business environment, establishing a framework to enhance closer cooperation in agreed fields, and improving implementation procedures and mechanisms of dispute resolution.
The agreement was expected to yield outstanding results. India agreed to remove duties on approximately 90 percent of its imports from Japan, and Japan proposed to cut duties on 95 percent of its exports to India. The target was that the bilateral trade would grow to 25 billion US dollars from the then existing 10.3 billion US dollars. Beyond mere tariff reduction, CEPA sought to create a win-win situation for both economies by promoting sustainable development and balancing economic progress with environmental conservation.
Key Features of the CEPA
The agreement is structured as a comprehensive document with 15 chapters and several annexes dealing with various aspects of bilateral trade and economic cooperation.
- Trade in Goods
The Trade in Goods chapter provides for substantial reductions in customs duties between India and Japan. However, both countries have protected their sensitive sectors. India has retained full tariff protection for key agricultural products such as fruits, spices, wheat, basmati rice, edible oils, wines, and spirits. Similarly, Japan has excluded highly sensitive agricultural commodities like rice, wheat, and certain dairy products from tariff reductions, while removing duties on selected food items such as curry ingredients, pepper, and tea.
Custom duties on various goods have been classified under different tariff categories, with some eliminated immediately and others phased out over specific periods. For certain categories, customs duties are eliminated in equal annual instalments from the base rate to zero over periods ranging from 5 to 15 years.
Several sectors are expected to benefit from these concessions. Reduced tariffs make it easier for Japanese automobile companies to export auto parts to their manufacturing units in India, and India will also progressively lower tariffs on Japanese steel. At the same time, Indian exports such as textiles, chemicals, and leather products gain improved access to the Japanese market. India, in turn, benefits from importing Japanese automobiles, auto components, and electronics at more favourable rates.
- Rules of Origin
The agreement provides detailed procedures for determining the country of origin of goods to ensure that only goods genuinely manufactured in either country obtain tariff benefits. This prevents goods from third countries taking advantage of the preferential tariffs.
- Customs Cooperation
It includes provisions for simplified customs procedures and quick clearances to facilitate hassle-free trade and reduce delays. Both countries committed to apply customs procedures in a predictable, consistent, transparent, and fair manner, making use of information and communications technology to simplify the processes.
- Trade in Services
The services chapter ensures that sectors such as financial services, telecommunications, and information technology in both countries receive guaranteed access to each other’s markets. It allows Indian service providers in areas like IT, finance, architecture, and healthcare to enter the Japanese market with fewer restrictions. Trade in services under the agreement is also governed by the principles of National Treatment and Most-Favoured-Nation treatment, ensuring fair and non-discriminatory conditions.
- Investment Protection
Both countries agree to treat investors from the other country fairly and equally, and to protect them from unlawful expropriation. The agreement ensures fair and equitable treatment of investments, access to domestic courts, and prohibits certain performance requirements that could limit or discourage investment. Together, these provisions offer strong protection for cross-border investments.
CEPA also sets out clear mechanisms for resolving investment disputes between investors and states. It allows disputes to be settled through arbitration, including before the International Centre for the Settlement of Investment Disputes (ICSID), under the rules of the United Nations Commission on International Trade Law (UNCITRAL), or through other arbitral forums agreed upon by the parties.
- Movement of Natural Persons
One of the most significant features of this CEPA is that it makes it easier for Indian professionals to work in Japan, particularly in fields such as information technology, healthcare, and engineering. The agreement supports greater trade and investment by allowing smoother temporary entry for different categories of persons, including business visitors, contractual service suppliers, qualified and independent professionals, and intra-corporate transferees, between India and Japan.
The agreement also allows spouses or dependents accompanying such professionals granted entry and temporary stay shall be allowed to work through change of residence status, provided they fulfil requirements under applicable laws and regulations.
- Intellectual Property Rights
Both countries agreed to provide strong, effective, and non-discriminatory protection of intellectual property in line with the TRIPS Agreement. The agreement promotes cooperation in areas such as patents, trademarks, and geographical indications, helping encourage innovation and industrial growth. It also simplifies and streamlines procedures related to registration and prosecution to make the system more efficient.
In addition, both countries committed to increasing public awareness of intellectual property protection. This includes educational initiatives and information-sharing programmes on the use of intellectual property and the enforcement of intellectual property rights.
- Government Procurement and Competition
The agreement includes provisions on government procurement, with both countries committing to ensure transparency and provide non-discriminatory treatment. In the area of competition, both countries agreed to take steps to prevent and address anti-competitive practices, helping create a fair market environment and supporting smoother trade and investment between them.
- Cooperation Framework
The CEPA established a framework for cooperation in multiple fields including environment, trade and investment promotion, infrastructure, information and communications technology, science and technology, energy, tourism, textiles, small and medium enterprises, health, entertainment and information, and metallurgy, among others.
Impact of CEPA: Benefits and Gains
Over the years since its implementation, the India- Japan CEPA has delivered substantial benefits, particularly in investment flows, technology transfer, and infrastructure development.
- Investment Growth
Japan has become one of the major sources of foreign direct investment in India since 2011. Between 2000 and 2024, Japanese investments in India amounted to around USD 43 billion. These investments have mainly gone into sectors such as automobiles, electronics, chemicals, and clean energy. This investment has contributed significantly to industrial growth in India and created thousands of employment opportunities.
- Key Sectors Benefiting
The automobile sector has seen strong growth under CEPA. Japanese vehicle manufacturers have expanded their operations in India, benefiting from lower tariffs and easier market access. Several major Japanese companies have set up large manufacturing facilities in India.
Indian IT and software companies have also gained entry into the Japanese market, providing services such as software development, systems integration, and cybersecurity. This has created new sources of revenue and strengthened India’s position in the global IT services industry.
The healthcare sector has benefited as well. Indian doctors, nurses, and medical professionals now have better opportunities to work in Japan under CEPA’s provisions on the movement of natural persons.
Japanese firms such as Toshiba, Mitsubishi, and Hitachi have invested in Indian infrastructure projects including metro systems, railway development, and clean power projects, bringing advanced technology and expertise to India.
At the same time, Indian exports of textiles and leather products have become more competitive in the Japanese market due to reduced tariffs. Exports of marine products, gems and jewellery, pharmaceuticals, and machinery have also increased significantly.
- Technology Transfer and Infrastructure Development
One of the most visible outcomes of this CEPA is the Mumbai-Ahmedabad High-Speed Rail Project, which uses Japanese Shinkansen technology. The project reflects the long-term trust between India and Japan and is largely funded through Japanese loans, along with significant transfer of technology. It not only upgrades India’s transport infrastructure but also helps build technical skills and expertise for future high-speed rail projects.
Beyond railways, Japan has also invested in other areas of infrastructure development in India, including industrial corridors, metro rail projects, and port modernisation. These investments have helped India improve the quality of its infrastructure, while giving Japan a strong and strategic presence in India’s rapidly growing market.
- Pharmaceutical Sector Cooperation
Indian generic pharmaceutical companies have gained easier access to the Japanese market under the CEPA. The agreement includes specific provisions to support cooperation in generic medicines, such as faster registration procedures and equal treatment for the sale of generic drugs. With Japan’s rapidly ageing population and increasing healthcare needs, this creates a valuable opportunity for Indian pharmaceutical companies to supply high-quality and affordable generic medicines to the Japanese market.
- Regulatory Cooperation
The liberalisation of services under CEPA has made it easier for professionals and service providers from India and Japan to work across borders. Sectors such as engineering, information technology, and finance have seen increased opportunities for collaboration. This closer regulatory cooperation has helped improve technical skills and encouraged the exchange of knowledge between the two countries.
- Expanding Collaboration
In recent years, India-Japan collaboration has moved beyond traditional trade into emerging and strategic areas such as clean energy, critical minerals, and semiconductors. Both countries are working together on initiatives related to green hydrogen, renewable energy, and resilient supply chains. The India-Japan Industrial Competitiveness Partnership has further strengthened manufacturing ties, with both governments coordinating on long-term industrial and economic policy planning.
- Bilateral Trade Growth
Trade between India and Japan has grown steadily, with bilateral trade crossing USD 20 billion in recent years. Japan continues to export machinery, automobiles, and electronics to India, while India exports minerals, marine products, and engineering items to Japan. While trade volumes have grown moderately, the quality and depth of economic engagement through investment and technology transfer have been the true strengths of this partnership.
For India, CEPA has provided access to advanced Japanese technology, substantial investment capital, and opportunities to modernize infrastructure. Indian professionals have gained enhanced mobility to work in Japan, while Indian companies, particularly in pharmaceuticals and information technology, have accessed the Japanese market more easily. The agreement has also established frameworks for cooperation that extend beyond traditional trade, encompassing clean energy, digital economy, semiconductor development, and sustainable industries. The partnership aligns with both India’s development objectives and Japan’s strategic interest in diversifying economic partnerships.
CEPA represents a model of how comprehensive economic partnerships can create mutual benefits through patient, long-term cooperation. It demonstrates that such agreements need not be limited to tariff reductions but can evolve into platforms for technology transfer, capacity building, and strategic collaboration. The agreement has laid a foundation for India and Japan to work together as co-producers of resilient supply chains and clean energy ecosystems, contributing to economic security and regional cooperation in the Indo-Pacific region.
