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Japan’s demand for unilateral QFB status holds up trade pact

Economic Times, India

Japan’s demand for unilateral QFB status holds up trade pact

10 November 2008

By Amiti Sen, ET Bureau

NEW DELHI: The comprehensive economic partnership agreement (CEPA) being negotiated between India and Japan has hit a roadblock with the latter
proposing that five of its banks be given qualified full banking (QFB) status by India. On its part, though, Japan is not keen on offering similar status to Indian banks on the ground that they don’t measure up to Japanese standards.

The country has also not shown any interest in working on India’s suggestion that its pharmaceutical sector be opened up for Indian companies. The senior officials meeting scheduled next month in Delhi would try to sort out these issues to ensure that the talks, moving smoothly so far, don’t get stuck.

Speaking to ET, commerce department officials said that in the senior officials meeting in Tokyo last month, Japan was insistent that India grant QFB status to five Japanese banks as part of the CEPA. “Japan wants this to be a unilateral concession and does not want to provide similar status to Indian banks,” an official said. QFB status entitles a foreign bank to open a number of branches and ATMs in a foreign country.

For India, this is a demand very difficult to be fulfiled. Banking is a sensitive sector for India and without quid pro quo, it is very difficult to give enhanced access to another country. In India’s CEPA with Singapore, India had agreed to give QFB status to three Singapore banks and vice versa. Implementation of the agreement, however, became difficult as Singapore was not satisfied with the accounting systems of Indian banks and claimed that it did not gel with its own accounting systems.

India, too, became defiant and refused to give QFB status to Singapore banks. After a lot of deliberation, which ran into several months, Singapore agreed to give State Bank of India QFB status while India agreed to give DBS Bank, Singapore’s largest bank, the same status. “It is just not possible for one country to give a concession without expecting similar concession in the other country’s turf.

Our business and people will just not accept this,” an official said. Pharmaceuticals is yet another trouble area. Japan is not willing to open up the sector for Indian companies. India has been pushing Japan to agree to a mutual recognition agreement (MRA) in pharma for testing procedures and standards, wherein the country should recognise the standard testing mechanism of the US Food and Drug Administration (FDA) which many Indian companies followed.

“Japan, so far, has been totally inflexible in this area. Pharmaceuticals is a big area for India and we don’t want it to be excluded from the agreement,” the official said. The bilateral CEPA would cover both agricultural and industrial goods, services and investment. Both sides want to increase bilateral trade to $20 billion from the existing $7.5 billion by 2010.