(Report of the IPCS Panel Discussion held on 6 October 2006 at The Oberoi, New Delhi. The panel comprised of Arjun Asrani, Takio Yamada and C Rajamohan. The discussion was chaired by Eric Gonsalves)

Arjun Asrani

The Past in Indo-Japan Relations

Prime Minister Shinzo Abe comes with an impressive pedigree in Japanese politics. His father Shintaro Abe was Foreign Minister and leader of one of the important LDP factions, who missed becoming PM because of his untimely demise. It was during the premiership of Shinzo Abe's grandfather Nobusuke Kishi, from 1957 to 1960 that India-Japan relations saw their best period in the last century.

On the economic side Japan made India the first recipient of its ODA in 1958, long-term iron ore supply agreements were signed and a treaty to avoid double taxation was agreed upon. The relationship was for a long period one of mere cordiality, built around ODA, and therefore asymmetrical. Indian economic reforms of the early 1990s did evoke a rapidly increasing Japanese economic interest that was dashed following the Pokharan tests in 1998.

The Present

Relations normalized with exchange of visits by Premiers Yoshiro Mori and Atal Behari Vajpayee at the beginning of this century. Mori prepared the ground for treating India as a global partner and giving up the studied equidistance between India and Pakistan.

Premier Koizumi, during his visit in April 2005, joined PM Manmohan Singh in laying down the roadmap for a comprehensive relationship, covering all aspects - strategic, political, economic and cultural, both regional and bilateral. He went out of his way to get India invited to the East Asian Summit at Kuala Lumpur this year. The idea is to have India sharing the role of bringing stability and prosperity to Asia. More specifically:

• India replaced China as the largest recipient of Japanese ODA

• FIIs poured in over $5 billion of Japanese investments into the Indian capital market over the last 18 months.

• The number of Japanese companies in India increased by 50 per cent to 350 over the last three years

• Japan is once again the third biggest FDI investor in India - and growing fast.

• India-Japan trade increased from a decade-long stagnant figure of $4 billion to over $6 billion in the last three years.

• The biggest manufacturing success of India has been in the auto industry and the credit for that goes largely to Japanese technology and management practices, starting with Maruti. In fact, much of the success of South Korean, Taiwanese and Chinese manufacturing and export success today owes its origin to Japanese FDI or systems.

• A Joint Study Group, after four meetings over a year, has recommended an EPA - it is expected that during PM Manmohan Singh's visit to Japan in December this year, a Task Force will be announced for negotiating the EPA.

• India and Japan worked together in G4 for the reform of the UN.

• There is cooperation in activities related to peacekeeping. Japanese officers are participating in a PKO training course in India.

• There is a sharing of ideas for cooperation in maritime transport security.

Changes in Japan

Japan has gone through profound changes in the last decade, the most pronounced being its economic rebirth through the Koizumi reforms. But there have also been administrative reforms which have considerably shifted power away from the bureaucracy to the political leaders. While this may be good for fresh thinking in policy making, it may also mean a greater role for lobbyists, track II, etc - somewhat like the situation in Washington.

There is an understandable desire in Japan to have a world role commensurate with its economic power and financial contributions to multilateral institutions. There is a realization that for this to happen, it has to overcome the unrealistic pacifism of the populace and prepare public opinion, through a nationalistic orientation and, if necessary, amend Article 9 of the Japanese Constitution, adopted during the post-war American Occupation. For this they need a two-thirds majority in the Diet, but also a simple majority in a referendum.

The greater assertiveness towards neighbours, as distinct from the earlier policy of kowtowing to them, must be seen from this perspective. Visits to the Yasukuni Shrine in defiance of the outrage expressed by the neighbours is part of this process. The Mori and Koizumi administrations have prepared the ground, making it possible that Abe will now be able to push through the constitution amendment during his leadership.

Another part of this process of realistic strategic thinking has been a growing awareness of the potential threat from an increasingly irresponsible North Korea and the rapidly growing economic and military muscle of China. The Koizumi response has been to deny any power vacuum around China by:

• Amending the constitution and having normal defence forces and rights of a sovereign country;

• Strengthening the alliance with the US.

• Claiming Japan's due space on the global stage and in regional forums

• Developing stronger relations with other major countries in the region with similar values, namely India and Australia. South Korea happens to be an obvious exception and perhaps reflects the state of bilateral relations with that country.

The Future

PM Abe will be able to carry forward these processes with greater domestic support from his traditional base within his party and the keidanren than a maverick like Koizumi could. To that extent he can afford to be more flexible on public sentiment moves like visits to Yasukuni. He may be in a better position to mend fences with neighbours in his visits planned in the next few days.

As for the future course of relations between India and Japan during Premier Abe's stewardship, it may be worth looking at some of the thoughts expressed in his recent book Towards a Beautiful Country.

• While referring to Japan's major trading partners, Abe declared that it would not be surprising if, in another 10 years' time, Japan-India relations overtook Japan-US and Japan-China relations.

• As distinct from the "East Asian Community" proposal, he has laid emphasis on a multi-layered structure of regional forums for Asia's peace, stability and development, leading to an 'Open Asia', that is, an Asia that is open and inclusive. Abe favours an Asia-Pacific energy dialogue which would include not only the East and South-East Asian countries, but also India, the US and Russia.

• In the context of shared values like freedom, democracy, human rights and rule of law, he has favoured a quadrilateral dialogue between Japan, US, Australia and India as an outgrowth of the trilateral dialogue already held among the first three countries in March 2006. However, given India's historical background and coalition government, it may be easier to have such quadrilateral approaches on specific subjects like counter-terrorism, sea-lane security against piracy, peace-keeping, etc., rather than on defence strategy. It may also be easier to have a bilateral strategic dialogue between India and Japan.

• Abe has remarked that India embraces a large number of hard-working and competent people, and is one of the leaders in the IT industry, and that it is of crucial importance to Japan's national interests to further strengthen ties with India. This confirms the impression that, given the demographic complementarity, the engagement of manpower could be an important economic activity of the future.

These are very encouraging indicators for the future of Indo-Japanese bilateral relations. In addition, there are expectations of increasing cooperation in the following areas:

• As the largest provider of ODA to the SAARC countries as well as Myanmar, Japan could use its friendly influence in projects like water, gas, transport, etc. between India and these countries.
  

• There could be increasing collaboration in science and technology R&D in areas like biotechnology, nanotechnology, pharmaceuticals, new materials, etc.

• Through an old decision of its cabinet, Japan has eschewed the export of defence equipment and technology with some exceptions in the case of its ally, USA. With the changing mood in Japan as well as economic considerations, India and Japan can have a mutually rewarding relationship in this sector.

• If and when the India-US nuclear agreement is signed, Japan could consider removing the hurdles in the way of its exports of dual-use technology to India. Japan could also become an important source for nuclear energy projects in India. It is significant that Toshiba has reportedly acquired a controlling share in the Westinghouse nuclear reactors business, foreseeing large orders from Japan and abroad.

• In both countries, the services sector contributes more than 50 per cent of the GDP. While trade figures cover only physical goods, there could be an even larger exchange in services, including IT, tourism, R&D, human resources development, etc. All this could be negotiated in the EPA which could perhaps be signed before the end of 2007.

• Japan has been largely responsible for the remarkable success of the Indian auto and auto ancillary industries in India. With increasing Japanese FDI, it might be hoped that India becomes a hub for exports out of India in this sector.

All this could give a deeper meaning to 2007 as the Year of India-Japan Friendship, in addition to the envisaged cultural exchanges. In brief, for the first time since the 1950s, there is a mutuality of interests and a convergence of economic, political, strategic and cultural factors for strengthening Indo-Japan relations.

Takio Yamada

The importance of India-Japan relations can be seen from the fact that the third call that Shinzo Abe received on becoming Prime Minister, following George Bush and Roh Moo-hyun, was from Prime Minister Manmohan Singh. This reflects the priority that Japan gives to the relationship.There are three important factors to be noted about Abe's ascension:

• Abe assumes his post when the Japanese economy is picking up.

• Abe is gearing up for proactive diplomacy, as can be seen from his strengthening the PM's office.

• Abe is exceptionally clear about the issue of constitutional amendments but has declared that he will undertake a study of the constitution first.

Asia is becoming increasingly dynamic and Japan has to address this new trend. Abe's stress is on values such as freedom and democracy. Abe is the most Indophile PM Japan has ever had with a genuine interest in a rising India. In this context, he also wishes to expand the scope of military cooperation with India. He visited India last year and shares a good personal chemistry with Manmohan Singh.

Economic Relations

As far as the economy is concerned, as of April 2005 when there were only 298 Japanese companies in India, a year later in June 2006, there are 351 - a rapid growth when given past history. Japanese FDI in India is likely to increase as India is one of the five most popular destinations for Japanese FDI, and the second most popular where the auto industry is concerned. EPA negotiations might be launched next year. While Indo-Japan trade is rather modest, the potential remains great.

Political and Security Aspects

Japan and India have no historical or geopolitical competition but face common challenges such as terrorism, preserving the safety of the sea lines of communication, energy security and the environment. The cooperation between the two countries during the post-tsunami operations was quite notable. Also significant is the fact that all the Japanese service chiefs visited India in the last year, with the Indian Defence minister visiting Japan early this year.

Japan might take time to decide but once the decision is taken, action follows immediately. Abe welcomes greater Asian integration, and the improvement of Sino-Indian relations. The latter of course presents Japan with both opportunities and challenges. Abe's stress is on openness in Asian integration. Japan does not have shared values with all of Asia, but India is an exception, and there is enormous potential to build a truly important strategic partnership. What is more, the Indo-Japan partnership need not necessarily follow the same path as the Indo-US partnership. Manmohan Singh's forthcoming visit to Japan in December this year and Abe's planned visit next year are likely to be significant milestones in the relationship.

C Rajamohan

There is a need to focus on the future and on agenda setting for the Indo-Japan relationship. India and Japan are at a historic moment in their relationship. It is for the first time since 1820 that Asia is coming back to the world stage. The rise of China, followed at some distance by India, and the unshackling of Japan at the same time presage this return.

Japan has become far more conscious of its power and assertive over the last five years, and what India will do in the future cannot be predicted based on what it has done in the past.

Objective factors alone are not often enough for a relationship to take off; subjective factors are also necessary. Abe's ascent is a moment India has to grab. Abe is different from Koizumi in bringing a special personal enthusiasm for India and the Singh-Abe visits are going to be important.

On the economic front, Abe says ODA must be leveraged for specific strategic, geopolitical aims. The largest recipients today are India, Vietnam and Indonesia. There has, however, been no strategic leveraging by the Indian Finance Ministry in its use of ODA. The EPA is a means of getting the economic relationship moving.

Shinzo Abe has said that he wanted a Japan where outsiders could come, work and become Japanese. This is a big and bold statement for a Japanese premier to make. The number of Indians living in Japan has gone up significantly and people-to-people interactions must be increased. There are structural changes underway in the Indo-Japanese relations but more economic drivers are required.

India and Japan have a common interest in an Asian balance of power. The rise of China is the single most important geopolitical factor. Therefore, for India and Japan, how they respond to this is the central challenge. They cannot accept an Asia dominated by China. While China desires a multipolar world, Japan and India are interested in a multipolar Asia. This does not mean that either country has to be hostile to China and the Abe visit to China might free him to do bolder things with respect to the American and Indian relationships.

Strategic Quadrilateral

There need not be any reason why India cannot accept sitting down with Japan, Australia and the US on strategic issues. As early as 1968, Prof Mellon had advocated a potential partnership between India, Japan and Australia with US support to counter China. Therefore, there is no fundamentally untouchable notion. If the four navies can work together during the post-tsunami operations, there is no need to think they cannot do so again. The Chinese might, in fact, respect India a lot more, and India might gain greater leverage in Beijing.

On the question of energy security and maintaining the safety of the SLOC, there is a need for greater cooperation between the Japanese and Indian navies, more than what goes on now at the Coast Guard level. India needs to act on maritime infrastructure or the Chinese will control the Indian Ocean. This is logical since the Chinese too want to protect their SLOC and oil supplies.

The American defence industry is globalizing and Japan is part of it. It is only a matter of time before India too becomes a part of this industry. What will India and Japan do if the EU removes the ban on arms transfers to China? The two countries will have to get into active cooperation in this field as well. Also, irrespective of what happens on the Indo-US nuclear deal, Japan and India must cooperate on space and nuclear technology.

Japanese interests can be pursued only if Japan comes out openly in the defence of its interests. Abe has shaken off the influence of the bureaucracy and the PM's office will increasingly become powerful. This should lead to a positive impact on Indo-Japan relations as well.

Discussion

Abe and Japanese politics

Abe's position within the Japanese political system is often deliberated upon. While some emphasize the challenges he faces on account of Koizumi's reform policies, others underline the factional nature of the Japanese political system.

Comparisons between Koizumi and Abe often highlight the fact that while Koizumi came from a political family, Abe's political lineage is more illustrious. In that sense, Koizumi was something of an outsider while Abe is not. Both have very different political styles. Abe's new cabinet enjoys over 60 per cent support in Japan and the LDP's popularity is very high. Although Abe is willing to listen to the advice of others, his cabinet is primarily composed of his supporters and this demonstrates that he is a strong leader.

All democratic leaders have to deal with dissent within their party itself. Abe's test will be his stance on issues related to social security, education, the urban-rural divide among others and will be reflected in the summer 2007 elections. The degree of support he receives within the LDP may well be governed by his electoral performance.

Abe has not clarified whether he will seek an extended term in office like Koizumi. This could have a bearing on the direction of constitutional reform in Japan. An over-emphasis on this issue in a short period of time has the potential to create fissures within his party. Whether actual constitutional amendments are carried out remains to be seen; however, the very fact that a creative interpretation of the article of the constitution was started by Koizumi, and is being strengthened by Abe, is a big step forward.

The business element as a strong lobby in Japanese politics will also have an important impact on Abe's term. It was quick to state its displeasure with Koizumi's policies that impinged on their economic interests in China. Their role in the future will also remain important. Abe has incorporated academics and economists representing the business element as advisors in his cabinet. This has ensured the formulation of policy that does not threaten business interests, thereby assuring Abe of support from this quarter as well.

The question of China and East Asia

The issue of the Yasukuni Shrine remains an important factor in China-Japan relations. Abe will need to demonstrate flexibility on this issue since it is important for relations with China and South Korea. This is not to say that other important bilateral issues affecting the direction of the relationship do not exist. The economic interaction between Japan and China is becoming an increasingly vital factor in determining ties between the two states.

Although Koizumi believed that strong Japan-US ties would ensure a balance in Japanese relations with China, this is not necessarily true. The 2004 Defence Policy Guidelines made references to China for the first time as did discussions during the 2+2 meetings between Japan and US. China was mentioned in Japan's meeting with partners like Australia and when Aso referred to the threat of Chinese military growth. This has been an alarming development. However, this is not to suggest that stronger US-Japan ties hurt China-Japan relations. The existence of a strong ally may well prevent the emergence of a bully in the region.

Closer relations with the US or India do not imply hostility towards China because of growing interdependence between these states. The media emphasizes the problems in the China- Japan relationship. It is often overlooked that trade between China and Japan has seen steady growth. China needs Japan since it is dependent on external FDI, technology and trade with foreign partners. It cannot maintain its growth rates without engaging with Japan or the US. The question is one of balancing political and economic issues. As Japan attempts to do this, it is aware that China's primary concern is the US as apparent from Hu Jintao's two visits to the US in one year.

Abe is very much committed to improving ties with Japan's neighbours as mentioned in his opening speech. The North Korean question remains extremely important and Japan recognises China's efforts here. Despite this question, nucleraisation is not an option for Japan. There are other options available to Japan to strengthen its defences. The interdependence of states in East Asia (ASEAN is Japan's second largest trading partner) requires cordial political relations and a stake in each others' economic growth.

Japan and India Relations

The bilateral trade between India and Japan has already crossed 6.2 billion dollars. This is a marked improvement for the value of trade had not crossed five billion in the recent past. India in 2008 (after the Beijing Olympics) could well prove to be the ideal investment destination for Japanese companies looking to invest in small and medium R&D firms. Legislation for the immigration of foreign workers to off-set Japan's declining birthrate could provide India will immense opportunities given the small size of the Indian community in Japan.

Looking to the future, two principal areas of cooperation emerge between India and Japan - Peace Keeping Operations (PKO) and UN Reform. There are concerns in Japan over economic assistance to the UN; hopefully these will be addressed. The debate over Japan's involvement in UN PKO has continued. There is a need to restructure PKO operations but political and economic support for this is not forthcoming. Japan thus needs to realign modalities for engagement in the PKO. Keeping in mind the maritime interests of the two countries, the strengthening of military to military exchanges, along with processes for intelligence sharing and ideas for changing the security situation would strengthen the bilateral relationship. Also, dialogue between India and Japan, that includes China, would be beneficial for the region as a whole.

Japan's stance on the Indo-US nuclear deal was not perceived as very positive. This is because the nuclear issue is a very sensitive issue in Japan, which has been a champion of the NPT. The Nuclear Deal changes India's standing vis-à-vis the NPT. For Japan, if India claims to be a partner of the Non Proliferation Regime, its actions must reflect the same. The nuclear issue notwithstanding, prospects of a strategic dialogue between India and Japan are exciting and the atmosphere in Japan is such that there are no qualms over substantiating this strategic partnership. This is significant for Japan does not even have a strategic dialogue with China at this time. No relationship is free of costs and a cost benefit analysis should direct future choices. India and Japan have no fundamental differences or contradictions and this provides the ideal basis for a close relationship.

Concluding Remarks

Eric Gonsalves

The world is now in the post-Congress of Vienna state where cooperation is necessary. The basis for a strategic partnership between India and Japan encompasses something of an Asian system based not only on democratic values, but an era when Asia was the fulcrum of all foreign policy. It is through engagement at the bilateral and multilateral level that the two states can aid in the creation of an Asian community where interdependence would enable a balance between economic and political aspirations.