THE CONTEXT: India and Australia signed an Economic Co-operation and Trade Agreement (ECTA) with an eye on doubling bilateral trade to $50 billion in the next five years and easing the movement of people, goods, and services across borders. The negotiations for India-Australia ECTA were formally re-launched on 30 September 2021 (which were stalled since 2015) and concluded on a fast-track basis by the end of March 2022. This article analyzes different aspects of the deal and the significance of the bilateral trade for both countries.
THE ECONOMIC COOPERATION AND TRADE AGREEMENT (ECTA)
The Agreement encompasses cooperation across the entire gamut of bilateral economic and commercial relations between the two friendly countries and covers areas like:
- Trade-in Goods,
- Rules of Origin,
- Trade in Services,
- Technical Barriers to Trade (TBT),
- Sanitary and Phytosanitary (SPS) measures,
- Dispute Settlement, Movement of Natural Persons,
- Telecom, Customs Procedures,
- Pharmaceutical products, and
- Cooperation in other Areas.
KEY FEATURES OF THE AGREEMENT
PREFERENTIAL MARKET ACCESS:
Australia’s PMA to India: India will benefit from preferential market access provided by Australia on 100% of its tariff lines. This includes all the labour-intensive sectors which are of interest to India such as Gems and Jewellery, Textiles, leather, footwear etc.
India’s PMA to Australia: India will be offering preferential access to Australia on over 70% of its tariff lines. This includes lines of export interest to Australia which are primarily raw materials and intermediaries such as coal, mineral ores and wines, etc.
Both sides have also agreed to a separate Annexure on Pharmaceutical products under this agreement. This will enable fast-track approval for patented, generic, and biosimilar medicines.
SERVICES TRADE:
As regards trade in services, some of the keys offers from Australia in the services space include Quota for chefs and yoga teachers; a Post-study work visa of 2-4 years for Indian students on a reciprocal basis; mutual recognition of Professional Services and Other licensed/regulated Occupations, etc.
India has offered market access to Australia in around 103 sub-sectors and the Most Favored Nation in 31 sub-sectors from the 11 broad service sectors. This includes ‘business services’, ‘communication services’, ‘construction and related engineering services, and so on.
EXCLUDED TARIFF LINES:
India has kept many sensitive products in the exclusion category (29.8% of tariff lines) without offering any concession. These products include milk and dairy, chickpeas, walnut, pistachio nuts, wheat, rice, bajra, apple, sunflowers seed oil, etc.
The agreement also includes strict rules of origin to prevent any routing of products from other countries and provides for a safeguard mechanism to address any sudden surges in imports of a product.
SIGNIFICANCE OF INDIA AUSTRALIA TRADE AGREEMENT
AN ANALYSIS OF THE IND-AUS TRADE AGREEMENT
- Both India and Australia share a vision of a free, open, inclusive, and rules-based Indo-Pacific region, as well as cooperative use of the seas based on international law, including the United Nations Convention on the Law of the Sea (UNCLOS), and peaceful dispute resolution rather than unilateral or coercive actions.
- The India-Australia ECTA will strengthen the two countries’ already deep, close, and strategic relations by significantly increasing bilateral trade in goods and services, creating new job opportunities, raising living standards, and improving the general welfare of the two peoples.
- The India-Australia comprehensive interim free trade agreement is well-timed for both partners and will ensure an uninterrupted supply of key inputs to Indian industries, with Australian businesses gaining access to a more reliable alternative to China, which is resorting to sanctions against the Canberra.
- A special review mechanism is also envisaged for compulsory review after 15 years for certain aspects of the agreement in a time-bound manner. The review, if requested, is compulsory and has to be completed in six months. This is something new in bilateral trade relations which gives confidence in having a long-term cordial and collaborative relations wherein changes can be incorporated on mutually agreeable terms.
- India and Australia are members of the QUAD grouping, which also includes the United States and Japan, and bilateral ties will help strengthen cooperation and develop partnerships on several issues of common strategic concerns.
THE WAY FORWARD
- The government has successfully negotiated an excellent trade deal for businesses. However, Australia has 16 FTAs under operation which means accessing the Australian market wouldn’t be a cakewalk. India would have to work on improving its competitiveness, as in most trade sectors, it would be competing with China, ASEAN, Chile, Japan, Korea, and New Zealand, which have already-functional FTAs with Australia.
- Active diplomatic engagement would be required to make Australia fulfill its promise to amend its domestic tax law in order to stop taxation of the offshore income of Indian firms providing technical services to Australia. Once the amendment is made, the Indian tech companies would no longer be required to pay taxes on offshore revenues in Australia. This would enhance their competitiveness in the international market.
- India signed an FTA with the UAE in February 2022 and now an FTA has been negotiated with Australia. The success shall be used in negotiating its future FTA deals with Israel, Canada, the UK, and the EU.
- The India-Australia trade pact is the second big trade agreement signed by New Delhi in the recent past. It is in sharp contrast to India’s stand at the Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade agreement involving China and 14 other Asia-Pacific nations where India defended its stand by raising concerns about Chinese goods flooding the Indian market. India will have to forge several similar alliances, like the one with Australia, to make up for not being a part of RCEP. Furthermore, India needs to play this on the front foot and rise above political considerations and think in purely economic terms.
THE CONCLUSION: This agreement opens a big door into the world’s fastest-growing major economy for Australian farmers, manufacturers, producers and so many more. The India-Australia Economic Cooperation and Trade Agreement (ECTA) is a key step in enhancing bilateral economic ties between the two major Indian Ocean littoral states and reflects the growing strategic alignment between New Delhi and Canberra. While India’s strongest ties with Australia had hitherto largely centered around their common colonial legacy of cricket, best exemplified in the Border-Gavaskar Trophy, a more contemporary shared vision has emerged around the mutual need to strengthen their strategic and trade engagement.
Mains Practice Questions:
- Elaborate on how the growing India-Australia economic and commercial relations can contribute to the stability in the Indo-pacific region?
- India has recently had bilateral trade deals with UAE and Australia and is in talks with other countries also. How will the bilateral trade agreements help India in realizing the $5T economy dream? Substantiate.
ADD TO YOUR KNOWLEDGE
India Australia Bilateral Relations
HISTORICAL TIES:
- India and Australia established diplomatic relations in the pre-Independence period, with the establishment of the India Trade Office in Sydney in 1941.
- India and Australia bilateral relations have undergone transformational evolution in recent years, developing along a positive track, into a friendly partnership.
- This is a special partnership characterised by shared values of pluralistic, parliamentary democracies, Commonwealth traditions, expanding economic engagement, long-standing people-to-people ties and increasing high-level interaction.
STRATEGIC:
- The India-Australia Comprehensive Strategic Partnership initiated during the India-Australia Leaders’ Virtual Summit on 04 June 2020 is the cornerstone of our multifaceted bilateral relations.
- Both countries also held first India-Australia 2+2 Ministerial Dialogue in New Delhi in September 2021 with focus on open, free, prosperous and rules-based Indo-Pacific region.
ECONOMIC AND COMMERCIAL RELATIONS:
- India and Australia have been each other’s, important trading partners and bilateral economic and commercial relations have continued to enhance and deepen over time.
- Growing India-Australia economic and commercial relations contribute to the stability and strength of a rapidly diversifying and deepening bilateral relationship between the two countries.
- Australia is the 17th largest trading partner of India and India is Australia’s 9th largest trading partner.
- India-Australia bilateral trade for both merchandise and services is valued at US$ 27.5 billion in 2021.
- India’s merchandise exports to Australia grew 135% between 2019 and 2021.
- India’s exports consist primarily of a broad-based basket largely of finished products and were US$ 6.9 billion in 2021.
- India’s merchandise imports from Australia were US$ 15.1 billion in 2021, consisting largely of raw materials, minerals and intermediate goods.
DEFENCE:
- In 2014, both sides decided to extend defence cooperation to cover research, development and industry engagement.
- The first-ever Bilateral Maritime Exercise, AUSINDEX, was conducted in Visakhapatnam (Bay of Bengal) in September 2015. The most recent one was conducted in September 2021.
- In 2018, the Indian Air Force participated for the first time in Exercise Pitch Black in Australia.
- INS Sahyadri participated in Kakadu, the biennial exercise of the Australian Navy held in 2018, in which 27 nations participated.
- The 4th edition of AUSTRAHIND (Special Forces of Army Exercise) was held in September 2019.
MULTILATERAL ENGAGEMENT:
- Both countries have close cooperation in multilateral platforms like Food and Agriculture Organization (FAO) and G20.
- The Quadrilateral Framework (QUAD) of India and Australia along with the US and Japan emphasize the collective resolve to maintain a free, open and inclusive Indo-Pacific region.
- Australia was also included in Malabar Exercise in 2020, which now is an annual Naval exercise of the QUAD nations.
