The India-Australia Economic Cooperation Trade Agreement (FTA)comes at a very tricky time from a geopolitical and economic scenario. The Agreement sought to increase trade between the two countries by almost $45-50 Billion in the next five years while increasing the number of work opportunities available in both countries.
History of IND-AUS Relations
India and Australia have maintained cordial bilateral relationships since even before India’s independence. Their history goes back to 1941 and to date, Australia remains a close ally of India, being the first country with which India established diplomatic relations in the pre-independence period and one of the strongest, oldest and most consistent formal partners of Australia.
Diplomatic ties between India and Australia have been strengthened over the years through their people-to-people links, defence engagements, economic partnership and a mutually agreed stance taken by both countries on education.
The Consulate-General of India was first opened in 1941 in Sydney, and today as Australia recognises India’s profound role in the global, specifically Asian economy and looks for an alternative to their Chinese export destination, the Australian Government has sanctioned a Centre for Australia-India relations with increased resources and funding, thus showing their deep focus on India. The mandate of this institution is to strengthen business and diaspora ties.
The Unfolding of An Alliance
As India becomes the most populous country of 2023, surpassing China, potentially meaning that India will be Australia’s second-largest source of international students and the largest provider of skilled migrants, thus highlighting the importance of maintaining cordial ties with a country of such profound influence.
With almost 2.6 per cent of the Australian population being of Indian origin and Hindi being one of the top ten spoken languages of Australia, it’s safe to conclude that India is not only an important partner for Australia, but India has domesticated itself so much in this island-nation that today, Indians are culturally infused into their population, thus creating much more than just a link between these two countries. Today, they have created a nexus which stands to cooperate at the highest levels.
While Australia is identified as a highly developed country with a mixed economy, India continues to stay within the category of developing economies. That said, India’s position as the 5th fastest-growing economy in the world opens up a sea of opportunities for Australia due to India’s unfulfilled infrastructure demands, burgeoning pressure of urbanisation and lack of sufficient demand and supply conditions.
India was Australia’s sixth-largest two-way goods and services trading partner and fourth-largest goods and services export market in the world, in 2021.
Education is Australia’s largest service export to India, valued at $4.2 billion in 2021. As of October 2022, almost 57,000 Indian visa holders were studying in Australia. In light of this, the Australian government granted extended post-study work visas to Indian graduates from STEM (Science, Technology, Engineering, Mathematics), under the Economic Cooperation and Trade Agreement Act.
The ECTA was signed on April 22, 2022, and put into motion on December 29, 2023. This agreement was concluded as part of the Comprehensive Economic Cooperation Agreement (CECA).
Negotiations started back in May 2011. These talks had then been postponed till 2016 after nine rounds of negotiations, to be relaunched in 2021 to conclude a plurilateral regional agreement between the two countries in the form of India-Australia ECTA.
China’s exports to Australia outweigh India’s contribution by a large shot but the issuing of sanctions by China against most Australian exports did not go down well with the latter as it marked the beginning of a trade war between the two. Not only that, but this also unmasked Australia’s need to fetch alternatives as the Chinese tariffs began hurting wine and lobster exporters who suffered huge losses.
India’s contribution to Australian exports stood at 3.7% in 2021 as compared to China’s 33% share in Australia’s exports. The drift between Australia and China worked out well for India, as Australia’s need to take business away from China made India extremely visible as the next best nation for conducting trade.
Broad Facets of the Agreement
The essence of a trade agreement lies in its ability to help the countries involved, in maximising their trade base at the lowest possible cost.
The India-Australia pact is not only a glowing example in this respect but also a landmark development in the history of India as it was the second such high-level bilateral trade pact signed by India, after signing one with the United Arab Emirates in February 2022.
The ECTA is expected to increase trade between the two sides to US $45-50 Billion from the current US $27 Billion and create around a million additional jobs.
Under this agreement tariffs will be exempted on more than 85% of Australian goods exported to India, the value of which can be estimated to be around $12.6 Billion. This means that more than 85% of Australian exports of goods like coal, sheep, meet and wool will get 0-duty access to Indian markets, and in return, Australia has allowed for 0-duty access to 96% of Indian exports of goods such as wine, lentils and almonds.
India has been granted preferential market access for 98.3% of its tariff lines to Australian markets under the ECTA, with the rest 1.7% market access to be worked out in the following five years.
Preferential market access can be understood as a policy consecrating a comparative advantage to certain nations over others in the way of lowering tariffs for exports from some nations in comparison to others. This is synonymous with the “Most Favored Nation” Principle (A rule that states that no country can treat another one differently because of their differences in status or by offering special tariff rights to a country that benefits them politically).
A tariff line is a specific duty rate assigned to one or more items within a product group. Hence, the fact that Australia is offering 100% duty elimination of its tariff lines means the extra duty rate assigned to importable goods, will soon be eliminated.
This agreement has been described as a “Win-Win” for both countries. But to justify this statement, we also need to look at the other side of the coin, that is, the benefits to Australia from this agreement. Aside from reaping the increased trade benefit between the two countries, Australian services will get the negative list treatment after five years.
Many international investment agreements still use the negative and positive list approach. The negative list approach means that the areas wherein the country will not be treating imported and locally produced goods or services equally will be on the list, or the negative list as exceptions. After five years, Australia is set to receive the negative list treatment for its services exports to India.
The agreement will also increase pharmaceutical exports, which is incredibly beneficial for India considering pharmaceuticals are one of the largest exportable commodities from India to Australia, second only to petroleum. The reason why the exports of these medications particularly will show a massive increase is that, under this agreement, the medicaments which have already received approval in the UK and the US will be eligible for instantaneous export to Australia as well, thus indicating no further scrutiny.
Another major change brought under the purview of this agreement is the elimination of discrepancies in the Double Tax Avoidance Agreement regarding which there was no domestic provision in Australia, thus leading to a tax to be levied on remittances being sent; now this law has been altered thus removing this incompatibility and allowing the IT Sector to earn higher profits.
This agreement is a turning point not only for India and Australia’s existing bilateral relations but also for India historically as this is the first mutually beneficial agreement that has been signed by India with a developed modern economy in over a decade.
The seamless implementation of the agreement demonstrates a mutual understanding between the two nations and garners praise and recognition for Prime Minister Narendra Modi and his Australian counterpart, Prime Minister Anthony Albanese. The success of this diplomatic dialogue is largely attributed to the effective leadership and valuable input from Commerce Minister Piyush Goyal and his Australian counterpart, Trade, Tourism, and Investment Minister Don Farrell. Their commendable efforts need to be complemented in this endeavour.
In the past, every agreement India reached either positioned it as the minority beneficiary or turned out to be detrimental to the country. In stark contrast to this, the IND-AUS deal creates provisions that in no way encourage the benefit of one at the expense of the other while also taking into account the different stature of both countries—one is an emerging economy while the other is fully developed. As a result, the deal is favourable for both nations equally.
Despite political changes in Australia, which could have rendered it meaningless, this agreement was completed in harmony. The pact had been discussed with the opposing Labour Party rather than the ruling Liberal Party of Australia. Thus, the execution of the deal was precariously balanced on the Labour Party’s coming to power in May 2022 following negotiations and implementation carried out by them on April 22, 2022. This fact alone demonstrates how skillfully and coherently both countries negotiated their terms.
This FTA has liberalised trade in the most absolute way possible, eliminating most protectionist measures except some; to protect the interests of Indian cattle and dairy farmers, agricultural and dairy products have been excluded from the agreement. Since these were the most sensitive sectors of India owing to nearly 50-55% of the Indian population depends on agriculture for sustenance. Concurrently, Australia had never signed a deal without these two sectors hence their exclusion from all offers made by India to Australia in providing open market access stood as a bone of contention between the two countries.
Achieving this exclusion to protect Indian livelihood, attaining Most Favored Nation status for 135 major service sectors and around 120 sub-sectors in addition to the many other attributes of this deal mentioned in the article have evinced this deal to be the most lucrative and solicitous treaty between the two nations, proving to be a free trade agreement in the most righteous sense.
- Ministry of Commerce & Industry: PIB Release
- WORLD TRADE ORGANIZATION: Modalities for Pre-establishment Commitments
- India country brief: Australian Government: Department of Foreign Affairs and Trade
- Centre for Australia-India Relations: Australian Government: Department of Foreign Affairs and Trade
- India-Australia ECTA is a landmark in bilateral relations and will deepen ties
- India-Australia ECTA comes into force https://www.newdelhitimes.com/india-australia-ecta-comes-into-force/
- ECTA: A game changer to bilateral trade between India and Australia
Nayana is a Research Intern at IMPRI.
Read more by the author: Alterations Brought in by the National Education Policy Through the National Curriculum Framework.