India–Australia trade agreement signifies some movement in Indian strategy
Author: Biswajit Dhar, Jawaharlal Nehru University
In April 2022, India and Australia endorsed the Economic Cooperation and Trade Agreement (ECTA), an ’early harvest agreement’, intended to be the first step towards a Comprehensive Economic Cooperation Agreement (CECA). Agreement on a trade deal between the two countries has been long coming, with negotiations stalled since 2015. In the interim, India and Australia had actively engaged in negotiation of East Asia’s more ambitious economic integration agreement, the Regional Comprehensive Economic Partnership (RCEP), until India’s last minute withdrawal in 2019.
After refusing to join the RCEP, the Government of India had signalled that its global economic engagements had taken a back seat. But in August 2021, the government’s position took a u-turn, when Commerce and Industry Minister, Piyush Goyal declared, ’we are at a very positive momentum in terms of FTAs’. Among the Free Trade Agreements (FTAs) in which the government decided to invest to make the most of the ‘positive momentum’ was the long-stalled India-Australia CECA.
Forging an agreement between India and Australia was vital to overcoming the sluggishness in their trade relations, particularly over the past decade. An additional incentive was the interest in diversifying their trade since India–Australia trade had become increasingly concentrated on fossil fuels. The share of coal in India’s imports from Australia increased from 46 per cent in 2012 to 74 per cent in 2021, while petroleum products’ share in India’s exports to Australia expanded from 10 per cent to 48 per cent.
There is some evidence that the ECTA could provide the impetus for broadening and deepening India–Australia trade. The commitments made by the two countries to opening their respective markets are the beginning of negotiating a proposed full-fledged trade agreement, the CECA.
Australia has agreed to eliminate tariffs on 98 per cent of its tariff lines when the agreement enters into force, eliminating tariffs on the remaining lines within five years. In contrast, India will eliminate tariffs on 69 per cent of its tariff lines, while almost 30 per cent of its tariff lines are in the exclusion list. Through these commitments, India will reduce its average tariff rate on Australian imports from 14 per cent to about 6 per cent when ECTA is fully implemented.
Though India’s tariff offers look conservative, it has agreed to provide significant market access by agreeing to immediately eliminate tariffs on 85 per cent of its imports from Australia. This is commercially significant for Australia as its exports to India in 2021 were over US$15 billion.
This figure should increase with India’s commitments to eliminate tariffs on several products of export interest to Australia, including sheep meat, wool, fresh rock lobsters, metallic ores, certain critical minerals and certain non-ferrous metals. Imports of barley, oats, hides and skins and liquefied natural gas will remain duty-free as they have been in the
ipast. India will immediately provide duty free quota for facilitating cotton imports and has agreed to slash tariffs on lentils, almonds, oranges, mandarins and pears. Despite these offers, India’s current set of market access commitments do not meet the expectations of some of Australia’s major export sectors, which have often been articulated by Dairy Australia and Grain Trade Australia.
India expects its bilateral trade with Australia to double within five years. This could happen if India is able to expand its exports of pharmaceuticals and textiles and garments, areas in which it has a proven competitive edge and in electronics products, like mobile phones, which have lately seen robust export growth. Trade in pharmaceutical sector could benefit from the decision taken as a part of the ECTA that drug regulators in both countries, the Therapeutic Goods Administration of Australia and India’s Central Drugs Standard Control Organisation, will work in close coordination to ’facilitate trade in human prescription medicines and medical devices’.
In the services sector, Australia has responded positively to one of India’s main areas of interest, movement of natural persons under Mode 4, by allowing several categories of professionals to access its market in 26 sectors. But since most of these sectors belong only to ’business services’, as per the Services Sectoral Classification of the World Trade Organization, India will be somewhat disappointed that Australia’s offers do not cover sectors like health and education in which it has perceived strengths.
Although the market access commitments are limited, ECTA has the promise to take India–Australia economic relations to a higher level. It represents a change in direction away from the Government of India’s scepticism about FTAs and a more positive outlook towards these agreements.
The government expects that Indian businesses would take full advantage of the market access opportunities offered by the FTAs, including those in the pipeline, given India’s strong export performance since early 2021. In the past, India had failed to increase its exports to its major FTA partners, resulting in downbeat sentiment about FTAs. They disappointed because, once FTAs were concluded, the government and the businesses did not develop coherent strategies for utilising the opportunities they offered. The hope is that this will change now as both government and business are more bullish about export markets.
Biswajit Dhar is Professor at the Centre for Economic Studies and Planning School of Social Sciences, Jawaharlal Nehru University.