Last month, India and Australia formalised the Economic Cooperation and Trade Agreement (ECTA), which is intended to be the first step towards a Comprehensive Economic Cooperation Agreement (CECA). This is a much-delayed trade deal, as the negotiations began in 2011 but had stalled in 2015 due to differences between the two countries on a range of issues. Among the contentious issues were market access to Australia in several sectors considered sensitive by India, including grains and dairy products.
The negotiations resumed in 2021 after the Government of India shed its reluctance to engage in free trade agreements (FTAs), a position that it had maintained since 2019 after refusing to join the Regional Comprehensive Economic Partnership (RCEP). However, the government’s position changed in August 2021 when Commerce and Industry Minister Piyush Goyal declared, “We are at a very positive momentum in terms of FTAs.”
Forging an agreement between India and Australia was vital for infusing dynamism in their trade ties for two reasons. First, India-Australia trade has been on a low keel since 2011–12, a trend that was reversed only in 2021–22. Second, two-way trade between the countries has been narrowly focused on fossil fuels: Coal accounted for almost 74% of India’s imports from Australia in 2021, while petroleum products’ share in our exports to the island continent was 48%.
The ECTA could help in broadening and deepening India-Australia trade. Australia has agreed to eliminate tariffs on 98% of its tariff lines when the agreement enters into force. Tariffs will be removed on the remaining lines within five years. In contrast, India will eliminate tariffs on 69% of its tariff lines, while almost 30% are in the exclusion list. Through these commitments, India will reduce its average tariff rate on Australian imports from 14% to about 6% when the ECTA is fully implemented. These commitments augur well for the adoption of the full-fledged trade agreement, the CECA in the near future.
Though India’s tariff offers look conservative, it has agreed to provide significant market access by agreeing to immediately eliminate tariffs on 85% of its imports from Australia. This is commercially significant for Australia as India’s imports in 2021 were over $15 billion. This figure would surely increase as India eliminates tariffs on several products of export interest to Australia, including sheep meat, wool, fresh rock lobsters, metallic ores such as manganese, copper and zirconium, besides coal, alumina, titanium dioxide, certain critical minerals and some non-ferrous metals. Imports of barley, oats, hides and skins, and LNG will remain duty-free as they have been in the past. India will immediately provide a 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 have not met 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 the next five years. This could happen if New Delhi is able to expand its exports of pharmaceuticals and textiles and garments, areas in which it has a competitive edge, and in electronics products like mobile phones, which have lately seen robust increase exports from India. Trade in the 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.
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. However, since most of these sectors belong only to “business services”, as per the Services Sectoral Classification of the WTO, India would be somewhat disappointed that Australia’s offers do not cover sectors like health and education in which it has perceived strengths.
Notwithstanding these shortcomings of the market access commitments, the ECTA promises to take India-Australia economic relations to a distinctly higher level. The Government of India expects that businesses would make the most of market access opportunities offered by the FTAs, including those in the pipeline, given the strong export performance since the beginning of 2021. However, it must be pointed out that in the past, downbeat sentiments against FTAs had quickly taken root since India had failed to increase its exports to its major FTA partners. The reason for this failing was that once FTAs were concluded, the government and the businesses did not develop workable strategies to take full advantage of the opportunities these agreements had offered. Now that the government is feeling optimistic about India’s gains from the FTAs, can it put in place suitable mechanisms to ensure that the projected gains are realised?
Professor, Centre for Economic Studies and Planning, School of Social Sciences, JNU