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India-Australia major trade pact comes into effect

  • Published
    31st Dec, 2022
Context

The Indian Commerce minister has formally operationalised one of the major free trade agreements (FTA) in 2022 – the India-Australia Economic and Cooperation Trade Agreement (Ind-Aus ECTA) – by issuing ‘preferential certificates of origin’ to export consignments related to textiles, jewellery and pharmaceutical sectors in Mumbai.

What are preferential certificates of origin?

  • This type of Certificate of Origin is given towards goods that are subject to preferential tariff treatment in the payment of duties. These duties may be a reduction of the standard tariff, or they also may be a complete exemption from the tariffs.

Background

  • In September 2021, Australia and India formally re-launched CECA negotiations with the intention of concluding an Economic Cooperation and Trade Agreement (AI-ECTA).
  • It aims to swiftly liberalise and deepen bilateral trade in goods and services, and then use this foundation to resume negotiations on the more ambitious CECA.
  • The Australian Parliament ratified it last month and has now come into effect, called the Economic Cooperation and Trade Agreement (ECTA) with India. This pact has been seen as an opportunity for growing Indian Businesses.
About

The India-Australia ECTA:

  • It covers almost all the tariff lines dealt in by India and Australia.

Tariff Lines: It is a product as defined in lists of tariff rates. A specific tariff is a tax imposed directly onto one imported good and does not depend on the value of that imported good. A specific tariff is usually based on the weight or number of imported goods.

  • India will benefit from preferential market access provided by Australia on 100% of its tariff lines.
  • India will be offering preferential access to Australia on over 70% of its tariff lines.
  • Under the agreement, Indian graduates from STEM (Science, Technology, Engineering and Mathematics) will be granted extended post-study work visas.
  • It will provide zero-duty access to 96% of India’s exports to Australia and will give about 85% of Australia’s exports zero-duty access to the Indian market
  • It will boost bilateral trade in goods and services to USD 45-50 billion over five years, up from around USD 27 billion, and generate over one million jobs in India, according to a government estimate.

Significance:

  • Enhanced Exports: Currently, Indian exports face a tariff disadvantage of 4-5% in many labour-intensive sectors vis-à-vis competitors in the Australian market such as China, Thailand, Vietnam, South Korea, Japan, Indonesia and Malaysia.
    • Removing these barriers under the ECTA can enhance India’s merchandise exports significantly.
  • Cheaper Raw Materials: Australian exports to India are more concentrated in raw materials and intermediate products.
    • Due to zero-duty access to 85% of Australian products, many industries in India will get cheaper raw materials and thus become more competitive, particularly in sectors like steel, aluminium, power, engineering and so on.
  • Change in Perceptions for India: It will help to change perceptions of developed countries towards India as ‘protectionist’ and address scepticism around India’s openness to doing business with the world.
  • Elimination of Double taxation on IT services: The Agreement will also eliminate double taxation on IT services which was making us less competitive and making us less profitable in the IT sector.

Impacts on India:

  • Global supply chains get strengthened: India’s rationale for signing a comprehensive economic agreement with these countries is to be part of the global value chains (GVCs), both, trade and foreign investment are central to GVCs.
  • Stronger Indo-Pacific: Strong Australia-India economic ties will also pave the way for a stronger Indo-Pacific economic architecture.
  • Will create jobs and opportunity: The double taxation has now been removed by amending the law and from 1st April 2023, we will save millions and millions of dollars, and going forward, over 5-7 years, the savings will be over a billion dollars, giving us a competitive edge and also creating a lot many jobs.
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