India-Australia Trade Agreement

The Australian Parliament has ratified the Economic Cooperation and Trade Agreement (ECTA) with India. This pact has been seen as an opportunity for growing Indian Businesses.

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 liberalize and deepen bilateral trade in goods and services, and to then use this foundation to resume negotiations on the more ambitious CECA.

The India-Australia ECTA:

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

• 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 labor-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, aluminum, power, engineering, and so on.
• Change in Perceptions for India: The recent trade agreement will also assist in changing perceptions in the developed world which has always typecast India as ‘protectionist’ and address skepticism around India’s openness to do business with the world.

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.
• Facilitate global stance: Many recent mega-economic treaties such as the RCEP Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) include chapters on investment protection.
• Stronger Indo-Pacific: Strong Australia-India economic ties will also pave the way for a stronger Indo-Pacific economic architecture, that’s not just based on flows of physical goods, money, and people, but on the basis of building capacity-led connections, complementarities, sustainable commitments, and mutual dependence across countries and sub-regions.