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India-Australia Trade Agreement

  • Published
    26th Nov, 2022
Context

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 aimsto swiftly liberalise and deepen bilateral trade in goods and services, and to then use this foundation to resume negotiations on the more ambitious CECA.
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 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 is central to GVCs.
  • Stronger Indo-Pacific: Strong Australia India economic ties will also pave the way for a stronger Indo-Pacific economic architecture.

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