New Delhi, Apr 02 (ANI): Union Minister of Commerce and Industry Piyush Goyal and Australian Trade Minister Dan Trehan show the virtually signed agreement of the India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA) witnessed by Prime Minister Narendra Modi and Australian Prime Minister Scott Morrison, in New Delhi on Saturday. (ANI Photo)
NEW DELHI: Earlier this month, India and Australia signed a landmark bilateral trade pact called the Economic Cooperation and Trade Agreement (ECTA) on 2 April. This was India's second such trade agreement in 2022 after inking a similar deal with the United Arab Emirates in February.
The ECTA is expected to increase trade between the two sides to $45-50 billion over five years, from the current estimate of $27 billion, and create over 10 lakh additional jobs.
It is a win-win for both partners because it will ensure uninterrupted supply of key raw material to Indian industries, while Australia will get access to a more reliable alternative to China, which has been resorting to sanctions on Australian exports including coal, beef, seafood, wine and barley.
Up until now, China has dominated the Australian market for leather goods, footwear, toys, pharmaceuticals, textiles, plastics. Now the India-Australia Economic Cooperation and Trade Agreement could make India a reliable alternative. Largely, India imports key raw materials from Australia and exports finished products.
According to India’s commerce minister Piyush Goyal, India’s manufacturing sector, particularly micro, small and medium enterprises (MSMEs) are interested in the Australian market as the agreement unlocks huge opportunities for Indian exports of automobiles, textiles, footwears and leather products, gems and jewellery, toys and plastic products.
Under this agreement, tariffs will be eliminated on more than 85 per cent of Australian goods exports to India (valued at more than $12.6 billion a year), including coal, sheep meat and wool. India is expected to get zero-duty access to Australia for its goods such as wines, almonds, lentils, and certain fruits over five years. Australian households and businesses will also benefit, with 96 per cent of Indian goods imports entering Australia duty-free on entry into force.
The negotiations had begun over a decade ago in 2011, but were restarted in September 2021.
In 2020, India was Australia’s seventh largest trading partner, with two-way trade valued at $24.3 billion, and sixth largest goods and services export market, valued at $16.9 billion. Australia's goal is to lift India into its top three export markets by 2035, and to make India the third largest destination in Asia for outward Australian investment.
"As India chases an ambitious export target of USD 450-500 by FY23, closing the Australia and UK FTAs would be crucial milestones to achieve by the end of this year. Given that India has already reached an interim agreement with Australia, closure with the UK should also be on the cards with the upcoming visit of Borris Johnson. UK and Australia join a growing list of countries negotiating trade deals with India which includes Russia, Canada, GCC and South Africa. With these initiatives, India is well poised to push the “preferred trade partner” agenda on the global platform which will be a major push for the domestic manufacturing sector in India," said Jayesh Kothari, Associate Partner, DSK Legal.
Benefits of AI ECTA include:
Australia will provide ‘preferential access’ to “all the labour-intensive sectors” of export items from India such as gems and jewellery, textiles, leather, footwear, furniture, food, engineering products, medical devices and automobiles.
The trade pact slashes duties on over 85 per cent of the goods exported to Australia, putting Indian exporters at par with their Chinese counterparts since Australia and China already have a free trade agreement.
ECTA also slashes import duty on a host of raw materials used by Indian exporters.
India can import Australian coal cheaper than earlier. Australian coal constitutes over about 70% of total imports from Australia to India and attracts a 2.5% duty. ECTA will allow zero duty import of Australian coal, which is a key raw material for the steel sector.
Under the agreement, Indian graduates from STEM (Science, Technology, Engineering and Mathematics) will be granted extended post-study work visas from two to three years.
Australia will also set up a programme to grant visas to young Indians looking to pursue working holidays in Australia. Places in Australia's Work and Holiday program will be set at 1,000 per year and Australia will have two years to implement the outcome.
Sheep meat tariffs of 30 per cent will be eliminated on entry into force, providing a boost for Australian exports that already command nearly 20 per cent of India’s market
Wool will have the current 2.5 per cent tariffs eliminated on entry into force, supporting Australia’s second-largest market for wool products.
Tariffs on wine with a minimum import price of US$5 per bottle will be reduced from 150 per cent to 100 per cent on entry into force and subsequently to 50 per cent over 10 years (based on Indian wholesale price index for wine).
Tariffs on wine bottles with minimum import price of US$15 will be reduced from 150 per cent to 75 per cent on entry into force and subsequently to 25 per cent over 10 years (based on Indian wholesale price index for wine).
Tariffs up to 30 per cent on avocados, onions, broad, kidney and adzuki beans, cherries, shelled pistachios, macadamias, cashews in-shell, blueberries, raspberries, blackberries, currants will be eliminated over seven years. India has, however, excluded a number of Australian products from tariff reductions under the agreement to protect “sensitive sectors” including dairy products, wheat, rice, chickpeas, beef, sugar, apples, toys and iron ore.
Tariffs on almonds, lentils, oranges, mandarins, pears, apricots and strawberries will be reduced, improving opportunities for Australia’s horticulture industry to supply India’s growing food demand.
The resources sector will benefit from the elimination of tariffs on entry into force for coal, alumina, metallic ores, including manganese, copper and nickel; and critical minerals including titanium and zirconium.
LNG tariffs will be bound at 0 per cent at entry into force.
Tariffs on pharmaceutical products and certain medical devices will be eliminated over five and seven years.
The agreement also includes strict rules of origin to prevent any routing of products from other countries and provides for a safeguard mechanism to address any sudden surges in imports of a product.
"The said agreement shall remove tariffs on trade like it generally happens under all FTAs. However, it shall benefit Australia’s Agro market as this FTA shall open some of its Agricultural goods market gradually. The FTA shall enhance ability towards travel and work for citizens," said Anushkaa Arora, Principal & Founder, ABA Law Office.
India has over a billion people and Australia’s population is 26 million, the per capita income of Australia is approximately 57,000/- USD, while India’s is approximately 1900/- USD. per person.
"Notwithstanding this divide; the India-Australia ECTA is a win-win opportunity for both economies, as it opens the benefits of scale and thus lower costing to the Australian consumer and the large market Indian of consumers for minerals, produce and wine. From the Indian perspective, the relaxing of visa requirements, opportunities for pharma, dual-degree programs are un-precedented.
This FTA has the right ingredients for success and add to this mix-the geopolitical realities this FTA must succeed. Trade is moving to countries with like-minded values and neither India nor Australia can stay out of these groupings. This is truly an opportunity for India to enter the mainstream of global and take advantage of the ‘China+1’ supply chain opportunity," said Suhail Nathani, Managing Partner, Economic Laws Practice.
