Doubling Bilateral Trade with India – Australia ECTA

India and Australia, both strong, vibrant, multicultural, and secular nations, are examples of important liberal democracies that are shaping the future of the Indo-Pacific region, based on their shared values for rules based on international order and a free and open Indo-Pacific. Besides, India and Australia also are members of the Quad, a trilateral Supply Chain Resilience Initiative (SCRI) and the Indo-Pacific Economic Framework (IPEF). The bilateral relationship between the two has grown both in strength and importance and has made rapid strides in areas of trade, energy and mining, science & technology, information technology, education and defence.

The Indo-Pacific Economic Framework is intended to advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for the economies in the region. This initiative aims to facilitate cooperation, stability, prosperity, development and peace in the region.

Recently, India and Australia signed the ECTA, which was a note-worthy milestone in India Australia bilateral ties. 

The implementation of the Economic Cooperation and Trade Agreement (ECTA) between India and Australia has the potential to double bilateral trade in goods and services to US$ 45 billion in five years. As soon as the ECTA was implemented on 29 December 2022, the provision of zero-duty access to Australia’s market was made available to India. 

Australia will provide zero-duty access to India for 100% of its tariff lines (98.3% tariff lines from day one and the remaining 1.7% in a phased manner in 5 years). This is expected to lead to US$ 10 billion jump in India’s merchandise exports by 2026-27 and would help in creating additional 1 million jobs in India and more job opportunities in Australia. Besides providing cheaper raw materials to many sectors including steel and aluminium from Australia, the ECTA would also facilitate increased investments from Australia and will support Indian manufacturing. 

The major boost for India would be in its labour-intensive sectors, which are currently subject to import duty of 4-5 % by Australia, will gain immediate duty-free access. 

The sectors that would gain immediately are textiles and apparel, leather and footwear, furniture, sports goods, jewellery, machinery, railway wagons and select agricultural and marine products. According to CII, substantial gains are expected in pharmaceuticals whereby drugs approved in other developed jurisdiction will get approval in Australia much faster.

India, on the other hand, is providing zero-duty access to Australia for 70.3% of its tariff lines (40.3% tariff lines from day one and the remaining 30% in a phased manner). India has offered zero duty access on coal, alumina calcined, manganese ore, copper concentrates, bauxite, sheep meat, rock lobster, macadamia nuts, cherries, and wool.

The agreement will open up various opportunities for trade in services. Australia has made wide ranging commitments in around 135 sub sectors with most-favoured nation (MFN) status in around 120 sub-sectors. The major gains are for the Indian IT sector followed by healthcare and education, and service professionals such as yoga teachers and chefs.

It is expected that the ECTA would provide large Indian IT companies the opportunity to increase their involvement in Australian government projects. The deal enables India and Australia to collaborate and develop niche skill sets, provide global digital solutions, and further develop fintech capabilities. 

Another important announcement made by Australian Parliament is the double tax avoidance agreement (DTAA) ratification, along with its trade deal with India. The DTAA may come into force on April 1, 2023. The DTAA is expectedto eventually lead up to USD 1 billion in savings for Indian IT companies operating in Australia. Therefore, Indian IT companies may be able to generate roughly USD 4-8-billion business income from Australia each year.

The ECTA covers major areas of economic cooperation including Trade in Goods, Trade in Services, Rules of Origin, Technical Barriers to Trade (TBT), Sanitary and Phytosanitary (SPS) measures, Customs Procedures and Trade Facilitation, and Trade Remedies besides resolution of some of the legal / institutional Issues and Movement of Natural Persons.

Moving forward, Indian industry looks forward to negotiations for the bilateral Comprehensive Economic Cooperation Agreement (CECA) agreement which may be concluded by September 2023. This will entail negotiations with many sensitive sectors including digital trade, government procurement, labour and environment.

This agreement with Australia not only sends out a positive signal, but also sets the pace for further FTAs with other developed partners like UK, Canada, and EU, which are already on the negotiating table for similar pacts with India. Not only will it increase mutual cooperation but will also significantly contribute to the economic growth and strategic partnership between India and Australia. 

CII observed that the agreement with Australia sends a positive signal and sets the pace for FTAs with other developed partners like UK, Canada, and EU, which are already on the negotiating table for similar pacts with India.   

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