The promise of a better tomorrow for bilateral trade between India and Australia

Author: Ojasvi Nautiyal, Legal Associate

India and Australia signed the Economic Cooperation and Trade Agreement (ECTA) on 2nd April 2022, which is an interim trade agreement to boost trade, before the two nations agree on a more comprehensive economic trade agreement. India and Australia commenced negotiations in 2010 for a trade agreement covering trade in goods, services and related issues. The negotiations consisted of nine rounds with the first round of negotiations held in July 2011 but were suspended in 2015 in light of trade negotiations for RCEP. However, with India exiting the RCEP negotiations, trade negotiations with Australia resumed during the 17th India-Australia Joint Ministerial Commission on 30th September 2021. This resulted in the fruition of an interim free trade agreement. It is interesting to note that having exited the RCEP negotiations, India has secured trade agreements with all countries which were party to the RCEP such as ASEAN, Japan, South Korea and Australia, with the exception of only China and New Zealand.

Australia is one of the largest trade partners for India, with the total trade amounting to US$ 20.4 billion in the year 2020-21. While trade in goods amounted to US$ 12.3 billion, trade in services amounted to US$ 8.1 billion. However, India faces a trade deficit of US$ 7.8 billion in its bilateral trade with Australia.

Details Value (US$ billion)
India’s exports to Australia 6.3
India’s imports from Australia 14.1
Total trade with Australia 20.4
Trade deficit with Australia -7.8

Salient features of the agreement

  • India and Australia have agreed to lower or eliminate tariffs in most cases and to increase market access for their products.
  • Australia has agreed to eliminate taxes on 100% tariff lines of goods exported from India, with immediate tariff elimination of 96.4% of tariff lines (comprising of 98% of all exports from India).
  • In exchange, India has offered tariff elimination on 70% of tariff lines from Australia, with immediate tariff elimination on 40% tariff lines.
  • India has been able to shield its dairy and agriculture sector from any possible threats from Australian exports. All dairy products and major agricultural products such as wheat, rice, maize, bajra, certain fruits and vegetables have been kept in the elimination list of the tariff schedule and thus, there will be no tariff reduction on the said products.
  • In addition to reduction in tariffs, the scope of ECTA also includes availability of trade remedial measures, reduction in technical barriers to trade, simplification in temporary movement of natural persons along with the specific rules of origin and customs procedures.
  • India and Australia have also agreed to recognise the regulatory certificates issued by the regulatory authorities in accordance with laws in each country, for prescription medicines as well as medical devices.
  • The agreement also provides the rules of origin, for availing benefit of concessions. The rules provide for a manner of quantifying value addition based on not less than 35% of the FOB value as per build-up formula or 45% of the FOB value calculated as per build-down formula, along with a change in sub-tariff classification.
  • In case the concessions lead to an increase in imports, leading to serious injury to the domestic industry of the importing country, the importing country would also be allowed to imposed bilateral safeguard measures, in addition to the existing trade remedial measures such as anti-dumping, anti-subsidy and safeguard measures.

Where does India stand to gain

  • India is the seventh largest trade partner for Australia. India’s major exports to Australia comprise of oil and petroleum, pharmaceuticals, diamonds and jewellery, machinery and mechanical appliances, iron and steel and textiles and clothing.
  • In addition to the above, India has major potential to export motor vehicles, pneumatic rubber tyres and ceramic tiles to Australia, of which India has only tapped into less than 20% of its export potential.
  • India is also a major exporter of services. Indian exports in the services sector majorly relate to travel, telecom, computer governmental and financial services.
  • India imports significant volume of coal from Australia, which is a major source of thermal energy for the Indian industry. Once the agreement comes into force, tariff on coal would be reduced from 2.5% at present to 0%, which would fulfil the demand-supply gap in the country as well as reduce costs.
  • The concessions with regard to regulatory requirements in the pharmaceutical sector is also of major importance to India as pharmaceutical exports account for a major share in the total exports from India.

The India-Australia ECTA is expected to boost trade between the nations, which is anticipated to reach US$ 45-50 billion in the next five years. Both nations are also in the process of negotiating a Comprehensive Economic Partnership Agreement, which is expected to be finalised in the next 12-18 months. As India moves towards becoming a major global exporter of goods and services, the ECTA can be a favourable step for the Indian industry, which can gain immensely from the agreement by increasing their markets and tilting the trade balance in their favour.