01-January-2025-Editorial

INDIA-AUSTRALIA ECONOMIC COOPERATION AND TRADE AGREEMENT (IND-AUS ECTA)

The India-Australia Economic Cooperation and Trade Agreement (Ind-Aus ECTA) has completed two years, marking significant strides in the bilateral economic relationship between the two nations.

Since its implementation, both countries have experienced a surge in trade and economic cooperation, with a goal to increase bilateral trade to AUD 100 billion by 2030.

What is the Ind-Aus ECTA?

The Ind-Aus ECTA was signed in April 2022 and ratified by both India and Australia by November 2022.

This agreement aims to boost economic integration by reducing trade barriers, encouraging service exchanges, and promoting investment between the two nations.

Key Features of the Ind-Aus ECTA

Tariff Reductions

• Australian Exports to India: Over 85% of Australian goods can now be exported to India tariff-free, with this increasing to 90% by 2026.
• Indian Exports to Australia: 96% of Indian imports to Australia are now tariff-free, with the goal of 100% tariff-free imports by 2026.
• These tariff reductions aim to make raw materials cheaper, enhance global competitiveness, and lower consumer costs in both countries.

Market Access

• India gains preferential access to Australia’s fast-growing market, benefiting from Australia’s 1.4-billion-person market.
• Australia secures access to India’s diverse labor-intensive sectors such as gems and jewelry, textiles, leather, food, and agriculture.

Services Exchange

• The agreement includes commitments across 135 sub-sectors in services, covering business services, construction, and engineering.
• India secures market access to 103 sub-sectors in Australia and Most Favoured Nation (MFN) status in 31 sub-sectors.

Pharmaceuticals and IT

• The agreement fast-tracks the approval of medicines and eliminates double taxation for India’s IT sector.
• These provisions provide India’s IT companies with a competitive edge and significant cost savings.

Job Creation and Skill Exchange

• The agreement is expected to generate 1 million jobs in India, benefiting sectors like yoga, hospitality, and education.
• Indian professionals such as yoga teachers and chefs will find new opportunities in Australia, while 100,000 students will have access to post-study work visas.

Geopolitical Significance

• The ECTA strengthens bilateral relations, advancing cooperation in strategic groups such as the Quad, Indo-Pacific Economic Framework for Prosperity (IPEF), and the Supply Chain Resilience Initiative (SCRI), aligning both nations’ economic and geopolitical interests.

Evolution of Bilateral Trade Under Ind-Aus ECTA

Trade Growth

• Since the agreement’s implementation, bilateral trade has more than doubled.
• Merchandise trade increased from USD 12.2 billion in 2020-21 to USD 26 billion in 2022-23.
• For the first eight months of 2024, total merchandise trade reached USD 16.3 billion, showing a robust trade partnership.

Utilization of Export and Import Preferences

• Export Utilization: India’s utilization of preferential export terms stands at 79%.
• Import Utilization: Australia’s use of preferential import terms is slightly higher at 84%.

Sectoral Growth

• Several sectors have benefited, including textiles, chemicals, and agriculture.
• Exports have diversified, with products like gold studded with diamonds and turbojets emerging as new trade categories.

Raw Materials Trade

• India’s imports of raw materials such as metalliferous ores, cotton, and wood have helped fuel its industries, showcasing the complementary nature of the bilateral trade.

Future Vision for India-Australia Economic Relations

Comprehensive Economic Cooperation Agreement (CECA)

• Building upon the success of the ECTA, the two countries are working on the India-Australia CECA.
• CECA aim to advance the trade relationship through ten formal rounds of discussions and multiple inter-sessional talks.

Trade Target

• Both India and Australia have set an ambitious target to raise bilateral trade to AUD 100 billion by 2030.
• This target demonstrates their shared commitment to further strengthening economic ties and fostering mutual prosperity.

Global Economic Impact

• By focusing on deeper economic integration, India and Australia aim to create a more resilient and dynamic global economy, contributing to global trade stability and cooperation.

Other Trade Agreements Between India and Australia

• Double Taxation Avoidance Agreement (DTAA): Signed in 1991, this agreement prevents the double taxation of income earned in both countries, reducing tax burdens and easing cross-border business operations.
• Bilateral Investment Treaty (BIT): India terminated the 1994 BIT in 2017, and both countries are exploring a new investment treaty to safeguard and promote investments.
• Sector-Specific Agreements: Several Memoranda of Understanding (MoUs) exist in sectors like education, defense, science and technology, and agriculture, facilitating collaboration and knowledge exchange.

Challenges in India-Australia Trade

Export Competitiveness

• Despite complementary trade profiles, India’s export competitiveness in Australia is lower compared to other global markets.
• India’s exports in regions like Saudi Arabia and Sri Lanka are more competitive than in Australia, which remains geographically distant.

Non-Tariff Barriers (NTBs)

• India faces Non-Tariff Barriers (NTBs), with 32% of these arising from Sanitary and Phyto-Sanitary (SPS) measures in Australia.
• SPS measures are designed to ensure that food products and other traded goods do not carry pests or harmful substances.

Lack of Comprehensive Free Trade Agreement (FTA)

• Existing agreements do not fully address issues such as government procurement, digital trade, and rules of origin, leaving gaps in the trade framework.

Upcoming Federal Elections in Australia

• The upcoming 2025 federal elections in Australia have slowed the progress of the CECA negotiations, potentially delaying resolutions to trade challenges.

Way Forward

• Leveraging Strategic Partnerships: India and Australia should continue strengthening their cooperation within frameworks like the Quad to enhance trade resilience and supply chain diversification.
• Finalization of CECA: Negotiations for CECA should be expedited to address gaps in digital trade, government procurement, rules of origin, and intellectual property, creating a more comprehensive trade agreement.
• Encouraging Investment: A new Bilateral Investment Treaty (BIT) should be finalized to protect investments and foster innovation between both nations.
• Addressing Non-Tariff Barriers: The two nations should work on tackling NTBs by negotiating Mutual Recognition Agreements (MRAs) to simplify compliance and improve export efficiency.

Conclusion

The Ind-Aus ECTA has proven to be a game-changer in strengthening the economic partnership between India and Australia. As both nations work towards further trade agreements like the CECA, their shared vision of achieving AUD 100 billion in bilateral trade by 2030 shows their commitment to deepening economic cooperation. Addressing challenges such as export competitiveness and non-tariff barriers will be crucial in unlocking the full potential of this partnership.