BL Explainer

All about India-Australia Economic Co-operation and Trade Agreement

Amiti Sen | Updated on: Apr 04, 2022

According to government estimates, trade in goods is likely to almost double to $50 billion in five years

How significant is the India-Australia FTA for bilateral trade?

The India-Australia FTA, officially called the Australia-India Economic Cooperation and Trade Agreement, is the first trade agreement signed by India with a developed economy after more than a decade. The pact is expected to give a big push to bilateral trade as it will not only eliminate or lower tariffs on a large number of goods but also address the non-tariff barriers such as technical barriers to trade, apart from sanitary and phytosanitary restrictions.

According to government estimates, trade in goods is likely to almost double to $50 billion in five years from about $27 billion at present. As India is not part of any significant regional trading bloc and most major economies the world over are forging bilateral or regional trade pacts with other countries, it is important for India, too, to sign similar agreements, so that it does not lose out on preferential market share and weaken its export competitiveness.

India is hopeful that the FTA with Australia will give a positive signal to other developed countries such as the UK, Canada and the EU, who are already on the negotiating table for similar pacts with New Delhi. This would show that India means business and is ready to conclude such agreements fast if a balanced deal could be struck.

Is the tariff reduction substantial for both sides?

The India-Australia FTA is an ambitious pact with significant commitments to tariff cuts. Australia will provide zero-duty market access for 96.4 per cent value of Indian exports (98 per cent of tariff lines) on the first day of implementation of the agreement.

Exports of several labour-intensive sectors, currently facing import duty of 4-5 per cent in Australia, will gain from the immediate duty-free access. These include most textiles and apparel, a few agricultural and fish products, leather, footwear, furniture and sports goods, jewellery, engineering goods, and selected pharmaceuticals and medical devices. Tariffs on the remaining 113 tariff lines, amounting to 3.6 per cent of India’s exports, will be phased out in five years.

Australia, too, will gain considerable market access in India with tariffs being eliminated on more than 85 per cent of the Australian goods exports immediately, rising to almost 91 per cent in over 10 years.

While tariffs on items such as wool, sheep meat, coal, alumina, metallic ores, and critical minerals will be immediately reduced to zero, on other products such as avocados, onions, cherries, shelled pistachios, macadamias, cashews in-shell, blueberries, raspberries, blackberries and currants, tariffs will be eliminated over the next few years. Import duties will also be slashed on Australian wines, though not eliminated.

Has India's sensitivities with respect to agriculture and dairy sectors been addressed?

India has managed to completely shield its dairy sector from any tariff reduction under the FTA while excluding most sensitive agriculture items such as chickpeas, walnut, pistachio nut, wheat, rice, bajra, apple, sunflowers seed oil and sugar. Other items in the exclusion list, where no concessions have been extended, include silver, platinum, jewellery, iron ore, and most medical devices.

What are the provisions for services?

Both countries have decided to facilitate the recognition of professional qualifications, licensing, and registration procedures between professional services bodies. In a boost to Science, Technology, Engineering or Mathematics (STEM), and information and communications technology (ICT) sectors, the length of stay for an Indian student with a bachelor’s degree with first-class honours in the areas will be extended from two to three years. Australia will also provide new access for young Indians to participate in working holidays in the country.

How long was the FTA in the making?

The India-Australia FTA negotiations first began in 2011 but they were suspended in 2015 as the talks were stuck over issues such as market access for dairy products in India and visa liberalisation for Indian professionals. The negotiations were resumed in September 2021, and this time around things got done in a record time and the pact was signed in just over six months.

Is there a plan to deepen this agreement in the future?

Yes. Both sides want to deepen the engagement and work towards a Comprehensive Economic Cooperation Agreement (CECA). It has been agreed that within 75 days of the signing of the pact, a negotiating subcommittee will start negotiations on issues including other areas for market access for goods and services, a digital trade chapter, and a government procurement chapter to transform the FTA into a CECA.

Published on April 04, 2022
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