India and Australia signed an Economic Co-operation and Trade Agreement (ECTA) on Saturday in the presence of Prime Minister Narendra Modi and his counterpart in Canberra Scott Morrison, with an eye on doubling bilateral trade to $50 billion in five years and ease movement of people, goods and services across borders.
The agreement with Australia, which Commerce and Industry Minister Piyush Goyal expects would create 10 lakh additional jobs in the country over the next five years, was described as a ‘watershed moment in bilateral ties’ by Mr. Modi.
“On the basis of this agreement, together, we will be able to increase the resilience of supply chains, and also contribute to the stability of the Indo-Pacific region,” he said about the deal that will facilitate work visas for two to four years for Indian students in Australia on a ‘reciprocal basis’ and allow Indian chefs and yoga professionals to work Down Under.
The trade and economic partnership deal with Australia, which is in the midst of a protracted trade battle with China, is a significant milestone at a time when the developed world is looking to hedge its supply chain dependence. A government statement noted that this is also the first such pact signed by India with a developed country in a decade.
Mr. Morrison said the deal “opens a big door into the world’s fastest growing major economy for Australian farmers, manufacturers, producers and so many more”.
Indian exports to Australia have been growing at a rapid clip and the agreement, which may be expanded further after its implementation in the current form, will facilitate zero duty access “on over 96% of Indian exports, including several labour-intensive industries,” Mr. Goyal said.
India will, in turn, offer preferential access to Australia on over 70% of its tariff lines on goods imports, including ‘lines of export interest to Australia which are primarily raw materials and intermediaries such as coal, mineral ores and wines, etc.’, the Commerce Ministry said.
In a joint statement with Mr. Morrison, Australia’s trade, tourism and industry minister Dan Trehan said: “Tariffs will be eliminated on more than 85% of Australian goods exports to India (valued at more than $12.6 billion a year), rising to almost 91% (valued at $13.4 billion) over 10 years.”
Poll worries and safeguards
Talks with Australia for a possible trade and economic partnership pact had begun about a decade ago, but were aborted after a previous regime in Canberra asked India to join the Regional Comprehensive Economic Partnership instead. After India refused to join the RCEP, negotiations were stalled. Fresh parleys between the two sides began last September after Mr. Trehan visited India.
Australia, which goes to polls this year, has agreed to amend its tax laws to resolve India’s long-standing complaint that its firms providing technical services in the country are taxed on their offshore income. Both trade ministers said the electoral cycle will not impact the trade pact.
“Elections will come and go. I think nations survive beyond elections… In fact, my own party came into government in 2014. And I can share with you we never went back on a single decision concluded and finalised by the previous government,” said Mr. Goyal, stressing that both the countries’ governments work for the benefit of the people in national interest and their decisions are ‘permanent’.
With a rich repertoire of vineyards in Yarra Valley and beyond, Australia will now be able to export wine bottles of 750 ml, costing over $5 dollars, to India at a concessional import duty and the countries have agreed to set up a Joint Dialogue to work together on Wine-related trade issues. A working group will also be set up to resolve issues related to bilateral trade in whisky and other alcoholic beverages.
The Commerce Ministry said the agreement provides adequate safeguards to prevent circumvention and protect against a sudden surge in import of goods. It also said this is the first trade deal which includes a compulsory review mechanism after 15 years.
This is the second economic partnership pact signed within a week, following a similar deal with the United Arab Emirates last week. Mr. Goyal said more such deals are in the offing as India looks to accelerate its exports growth after crossing a record $400 billion in 2021-22.
“We are in very active dialogue with the United Kingdom, Canada, and have agreed to work on an interim agreement with both that can be done faster, followed by a comprehensive arrangement,” he said.
Talks with the European Union that began in July 2021 are also moving ahead with Commerce Secretary BVR Subrahmanyam expected to be in Brussels next week to firm up the timelines and scope of agreement.
“We are also in dialogue with Israel and we have received interest from the Gulf Co-operation Council to bring together all the six nations into a Comprehensive Economic Partnership with us,” the Minister noted.