ECTA expected to boost Australia

Author: Biswajit Dhar, JNU

In 2022, India and Australia signed the Economic Cooperation and Trade Agreement (ECTA), an early harvest agreement and a forerunner of the Comprehensive Economic Cooperation Agreement (CECA), which the two partners have been negotiating since 2011.

The CECA negotiations were suspended in 2015 but in 2021 the Indian government decided to revive several stalled bilateral trade negotiations, including with Australia. The decision to sign the ECTA was part of this re-engagement.

Despite their trade negotiations stalling, relations between India and Australia have strengthened over the last decade. The revival of the Quadrilateral Security Dialogue, or the Quad, in 2017 provided an important platform through which the two countries deepened their engagement. The Australian government's view was reflected in its 2017 Foreign Policy White Paper, according to which ‘India now sits in the front rank of Australia's international partnerships’. The formalisation of the ECTA and the prospect of an early conclusion of the CECA were important steps for Australia–India relations.

With the ECTA coming into force on 29 December 2022, there were high expectations that Australia–India trade would receive a major boost. While Australia expects India to emerge as its second largest trade partner after China, up from sixth in 2021–22, India expects its bilateral trade with Australia to double within five years of the implementation of the ECTA.

These projections are backed by two facts. First, Australia–India trade has witnessed a greater degree of buoyancy in the recent past. Second, commitments taken by the two countries under the ECTA, in both goods and services, provide excellent bases for bilateral trade expansion.

Statistics provided by Australia's Department of Foreign Affairs and Trade show that between fiscal years 2016–17 and 2021–22, Australia–India trade in goods and services increased from US$25.6 billion to nearly US$46 billion, or by a compounded annual growth rate of over 12.5 per cent. In 2021–22, India accounted for 4.4 per cent of Australia's total trade in goods and services, up from 3.5 per cent five years earlier. This was in sharp contrast with the trend in the first half of the previous decade, when India's share of Australia's total trade had consistently declined.

Australia has also emerged as a more significant trade partner for India during the past five years. During fiscal year 2018–19, Australia's share of India's total trade was 1.6 per cent, which increased to 2.4 per cent in 2021–22. But during 2022–23, this growth trend was reversed on account of reduced exports from India.

The commitments taken by the two partners suggest that the ECTA provides a good platform for taking India–Australia trade to the next level. Australia eliminated tariffs on 98 per cent of its tariff lines when the agreement came into force at the end of 2022 and will eliminate tariffs on the remaining lines within five years. India eliminated tariffs on 40 per cent of its tariff lines and will eliminate tariffs on another 30 per cent of its tariff lines in a phased manner over the next seven years.

The more important aspect of India's offer is its commitment to enhance imports of several products that are commercially important for Australian businesses, including sheep meat, wool, fresh rock lobsters, coal, alumina, titanium dioxide and certain critical minerals. India has also provided a duty-free quota for facilitating cotton imports, and has slashed tariffs on lentils, almonds, oranges, mandarins and pears.

Expanding the range of products that India imports from Australia could make a two-fold contribution to bilateral trade relations. First, it could lead to a diversification of India's import basket, as coal accounted for 82 per cent of total imports in 2022. Second, Australia is currently India's 13th largest import source, and this position has the potential to significantly improve.

Enhancing India's exports is also vitally important for deepening trade ties. This could be realised through larger export volumes of pharmaceuticals and textiles and garments — sectors in which India has a competitive edge. Pharmaceutical exports should benefit from the decision made by India and Australia to ensure that their drug regulators will work in close coordination to ‘facilitate trade in human prescription medicines and medical devices’. India's electronics industry could also play an important role in increasing the country's footprint in Australia, given its robust export performance over the past two years.

The ECTA should bolster services trade between the two countries, particularly due to commitments in the agreement covering the movement of natural persons under Mode 4 of the General Agreement on Trade in Services and in the category of professional services. The former is one of India's main areas of interest and Australia has responded positively by allowing several categories of professionals to access its market in 26 sectors.

The agreement on professional services should support Mode 4 access, particularly as a result of the decision to develop systems for ‘recognising professional qualifications and experience, registration and licensing of professionals, including through mutual recognition or similar arrangements’.

These commitments could significantly expand the presence of Indian businesses in Australian market.

Biswajit Dhar is Professor at the Centre for Economic Studies and Planning in the School of Social Sciences at Jawaharlal Nehru University.

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