India and Australia have taken a major step towards concluding the Comprehensive Agreement (CECA) negotiations by signing an interim Economic Cooperation and Trade Agreement (IndAus ECTA) on April 2. The full CECA, aiming to liberalise and deepen bilateral trade in goods and services, investments, and labour flows between the two nations, is likely to be concluded by the end of this year. Notably, both countries belong to Quad, the security bloc that also includes Japan and the United States.
Currently, India is Australia’s ninth-largest trading partner, while Australia is India’s 17th largest trading partner – bilateral trade amounting to US$27.5 billion in 2021. The Agreement is likely to improve the depth and breadth of the economic engagement between the two countries. Under ECTA, Australia shall eliminate tariffs on more than 96.4 per cent of Indian exports by value (98 per cent by tariff lines), while India shall instantly permit duty-free access to 85 per cent of Australian exports, gradually increasing the share to 90 per cent over the next decade.
Apart from eliminating or rationalising tariff barriers, the FTA will also address non-tariff barriers such as technical barriers to trade, apart from sanitary and phytosanitary restrictions. Similarly, to promote trade in services, the ECTA provisions for an expanded scope of the movement of people, including skilled service providers, investors, students, and business visitors. Estimates suggest that the trade pact is expected to almost double bilateral trade (merchandise and services) from US$27.5 billion in 2021 to US$50 billion in the next five years.
The IndAus ECTA is significant in several aspects.
First, it signals India’s renewed focus on North (developed)-and South (developing) bilateral trade pacts as a means to boost its engagement with the global economy. Much of India’s focus in the recent past has been more on South-South bilateral or regional FTAs. The IndAus ECTA is the first FTA that India has signed with a developed nation in over a decade. India is currently working on FTAs with other developed countries or regions like the European Union, United Kingdom and Canada. If successful, these bilateral pacts could eventually open the door for India to consider being a part of the larger Comprehensive Progressive Trans-Pacific Strategic Partnership (CPTPP) agreement in the near future.
Second, recognising the challenges that Covid-like disruptions can cause to labour market outcomes, there has been a distinct attempt to broad-base the economic cooperation between the two countries by focusing on high employment-intensive areas. Under ECTA, Australia shall provide preferential market access on all of its tariff lines, including the labour-intensive sectors of export such as gems and jewellery, textiles, leather, footwear, furniture, food, agricultural products, engineering products, and medical products devices, and automobiles, with a potential to create over one million jobs in the country.
Similarly, India shall provide preferential access to Australia on over 70 per cent of its tariff lines, including raw materials and intermediaries such as coal and mineral ores, aimed at reducing costs of inputs in India’s energy sector as well as in manufacturing.
Third, reflective of the strategic importance that India holds for Australia’s future growth plans, the ECTA has made a transition from a ‘positive’ list to a ‘negative’ list in services, wherein India shall be able to lay down the exceptions to services it wants to open up.
At the same time, the pact achieves much in terms of recognising Indian qualifications in Australia; providing an extended window (between one to four years) for top Indian talent in IT, engineering, mathematics and science streams to search for employment opportunities after completing their education in Australia; and granting 1,000 working holiday visas for young Indians.
Implicitly, such provisions signal how broad-based economic cooperation agreements can emerge as powerful tools for achieving mutually beneficial outcomes. In this case, by relaxing visa norms for students and other professionals, Australia can not only harness India’s demographic dividend to its favour, but India too stands to gain in terms of getting access to external labour markets for its young and aspirational labour force, and the associated financial flows (remittances) thereof.
Fourth, the ECTA termed an ‘early-har- vest’ agreement, can be an effective template to conclude agreements with other countries or regions, currently in limbo due to disputes concerning market access in sensitive areas of interest.
A case in point is India’s stalled trade negotiations with New Zealand since 2016, which have since not been revived. Significantly, New Zealand is now the only developed RCEP member country with which India does not have a trade agreement. Although New Zealand views India as a priority relationship, key sectors of New Zealand’s interest in a trade deal, such as dairy and dairy products, fruits and apples,
are still on the exclusion list of the IndAus ECTA, which means existing sensitivities from India’s point of view remain.
Notwithstanding the fact that some products are excluded from its purview, the current ECTA sets an excellent example of how bilateral trade deals in limbo can be concluded by working out a common minimum agenda of cooperation focused on shared geostrategic and geo-economic interests.
It also provides a clear signal for future FTA partners that India’s FTAs should be viewed as a pathway toward building a long-run strategic relationship, and not purely as a transactional deal. The IndAus ECTA demonstrates how sectoral concerns should not be allowed to mar otherwise rational agreements, and how broad-based agreements based on mutual gains can always be worked out.
Finally, an early conclusion of IndAus ECTA signals India’s renewed commitment to the idea of globalisation. India’s reluctance to join the Regional Comprehensive Economic Partnership (RCEP), globally the largest trade agreement involving China and 14 other Asia-Pacific nations, citing China’s dominance, was deemed to be a regressive step by many global analysts.
Moreover, India’s pitch for Atmanirbhar Bharat (propagating self-reliance and import substitution) amid the pandemic also sent conflicting signals to foreign investors about India’s intent and commitment to open-economy principles.
The wide publicity accorded to the successful conclusion of an ‘interim’ IndAus CECA clearly points to India’s conscious attempt to redeem its image as a critical player in the global economy. At the same time, the early conclusion of IndAus ECTA also signals the importance that existing RCEP members bestow on India ~ as an integral part of the global economy, a trustworthy bilateral partner, and a credible alternative to China. India needs to leverage this trust and credibility and emerge as a more active participant in global affairs.
(The writers are, respectively, Assistant Professor at IIM Ranchi, and Senior Lecturer at AUT University, Auckland, New Zealand. The views expressed are personal)