Australia-India trade deal: early harvest or cherry picking?

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There is renewed optimism around the most recent efforts to relaunch the Australia-India Comprehensive Economic Cooperation Agreement (ECSC) led by Australian Trade, Tourism and Investment Minister Dan Tehan and his Indian counterpart, Minister of Trade and Industry Piyush Goyal.

With little progress to show after ten years of negotiations, many have been tempted to cancel prospects for a successful deal.

In their joint statement on August 27, the two ministers aimed for an “early harvest” announcement by December, in effect an interim deal that would pave the way for a “balanced” and comprehensive deal going forward.

For Australia, the logic behind an agreement with India is obvious. Improved and legally binding access to such a large market would offer clear economic benefits, especially for exports of commodities and services. India is the last of the main Australian markets in the Indo-Pacific region where trade is still conducted on non-preferential terms.

India has been less enthusiastic, but two key factors are breathing new life into the ECSC negotiations.

First, the rivalry between the United States and China, as well as India’s own concerns with China, prompted India to expand its strategic and economic partnerships to protect itself against future risks.

As the recent Australia-India 2 + 2 Ministerial Talks have shown, a surge is underway in bilateral defense ties, moving towards a high-trust strategic relationship.

Developments on the economic front are also to be noted. Relying on Prime Minister Narendra Modi’s “Make in India” program, India is accelerating its industrial and technological autonomy. Borrowing from China’s development agenda, it intends to boost investment in sectors critical to economic growth and industrial sovereignty, including high-tech manufacturing.

And although they come from different starting points, Australia and India are focused on diversifying their trade and investment relationships. A deal with India would be an important victory for the Morrison government’s trade diversification program.

Any assessment of India’s trade policy directions must be firmly grounded in reality.

Second, the economic blow to the Indian economy caused by Covid-19 has led India to focus heavily on identifying new markets to support its post-pandemic recovery. India prioritizes access to important markets. Some in India have spoken openly about the opportunities for India in China’s economic coercion campaign against Australia.

These are positive elements, but any assessment of India’s trade policy directions must be firmly grounded in reality.

The recent Indian trade policy scoreboard is not reassuring; he withdrew from the negotiations for the Regional Comprehensive Economic Partnership (RCEP); it renegotiated a number of its free trade agreements; it has terminated most of its bilateral investment agreements; and he failed to strike a much-vaunted mini economic deal with the United States. Its obstructionist position within the World Trade Organization has remained unchanged.

Nationally, India has imposed prohibitive tariffs in several sectors and introduced a series of incentives to attract relocation and investment.

While many believed India would ultimately avoid the stigma of moving away from RCEP given its importance to the Association of Southeast Asian Nations and the region at large – especially given flexibilities important aspects of the deal – the optimists were wrong.

While the prospects for an early harvest deal between Australia and India are bright, the challenge will be to develop a package that is commercially meaningful, but that does not reduce the prospects for a comprehensive deal in the future.

The first harvests in trade negotiations are politically attractive, but often difficult to achieve. Professional negotiators prefer the “single undertaking” model of negotiation – in which nothing is agreed until everything is agreed. This model avoids choosing among the market access element to ensure the preservation of maximum scope to achieve a balanced and comprehensive agreement.

Market access issues figured prominently in the deadlock in the ECSC negotiations, in particular agriculture and services. Access to agricultural markets is Australia’s top priority in the negotiations, but India has been reluctant to make concessions that could lead to disruption in a sector that accounts for around 40 percent of employment in India. India.

For its part, India’s main interest has been the liberalization of “mode 4” services, particularly the short-term entry of businessmen. India argued that Australia’s regime for short-term business visitors is an obstacle to India’s service exports. Australia pushed back on those requests, reflecting concerns about the potential impact on the labor market.

The tone of pragmatism on the Australian side was unmistakable in Tehan-Goyal’s statement, which omitted any reference to “ambitious,” a strong perennial in most Australian statements of goals in FTA negotiations.

But given the high stakes for agriculture and services, it seems overkill on either side to ditch a key trading coin in an early harvest package.

It is more likely that the early harvest will be fueled by the economic strategies of the respective countries, for example in trade facilitation issues such as FinTech, investment promotion, critical minerals and skills, education and Capacity Building.

In any objective analysis, there is considerable scope for win-win outcomes on these issues, but trade negotiations are a hotly contested trade of concessions. Fragility is inevitably part of it, and given what is at stake, the current talks are unlikely to go smoothly.

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