India and Australia took an important step towards concluding the Comprehensive Agreement (ECSC) negotiations by signing an Interim Economic and Trade Cooperation Agreement (IndAus ECTA) on April 2. The comprehensive CECA, aimed at liberalizing and deepening bilateral trade in goods and services, investment and labor flows between the two countries is expected 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 enhance the depth and breadth of economic engagement between the two countries. Under ECTA, Australia will eliminate tariffs on over 96.4% of Indian exports by value (98% by tariff lines), while India will instantly allow duty-free access to 85% of Australian exports, gradually increasing the share to 90%. % over the next decade.
Apart from the elimination or rationalization of tariff barriers, the FTA will also tackle non-tariff barriers such as technical barriers to trade, apart from sanitary and phytosanitary restrictions. Similarly, to promote trade in services, ECTA provides for a broader scope of movement of people, including qualified service providers, investors, students and business visitors. Estimates suggest the trade pact is expected to nearly double bilateral trade (goods and services) from US$27.5 billion in 2021 to US$50 billion over the next five years.
The ECTA IndAus is significant in several respects.
Firstly, it signals India’s renewed interest in bilateral North (developed countries) and South (developing countries) trade pacts as a way to deepen its engagement in the global economy. In recent years, India has mainly focused on South-South bilateral or regional FTAs. ECTA IndAus is the first FTA India has signed with a developed country 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 potentially open the door for India to consider becoming part of the comprehensive Comprehensive Progressive Trans-Pacific Strategic Partnership (CPTPP) agreement in the near future.
Second, recognizing the challenges Covid-like disruptions can pose to labor market outcomes, there has been a distinct attempt to expand economic cooperation between the two countries focusing on employment-intensive areas. Under ECTA, Australia will provide preferential market access for all of its tariff lines, including labour-intensive export sectors such as gemstones and jewellery, textiles , leather, footwear, furniture, food products, agricultural products, engineering products and medical devices. and automobiles, with the potential to create more than one million jobs in the country.
Similarly, India will grant preferential access to Australia on over 70% of its tariff lines, including raw materials and intermediates such as coal and minerals, aimed at reducing input costs in the sector. Indian energy as well as in the manufacturing sector.
Third, given the strategic importance that India holds for Australia’s future growth plans, the ECTA has moved from a ‘positive’ list to a ‘negative’ list in services, in which the India will be able to establish the exceptions to the services that it wants to open up.
At the same time, the pact does a lot in terms of recognizing Indian qualifications in Australia; providing an extended window (between one to four years) for India’s top talent in IT, engineering, math and science to seek employment opportunities after completing their studies in Australia; and the granting of 1,000 working holiday visas for young Indians.
Implicitly, such provisions indicate how broad-based economic cooperation agreements can become powerful tools for achieving mutually beneficial outcomes. In this case, by relaxing visa standards for students and other professionals, Australia can not only harness India’s demographic dividend in its favor, but India also stands to gain in terms of access to external labor markets for its young and ambitious workforce, and the financial flows (remittances) associated with it.
Fourthly, the ECTA, described as an “early” agreement, can be an effective model for concluding agreements with other countries or regions, currently in uncertainty due to disputes over market access in areas of sensitive interest.
One example is the stalled trade talks between India and New Zealand since 2016, which have not been revived since. Significantly, New Zealand is now the only developed country member of RCEP with which India does not have a trade agreement. Although New Zealand views India as a priority relationship, New Zealand’s main sectors of interest for a trade deal, such as dairy and milk products, fruit and apples,
are still on the IndAus ECTA exclusion list, meaning that existing sensitivities from India’s perspective remain.
Notwithstanding the fact that certain products are excluded from its scope, the current ECTA provides an excellent example of how bilateral trade agreements in limbo can be concluded by developing a common minimum program of cooperation focused on geostrategic interests. and shared geoeconomics.
It also provides a clear signal to future FTA partners that India’s FTAs should be seen as a pathway to building a long-term strategic relationship, not just a transactional deal. The ECTA IndAus shows how sectoral concerns need not detract from otherwise rational agreements, and how far-reaching agreements based on mutual gains can still be crafted.
Finally, a quick conclusion from IndAus ECTA signals India’s renewed commitment to the idea of globalization. India’s reluctance to join the Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade deal involving China and 14 other Asia-Pacific countries, citing China’s dominance, has been seen as a regressive step by many global analysts.
Moreover, India’s rhetoric for Atmanirbhar Bharat (spreading self-reliance and import substitution) amid the pandemic has also sent mixed signals to foreign investors as to the intent and commitment of India to open economy principles.
The wide publicity given to the successful conclusion of an “interim” IndAus CECA clearly indicates India’s conscious attempt to redeem its image as a key player in the global economy. At the same time, the rapid conclusion of IndAus ECTA also signals the importance that current RCEP members place on India ~ as an integral part of the global economy, a trusted bilateral partner and a credible alternative to China . India needs to build on this trust and credibility and emerge as a more active participant in global affairs.
(The authors are respectively assistant professor at IIM Ranchi and senior lecturer at AUT University, Auckland, New Zealand. Opinions expressed are personal)