The recent noteworthy event in international trade is India’s signing of a historic trade agreement with Australia. This agreement, known as the India-Australia Economic Cooperation and Trade Agreement (Ind- Aus ECTA), was formally announced in February 2022, and negotiations were re-launched in September the same year. This article discusses the various aspects and significance of this agreement.
The Economic Cooperation and Trade Agreement Explained
The Ind- Aus ECTA represents the first Free Trade Agreement (FTA) that India has signed with a majorly developed country in over a decade. The main aim of this agreement is to broaden the economic and commercial relations between India and Australia. The areas covered under this agreement include Trade in Goods, Trade in Services, Technical Barriers to Trade, Dispute Settlement, Movement of Natural Persons, Customs Procedures, and more.
An institutional mechanism is set up under the ECTA to enhance trade between the two countries. India will enjoy the benefit of the preferential market access provided by Australia on all its tariff lines. This includes all labour-intensive sectors of export interest to India. Conversely, India will offer preferential access to Australia on over 70% of its tariff lines.
Additionally, the ECTA also provides education benefits to Indian graduates from STEM fields. Moreover, Australia will set up a visa grant programme for young Indians looking to pursue working holidays in Australia.
The Significance of the Agreement
The newly signed agreement offers many significant benefits. It provides zero-duty access to 96% of India’s exports to Australia, including shipments from key sectors such as engineering goods, gems and jewellery, textiles, apparel, and leather. It is predicted to boost bilateral trade in goods and services to USD 45-50 billion over five years.
On Australia’s end, about 85% of its exports will have zero-duty access to the Indian market. This includes coal, sheep meat and wool, and lower duty access on Australian wines, almonds, lentils, and certain fruits.
Understanding Free Trade Agreements
Free trade agreements are pacts between two or more nations for reducing barriers to imports and exports among them. Through a free trade policy, goods and services can be sold across international borders with little to no government tariffs, quotas, subsidies, or prohibitions against their exchange.
Free Trade Agreements can be categorized as Preferential Trade Agreement, Comprehensive Economic Cooperation Agreement (CECA), and Comprehensive Economic Partnership Agreement (CEPA).
India- Australia Trade Relation Overview
India and Australia share a robust trade relationship that has seen a significant evolution over time. The ties are characterized by shared values, pluralistic democracies, expanding economic engagement, and long-standing people-to-people connections.
In terms of trade, Australia is the 17th largest trading partner of India, while India is Australia’s 9th largest trading partner. According to data, India-Australia bilateral trade for both merchandise and services was valued at USD 27.5 billion in 2021.
Apart from this, both countries are part of the Supply Chain Resilience Initiative (SCRI) alongside Japan, enhancing supply chain resilience in the Indo-Pacific Region. They are also members of the QUAD grouping to enhance cooperation and develop partnership over several common issues.
The Way Forward
The shared values, interests, geography, and objectives form the basis of India-Australia ties. Both countries share a vision of a free, open, inclusive, and rules-based Indo-Pacific region. The ECTA signed between India and Australia will strengthen the bilateral relations and significantly enhance trade in goods and services, thereby improving the well-being of both nations’ citizens.