The agreement provides duty-free access to 96% of Indian exports to Australia; it also paves the way for Australian exporters to tap into the Indian market with a consumer population of over a billion

The agreement has a safeguard mechanism which includes stricter rules of origin to prevent any routing of products from a third country. Photo: iStock

The India-Australia Economic and Trade Cooperation Agreement (Ind-Aus ECTA) signed on Saturday, April 2, is expected to boost bilateral trade in goods and services from around $27 billion at present to $45-50 billion. dollars over the next five years and lead to significant job creation.

The agreement was signed by Minister for Trade and Industry Piyush Goyal and Australian Minister for Trade, Tourism and Investment Dan Tehan in a virtual ceremony, attended by Prime Minister Narendra Modi and his Australian counterpart Scott Morrison. “It’s a historic day for our relations and it’s the first deal India has struck with a major developed economy in a decade,” an exuberant Goyal said. Modi remarked, “The trade pact is really a watershed moment for our relationship.”

The agreement has eight chapters — Goods, Services, Rules of Origin, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Customs Procedure and Trade Facilitation, Legal and Institutional Issues and Movement of Natural Persons, and Trade Remedies.

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While the deal has been in sight for months now, what has surprised everyone is its scale. It calls for the immediate elimination of tariffs on more than 85% of Australian goods exported to India; over the next decade, this figure will increase to 91%. A whopping 96% of Indian goods imports will now enter Australia duty free. This must give a boost to labor-intensive sectors in India. Among the surprises is the agreement to liberalize visa standards for students and professionals, including a quota for Indian chiefs and yoga teachers.

First big trade deal in a decade

This is the first major trade agreement India has signed with a major developed country in over a decade. In February, India signed an FTA (free trade agreement) with the United Arab Emirates and is currently working on FTAs ​​with Israel, Canada, the UK and the EU.

The deal provides duty-free access to 96% of Indian exports to Australia, including shipments from sectors such as engineered goods, gems and jewellery, textiles, garments and leather . This covers many products that are currently subject to 4-5% tariffs in Australia.

However, it’s not just India that is making gains. The pact paves the way for Australian exporters to tap into the vast Indian market with a population of over a billion consumers. This, in turn, begs the question: how welcome would the domestic industry be to the influx of cheap imports from Australia?

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Great job creation

For India, the biggest attraction is the generation of manpower promised by the deal. The national MSME (micro, small and medium enterprises) sector has been hit hard by the COVID pandemic, and thousands of jobs have been lost.

Australia’s trade pact covers around 6,000 sectors in India, several of which are MSMEs and labour-intensive sectors, such as textiles and clothing, agricultural and fishery products, leather, footwear, furniture, sporting goods, jewelry, machinery, electrical appliances and railway carriages. . This translates into a significant number of jobs in India.

Goyal pointed out that job creation of around 10 lakh over the next 5-7 years is expected. Since a large portion of the beneficiary industries are MSMEs, employment opportunities are considered particularly good for women, migrant workers and rural youth.

Cheaper raw material

It is expected that since Australian exports to India are mainly raw materials and intermediates, many Indian industries will obtain cheaper raw materials, making them competitive – sectors such as steel, aluminum and textiles.

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Many Indian exports currently face a 4-5% tariff disadvantage in labour-intensive sectors compared to competitors – those with FTAs ​​with Australia, such as China, Thailand and Vietnam. Removing this barrier could significantly increase merchandise exports.

On the very first day of the pact’s implementation, over 6,000 tariff lines would be available to Indian exporters at zero duty. Australia trades around 6,500 tariff lines, while India has over 11,500 tariff lines.

Agricultural production

The agricultural sectors of both countries are seen as major beneficiaries of the agreement. The fact that the two countries are on opposite sides of the equator is a plus. Australia is off-season to India, so when production falls on one side, it is bound to rise on the other. The pact will ensure an adequate supply of agricultural products for both markets, experts said.

The deal will also allow for faster approval of Indian drugs by Australian regulators, as they have agreed to use inspection reports and approvals from Canada and the EU in the process of evaluating pharmaceuticals and drugs. manufacturing facilities in India.

What makes the deal more attractive is that it provides Indian STEM (Science, Technology, Engineering and Mathematics) graduates with extended post-study work visas. Australia will also introduce a visa program for young Indians wishing to spend a working holiday in Australia.

What Australia gains from the deal

Under the deal, around 85% of Australian exports will enjoy zero-duty access to the Indian market, including coal, mutton and wool, and reduced-duty access to Australian wines, almonds, lentils and some fruits. The country should benefit from duty-free access to coal; coal currently accounts for around 74% of Australia’s exports to India and is subject to a 2.5% duty.

With the elimination of the 30% tariff on sheep meat upon entry, this is a big boost for Australian exports which already represent almost 20% of the Indian market. Australian sheep meat players expect to focus on premium cuts and supply products to India’s five-star restaurant and high-end retail segments.

With India being Australia’s third largest wool importer, just behind China and Italy, the country’s wool industry has cause for celebration. In the second half of 2021 alone, India bought 8.2 million tonnes of Australian wool. Removing the current 2.5% tariff on wool imports will further stimulate this industry.

Australia has sought to diversify its export markets away from China after the Asian superpower launched a series of trade strikes over Australian products in retaliation for what it saw as a series of snubs. The Indian market offers him a viable alternative.

Guarantees for sensitive sectors

India has placed several goods in the exclusion category in which no tariff concessions will be granted, according to CNBC. These products include milk and other dairy products, toys, sunflowers, seed oil, nuts, pistachios, platinum, wheat, rice, bajra, apple, sugar, cake , gold, silver, chickpeas, jewelry, iron ore and most medical devices. .

The agreement will also include a safeguard mechanism which includes stricter rules of origin to prevent any routing of products from a third country; safeguard mechanism to deal with any unusual surge in imports; and similar standards for the steel sector.

Where friction might arise

Yet domestic players may, at some point, object to cheap imports – of goods and services – from Australia. For example, under the agreement, India will provide Australian entities with market access for single-brand retailing and franchising, apart from commitments on wholesale distribution services. In addition, Australian internet service companies will have the flexibility to expand their portfolio in India with a 74% foreign equity limit for commercial presence.

The “Trade in Services” chapter of the agreement aims to cut red tape in India’s regulatory system to help Australians, especially MSMEs, provide professional services in India. How the Center and trade bodies respond to the concerns of domestic stakeholders will greatly contribute to the success of the bilateral agreement.