The new Economic Cooperation and Trade Agreement (ECTA) between India and Australia, which came into effect on 29 December 2022, has the potential to double bilateral trade in goods and services to $45 billion in five years.
That’s the view of the Confederation of Indian Industry (CII), which congratulated the two governments for the quick conclusion of the agreement. Zero-duty access to Australia’s markets became available immediately to India’s exporters for 98.3% tariff lines, with the remaining 1.7% phased in within five years.
“This is expected to lead to $10 billion jump in India’s exports by 2026-27 and would help in creating additional one million jobs in India and additional job opportunities in Australia. Besides providing cheaper raw materials to many sectors, including steel and aluminium from Australia, the ECTA would also facilitate increased investments from Australia and will support Indian manufacturing,” said CII.
India’s labour-intensive sectors, which were subject to import duty of 4-5 % by Australia, will gain immediate duty-free access, according to CII. The sectors that would gain immediately are textiles and apparel, leather and footwear, furniture, sports goods, jewellery, machinery, railway wagons and select agricultural and marine products. On top of that, substantial gains are expected in pharmaceuticals, with drugs approved in other jurisdictions set to get approval in Australia much faster.
India is providing zero-duty access to Australia for 70.3% of its tariff lines (40.3% tariff lines from day one and the remaining 30% in a phased manner). India has offered zero duty access on coal, alumina calcined, manganese ore, copper concentrates, bauxite, sheep meat, rock lobster, macadamia nuts, cherries and wool.
About 96% of Australia’s exports to India comprised of raw materials and intermediate products, thus the tariff concessions offered by India will allow local/domestic industries to get cheaper raw materials and enhance their competitiveness, CII said.
In a statement CII said it was “looking forward to various opportunities for trade in services. Australia has made wide ranging commitments in around 135 sub sectors with most-favoured nation (MFN) status in around 120 sub-sectors. The major gains are for the Indian IT sector followed by healthcare and education, and service professionals such as yoga teachers and chefs.”
CII said the deal would enable large Indian IT companies to increase their involvement in Australian government projects. It enables India and Australia to collaborate and develop niche skill sets, provide global digital solutions, and further develop fintech capabilities. On the other hand, India is making commitments in around 103 services sub-sectors, with MFN in 31 sub-sectors.
Another important announcement made by Australian Parliament is the double tax avoidance agreement (DTAA) ratification, along with its trade deal with India. The DTAA is set to come into effect on 1 April 2023. The DTAA is expected to eventually lead up to $1 billion in savings for Indian IT companies operating in Australia, who may be able to generate $4 billion–$8-billion business income from Australia each year.
CII added: “With ECTA as an interim trade deal, CII looks forward to negotiations for the bilateral Comprehensive Economic Cooperation Agreement (CECA) agreement which may be concluded by September 2023. The full-fledged CECA will formally begin negotiations from next month, with many sensitive sectors including digital trade, government procurement, labour and environment.
“CII observed that the agreement with Australia sends a positive signal and sets the pace for FTAs with other developed partners like UK, Canada, and EU, which are already on the negotiating table for similar pacts with India.”
Commenting on the deal, Sanjay Budhia, Chairman of the National Committee of EXIM (the Export-Import Bank of the United States), said: “Australia and India are increasingly working together as strategic and economic partners.
“The India/Australia ECTA is a ground-breaking agreement that will leverage the industry to capitalize the enormous untapped potential. The agreement is expected to boost investments, enhance market access, create additional job opportunities, and most importantly strengthen the bilateral ties of two important players in Indo-Pacific region.”