In 2022, India and Australia entered into the Economic Cooperation and Trade Agreement (ECTA), an early harvest agreement that serves as a precursor to the Comprehensive Economic Cooperation Agreement (CECA) that has been under negotiation since 2011.
While the CECA negotiations were temporarily suspended in 2015, the Indian government’s decision in 2021 to revive stalled bilateral trade negotiations, including those with Australia, led to the signing of the ECTA as part of this re-engagement process.
Over the past decade, India and Australia have witnessed strengthening relations, bolstered by the revival of the Quadrilateral Security Dialogue, or the Quad, in 2017. This strengthening of ties aligns with the Australian government’s 2017 Foreign Policy White Paper, which emphasized India’s prominent role in Australia’s international partnerships. The formalization of the ECTA and the potential early conclusion of the CECA have been pivotal steps in fostering Australia-India relations.
With the ECTA taking effect on December 29, 2022, significant expectations surround its potential to boost trade between Australia and India. Australia anticipates that India may become its second-largest trading partner, following China, moving up from its sixth position in 2021-22. On the other side, India expects bilateral trade with Australia to double within five years of the ECTA’s implementation.
These expectations are supported by two key factors. Firstly, Australia-India trade has displayed significant growth in recent years. Secondly, the commitments outlined in the ECTA, encompassing both goods and services, offer a solid foundation for expanding bilateral trade.
Statistics provided by Australia’s Department of Foreign Affairs and Trade indicate that between fiscal years 2016-17 and 2021-22, Australia-India trade in goods and services increased from US$25.6 billion to nearly US$46 billion, at a compounded annual growth rate of over 12.5 percent. In 2021-22, India accounted for 4.4 percent of Australia’s total trade in goods and services, up from 3.5 percent five years earlier. This marks a significant shift from the previous decade when India’s share in Australia’s total trade had consistently declined.
Similarly, Australia has become a more prominent trade partner for India in the past five years, with Australia’s share of India’s total trade increasing from 1.6 percent in fiscal year 2018-19 to 2.4 percent in 2021-22. However, in 2022-23, this trend experienced a setback due to reduced exports from India.
The commitments made by both parties in the ECTA offer a promising platform for elevating India-Australia trade. Australia eliminated tariffs on 98 percent of its tariff lines at the agreement’s commencement in late 2022 and plans to eliminate tariffs on the remaining lines within five years. India, on the other hand, eliminated tariffs on 40 percent of its tariff lines and will phase out tariffs on another 30 percent over the next seven years.
India’s commitment to enhancing imports of several commercially significant products for Australian businesses, such as sheep meat, wool, fresh rock lobsters, coal, alumina, titanium dioxide, and certain critical minerals, holds great potential. Additionally, India has implemented a duty-free quota to facilitate cotton imports and reduced tariffs on lentils, almonds, oranges, mandarins, and pears.
Expanding the array of products imported from Australia has the potential to diversify India’s import portfolio, which has been heavily reliant on coal, accounting for 82 percent of total imports in 2022. Australia, currently India’s 13th largest import source, could significantly improve its position in this regard.
Equally crucial is the need to boost India’s exports, especially in pharmaceuticals and textiles and garments, where India maintains a competitive advantage. Pharmaceutical exports, in particular, stand to benefit from the commitment by India and Australia to coordinate their drug regulators, facilitating trade in prescription medicines and medical devices. India’s electronics industry could also play a role in expanding its presence in the Australian market, given its strong export performance in recent years.
The ECTA is expected to stimulate services trade between the two countries, particularly with commitments covering the movement of natural persons under Mode 4 of the General Agreement on Trade in Services and professional services. India’s keen interest in the former is met with positive responses from Australia, which is permitting various categories of professionals to access its market across 26 sectors.
The agreement on professional services should further facilitate Mode 4 access through the development of systems for recognizing professional qualifications and experience, as well as the registration and licensing of professionals, including mutual recognition or similar arrangements. These commitments hold the potential to significantly expand the presence of Indian businesses in the Australian market.
