A template for win-win trade deals

The approval by the Australian parliament of a free trade deal with India is significant for both countries. Ever since the failure of the World Trade Organisation (WTO) to evolve a rule-based world trade order, bilateral and multilateral trade pacts have become necessary means to promote trade among countries. The Economic Co-operation and Trade Agreement (ECTA) is the second major trade deal India has signed, after its trade agreement with the UAE earlier this year. It comes after decade-long negotiations and has bipartisan support in Australia as former Prime Minister Scott Morrison had signed it and the present Prime Minister Anthony Albanese took the initiative for its ratification. The deal aims to increase bilateral trade from the current level of $31 billion to about $50 billion in five years, with both countries accounting for the increase in equal measure. What has been signed is the first phase of the treaty, which will lead to a more comprehensive one later.

The deal is designed to be beneficial to both countries by leveraging their strengths and advantages and catering to their needs. Australia’s exports will mainly consist of coal, alumina, ores and minerals, and agricultural items. Australia will eliminate duties on 100% of its tariff lines. India will do so for 40% of its import tariffs immediately and increase it to over 70% later. The deal will benefit India’s labour-intensive exports such as textiles and apparel, agriculture, leather, footwear, jewellery, engineering goods and pharmaceuticals. The services sector will also get a boost. The Most Favoured Nation (MFN) status will be granted in about 120 sub-sectors covering key areas of India’s interest such as IT, ITES, education and health. Australia will grant annual visa quotas for some categories and there will be a post-study work visa regime for Indian students.

The ECTA is the first trade pact India has entered into with a developed country. India and Australia have similar interests in many areas. Both have similar legal systems and strategic commonalities. They are members of the four-nation Quad, a trilateral Supply Chain Resilience Initiative (SCRI) and the Indo-Pacific Economic Framework (IPEF). At present, China is Australia’s largest trade partner. About 35-40% of its exports go to China and 20% of imports are from there. There is discomfort in the country over China weaponising its trade. India, with its plans to develop into a manufacturing hub, will stand to gain much from trade relations with Australia, which is an exporter of raw materials. The ECTA is an important one for India which is also negotiating trade deals with other developed countries like the UK and Canada.