by Sophia Brook
The Australia-India Economic Cooperation and Trade Agreement (ECTA) – What does it entail and how was it received?
Digital Snapshot #07/22
8 April 2022
A potpourri of current affairs topics from Australia, New Zealand and the South Pacific brought to you by KAS Australia and the Pacific. The weekly digital snapshot showcases selected media and think tank articles to provide a panorama view and analysis of the debate in these countries.
Disclaimer: The views expressed in these articles do not necessarily reflect KAS Australia’s position. Rather, they have been selected to present an overview of the various topics and perspectives which have been dominating the public and political debate in Australia and the Pacific region.
When things get difficult, focus on the basics. In political terms this usually means defence and economy. With war starting up in Ukraine, two years of the coronavirus pandemic dragging on the economy, and continuing rocky relations with China, the Australian government has made great efforts to boost both its defence spending as well as its economic relations.
Ever since the deterioration of its trade relations with China, Australia has been trying to diversify its markets away from its main trading partner and redistribute goods recently banned or restricted by the PRC to other countries. Among those countries is India, currently Australia’s seventh largest trade partner. As the world’s largest democracy, with a market of about 1.4 billion people, and a significant growth trajectory, it potentially holds great opportunities for Australian business in all sectors, from agriculture, energy and resources to education and science, tourism and healthcare. As a result, recent years have seen an increase in trade relations between the two nations, with the value of two-way trade in goods and services growing to $24.3 billion in 2020 (compared to $13.6 billion in 2007), culminating in the signing of an interim bilateral trade deal last Saturday.
Australia and India first began talks on a trade deal in 2011, but the discussions stalled and were suspended in 2015. Negotiations for a full Australia-India Comprehensive Economic Cooperation Agreement (CECA) restarted after the 17th Indian-Australian Joint Ministerial Commission meeting on 30 September 2021. On this occasion, Australian Trade Minister Dan Tehan officially relaunched the process with the aim to have an interim agreement in place by December that year and the final deal ready to be signed by the end of 2022. The Economic Cooperation and Trade Agreement (ECTA) signed on Saturday, thus, lays the foundations for a full free trade agreement in the future. According to the Australian government, the next step will be the conclusion of an enhanced agricultural Memorandum of Understanding (MoU) to promote agricultural trade, as agreed in the ECTA.
What is the purpose of the ECTA?
The Australian government states that its long-term goal is to ‘lift India into Australia’s top three export markets by 2035’ and make it the third largest destination for Australian outward investment in Asia. Under the agreement, tariffs on more than 85% of Australian export goods will be eliminated, increasing to almost 91% over the next 10 years. At the same time, 96% of Indian import goods to Australia will be duty-free on arrival. This, the government hopes, will offer Australian producers and service providers a significant opportunity for trade diversification. Industries benefitting from the agreement include those targeted by Chinese trade sanctions such as the coal, lobster, wine, meat and wool industries, as well as other areas such as the critical minerals and metallic ore sectors.
Apart from producer and service industry benefits, the two governments further agreed to ‘facilitate the recognition of professional qualifications, licensing, and registration procedures between professional services bodies in both countries’. Furthermore, Australia will provide new access to its Work and Holiday program to young Indians, promising to provide 1000 places per year.
How has the agreement been received?
Although the new trade deal presents a significant opportunity for the economy, critics of the deal have questioned the timing of the agreement. Seen in the context of world events, questions were raised with regards to Australia’s moral obligations. India is the only member of the Quad that has failed to condemn Russia for its war in Ukraine. Furthermore, it last week announced plans to buy cheap oil from Russia and is currently considering to use Russia’s financial payment system to work around sanctions on SWIFT, which would directly counteract and undermine the financial sanctions imposed on Russia by the West. When asked about the issue, Indian Finance Minister Nirmala Sitharaman stated: ‘I would put my country’s national interest first, and I would put my energy security first. If there is fuel available and available at a discount, why shouldn’t I buy it?’.
In view of this, critics have accused the Australian government of betraying Ukraine by signing this trade agreement, less than 24 hours after a meeting between Indian Prime Minister, Narendra Modi, and Russian Foreign Affairs Minister, Sergei Lavrov, in Delhi. The Australian government has strongly opposed this criticism. ‘I don’t think that anyone can question Australia’s commitment to supporting the people of Ukraine.’, said PM Morrison speaking in Tasmania. He further stressed that the trade deal did not undermine Australia’s support for Ukraine, stating that ‘Australia’s relationship with India allowed it to have “respectful” discussions about those issues while bolstering mutual economic interests’.
The trade deal has been greatly welcomed by the industries benefitting from it, such as Australian wine-makers, sheep meat producers and universities, who hope to be able to balance at least some of the losses they incurred by China’s trade sanctions. Other industries, such as dairy and wheat farmers, who are not included in the deal at this stage, reacted disappointed but are hopeful that they will be included in the agreement sometime in the future. Indian companies are said to be excited, with a first, spontaneous delegation of 58 business leaders, headed by Indian Minister for Commerce and Industry Piyush Goyal, visiting Australia this week.