India - Australia Economic Cooperation and Trade Agreement (ECTA)

GS Paper III

News Excerpt:

The export of items, such as engineering goods, electronics, apparel, and pharmaceuticals, to Australia has witnessed an upward trend, mainly on the back of duty concessions offered under the India-Australia Economic Cooperation and Trade Agreement (ECTA).

The trend of export under the new regime of ECTA:

  • Export from Australia to India:
    • Agricultural exports from Australia - including sheep meat, seafood, broad beans, citrus and almonds - to India have grown 50 percent since the trade agreement came into force.
    • Most Australian industrial exports to India have increased by around 30 percent, with pharmaceuticals, wood and paper and cochlear implants leading the charge.
    • From January to September 2023, Australian businesses claimed lower tariffs on $15.2 billion of exports to India.
    • While as much as 51 per cent of Australia’s around 6,500 tariff lines attracted zero import duty even before ECTA kicked in, as a part of the deal, duty for 3,185 tariff lines were brought down to zero with effect from December 2022.
    • Australian businesses and households have saved over $145 million in duties on goods imported from India, like clothing, household linen, automotive and electrical parts.
    • The agreement has also helped ease supply-chain stresses for Australia's manufacturing, resource and construction industries by improving access to inputs such as tubes, pipes and off-road dump trucks.
    • Australia’s foreign direct investments (FDI) in India have jumped from an average of $30-40 million to $300 million this year.
  • Export from India to Australia:
    • India’s overall exports to Australia (in value terms) between January and November 23 - after the limited trade pact came into effect - marginally declined on a year-on-year basis, even though exports of items that got duty concession increased.
    • The slight fall was largely caused by the lower value of petroleum product exports, which account for over 50 per cent of India’s exports to Australia.
    • India exported goods worth $7.23 billion to Australia between January and November this year, down from $7.62 billion in the same period last year.
    • India has offered preferential access to Australia on more than 70 per cent of its tariff lines. These include raw materials and intermediaries such as coal, mineral ores and wines.
    • Between January and November this year, exports of engineering goods increased to $1,280.06 million against $1,257.39 million in the same period last year. 
      • Exports of drugs and pharmaceuticals were at $422.28 million against $372.39 million, and exports of readymade textiles rose to $289.73 million compared to $275.85 million.

About India-Australia ECTA:

  • The India- Australia Economic Cooperation and Trade Agreement (ECTA) entered into force on 29 December 2022.
  • It covers the following major areas:
    • Trade in Goods
    • Trade in Services
    • Rules of Origin
    • Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) measures
    • Customs Procedures and Trade Facilitation
    • Trade Remedies
    • Legal & Institutional Issues
    • Movement of Natural Persons
  • Benefits under Trade in Goods:
    • Indian goods on all tariff lines will get access to the Australian market with zero customs duty.
    • Immediate duty-free access covers all labor-intensive sectors such as Textiles and Apparel, Agricultural and Fish products, Leather, Footwear, Furniture, many Engineering Products, Jewelry and select Pharmaceuticals. 
      • As a result, many industries such as steel, aluminum, garments, and others will get cheaper raw materials which will enable them to become competitive.
    • India is offering zero-duty access to 90% of the value of products from Australia (including coal).
    • Immediate Duty-Free Access is projected to potentially create 10 lakh jobs in India and additional exports of $ 10 bn from India to Australia in the next five years.
  • Benefits under Trade in Services:
    • More than 1 lakh Indian students in Australia will benefit from post-study work visas.
    • India has, for the first time, agreed to a negative listing for Australian services.
      • India is also committing to Australia in around 103 Service Sub-Sectors with Most Favoured Nation status in around 31 Service Sub-sectors for the first time.

Negative listing approach:

  • Under the negative listing approach, a country treats imported and locally produced goods / services equally in all areas, and areas where this is not done are listed – in the negative list - as exceptions. 
  • So, in this case, India would provide this treatment to services exports from Australia, after a period of 5 years.
    • Certain protective features have been implemented, considering any concern on leakage/diversion of products made in a third country to India through Australia.
  • End to Double Taxation:
    • The Agreement has removed the discrepancies about using the Double Taxation Avoidance Agreement to tax Indian firms' royalties, fees, and charges.

Future targets:

  • The two countries are working on a full-fledged Comprehensive Economic Cooperation Agreement (CECA). 
  • India and Australia hope to increase bilateral trade to $100 billion annually from $30 billion after the CECA is implemented.

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