India and Australia both are members of the Commonwealth countries. We have parliamentary democracies, we also have similar legal systems as well. Both countries are also part of quad. They are also members of trilateral supply chain resilience initiative. We are also part of India Pacific economic framework. So, India and Australia are already members of all these groups. And now to give further boost to the economic cooperation, what we have is the ECTA. So the India Australia economic cooperation and trade agreement basically happens to be a free trade agreement as it provides an institutional mechanism to encourage improve the trade relationship between India and Australia. We have the Prime Minister of India Narendra Modi who went on to say, glad that India Australia ECTA is entering into force today. It is a watershed moment for our comprehensive strategic partnership. It will unlock enormous potential of our trade and economic ties and boost businesses on both the sides. Look forward to welcoming you in India soon, says the prime minister of our country Narendra Modi.
What is this agreement all about?
The agreement encompasses cooperation across the entire gamut of bilateral, economic and commercial relations between the two friendly countries and covers areas like trading goods, rules of origin, trade in services, technical barriers to take sanitary and phytosanitary measures dispute settlement, movement of natural persons, Telecom, custom procedure, pharmaceutical products as well as cooperation in the other areas.
First, let us understand what is the meaning of the free trade agreement. A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports from them. So, what is it, this happens to be an agreement it happens to be a pact between two or more countries. Basically, the objective is to remove all the trade barriers that are existing between the countries. Let's say for example, one country makes an export to the other country. So there is import and export, in order to ensure that there is free trade relationship, all the trade barriers are removed and we have preferential trade terms between both the countries that is what is called as free trade agreement. So as its name denote, it is free trade agreement. So trade agreement between two countries so that all the impediments, hazards, obstructions are completely removed when it comes to the trade agreement between one country and another country.
Then we have preferential access, which can be thought of as a policy that provides comparative advantage when countries discriminate across trading partners by providing some countries with lower tariffs. For example, high income countries often grant non reciprocal preferential access to least developed countries in order to facilitate the latter's economic growth by providing an incentive to the export. So basically, what would happen as part of the preferential market access is the exporters will be providing less tariffs, the exporters would be paying less tariffs, that is they will be paying less taxes and at the same time, there can be a situation as well, where they will be paying no taxes as well. So if a particular country is given preferential trade access, it means there'll be reduced tariffs or no tariffs, this can be done because they have entered into a free trade agreement or in other cases, we have the developed countries the developed countries feel that there is a developing country whose export will have to be accepted. So that they also grow as well this is what is called as preferential market access.
Why does India need the free trade agreement?
That is because India is basically diversifying, expanding its export. As of now we have number of inputs that we make from couple of countries. We also do couple of exports to number of countries as well. So to diversify the export and to ensure that we have diversification of input as well, India has entered into a free trade agreement. So some of the factors as to why India has considered free trade agreements is to get cheaper access to the raw materials, make sure that we attract more foreign direct investment into our country, boost the competitiveness as well. And at the same time, there are also other geopolitical reasons as to why India has entered into a free trade agreement with Australia.
What is the process of this ECTA, what exactly happens?
We have the exporters who will be exporting from India to Australia. So, they would be able to file a preferential Certificate of Origin under the ECTA through a digital portal and basically, the preferential Certificate of Origin certifies that particular merchandise is either duty exempt or subject to the reduced tariffs. So, it is either eliminated with all the imposition of the taxes or it might have less tariffs in comparison to the other countries. So which are the sectors that we have focusing on?
India will benefit from preferential market access provided by Australia on 100% of its tariff lines, including the labour intensive sectors of export interest to India, such as gems and jewellery, textiles, leather footwear, furniture, food, agricultural products, engineering products, medical devices and automobiles. So, basically, market will be provided and we will be able to export these products from India to Australia. So, these are the exports that India will be making from India to Australia, where there will be reduced tariffs or no tariffs as well.
On the other hand, India will be offering preferential access to Australia on over 70% of its tariff lines, including lines of export interest to Australia, which are primarily raw materials and intermediaries such as coal, minerals, ores and gems. So India is also providing preferential access so that Australia is making export. So India would be providing reduced tariffs or no tariffs to about 20% of the products as the biggest trade in services. Australia has offered wide ranging commitment in around 135 sub sectors, and most favoured nation status in 120 sub sectors covering key areas of interest to India. On the other hand, India has also offered market access to Australia in around 103 sub sectors, most favoured nation status in 31 sub sectors from 11 broad service sectors, such as Business Services, communication services, construction and related engineering services, so on and so forth and finally, both the sides have also agreed to a separate annex on pharmaceutical products under this agreement, which will enable Fastech approval of patented generic and biosimilar medicines.
So if we look into this India, Australia, ECTA, there'll be zero duty by Australia on 100% tariff lines, additional 10 lakh jobs will be created, increased investments from Australia, there'll be over one lakh Indian students to benefit from post study work visa and Indian yoga teacher, chefs to gain with annual visa quota, which happens to be the significance of this particular agreement. So, basically, with this particular agreement, what we would be able to get is cheaper raw materials, we will convert them into the finished products and also export the same to Australia.
What is the significance of this agreement?
There is a lot of potential for exporting finished goods to Australia. Since they hardly manufacture anything, they are largely a raw material, an intermediate producing country, we will get cheaper raw materials, which will not only make us more competitive globally, but also enable us to sell Indian consumers better, enabling us to provide more quality goods at a more affordable prices. Then we have the agreement, which will also eliminate double taxation on the IT services, which are making us less competitive, making us less profitable in the IT sector and this double taxation has now been removed by amending the law. It is also estimated that additional 10 lakh jobs would be created in India under the ECTA. So Indian yoga teacher chefs are to gain from the annual visa quota. There'll be more than one lakh Indian students who would benefit from the post study work and at the same time, this agreement will also provide increased investment opportunities, promote exports, create additional employment and increase a further bond between India and Australia.
China is Australia's largest state partner with a 33% share in export and a 23% share in its import compared to India 3.7% in its export, and 2.4% share in the import As of 2021, so what is being done now? They are trying to diversify it away from China so that Austalia also does diversification as well, because there was a lot of reliance on China, Australia also feels threatened. What if it does not supply few raw materials? What if it does not supply a few products from China to Australia? So in order to diversify from Australia's viewpoint, they have taken up this initiative as well.
India is the world's largest importer of coal, out of India's coal trade deficit of 24 billion Australia accounts for 11 billion and the India Australia ECTA is likely to make coal a crucial input for India's energy needs and its industrial growth available at competitive prices. India in the month of May, had also entered into a free trade agreement with UAE this is operational as well. So this agreement with Australia is India's first such pact with the developed country in the last decade. So the trade deal between India and Australia is a major milestone between India and Australia. This will not only increase the mutual cooperation between both the countries, but it will also contribute to growth of both the economies. So Indian economy will also take a boost, Australian economy will also grow as well and at the same time, the strategic partnership between the countries will also increase as both the countries are planning to diversify away from China.
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