Australia and India sign the Australia-India Economic Cooperation and Trade Agreement marking a significant development towards a full Australia-India Comprehensive Economic Cooperation Agreement

On 2 April 2022, Australia signed a trade agreement with India, the Australia-India Economic Cooperation and Trade Agreement (AI-ECTA), in a move that can only be dubbed as historic. The AI-ECTA is an interim agreement intended to serve as a stepping-stone towards a full Australia-India Comprehensive Economic Cooperation Agreement (CECA) which is on track to be signed later this year. The signing of the AI-ECTA is a significant development in Australia-India trade relations given that CECA negotiations commenced in May 2011 but were suspended in September 2015 following nine rounds of protracted discussions. In enhancing bilateral trade engagements, the AI-ECTA will allow Australia to reduce its current economic dependence on China, while boosting India’s export industries.

The signing took place in a virtual ceremony with Australia’s Minister for Trade, Tourism and Investment, Dan Tehan and India’s Minister of Commerce and Industry, Piyush Goyal. The ceremony was witnessed by Australia’s Prime Minister Scott Morrison and India’s Prime Minister Narendra Modi.

The AI-ECTA is expected to come into force in approximately four months, once the countries complete their respective internal treaty making formalities.

Goods

Under the deal, tariffs will be removed on more than 85% of Australian goods exports to India (worth over USD12.6 billion a year) rising to over 91% over the next 10 years.

Key Australian goods such as sheep meat, wool, metallic ores such as manganese, copper and zirconium, coal, alumina, titanium dioxide, certain critical minerals and certain non-ferrous metals will enter India duty-free as soon as the agreement comes into force. India will also crystallise existing duty-free entry for Australian barley, oats, hides and skins, and liquified natural gas.

Certain Australian goods will also see the elimination or reduction of tariffs over three, five, seven or ten years. These include infant formula, wine, seafood, lentils and certain fruits, nuts, vegetables, oilseeds and oils, food preparation items, petroleum oils, non-ferrous metals, wood and paper products, pharmaceutical products and medical devices. The elimination or reduction in tariffs is expected to create new opportunities for both countries, including where trade was previously uncertain or not economically feasible due to high tariffs.

For example, India will be able to import Australian coal (which constitutes over 70% of total imports and attracts a 2.5% duty) significantly cheaper than before at a zero duty. The agreement will also boost Indian exports such as footwear, leather, medicine automobiles, gems and jewellery, toys and plastic products, ensuring the uninterrupted supply of key inputs to these industries.

Services

AI-ECTA will also see the development of systems for the mutual recognition of professional qualifications, licensing, and registration procedures between the professional services bodies of both countries. The precise occupations to be covered by the agreement will be clarified in the coming months and will be consistent with the approach adopted in Australia’s other free trade agreements, making possible the prospect that the qualifications of legal practitioners will be recognised in the CECA. While these arrangements remain to be negotiated, further liberalisation across services will facilitate the increased sharing of knowledge and expertise, innovation and overall business confidence.

Market access for single-brand retailing and franchising, as well as commitments regarding wholesale distribution services will be provided by India, and Australian internet services businesses will be given an increased foreign equity limit of 74% for commercial presence in India.

Australian services suppliers will have increased certainty in 31 sectors and sub-sectors who will be guaranteed any market access improvements given to future FTA partners, including in higher education and adult education, business services, research and development, communication, construction and engineering, insurance and banking, hospital, audio-visual, and tourism and travel.

Australia will, within the next two years, also provide access for young Indians to participate in working holidays in Australia (set at 1,000 per year). The length of stay in Australia for Indian students with a bachelor’s degree with first class honours will be extended from two to three years post study in Science, Technology, Engineering or Mathematics and information and communications technology sectors. This will likely guarantee that more students secure internships and job opportunities in Australia.

The countries have also agreed to cooperate to promote agricultural trade as part of the agreement and work toward concluding an enhanced agricultural Memorandum of Understanding (MoU). Given that India has expressed a desire to keep sensitive dairy and agricultural items out of the trade deal, citing the interest of its farmers – this is a step in the right direction. Earlier in February 2022, India and Australia signed an MoU on Tourism in New Delhi, India.

As part of a side agreement to the AI-ECTA, Australia has committed to amending its domestic tax law to prevent Indian-based companies from being taxed on net profits linked to payments from its Australian clients. This will hopefully bring an end to a decade-long tax dispute between the two countries.

Dispute Settlement Clause

The AI-ECTA also provides for a robust dispute settlement mechanism. If, for any reason, the countries cannot arrive at a mutually agreed solution to a dispute through consultations, they may opt for the use of good offices, conciliation or meditation. Additionally, the complaining party may request the establishment of a panel to examine a disputed issue. The panel is obliged to interpret and apply the AI-ECTA in accordance with customary rules of interpretation of public international law.

The panel must comprise three members who are expected to have expertise or experience in law, international trade, other matters covered by the AI-ECTA or the resolution of disputes arising under international trade agreements. The panel is to produce a final report on the outcome of the dispute which may be made available to the public, subject to the protection of confidential information. The responding party is then expected to implement the findings in the final report within 30 days or, subject to the practicality of implementation, within a reasonable period of time.

In the event of a disagreement as to whether the responding party has complied with the implementation of the final report, a party may request that the panel reconvene to determine the matter. A complaining party has the right to seek mutually acceptable compensation from a responding party and in certain circumstances, suspend concessions or other obligations under the AI-ECTA. Notably, the AI-ECTA does not provide a private right of action to either party.

Conclusion

India is Australia’s seventh largest trading partner with bilateral trade in goods and services having grown in value from USD13.6 billion in 2007 to USD24.3 billion in 2020. With the AI-ECTA and expected conclusion of the CECA, this number is only set to rise with the creation of jobs, strengthening of businesses and increased cooperation across key sectors in both countries.