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India-Australia Economic Cooperation Trade Agreement: A Step Toward a Resilient Global Supply Chain and Stable Indo-Pacific

22 Apr 2022
By Dr Ashok Sharma
Prime Minister Narendra Modi meets Scott Morrison, Prime Minister of Australia on the sidelines of 35th ASEAN Summit 2019 in Bangkok. Source: MEA

New Delhi’s strong ties to Russia have prompted some concern about the future of an Australia-India partnership. The recent signing of an economic agreement suggests this relationship will only grow stronger.

India-Australia relations continue to deepen. With three virtual summit-level meetings within a span of a month, the India-Australia relationship appears to be at an all-time high. For instance, on 2 April in a virtual ceremony in the presence of Prime Ministers Narendra Modi and Scott Morrison the India-Australia Economic Cooperation and Trade Agreement (ECTA) was signed by Piyush Goyal and Dan Tehan, the nations’ trade ministers. The accord, which has been dubbed a “watershed moment” in the history of the India-Australia relations, is intended to take the two countries’ relations to the next level.

Driven by the commonalities and synergies between their economies and converging security interests, the India-Australia trade agreement stems from a desire to expand. The deal is designed to increase bilateral trade, reduce reliance on China, and ensure a resilient global supply chain, all of which will contribute to a free, secure, and stable Indo-Pacific amidst the region’s unfolding geopolitical realities, with high stakes for both democracies.

What has been promised?

Both countries have agreed to lift the custom duties on the exports from one another. According to the deal, 96 percent of Indian exports to Australia would be duty free, while 85 percent of Australian exports to India would not be subject to tariffs. India has decided to grant “most favoured nation” (MFN) status to Australian wines. However, duty-free high-quality Australian wine reaching to the Indian consumers may take some time as India has made specific commitments to reducing the rate of customs duties over the span of ten years depending upon the cost, insurance, and freight (CIF) value. Likewise, certain strategic products coming from India such as steel products have been subject to a phased elimination of duties over five years by the Australian government.

Both governments have agreed to amend their domestic laws to avoid the double taxation on offshore services. Furthermore, it is expected that visa negotiations will enhance immigration and cross-border mobility, which could result in an increase in the duration of stay for Indian professionals and students for work-search visas in Australia. Overall, the deal aims to almost double trade volume, create a million jobs over the next five years in India alone, and enhance economic ties by easing the movement of goods, people, and services across the two Indo-Pacific nations’ borders. The ECTA aims to increase the bilateral trade from $27 billion to $45-50 billion in the coming five years.

In the past, issues such as India’s non-signatory status to the Nuclear Non-Proliferation Treaty and its 1998 nuclear test precluded the two countries from cooperating on a number of common diplomatic and political interests. With Australian Prime Minister John Howard’s 2006 India visit, which coincided with US President George W. Bush visit, Howard reverted a long-standing policy of not exporting uranium to India. However, three years later, Prime Minister Kevin Rudd overturned the Howard government’s decision. This was only resolved in 2014, when Prime Minister Tony Abbott and Prime Minister Modi completed the nuclear agreement for the shipment of Australian uranium to India, which began in 2011 under the Julia Gillard Labor government. In addition to the Australian government’s flip-flop stance on the nuclear deal,  opposition to the Adani Carmichael coal mine created a trust deficit between the two countries.

The ECTA is a big step forward in the negotiations for a free trade agreement that builds on the relationship’s promise. The agreement contributes to the stability and strength of rapidly diversifying and deepening strategic ties, as well as sending a powerful signal to both countries’ businesses that “one of the biggest doors” is now open as two dynamic regional economies and like-minded democracies collaborate for mutual benefit.

Towards A Resilient Global Supply Chain

Both countries understand the urgency of upholding and strengthening the rules-based multilateral trading system and have taken steps to fix the global supply chain, which China has come to dominate. Urgency to manage global supply chains has grown as a result of China’s move to use the humanitarian situation in the aftermath of the COVID-19 outbreak to further its geopolitical goals. India, considered to be the only country to match the manufacturing scale of China, has become significant in the developed nations’ efforts towards a resilient global supply chain. Morrison and his special trade envoy, Abbott, have emphasised India’s centrality in fixing the global supply chain.  

The ECTA will enable the two countries to fully leverage the huge potential of their economies. Rightly said by Prime Minister Modi, “This is a watershed moment for our bilateral relations.” The growing economic ties between India and Australia are a step toward making the supply chains more resilient, a message that democracies are working together to ensure the stability of the Indo-Pacific.

Building of Mutual Trust amid China’s Assertiveness in the Indo-Pacific

China flaunting its economic, diplomatic, technological prowess and assertive military posture in the Indo-Pacific have further accelerated the pace of Australia-India relations. Both nations are committed to a free, open, and secure Indo-Pacific. During COVID-19, both countries’ relations with China have been strained. India faced a deadly clash with China over the border issue, and Australia’s economic relations and diplomatic ties with China are at an all-time low.

Another indicator of the increasing pace of the India-Australia relations is the frequency of interaction at the summit and ministerial levels, which includes three prime ministerial virtual meetings in a span of one month. This development is significant given India’s stance on the Ukrainian crisis at the Quad foreign ministers meeting. India from the beginning has taken a neutral position and abstained on almost all UN resolutions against Russia’s action, instead seeking a peaceful solution through dialogue. Despite New Delhi’s neutral position on Russia, Australia and India have taken a pragmatic approach and continue to work on their bilateral ties.

The signing of the ECTA reflects the depth that is emerging in the Australia-India relationship. There is growing mutual trust and confidence which is helping Australia and India to leverage the current strategic scenario to build a strong comprehensive strategic partnership to benefit the two democracies as well as to ensure a free, secure, and open Indo-Pacific.

Dr Ashok Sharma is an Academic Fellow of the Australia-India Institute at the University of Melbourne; a Visiting Fellow at the Australian National University at the Strategic and Defence Studies Centre, the Coral Bell School of Asia-Pacific Affairs; a Visiting Fellow at the University of New South Wales Canberra at the Australian Defence Force Academy; an Adjunct Associate Professor at the Institute for Governance & Policy Analysis, University of Canberra; and the Deputy Chair of the New Zealand Institute of International Affairs, Auckland Branch.

This article is published under a Creative Commons License and may be republished with attribution.