Australia Ratifies Landmark Free Trade Agreement with India

Posted by Written by Melissa Cyrill Reading Time: 3 minutes

Australia’s parliament ratified the India-Australia Economic Cooperation and Trade Agreement (ECTA) on November 22. The two countries has signed the ECTA on April 2 this year. The trade deal will now come into effect on a mutually agreed date. 

Who benefits from the India-Australia ECTA?

Under the India-Australia ECTA, duties on 100 percent tariff lines will be eliminated by Australia, covering 6,000 broad sectors. Meanwhile, India’s tariffs on 90 percent of Australian goods exports, including meat, wool, cotton, seafood, nuts, and avocados, will be removed.

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From day one, Australia will offer zero-duty access to India for almost 96.4 percent of exports by value. Presently, many of these products have a 4-5 percent customs duty imposed by Australia.

Exporters, businesses, workers, and consumers in both markets are set to benefit from the trade liberalization, market opening, and freer movement of people. 

Implementation of the trade agreement will create an estimated 1 million jobs as a boost in business is expected in several labor intensive industries, including textiles and apparel, select agricultural and fish products, leather, footwear, furniture, sports goods, jewelry, machinery, electrical goods, and railway wagons.

India’s Minister for Trade and Commerce Piyush Goyal also noted the following benefits from the ECTA:

  • IT sector to be a big gainer as it contributes significantly to both economies
  • Visas to be offered to Indian chefs and yoga instructors
  • Work opportunities for Indian students pursuing education in Australia
  • Cheaper raw materials from Australia will make Indian goods more competitive in the global market
  • Medicines approved under rigorous US and UK regulatory regimes will benefit from a fast track mechanism to get approval in Australia (improving market prospects for India’s patented, generic, and biosimilar medicines)

Speaking to the press, Australia’s Trade Minister Don Farrell spoke very positively about the agreement: “The quality of this agreement, in terms of market access and opportunity for Australian businesses, demonstrates India’s commitment to our bilateral economic partnership. India presents unparalleled growth opportunities for Australian business across a range of sectors, from food and agriculture, technology and green energy, to health and education services.”

Amendment to Australia’s DTAA with India to help IT sector

During the signing of the ECTA in April, Australia had agreed to amend its domestic taxation law to stop the taxation of income of non‑resident Indian firms providing technical services remotely to Australian customers.

Subsequently, the Australian government proposed amendments to the double tax treaty with India with respect to the technical services section – Treasury Laws Amendment (Measures for Consultation) Bill 2022: Adjustment to tax on certain payments or credits paid to Indian firms.

The Australian parliament has now approved an amendment to its Double Taxation Avoidance Agreement (DTAA) with India. This could provide financial savings of more than US$200 million per year as per estimates from industry associations. 

When will the India-Australia ECTA come in effect?

Australia’s trade minister has said that the India-Australia ECTA will enter into force 30 days (or a mutually agreed date) after both countries have confirmed in writing that they have completed their respective domestic requirements. This could happen before the end of 2022.

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In Australia, following parliament’s ratification, the ECTA must be approved by Australia’s executive council and their trade ministry. These approvals are “very much doable,” according to Goyal.

After the requisite government approvals, both countries will work on the harmonization of the codes and customs regime so that the ECTA can come into force “at an early date”.

Customs authorities of both countries will notify the date of implementation of the India-Australia ECTA at least a day before it goes in effect.

India-Australia bilateral trade

Australia is the 17th largest trading partner to India and India is Australia’s ninth largest trading partner.

In 2021-22, India’s goods exports to Australia valued US$8.3 billion and imports were about US$16.7 billion. Two-way trade in goods and services in 2020 were valued at US$24.3 billion.

India’s merchandise exports to Australia grew 135 percent between 2019 and 2021.

India’s exports consist primarily of a broad-based basket largely of finished products. Around 96 percent of Australia’s exports are raw materials and intermediate products.

The India-Australia ECTA agreement is expected to increase bilateral trade to about US$45-50 billion in the next five years from the existing US$31 billion. India hopes to increase its merchandise exports by US$10 billion BY 2026-27.

Background

In September 2021, Australia and India formally re-launched their Comprehensive Economic Cooperation Agreement (CECA) negotiations, intending to first conclude an Economic Cooperation and Trade Agreement to “swiftly liberalize and deepen bilateral trade in goods and services”. This ECTA would then serve as the foundation for negotiations to a more ambitious CECA.

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