Sealing a pact that their leaders hailed as a “watershed moment” and “one of the biggest economic doors opening in the world”, India and Australia on Saturday signed an economic and trade cooperation agreement (IndAus ECTA) which is expected to provide zero-duty access to 96% of India’s exports to Australia, including shipments from key sectors such as engineered goods, gemstones and jewellery, textiles , clothing and leather.
The pact is expected to boost two-way trade in goods and services to $45-50 billion over five years, from around $27 billion, and generate more than a million jobs in India, according to a government estimate.
The deal will also grant around 85% of Australian exports zero-duty access to the Indian market, including coal, mutton and wool, and reduced-duty access to Australian wines, almonds, lentils and some fruit.
Duty-free access for Indian goods is expected to be extended to 100% over five years under the deal.
This is the first Free Trade Agreement (FTA) India has signed with a major developed country in over a decade. In February, India signed an FTA with the United Arab Emirates and is currently working on FTAs with Israel, Canada, the UK and the EU.
The agreement was signed by Minister for Trade and Industry Piyush Goyal and Australian Minister for Trade, Tourism and Investment Dan Tehan in a virtual ceremony attended by Prime Minister Narendra Modi and Prime Minister Minister Scott Morrison.
“This is indeed a watershed moment for our bilateral relations,” Modi said, adding that the agreement would facilitate the exchange of students, professionals and tourists between the two countries, which would strengthen ties.
Under the agreement, Indian STEM (Science, Technology, Engineering and Mathematics) graduates will be granted extended post-study work visas. Australia will also introduce a visa program for young Indians wishing to spend a working holiday in Australia.
According to Reuters news agency, Morrison, who is expected to call a general election within days, told reporters in Tasmania that the deal represented “one of the biggest economic doors to open in the world today”.
“It’s never all or nothing deals as far as we’re concerned, we see it all as the next step and the next step and the next step,” he said.
The agreement is expected to come into force after it is ratified by the Australian Parliament.
Goyal said the deal is expected to boost trade between the two countries to $45-50 billion within five years and generate more than a million jobs in India.
Officials pointed out that a number of Indian exports currently face a 4-5% tariff disadvantage in many labor-intensive sectors compared to competitors – those that have FTAs with l Australia – such as China, Thailand and Vietnam. Removing this barrier, officials said, could significantly increase merchandise exports.
Two-way trade in goods and services between India and Australia stood at $27.5 billion in fiscal 2021. Goyal said goods exports to Australia grew faster than exports to any other country in fiscal year 2022.
Officials said Indian exports of goods and services to Australia are expected to reach $20 billion in fiscal year 2027 and $35 billion in fiscal year 2035, from around $10.5 billion. dollars in 2021.
Australian imports of wines, almonds, lentils, oranges, tangerines, pears, apricots and strawberries are expected to benefit from reduced tariffs under the deal.
India has, however, excluded a number of Australian products from tariff cuts under the deal to protect “sensitive sectors”, including dairy, wheat, rice, chickpeas, beef, sugar, apples, toys and iron ore.
Australia is set to benefit from duty-free access on coal, which currently accounts for around 74% of Australian exports to India and is currently subject to a 2.5% duty.
The elimination of duties on coking coal, which accounts for about 73 percent of coal imports, is also expected to boost the competitiveness of Indian steel exports. Zero-duty access for Australia is expected to increase to cover 91% of its exports by value and more than 70% of India’s tariff lines over 10 years.
Other key Australian products that will see tariffs removed when the deal takes effect include LNG, wool, sheep meat, alumina and metal ores, while tariffs on avocados, onions, pistachios , macadamia nuts, inshell cashews, blueberries, raspberries and blackberries are set. to be eliminated in seven years.
Officials have said that procuring lower cost raw materials such as alumina from Australia is in India’s interest as it will boost the international competitiveness of Indian manufacturers.
Lower duties would be provided on products such as cotton, lentils, oranges, almonds and tangerines on the basis of tariff rate quotas that would bring tariffs back to pre-agreement levels for imports above threshold quantities.
For example, lentil imports of up to 1.5 lakh tonnes from Australia will only attract total import duties of 15%, compared to 30% duty on lentil imports from countries with which India has no trade agreements.
The agreement also includes strict rules of origin to prevent any routing of products from other countries and provides a safeguard mechanism to deal with any sudden increase in imports of a product.
Tariff concessions would be granted on Australian wines on a progressive basis depending on prices. Wines with a minimum import price of $5 per 750ml bottle will be reduced by 150% to 100% when the agreement is implemented and will be reduced to 50% over 10 years. Tariffs on wine priced above $15 per 750ml bottle would be reduced to 75% when the deal comes into effect and further reduced to 25% over 10 years.
The deal will also allow for faster approval of Indian drugs by Australian regulators, as they have agreed to use inspection reports and approvals from Canada and the EU in the process of evaluating pharmaceuticals and drugs. manufacturing facilities in India.
Australia has also responded to a long-standing concern of Indian IT companies over double taxation by agreeing to amend local tax laws to end the taxation of offshore income from Indian companies providing technical services to Australia.