India and Australia on the verge of signing a mini-free trade agreement | International Trade News


Bangalore, India–As Russia launched its invasion of Ukraine last month, Australian Prime Minister Scott Morrison faced some tough questions at a press conference about India’s reluctance to condemn the war.

Morrison quickly broached the subject of China and Beijing’s support for Moscow.

And India?

“All countries have different levels of engagement with Russia,” Morrison said, “and so I’m respectful of that.”

It was an eye-opening moment, one that captured a growing convergence of interests that even the most contentious issue stirring up the world – the war in Ukraine – does not disturb.

India and Australia, democracies on opposite ends of the Indian Ocean, are expected to sign an interim free trade agreement this month, marking a major step towards consummating their economic ties at a time when the two nations are desperate to reduce their dependence on China.

They have declared their intention to sign the full pact, called the Comprehensive Economic Cooperation Agreement (CECA), later this year.

New Delhi and Canberra began negotiating the deal in 2011, but a failure to align their priorities has seen talks stumble repeatedly. Political uncertainty in Australia – Morrison is the country’s fifth prime minister in the past decade – hasn’t helped, experts say. And for a period after the Narendra Modi government came to power in India in 2014, its commitment to free trade agreements appeared suspect.

But while India and Australia have each seen a spike in tensions with China, they have been forced to face a difficult reality: Beijing is Canberra’s biggest trading partner and largest source of imports. from New Delhi. A trade deal would help them both reduce their reliance on China.

There is also a growing complementarity between the economic priorities of the two nations: India needs Australian minerals essential for new sectors like the development of electric vehicles, while Australia needs a skilled workforce. that India can offer.

For Morrison, there is a strong political push ahead of a federal election due to be called by May 21. After Australia called for an investigation into the origins of COVID-19, Beijing retaliated with a wave of sanctions targeting 13 industries that exported $54. bn in China, said Sonia Arakkal, a research fellow at the Perth USAsia Center, an Australian think tank.

Canberra’s aggressive approach to Beijing has raised concerns among sections of Australia’s business community because of the potential implications for the economy, she said.

“A free trade agreement with India would help Morrison show that the government is developing alternatives to China,” Arakkal told Al Jazeera.

Natural business partners

Not that India and Australia are waiting for the CECA to step up trade: already, the latest data from the New Delhi Ministry of Commerce suggests that at just under $20 billion, bilateral trade in 2021-22 has already exceeded pre-pandemic levels.

But a free trade agreement (FTA) could help propel the two countries down paths they have identified as key to their economic future, said Natasha Jha Bhaskar, chief executive of Newland Global Group, a consulting firm companies that focuses on trade between India and Australia.

Under Modi, India has made the development of an export-oriented manufacturing sector a priority and offers subsidies to foreign companies that establish production units in the country.

“Australia – a highly globalized economy where trade accounts for 44% of nominal GDP (gross domestic product) – is a great partner for this,” Bhaskar told Al Jazeera. Australia’s expertise in biotech research and development also makes it a natural partner for India, a pharmaceutical giant, she said.

Bilateral trade between India and Australia has already surpassed pre-pandemic levels [File: Phil Noble/Reuters]

India has declared its goal of converting all new vehicles from fossil fuels to electric by 2030. And Australia is home to the world’s second-largest reserves of lithium, a key component of electric car batteries.

“There is a technological shift that Narendra Modi’s government is looking at, and Australia is a big part of that,” Arakkal said.

Australia also has much to gain from CECA. China was by far the biggest market for Australian wine, an industry that saw exports plummet 30% last year after Beijing imposed tariffs of up to 218% as part of its retaliatory measures against Canberra.

Under the free trade agreement with Australia, India is expected to drastically reduce its own steep tariffs on imported wine, which can be as high as 150%. This could help Australian companies build a new market instead of China.

Don’t expect ‘spectacular growth’

Certainly, there remain challenges and limitations to the India-Australia economic partnership.

“We must not overestimate the prospects for dramatic growth,” warned Ian Hall, professor of international relations at Griffith University and author of the book, Modi and the Reinvention of Indian Foreign Policy.

“India is not as hungry for Australian coal, iron ore and grain as Japan and South Korea and then China,” Hall told Al Jazeera. “Similarly, Australia will not become as important to India as the US services market.”

In fact, India remains reluctant to open up agriculture under the trade deal, worried about domestic political pressures in a sensitive sector. While New Delhi recently lowered tariffs on lentils, it is unlikely to do so on wheat, Hall said.

At the same time, Canberra’s notoriously strict border and migration policies have long frustrated New Delhi, which would like Australia to ease those for Indian students and skilled professionals.

Some of this could be addressed in the “early harvest” deal, as the interim trade pacts are called, and would also help Australia, Bhaskar said, at a time when government data shows the country has nearly 400,000 vacancies – a big increase from mid-2021.

An interim deal would also show “goodwill and momentum”, Hall said, although Australia’s upcoming elections will inject uncertainty over whether the two nations will reach a comprehensive pact if the government in Canberra changes. Bhaskar said she hoped the two countries would “just consider a full-fledged CECA instead of an interim agreement” to eliminate that risk.

Indeed, Australia and India have recently stepped on the accelerator of free trade agreements more broadly – ​​beyond their bilateral negotiations. In December, Australia signed an FTA with the UK, while India and the United Arab Emirates signed an agreement last month.

Unlike trade talks with Australia that lasted 11 years, New Delhi only started talks with Abu Dhabi on their FTA last year. Yet the greatest strength of an India-Australia trade deal may ironically lie precisely in the long years it has taken both sides to get here, experts say. It’s now a mature relationship, not love at first sight.

“Both parties understand each other’s constraints,” Hall said. China probably didn’t want to play Cupid, but India and Australia won’t mind.

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