Realizing An ‘Early Harvest’ For Australia–India Trade – Analysis


By Dipen Rughani and Natasha Jha Bhaskar

Former Australian prime minister and Special Trade Envoy Tony Abbott’s recent visit to India has brought the long-suspended Free Trade agreement (FTA) — officially known as the Comprehensive Economic Cooperation Agreement (CECA) — back into focus.

Both countries began negotiating the FTA in 2011. But after six years of toil, nine rounds of negotiations, and a detailed joint FTA feasibility study, the negotiations were suspended over divided sectoral interests in 2015.

Much has changed since then. China is no longer Australia’s best trading ‘friend’, India is no longer trapped by its historical reservations about Australia, and COVID-19 has spared none. The pandemic has exposed many countries to global supply chain risks, the dangers of export over-dependence and the need for economic diversification.

The appointment of Abbott reflects the Morrison government’s awareness that it will take more than plain economics to make any progress on a trade deal with India. The log-jammed negotiations need a political push by individuals who India believes can restore trust in bilateral ties. Abbott has rapport among India’s political circles because he is credited for concluding Australia’s FTAs with three of Asia’s biggest economies — China, Japan and South Korea.

With respect to the current geopolitical and geoeconomic context, there is growing recognition that expectations about pre-COVID-19 FTAs will not carry over into the post-COVID-19 world. Some countries want to build more insular economies, with a rise in economic nationalism accompanied by debates about decoupling, economic sovereignty and self-reliance.

India is currently reworking its FTA strategy to ensure it achieves economic gains while also securing its domestic interests. New Delhi also wants to offset the losses from exiting the Regional Comprehensive Economic Partnership.

But India’s past FTAs with ASEAN, South Korea and Japan contributed to the further widening of its trade deficit from US$9 billion in 2005 to US$83 billion in 2017. China accounts for over 60 per cent of the deficit, entrenching India’s hesitance towards future FTAs. Out of the five FTAs India has negotiated over the last 11 years, only one has been signed.

India’s latest attempt to revive trade talks with the European Union, United Kingdom, United States and Australia shows it understands that remaining open to global trade determines the degree to which it can attract foreign investment, drive exports, make domestic industries competitive and incentivise other countries to manufacture in India. India aims to represent 5 per cent of the world’s merchandise exports and 7 per cent of global services exports by 2025, up from 1.67 per cent and 3.54 per cent today.

In this context, an ‘early-harvest deal’ between Australia and India is promising and practical. Its prospects depend on how creatively Australia can align its export goals with India’s investment priorities and new export agenda. These prospects have improved due to six factors, all of which highlight the complementarity of the two economies.

First, India needs to embrace the best technology, innovation and R&D to manufacture globally competitive goods and increase its share in global value chains. Australia — a highly globalised economy where trade accounts for 44 per cent of nominal GDP — is an excellent partner for this.

Second, India could identify Australian companies intending to invest in Indian manufacturing by taking advantage of the Production Linked Incentive (PLI) scheme, a program designed to boost domestic manufacturing through subsidies.

Third, sustainability is at the heart of the trade and investment goals of both countries. The success of India’s e-mobility and renewable-energy goals depend on the availability of critical minerals. Australia recently released a list of 24 key critical minerals for which it might become a potential supplier, alongside a list of critical minerals projects in need of foreign investment.

Fourth, Australia’s expertise in the hydrogen industry could align well with India’s National Hydrogen Mission. Canberra’s two-year Hydrogen RD&D International Collaboration Program will support collaboration between Australian and international research organisations, as well as enabling RD&D linkages with partner countries.

Fifth, Australia is a leader in biotech R&D, while India remains the so called ‘pharmacy of the world’. This complementarity boosts the potential for trade in biopharmaceuticals, marine biotechnology, dairy biotechnology, sustainable water use and agricultural and industrial biotechnology.

Sixth, stalled skilled immigration due to border closures has left Australian businesses scrambling to fill roles. Canberra could use an ‘early harvest deal’ to attract skilled professionals from India to address its current skill shortage and bolster further cooperation in skills development.

A modern trade agreement between India and Australia will need to go beyond goods, services and investment into a deeper range of policy areas that secure trade and investment. Still, any deal hinges on the momentum of domestic reforms in both countries to ensure a balanced outcome.

*About the authors:

  • Dipen Rughani is the Founder and CEO of Newland Global Group.
  • Natasha Jha Bhaskar is General Manager of Newland Global Group.

Source: This article was published by East Asia Forum

East Asia Forum

East Asia Forum is a platform for analysis and research on politics, economics, business, law, security, international relations and society relevant to public policy, centred on the Asia Pacific region. It consists of an online publication and a quarterly magazine, East Asia Forum Quarterly, which aim to provide clear and original analysis from the leading minds in the region and beyond.

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