Date: 10/02/2023

Relevance: GS-2: Bilateral, Regional, and Global Groupings and Agreements involving India and/or affecting India’s interests.

Key Phrases: Australia-India Economic Cooperation and Trade Agreement, Tariff elimination, tariff reduction, tariff-rate quota, Sensitive products, zero duty access.

Why in News?

• Australia is India’s 10th largest trading partner with a total trade of $18,902.62 million, per DGCIS data of April-November.
• Similarly, India is Australia’s seventh largest trading partner and the most significant part is that both economies are highly complementary and would benefit greatly as the ECTA opens new opportunities for trade diversification for businesses.

Australia-India Economic Cooperation and Trade Agreement (ECTA):

• It is a stepping stone and has opened up new markets for exporters and service suppliers in many sectors.
• ECTA will boost India’s trade with the support of developed nations by harnessing optimal benefits through technical upgradation of Indian industry and strengthening bilateral cooperation.
• Tariff elimination for India:
  • Under this agreement, India is being provided 100 percent tariff elimination by an importing country in two phases —
    • Zero duty immediately on 98.3 percent of tariff lines amounting to 96.4 percent of the value of our exports and
    • Phasing out to zero duty on the remaining 113 tariff lines constituting 1.7 percent of tariff lines and amounting to 3.6 percent of India’s exports (in value terms) in five years, which will benefit the remaining products.
• For Australian products:
  • India is offering concessions mostly on raw materials and intermediates either in the form of tariff elimination, or tariff reduction (TR) with or without a tariff-rate quota (TRQ).
  • Only a few agricultural products such as oranges, mandarins, almonds, pears, and cotton among others have been allowed with limited quotas.
  • India has provided zero duty access immediately on 40.3 percent of its tariff lines and the remaining 30 percent in a phased manner over a period of 3, 5, 7, and 10 years.
  • This also includes 125 tariff lines where there will be duty reduction and not elimination.

Sensitive products:

• India has excluded many sensitive products without offering any concession.
• These include milk and other dairy products, chickpea, walnuts, pistachio nuts, wheat, rice, bajra, apple, sunflowers seed oil, sugar, oil cake, gold, silver, platinum, jewellery, iron ore, and most medical devices.
• A Mutual Recognition Agreement on organic equivalence will be signed between the countries within 12 months of the agreement for the trade of organic products.
• In the ECTA, a reduction of 150 percent tariff over nine years for wine bottles over import prices of $5 and $15 by 25 percent and 75 percent based on Indian WPI for wine will be to Australia’s advantage, the world’s sixth-largest producer and the fourth-largest exporter of wines.

Processed food sector:

• In the processed food sector also, there is the elimination of tariffs up to 50 percent for a wide range of food products, including infant formula, certain chocolates, breakfast cereals, pasta, olive oil, protein concentrates, prepared nuts, coffees, and teas.
• There is a 30 percent elimination of tariff on sheep meat for Australia and currently, India imports sheep meat from New Zealand.
• The pact does not allow such goods through stringent rules of origin that reflect the requirement for substantial processing.

Agriculture goods:

• Based on India’s insistence, a number of agricultural goods have the wholly obtained criteria.
• Moreover, wherever other rules have been used, they largely include both changes in tariff classification at the level of Subheading and a minimum of 35 percent using Build-up Formula (or 45 percent using Build-down Formula) value addition taking the Free on Board (FOB) value of exports as the base.
• India exports basmati rice, spices, miscellaneous processed items, processed fruits and juices, cereal preparations, coffee, tea, marine products, guar gum, sesame seeds, non-basmati rice, etc.
• Overall exports to Australia grew 104.83 percent in 2021, and agriculture exports were up 14.43 percent in dollar terms during April-November 2023.

Overall benefits in farm trade:

• Tariff reductions:
  • The agreement includes provisions to reduce tariffs on agricultural goods, making it easier and more cost-effective for farmers in both countries to trade with each other.
• Improved market access:
  • The agreement removes non-tariff barriers to trade, such as sanitary and phytosanitary measures, which make it easier for agricultural products to cross borders.
• Increased investment:
  • The agreement makes it easier for companies to invest in each other's countries, leading to increased investment flows in the agricultural sector.
  • This could result in the creation of new infrastructure and the expansion of existing farm businesses, which would in turn lead to increased agricultural trade.
• Boosted competitiveness:
  • The agreement makes it easier for businesses in both countries to compete in global markets, including the agricultural sector.
  • This increased competitiveness could spur increased trade in farm goods and services.
• Better market information:
  • The agreement includes provisions for increased collaboration on market information and analysis, which could help farmers in both countries better understand and respond to market trends.
• Enhanced technology cooperation:
  • The agreement includes provisions for cooperation on research and development, including in the field of agriculture.
  • This could lead to the development of new technologies that could benefit farmers in both countries, making it easier and more efficient for them to trade with each other.

Conclusion:

• The India-Australia CECTA is an important step forward in the economic relationship between the two countries and is expected to bring significant benefits for businesses and consumers in both countries.
• The implementation of the agreement will require ongoing collaboration and cooperation between the two governments and the private sector to ensure that its full potential is realized.

Source: The Hindu BL

Mains Question:

Q. How has the India-Australia Comprehensive Economic Cooperation Agreement (CECTA) impacted the increase in farm trade between the two countries and what measures can be taken to further boost agricultural trade under the agreement? Discuss.