What Australia’s Trade Agreement with India Means for Importers & Exporters

Australia and India have now entered into the Economic Cooperation and Trade Agreement (AIECTA), a much-anticipated landmark trade pact. Expected to boost two-way trade up to $50 million, the Agreement is being hailed as a victory for countries and a stepping stone in the relationship.

Signed on 2 April 2022, the AIECTA will come into effect around the second half of 2022. The Agreement is a product of over a decade of negotiations, with discussions over a potential free trade agreement having started back in 2011. It will remove over 85% of tariffs on Australian goods exported to India, while also eliminating duties on nearly all Indian goods imported into Australia.

Below, we’ll outline what AIECTA is, including what deal was struck between the country and how it may affect importers here in Australia.

India and Australia Flags

What is the Australia-India Economic Cooperation and Trade Agreement?

It is an interim free trade pact between Australia and India, considered a significant step in diversifying Australia’s export market and reducing the country’s dependence on China for its trade. It was signed by then-Trade Minister Dan Tehan and Indian Minister of Commerce and Industry Piyush Goyal, with Mr Tehan stating that the agreement was “historic”. It follows the signing of a Comprehensive Strategic Partnership between the two countries in 2020.

Signing of Comprehensive Strategic Partnership in 2020

To understand the importance of the deal, we need to look at some context. India has a population of around 1.4 billion and is the world’s fastest-growing major economy. Its GDP is expected to grow by 9% in the 2022-2023 financial year. It was also Australia’s seventh-largest trading partner in 2020, and also had an export market worth $16.9 billion AUD that year.

India has therefore always been considered a prime economic partner for Australia – and an appealing alternative to China. China is Australia’s largest trading partner, yet many have voiced the opinion that our economy is too dependent on our Asian neighbour for economic prosperity. Former Treasurer Josh Frydenberg stated back in March that the Australian Government was investing in “trade diversification” after China imposed sanctions on Australian coal, lobsters, barley and wine.

What does the Agreement mean for goods imported from and exported India?

Importers will soon enjoy a range of benefits if they import goods from their Indian partners. That’s because 96% of Indian goods will enjoy duty-free status. Exporters will also be able to tap into more of the Indian market, with an elimination of 85% of tariffs on goods exported there.

  • Coal will experience an elimination of the current tariff on entry over the next 5 years.
  • Cotton will enjoy an instant duty-free quota when importing 300,000 bales.
  • Barley and oats will experience a lock on the current 0% tariff.
  • The horticulture industry will benefit from the removal of tariffs of up to 30% of certain foods over the next 7 years. This will include food like peas, onions, cherries, berries, macadamias and more.
  • The 0% tariff on LNG will be locked in.
  • Pharmaceuticals and medical devices will experience a removal of the 10% tariff on certain products and devices over the next 5-7 years.
  • Resources will also see a removal of tariffs for metallic ores such as tin, copper, manganese, cobalt and nickel.
  • The 30% tariff on fresh rock lobsters will be eliminated immediately when the Agreement enters into force.
  • Wool will enjoy an instant removal of the 2.5% tariffs of whine upon entry into force.

These are just some of the benefits Australian businesses will experience as a result of the new interim trade deal.

Economic Cooperation and Trade Agreement virtual signing

Note, however, that some important concessions were made in the Agreement. India has always been sensitive to exposing its agricultural market to foreign competition – and many agricultural commodities (and the dairy sector) have been excluded. You will also notice that some goods (such as cotton, almonds and lentils) will only enjoy a duty-free import if a certain import quota is met.

Is this an Australia-India Free Trade Agreement?

Not exactly. It is an ‘interim’ deal, which means a further comprehensive Agreement is yet to be negotiated and finalised.

There are strong arguments why the two countries should have a free trade agreement. India has a number of free trade agreements with other countries and organisations, including with Japan, South Korea, and ASEAN. Both Australia and India rely a great deal on one another for exports. Australia would likely benefit from equal or preferential access to the Indian market, with the Centre for International Economics estimating that such an agreement could result in Australia’s Gross Domestic Product (GDP) increasing by up to $43 million net.

The Lowy Institute argued that India needs to implement serious internal policy reform in order to negotiate a successful agreement with Australia. This will include instilling a willingness to open the country’s sensitive sectors, such as dairy, up to the world. Noting that investment liberalisation was completely left out of the interim agreement, the Institute suggested that India review and amend its model investment treaty so that it reflects international best practice.

It is unclear at this stage whether the AIECTA will lay the brick-and-mortar foundations for a proper free trade agreement. Negotiations have taken over a decade to get to this point, so we can only speculate as to how long it will take for a full-fledged agreement to be finalised.

The future of India-Australia relationships under Labor

Less than two months after the AIECTA was signed, Australia changed governments. The Liberal Party, which had held power nationally since 2013, was replaced by the Australian Labor Party after the 2022 federal election. What then is the future of an Australia-India Free Trade Agreement?

QUAD Meeting 2022

Once again, the answer to that question is unclear. Australia’s new Prime Minister Anthony Albanese had a meeting with Indian Prime Minister Narendra Modi at the Quad Summit, the day after he was sworn in as PM. The Prime Minister’s Office reported that the two had “fruitful discussions”, and that a desire was affirmed to “continue the positive momentum in the bilateral relationship”. After the meeting, Modi tweeted that the Comprehensive Strategic Partnership with Australia was “robust” and “benefits not only the people of our nations but also the world”.

Questions?

Australian businesses will continue to have a close relationship with India in light of the new trade deal. If you have any questions about how the Agreement will impact your business, or if you’re wanting to know how you can tap into its opportunities, give our customs brokers at International Cargo Express a call.

International cargo express customs brokers

Our team handles all aspects of shipping to and from India from beginning to end, with 23 partner offices throughout the country. We can talk directly to your suppliers and buyers, ensuring all shipments flow smoothly and your goods are transported safely to where they need to go.

Our customs brokers know the AIECTA and can advise you specifically on how your business can take advantage of its terms.

Lodge a query through our contact form, give us a call or leave a comment below – and we’ll get back to you soon.

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