A free trade agreement (FTA) is a pact made between two or more nations in which the parties list down and specify responsibilities pertaining to the exchange of products and services, investor protections, intellectual property rights, etc. It is an agreement to ease import and export restrictions.
On April 2, 2022, Australia’s then-Minister of Trade, Tourism, and Investment, Dan Tehan, and India's Minister of Commerce and Industry, Consumer Affairs and Food, Public Distribution, and Textiles, Piyush Goyal, signed the Australia-India Economic Cooperation and Trade Agreement. Followed by this, on 29th of December 2022, a free trade agreement (FTA) between India and Australia came into force. The much-anticipated agreement between the two nations is expected to strengthen commercial relations and support more bilateral trade in products and services.
The FTA will prove to be advantageous for both countries, specifically from the exports and imports perspective. The free trade agreement is officially known as Economic Cooperation and Trade Agreement (ECTA) and is formed with the intention to improve trade relations between the two countries.
Chapter Wise Bifurcation And Key Provisions
- CHAPTER 1: ECTA's general provisions and objectives are outlined in Chapter 1, which states that it was signed in order to liberalize trade in goods and services and increase the effectiveness and competitiveness of both nations' manufacturing and service sectors.
- CHAPTER 2: The tariff obligations of both Australia and India are outlined in Chapter 2. The tariff schedule in accordance with the Harmonized System of Nomenclature ("HSN"), which outlines each nation's commitments to reduce the amount of customs duty on the listed commodities, is also included in Chapter 2. Even though both nations have pledged their support, Australia and India have unique obligations in terms of certain items. Additionally, certain goods are not included in the list of commitments.
- CHAPTER 4: One of the most significant components of the India-Australia trade agreement is Chapter 4. It establishes the "Rules of Origin" for assessing whether a product originated in the territory of either nation or not. It also specifies the rules for determining whether a non-originating product can meet the requirements for availing benefits under ECTA.
- CHAPTER 12: Chapter 12 of the ECTA establishes a structure for representatives of the two nations to meet annually for the first year and thereafter every two years to assess the ECTA's progress.
- CHAPTER 13: The dispute resolution process for ECTA-related concerns is outlined in Chapter 13. It stipulates that any disagreements must be settled through discussion. It also specifies the parameters within which a request for consultation must be made, an adjudicatory panel must be created, the panel's operating rules, etc.
Important Points Regarding The India-Australia Agreement – ECTA
- Nearly all of the tariff lines that India and Australia engage in are covered under the India-Australia trade agreement. India will profit from Australia's 100% tariff-line-specific preferential market access. This covers all the industries with a high labor component that India is interested in exporting, such as - gems and jewelry, textiles, leather, footwear, furniture, food and agricultural goods, engineering products, medical devices, and automobiles. On the other side, India will grant Australia preferential access to more than 70% of its tariff lines, including those that are relevant to Australia's export interests and are principally for raw commodities and intermediaries like coal, mineral ores, and wine.
- India has granted Australia market access in around 103 subsectors and ‘Most Favored Nation’ status in 31 subsectors from the 11 main service sectors, including "business services," "communication services," "construction and related engineering services," and so on. Additionally, the parties to this agreement have agreed to a separate Annex on pharmaceutical products, which will allow for the fast-track approval of proprietary, generic, and biosimilar medications.
- Through this agreement, Australia is offering - Quotas for chefs and yoga instructors, a post-study work visa of two to four years for Indian students on a reciprocal basis. Indian students will soon be allowed tostay in Australia for a longer period of time owing to ECTA provisions. Indian graduates with a certificate or trade certification will be permitted to stay for up to 18 months, while those with a bachelor's or master's degree may do so for two or three years, respectively.
- Post study, work rights will be extended. Four-year employment privileges will be granted to Indian students who get PhD degrees as a consequence of ECTA. This period of employment allowed due to ECTA is considered to be more liberal than those provided to foreign post-graduates in Canada (three years), the US (12 months), or the United Kingdom (three years).
- Due to ECTA, there is a special allowance for Indian students who get a bachelor's degree with first-class honors in a STEM or ICT-related discipline. Such students will be able to live and work in Australia for a period of three years.
- Under the rules of ECTA, Indian students would be able to apply for Australia's famous Work and Holiday Visa programme, in the upcoming several years. This category will reserve a total of 1,000 visas annually for Indian students, who can use them to study or get training in Australia for up to four months.
- ECTA will help to provide mutual recognition of professional services, other licensed/regulated occupations, and a work-and-vacation visa arrangement for young professionals.
- 96% of India's exports to Australia, including shipments from important industries like engineering items, gems and jewelry, textiles, clothing, and leather, would have zero-duty access.
- India will grant zero-duty access to 40.3% of its tariff lines right away and the remaining 30% gradually over the course of three, five, seven, and ten years. Additionally, 125 tariff lines will have their levies decreased rather than removed. India has retained a number of sensitive items in the exclusion category, without making any concessions. A large proportion of medical equipment, wheat, rice, bajra, apples, sunflower seed oil, sugar, oil cake, milk and other dairy products, chickpeas, walnuts, and pistachios are included in this category.
- India is making concessions for imports from Australia mostly on raw materials and intermediates, either through the abolition of tariffs or through tariff reductions (TR) with or without a tariff-rate quota (TRQ).Only a small number of agricultural items, including cotton, oranges, mandarins, almonds, pears, and others, have been permitted under strict limitations.
Significance Of The ECTA
- The India-Australia Economic Cooperation Treaty (ECTA) is anticipated to increase investments, improve market access, provide more employment opportunities, and, most crucially, deepen bilateral connections between two significant powers in the Indo-Pacific region.
- This agreement would boost mobility for Indian working professionals in 11industries and generate around 40,000 employment opportunities in the textile industry in India.
- It will make raw materials more affordable for several industries, mainly for the Australian steel and aluminum industry.
- The ECTA will enable greater Australian investment and aid Indian manufacturing.
- In India's labour-intensive industries, the import taxes of four-to-five percent would be eliminated. This trade deal is thus anticipated to result in quick development of such labour-intensive industries.
- Large Indian IT firms are anticipated to participate more in Australian government projects as a result of the agreement.
- ECTA will grant free access to the Indian market to around 85% of Australian exports, including coal, sheep meat, and wool, as well as reduced tariff access for Australian wines, almonds, lentils, and some fruits.
Trade Remedies And Dispute Settlement Mechanism
The ECTA provides a safeguard mechanism that permits quick deployment of temporary measures in order to curb the spike in imports and safeguard the domestic industry. From the moment the tariff is eliminated or reduced, this method will be available for a period of 14 years.
Any disputes under this India-Australia trade agreement must be settled by talks and consultations. If no solution is arrived at by talks and discussions, parties from both nations may turn to a three-person arbitral panel. The third member, who will serve as the panel's chair, will be chosen by consensus after each side of the dispute names a member.
Interplay With Custom Laws
While the ECTA lays out a comprehensive general framework for trade relations between the two countries, one of its most important provisions is the provision of preferential tariff treatment for imports of goods with origins in each other's territories based on generally recognized "Rules of Origin" standards.
The process for identifying the origin of a product has been laid out in notification no. 112 / 2022-Customs (NT) dated 22 December 2022 ("Notification 112") with regard to imports into India from Australia seeking to take advantage of benefits covered under ECTA.
It is necessary to read notification 112 in conjunction with Section 28DA of the Indian Customs Act, 1962 ("Customs Act") and the Indian Customs (Administration of Rules of Origin under Trade Agreement) Rules, 2020 ("CAROTAR Rules"), which outline the specific steps an importer in India must take in order to obtain preferential tariff treatment through an exemption or reduction from the general customs duty.
As a result, Indian importers who intend to request preferential tariff treatment under ECTA would be required to prepare for compliance with the conditions outlined in Notification No. 112 and the CAROTAR Rules.
The foundation of strengthening India-Australia relations is common values, interests, geography, and goals. In recent years, the two nations' collaboration and coordination have accelerated to a great extent. The India-Australia ECTA will considerably increase bilateral commerce in products and services, generate new employment opportunities, boost living standards, and promote overall societal welfare between the two nations, further solidifying their existing strong, strategic, and profound relationships.
To ensure that the ECTA is enforced and to maintain smooth trade relations between the two nations, it is crucial to:
- Establish explicit contractual responsibilities that define the essential requirements for collaboration to guarantee adherence to the above-mentioned conditions/compliances.
- Review and make any necessary changes to the current import procedures and paperwork.
- Ensure that the provisions are properly followed and adhered to.
What is the free trade agreement signed between India and Australia?
On December 29th, 2022, a free trade agreement (FTA) between India and Australia came into effect. This much-anticipated agreement between the two nations is expected to strengthen commercial relations and promote greater bilateral trade in products and services. The FTA is officially known as the Economic Cooperation and Trade Agreement (ECTA) and was formed with the intention of improving trade relations.
What are the main features of the India-Australia Economic Cooperation and Trade Agreement?
1. India will have preferential access to Australia's market with 100% tariff-line-specific coverage for industries with high labor component such as gems and jewelry, textiles, leather, footwear, furniture, food and agricultural goods, engineering products, medical devices, and automobiles.
2. Australia will have preferential access to over 70% of India's tariff lines, including those related to raw commodities and intermediaries like coal, mineral ores, and wine.
3. Australia is offering quotas for chefs and yoga instructors, and post-study work visas of 2-4 years for Indian students who get a PhD degree as a result of the agreement.
4. Indian students who earn a bachelor's degree with first-class honors in STEM or ICT-related disciplines will be eligible to work and live in Australia for three years.
5. Mutual recognition of professional services and other licensed/regulated occupations, and a work-and-vacation visa arrangement for young professionals will be established.
6. 96% of India's exports to Australia, including shipments from important industries like engineering items, gems and jewelry, textiles, clothing, and leather, will have zero-duty access.
7. India will make concessions for imports from Australia, mostly on raw materials and intermediates, through tariff reductions or abolition.
What is the significance of the India-Australia Economic Cooperation and Trade Agreement (ECTA)?
1. ECTA is expected to increase investments, improve market access, create more employment opportunities, and deepen bilateral connections between two significant powers in the Indo-Pacific region.
2. It will provide greater mobility for Indian working professionals and generate employment opportunities in the textile industry in India.
3. Raw materials will become more affordable for several industries.
4. The agreement will enable greater Australian investment and aid Indian manufacturing.
5. Large Indian IT firms are expected to participate more in Australian government projects as a result of the agreement.
6. ECTA will grant free access to the Indian market for around 85% of Australian exports.
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