Indian trade deal would be coup for Australia

19 January 2015. By Jennifer Freedman.

Australia’s biggest trade mission to India to date returned home on Friday with the expectation that Canberra will be able to clinch a free-trade agreement with Asia’s third-largest economy by this time next year.

Trade and Investment Minister Andrew Robb, who led the delegation to New Delhi, promised last week that his government’s “highest FTA priority is now the conclusion of a bilateral trade deal with India” in 2015.

India and Australia have held six rounds of talks since negotiations began in 2011 to liberalize and broaden trade in goods, encourage investment, and abolish “non-tariff barriers” such as import bans or quotas that make commerce difficult or costly. The FTA would “cover substantially all trade in goods” and “would have substantial services-sector coverage,” they said in a joint feasibility study in 2010.

Trade between the two countries has grown in value from $5.1 billion in 2003 to $15.2 billion in 2013 —though that’s just a tenth of Australia’s bilateral trade with China. India is Australia’s fifth-biggest export market, buying $9.5 billion of goods such as coal, gold and copper in 2013.

Securing an ambitious FTA with India would represent an important economic and political triumph for Canberra. India is on course to overtake China as the world’s fastest-growing major economy by 2017, bolstered by “robust” export growth and improved investor confidence following “the election of a reform minded government,” the World Bank said in its Global Economic Prospects report last Tuesday.

The Centre for Economics and Business Research says “the rise of India looks unstoppable.” The country will overtake the UK in 2018 to become the largest economy in the Commonwealth, and by 2024 will be the world’s third biggest, the CEBR said on Dec. 26 in its  World Economic League Table 2015.

This would be a remarkable achievement for India, which is known for its high levels of bureaucracy, corruption and protectionism.

Transparency International ranked the country No. 85 among 175 countries in its 2014 Corruption Perceptions Index, while US Trade Representative Michael Froman said in November that India had built a “wall of protectionism” to shield its domestic industry from foreign competitors.

North Asian ties

Australia has worked vigorously to beef up trade ties in North Asia, signing FTAs with China, South Korea and Japan last year. The three countries buy more than half of Australia’s exports, and the trade
agreements give Australian businesses preferential access to a market of almost 1.6 billion people.

The three trade deals will benefit Australian businesses in areas such as agriculture, natural resources, manufacturing, services and investment, Robb said. Consumers in Australia will see prices drop for products including clothing, cars, household goods and electronics, he added.

The Northeast Asian FTAs “create new market access in goods and services, unlock the two-way benefits of investment, creating wealth for all Australians, and imbed modern disciplines that underpin trade and investment activity,” Robb said in a Nov. 16 YouTube statement. “They position Australia to benefit from the growth and transformation of Asia’s leading economies.”

The accord with Tokyo, which entered into force on Thursday, was particularly significant because the Japanese farming industry has traditionally been protected. The trade deal with Australia was “Japan’s first with a major agricultural economy, placing us ahead of the pack,” Robb said.

FTA priorities

Agriculture is a sensitive issue in the Australia-India FTA, too, and it remains a key sticking point in negotiations. Bilateral trade in farm products and services is worth about $675 million a year.

Mining and services are also priorities for Australia, a leading producer of key mineral commodities such as iron ore, bauxite, alumina, gold and zinc and home to mining giants such as Rio Tinto and BHP Billiton. India has vast mineral resources.

Canberra sees the FTA as a way to help India diversify its energy base through the supply of low-emission liquefied natural gas and uranium.

Indian Prime Minster Narenda Modi said in December that his country needed “energy that does not cause our glaciers to melt; clean coal and gas, renewable energy and fuel for nuclear power.”

Australia’s refusal to sell uranium to India until New Delhi signed the Nuclear Non-Proliferation Treaty —a major obstacle in the FTA talks — was resolved in September after Modi agreed that the uranium would only be used for peaceful power generation.  Shipments are expected within five years.

India already imports coking coal from Australia, and in 2009 signed a contract with ExxonMobil for liquefied natural gas from its Gorgon Project off the West Australian coast. Woodside Petroleum,  Australia’s largest oil and gas producer, last week signed a memorandum of understanding with major Indian energy conglomerate Adani Enterprises that could lead to trade in LNG. The deal was inked during Australia Business Week, a trade event in New Delhi, that was attended by more than 450 Australian business leaders eager to do business in India.

News media on Friday cited Robb as saying his visit to India marked an important step toward exploiting “vast untapped potential” in the relationship between Canberra and New Delhi. Whether that step translates into a free-trade deal this year remains to be seen.

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