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Australia-India Economic and Trade Cooperation Agreement: A substantive treaty

As with all trade treaties, there are specific areas of agreement and then an indicative path to other areas. Implicit in all agreements between two or more countries there are two essential drivers, namely national interest and political intent.

In our region, the big bang was the Regional Comprehensive Economic Partnership (RCEP) in November 2020 and more recently, in early April 2022, the Australia-India Economic and Trade Cooperation Agreement (ECTA).

To quickly summarize, RCEP has been signed by 15 countries, that is 10 ASEAN countries + China, Japan, South Korea, New Zealand and Australia. It is the largest trading bloc in the world. India has chosen to go the route of bilateral trade agreements (Aus-Ind ECTA being one). However, with RCEP being the largest trading bloc in the world, i.e. larger than the EU or the Americas, some comparisons cannot be avoided.

The content of trade agreements is complex and with the rapid acceleration of digitalization, the “contentious” issues in the negotiation process have also evolved. While agreements on tariffs and intellectual property are still important, the scope has expanded.

ECTA aims to facilitate a mixture of general issues and some at the operational level, namely mobile number portability, affordable international roaming (significant support for professional services, tourism), paperless trade through electronic certification, to only cite a few. Indeed, it took 10 years of preparation (not charging this long delay is justifiable), but congratulations to Ministers Goyal and Tehan for a splendid delivery.

The treaty shifted the needle to value creation. Conventional manufacturing is a big part of value creation, but there are other elements that have an impact as well. The axiomatic claim that Australia has vast reserves of raw materials/minerals and India has skilled and cheap labor is well known. The examination of the various documents within the framework of the ECTA clearly shows that the treaty goes beyond the declaration of banner and aims to improve the levers of creation of value, both in India and in Australia. The treatise examines input values ​​and corrals to “value creation”, ie a baseline for a win-win situation.

India wants to build capacity and capacity to create value. Clearly, for a growing economy of this size and the availability of skilled and semi-skilled labor, it is abundantly clear that local value creation has room to grow, not only to meet local demand, but also to participate more in the global value chain. To achieve this, India needs the right entry values, raising the threshold of product/service quality and closing the gaps in its professional services. Australia, on the other hand, needs an increased share in the value chain (going from raw material to the value of inputs) and offer quality professional services including the urgent issue of environmentally friendly initiatives.

Although the treaty deals with many general issues, the three key pivot levers are:

  1. Pathway for Australia and India to enter the service sector.

The two countries have agreed to implement a framework to facilitate mutual recognition of qualifications, licenses and registration procedures between professional services organizations. This will force the professional bodies to agree on the paths of mutual recognition. This is a proxy approach but, in my view, it is more fundamental and will undermine the status quo.

To look at it a little differently and examine the migration trend of high net worth individuals, that is, those with a net worth of at least $1 million or more in assets. While Covid has disrupted the migration pattern over the past two years, the country that gained the most millionaires for the fifth straight year through 2019 is Australia. This inbound traffic brings skills, qualifications and influence – all key elements of a strong service sector in any economy in addition to the availability of capital.

Here, the Treaty may seem to catch up with RCEP, but the specifics of ECTA are more structural

2. Rules of origin and added value.

Defines what should be treated as originating from Australia or India. A qualifying value content (QVC) of at least 35% of FOB value is recognition of the path to collaborative value creation. It recognizes the current state of a globally dispersed supply chain/value chain.

Compared to RCEP, this seems more specific and executable

3. Enhanced mobility between the two countries based on transparent visa channels.

It is a key enabler for the services industry and for the broader goal of value creation and is expected to support a range of qualified Australian and Indian service providers, investors and business visitors, facilitating thus the investment.

It’s a catch-up with the RECEP block. However, this is likely to be the catalyst that the first 2 previously mentioned levers must have, to generate a significantly accretive result for India and Australia.


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