Published on: November 24, 2022

Free Trade Agreement

Free Trade Agreement

Why in news?  

India and Australia to implement the free trade agreement as the Australian Parliament approved the pact between the two countries.


  • The India-Australia Economic Cooperation and Trade Agreement (AI-ECTA) needed ratification by the Australian parliament before its implementation.
  • In India, such pacts are approved by the Union Cabinet.

Will India–Australia trade pact further boost their bilateral relationship?

  • The steel industry to take benefit of zero duty in the Australian market and push their exports.
  • Australian exporters, businesses, workers and consumers will soon be able to reap the opportunities and benefits of more open trade with India
  • Agreement will remove non-tariff barriers like technical barriers to trade (TBT) and sanitary and Phytosanitary (SPS) restrictions
  • The latest Ministry of Commerce and Industry of India data (released in April 2022) show 8 percent year-on-year growth in Indian exports to Australia and 99.5 percent year-on-year growth in Australian imports to India.
  • Australia’s aim is to make India one of its top three export markets by 2035 and also the third-largest in Asia for Australian investment.
  • India will grant market access to Australian single-brand retailing franchises and internet service providers.
  • India also committed to extend the best treatment, to key Australian services sectors including education, business and financial services, health, tourism, and travel

 Which sectors would benefit?

  • India’s manufacturing sector, particularly micro, small and medium enterprises are interested in the Australian market
  • The agreement unlocks huge opportunities for Indian exports of automobiles, textiles, footwear, and leather products, gems and jewellery, toys and plastic products
  • The ECTA expressed significant commitments to cut tariffs.
  • Australia will make way for zero-duty market access for 96.4 percent value of Indian exports (which constitute 98 percent of tariff lines)
  • Several labour-intensive Indian exports (which currently attract 4 percent to 5 percent tariff), including textiles, apparels, agriculture and fish products, leather, footwear, furniture and sports goods, jewellery, engineering goods, and selected pharmaceuticals and medical devices, are expected to gain from the immediate duty-free access.
  • Tariff lines on certain Australian raw material exports, like wool, sheep meat, coal, alumina, metallic ores and critical minerals, are slated to be reduced to zero immediately.
  • India has successfully negotiated protection terms for its dairy sector and sensitive agricultural items like chickpeas, walnut, pistachio nut, wheat, rice, bajra, apple, sunflower oil, and sugar.

Is strategic interest converging with the economic one?

  • Apart from being Quad members, India and Australia share this as another common element of interest
  • After Galwan Clash, India is looking to engage more strongly with like-minded countries in the Indo-Pacific to reduce its reliance on China as an economic partner.
  • It will ensure an uninterrupted supply of key raw materials to Indian industries, while Australia will find a more reliable alternative in India.

What are the challenges?

  • There has been times where, Indian manufacturers had been unable to utilise full potential of preferential trade in goods.
  • Even though CECA is likely to make available crucial ,Australian raw material, the extent of final benefit will depend upon the status of future export competitiveness created by Indian industries
  • Any lapse in attaining those critical production advantages, coming out of this FTA, will negate the future positive benefit of this pact for India.
  • The agreement clearly specifies that any decisions or requirements under the party’s foreign investment framework shall not be subject to dispute settlemen
  • Negative list approach: those sectors in the schedule of reservations, which are kept out of the scope of the agreement
  • Give the nations the right to impose trade barriers or regulatory restrictions over all the sectors, which are not included in the list.

Way Forward

  • A strong bilateral cooperation is needed for any trilateral, minilateral cooperative framework to work successfully.
  • Given India and Australia are actively engaging in these formats as seen with the Quad, the India–Australia–US and Japan–Australia–India trilateral, the need of the hour for India and Australia is to make this economic pact advantageous to both.