Preparing the FTA pitch

Three years after India and Australia signed an interim trade deal, the two sides are moving decidedly towards a full-fledged free trade agreement. They have rising US tariffs to contend with

- SHREYA NANDI

Announcing the interim trade deal between India and Australia on December 29, 2022, Commerce and Industry Minister Piyush Goyal drew a cricketing analogy.

The agreement, he said, came with the “speed of Brett Lee and the perfection of Sachin Tendulkar” — highlighting the pace and precision with which the pact was completed.

The deal, officially known as the India-Australia Economic Cooperation and Trade Agreement (ECTA) holds a special place for Goyal. It was India’s first trade agreement with a developed country in over a decade, after New Delhi's decision to walk out of the China-backed RCEP (Regional Comprehensive Economic Partnership) in 2019. That apart, other than progress on tariff elimination, India was able to remove double taxation on information technology services — a longstanding problem that was eroding the Indian sector’s competitiveness. Nearly three years on, the department of commerce is now focused on ensuring complete saturation or utilisation of the ECTA, especially against the backdrop of the US imposing a steep 50 per cent tariff on several Indian exports to America from August.

In August, the department of commerce said utilisation of the ECTA by Indian exporters stood at 84 per cent since its implementation, while Australian export utilization stood at 86 per cent. In FTAs, utilisation rate is a key parameter to assess how the pact is faring — whether the preferential access and lower tariff rates are being used to export and import goods. In trade jargon, the rate of utilisation refers to the percentage of export value using the preferential tariff lines.

However, it is important to note that India remains a relatively high-tariff economy compared with Australia — a reflection of its current stage of economic development. To be sure, Australia’s average tariff was already lower than India’s before the agreement took effect, which means India’s tariff reduction on certain products is far steeper.