Negotiations on the Comprehensive Economic Cooperation Agreement (CECA) between Australia and India are scheduled to reset after its suspension in 2015.
Australia’s new Trade Minister Dan Tehan has said that a trade agreement with India is one of his highest priorities.
Why have the negotiations been discontinued? And has something changed to make an agreement now more likely?
For both countries, there are potential gains. The first joint study of feasibility found major tariff and non-tariff barriers to trade in goods and services. The evaluation of the agreement’s possible social gains was 0.15%-1.1% of Indian GDP and 0.23%-1.17% of Australian GDP.
The Economic Strategy of Australia’s India identifies 10 priority areas for the growth of Indian trade:
• A flagship (education) sector,
• Three leaders (agribusiness, resources, and tourism) and
• Six promising industries (energy, health, financial services, infrastructure, sport, and science).
The Australia Economic Strategy recently released in India identifies important space for export growth and investment growth in 12 focus sectors and eight emerging sectors.
However, negotiations have been suspended following nine rounds from 2011 to 2015, covering many of the proposed chapters.
Agricultural exports to India were a bottleneck for Australia. Everything that threatens producers is political dynamite because half of the Indian jobs are connected to agriculture.
Australia’s claim that many of its exports to agriculture are aimed at the premium end of the market and would not delay India’s smallholder producers’ productivity was a deaf ear.
In other sectors where the largest companies in India feel threatened by the prospect of increased market competition and are hard-pressed into defending their privileged status, similar dynamics occur. The trade agreements proposed are generally assessed for domestic producers rather than consumers.
The Indian trade deficit of around AUD15 billion (USD12 billion) means that trade is viewed as heavily decaying in Favor, with various levels of development precluding a level playing field. Trade is often framed as profit or loss. The commercial deficit in India has been exacerbated in trade agreements with the neighboring countries.
Australia’s desire for an easier visa regime for Indian workers was one of the most politics- sensitive stick points. Other concerns raised include threats from mango parasites and their consequences on the processing of stainless steel and food. Overall, it wasn’t enough for India to make a deal worthwhile. In 2018, the diplomat described ‘negotiation positions are too distant to make a CECA a realistic goal in the short term.’
Following a suspension of negotiations, Australia focused on maintaining India, as a way of achieving an agreement, in talks with the CECA on a multi-country Regional Comprehensive Economic Partnership (RCEP).
What’s new in today’s world?
The most significant change is in the context of the Australia–India relationship as a whole is at the Leaders’ Virtual Summit in June 2020, India and Australia elevated their relationship to a Comprehensive Strategic Partnership, owing in part to concerns about the neighboring country of India.
Given its domestic politics, India’s capacity for manoeuvring is limited, as recent farm protests demonstrate, and it’s unlikely to invest political capital in an agreement that isn’t perceived as hugely beneficial to Indian business. The fact that India is considering to resume trade talks with some of the European countries, which were suspended in 2013, suggests a shift in its trade policy. Reforms to cut red tape have improved the country’s ease of doing the business score, and initiatives to attract foreign investment have been implemented.
Because of the neighboring country’s limitation on exports worth at least AU$20 billion (US$15.4 billion), Australia’s government is under pressure to increase export market diversification. After nine rounds of negotiations, the Australia–EU Free Trade Agreement is the only one that is close to completion. With both governments eager to show that they are doing something to help struggling economies, even resuming negotiations may be politically advantageous. Despite being announced in June, no conversations have yet taken place, so there may be no rush to put in the hard yards to reach an agreement.
What’s on the table now may not be much better than what was on the table in 2015, but Australia and India may be more inclined to accept it. The most appealing alternative would be a modest agreement with mostly symbolic value, albeit this would be painful for Australia’s trade negotiators. Those that desire to strengthen their economic ties may
explore alternatives to a formal agreement.