Monday, January 30, 2023

Despite Liberal govt’s exit Down Under, India-Australia FTA appears safe

By Dev Chandrasekhar and Suresh Iyer

Australia has voted decisively for change. After three terms and nine years of the Liberal-National Coalition government, the last three years led by Scott Morrison (2018-2022), the Labour party is inching towards the majority of 76 seats (at the time of writing) in Australia’s lower house of parliament.

Beyond the change of hands and heads at the top, this election has marked a watershed. After several decades of two-party hegemony, Australia’s voters have made an unprecedented move towards independent and Greens candidates who made climate crisis their primary election agenda.

The intriguingly labelled independent “teal” candidates—they could be seen mostly attired in a colour combination of traditional blue of the centre-right Liberal party combined with the green symbolism of climate—caused a stunning upheaval across Liberal strongholds in Sydney, Melbourne, and Perth.

One out of three Australians voted for independents, Greens (making these two groups increasingly significant), and other smaller but vocal parties, with a record number—probably about 10–of Asian Australians getting elected to the lower house.

The Indian government would have been watching this Australian election with plenty of interest and some trepidation as the process of upgrading the Australia-India trade relationship culminated into a formal agreement during the last few months of outgoing PM Scott Morrison’s tenure. The interim trade agreement, known as the Australia-India Economic Cooperation and Trade Agreement (AI ECTA), was signed on 2 April 2022; it is set to come into force by the second half of 2022, with a commitment for the full agreement by end 2022.

For India, a worrying prospect surely would be the perceived centre-left Labour party, with some measure of goading from the Teals and the Greens, upending the AI ECTA citing local job and climate concerns. The new politics in Australia, cutting across party and ideological lines, might work harder towards Australia’s stated target of reducing the country’s carbon emissions in 2030 by 26 per cent from 2005 levels. For India, given main coal source Indonesia’s stoppage of exports, coal would thus be an important component of the agreement.

Those concerns would have dissipated quickly. One of the first things that PM Albanese did after taking the oath in office was to attend the Quad meeting in Tokyo. With China’s foray into the Pacific Ocean nation of the Solomon Islands a too close for comfort to the Australians, the Australian PM was eager to “take charge” and align with its closest ally, the US , and make his prominence felt at the Indo-Pacific Economic Framework for Prosperity (IPEF) in Tokyo. The IPEF is a new international rules-based framework with thirteen countries as members including the QUAD members of Japan and India.

Australia has not been coy about how important it believes AI ECTA to be.

The interim trade agreement eliminates tariffs on up to 85% of goods exported to India by Australia (valued at over AUD 12.6 billion dollars). Some of the major duty free benefits for Australia from this agreement would be sheep-meat, wool, metallic ores such as manganese, copper, zirconium, coal, alumina and titanium dioxide. India will continue to give duty free access goods such as barley, oats, hides and skins and LNG. India will also provide access to a duty free quota of 300,000 bales of cotton (minimum length 28mm) on entry in force (EIF).

India has also been acknowledged as coming to the aid of the Australian wine industry when it was locked out of China. Tariffs will be reduced from 150% to 50% over 10 years for bottles valued at over USD 5 and will be reduced from 150% to 25% over 10 years for bottles valued over USD 15.  Further supporting Australian wine sector prospects, Indian wine consumption is slated to increase at a fast rate.

The new Australian government is unlikely to change, nix, or go slow on the implementation of the trade agreement. On the contrary, Australia will increase its engagement with India and prioritise the relationship further. The previous government’s stated objective to put India in the position of being Australia’s third largest outward investment destination, and one of Australia’s top three exports market by 2035, is likely to ensure continued momentum in the bilateral relationship.

(Dev Chandrasekhar is a management consultant based out of Mumbai; Suresh Iyer is a Mumbai-Sydney based investment banker. The views expressed are personal opinions of the authors.)

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