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The India-Australia FTA Tug of War: An End in Sight?

India and Australia are facing difficulties in concluding years of complex negotiations on the Comprehensive Economic Cooperation Agreement (CECA), also known as the Free Trade Agreement (FTA). It was expected to conclude by the end of 2015, but has now been pushed to mid 2016. Australia is looking to tap into the 1.2 billion people strong services and agricultural industry, whereas India asks to eliminate tariffs on textiles, fresh fruits and auto parts. In 2015, the former sent a large delegation to India to boost bilateral trade and investments, which currently stands at around $16 billion AUD. Australia’s eagerness to finalise the FTA arises mainly from the untapped potential of two-way commerce that stands at only 1/10th of the trade it enjoys with China. With the Indian economy growing at more than 7 percent and Prime Minister Modi’s progressive reforms, which include reducing red tape for businesses and a boisterous ‘Make In India' campaign, Australia stands to reap benefits of increased economic cooperation. What exactly, then, is hampering the conclusion of the protracted talks?

The answer is two-fold. Firstly, India is historically protectionist as is the case with many Asian countries. A mutually beneficial trade agreement will be taxing and its enforcement, even more so. A solid example is the FTA with China, which took over 10 years to conclude. India is proud of its agrarian roots and heavily protects the agricultural industry that is the breadwinner for 70 percent of its population. It has also overtaken Australia to become the world’s seventh largest agricultural exporter. While the government has recently introduced the entry of private players to boost production levels, the only concession Australia could get is the insertion of modern technology and capacity building to help achieve the Ministry of Agriculture’s aim of doubling food production from one to two percent. Now, decades of bureaucracy and embedded corruption, along with cultural diversity warrants Australia’s deeper understanding of India in order to achieve a breakthrough. This will not be easy as competition is rife, especially from Canada and Chile.

Secondly, it was recently decided by India that trade negotiations with Australia would be delayed until the conclusion of the Regional Comprehensive Economic Partnership (RCEP) of which both are a part. The RCEP is comprised of ten ASEAN countries and their six FTA partners, who account for over 25 percent of the world’s economy. Negotiations have been on going since November 2012. The main reason for this decision could be the complexity arising from multiple bilateral and regional agreements. India does not want to create conflicting obligations from simultaneous agreements that would generate trade obstacles and complex customs rules. It also wants the RCEP to be finalised before the FTA with Australia, so it could retain its bargaining power. Furthermore, the RCEP would provide India access to a larger market and even larger economic gains, whilst Australia is arguably, already an active player in this market. Thus, while Australia continues making announcements of extended deadlines for the finalisation of the FTA, India is instead pushing hard for a faster conclusion of the RCEP in order to yield greater benefits of the economic integration of 45 percent of the world’s population. Given the next round of RCEP negotiations are to be held in South Korea in October 2016, it is unlikely that a FTA would be signed by mid 2016 as estimated by Trade Minister Andrew Robb.

The good news is that both FTA and RCEP negotiations have truly entered their final stages. For the former, Australia has publicly acknowledged Indian sensitivities and pledged to focus on services, which is a major driver of its exports economy. Sectors such as engineering, health, education and construction are considered as the frontrunners. For India, Australia’s openness to the ‘movement of natural persons’ could potentially be the ceding point in the negotiations. It will also be willing to compromise on issues such as wine and meat, auto components and financial services.

If India and Japan, arguably two of the most complex markets in the world, can successfully finalise a FTA, so can India and Australia. Ultimately, however, both will need to let go of the “nothing is agreed until everything is agreed” approach and walk hand-in hand towards prolific economic success.

Rucha Bhagat is a graduate of the Master of International Relations at the University of Melbourne. She is a former research intern at the Consulate General of India, Melbourne and the Ministry of External Affairs, Government of India.

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