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Breakthrough on trade talks, now for India at G20

The Australian Business Review

Breakthrough on trade talks, now for India at G20

12 November 2014

By David Uren, Economics Editor Canberra and David Crowe
Political Correspondent, Canberra

Australia will claim a breakthrough on global trade liberal­isation at this weekend’s G20 summit, as Tony Abbott reveals that a free-trade agreement with India is next on Australia’s trade shopping list.

All G20 leaders, including India’s Prime Minister Narendra Modi, have agreed to wind back Customs red-tape and other ­“behind the border” barriers to trade, with a commitment to be included in the Brisbane summit communique.

India’s participation is significant as, three months ago, it torpedoed a world trade agreement covering the same trade restrictions.

Mr Abbott has developed a good relationship with Mr Modi, having been the first foreign leader to visit him in New Delhi following his election in May. Asked whether now was the time to start work on a bilateral trade agreement with India, the Prime Minister told The Australian: “Yes, it certainly is. Prime Minister Modi was very enthusiastic about cracking on with this when I was in India a couple of months back. Very, very enthusiastic.”

Mr Abbott said the immediate priority was to seal the free-trade deal with China that has been under negotiation since 2005 but is expected to be signed when President Xi Jinping is in Australia for the G20 this weekend.

“I think that once that’s done, obviously we would want to focus on the India deal and it would be terrific if we could get that done within 12 months,” he said.

Mr Modi, whose visit to Australia will be the first by an Indian prime minister in 28 years, said yesterday that he expected to build a much stronger relationship with Australia. “While we have much in common with Australia, our political, strategic and economic relations have been below potential,” he said.

Australia’s trade with India is less than a 10th the size of Australia’s trade with China.

Mr Modi said a closer strategic partnership with Australia would “support India’s economic goals; promote our security interests, including maritime security; and, reinforce our efforts to foster a ­climate of peace and stability in our extended continental and maritime neighbourhood”.

India has concluded a number of bilateral and regional trade agreements including deals with Japan, Korea and with the ASEAN group of nations. However it has been a reluctant participant in World Trade Organisation deals. The gulf ­between India and the US has been the main obstacle to advancing the Doha trade negotiations that include more than 150 nations.

A World Trade Organisation deal to eliminate red tape on trade, which was concluded in Bali in February, was its first multilateral trade agreement in 20 years. However, Mr Modi pulled out following his election in May because he wanted concessions on a parallel agreement affecting food subsidies. The G20 agreement will be voluntary rather than a multilateral deal, borrowing the approach used successfully by APEC to lower trade barriers in the Asia-Pacific region.

Every G20 leaders’ meeting since 2008 has included a commitment to advancing multilateral trade negotiations in the communique, along with a promise to implement no protectionist trade measures. Rather than repeat these promises, which have not been kept, Australian officials have tied discussion about trade this year to the target of lifting global growth by two percentage points by 2018.

Until the global financial crisis, world trade was growing at more than twice the rate of overall global GDP, with the opening of new export markets helping to drive growth. However, since the financial crisis, trade has been lagging economic growth, with rising unemployment in export industries.

Many global leaders will still use the G20 to put pressure on India to relent over its opposition to the WTO trade deal.

International Trade Strategies director Alan Oxley said the trade-facilitation agreement rejected by India placed few obligations on emerging countries.

“Its primary purpose was to restore authority to the WTO process, and I don’t see how the G20 commitment will in any way serve that objective,” he said.

Mr Oxley said multilateral voluntary liberalisation had worked in APEC because there was a “common sense of endeavour” among its members. “There is no comparable ethos in the G20,” he said.