Mint | 27 July 2022
FTA awaits Aussie ratification
by Ravi Dutta Mishra, Dilasha Seth
NEW DELHI : The India-Australia interim free trade agreement, which should have come into effect by mid-June, still awaits ratification following regime change in Canberra, risking a knock-on effect on the Indian IT industry.
The department of commerce in an official response said that it was challenging to fix a timeline to bring the India- Australia Economic Cooperation and Trade Agreement (ECTA) into force “as the completion of the ratification process in countries depends on factors beyond the scope of FTA agreements."
“In normal course, the entry into force of the Agreement might have occurred by mid-June 2022 (i.e. within 75 days)."
However, Western Australia deputy premier Roger Cook told Mint the pact that was signed in April could come into effect only by the end of the year now, after being ratified by the Australian parliament following the election of a new Labour government.
“A trade deal in Australia needs to go through a parliamentary process. The Australian government has indicated that it is trying to expedite the process of passing the ECTA agreement as quickly as possible. They are confident that by the end of the year, the agreement will be ratified by both parties. The next step would be to negotiate a full agreement and both governments are very keen to do that," said Cook.
The delay means some issues of importance that New Delhi was hoping to resolve quickly may have to be pushed back. These include settling a double taxation problem for Indian IT companies—they have to pay taxes in both Australia and India—and boosting exports amid a demand slowdown in the West.
The interim deal gives India duty-free access on 95% tariff lines that it exports to Canberra, including textiles, leather, furniture, jewellery, machinery and medical devices.
India has offered immediate tariff elimination on 40% of tariff lines comprising 85% of Australian exports in value terms to India. Other tariff lines will be eliminated or cut in a graded manner.
In response to a query over the delay in ratification of ECTA , the department of commerce said, “The question is infructuous, as for completion of ratification process, it is difficult to fix a timeline. However, both the countries are keen to complete the process as early as possible."
The first session of the new Australian parliament begins on Thursday.
Commerce secretary BVR Subrahmanyam said on 21 July, “Our hope is that India-Aus ECTA will come into effect by September. We are ready. There is across-the-board support for the FTA with Australia. The Labour Party was on board even before the elections."
The delay means that Indian IT firms such as Infosys, Wipro, TCS and HCL could have to wait longer to get relief from double taxation. Australia has committed to resolving the long-pending double taxation issue affecting Indian tech firms operating in the country through amendments in its domestic law along with the agreement.
“Australia will implement the amendments to its taxation legislation…in a similar time period as the Agreement," according to a side letter signed by the then Australian trade minister Dan Tehan.
“The amendment related to the resolution of the Double Taxation issue is part of Ind-Aus ECTA. Once the parliament passes the Ind-Aus ECTA, all the changes in the domestic laws which are consequential to the agreement get the parliament’s approval. Thereafter, the necessary changes in laws follow. Thus, after the ratification of Ind-Aus ECTA, legislative changes will follow," the department of commerce said.
The commerce ministry said that in India, ratification of trade deals needs the assent of the President whereas in Australia, it requires the agreement to be laid before both the houses of Parliament, and scrutiny by a standing committee. Once its report is received, both the houses of Parliament consider it for ratification.
Arpita Mukherjee, professor, Icrier said, “There is a growing concern from the industry of partner countries about a low-ambition, limited-commitment agreement. Countries like Australia have earlier signed comprehensive agreements and industry has seen its benefit."
She pointed out in a column published last week that, “In our ECTA with Australia, we for the first time made commitments on wine, paving the way for liberalization of sensitive products imported from the UK and EU. Yet, Australian industry is unhappy and the ECTA has not yet been approved by Australia’s parliament."
Australia has allowed duty free wine imports from India and under the interim free trade agreement, and in turn, India has agreed to reduce duty on high-end Australian wines.
“As per Australian laws, a treaty has to be ratified by the Parliament but before that it has to run through designated committees. Our initial information was that the process would start soon after the new parliament takes over in May and may take 3-4 months to conclude.
“As per my understanding, the process is still on track though the timings may be little off due to internal procedural issues," said Vinod Giri, director general, Confederation of Indian Alcoholic beverage companies (CIABC).
A spokesperson of the Australian High Commission in New Delhi in an email response stated that Australia’s minister for trade and tourism Don Farrell met with India’s minister for commerce and industry Piyush Goyal in Geneva on 12 June and that Farrell confirmed the Australian government’s intention to “work efficiently through Australia’s parliamentary processes" to ratify the ECTA quickly.