Nikkei Asia | 10 April 2022
India-Australia trade pact pushes back against ’panda in the room’
by KIRAN SHARMA
NEW DELHI — India and Australia sealed an interim free trade deal early this month after over a decade of on-and-off negotiations. As they signed on the dotted line, each side appears to have had one eye on China.
The agreement offers obvious economic benefits. Annual bilateral trade is expected to almost double from $27.5 billion in 2021 to about $45 billion or $50 billion in the next five years. The deal eliminates tariffs on over 85% of Australian exports to India — rising to 91% in a decade — while 96% of Indian goods entering Australia will become duty-free.
But analysts also see strategic implications as the pair, both members of the Quadrilateral Security Dialogue along with the U.S. and Japan, look to manage difficult relations with China and promote a "free, open and inclusive Indo-Pacific."
"Australia has a huge volume of trade [with China], and India provides it an alternative" to export its goods to over 1.3 billion consumers in the South Asian nation, Pankaj Jha, a professor of strategic affairs at O.P. Jindal Global University, told Nikkei Asia.
"If you cannot control China in terms of trade and investment, you are not controlling China — you are just making a cosmetic approach with regard to containing China," he said, alluding to the Quad’s efforts.
Both countries have strained relations with Beijing and are eager to reduce their economic dependence on the world’s No. 2 economy.
Australia’s ties with China, its largest trade partner, have steadily deteriorated in recent years amid suspicions of political meddling and sparring over the origins of COVID-19. India has its own lingering standoff with China along their disputed Himalayan border, where a clash left at least 20 Indian and four Chinese soldiers dead about two years ago.
"There’s a panda in the room," Australian High Commissioner to India Barry O’Farrell told an event arranged by the Australia India Institute on Monday, according to local media. Laying out why the deal makes sense but not naming China, he added: "India has faced border tensions. Australia has faced economic coercion. ... Those issues are not going to disappear overnight."
The deal comes at a delicate time for the Quad, which has been at odds with India over its reluctance to directly condemn Russia’s invasion of Ukraine.
But upon signing the pact on April 2, Indian Prime Minister Narendra Modi called it "a watershed moment" for bilateral relations: "On the basis of this agreement, together we will be able to increase the resilience of supply chains and also contribute to the stability of the Indo-Pacific region."
Australian Prime Minister Scott Morrison said the agreement "has been built on our strong security partnership and our joint efforts in the Quad, which has created the opportunity for our economic relationship to advance to a new level."
India and Australia, along with Japan, are also partners in a trilateral initiative that seeks to enhance the resilience of supply chains in the Indo-Pacific region. This, too, was rooted in a desire to limit dependence on China and may have helped nudge Canberra and New Delhi to conclude their pact.
Srikanth Kondapalli, a professor of international studies at Jawaharlal Nehru University in New Delhi, told Nikkei that "the supply chain resilience initiative among the three Quad members provides a certain advantage, which can be seen as conducive for the Australia-India trade agreement."
He said that while economic and trade agreements are generally based on complementarities, supply-demand conditions and mutual benefits, the Quad provided a "cushiony background" for the deal.
Australia and India launched the trade negotiations back in May 2011 and held nine rounds of dialogue before suspending the process in September 2015, pending the outcome of multilateral regional talks.
Last September, nearly two years after India walked out of the Regional Comprehensive Economic Partnership, they revived their negotiations.
"The deal with Australia indicates that India is willing to sign bilateral [free trade] agreements and reduce any negative fallout of not joining the RCEP," Kondapalli said. He pointed out that New Delhi already has trade deals with most RCEP participants, including the 10-member Association of Southeast Asian Nations, Japan and South Korea. Of the 15 signatories, "only New Zealand and China are missing now, and with both of these countries India has problems" in terms of forging such agreements.
Under the new pact, India will benefit from preferential market access in labor-intensive export sectors such as gems and jewelry, textiles, leather, furniture, food, engineering products, medical devices and automobiles. On the other hand, it will be offering Australia preferential access in raw materials, coal, mineral ores, wine and other sectors. The two sides hope to conclude negotiations on a broader, comprehensive economic cooperation agreement by the end of this year.
Jha of Jindal Global University said New Delhi’s relations with Australia, as well as Japan, are "much more concretized" now, and he expects the effects to mushroom.
"If you look into trade, investment, commerce, skill sharing etc., these things will automatically lead to cooperation in research and technology, and enhancement of bilateral defense trade," he said. He also expressed hope that India will strike a limited trade deal with the fourth Quad partner, the U.S., in the near future.