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Labour-intensive exports to gain from India-Australia trade pact

Economic Times, India

Labour-intensive exports to gain from India-Australia trade pact

16 October 2008

By Amiti Sen, ET Bureau

CANBERRA: The proposed free trade agreement (FTA) between India and Australia could result in better market access for labour-intensive Indian exports including textiles, clothing and footwear where existing tariffs are high in Australia. While the sectors are perceived as “sensitive” in Australia, the country believes in elimination of tariffs on all sectors in its FTAs, Australian trade officials say.

“We believe in eliminating all tariffs on all goods in our FTAs,” said Todd Mercer, director, WTO, regional and FTAs section of the department of foreign affairs and trade (DFAT). For sensitive products, the time frame could be longer. The catch, however, is that Australia also expects the same of its FTA partners. In its recent FTA with the US, the only product which it allowed the US to keep out of tariff elimination was sugar.

Australia wants the proposed FTA with India to give it more market access in agriculture, mining and financial services sectors. The two sides are hopeful of concluding the FTA by the end of the year. “We were very excited when India proposed a feasibility study on an FTA with India in August this year,” said Michael Wood, director, Australia-India FTA study, DFAT. He added that models showed that both the countries could have GDP gains and trade growth through the FTA, but some adjustments had to be made by the two sides.

Mr Wood pointed out that while average tariffs in Australia were relatively low at about 3.9%, tariff elimination would definitely help India. “A 4% tariff advantage over other competitors will give Indian exporters an edge,” he said. For products like textiles, clothing and footwear, where the tariffs are higher at about 15%, the gains would be much bigger.

Top-end farm products, especially in the dairy sector, is an area where Australia is keen to get market access. While India allows imports of dairy products from European countries like Switzerland and Italy, it disallows Australian farm products. “India has to understand that we are not seeking to replace its staple products,” said Judy Barfield from the department of agriculture, fisheries and forestry. Australia is seeking removal of quarantine restrictions on dairy and other farm products, which India has in place, probably in answer to strict sanitary and phytosanitary norms observed by Australia.According to Mr Wood, the proposed FTA could help easing the situation by helping exporters from both sides in meeting the standards.

Australia also wants India to ease regulations in financial services including banking and insurance. “Our insurance companies are in talks for tie-ups with Indian companies including IAG which is tying up with SBI,” Mr Wood said adding that more liberal investment norms will help these countries. It is also looking forward to more opportunities in the banking sector as Australia has already proved its “credentials” in the sector, he said.

A major exporter of minerals including coal, diamond and bauxite, Australia is looking forward to a more liberalised mining regime. “It is a shame that India does not allow green-field mining. Australia can carry out new mining in the country which will be more efficient and productive than what has happened so far,” Mr Wood said.Australia’s exports to India has risen sharply over the last few years to $6.46 billion in 2007 while India’s exports to the country stood at $1.01 billion in the same year.