4 takeaways from the recent India-Australia Economic Cooperation and Trade Agreement

The latest tittle-tattle amongst the import-export businesses in India is the recent treaty between India and Australia, also known as IndAus ECTA. The said treaty sounds like some juice for Indian import-export companies as it will open new markets for Indian exports and allow cheaper sourcing alternatives for Indian companies. Scott Morrison, the prime minister of Australia, calls it “two dynamic regional economies, like-minded democracies, working together for mutual benefit”, and Prime Minister Narendra Modi mentions it as a “watershed moment.”

Let us run through the facts before looking at what’s on the plate for us.

  • Minister for Trade, Tourism and Investment Dan Tehan of Australia and Commerce and Industry Minister Piyush Goyal of India signed it in a virtual ceremony in the presence of Hon. PM Narendra Modi and Australian PM Scott Morrison on 2nd April 2022.
  • The India Australia Economic Cooperation and Trade Agreement (IndAus ECTA) is a free trade agreement that will allow barrier-free trade between the two nations. 
  • This treaty is expected to double the trade between the two nations in the coming five years. 
  • Another highlight is that this agreement is the first trade agreement India has made with a developed country in the last decade.

How will this treaty benefit us?

  1. Zero duty access to Indian exports:
    It will allow zero duty access to India for 96% of the Indian exports compared to a 4-5% import duty that is currently in place. Because of the prevailing duty, Indian exports are at a disadvantage in the Australian markets against the goods from China, Thailand, Vietnam, South Korea, Indonesia, Malaysia and Japan.
  2. Open doors for imports from Australia: 
    On the other hand, India is removing tariffs on 40% of its tariff lines, which will, in turn, allow 85% of the Australian exports to open the doorway. Such exports include sheepmeat, wool, coal and copper.
  3. Increase in employment opportunities:
    The treaty seems to be beneficial for many labour-intensive sectors, which means it will bring more job opportunities.
  4. Easy commute opportunities to Australia:
    It will allow an easy visa process for students and working professionals willing to take a work vacation in Australia.

How can you make the most of the treaty?

The treaty sounds promising for sellers from both nations in terms of business opportunities. Down below are sectors that will benefit from them.

  1. Trade of goods with Australia-
    India's exports to Australia are mainly consumer goods and manufactured goods. Most of these will enjoy duty-free trade. These items include textiles, clothing apparel, footwear, sports goods, jewellery, machinery, electrical items, pharmaceutical items, medical devices, and agricultural and fish products. Currently, some of these products attract 4-5% of duties, making them expensive to buy as compared to products from other countries. For example, suppose FabIndia is exporting bathroom linen to Australia. In that case, it has to pay duties, making the products costlier in the buyers' hands compared to other countries that have FTAs with them. This treaty will smoothen things out in that area making Indian exports more competent. The best part is the ease in the process of approval for pharma products. This will benefit the pharmaceutical sector by encouraging exports exponentially.
    Another sector to reap benefits is the textile industry. There is great potential for textiles, home linen and apparel in Australia. Currently, Indian exports are falling behind as compared to those of other countries that have foreign trade agreements with Australia. But once this treaty comes into force, our textile industry will benefit highly from it.

  2. Provision of services in Australia-
    While there are many benefits in terms of the trade of goods, there are many in store for the service sector as well. There are special quotas for easing visas and other formalities for chefs and yoga teachers, allowing them to commute and stay up to 4 years for work in Australia. Post education work visas would also be easier to get. Australia has also allowed work and holiday visas for up to a year for Indians between 18 to 30 years of age. This treaty will not only provide better opportunities for students and the working class but also better the trade relations between the two countries. Another good news that the treaty brings is for the Indian companies in the IT sector. The Australian government will amend the Australian domestic taxation law to avoid double taxation and evasion of taxes. Apart from that, the healthcare sector and the education sector will also benefit from this agreement. We will see more research-based collaborations between the universities of the two countries.

What stays out of the treaty and why?

While the treaty seems like opening doors for trade, the government has kept some tariff lines out of the treaty to safeguard the interests of the local organizations.

So if you are a seller looking out for newer markets around the globe, now is the time to invest in Australia, especially if you are into pharma products, apparel, textile, leather or footwear, now is the time to make the most by selling into Australia. It is the FTA’s and other changes in rules and regulations that make international markets full of opportunities. But that is also the reason for all the commonly feared tax troubles. The ever-changing rules discourage many businesses from going global. But it doesn’t have to be that way. Don’t let the tax hurdles hold you back. These can easily be taken care of with our tax automation software. Avalara helps businesses of all sizes in overcoming day to day tax difficulties. Our software makes compliance fast, easy, error-free, and costs friendly. Visit our website to know more.

We regularly keep posting tax content for our customers so that they can stay up to date with the changing rules and regulations all over the world. Read our blogs to find tips and notes on selling internationally.

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