India-Australia FTA utilization drives export growth

Since December 29, 2012, the trade arrangement between India and Australia has enabled over 90% of India’s textile exports and specific engineering goods like electrical transmission lines to reach Australia. 

Image Credit: PIB

The trade agreement that started on December 29, 2012, has led to over 90% of India’s exports in textiles and specific engineering products like electrical transmission lines to Australia. This indicates that exporters are experiencing the advantages of this agreement.

Around 113 products, particularly labour-intensive items, have seen a utilization rate of approximately 90% under the India-Australia Economic Cooperation and Trade Agreement (ECTA), where duties were reduced from 5% to zero.

This holds importance since India has traditionally experienced low utilization of its FTAs due to documentation costs, lack of awareness, and rigorous regulations.

The Asian Development Bank has highlighted that India’s utilization of trade pacts is below 25%, which ranks among the lowest rates in Asia. Whereas, developed countries tend to achieve higher FTA utilization, averaging around 70-80%. The ECTA allows 98% of the Indian exports by value to enter Australia duty-free.

The signing of a mutual recognition agreement between India and Australia could lead to an increase in India’s export of goods to Australia.

The think tank GTRI has advised that Indian companies should address the issue of low FTA utilization by comparing duties under the most favoured nation (MFN) status and trade agreement duties for a product. This comparison is crucial, as a company gains benefits from an agreement only if the customs duty under that pact is lower than the MFN duty.

Unlike in an FTA where the trade partners give each concessions exclusively, under MFN (Most Favored Nation) status, a country must impose identical import duties on a product for all nations.