Deere / An Australia-India FTA: Background and Prospects

AN AUSTRALIA-INDIA FTA: BACKGROUND AND PROSPECTS Kate Deere* ABSTRACT Australia and India have both negotiated a series of comprehensive free trade agreements and are in the process of discussions to conclude a comprehensive economic cooperation agreement seeking to liberalise trade in goods, services, investment and other trade facilitation measures. Reports on the negotiation rounds undertaken to date suggest slow progress in the exchange and discussion of offers, with consultations reportedly only at the exploratory stage until the announcement by leaders in late 2014 that they desired an early conclusion of the proposed trade agreement. The path to an Australia-India FTA has largely followed the route of other major economies, which have increasingly turned to bilateral arrangements to create favourable trade and investment opportunities, in light of the lack of progress in the Doha Round of World Trade Organization negotiations. With negotiations now apparently being ramped up in accordance with the direction of the Australian and Indian Prime Ministers, this paper reviews the history of trade liberalisation and existing FTA outcomes achieved by Australia and India. Finally, it seeks to highlight some of the benefits that may accrue from an agreement and reflects on the potential obstacles to the conclusion of negotiations.

KEYWORDS: Australia, India, free trade agreement (FTA), trade liberalisation, trade facilitation, trade in services

1. INTRODUCTION It is timely to reflect on the status of Australian-Indian negotiations towards a free trade agreement (FTA) in light of recent statements that the discussions are intensifying with a view to achieving sign off in 2015. Australia and India have the potential for substantial trade complementarities, however consideration of the trade liberalisation paths of each of Australia and India shows the potential challenges to be overcome in bringing to an early conclusion an “equitable, balanced, mutually beneficial and high quality Comprehensive Economic Cooperation Agreement” as

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directed by leaders Abbott and Modi. 1 In view of this commitment expressed by the leaders, this paper seeks to explore the path which has led to the current state of bilateral trade negotiations between Australia and India and consider the potential gains from, and impediments to, the successful conclusion of an FTA.

2. BACKGROUND TO THE AUSTRALIA-INDIA FTA NEGOTIATIONS With global trade discussions under the auspices of the World Trade Organization (WTO) largely at a standstill, like other economies, both Australia and India have joined the international trend towards the negotiation of preferential trade agreements. Variously described as free trade agreements (FTAs), regional trade agreements (RTAs) and preferential trade agreements (PTAs), they are defined by the WTO as “intergovernmental treaties through which signatories agree to offer more advantageous conditions, in the conduct of their trade relations, than those applied to other, non-signatory WTO partners.”2 It has been suggested that it is no longer possible to view the WTO as a rule and FTAs as the exception,3 with the WTO reporting that some 262 FTAs are in force as at 7 April 2015.4 There are two general schools of thought in relation to the virtues of FTAs. Multilateralists advocate for the liberalisation of trade through the WTO multilateral process and consider FTAs as stumbling blocks toward the goal of free trade under the WTO system. On the other hand, the proponents of FTAs suggest that they may provide impetus to stalled multilateral negotiations, and in the meantime, provide business with enhanced access to markets and improved conditions for investment. Further, FTAs provide a more pragmatic approach to facilitating trade, due to the smaller number of *

PhD candidate, Xiamen University, LLM (ANU), LLB (Hons) (UQ), BA (UQ). The author may be contacted at [email protected]. 1 Joint Press Statement of Prime Minister Tony Abbott (Australia) and Prime Minister Narendra Modi (India) (hereinafter Joint Press Statement), November 18,2014, Canberra, Australia, available at: https://www.pm.gov.au/media/2014-11-18/prime-ministers-jointpress-statement-prime-minister-republic-india (Last visited on April 27, 2015). 2 World Trade Organization, Annual Report 2003, 26, (2003). 3 Zakir Hafez, The Dimensions of Regional Trade Integration in Southeast Asia, 5, Transnational Publishers, Inc (2004). 4 The WTO indicates that 612 notifications have been made, counting goods, services and accessions separately, of which 406 are in force. It further reports that counting goods, services and accessions together, this amounts to 449 physical agreements, of which 262 are in force. See: World Trade Organization, Regional trade agreements, available at: https://www.wto.org/english/tratop_e/region_e/region_e.htm (Last visited on April 27, 2015).

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countries involved making it easier to reach agreement, and therefore increasing the chance of a high quality agreement with a broader focus.5 Putting the question of the potential benefits or disadvantages of FTAs aside, there appears to be no turning back, as more and more states commence negotiations to obtain preferential access for their trade and investment. It is suggested that FTAs appear to involve a self-reinforcing dynamic, whereby the more economies become involved in FTAs, the more others desire to enter into FTAs themselves.6 The desire not to be left out of an FTA is also important – as FTA membership increases, nations seek inclusion as an insurance policy so they are not left isolated in the event of international trade disputes.7 2.1 AUSTRALIA Australia had originally avoided FTAs, and much of its trade liberalisation since the late 1980swas undertaken on a non-discriminatory, unilateral basis. Australia has been a key proponent of multilateral fora for trade discussions, particularly via the WTO. Prior to its unilateral liberalisation efforts in the late 1980s and early 1990s, Australian trade policy was highly protectionist, attempting, in particular, to insulate its manufacturers from foreign competition.8 The Government determined in the late 1980s that the protectionist approach would be abandoned for a more open trade regime, suggesting past trade policies had left Australia “a less flexible economy, too reliant on protection and regulation”.9 Australia’s interests were aligned to a global trade policy framework, predicated on keeping markets open and supported by a robust, nondiscriminatory global trading system. 10 Hence it’s largely unilateral 5

Eugenia Karanikolas, Current negotiations on Free Trade Agreements, in Parliamentary Library Briefing Book: Key Issues for the 44th Parliament, 46, (2013), available at: http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Libra ry/pubs/BriefingBook44p/FreeTradeAgreements (Last visited on April 27, 2015). 6 Mark P. Thirlwell, The new terms of trade 57 (Lowy Institute for International Policy Paper, Paper No. 07, 2005). 7 Id. 8 Michael Emmery, Australian Manufacturing: A Brief History of Industry Policy and Trade Liberalisation, (Australian Department of the Parliamentary Library, Research Paper No. 7, 1999-2000), available at: http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Libra ry/pubs/rp/rp9900/2000RP07 (Last visited on April 27, 2015). 9 Richard H. Snape, Lisa Gropp, and Tas Luttrell, citing P.J. Keating (Australian Treasurer), 25 May 1988, Australian Trade Policy 1965-1997: A documentary history, 4, Allen & Unwin (1998). 10 Shiro Armstrong, Australian Trade Policy Strategy Contradictions, 35(12) The World Economy 1633, 1634 (2012); Nick Bisley, Asia-Pacific regionalism and preferential trade

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liberalisation, relying on the global system to develop and implement the rules for fair trade. The Asia Pacific Economic Cooperation (APEC) group was formed in 1989 at the suggestion of the then Australian Prime Minister Hawke.11 A major reason cited for the formation of APEC was to address the concern that the world may break into blocs maintaining internal free trade, but erecting significant protectionist barriers between them. 12 Accordingly, rather than promoting preferential trade amongst its members, APEC was more of a “free trade pressure group”, pressing for movement at the global level.13 However, in line with the international trend towards bilateral and regional trade negotiations, Australia has also shown increased attention to preferential trade agreements more recently. There is a widely held consensus within Australia that international trade is vital for its long-term prosperity, although some question the extent to which FTAs have significant net economic benefits to Australia.14 Others argue that FTAs are essential if Australia is to continue to gain favourable market access for its exports.15 Notwithstanding the claims of the more cautious observers, the current Australian Government has shown significant zeal in its desire to conclude FTA negotiations, some of which had been ongoing for close to a decade. 16 Having concluded agreements with the major East Asian economies of Korea, Japan and China17 in 2014, Australia now has its sights set on concluding an agreement with India. While negotiations with India have not been so protracted, with the first round of negotiations held in July agreements: the Australian case, 4(2) International Relations of the Asia Pacific 239, 2401, (2004). 11 Graeme Dobell, Great Australian foreign policy speeches: APEC’s creation, by Bob Hawke, The Interpreter, August 14, 2014, available at http://www.lowyinterpreter.org /post /2014/08/14/Great-Australian-foreign-policy-speeches-APECs-creation-by-Bob-Hawke .as px?COLLCC=947782352& (Last visited on April 27, 2015). 12 Bisley, supra note 10, 242; Gareth Evans, APEC: A Blueprint for Asia’s Long-Term Growth, Address by Senator Gareth Evans, Minister for Foreign Affairs of Australia, to World Economic Forum 1995 Europe/East Asia Economic Summit, Singapore, September 22, 1995, available at: http://www.foreignminister.gov.au/speeches/1995/geapec.html (Last visited on April 27, 2015). 13 David K. Linnan, Current Development: APEC quo vadis?89 American Journal of International Law824, 826 (1995). 14 Karanikolas, supra note 5. 15 Id. 16 See e.g. Press Release, Australian Minister for Trade and Investment, FTAs major focus of Robb’s North Asia visit (November 14, 2013) at http://trademinister.gov.au/releases/ 2013/ar_mr_131114.html (Last visited on April 27, 2015). 17 The agreement with China is yet to enter into force.

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2011 18 ,there have been periods of stalemate, and the recent push from leaders may provide the required impetus to finalise the terms of the agreement. In addition to the East Asian agreements, an FTA with India would add to Australia’s FTA cache which also includes agreements with ASEAN, Chile, Malaysia, New Zealand, Singapore, Thailand and the United States. Despite its growing list of agreements, Australia was not an early adopter of FTAs. While it has had a longstanding agreement to facilitate trade in goods with its close neighbour, New Zealand, as noted above, Australia really only went down the preferential trade path in the early 2000s. In doing so, Australia has made widely known its preference for comprehensive agreements covering trade in goods, services and investment, as well as other ‘behind the border’ trade barriers, such as the protection of intellectual property rights, recognition of professional qualifications, e-commerce and competition policies, among other issues.19 Notwithstanding its desire to achieve comprehensive agreements, Australia has had to forego access in some key sectors in order to secure agreements, such as the carve out of sugar in its FTA with the US, and the marginal benefits accruing for key agriculture sectors, such as dairy, pork, sugar and rice, in the agreements with Korea and Japan. Notwithstanding, those outcomes, it has been suggested that the Australian Government’s willingness to remove items where Australia stands to gain the most “reflects the fact that bilateral FTAs allow flexible solutions to particular negotiating points and key goods and services.”20 In relation to the Japanese agreement, for example, the Australian Deputy Prime Minister was quoted as saying:21 18

Australian Government – Department of Foreign Affairs and Trade, First Round of Negotiations on the Australia-India Comprehensive Economic Cooperation Agreement, available at: http://dfat.gov.au/trade/agreements/aifta/Pages/first-round-of-negotiations.aspx (Last visited on April 27, 2015). 19 See Australian Government – Department of Foreign Affairs and Trade, About free trade agreements, available at: http://dfat.gov.au/trade/agreements/Pages/about-ftas.aspx (Last visited on April 27, 2015); Australian Government – Productivity Commission, Bilateral and Regional Trade Agreements, Research Report, November 2010, available at http://www.pc.gov.au/inquiries/completed/trade-agreements/report/trade-agreementsreport.pdf (Last visited on April 27, 2015) (hereinafter Productivity Commission). 20 Andrew Clarke and Xiang Gao, Bilateral Free Trade Agreements: A Comparative Analysis of the Australia-United States FTA and the Forthcoming Australia-China FTA, 30(3) UNSW Law Journal, 842, 845 (2007). 21 Latika Bourke, Free trade deal: Government MP George Christensen says AustraliaJapan agreement has 'no significant benefit' to farmers, ABC News Online, April 8, 2014, available at:http://www.abc.net.au/news/2014-04-08/political-reaction-to-japan-free-tradeagreement/5374802 (Last visited on April 27, 2015).

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“This agreement doesn’t achieve everything that the farm sector would wish, but there are very substantial gains across most sectors of agriculture… When you’re doing trade deals, there always has to be some element of give and take. We can’t get everything that we would like. Clearly, I would like to see all agricultural trade barriers removed.” One area where there has been some inconsistency in Australia’s approach to comprehensive trade agreements is the area of investor-state dispute settlement (ISDS). Australia had typically negotiated for inclusion of ISDS provisions in its bilateral investment treaties with developing country partners. However, in the FTA with the United States, caution had been sounded over the potential increase in litigation the Australia Government may face should ISDS provisions be included in that agreement. 22 The decision to exclude ISDS provisions was cemented as the official policy of the last Australian Labor Government, which expressly stated it would not agree to ISDS in its trade agreements. 23 The Australian Productivity Commission had highlighted international evidence suggesting ISDS provisions are risky for sovereign countries, for example, potentially reducing the opportunity for Government to introduce welfare-enhancing reforms, as they may be disputed by foreign companies.24 That approach has not been maintained by the current Australian Government, although it has not so clearly stated its position on this matter. It has confirmed its view that risks associated with investor state dispute settlement should be managed through careful treaty drafting. 25 Thus, it appears the new Australian government has reverted to the former view that where the FTA is with a developed country partner with strong domestic institutions for the settlement of claims, then ISDS provisions are not warranted. This is supported by the outcomes of recent agreements with Japan, South Korea and China. ISDS is not provided for in the agreement 22

Australian Senate – Foreign Affairs, Defence and Trade References Committee, Voting on trade: The General Agreement on Trade in Services and an Australia-US Free Trade Agreement, Committee Report, November 2003, 134, available at http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Foreign_Affairs_Defen ce_and_Trade/Completed%20inquiries/2002-04/gats/report/index (Last visited on April 27, 2015). 23 Press release, Australian Minsiter for Trade and Competitiveness, Gillard Government reforms Australia’s trade policy (April 12, 2011) at http://trademinister. gov.au /releases /2011/ce_mr_110412.html (Last visited on April 27, 2015). 24 Karanikolas, supra note 5. 25 Australian Senate – Foreign Affairs, Defence and Trade Legislation Committee, Trade and Foreign Investment (Protecting the Public Interest) Bill 2014, Committee Report, August 2014, 26, available at: http://www.aph.gov.au/Parliamentary_Business/Committees/ Senate/Foreign_Affairs_Defence_and_Trade/Trade_and_Foreign_Investment_Protecting_t he_Public_Interest_Bill_2014/Report (Last visited on April 27, 2015).

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with Japan, although there is a review clause which states the need for ISDS provisions can be considered in the future. ISDS is provided for in the Chinese and South Korean texts, with safeguards ensuring the ability for investors to bring claims directly does not impede the parties from regulating in the public interest, or to pursue legitimate public welfare objectives relating to health, safety and the environment.26 2.2 INDIA Not unlike Australia, India was a relatively closed economy until recently. A review of its autarkic approach commenced in the 1990s, with the fall of the Soviet Union, a severe financial crisis and the force of globalisation cited as major reasons for India embarking on economic reforms and meaningful economic integration with the rest of the world from 1991.27 Since commencing down the path of economic reform in 1991, India has undergone substantial liberalisation of its trade and investment regime. 28 Notwithstanding, it remains a relatively highly protected economy.29 India has maintained a firm commitment to multilateral trade liberalisation through the WTO, attaching primary importance to this process. 30 However, it has, more recently, shown greater attention to the negotiation of preferential trading arrangements. Rather than seeking comprehensive agreements, India initially entered into limited scope agreements with developing countries. 31 Its early agreements with Nepal and Bhutan, for example, essentially sought to ease trade and the flow of goods among close neighbours. India also signed on to the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) initiative leading to the Bangkok Agreement in 1975, providing modest trade preferences among participating ESCAP developing member countries. Other agreements prior 26

Australian Government – Department of Foreign Affairs and Trade, China-Australia Free Trade Agreement Fact Sheet: Investment, available at http://dfat. gov.au/trade/agreements/chafta/fact-sheets/Pages/fact-sheet-investment.aspx (Last visited on April 27, 2015); Australian Government – Department of Foreign Affairs and Trade,Korea-Australia FTA Fact Sheet: Investor-State Dispute Settlement (ISDS), available at: http://dfat.gov.au /trade/ agreements/ kafta /fact- sheets/ Pages/ fact- sheet- investorstate-dispute -settlement-isds.aspx (Last visited on April 27, 2015). 27 Rajiv Sikri, India’s “Look East” Policy, 16(1) Asia-Pacific Review131, 132 (2009). 28 Emiko Fukase and Will Martin, Economic Implications of a Potential Free Trade Agreement between India and the United States, (World Bank Group Policy Research Working Paper, Paper No. WPS7212, March 2015), 2, available at https://openknowledge .worldbank.org/bitstream/handle/10986/21651/WPS7212.pdf?sequence=1 (Last visited on April 27, 2015) . 29 Fukase and Martin, supra note 28, 2. 30 V. S Seshadri, Evolution in India’s Regional Trading Arrangements, 43(5) Journal of World Trade 903, 904 (2009). 31 Id.

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to 1998, with other developing countries, including the G-77 Group of Developing Countries and the South Asian Association for Regional Cooperation have involved minimal trade concessions. Following that early period, India embarked upon a series of negotiations with more serious efforts at reducing tariffs for a wide range of goods. Further, India’s ‘Look East’ policy initiated in the early 1990s,32 appears to have played some part in India’s focus on negotiations with a number of nations, firstly with ASEAN and the individual countries in South East Asia, and later with the more developed economies of South Korea and Japan in East Asia, leading to the more comprehensive agreements which have been concluded by India in the last few years. Of India’s FTAs, the more recent agreements extend beyond trade in goods to cover trade in services and investment and other issues. FTAs with Chile, Afghanistan, Sri Lanka, MERCOSUR and the South Asian Association for Regional Cooperation (SAARC) 33 cover the progressive reduction or elimination of tariffs on the movement of goods. As noted above, India continues to provide concessional tariffs under the Asia Pacific Trade Agreement (APTA)34, and more recently, APTA has also been expanded to include framework agreements on trade facilitation35, trade in services36 and investment37, although the timeframe for reaching agreement on the relevant market access commitments, governing provisions and other concessions is not specified. India’s first significant agreement to cover both trade in services and investments, as well as trade in goods, was with Singapore, which came into force on 1 August 2005. Its subsequent agreements with South Korea (effective 1 January 2010), Malaysia (effective 1 July 2011 and Japan (effective 1 August 2011) also provide for liberalisation of trade in services.

32

For further discussion of India’s “Look East” policy, see: Rajiv Sikri, India’s “Look East” Policy,16(1) Asia-Pacific Review 131 (2009). 33 The Agreement on the South Asian Free Trade Area SAFTA was concluded by the SAARC countries: India, Bangladesh, Bhutan, the Maldives, Nepal, Pakistan and Sri Lanka. SAFTA superceded the former SAARC Preferential Trading Arrangement (SAPTA) signed in 1993. 34 APTA membership is open to all developing countries in the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) region. The current members are Bangladesh, China, India, Lao PDR, Republic of Korea and Sri Lanka. Mongolia has concluded negotiations on tariff concessions and is set to become the seventh member of APTA. 35 Signed 15 December 2009. 36 Signed 24 August 2011. 37 Signed 15 December 2009.

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Agreements on trade in services and investment have also been reached with ASEAN, although these are yet to enter into force.38 It has been suggested that despite India’s foray into the FTA arena, the terms of its negotiated agreements leave much to be desired, with India’s FTAs described as “among the weakest and dirtiest of all FTAs in Asia”.39 The trade in goods agreement with ASEAN was cited as fitting the broader pattern of India’s FTAs before the Singapore agreement, excluding large numbers of tariff lines, including significant portions of agriculture, utilising long transition periods and implementing restrictive rules of origin.40 India has further been described as “the most defensive major FTA player in Asia”.41 The first of India’s more comprehensive trade agreements, with Singapore, has been described as having several “novel features” for India, including agreement on investment promotion, protection and cooperation, an improved double-taxation avoidance agreement, a more liberal air services agreement, and a work program for ongoing cooperation in a number of areas. 42 It was further suggested it could form a model for future agreements, however other negotiations in South East Asia have proved more challenging to conclude. In 2002, India had offered to conclude an FTA with ASEAN, likely following on from the similar suggestion from China to ASEAN in 2000.In 2003, India and ASEAN signed a Comprehensive Economic Cooperation Framework Agreement, envisaging the establishment of an FTA in goods, services and investment. Despite establishing the policy frame, unlike China who concluded an agreement for trade in goods with ASEAN in 2004, tough negotiations delayed a final agreement on trade in goods between ASEAN and India.43 Negotiations concluded in mid-2008, and the agreement was subsequently signed in the second half of 2009. ASEAN 38

Shruti Srivastava, India signs FTA in services, investments with Asean, The Indian Express Online, September 9, 2014, available at: http://indianexpress.com/article/ business/business-others/india-signs-fta-in-services-investments-with-asean/ (Last visited on April 27, 2015). See also: The Economic Times, We expect services FTA with ASEAN to come into effect this year: SushmaSwaraj, March 11, 2015,available at: http://articles .economictimes.indiatimes.com/2015-03-11/news/60008510_1_services-fta-asean-commun ity-asean-countries (Last visited on April 27, 2015). 39 Razeen Sally, ASEAN FTAs: State of Play and Outlook for ASEAN’s Regional and Global Integration, in The ASEAN Economic Community: A work in progress, ISEAS Publishing, 320, 357 (2013). 40 Id. 41 Id. 42 Seshadri, supra note 30, 909. 43 Sikri, supra note 27, 133.

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and India had provided for an Early Harvest Program outlining tariff concessions on a common list of items, however it was not implemented due to differences of opinion on rules of origin.44 As noted above, the evolution of India’s ‘Look East’ policy gradually saw greater attention paid to the larger and more developed economies of the region, leading to negotiations with South Korea and Japan for further comprehensive trade agreements. 45 In terms of commitments on liberalisation of trade in services, India has gone beyond its GATS schedule of commitments in a number of sectors, including across a number of professional services 46, some aspects of communication, construction and distribution services, some opening of the higher education sector, certain concessions in the finance sector, and some improvements in hospital services and the tourism and travel sectors. Certain entertainment and cultural services have also seen opening up commitments, and significantly, elements of the transport services sector have been included to different degrees across the four major agreements. The protection of investments is also provided for in the more comprehensive agreements, as well as consent to investor-state dispute settlement. This brief look at the trade concessions which India has afforded its partners in its recent more comprehensive trade agreements suggest it is open to the opportunities presented by FTAs, which provide that state with the opportunity to negotiate greater access for its own investors, particularly seeking to facilitate the movement of people, and capitalise on its strong and growing professional sector. Having undertaken some review of the background to the trade liberalisation and FTA approach and coverage of each of Australia and India, the next section of this paper turns to a review of the existing trade between Australia and India, followed by a

44

R. Rajesh Babu, India-ASEAN Free Trade Agreement: Ramifications for India, 8 Asian Journal of WTO and International Health Law and Policy461, 465 (2013). 45 Seshadri, supra note 30, 913. 46 Significantly, under Professional Services, India has offered increased access, compared to its current GATS commitments in the areas of accounting and book-keeping; advisory taxation; architectural services; engineering; integrated engineering; and urban planning services. In addition, medical, dental, nursing, midwifery, physiotherapists, and paramedical personnel and veterinary services have seen liberalisation commitments, some with conditions under the commercial presence mode such as limits on foreign equity and transfers of the latest technology. India has also opened trade in certain computer services, R&D activities, technical testing and analysis, real estate and rental/leasing services, some management consulting and related services, as well as services incidental to mining, fishing and some energy distribution activities. Other professional services include personnel supply services, some maintenance and repair of equipment, building cleaning, certain photographic services, packaging, convention and specialty design services.

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consideration of the opportunities which may be presented by the liberalisation of trade through an FTA.

3. EXISTING TRADE BETWEEN AUSTRALIA AND INDIA In 2008, Australia and India agreed to conduct a joint feasibility study into a prospective India-Australia FTA.47In the five years to 2008-09, when the parties undertook the joint study, Australian exports to India had grown at an annual average rate of 25 per cent, making India one of the fastest growing of Australia’s major markets for goods and services.48 In terms of two-way trade, India was Australia’s 12th top trading partner in 2013-14. 49 The total value of Australia-India trade has trended down by some 7.7 percent over the last five years, compared to the sharp upswing between 2002-03 and 2008-09.50 Notwithstanding the declining trend, 201314 saw Australian exports to India worth over A$10.4 billion, constituting around 3.2 per cent of total exports, and imports valued at over A$4.3 billion representing only 1.3 per cent of total imports of goods and services.51 These figures suggest there is significant potential for increased trade and investment. The study into the feasibility of an Australia-India FTA considered a comprehensive agreement, including goods, services and investment.52 The report highlighted the existing complementarities between the two economies. For example, India imports Australian resources such as iron ore and coal, as well as inputs into its own manufactures, including, significantly gold and wool, for the manufacture of jewellery and textiles.53 Australian companies have gained productivity and cost benefits from tapping into India’s services industries and Australia’s major export to India was education related travel services.54 47

Australian Government, Department of Foreign Affairs and Trade and Government of India, Ministry of Commerce & Industry, Department of Commerce, Australia-India Joint Free Trade Agreement (FTA) Feasibility Study, Commonwealth of Australia, 2010, 2, available at http://dfat.gov.au/trade/agreements/aifta/Documents/Australia-India-Joint-FTA -Feasibility-Study.pdf (Last visited on April 27, 2015) (hereinafter Joint Feasibility Study). 48 Joint Feasibility Study, Note 47, 17. 49 Australian Government – Department of Foreign Affairs and Trade, Composition of Trade: Australia 2013-14, December 2014,41, available at http://dfat.gov.au/aboutus/publications/Documents/cot-fy-2013-14.pdf (Last visited on April 27, 2015)(hereinafter Composition of Trade). 50 Composition of Trade, supra note 49, 41 and Joint Feasibility Study, supra note 47, 16. 51 Composition of Trade, supra note 49, 44, 45. 52 Joint Feasibility Study, supra note 47, 2. 53 Id., 16-17. 54 Id., 16, 18.

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The Feasibility Study highlighted the significance of the Indian economy in terms of its services exports, which have been one of the major sources of India’s developmental trajectory. 55 Australia too, having the undergone significant structural change in its economy, is now predominantly servicesbased.56 Services represent one of the more substantial areas for increased integration between the two economies, requiring attention to domestic regulations as a particular area for improvement. Both economies have significant FDI inflows, although their FDI flows into one another’s economies are relatively low. 57 Indian investment in the Australian resources sector has been one important area, and Australia will continue to rely on, and would benefit from, continued investment in the mining sector. Conversely, increased investment and cooperation by Australian mining companies in India could produce two-way benefits, as Australia can provide learning in international best practice in mining activities, including, particularly in environmental management and logistics.58 Major issues cited for attention in terms of promoting investment flows in both directions included removing (or at least reducing) restrictions in both foreign investment regimes, and also enhancing transparency and strengthening mechanisms for the protection of investments.59 With the Feasibility Study confirming potential benefits for each of Australia and India from a comprehensive FTA, formal negotiations on a bilateral agreement subsequently commenced in 2011. The progress of the negotiations to date is considered further in the next section of this paper.

4. PROGRESS OF NEGOTIATIONS After the first round of negotiations in May 2011, seven rounds have since been completed, the latest in April 2015. Only limited information regarding the progress of negotiations has been made publicly available. Updates provided by the Australian Department of Foreign Affairs and Trade suggest it was only at the fourth round of negotiations in November 2012 that intensive negotiations on goods market access commenced. 60 This 55

Id., 3. Id., 10. 57 Id., 24, 54. 58 Id., 42. 59 Id., vii. 60 Australian Government – Department of Foreign Affairs and Trade, Australia-India Comprehensive Economic Agreement, available at http://dfat.gov.au/trade /agree ments/aifta/Pages/australia-india-comprehensive-economic-cooperation-agreement.aspx (Last visited on April 27, 2015) (hereinafter DFAT AICEPA). 56

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round was also reportedly the first at which there was substantive engagement on services, and discussion regarding the process for exchanging services offers and requests. 61 Investment discussions reportedly were still only at the exploratory stage.62 The following round in May 2013 reportedly saw some agreement regarding chapter texts, but in relation to the substance of negotiations, the report suggests detailed market access negotiations would continue at the next round and initial offers and requests on services had not yet been discussed but would be exchanged intersession ally. 63 Some eighteen months then passed before formal negotiations were rescheduled, following the direction of Prime Ministers Abbott and Modi to bring to an early conclusion an equitable, balanced, mutually beneficial and high quality agreement. 64 Reports on the most recent rounds refer simply to the fact of negotiations intensifying, but actual details regarding areas of agreement or challenge are not stated.65 While the Australian and Indian authorities have released little information regarding the substance of their discussions to date, the brief updates suggest progress has been slow, making the push from leaders to conclude negotiations all the more challenging, as it is likely much horse trading remains ahead.

5. PROSPECTS FOR AN AUSTRALIA-INDIA FTA The Australia-India relationship has substantial scope to increase trade and investment linkages. India’s economic rise has attracted the attention of investors eager to take advantage of the massive economies of scale which the large, and rapidly growing, consumer market offers.66 Australia was a major beneficiary of China’s rapid economic growth, and with close language, cultural and political links, could place itself to gain from India’s somewhat belated economic rise. India differs significantly, however, from China, so any opportunities to benefit from its rising economic status will not necessarily follow the path of the Australia-China experience.67 61

Id. Id. 63 Id. 64 Joint Press Statement, supra note 1. 65 DFAT AICEPA, supra note 60. 66 Manu Bhaskaran, The ASEAN Economic Community: The Investment Climate, in The ASEAN Economic Community: A work in progress, ISEAS Publishing 141, 144 (2013). 67 SisiraJayasuriya and Laura Panza, Policy Forum: Australia’s Economic Links with Asia: Will India Be the Next China? Challenges, Prospects and Implications for Australia, 44(4) The Australian Economic Review 446, 446 (2011). 62

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The Feasibility Study into an Australia-India FTA highlighted the benefits of trade liberalisation for both economies, citing as an example the limited barriers existing in the IT services trade between Australia and India.68 As a result of having few impediments, IT trade flows have grown rapidly with benefits on both sides.69 In terms of seeking ambitious outcomes for trade in services more broadly, India will be seeking clear commitments in relation to the movement of persons and the mutual recognition of qualifications. Over half of the Indian population are aged under 25 years and therefore India has a significant labour market from which to draw income. 70 A major issue identified by India in terms of its ability to export services to Australia relates to rules regulating the temporary movement of people as well as requirements relating to recognition of qualifications and experience and related licensing and registration requirements. 71 India is also cited as specifically seeking to negotiate for greater market access for its professionals in sectors such as software services, which it tends to have traded off for greater concessions in the commercial presence area (as per the GATS Mode 3 definition) in other agreements.72 An FTA could play a significant role in enhancing mutual recognition of professional qualifications and professional registration bodies in both countries. 73 Both Australia’s and India’s existing FTAs include commitments to encouraging professional bodies to recognise qualifications, but suggestions such as the need for a time-bound road map74 as part of such agreements so as to lead to real benefits may see a stronger push in this area. A major priority identified by India to sustain its economic growth also involves investment in infrastructure, including power, roads, ports, telecommunications and civil aviation. 75 As noted above, Australia and India could mutually benefit should the FTA provide greater opportunities for Australian companies to invest in these sectors in India, and conversely 68

Joint Feasibility Study,supranote 47, 54. Id., 54. 70 Government of India – Ministry of Home Affairs, Age Structure and Marital Status, 2011 Census Data, available at http://www.censusindia.gov.in/2011census /population _enu meration.html, (Last visited on April 27, 2015). 71 Joint Feasibility Study,supranote 47,8. 72 Arpita Mukherjee and Tanu M. Goyal, FDI in Services and India, 48(3) Foreign Trade Review413, 418 (2013). 73 Joint Feasibility Study, supra note 47, 54. 74 Seshadri, supra note 30, 916. 75 Joint Feasibility Study, supra note 47, 8. 69

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expose Indian business to the best practice, efficient approaches adopted by Australian enterprises. It has been suggested that Australia could play a key role in India’s pursuit of its “Make in India” policy, by promoting a business-friendly environment, offering opportunities to design and implement projects at numerous levels.76 Australia’s experience in customs clearance procedures and innovative manufacturing practices, research and development models, and rapid transport corridors are also cited as opportunities which India could benefit from through greater cooperation with Australia. 77 India’s record in customs-related issues such as the cost of importing and exporting containers, and the time and documentation associated with clearance is poor and these are clear areas that would enhance trade.78 While the text of an FTA can refer to standards in this area, India has much to learn in this space and this presents Australia with a key opportunity. Caution has been sounded as to the potential for over-emphasising the existing links between Australia and India and trade complementarities that are ready to be leveraged if an FTA provides the right conditions to tap into India’s expanding trade and investment.79 While an FTA may facilitate the removal of existing barriers, the difficulties involved in successfully penetrating the Indian market cannot be downplayed. Despite some of the commitments already made by India in other preferential trade agreements, existing barriers remain, which are difficult to address through the text of an agreement. Regulatory and operational uncertainties, arising from India’s multi-layered governance arrangements and associated multiple clearance requirements are one key barrier.80 High and multilayered taxes are another deterrent to investment. 81 Other issues such as poor urban planning, restrictive zoning regulations and low quality physical infrastructure result in general inefficiency, capacity constraints and increased operating costs.82 Similarly, some Australians are wary of opening the employment market further to international professionals, seen as coming at the expense of investment in skills development and training for locals.83 76

Auriol Weigold, Australia-India Relations: Why, How and When? Would India Benefit From Closer Relations With Australia?, (Future Directions International: Strategic Analysis Paper, March 19, 2015), 5-6, available at http://www.futuredirections.org.au/files/sap/ 2015 /Australia-India_Relations_.pdf (Last visited on April 27, 2015). 77 Weigold, supra note 76, 6. 78 Sally, supra note 39, 357. 79 Jayasuriya and Panza, supra note 67, 454. 80 B. McHugh, India free trade deal: analysts urge caution on 12-month timeframe…, ABC Rural, 1 December 2014; Mukherjee and Goyal,supranote 72, 428. 81 Mukherjee and Goyal, supra note 72, 428. 82 Mukherjee and Goyal, supra note 72, 428. 83 Productivity Commission, supra note 19, 178.

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From Australia’s perspective, agreement from India on many of the behind the border areas its interest groups would like to see addressed, including issues identified above as well as domestic regulation, export restrictions and government procurement, are likely to be considered as sensitive issues by India and some commentators have even suggested that issues extraneous to trade should be kept out of agreements with advanced economies.84 Similarly, the Australian Government will need to satisfy its constituents that concessions providing India greater access to local employment and investment opportunities are offset by concrete gains for Australian business and investors in India. The issue of reciprocity is of course likely to play a prominent part in any negotiation. Due to the relatively high tariff barriers maintained by India, they are a prime example of areas where India may feel more comfortable providing concessions, but deeper liberalisation of services or other behind the border issues in addition to tariff cuts may be seen as too high a price. It has been suggested that tariff reductions would amount to a substantial benefit for India’s FTA partners, coupled with the ‘early bird’ advantage flowing from these concessions, which must be balanced in any assessment of reciprocity. 85 Such suggestions highlight the challenge faced by negotiators who must attempt to achieve sufficient equality in concessions. Staiger notes the relevance of reciprocity to trade negotiations generally: “… governments negotiate trade agreements not because they wish to reduce their own trade barriers but because they seek to reduce the trade barriers imposed by their trading partners, and they are willing to “pay” – with market access “concessions” of their own – for the enhanced access to foreign markets that lower foreign barriers would bring.” In one sense, negotiations to obtain reciprocal benefits on a bilateral basis become more straightforward than in multilateral discussions, as the parties can more easily compare the offers on the table to ensure equivalent concessions, and there is no issue of free-riding (which is cited as one of the potential reasons for the increased support for FTAs by governments). 86 However, FTAs are also increasingly covering the more complex issues that are troubling the multilateral system, such as agriculture, competition, and investment, and other concerns such as environmental protection. Accordingly, while governments are increasingly devoting energies to the negotiation of FTAs, it does not necessarily mean the negotiating process 84

Seshadri, supra note 30, 916. Seshadri, supra note 30, 916. 86 Peter-Tobias Stoll and Frank Schorkopf, WTO: World Economic Order, World Trade Law 47,Koninklijke Brill NV (2006). 85

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will be straightforward, with different approaches to negotiation and expectations about the scope and coverage of a trade agreement. From a political perspective, delaying one’s liberalisation steps can be seen as a tactical move as it has the purpose of maintaining a basis for negotiation in order to thereby persuade other states to also offer further liberalisation.87 The challenge for India is further exacerbated by the fact that addressing many of its behind the border issues would be difficult to implement on a discriminatory basis, and adjustments are likely to accrue more broadly to its other trade partners. Further, to maintain its growth momentum, it is likely India will continue a unilateral liberalisation process in the removal of most major trade and investment barriers, regardless of the presence of outcome of an Australian-Indian FTA. 88 So from Australia’s perspective, any concessions afforded to India have to bear in mind that the opportunities provided in return may be expanded more widely, discounting the advantage for Australian business. Also worth mention is the concurrent negotiation underway to establish a Regional Comprehensive Economic Partnership (RECP) Agreement involving ASEAN and its existing six FTA partners, namely, China, Japan, South Korea, Australia, New Zealand and India. Based on the structure of the RCEP, India and Australia will need to negotiate the terms of their accession to the RCEP on a bilateral basis, so potentially, negotiations in this space may be prompted by the early finalisation of an India-Australia FTA. Conversely, both parties may seek to keep some options on the table for the broader negotiations being conducted through the RCEP. Any thinking along these lines must be mindful of the potential timeframe for the finalisation of RCEP negotiations. As highlighted in the discussion on the benefits of FTAs earlier in this paper, the benefit of negotiations among smaller numbers of parties is the increased likelihood that an agreement can be reached quickly. While the negotiations in a bilateral agreement will not be easy, an early agreement would mean the benefits accrue to each side sooner, whereas the RCEP may still be some way off. Clarke and Gao suggest that “[b]ilateral FTAs allow ‘asymmetric nations’ – in terms of their population, economic size, and GDP – to enter into meaningful and mutually beneficial trade arrangements.” 89 As with Australia’s other agreements with key trade partners such as the United States, Japan and Korea, there are likely to be some areas which will elude negotiators and not make the final text. However, the Government will need to promote what benefits are achieved, as well as highlight the less 87

Stoll and Schorkopf, supra note 86, 44. Jayasuriya and Panza, supra note 67, 454. 89 Clarke and Gao, supra note 20, 854. 88

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quantifiable benefit which an FTA can provide, which is the improved business confidence from the formal structures erected through such an agreement, as well as the potential for increased business exposure through formal cooperation mechanisms, if such measures follow from the agreement. Accordingly, while a final agreement will not be easy to conclude and may be unable to address many of the domestic barriers, particularly for Australian business seeking to invest in India, there is much to be said for the likely increased cooperation across a range of sectors that an FTA would promote. The negotiators can seek to address many of the existing barriers to trade impacting on the current integration of the Australian and Indian economies, however as with other agreements, the FTA should also ensure agreement is reached for the promotion of cooperation, increased transparency and exchange of information and expertise to ensure the gains from the arrangement are able to be accessed by business.

6. CONCLUDING REMARKS This paper has briefly reviewed the history of trade liberalisation in each of Australia and India and their approaches to FTA negotiations and outcomes. It has further considered the existing trade relationship between Australia and India and sought to consider opportunities to be seized through an FTA and impediments to the conclusion of a comprehensive agreement. Despite the apparent substantial opportunities for enhanced integration and cooperation through an FTA, and the recent push from the top to achieve a comprehensive deal, a 2015 agreement does appear to be an ambitious timeframe. In balancing the opportunities for increased access against the impact on domestic industry of further opening, negotiators should also seek to ensure the FTA promotes enhanced cooperation and dialogue to make the agreement a living document able to continue to leverage changes to the structures of the Australian and Indian economies.

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