Why is there not yet a Free Trade Agreement between India and Australia after a decade of negotiation?


In recent times, trade between India and Australia has increased remarkably, to the considerable economic benefit of both nations. The statistics demonstrate that “[t]wo-way trade in goods and services has grown in value from $13.6 billion in 2007 to $24.3 billion in 2020” (dfat.gov.au). India’s vast market is of much importance to Australia; conversely, the expertise of Australia in various sectors is very useful to India. However, it has been noted that “… the potential for an expansive trade partnership has been stifled by unsuccessful negotiations regarding a free trade agreement.” (businessaustralia.com).

There are two major reasons for unsuccessful FTA negotiations. Firstly, there is the question of India’s agricultural sector. Secondly, there is a simultaneous issue regarding Australia’s service sector. This article shall consider both points in turn. It shall finally assess whether these issues shall be resolved and whether an FTA shall eventually be concluded.

Australia, a country of immense size, produces a huge number of agricultural goods. It does this despite having a very small population and agricultural workforce, in comparison with India. The employment statistics show that “as of August 2019, 318,600 people were employed in agriculture, forestry and fisheries which accounted for around 2.5% of the national workforce” (nff.org.au).

This is a minute statistic, even compared with the number of Indians employed agriculturally in a single, small district. Yet, despite her comparatively small agricultural workforce, Australia is incredibly fruitful. She still produces much more agricultural goods. She gains great wealth from this, by exporting her agricultural produce at extremely ambitious targets. During 2018, for example, 70% of Australia’s agricultural goods were exported. Given this fact, in her negotiations with India, Australia has repeatedly asked India to liberalise her agricultural market for Australian exports.

For India, though, this is a very difficult and sensitive matter. Conceptually, the application of the comparative advantage theory and the liberalisation process should always be beneficial to advanced societies. Therefore, the cheap flow of Australia’s agricultural goods into India should theoretically benefit her industry and some sections of the consumer market. India, however, has long suspected that, in practice, FTAs are not going to be greatly advantageous for her agricultural sector. Rather, she perceived that it would even be disastrous for it.

One reason for this is that more than 40-50% of India’s population is employed in her agricultural sector. In short, Australian exports would strangle India’s small agricultural producers and, therefore, seriously compromise employment on the whole in India. This would plunge a large number of the population into great suffering. It may be argued that India’s agriculture produce which could not in a position to compete with the cheap imports should diversify and shift their production to other agricultural products, such as those advocated by the WTO trade rules. However, this would be impracticable for many reasons, such as unsuitable weather conditions and soil type, poor availability of water and low market interest.

Another reason for India’s reticence concerning Australia’s exports is that India has already fought tirelessly in the World Trade Organisation (WTO) to save her agricultural market. She steadfastly opposed the US and EU, refusing to give market access to this vital part of the economy. It would be both imprudent and inconsistent for her to now back down on the same issue with Australia.

Australia’s industries have repeatedly warned the Government that there are grave labor shortages, especially regarding the dearth of skilled labourers in manufacturing, health and IT. These shortages are putting great strain on Australia’s employment market; rising salaries, too, are overwhelming business owners: “The average wage for semi to low skilled jobs in Australia is approximately AUD 27 (USD 18) per hour. In other developed countries like the US and the UK, the average wage for low skilled jobs is USD 14 and USD 13 per hour, respectively” (aes2020.in).

India interestingly and coincidentally possesses a large workforce of skilled labourers. Recognizing the employment vacuum in certain Australian industries, India has asked Australia to open up this sector for Indian workers: “India’s key interest has been liberalisation of the services “mode 4”, specifically the short-term entry of business persons. India has argued that Australia’s short term business visitor regime constitutes a barrier to India’s services exports” (lowyinstitute.org).

Unfortunately, Australia has been similarly reluctant to cede to an important demand. This is very unfortunate and surprising given that India’s offer is an excellent solution. The main reason for this is that, demographically, Australia is hesitant to allow substantial and long-term Indian immigration. Many argues that Australia foresees that, in ten or twenty years, this could lead to a significant alteration in the population’s traditional character and composition.

For these two reasons, then, ten years of negotiations have passed with little progress to celebrate. One commentator has written that “many have been tempted to write off the prospects for a successful deal” (lowyinstitute.org). It may be contended, though, that there is hope on the horizon. On August 26, 2021, the trade ministers of both countries met in a video conference. This has renewed hope that a mutual ‘early consensus’ on a Bilateral Comprehensive Economic Cooperation Agreement (CECA) will be finalized around December 2021. Significantly, both parties have agreed to produce a final CECA draft by the end of 2022.

However, in my opinion, this recent ministerial agreement shall probably not lead to serious growth. Neither nation is likely to compromise and alter their firm stances on these two aforementioned issues which are crucial and longstanding. In consequence, neither is likely to take advantage of the opportunities created by the US-China and Australia-China trade disagreements.

Antony Vigilious Clement
Antony Vigilious Clement
Antony Clement is a Senior Editor (Indo-Pacific), Modern Diplomacy, an online journal. He is a researcher in Indian Foreign Policy. He is currently working on two books - “The Best Teacher” and “Diplomacy in Tough Times”. His research centres on India’s diplomacy & foreign policy and extends to domestic politics, economic policy, security issues, and international security matters, including India’s relations with the US, the BRICS nations, the EU and Australia. His recent book is “Discover your talents.”


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