India-Australia FTA utilization up by 90%

More than 90% of India’s textile exports and certain engineering goods, such as electrical transmission lines, bound for Australia are currently being facilitated through the trade agreement that became effective on December 29, 2012, according to media reports.

The utilization of the India-Australia Economic Cooperation and Trade Agreement (ECTA) has reached as high as 90% across approximately 113 products, particularly those involving labour-intensive items, where tariffs have been eliminated from 5% under the terms of the agreement.

This development holds significance given India’s historically low utilization rate of its Free Trade Agreements (FTAs) due to documentation costs, limited awareness, and stringent regulatory norms. The ECTA permits duty-free entry for 98% of India’s exports to Australia based on their value.

The Asian Development Bank has estimated India’s utilization of its trade agreements to be below 25%, one of the lowest rates in Asia. In contrast, developed countries typically achieve FTA utilization rates between 70% and 80%.

According to the think tank GTRI, to address India’s historically low FTA utilization, domestic companies must also compare the Most Favored Nation (MFN) duty rates with the duties stipulated in trade agreements. A company benefits from a deal only when the customs duty specified in that agreement is lower than the MFN duty.

MFN signifies that a country must impose the same import duty on a product for all countries, unlike an FTA, where trade partners grant specific concessions to each other.

Source: Economic Times