Australia India Joint FTA Feasibility Study

7/30/2019 Australia India Joint FTA Feasibility Study

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Australia India

Joint Free Trade Agreement (FTA)

Feasibility Study

Government of India

Ministry of Commerce & Industry

Department of Commerce


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i

Joint Free Trade Agreement (FTA)

Feasibility Study


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Commonwealth o Australia 2010

This work is copyright. Apart rom any use as permitted under the Copyright Act 1968, no partmay be reproduced by any process without prior written permission rom the Commonwealth.Requests and inquiries concerning reproduction and rights should be addressed to the

Commonwealth Copyright Administration, Attorney Generals Department, National Circuit,

Barton ACT 2600 or posted at http://www.ag.gov.au/cca

ISBN 978-1-921612-32-9


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Contents

Executive Summary............................................................................................................................................................. vii

1. Introduction........................................................................................................................................................................ 1

1.1 Background and Objectives o Study .............................................................................................................................2

1.2 Approach o Study ........................................................................................................................................................................2

2. Overview of Indian and Australian Economies.............................................................................................. 3

2.1 Indian Economy ............................................................................................................................................................................5

2.2 Australian Economy ..................................................................................................................................................................9

2.3 Institutional Framework or Economic Cooperation........................................................................................11

3. Australia India Trade Relationship................................................................................................................ 15

Bilateral Trade ........................................................................................................................................................................................16

3.1 Overview ...........................................................................................................................................................................................16

3.2 Australias Exports to India ...............................................................................................................................................17

3.3 Indias Exports to Australia ...............................................................................................................................................19

4. India Australia Investment Relationship ................................................................................................... 23

Investment Linkages ..........................................................................................................................................................................24

4.1 Overview ...........................................................................................................................................................................................24

4.2 Australian Investment in India ........................................................................................................................................24

4.3 Indian Investment in Australia ........................................................................................................................................26

5. Liberalisation of Trade in Goods......................................................................................................................... 29

5.1 Existing Trade Policies and Constraints ..................................................................................................................30

5.1.1 India ...................................................................................................................................................................................30

5.1.2 Australia .........................................................................................................................................................................30

5.2 Impact o Liberalisation ........................................................................................................................................................31

5.2.1 Australia .........................................................................................................................................................................31

5.2.2 India ...................................................................................................................................................................................34

5.3 Sector Analysis............................................................................................................................................................................34

5.3.1 Manuactures .............................................................................................................................................................34

5.3.2 Agriculture, Forestry and Fisheries ...........................................................................................................36

5.3.3 Mining ..............................................................................................................................................................................39

5.3.4 Energy ..............................................................................................................................................................................42

5.4 Rules o Origin ............................................................................................................................................................................43

5.5 Sanitary and Phytosanitary Measures ......................................................................................................................44


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5.6 Technical Regulations, Standards and Conormity Assessment............................................................46

5.7 Customs Procedures ..............................................................................................................................................................47

5.8 Anti-Dumping, Countervailing and Saeguards Measures ........................................................................49

6. Liberalisation of Trade in Services ................................................................................................................... 51

6.1 Existing Policies ........................................................................................................................................................................52

6.1.1 India ...................................................................................................................................................................................52

6.1.2 Australia .........................................................................................................................................................................52

6.2 Impact o Liberalisation ........................................................................................................................................................54

6.3 Sector Analysis............................................................................................................................................................................54

6.3.1 Financial Services ...................................................................................................................................................556.3.2 IT & IT enabled Services .....................................................................................................................................60

6.3.3 Telecommunications .............................................................................................................................................62

6.3.4 Education........................................................................................................................................................................64

6.3.5 Proessional Services ............................................................................................................................................65

6.3.6 Tourism ............................................................................................................................................................................69

6.3.7 Air Services ..................................................................................................................................................................70

6.3.8 Movement o Natural Persons, including Visas or Mode-4......................................................72

6.3.9 Agricultural Services ............................................................................................................................................74

6.3.10 Audio-Visual ................................................................................................................................................................756.3.11 Healthcare Services................................................................................................................................................76

6.3.12 Architecture, Construction and Engineering Services ..................................................................78

6.4 Conclusion ......................................................................................................................................................................................81

7. Investment Liberalisation ...................................................................................................................................... 83

7.1 Current Measures Applying to Investment .............................................................................................................84

7.1.1 Australian Investment Regime ......................................................................................................................84

7.1.2 Indian Investment Regime .................................................................................................................................85

7.2 Impact o Investment Liberalisation ............................................................................................................................89

8. Other Matters for Consideration ........................................................................................................................ 93

8.1 Intellectual Property................................................................................................................................................................94

8.2 Competition Policy ...................................................................................................................................................................96

8.3 Government Procurement..................................................................................................................................................97

8.4 Mutual Recognition .................................................................................................................................................................98

8.5 Consultation ..................................................................................................................................................................................99

9. Economic Modelling ................................................................................................................................................. 101


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10. Conclusions and Recommendations .............................................................................................................. 105

10.1 Introduction

10.2 Conclusions on the Feasibility o an FTA ..............................................................................................................107

10.3 Recommendations ...............................................................................................................................................................107

Annex

Annex A: Terms o Reerence....................................................................................................................................................108

Annex B: Centre or International Economics .............................................................................................................109

Annex C: Research and Inormation System or Developing Countries.....................................................112

Annex D: Currency Conversion Table..................................................................................................................................113

Annex E: Glossary o Acronyms and Abbreviations ...................................................................................................114


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Executive Summary

Recent years have seen remarkable growth in the tradingrelationship between India and Australia, uelled by the manycomplementarities between the two economies. Over the pastve years, bilateral trade in goods and services has increasedby 24 per cent annually to US$16 billion in 200809. Two-way

investment is also signicant, estimated at over US$1.5 billionincluding portolio investment in 2008.

Against this backdrop, Australia and India agreed in April 2008 to undertake a easibility study or

a possible bilateral ree trade agreement (FTA) to explore the scope or building an even strongereconomic and trade relationship.1

The easibility study shows that signicant barriers to goods and services trade remain inboth countries.

An FTA between India and Australia would be expected to address tari and non-tari barriers.It would go beyond each countrys commitments in the World Trade Organization (WTO) and cover

substantially all trade in goods.

Services liberalisation would seek to remove barriers that impose additional costs on exporters

and erode competitiveness. A possible FTA would be expected to have substantial servicessector coverage.

Australia-India investment fows are modest relative to bilateral trade, refecting both regulatoryand other impediments and, to some extent, a lack o awareness o business opportunities in the

other country. A possible FTA may address this imbalance by removing or reducing existingrestrictions in both oreign investment regimes. It could also ocus on enhancing transparency and

strengthening investment protection mechanisms.

A comprehensive FTA oers scope to take the relationship to the next level to the mutual

advantage o both economies. It could oster even stronger growth, including through more diversetrade and investment fows. Cooperation, capacity building and exchange o inormation on other

issues such as the protection o intellectual property rights (covering all issues including TRIPS &CBD, and GIs inclusive o non-ood GIs), SPS & TBT matters, competition policy and government

procurement could also be considered during possible FTA negotiations.

In order to make an assessment o the possible trade gains rom the proposed FTA,

independent economic modelling was commissioned in both the countries or the study. Theresults provide insights into how an FTA might impact on bilateral trade and investment fows as

well as economic welare. Economic modelling is necessarily based on certain assumptions andthe results o the modelling or this study should be regarded as indicative rather than as exact

1 FTA in this study is comprehensive including trade in goods and services along with investmentcooperation. In other words, it is akin to CEPA or CECA in other contexts.


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estimates. Dierent economic modelling methods, GTAP-CGE modelling and modelling based

on an analysis o complementarity, were used in the study to estimate the welare gains toboth countries. The results indicate that the welare o the two countries would increase withthe conclusion o an FTA. The welare gains or both the countries could be in the range o 0.15

and 1.14 per cent o Gross Domestic Product (GDP) or India and 0.23 and 1.17 per cent o GDPor Australia. An Australia-India FTA could result in a modest positive impact on total global

economic output.

The Joint Study Group concludes that a bilateral FTA is easible and it recommends that both

governments consider the negotiation o a comprehensive India-Australia FTA.


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1. Introduction


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1.1 Background and Objectives o StudyThe economic relationship between Australia and India has developed rapidly in recent years,

particularly under the impetus o Indias ar-reaching process o economic reorm and theresulting rapid globalisation o the Indian economy. In recognition o the growing synergiesbetween the two economies, and the commitment on both sides to urther enhance the economic

partnership, Australia and India agreed in April 2008 to undertake a easibility study or a possiblebilateral Free Trade Agreement (FTA). This would help inorm a subsequent decision by the two

Governments about whether to proceed to FTA negotiations. In doing so, the study is withoutprejudice to whether possible uture FTA negotiations between Australia and India would take up

all issues in the orms considered in the study.

Terms o reerence (TOR) or the study were developed and are set out in Annex A. Key elements othe TOR are:

To identiy the benets that India and Australia would derive rom a WTO-consistent FTA;

To assess the easibility o a comprehensive FTA covering goods, services and investment aswell as other cross-cutting issues such as intellectual property, sanitary and phytosanitary

issues, technical barriers to trade, competition policy and government procurement;

To assess prospects or expansion o trade in goods through liberalisation o taris and non-tari measures;

To assess prospects or expansion o trade in services across a substantial range o sectors,

including through labour mobility and encouragement o mutual recognition arrangements; To explore how to create a avourable environment or investment in both directions; and

To produce a report or consideration by Governments in the rst hal o 2009 or earlier.

A Free Trade Agreement (FTA), or the purposes o this Study, has a wide coverage including

goods, services and investment. In India, FTAs are commonly understood as goods-onlyagreements whereas a Comprehensive Economic Cooperation Agreement (CECA) includes

goods, services, investment and other areas o cooperation. In Australia, FTAs are understoodas comprehensive agreements.

1.2 Approach o StudyThe easibility study was undertaken by the Joint Study Group (JSG) which held its meetings, with

co-chairs rom the Indian Department o Commerce and the Australian Department o ForeignAairs and Trade. The JSG met our times between April 2008 and September 2009. It conducted

much o its work through inter-sessional contact and exchange o material between the twodepartments. Both sides undertook consultations with business and other stakeholders. Writtensubmissions were invited and received. Economic modelling was conducted by both India and

Australia, with details provided in Annex B and C.


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2. Overview o Indian and Australian Economies


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Overview o Indian and Australian EconomicsTo set the context or the Joint Study Report, this chapter provides an overview o the Indian and

Australian economies, including their global trade and investment.

Table 2.1 puts recent macroeconomic and trade data or both countries in a broader comparative

context. It is evident that the two economies are dierent in various ways and similar in others.Such similarities and divergences may provide avenues or economic interactions and cooperation.The present joint study is an endeavour to explore such possibilities and to suggest ways and

means to harness economic synergies to the maximum extent easible.

TABLE 2.1 | BROAD MACROECONOMIC AND TRADE INDICATORS: AUSTRALIA AND INDIA

BROAD MACROECONOMIC AND TRADE INDICATORS: AUSTRALIA AND INDIA

AUSTRALIA INDIA

GDP, average annual growth, 2004-2009, per cent 2.9 8.4

GDP, current prices, US$ billion (2009) 996 1,243

GDP per capita, current prices, US$ (2009) 45,157 1,033

Structure o output, per cent (2009)

Agriculture 2.9 14.9

Industry 26.6 28.3

o which manuacturing 9.1 15.9

Services 62.7 56.8

Population, million (2009) 22 1,203

Rural population as per cent o total (2007) 11 71

Lie expectancy at birth, years (2007) 81 65

Educational enrolment, tertiary, per cent 73 12

Exports, US$ billion (2009)

Goods and services 198 198

Goods 155 163

Services 42 35

Imports, US$ billion (2009)

Goods and services 204 326

Goods 161 273

Services 43 54

Sources: Australia Bureau o Statistics, IMF World Economic Outlook, World Bank World Tables on dX Data,Economist Intelligence Unit, DFAT STARS, CEIC database


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2.1 Indian EconomyThe Indian economy has remained on the high growth path o recent years, despite some

moderation in recent growth projections. (See Chart 2.1) Ater independence, India ollowed thesystem o a command and control economy to implement the development policies outlined inthe Five Year Plans. The principal objectives were to increase aggregate consumption, reduce

unemployment, work towards sel-reliance and sel-suciency, and reduce social disparities.The priority among these objectives changed rom plan to plan.

CHART 2.1 | GDP GROWTH IN AUSTRALIA AND INDIA

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Percent

-2

0

2

4

6

8

10

12

Australia India

(a)

(a) Consensus Forecast for India

Source: International Monetary Fund, World Economic Outlook Database, October 2009Australia: ABS, Cat 5206.0, Dec 2009, Original: CVM: Gross domestic product: ANNUAL: PCTCHG

Some policy reorms had been initiated in the 1980s, but it was not a sustained and continuousprocess. The trend towards a liberal economic policy gathered steam in the early 1990s when theGovernment o India announced a series o packages or autonomous structural policy reorms.These policy reorms, guided by the need to raise productivity and economic growth, were inpart a response to the process o globalisation. The reorms were aimed at improving internaland external competitiveness through greater private sector participation and provision o moreappropriate incentives alongside prudent governmental regulatory structures.

These policy changes were accomplished by structural reorms in the orm o industrialderegulation, tari reduction and de-licensing policies, increasing opportunities or oreign directinvestment, public enterprise reorms and social sector policies. The main objective o thesereorms was to re-orient the Indian economy so as to make it open to market-driven orces withthe role o the State as a acilitator. The reorms were carried out in many segments o economicactivity, though their coverage and depth varied rom sector to sector.

The economic reorms o the early 1990s led to an initial spurt in output growth to over 7 per cent ayear during the rst phase o reorms (199293 to 199697), uelled by growth in the industrial and

services sectors. Substantial reorms in key sectors subsequently helped shit the growth rate toan average o 8.94 per cent per annum during the later period 200304 to 200708.2

2 Growth rate in NDP. Source: Government o India Economic Survey 2008-2009.


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The growth rate in trade has been an integral part o Indias success story. In 199293,

merchandise exports were US$18.5 billion, with the compound annual growth rate touchingaround 9.83 per cent per annum during 19922000. The acceleration in the growth o exports inrecent years has been remarkable. Total exports nearly tripled between 200102 and 200607,

with an annual growth rate o 20.81 per cent per annum during 200008.

The share o agriculture in output has been consistently declining. On the other hand, services hasbeen one o the most dynamic and strongly growing areas or India in the past decade, and hasemerged as the largest sector with a high growth rate and a more than 55 per cent share in total

real output (GDP). The emergence o India as one o the astest growing economies in the worldduring the 1990s was attributable in signifcant part to the rapid growth o its services sector,

which grew at an annual average o 10 per cent. In services, India pursued signifcant reorms,especially in telecommunications, fnancial services and, to some extent, in inrastructure services,

such as power and transport.

In 2008, India was the tenth-largest services exporter in the world and the eighteenth-largest

services importer. Indias services-led export boom over the last decade ully oset Indias netmerchandise trade defcit until 20073. The result also has been that, with growth o over 17 per

cent annually in the 1990s, Indias services exports have experienced one o the astest globalgrowth rates, well ahead o the world average o 5.6 per cent. This was led by exports o sotwareand IT-related services which have grown at around 46 per cent per year since the mid-1990s.

Services exports rom India have continued to be one o the main sources o oreign exchange

earnings in the country and the sectors which have seen higher growth have included: sotware;IT-enabled Services (ITeS), including fnancial IT services; and Business Process Outsourcing

(BPO); as well as emerging areas such as healthcare (in particular diagnostics and surgery);telecommunications; and proessional services.

Indias developmental trajectory, thereore, owes much to the broad-based growth in theservices sector o the economy. Services have contributed around 69 per cent o the overallaverage growth o GDP in the period 2002-03 to 200607. Interestingly, services alling under the

rubric o trade, hotels, transport and communications have clocked double digit growth (Table 2.2)since 2003-04 except in 200809 (period o global slowdown).

TABLE 2.2 | GROWTH IN THE SERVICES SECTOR IN INDIA

YEAR SERVICES

TRADE, HOTEL, TRANSPORT

AND COMMUNICATIONS

FINANCE, INSURANCE, REAL

ESTATE & BUSINESS SERVICES

200001 5.71 7.26 4.07

200102 6.85 9.19 7.28

200203 7.52 9.44 7.98

200304 8.84 12.02 5.58

200405 9.86 10.69 8.69

200506 11.20 12.11 11.39

200607 11.30 12.82 13.78

200708 10.77 12.39 11.75

200809 9.38 9.05 7.82

Source: Reserve Bank of Indias Hand Book of Statistics on Indian Economy

3 Directorate General o Commercial Intelligence and Statistics data and RBI estimates.


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Services exports increased threeold during the last three years. Preliminary estimates indicate

that an annual growth o 26 per cent was achieved during 200809. Growth has been particularlyrapid in exports o sotware services, business services, nancial services and communicationservices.

In 2008, while Indias share and ranking in world merchandise exports were 1 per cent and 26th,respectively, its share and ranking in world commercial services exports was 2.7 per cent and 10th,

respectively. Services exports grew much aster than merchandise exports and constituted almost60 per cent o merchandise exports in 200506. The composition o Indias services exports and

growth in specic sectors is represented in Table 2.3.

TABLE 2.3 | INDIAN SERVICES EXPORTS (US$ MILLION)

INDIAN SERVICES EXPORTS (US$ MILLION)

199091

%SHARE

199495

%SHARE

200001

%SHARE

200506

%SHARE

200708 (P)

%SHARE

Total Services Exports 4551 6135 18870 57659 90077

Travel 1456 32 2365 39 3168 17 7853 14 11349 13

Transportation 983 22 1696 28 1913 10 6325 11 10014 11

Insurance 111 2 152 2 257 1 1062 2 1639 2

Miscellaneous 2001 44 1953 32 13,532 72 42419 74 67075 74

of which

Software Services 23600 41 40300 45

Business Services 9307 16 16771 19

Financial Services 1575 3 3217 4

Communication Services 2182 4 2408 3

Source: For 200708 and update to previous years gures: RBI monthly bulletin o June 2009 (http://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/T43_TCS0609.pd) For 200506: RBI monthly bulletin o December 2007 (http://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/82020.pd).

In recent years, a sectoral shit within the spectrum o service exports has also taken place.

The buoyant growth o proessional, technical and business services have provided a cushionagainst the slowdown in traditional services like travel and transportation. The relative share o

travel and transportation in Indias service exports has declined over the years.

While it is well known that Indian sotware services have been growing or some time, other

services such as management and consultancy, advertising and trade airs, nancial services,architectural and engineering services are emerging as major oreign exchange earners(see Table 2.4).

Business services, which also include legal, accounting and auditing services and environmental

services, achieved exports o US$12.9 billion in 200506 as against US$23.6 billion romsotware services. This has been made possible because o the widespread expansion o thetelecommunications sector and the increasing digitisation o various services, making it possible

to supply services remotely. This is also reerred to as Cross Border Supply (Mode 1).


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TABLE 2.4 | INDIAN BUSINESS SERVICES EXPORTS 200506

EXPORTS OF BUSINESS SERVICES 200506 (US$ BILLION)

Architectural and engineering 3

Management and consultancy 1.6

Financial services 1.9

Source: NASSCOM

According to the Indian National Association o Sotware and Services Companies (NASSCOM),US$10-15 billion o the US$750 billion spent globally on engineering services is o-shored, and

Indias share is around 12 per cent o this oshore market. With the global spend in this sector

expected to grow to more than US$1 trillion, and outsourcing also expected to grow, Indian serviceproviders have tremendous opportunity to expand given that India has the single largest pool oengineering talent among the emerging countries.

Finally, temporary movement o natural persons (Mode 4) is an area o signicance or Indiasservices trade. Indias service providers, particularly in some proessional services and in

the inormation technology sector, have earned a reputation worldwide as providers o highquality services.

The United States (US) and the United Kingdom (UK) are the key destinations or Indian serviceexports. In the European Union (EU), India has a presence in the travel services imports o France

and Italy, while in East Asia it has a presence supplying transportation services in Hong Kong.

An emerging eature o Indias economy is the growing importation o services (see Table 2.5).Indias import o services grew more than ten-old during the period 1990-91 to 200506. Therapid growth in the import o services is being uelled by sustained 8 per cent plus economic

growth and increased engagement by India with the world economy. The growth in servicesimports is spread across most sectors.

Imports o commercial services have become important in recent years reaching US$44 billion in200607 with annual growth o 29 per cent. Business services are the most important category o

services imports, ollowed by transportation and travel. Business services grew by 121 per centin 200607.

Temporary movement o people to deliver services is an area o great importance or India given

the growing work-age population and increasing potential to supply services through movement oskilled persons. India identies several domestic laws and regulations that apply to ree movemento natural persons to Australia, including in relation to the ability o Indian service providers tovisit Australia or providing dierent types o services. There exist other issues including the

requirement or recognition o the qualications and experience o proessionals, and otherlicensing/registration requirements.


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TABLE 2.5 | INDIAN SERVICES IMPORTS (US$ MILLION)

INDIAN SERVICES IMPORTS (US$ MILLION)

199091

%SHARE

199495

%SHARE

200001

%SHARE

200506

%SHARE

2007-08 (P)

%SHARE

Total Services Imports 3571 5533 16392 34489 52512

Travel 392 11 818 15 2874 18 6638 19 9254 18

Transportation 1093 31 1863 34 3170 19 8337 24 11514 22

Insurance 88 2 181 3 122 1 1116 3 1044 2

Miscellaneous 1998 56 2671 48 10226 62 18398 53 30700 58

of which

Software Services 1338 4 3058 6

Business Services 7748 22 16715 32

Financial Services 965 3 3138 6

Communication Services 289 1 859 2

Source: For 200809 and update to previous years gures: RBI monthly bulletin o June 2009 (http://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/T43_TCS0609.pd) For 200506: RBI monthly bulletin o December 2007 (http://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/82020.pd).

The higher GDP growth in India has been accompanied by an increase in the investment rate and asomewhat larger increase in the savings rate. The rate o domestic investment increased to 36 per

cent o GDP in 2007. At the same time, the rate o gross domestic savings increased rom 21 percent o GDP in the pre-reorm period to around 36 per cent.

Among the dierent orms o oreign capital infows, oreign direct investment (FDI) is the mostattractive type in a large emerging economic market like India. FDI in India has accelerated in

recent years due to the adoption o various reorms, development o better inrastructure andemergence o a vibrant nancial sector, among many other determinants. On a gross basis,

FDI infows to India reached US$23 billion in 20074.

Investment in inrastructure development, however, remains a developmental challenge that will

need to be addressed to ensure sustained high economic growth rates in India into the uture.The Government o India gives priority to the development o inrastructure such as power, roads,

ports, telecommunications and civil aviation in addition to social inrastructure.

2.2 Australian Economy

Australia has a highly open, market-based and capital-intensive economy which is currentlyenjoying a prolonged economic expansion, presently in its 18th year. It grew by an average o

3.5 per cent rom the early 1990s to 2009, but the global nancial crisis has had an impact onrates o economic growth in Australia rom late 2008 to 2009 (see Chart 2.1).

4 UNCTAD World Investment Report 2008.


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The strong perormance o the Australian economy in recent years has been underpinned

by a series o deep and wide-ranging economic reorms undertaken since the early 1980s.Key reorms included the deregulation o oreign exchange markets (which resulted in thefoating o the Australian dollar), a comprehensive program o tari liberalisation (reducing

the average tari rom over 10 per cent in 1980 to 3.5 per cent in 2008), nancial marketderegulation, taxation reorm and labour market reorms. Reorms have also resulted in the

levels o domestic industry support alling to among the lowest in the world. These measureshave collectively made the Australian economy highly fexible and resilient to economic shocks,

as was evident during the 1997 Asian nancial crisis, and has been the case during the currentglobal nancial crisis.

Australias economy has also undergone substantial structural change. While the traditionalagricultural and resource industries remain important export-ocused sectors, the economy has

become predominantly services-based, with services accounting or 72.9 per cent o economicactivity in 2009 and over 85.6 per cent o employment.The relative share o manuacturing toGDP has been declining steadily or some years (rom 18 per cent in 1980 to around 9.1 per

cent currently). Agriculture constitutes only about 2.9 per cent o GDP, though it is much moreimportant in Australias exports where it contributes 10.2 per cent o the total.

Although Australias population o 22 million people is small by Indian standards, total economicoutput is o a similar order o magnitude. Australian GDP per capita is consequently relatively high

at almost US$45,157 in 2009 (A$57,067).

Like all economies, the Australian economy was not immune to the eects o the global nancial

crisis. Following growth o 2 per cent in 2008, and 1.4 per cent growth in 2009, the International

Monetary Fund orecasts 2.5 per cent growth in 2010 and 3 per cent growth in 2011.

While unemployment ell rom a peak o almost 11 per cent 15 years ago to 4.3 per cent in October2008 the lowest level since the 1970s it has since risen to over 5 per cent with the eect o the

global nancial crisis.

Australia relies heavily on imports or a wide range o products, and has a relatively high tradeintensity (dened as total trade o goods and services) o 40 per cent o GDP.

Globally, Australia ranked 21st as an importer o goods in 2008. Australias imports haveexpanded rapidly in recent years, largely refecting strong growth in the economy. Imports o

goods made up around 79 per cent o total imports in 2009, with services imports constitutingaround 21 per cent. Imports o goods are dominated by manuactures, which made up 74 per

cent o total merchandise imports in 2009. Fuels constituted a urther 16 per cent o merchandiseimports. The top ten global goods and services imports in 2009 were: personal travel services(excluding education); crude petroleum; rened petroleum; passenger motor vehicles; gold; reight

transportation services; passenger transportation services; telecommunications equipment;medicaments; and goods vehicles.

Globally, Australia ranked 23rd as a merchandise exporter in 2008. Australias export mix isdierent rom most other developed economies, as a result o a small population and modest

industrial base but with signicant, easily extractable natural resources (minerals and uelsmake up the largest share o exports (41 per cent in 2009), with rural products constituting

a urther 11 per cent). Services account or around 21 per cent o exports. The importance o

minerals, uels and services in Australias exports is illustrated by the top ten exports in 2009,that include coal; iron ore; education services; gold; personal travel services (excluding education);crude petroleum; natural gas; aluminium ores; bee; and aluminium. However, Australia also


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has a signicant manuacturing sector, with manuactured goods accounting or around 16 per

cent o total exports and elaborately transormed manuactures making up 69 per cent o totalmanuactured exports in 2009.

Foreign investment has played a key role in the development o the Australian economy, withoreign capital helping to und the development o Australias agricultural industries in the 1960sand 1970s. More recently, oreign investment has ocused on Australias booming resources sector

and has been important in providing the capital to open new mines, build new inrastructure andexpand Australias export capacity. The stock o FDI in Australia reached US$427 billion at the end

o December 2009, with a urther US$980 billion in portolio investment. Since the deregulationo Australias oreign exchange markets in the 1980s, Australian companies and superannuation

unds have also become increasingly active investors in other countries. Australian directinvestment abroad totalled US$349 billion at the end o December 2009, with portolio investmentamounting to a urther US$383 billion.5 Australia is home to the ourth-largest investment undasset pool in the world (with a total investment und pool o around US$1.3 trillion in the Decemberquarter in 2009).

2.3 Institutional Framework or Economic Cooperation

The premier trade and economic institutional link between Australia and India is the JointMinisterial Commission. It is an annual meeting between Australias Minister or Trade and

Indias Minister or Commerce and Industry which aims to strengthen bilateral economiccooperation. It is normally preceded by an associated senior ocials meeting.

The importance o the Australia-India economic relationship was underscored by the signing o abilateral Trade and Economic Framework (TEF) in March 2006. A number o sector-specic working

groups take orward the economic relationship across a broad ront under the Trade and EconomicFramework (TEF). The TEF provides a government-to-government structure or promotingeconomic development in key areas including energy and mining, inrastructure development,

inormation and communication technology, services, agriculture and biotechnology. The sector-specic working groups include:

TheJoint Working Group on Minerals and Energy(led by Australias Department o Resources,Energy and Tourism and Indias Ministry o Mines representing our other Indian Ministries

Ministries or Coal, New and Renewable Energy, Petroleum and Natural Gas and Power.

The sixth Joint Working Group Meeting took place in March 2009);

TheJoint Working Group on Education and Training (led by Australias Department oEducation, Employment and Workplace Relations and Indias Ministry o Human Resource

Development Agreement or an Education Exchange Programme on Cooperation inEducation and Training signed in 2003);

TheJoint Working Group on Inormation, Communications and Technology(led by AustraliasDepartment o Broadband, Communications and the Digital Economy and Indias Ministry

o Communications and Inormation Technology Memorandum o Understanding (MOU)signed in 2005);

5 ABS 5302.0 Table 26 and 27.


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TheJoint Working Group on Tourism (led by Australias Department o Resources, Energy and

Tourism and Indias Ministry o Tourism MOU signed in 2002);

TheJoint Science and Technology Committee (led by Australias Department o Innovation,

Industry, Science and Research and Indias Department o Science and Technology MOUrenewed in 2003);

TheJoint Biotechnology Committee (led by Australias Department o Innovation, Industry,Science and Research and Indias Department o Biotechnology MOU signed in 2006); and

TheJoint Working Group on Visa, Passport and Consular Issues (led by Australias Departmento Immigration and Citizenship and Indias Ministry o External Aairs).

Many other Australian and Indian agencies are ostering links that can aid the economic

relationship. A number o agencies have recently agreed MOUs to enhance bilateral cooperation:

IP Australia and Indias Oce o the Controller o Patents, Designs and Trademarks (MOU

signed in 2008);

Australias Commonwealth Scientic and Industrial Research Organisation and Indias

Council o Scientic and Industrial Research (MOU signed in 2008); and

Australias Customs Service and Indias Central Board o Excise and Customs (MOU

signed in 2006).

Air services between Australia and India are governed by an Air Services Agreement signed in2006 and supplemented by a Memorandum o Understanding between aeronautical authorities

signed in 2004 (see Chapter 6.3.8 Air Services).Senior ocials in Australias Treasury and Indias Ministry o Finance established an annual

economic policy dialogue in 2008. This group shares experiences in relation to economic reorm,and exchanges inormation on nancial sectors, regulatory architecture and the tax regimes in thetwo countries.

A Double Taxation Agreement between Australia and India was agreed in 1991 to avoid duplication o

taxation payments and scal evasion o taxation. AnAgreement on the Promotion and Protection oInvestment was concluded in 2000 to promote avourable conditions or investors seeking to investin the other country.

Agricultural cooperation is becoming an increasingly important part o Australias relationship with

India. Bilateral discussions on agriculture to progress each countrys market access issues areconducted between relevant agencies. Australia and India have established an arrangement or therecognition o certication o ood inspection systems covering sh and sheries products exported

rom India to Australia.

A number o Australian states have established trade oces in India Western Australia has an

oce in Mumbai and South Australia has established an oce in Chennai. Some Australian stateshave signed MOUs with Indian states:

The State Government o Victoria signed an MOU with the Indian State o Karnataka in 2005,which aims to establish stronger links in education, tourism, Inormation Communication

Technologies (ICT), manuacturing and biotechnology, and has established an oce in

Bangalore; and


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The State Government o Queensland signed an MOU with the Indian State o Karnataka

in 2003, which aims to promote trade and investment between the two States in tourisminrastructure, bio-sciences, agribusiness, mining services and transport inrastructure, andhas established an oce in Bangalore.

In addition, the State Government o Western Australia signed an MOU with the Sports Authority oIndia (SAI) in 2004, and it has also signed an MOU covering minerals with the Government o India

(the Indian Environment and Forests Ministry, Mines Department and Indian Mineral Federation),together with the Chamber o Minerals and Energy o Western Australia.

The State Government o South Australia signed a sister state agreement with the Indian State oTamil Nadu in 2006.

Business-to-business collaboration is an important acet o the economic relationship. TheAustralia-India Business Council (AIBC) was set up in 1986. The AIBC has representatives andmembers across all Australian states and territories. It aims to help its members capture thebenets o the expanding trade between the two countries. In India, theAustralia- New Zealand

Business Association in India (ANZBAI) assists business-to-business links and meets regularly inNew Delhi and Mumbai. The India-Australia Chamber o Commerce in Chennai is another important

organisation that brings together businesses rom the two countries.

TheAustralia-India Council (AIC) was ounded in 1992, and works closely with its counterpart in

India, the India-Australia Council. Its purpose is to broaden the relationship between Australiaand India by encouraging and supporting contacts and increasing levels o knowledge and

understanding between the peoples and institutions o the two countries. The Council initiates or

supports a range o activities designed to promote a greater awareness o Australia in India and agreater awareness o India in Australia, including visits and exchanges between the two countries,development o institutional links, and support or studies in each country o the other.

The Australian and Indian Governments have also supported the establishment o an Australia-India Chie Executive Ocers Forum.

Australia and India are committed to multilateral and regional economic cooperation processesand work together in various ora. The two countries are members o the East Asia Summit (EAS)

which is examining a possible Comprehensive Economic Partnership in East Asia (CEPEA). Indiaand Australia are members o the Indian Ocean Rim Association or Regional Cooperation (IOR-ARC),which was established in 1997 to acilitate and promote economic cooperation among Indian Ocean

Rim countries, as well as Asia-Europe Meeting (ASEM).

Australia has recently been granted observer status at the South Asian Association or RegionalCooperation (SAARC). This will provide another orum in which Australia and India can engageon economic issues o shared interest. Such a partnership could assist the process o regional

economic integration. Australia is a member o theAsia Pacic Economic Community(APEC) and

is keen to see India become a member ater the new membership moratorium ends in 2010.


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3. Australia India Trade Relationship


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Bilateral Trade3.1 Overview

Trade between Australia and India has grown strongly over recent decades, with a particularlysharp upswing since 2002 (see Chart 3.1). Two-way trade between Australia and India in 200809reached US$16 billion, o which goods trade was the largest component, at US$12.9 billion. Two-

way services trade has risen markedly o a low base and amounted to US$3.1 billion in 200809.

The growth in trade between India and Australia is based on the complementarities between thetwo economies. India has been able to use Australian exports o items, such as iron ore and coal,to meet its growing economic demands, ll inrastructure gaps and as inputs to its own exports.

Australian companies have gained productivity and cost benets rom Indias services industries.Rising Indian investment in Australia, including in areas as diverse as coal and copper mining,

sotware development and biotechnology, has also underpinned a new dimension in bilateralgoods and services trade. Similarly, increasing Australian investment in Indian sectors such as

inrastructure, nancial services, telecommunications and mining are boosting important sectorso the Indian economy.

CHART 3.1 |AUSTRALIAS TRADE WITH INDIA IN GOODS AND SERVICES

0

2,500

5,000

7,500

10,000

12,500

15,000

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

US$million

Exports

(a) Trade in goods is on a recorded trade basis.

(b) Financial year ending 30 June.

Source: ABS trade data rom DFAT, STARS database & ABS Cat. 5368.0, December 2009

Bilateral trade cooperation has assumed new signicance in the wake o the global economic

crisis which has led to a dramatic deterioration in the world economic outlook and slowergrowth in both India and Australia, which has the potential to impact on uture trade betweenAustralia and India.


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3.2 Australias Exports to IndiaIndia is one o the astest growing o all Australias major markets or both goods and services,

with exports growing at an annual average rate o 25 per cent during the ve years to 200809.In 200809, India was Australias ourth-largest goods export market and its th-largest services

export market. Australia is an increasingly important source o goods imports or India, with itsshare increasing rom 2.4 per cent o total imports in 2001 to 3.5 per cent in 2008.

Merchandise Exports

Table 3.1 shows Australias top merchandise exports to India in 200809. Commodity exportsdominate, consistent with the traditional pattern o trade. Coal, gold, and copper were

Australias three principal exports, with ertilisers, manganese, wool, aluminium, vegetablesand lead also signicant.

While Australias main exports are commodities, manuactured goods exports (including semi-manuactured gold) to India have also been growing strongly. Manuactured exports have grownto US$5,169 million in 200809 displaying an average annual growth o over 21 per cent over the

last 5 years.

The main products in which there is current growth or Australias manuactured exports to Indiainclude ertilisers, aluminium, machinery, aircrat and associated equipment, and perumery andcosmetics or toilet preparations. The main imports rom India where there has been signicant

growth include machinery, and pharmaceutical products.

It is interesting to note that the bilateral trade relationship between Australia and India isto a signicant extent characterised by Indias imports rom Australia o raw materials andintermediate products which are used by India to produce nal goods or exports, a part o which

in turn is imported rom India by Australia. This export-import linkage between the two countriesis illustrated below.

For example some Australian merchandise goods are essential to Indias jewellery industry.Australia exports to India signicant quantities o diamonds (through a third country) and gold.

At the same time, Indias jewellery exports to the world have increased markedly rom US$1700in 2003 to US$7441 in 2008, including to Australia, which imported US$47 million in 2008 (up rom

US$12 million in 2003).

Australias wool exports to India have also played an important role as an input to Indiasexports. India is Australias third largest export market or wool with exports o US$98 million in200809 representing around 50 per cent o Indias wool imports. India uses Australian wool to

make clothing and textiles exported around the world. Australia imported textiles, clothing andootwear rom India totalling US$239 million in 200809.


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TABLE 3.1 |AUSTRALIAS PRINCIPAL MERCHANDISE EXPORTS TO INDIA

HSCODES

200708US$M

200809US$M

270112 Bituminous coal, whether or not pulverised, but not agglomerated 2,445 4,991

7108 Semi-manuactured gold 3,620 4,270

2603 Copper ores and concentrates 892 586

3105 Mineral or chemical ertilisers 44 365

9999 Confdential items3 (incl wheat, 155 223

2602 Manganese ores and concentrates 73 117

5101 Wool, not carded or combed 129 98

071320 Dried shelled chickpeas (garbanzos) 42 88

7601 Unwrought aluminium 13 76

7801 Unwrought lead 79 73

2704 Coke and semi-coke o coal, o lignite or o peat, whether or notagglomerated; retort carbon

41 62

7204 Ferrous waste & scrap, remelting scrap ingots o iron or steel 58 54

0802 Other nuts, resh or dried, whether or not shelled or peeled 19 39

7407 Copper bars, rods and profles 80 39

2709 Petroleum oils and oils obtained rom bituminous minerals, crude 157 36

7602 Aluminium waste and scrap 42 32

7408 Copper wire 13 22

320611 Pigments and preparations based on titanium dioxide 23 21

8474 Machinery or sorting, screening, grinding, mixing etc. o mineral substances 7 16

071310 Dried shelled peas (Pisum sativum) 17 14

Total merchandise exports 8,383 11,610

Source: DFAT, STARS database consistent with ABS Cat 5368.0, February 2010

Services Exports

As with merchandise exports, services exports to India have grown rapidly, rom US$306 million in200203 to US$2.5 billion in 200809.

Australias dominant services export to India in 200809 was education related travel services

(US$2.1 billion), a refection o the number o Indian students studying in Australia.

It is important to note that services trade data does not take account o services delivered by

Australian companies with a commercial presence in India. Australian companies have establisheda presence in a range o Indian services sectors such as engineering, inrastructure design, health,

nancial services and mining services industries.


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TABLE 3.2 |AUSTRALIAS SERVICES EXPORTS TO INDIA

200708(US$M)

200809(US$M)

Travel services: 2,253 2,322

Education related 1,765 2,076

Personal travel excluding education 166 147

Business 104 99

Transportation services 77 61

Personal, cultural & recreational services 46 34

Business services 50 31

Telecom. computer & inormation services 24 21

Insurance & pension services 5 7

Charges or the use o Intellectual property n.i.e. 5 4

Source: ABS Cat No. 5368.0 International Trade in Goods and Services, Australia. Consistent with September 2009

3.3 Indias Exports to Australia

Australia is an increasingly important destination or Indian exports. In 2008, Indias goods

exports to Australia reached US$1.45 billion, while its services exports to Australia were almost

US$529 million.

Merchandise Exports

Australia is Indias 14th-largest trading partner in terms o Indias total merchandise trade (2008).Australia ranked 34th as a destination o Indias total goods exports, which amounted to US$1.45billion (A$1.7 billion) in 2008.

While increasing in value over the period (see Chart 3.3), Indias exports to Australia as a

proportion o Indias total exports declined over the period 1990 to 2007 as shown in Chart 3.4,rom 1.44 per cent in 1991-92 to 0.73 per cent in 2006-20086 (although, on a calendar basis, Indianexports to Australia as a proportion o Indias total exports rose slightly between 2006 and 2008).

The trend to 2006 refects the rapid growth in Indian exports to other markets, including servicesto the US and resources to China.

6 Based on Indias Ocials Trade Statistics; Government o India, Department o Commerce, MOC&I,April 2008


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CHART 3.3 | INDIAS EXPORTS TO AUSTRALIA

US$million

0

500

1,000

1,500

2,000

2,500

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

(a) Trade in goods is on a recorded trade basisMerchandise (a) Services Total exports

Source o data: DGCI&S, Ministry o Commerce & ABS

Trade in goods is on a recorded trade basis, as at Apr 2010

Financial year ending 30 June.

Note: Services data is Australias imports rom India and converted to USD using the IMF annual average exchange rate.

CHART 3.4 | INDIAS EXPORTS TO AUSTRALIA AS A SHARE OF TOTAL

US$million

0.4

0.2

0

0.6

0.8

1

1.2

1.4

1997 1998 1999 2000 2001 2002 2003

Year

2004 2005 2006 2007 2008 2009

Source: Ministry o Commerce and Industry, Government O India

Note: Financial year ending 31 March.


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21

Indias key merchandise exports to Australia by broad product groups are shown in Table 3.3.

The major product group in 200809 among Indias merchandise exports to Australia wasmachinery and equipment, constituting a share o around 29 per cent. The other major itemsin Indias exports to Australia included textiles and garments (14 per cent), gems and jewellery

(8 per cent), base metals (10 per cent), chemicals (12 per cent), vegetables products 7 (7 per cent),plastics and rubber (4 per cent) and leather and leather products (4 per cent). Over recent years

the percentage o textiles and garments rom India as a proportion o Australias total merchandiseimports has allen.

TABLE 3.3 |AUSTRALIAS KEY IMPORTS FROM INDIA

AUSTRALIAS KEY IMPORTS FROM INDIA

200607US$M 200708US$M 200809US$M

Machinery & equipment 123 320 449

Clothing 56 68 97

Diamonds, unmounted 83 96 84

Iron and steel products 45 53 68

Medicaments 26 41 53

Jewellery 30 55 44

Sot urnishing articles, including bedspreads 27 29 36

Carpets and rugs 29 36 35

Tea 23 25 27

Leather apparel and clothing accessories 11 18 23

Miscellaneous & confdential items 24 19 22

Cases, bags and wallets 18 22 21

Rice 8 15 19

Heterocyclic compounds with nitrogen hetero-atom(s) only 12 11 16

Leather Footwear 9 15 15

Tractors 15 11 14

Parts and accessories o motor vehicles 13 19 13Worked building stone 14 17 13

Furniture 11 15 13

Equipment or physical exercise 16 16 13

Source: DFAT, STARS database consistent with ABS Cat. 5368.0, Feb 2010

Indias market share o Australias imports divided into broad product groups is shown in Chart 3.5.

7 Based on WTO HS classications, under which vegetable products include ruit, tea and coeeand cereals.


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CHART 3.5 | INDIAS MARKET SHARE OF AUSTRALIAS IMPORTS IN 200809

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Liveanimals

Vegetableproducts

Animalorvegetables

fatsoils&w

axes

Preparedfoodstuffs

Mineralproducts

Chemicalprod

ucts

Plastic&rubberarticles

Rawhides&sk

ins&

leather&furskins

Woodprod

ucts

Paper&paperb

oard

products

Textileproducts

Footwear&headge

ar&

Umbrellas&featherproducts

Stone&ceram

ic&

glassproducts

P

earls

Basemetalproducts

Machinery&mechanical&

electricalequipment

Transportequipment

Optical&photographic&clocks

&musicalinstrum

ents

Arms&ammun

ition

Miscellan

eous

manufacturedarticles

Worksofart&confiditems

Percentshare

Source: DFAT, STARS database consistent with ABS Cat. 5368.0, Feb 2010

Services Exports

India exports a range o services to Australia, including ITeS, sotware and BPO see Table 3.4.Indias exports to Australia have grown over the last decade. The balance o services trade is in

Australias avour. The major Indian exports to Australia, by sector, are: travel services, IT and ITenabled services and other business services.

The growth in travel services indicates increasing interest in India towards Australia as a touristdestination, as well as travel rom India to visit Indian origin residents in Australia or students rom

India studying in Australia.

TABLE 3.4 | INDIAS SERVICES EXPORTS TO AUSTRALIA

200708(US$M)

200809(US$M)

Travel services: 500 593

Personal travel excluding education 287 280

Business 60 39

Education related 10 10

Transport services 5 109

Telecom. computer & inormation services 75 102

Business services 36 43

Insurance & pension services 23 6

Personal, cultural & recreational services 3 3

Source: ABS Cat No. 5368.0 International Trade in Goods and Services, Australia. Consistent with September 2009.

NB. Data does not take account o services delivered by Indian companies with a commercial presence in Australia.


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4. India Australia Investment Relationship


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Investment Linkages4.1 Overview

Australia has a long history as a destination or global investment, particularly FDI, while India hasincreasingly emerged as a major FDI destination over the past two decades. This chapter outlines

two-way investment to allow the report to examine the potential or bilateral investment fows tobe enhanced through a possible FTA in a subsequent chapter.

4.2 Australian Investment in India

Total FDI into India since the onset o the Indian liberalisation process has reached US$133.6billion up to June 2009.

Indias FDI policy has been liberalised in recent years as a result o a comprehensive review opolicy in 2006, including liberalisation o a number o sectors in 2008 and the revision o norms

or calculation o total oreign investment and or transer o ownership and control rom residentIndian citizens to non-resident entities in 2009. The result has been a marked upswing in FDI

infows, rom US$2.22 billion in 200304 to US$24.58 billion in 200809.

An analysis o FDI fows into India rom Australia reveals that investment rom Australia has

risen o a low base (Table 4.1) since the announcement o Indias new industrial policy inAugust 1991. Australias FDI in India as a percentage o total Indian FDI has remained low and

relatively constant.

TABLE 4.1 | FDI FROM AUSTRALIA TO INDIA

SLNO YEAR

FDI FROM AUSTRALIA INUS$ MILLION

%AGE OF INDIASTOTAL FDI

From 1991 to Dec.1999 68.51 0.43

1 2000 9.50 0.33

2 2001 14.07 0.38

3 2002 18.42 0.49

4 2003 19.90 0.79

5 2004 18.45 0.49

6 2005 5.95 0.14

7 2006 41.04 0.37

8 2007 43.81 0.23

9 2008 71.39 0.22

10 2009 21.20 0.20

Grand Total 332.24 0.30

Source: India FDI Fact-sheet, DIPP, Government o India, April 2009

Table 4.2 shows the principal Indian sectors receiving Australian FDI infows. Australianinvestment has beneted Indias metallurgical industries, services, telecoms, consultancy and

hotel and tourism sectors.


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TABLE 4.2 | PRINCIPAL SECTORS IN INDIA ATTRACTING FDI INFLOWS FROM AUSTRALIA

FROM 2000 TO 2009

S.NO SECTOR

VALUE OF FDI INFLOWS(US $ MN.)

(IN US$)

SHARE OF SECTOR INAUSTRALIAS TOTAL FDI

IN INDIA %

1 Services Sector 62.31 23.63

2 Metallurgical Industries 56.04 21.25

3 Telecommunications 36.69 13.91

4 Consultancy Services 15.70 5.95

5 Automobile Industry 15.40 5.84

Total 186.14 70.58

Note: amount includes infows received through FIPB/SIA, acquisition o existing shares and the RBIs automatic route

Source: India FDI Fact-sheet, DIPP, Government o India, April 2009

Box 1: Tata BlueScope Steel

An equal joint venture between Tata Steel o India and BlueScope Steel o Australia, TataBlueScope Steel was ormed to promote steel usage in the construction industry in the

South Asian region. It is a good example o the powerul synergies which can be achievedwhen Australian and Indian rms partner or joint ventures. In the short time since starting

its operations in India, the company has generated new employment in India through its new

Indian actories.

The Australian company, BlueScope Steel was keen to expand its Asian and global ootprint,and in order to do that, it chose to partner with a strong Indian company that shared the

same undamental values. Tata Steel was also looking or a strong like-minded partner.Tata Steel is the worlds 6th largest steel company, the worlds second most geographically-diversied steel producer and a Fortune 500 Company. The technical expertise o BlueScope

Steel combined with the local knowledge and reach o Tata Steel have proved to be a winningormula or a diverse market.

Source: Tata BlueScope Steel (Chennai acility)


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Box 1 (continued)

Tata BlueScope Steel has three business divisions, the Building Solutions, BuildingProducts and Distribution and the Coated Steel division. The Buildings Solutions

business markets pre-engineered buildings, the Building Products and Distributionbusiness markets roll-ormed roo and wall cladding solutions and related building

components and the Coated Steel business markets metallic coated and pre-paintedsteel, or the building and construction industry.

Tata BlueScope Steels Buildings Division, which comprises Building Solutions andBuilding Products and Distribution divisions, has three manuacturing acilities located at

Pune, Chennai and Bhiwadi and a network o 20 sales oces. They produce pre-engineered

steel buildings and a range o other steel building solutions. Coated steel products includepre-painted steel and metallic coated steel. The coated steel manuacturing acility atJamshedpur will be operational rom the rst quarter o 2010. This acility will havean annual metallic coating capacity o 250,000 million tonnes and paint line capacity o

150,000 million tonnes.

4.3 Indian Investment in Australia

As a highly globalised economy, Australia is a major destination or oreign investment. At theend o December 2009, the total level (i.e. accumulative stock) o oreign investment in Australia

was US$1729 billion, and the total level o inward FDI was $427 billion.

Historically Indian investment in Australia has been low and below levels which might be

expected between two economies with such strong complementarities, as refected in the strengtho growth in trade. With the recent opening o the Indian economy, however, fows o Indianinvestment into Australia have been rising, albeit o a low base. The stock o inward investment

(including portolio investment) increased almost nine-old to approximately US$758 millionduring the period 2002-078 refecting average annual growth o 55 per cent.

FDI orms only a relatively small portion o total two way investment and is relatively low in both

directions. The stock o India-sourced FDI in Australia was around US$48 million in 2008, whilethe total stock o India-sourced oreign investment into Australia was US$481 million in 2006.

Australia is a more signicant source as well as recipient o global FDI than India (Chart 4.1),although Indian global FDI fows (inward and outward) are growing ast.

Chart 4.1 reveals the relative signicance o bilateral FDI stocks or each country, as a proportiono the total stock o FDI in each case.

8 DFAT estimate rom published Australian Bureau o Statistics (ABS) data, based on historical cost.


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CHART 4.1 | STOCK OF BILATERAL AUSTRALIAINDIA FDI (PERCENTAGE OF TOTAL)

As a percentage of global Indian inward FDI

As a percentage of global Australian outward FDI

As a percentage of global Indian outward FDI

As a percentage of global Australian inward FDI

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

PercentoftotalFDIstock

Stock of Indian FDI in Australia

0.0

0.1

0.1

0.2

0.2

0.3

2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006

PercentoftotalFDIstock

Stock of Australian FDI in India

Source: ABS 5352.0 (various years), UNCTAD Foreign Direct Investment Database (online) and CIE calculations (see ootnote28 o ull Economic Modelling Report or uller explanation o calculations).

Indian companies are required to obtain Indian Government approval beore making signicantinvestments in other countries. Approved overseas investment by Indian corporations betweennancial years 1999 to 2007, stands at over US$12 billion, with 42 per cent in the manuacturing

sector and 44 per cent in the nancial and non-nancial services sector. Actual outfows in200607 were US$11 billion, with US$8.2 billion in non-nancial services and US$3.7 billion in

the manuacturing sector.

As Chart 4.2 shows, Indian investment in Australia has increased in recent years. There are

now a number o high-prole Indian investments in Australia across the resources, hospitality,manuacturing, sotware, banking and telecommunications sectors. The majority o Indian

investment in the Australian natural resources sector is aimed at establishing greater reliabilityo supply or the rapidly growing Indian economy. Coal, copper, LNG and uranium exploration

are areas o particular interest or Indian investment in this sector. Indian sotware developmentcompanies have a growing presence in Australia and are signicant employers. Some Indian ICTcompanies use their Australian oces to service Asian business clients.


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CHART 4.2 |AUSTRALIA-INDIA INVESTMENT RELATIONSHIP

US$million

0

1,000

2,000

3,000

4,000

5,000

2001 2002 2003 2004 2005 2006 2007 2008

Stock of Indian investment in Australia Stock of Australian investment in India

(a) DFAT estimate

(a)

Source: ABS, Cat. 5352.0, May 2008


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5. Liberalisation o Trade in Goods


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5.1 Existing Trade Policies and ConstraintsAustralia and India enjoy a healthy economic relationship and there is scope to urther

strengthen trade links. A range o tari and non-tari impediments to bilateral fows or tradein goods remain, even taking into account the eorts India and Australia have undertaken toreduce these barriers.

5.1.1 India

Within the ambit o trade liberalisation, reduction in import taris has remained central to Indiasbroader economic reorms. The Government has continued to reduce applied Most Favoured

Nation (MFN) taris especially on non-agricultural products to meet its goal o reaching ASEANtari levels on these products. Applied taris have steeply declined in India since its reorms o

the early 1990s. The overall average applied MFN tari has allen rom over 32% in 2001-02 to lessthan 16% in 200607, with the average taris or non-agricultural products at 12.1% a ew years

back (WTO, Trade Policy Review: India, 2007). Indias peak customs duty (Table 5.1) has allen to 10percent in 200809. Customs duty as a percentage o imports has also declined tremendously overthe years, refecting comprehensive tari policy reorms. Furthermore, India abolished quantitative

restrictions (QRs) on her imports in 200001.

TABLE 5.1 | INDIAS PEAK CUSTOMS DUTY REDUCTIONS

YEAR PEAK DUTIES (PER CENT)

CUSTOMS DUTY AS A PERCENTAGE

OF IMPORTS

1999-00 40 21.88

2000-01 38.5 21.25

2001-02 35 17.23

2002-03 30 15

2003-04 25 13.6

2004-05 20 11.08

200506 15 9.64

200607 12 9.64

200809 10 9.65

200809 10 7.4

Source: Government o India, Economic Survey 2010 based on DGCI&S, Kolkata, Budget o Union o India and BudgetSpeeches o Finance Minister.

5.1.2 Australia

Taris have been one o the main instruments o Australian economic policy since the nineteenth

century. However, since the 1980s, Australia has pursued successive rounds o unilateral tarireductions and applied taris are currently low by global standards. In 2010, Australias simple

average applied tari (most avoured nation basis MFN) was 3.1 per cent. Australias averageWTO bound tari rate is 9.9 per cent and 97 per cent o Australian taris are bound. More than


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96 per cent o Australias tari lines were applied at an MFN rate o 5 per cent or less, with over

46 per cent o all tari lines with tari-ree treatment on an MFN basis. Following unilateral tarireductions implemented on 1 January 2010, Australia now has 46 per cent o its tari lines withtari-ree treatment, and 96 per cent with taris o 5 per cent or less.

India is listed in Schedule 1 o the Customs Tari Act 1995as a developing country whose originatinggoods may receive preerential rates o duty, known as DCS rates o duty. As Australia applies

developing country preerential taris on a range o goods rom India, the average applied tari ongoods rom India is 2.8 per cent, lower than the MFN average.

In February 2008,Australia announced a comprehensive government review o Australias exportpolicies and programs (the Mortimer Review). As part o this review, a group o experts considered

Australias approach to the negotiation o FTAs and proposed new benchmarks or the negotiation

o uture FTAs. The review was completed in September 2008 and concluded that FTAs should orman integral part o Australias uture market access strategy and that Australia should pursue astrategic FTA agenda. However in assessing possible uture FTA partners, the Government should

consider several objectives, including the potential or achieving substantial trade liberalisationin a more timely way than is possible through other negotiating mechanisms, the need to ensureWTO consistency while also ensuring that agreements go beyond current WTO commitments and

the need to enhance oreign and security relations.

The Governments New Car Plan or a Greener Future, released in November 2008, providesa comprehensive plan to make the Australian automotive industry more economically andenvironmentally sustainable. The Plan eatures a US$1.1 billion Green Car Innovation Fund to

stimulate research, development and commercialisation o technologies that signicantly reduce

the uel consumption and greenhouse gas emissions o passenger motor vehicles. Taris inthe Passenger Motor Vehicle sector ell to 5 per cent on 1 January 2010, giving Australia thethird lowest tari regime among economies with a well developed automotive industry. Taris

in the Textiles, Clothing and Footwear (TCF) sector range between 5 and 10 per cent. Taris orapparel and certain nished textile goods were reduced to 10 per cent on 1 January 2010 and arescheduled to be reduced 5 per cent on 1 January 2015. In 2008 Australias imports o TCF products

rom India were valued at approximately US$241 million, or 3 per cent o Australias total importso TCF products.

5.2 Impact o Liberalisation

India and Australia have carried out ar-reaching trade liberalisation over recent decades. The nexttwo sections indicate that the trade liberalisation carried out to date has had net positive impacts

in both countries, indicating that urther liberalisation associated with a bilateral FTA will benetthe two economies.

5.2.1 Australia

Australias experience with trade liberalisation has been unambiguously positive. The economy hasbeen transormed since the mid-1980s as successive governments have moved to liberalise trade

and implement microeconomic reorms.


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Taris were increased during the 1940s, 50s and 60s as governments sought to establish a

strong local manuacturing industry ater the Second World War. However, in the early 1970s thereal costs o tari protection had begun to be recognised. Australian industry ell behind worldbest practice and annual productivity growth averaged just 2.7 per cent between 1950 and 1973,

compared with the Organisation or Economic Co-operation and Development (OECD) average o3.8 per cent.

It was in this context in the mid-1980s that Australia commenced a process o trade andeconomic reorm which has delivered substantial benets to the Australian economy and the

living standards o Australians. Key reorm measures have included the removal o controlson oreign exchange transactions, the foating o the Australian dollar, the reduction o taris,

the liberalisation o the banking sector, widespread competition reorms in non-traded productmarkets (including transport, communications and utilities) and the move away rom centralised

wage xing in avour o enterprise-level bargaining, in some occupations, so that wage risesrefect productivity gains.

Australias experience has been consistent with that o many other countries as trade barrierswere lowered living standards rose. Since 1988, Australias trade-weighted average MFN tari has

allen rom 15 per cent to 3.1 per cent. While taris have allen, manuacturing output (industryvalue added in chain volume terms) has grown by 27.5 per cent and the value o manuacturingexports has risen almost our-old. Overall employment grew by 2.9 million jobs between

December 1988 and December 2007 a 46 per cent increase and GDP per capita has risenaround 47 per cent in real terms to US$47,001 in 2008 (A$54,955).

Tari liberalisation has also led to higher trade intensity in the economy. Exports o goods and

services now account or around 20 per cent o Australias total net output (GDP), up rom 16 percent in 1988. In the automotive sector despite the reduction o taris, exports have risen strongly.In the 1980s taris were as high as 57.5 per cent and vehicle exports were worth approximately

US$110 million (in 1988). By 2007, however, taris had been reduced to 10 per cent and vehicleexports had risen to approximately US$3 billion.

Trade reorm has helped lower the cost o capital goods and other inputs or business, increasingthe eciency and international competitiveness o Australian industry. It has also given rms

access to the best available products produced globally. At the same time, Australian consumershave been able to obtain a wider range o goods and services at lower prices, enhancing livingstandards through greater choice and buying power.

Many o the reorm measures to-date have been directed at inecient behind-the-borderregulations and industry structures. Addressing such ineciencies improves the domesticbusiness and investment environment by allowing markets to operate as eciently as possible

and lowering the cost o doing business. Removing unnecessary regulation and acilitatingcompetition in domestic markets remains a high priority or the Australian Government.

Domestic reorm creates productivity growth which in turn lits living standards and enhancesinternational competitiveness. As a result, Australia has been able to maximise the economicgains rom its participation in the increasingly globalised trading system (see Box 2 below).

A 2006 OECD report cites Australias approach to regulation as a best practice benchmark orother OECD countries.


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Box 2: Australias Dairy Industry

The Australian dairy sector provides a good example o the positive impact o reorm on

international competitiveness and export growth.

Until the 1980s, the dairy industry was highly protected. Federal and State Governmentsmaintained price support programs and strict regulations to ensure constant supply and toregulate the price o milk on the domestic market. Farmgate prices were xed by law and

trading between regions was restricted. Milk sold or processing and subsequent exportreceived a lower price than milk sold or consumption on the domestic resh milk market

discouraging exports. Governments paid out large amounts o public unds in industrysupport and consumers and industry paid premium prices or milk and other dairy products.

Reorm o the dairy sector was initiated by the Australian Government in the late 1980s witha series o deregulation measures leading to complete liberalisation o both ederal and

state regulation o both domestic and export markets. All price support mechanisms wereremoved in July 2000.

Consumers gained immediately. In the rst year o the ully deregulated market, theaverage price received or milk declined by 18 per cent in the state o Queensland and

12 per cent in New South Wales. A consumer-unded restructuring package was providedby the Australian Government, in consultation with industry, to help the sector adjust to the

pressures o the deregulated trading environment. Farms consolidated, grew in size andbecame more ecient and productive. Herds expanded and approaches to eed, pasture

management, ertilizers and irrigation were all streamlined. Producers have becomemore cost ecient and innovative, recognising the need to compete or a share o theconsumer dollar.

The reorms, though complex, ultimately helped Australia push down its costs o production,to the point where the state o Victoria is now the second largest dairy exporter in the world

ater New Zealand. In 200809, Australias dairy exports were worth US$1.9 billion.

Australia has undertaken successul economic reorm, with short term costs being outweighedby medium and long term benets. Broad community support or reorms and the introduction o

appropriate adjustment packages have underpinned the success o economic reorm in Australia.

As a consequence, Australian business and the community more broadly, generally accept thaturther economic reorm, including trade and investment reorm, can provide benets. However,industry and consumer support or specic reorms, including those negotiated in any uture high

quality FTA with India, will be subject to an assessment that the medium to long-term benets ourther liberalisation in Australia and the additional access provided in the Indian market outweigh

the shorter-term costs o adjustment. A comprehensive and transparent explanation o the costsand benets is necessary i broad community support is to be orthcoming.


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5.2.2 IndiaIt is widely recognised that Indias highly protective trade regime, which was in existence beore

the trade reorms o the 1990s, created anti-export bias which had an adverse eect on Indiasexport perormance, however this was attuned to the imperatives o Indias economic development

and stage o development then. The subsequent liberalisation o imports and reduction in tarissignicantly reduced this anti-export bias. Reductions in tari rates and removal o quantitativerestriction in this period were accompanied by rapid

Documents

Australia India Joint FTA Feasibility Study