Shweta Tyagi, Gurinder Singh and Tripti Aggarwal
Amity University, India

Recent years have seen remarkable growth in the trading relationship between India and Australia, fuelled by the many complementarities between the two economies. Over the past five years, bilateral trade in goods and services has increased by 24 per cent annually to US$16 billion in 2008-09. Two-way investment is also significant, estimated at over US$1.5 billion including portfolio investment in 2008. Against this backdrop, Australia and India agreed in April 2008 to undertake a feasibility study for apossible bilateral free trade agreement (FTA) to explore the scope for building an even stronger economic and trade relationship.1 The feasibility study shows that significant barriers to goods and services trade remain in both countries. An FTA between India and Australia would be expected to address tariff and non-tariff barriers. It would go beyond each country’s 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 services sector coverage. Australia-India investment flows are modest relative to bilateral trade, reflecting both regulatory and other impediments and, to some extent, a lack of awareness of business opportunities in the other country. A possible FTA may address this imbalance by removing – or reducing – existing restrictions in both foreign investment regimes. It could also focus on enhancing transparency and strengthening investment protection mechanisms. A comprehensive FTA offers scope to take the relationship to the next level to the mutual advantage of both economies. It could foster even stronger growth, including through more diverse trade and investment flows. Cooperation, capacity building and exchange of information on other issues such as the protection of intellectual property rights (covering all issues including TRIPS & CBD, and GIs inclusive of non-food GIs), SPS & TBT matters, competition policy and government procurement could also be considered during possible FTA negotiations. In order to make an assessment of the possible trade gains from the proposed FTA, independent economic modelling was commissioned in both the countries for the study. The results provide insights into how an FTA might impact on bilateral trade and investment flows as well as economic welfare. Economic modelling is necessarily based on certain assumptions and the results of the modelling for this study should be regarded as indicative rather than as exact estimates. Different economic modelling methods, GTAP-CGE modelling and modelling based on an analysis of complementarily, were used in the study to estimate the welfare gains to both countries.

The results indicate that The welfare of the two countries would increase with the conclusion of an FTA. The welfare gains for both the countries could be in the range of 0.15 and 1.14 per cent of Gross Domestic Product (GDP) 1 FTA inthis study is comprehensive including trade in goods and services along with investment cooperation. In other words, it is akin to CEPA or CECA in other contexts. 6 for India and 0.23 and 1.17 per cent of GDP for 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 feasible and it recommends that both governments consider the negotiation of a comprehensive India-Australia FTA.

Economies, Free Trade Agreement, Globalization, Export.