The interim Economic Cooperation and Trade Agreement signed between Australia and India on April 2 marks a watershed moment. The deal, which eliminates tariffs on over 85% of Australian exports to India and 96% of Indian goods exported to Australia, signals to the world three important developments. First, India is now open for business and is slowly emerging from its protectionist cocoon. Second, there are large markets beyond China in the Indo-Pacific region for Australian businesses to hedge against acts of economic coercion. Third, addressing climate change need not be a Chinese resources-reliant initiative. Since winning independence in 1947, India has maintained a protectionist stance, shunning free trade agreements with the developed world and choosing to stay out of trade blocs such as the Regional Comprehensive Economic Partnership (RCEP) agreement. Through the 1960s and 1970s, protectionism morphed into the license raj, providing a platform for rampant corruption, excessive bureaucracy and rent-seeking. Still, despite the economic liberalization that began with the new industrial policy in 1991, it has taken 30 years for the world's fifth-largest economy to open up to the world. There are two reasons for India's change of heart. First is Prime Minister Narendra Modi's desire to manufacture for the world through initiatives like Make in India, and second, the changing geopolitical and economic circumstances across the Indo Pacific region. India's trade deal with Australia, which has been under negotiations for over a decade, was finalized with an urgency stimulated by concern over China rather than advancing the Modi administration's trade agenda. From Canberra's point of view, China's acts of economic coercion against Australia also served as an incentive to find alternative markets for the beef, barley, wine and coal that Beijing blocked in 2020 as a hedge against its overreliance on the Chinese market.
When it comes to coal and education exports, India has the potential to act as a substitute for China. In the year before the onset of the pandemic, India was Australia's second-largest source of international students, with Indian students contributing around $6.1 billion in exports. And while beef and barley were not included in the interim agreement between Australia and India, the deal represents a major step forward for a relationship that has been characterized by diplomats on both sides as consisting largely of the three Cs: cricket, curry and the Commonwealth. With the 25% tariff on coal now dropped to zero and several critical minerals such as titanium, lithium, cobalt, tungsten and zirconium now classified as duty-free, the new agreement has the potential to be a game-changer in the Indo-Pacific region. India was facing an acute energy crisis back in October of 2021 when five states were running out of coal to power the industry and homes. Australian coal exports could prevent such an energy crisis and, more importantly, benefit India's steel industry, where over 50% of production expenses go toward generating power using coal. Access to secure supplies of minerals such as lithium and cobalt will help India and the rest of the world meet their greenhouse gas emissions targets. While coal still plays a prominent role in energy generation, the longsighted policy of switching to cleaner electricity alternatives will drive up demand for minerals that go into electric vehicles, solar panels and wind turbines. In southern Indian states such as Tamil Nadu, well known for automotive manufacturing as well as renewable energy capacity, critical Australian minerals will pave the way for the transition toward EVs and clean energy production, respectively. Furthermore, with Australian LNG tariffs dropped to 0%, natural gas can truly delivers on its promise as the bridging fuel that many have hoped for as India moves from coal to renewable energy.
Win-win, a favorite term of China's state media to characterize its trading relationships with other countries, is appropriate in the context of the Australia-India interim trade agreement. Australia has found a new accessible market for its mineral resources, and India has found a steady supplier to transform its economy that runs on nonrenewable energy into one that runs on renewable energy. Australia gains through education exports, and India's growing youth population, who will be able to, can study more easily in Australia and have access to more work opportunities through programs such as the working holiday visa. Australia's slashing of duties for Indian labor-intensive exports such as diamonds and textiles will generate employment for millions in India. Through the bilateral deal, India was able to address the concerns it had with the RCEP deal such as free movement of its labor force across borders and not having to worry about Chinese exports flooding its market. Along with the Supply Chain Resilience Initiative, India's free trade agreements with Japan and Australia serve to strengthen the developing Quad partnership between those three nations and the United States providing an incentive for even closer economic cooperation between all four nations.