Exclusive| India-Australia interim trade deal to allow Aussie wine but not dairy, say sources

Springtime grapes form on grapevines at Tyrrell's Wines vineyard in Hunter Valley, New South Wales, Australia on October 20, 2020. (Image: Reuters/Stefica Nicol Bikes)

India’s upcoming interim trade deal with Australia, set to be announced later March 21, will include import duty cuts on premium Australian wines, although there is no mention of the country’s dairy products, people aware of the matter said. A decision on the contentious issue of reducing import duties on Australian agricultural products and dairy has been reserved for the full trade deal to be signed later this year, they said.

This is the first trade agreement between the two nations and comes after 11 years of negotiations. An announcement on signing the trade pact by the end of the month is expected to be made at the conclusion of the second prime ministerial level India-Australia virtual summit on March 21.

The Comprehensive Economic Cooperation Agreement (CECA) to be announced will be an ‘early harvest’ agreement, one in which both parties sign off on a set of relatively easily achievable deliverables. Such pacts target goals such as tariff reduction and market access on select items while leaving more contentious topics off the agenda.

“The decision to include premium Australian wine in the list of items on which import duties would be slashed was taken by New Delhi in a bid to break the impasse in talks. It was seen that the growth in domestic wine consumption is enough to ensure enough business for both domestic and foreign players,” a senior official said.

Discussions on market access for Australian dairy products and meat, apart from Australia’s discomfort with opening up services exports, have proved to be major sticking points in the deal.

The text of the interim deal is also set to have dedicated chapters on energy and resources, key areas of interest for Australia, the people said.

Aussie wine 

Australia has been the premier source of foreign wine for India. Currently, imports of wine from Australia stand at $8 million, up from $5 million in the previous year. This represents 40 percent of the total $20.3 million worth of wine imported by India.

Local wine production was about 17 million litres whereas wine imports were 5.2 million litres in 2018, the latest year for which data is available, according to professional services firm Dezan Shira & Associates. Wine is the fastest-growing alcoholic beverage in India with the industry growing at a compounded annual rate of 14 percent between 2010 and 2017.

With more than 60 designated wine-producing regions across the southern states of Australia, the country produced 1.2 billion litres of wine in 2018-19 and exported 67 percent of it.

“The industry is a major employer in the country and an important component of the travel and tourism sector. It has a lot of influence and has petitioned the government hard to open up business with India, one of the fastest-growing markets for wine globally,” said a senior trade expert advising the government.

Major potential

After hitting a high of $18 billion in 2017-18, India’s overall trade with Australia had continuously fallen till 2020-21 when it reached $12.2 billion. In the first 10 months of 2021-22, trade surged to $19 billion, pushed up mainly by higher coal prices.

At $13.5 billion, India’s imports are more than twice the $6.3 billion worth of exports to Australia. India’s yawning trade deficit is principally due to imports of Australian coal, currently pegged at over $10.1 billion in FY22, or 75 percent of all imports from the country. This included coking coal ($7.4 billion), steam coal ($1.4 billion), and $1.1 billion worth of non-agglomerated coal.

Starting at about $96 a tonne at the beginning of FY22, global coal prices shot up sharply to $422 a tonne on March 7, according to economic data provider firm Trading Economics. It has since then cooled to $334.5 per tonne.

India’s largest export to Australia is automotive diesel fuel ($2.8 billion). In agriculture, Australia is ambitious about getting market access for grains, fruits and vegetables. The country is a major source of lentils (masur) and chickpeas but the government remains wary of allowing Australian companies to expand into the Indian market because it is dominated by small farmers.

Australia wants to ensure that its premium food, beverage and consumer product providers can access e-commerce channels to better enter the Indian market. But Canberra has stressed that it wants to wait for India to first spell out its official e-commerce policy, an official said.

Australia also continues to have major discomfort with opening up services exports, including Mode 4 of services, which entails the movement of people for employment purposes. New Delhi wants Canberra to allow more Indian professionals to move to the country for work.

Moneycontrol had reported earlier that the deal could be the first to have a formal chapter on tightening supply chains between the countries.

Story till now

New Delhi has been discussing the India-Australia CECA for 11 years now, but talks have progressed quickly only since August 2020.

India announced in late August 2021 its intention to begin renegotiations on the CECA and sign an early harvest deal by December 2021. This was followed by an announcement in September 2021 that both sides would finalise the early harvest pact by Christmas of 2021, to be followed by a comprehensive free trade agreement in 2022.

The Christmas deadline was missed. While the government had been confident of working out the details, officials said existing issues derailed the talks. The latest talks on the deal were announced in September 2021.

The new trade pact is aimed at raising India’s trade with Australia to the level where it can complement the strategic relationship between the two countries. Australia was India’s 12th-largest trading partner, up from being the 15th- largest trading partner in 2020-21 and the 17th largest in 2019-20.

The bilateral relationship was elevated to a Comprehensive Strategic Partnership at the first virtual summit held on June 4, 2020.