Australia and India trade
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The COVID-19 pandemic has raised conversations on diversifying supply chains to prevent one country from controlling the global economic system. Australia, one of the most China-dependent economies in the world has found itself in a precarious position with sudden bans and tariffs placed at its exports. Coal and dairy, where China has domestic supplies or alternative import sources is at particular risk.

The confrontation between the two Asia-Pacific partners has led many scholars and experts to opinionated on alternative markets for Australian exports. Before looking for alternatives, it is crucial to understand the level of dependence that Australia has on China.

China is Australia’s largest trading partner since the last decade and the two share an annual trade of close to A$ 250 billion, a massive 28% of the country’s total trade. The magnanimity of bilateral trade between the two is such that the second-largest partner i.e. The United States has a share of 9.3%. Putting India in context, it was the 5th largest trading partner in 2017-18 and slipped to 8th position in 2019-20 with an annual trade of A$ 26.2 billion. Bilateral trade has declined by 4 billion from last year and India’s share in Australia’s total trade is a mere 3%.

China is the largest market for Australian exports absorbing a whopping 35% of its total exports.  Meanwhile, India is the 6th largest export market for Australia with a share of 3.9%. In exports too, there has been a decline from last year by 4 billion that eventually reflected in the decline of bilateral trade since imports from India are maintained the same. Few observations can be made with the help of existing numbers: First, there has been a positive trend w.r.t to bilateral trade and exports to China in the last five years with an average growth of 16%. On the other hand, Australia’s exports to India have grown at a steady rate of 10.6% in the last 5 years but it dropped significantly by 18.4% in the year 2019-20. Second, China has retained its position as the largest export market for Australia year after year with an increase in % share of the total exports. In the case of India, there has been a decline in % share of Australia’s total exports. Since 2009, the % share has decreased from 7.38 to 3.9 percent in 2019.

sources- Australian department of Foreign affairs and trade

Decoding Australian Exports

A look at Australia’s export-oriented growth is pertinent to measure its dependence on Chinese market. In 2019, the country’s exports accounted for 24.1% of the GDP, the highest in the last 20 years with an upward trend since 2016. A trade war with China has put the total value of Australian goods at risk around US$40 billion representing 12% of Australia’s exports, as estimated by Jeffrey Wilson, expert at Perth USAsia Centre. A case-by-case analysis of which item goes to China, how much and where does India stand, will help us comprehend if India is best suited as an alternative market for that good.

  • Ranked first in global exporter of iron ore and coal, it accounts for 16.4% and 14.8% respectively in Australia’s total exports. China is the second largest market behind Japan for Australian thermal coal exports. While Australia takes care of over 40 percent of China’s total coking coal demand and 57 per cent of its thermal coal (as per 2019 data), this year has seen some changes amidst souring relations between the two nations. China has halved its October imports of coal while doubling the quantity imported from Mongolia.
  • India’s energy basket predominantly depends on thermal power that generates more than 60% of total energy including coal, gas and lignite. The second largest coal import market (in value), Australia is the top supplier of coking coal for India. Since the news of China banning coal from Australia, India has particularly filled up the gap with exports in the month of October being the highest since April 2020.
  •  The two hardest hit sectors have been barley and wine.
  • Australia is the 4th largest exporter of wine (by value) out of which China absorbs 39%. The recent tariffs put by Chinese increased the amount of one bottle by 200%, hitting the US$ 1 billion worth market directly. In India, the wine industry is one of the upcoming fields with a potential demand of 700 million consumers. While the imports have registered a 14% growth (by value), it still remains a low value product worth US$6.35 million in 2018.
  • Barley is another huge Chinese market, used in beer and pig feed. China bought almost half of the total 8 million tonnes produced last year but imposed over 80% tariffs in 2020. India unfortunately imported little or no Australian barley due to phytosanitary issues. Only recently, New Delhi has altered its requirements to allow Australian barley to hit Indian markets and there is a potential to tap in the domestic beer industry.
  • Australia’s Trade 2020 report mentions that education is Australia’s largest services export and gives credit to an increase of 9% in student numbers from China. Beijing, in April cautioned its students and tourists against going to Australia, citing racist incidents in light of Covid-19. India, on the other hand also finds a mention in the report making up A$5.5 billion worth market up by 44.3%.

India-Australia Bilateral Ties in the Present

The year 2020 has taken a dramatic turn in international politics with the pandemic affecting bilateral and multilateral ties around the world. For India-Australia ties, it has been a year of many positives. In a virtual summit held in June, both countries elevated their ties to Comprehensive Strategic Partnership (CSP). Nine significant pacts were signed in the fields of science & technology, defense, terrorism and maritime coordination in the Indo-Pacific. The agreement highlights some important issues related to trade and commerce including possibility of launching the Indian RuPay Card in Australia, its commitment in India’s “Make in India” program and the Smart Cities initiatives and opportunities in India’s infrastructure sector under the National Investment and Infrastructure Fund (NIIF).

Both countries are involved in minilaterals such as the Australia–India–Japan and Australia–India–Indonesia trilateral dialogues that was recently upgraded to a ministerial conversation. In September 2020, India-France-Australia dialogue was held for the first time at the level of foreign secretary for cooperation in maritime areas. Cooperation has been particularly strong in the areas of defense in the backdrop of aggressive Chinese behavior towards Australia and their subsequent deteriorating ties. Australia’s induction back into Malabar exercise has further strengthened QUAD, an informal alliance between India, USA, Japan and Australia that is perceived in the Dragon state as an anti-China coalition.

Another important mechanism proposed is Japan-led Supply Chain Resilient Initiative (SCRI) with India and Australia as key trading partners. In the wake of the pandemic-induced disruption of global supply chains, many countries have come to the realization of the need to diversify their imports. The underlying message was seen to reduce the dependency on one nation- China.

Under CSP, re -engagement on a bilateral Comprehensive Economic Cooperation Agreement (CECA) is a positive step towards negotiating a free trade agreement between the two countries to improve bilateral trade that is the need of the hour.

The Australia India Technology Framework Agreement is another important step to collaborate on cyber and cyber enabled technology given the Australian ban on Chinese tech giant Huawei from being involved in its 5G network.

Challenges and Way Forward

The pandemic has presented a ‘crisis opportunity’ for India to attract companies looking to relocate industries from China. India can leverage its service export industry, the seventh largest in the world, rising population of middle-class and a high demographic dividend in becoming a viable alternative market for exports from the developed world. Australia has set a goal to send A$45 billion in annual exports to India by 2035. Despite positive strides in political ties, some pertinent challenges remain. First, market barriers in India still is a cause of concern for many countries. For instance, a custom duty up to 150% is put on Australian wine that increases the cost significantly. Second, there is disparity within Australian top exports and Indian top imports with the exception of coal. Third, there exists a huge gap between the exports consumed by China (in volume and $ worth) and India. Even if India becomes a suitable alternate market, it is rather simplistic to assume that it can substitute Chinese demand.

While Australia is looking for alternatives to reduce dependency on China, it may not be an overnight process. The pandemic-affected economy is projected to contract by 4.3% in the year 2020 according to the IMF’s World Economic Outlook (October 2020) report. Dr Lai-Ha Chan, a political scientist at the University of Technology, Sydney suggests how Prime Minister Scott Morrison visited India and Vietnam to recognize the rising economies and could rely on a combination of those countries – plus Indonesia, Japan and South Korea – to lessen reliance on China.

The views expressed in this article are those of the author and do not necessarily reflect the views of The Team Eastern Interest.

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