India-Australia Economic Cooperation and Trade Agreement (ECTA)

Ronak D 09 Apr 2022 3,072 Views 0 comment Print Corporate Law | Articles

Prefatory Note: As on date of this article, the ECTA & supporting annexures has not been published by Government of India and the below synopsis has been prepared based on the official text available on the portal of Department of Foreign Affairs and Trade, Australia Government. The details might undergo change if there is any difference in the official document of ECTA published by Government of India.

1. Key Points

The India-Australia ECTA is the first trade agreement of India with a developed country after more than a decade. It provides for an institutional mechanism to encourage and improve trade between the two countries. The Agreement encompasses cooperation across the entire gamut of bilateral economic and commercial relations between the two friendly countries, and covers areas like Trade in Goods, Rules of Origin, Trade in Services, Technical Barriers to Trade (TBT), Sanitary and Phytosanitary (SPS) measures, Dispute Settlement, Movement of Natural Persons, Telecom, Customs Procedures, Pharmaceutical products, and Cooperation in other Areas.
The ECTA between India and Australia covers almost all the tariff lines dealt in by India and Australia respectively. India will benefit from preferential market access provided by Australia on 100% of its tariff lines. This includes all the labour-intensive sectors of export interest to India such as Gems and Jewellery, Textiles, leather, footwear, furniture, food, and agricultural products, engineering products, medical devices, and Automobiles. On the other hand, India will be offering preferential access to Australia on over 70% of its tariff lines, including lines of export interest to Australia which are primarily raw materials and intermediaries such as coal, mineral ores and wines etc.
As regards trade in services, Australia has offered wide ranging commitments in around 135 sub sectors and Most Favoured Nation (MFN) in 120 sub sectors which cover key areas of India’s interest like IT, ITES, Business services, Health, Education, and Audio visual. Some of the key offers from Australia in the services space include: Quota for chefs and yoga teachers; Post study work visa of 2-4 years for Indian students on reciprocal basis; mutual recognition of Professional Services and Other licensed/regulated Occupations; and Work & Holiday visa arrangement for young professionals. On the other hand, India has offered market access to Australia in around 103 subsectors and Most Favoured Nation in 31 sub-sectors from the 11 broad service sectors such as ‘business services’, ‘communication services’, ‘construction and related engineering services’, and so on. Both sides have also agreed to a separate Annex on Pharmaceutical products under this agreement, which will enable fast track approval for patented, generic and biosimilar medicines.

2. Current Status

India-Australia ECTA was signed on 2 April 2022 (reference – press release ID 1812730).

3. India-Australia ECTA Tariff concessions on products:

For HSN wise tariff concessions on products refer annexures to the ECTA:

Annexure 2A : Schedule of Tariff Commitments of India on Trade in Goods
Annexure 2A : Schedule of Tariff Commitments of Australia on Trade in Goods

Kindly refer the revised HSN classifications (updated in 2022) updated by both the Government, since the ECTA presently does not capture the updated HSN classification.

4. Origin Criteria:

A good shall be regarded as originating in a Party and shall be eligible for preferential tariff treatment provided, it is:
Wholly Obtained or Produced Goods (Refer Article 4.2);
Produced entirely in the territory of one or both of the Parties using non-originating materials, provided that the good satisfies the requirements of:
Goods not Wholly Produced or Obtained (as per Article 4.3) i.e. or
Product Specific Rules of Origin (as per Annex 4B)
Goods and materials originating exclusively in the territory of a Party under the terms of this Agreement, and incorporated in the production of a good in the territory of the other Party shall be considered to originate in the territory of the other Party.
Fungible (interchangeable & essential identical properties) goods or materials shall be treated as originating based on physical separation or use of inventory management method.

5. Goods not Wholly Produced or Obtained

A good that does not have origin status or not covered under Product Specific Rules of Origin, it shall be considered originating if all non-originating materials:

1. have undergone at least a change in tariff sub-heading (CTSH) level of the Harmonized System, and

2. Qualifying value content of the good is not less than 35% of the FOB value as per build-up formula or 45% of the FOB value calculated as per build-down formula (under Article 4.6), provided that the final production process of the manufacture of the good is performed within the territory of the exporting Party.

6. Method of calculation of qualifying value content (QVC):

Build-Down Formula : ((FOB value – Value of non-originating materials) / FOB value) * 100; OR

Build-Up Formula: (Value of originating materials / FOB Value ) * 100

If a non-originating material is used in the production of a good, the following may be added to the value of originating materials in determining whether the good meets the QVC requirement:

1. the value of production of the non-originating materials undertaken in the territory of one or both Parties; and

2. the value of originating materials used in the production of the non-originating material in the territory of one or both Parties by one or more producers.

3. The value of the materials used in production shall be:

- for imported materials – CIF value;
- for materials obtained within the territory of a Party:
- the price paid or payable by the producer in the Party where the producer is located;
- the value as determined for an imported material; or
- the earliest ascertainable price paid or payable in the territory of the Party; and
- for materials that are self-produced, all the costs incurred in the production of the material, which includes general expenses

The following expenses may be added/deducted to/from the value of the material:

For originating materials (Add expenses, if not included)	For non-originating materials or materials of undetermined origin (Deduct expenses)
– Costs of freight, insurance, packing, and other transport-related costs incurred in transporting the good to the location of the producer of the good	– Costs of freight, insurance, packing, and other transport-related costs incurred in transporting the good to the location of the producer of the good
– duties, taxes, and customs brokerage fees on the material, paid in the territory of a Party, other than duties that are waived, refunded, refundable, or otherwise recoverable, which includes credit against duty or tax paid or payable;	– duties, taxes, and customs brokerage fees on the material, paid in the territory of a Party, other than duties that are waived, refunded, refundable, or otherwise recoverable, which includes credit against duty or tax paid or payable
– Cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of reusable scrap or by-product	– Cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of reusable scrap or by-product

Where the expenses listed in above 2 points are unknown or evidence is not available, then no adjustment is allowed for those costs
If the containers and packing materials is subject to QVC requirement, the value of such materials shall be taken into account as the value of originating or non-originating materials, as the case may be, in calculating the qualifying value content of the good.
Packing materials and containers for transportation and shipment of a good shall not be taken into account in determining whether the good is originating.

7. Non-originating materials criteria:

Non-originating good or non-originating material means a good or material that does not qualify as originating in accordance with this agreement, which includes a good or material of undetermined origin;
Non-originating materials used in the production of good that does not satisfy change in tariff classification (CTC), pursuant to the Product Specific Rules of Origin, shall be deemed originating if:

1. For goods classified under all chapters (except Chapter 50 to 63) – the value of non‑originating materials used in the production of the good does not exceed 10% of the FOB value of the good;

2. For goods classified under Chapter 50 to 63 – the total weight of all such material does not exceed 10% of the total weight of that good;

India-Australia Economic Cooperation and Trade Agreement (ECTA)

If a good described in a or b above is also subject to a QVC requirement, the value of those non-originating materials shall be included in the value of non-originating materials for the applicable qualifying value content requirement.

8. Other conditions pertaining to originating criteria:

A product shall not be considered originating good, by undergoing specified operations/process (i.e. Minimal operations) as per Article 4.7;
The packing materials and containers in which a product is packed for retail sale, if classified with the good shall not be taken into account in determining whether non-originating used in the production of the good have satisfied the applicable process or change in tariff classification requirement set out in Product Specific Rules of Origin, or whether the good is wholly obtained or produced;
The origin of the accessories, spare parts or tools presented with a good (not invoiced separately and are customary for that good):

1. shall be disregarded, if the good is subject to a change in tariff classification requirement or production process requirements for origin, and

2. shall be taken into account as originating or non-originating materials, as the case may be, in calculating the QVC of the good, if the good is subject to a qualifying value content requirement.

- Indirect materials shall be considered to be originating without regard to where it is produced;
- Consignment : A good shall retain its originating status as determined (Originating Goods), if either of the following conditions have been met:
- good has been transported directly from the exporting Party to the importing Party; OR
- Subject to appropriate evidences, the good has been transported through one or more non-Parties provided that the good has not undergone any subsequent production or other operation outside the territories of the Parties other than specified activities and the good has remained under customs control in the non-Parties

9. Certificate of Origin

For issuance of Certificate of Origin (‘COO’), the exporter or producer of the goods shall present, or submit electronically through the approved channel, to the issuing authority of the exporting Party and fulfil all other certification procedures as specified;
For the purposes of claiming preferential tariff treatment, the importing party shall provide that an importer make a declaration that good qualifies as an originating good, has a valid COO within him at the time of declaration, provide a copy of COO to importing party if required and demonstrate consignment requirement is satisfied;
Where required, specified procedure for verification may be carried out for verification of COO;
COO shall be valid for 12 months from the date on which it is completed or issued and shall be submitted within validity period;
COO shall be valid for only single importation of one or multiple goods provided that each good qualifies as an originating good separately in its own right;
COO may indicate two or more invoices issued for single importation;
COO shall be forwarded by exporter to importer in accordance with the procedures;
COO shall be issued prior to or within 5 working days of the date of exportation except in case of exceptional cases (Refer Article 4.16);

10. Non-Party Invoicing

An importing Party shall not deny a claim for preferential tariff treatment for the sole reason that an invoice was not issued by the exporter or producer provided that goods meets the requirements;
The exporter of the products shall indicate “non-party invoicing” and such other information as specified of the company issuing the invoice which shall appear in a separate column in the COO.

The importer shall retain records relevant to the importation in accordance with the laws and regulations of the importing Party. The application for COO and all other documents shall be retained by exporter, producer or importer for at least 5 years from the date of issuance r date of importation, as the case may be.

11. Bilateral Safeguard and Provisional Bilateral Safeguard Measure

In terms of Section C of Chapter 3 of the ECTA, if an originating good of the other Party is being imported into the territory of a Party in such increased quantities, in absolute terms or relative to domestic production, and under such conditions as to be a cause of serious injury, or threat thereof, to a domestic industry producing a like or directly competitive good, the party may apply a bilateral safeguard measurese. either suspend the further reduction of any rate of customs duty on the good, or increase the rate of customs duty on the good to a specified level (not increasing the most-favoured-nation applied rate of customs duty). Such measure shall be applied only following an investigation;
A Party may also apply a provisional bilateral safeguard measure pursuant to a preliminary determination by its competent authorities;
The duration of application, re-application and termination of such bilateral or provisional measures and compensation shall be as specified in the said chapter.
A bilateral safeguard measure or provisional bilateral safeguard measure shall not be applied or maintained to any good imported under a tariff rate quota established under this Agreement.

12. The above synopsis covers only the general overview of agreement with respect to trade on goods and excludes below topics which can read from the Agreement: