Expert warns SME benefits of a free trade agreement with India could be limited

Prime Minister Tony Abbott has set a goal of achieving a free trade agreement (FTA) with India within the next year following talks with his Indian counterpart Narendra Modi, but at least one expert warns the benefits to small businesses could be limited.

The talks, following the G20 summit in Brisbane, come after Australia sealed an historic FTA with China earlier this week.

A joint statement issued by Abbott and Modi about their discussions said “business links are critical” to bilateral relations between the two countries.

“Prime Minister Abbott and Prime Minister Modi recognised that the partnership has tremendous room for growth and agreed to unlock the vast potential of the economic relationship, especially in priority areas such as resources, education, skills, agriculture, infrastructure, investments, financial services and health,” they said.

“They directed that an equitable, balanced, mutually beneficial and high quality Comprehensive Economic Cooperation Agreement be brought to an early conclusion to realise the potential of commercial relations.”

“The two Prime Ministers hoped for better market access for good and services. They expressed satisfaction at the increase in investment while recognising the tremendous untapped potential in both directions.”

The statement said the next round of trade talks will be held in December and said the mining industry will be a particular focus for any negotiations.

“Indian investment in the resource sector in Australia promises to create jobs and value for the Australian economy just as Australian investment in cold chain storage, energy, infrastructure and other sectors can do for the Indian economy,” the prime ministers said.

However, Leon Berkelmans, the director of the international economy program at the Lowy Institute, told SmartCompany it is too early to known which sectors are likely to benefit from a deal.

“Tariff barriers in India are high, especially in agriculture. They are high in other areas as well, but particularly in agriculture,” Berkelmans says.

“In evaluating the worth of a FTA, we have no idea what will come out of these negotiations. These are long and painstaking negotiations.”

However, Berkelmans warns that even with an FTA, small businesses should be very careful about the Indian market.

“India is quite famous for regulations that inhibit the growth of small business. We need to be careful when thinking about the benefits for small business,” Berkelmans says.

“I would be sceptical that any benefits would be a boon for small businesses, I can’t see the environment that small businesses would encounter in India would be beneficial.”

Berkelmans says it is difficult to say whether China or India would be a better option for a business looking to expand into Asia.

“I would think China would be difficult as well because of the language barrier. At least in India there’s a common language there,” he says.

Meanwhile, executive director of the Institute for International Trade at the University of Adelaide, David Morfesi, told SmartCompany while China is Australia’s biggest trade partner, the potential for trade growth as a percentage is larger with India.

“Our trade relationship with India is different to China right now. There’s a huge potential for trade with the Indian market to grow because of its scope, but there are difficult barriers to overcome,” Morfesi says.

“There are regulatory barriers that are quite high, and there’s a lot of processes and red tape.

“If that can be removed, the costs that could be removed could be greater than those cut through the FTA with China.”

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