Warm glow of Australia-India civil nuclear deal

Australian prime minister Julia Gillard and Indian prime minister Dr Monhama Singh

Australian prime minister Julia Gillard and Indian prime minister Manmohan Singh

By Suvi Dogra, Research and Liaison Officer, Geo-economics and Strategy Programme

Australian Prime Minister Julia Gillard’s first state visit to India last week resulted in an agreement to launch a nuclear-energy pact and a renewed commitment to bilateral trade, along with plans for other areas of increased cooperation. While there may be some challenges ahead, the agreements signify something of a watershed in the two countries’ relationship.

Nuclear issues
A key outcome of Gillard’s 15-17 October visit was that she and her Indian counterpart, Manmohan Singh, agreed to launch negotiations for an Agreement on Civil Nuclear Energy Cooperation. Closer cooperation on nuclear energy under this agreement would also make provisions to allow Australia to export uranium to India – a significant development for both their trade and foreign policy relationship.

India and Australia had traditionally been at the periphery of each other’s foreign-policy priorities. However, relations soured in May 1998 after Australia imposed sanctions on India in response to its nuclear tests. The relationship cooled further during Prime Minister Kevin Rudd’s tenure for several reasons, including his government’s refusal to sell nuclear material to India because the country was not (and still is not) a signatory to the Nuclear Non-Proliferation Treaty (NPT).

India pressed ahead in its quest for clean energy regardless, signing the United States-India Civil Nuclear Cooperation Approval and Non-Proliferation Enhancement Act in October 2008, as well as similar deals with other countries from which India sourced nuclear material. It was therefore crucial that Australia resolve its nuclear ‘issue’ with India in order to avoid losing out. As Rory Medcalf of the Lowy Institute observed, the uranium issue had become a ‘barometer of trust in the relationship’ for India and ‘a thorn in Australian government policy’.  Therefore, the Australian government’s new stance on this front is significant, and Gillard’s visit is seen as a renewed commitment to the bilateral relationship.

The two prime ministers also agreed to hold annual meetings to launch a Ministerial-level Dialogue on Energy Security, start negotiations for an Agreement on the Transfer of Sentenced Persons, and signed Memoranda of Understanding for cooperation in the trade and production of wool products, student mobility and welfare, civil space science and technology and education, and skills development.

 A long road ahead?
Overcoming the nuclear obstacle is a significant positive development for bilateral ties. However, some issues still remain unresolved and could present themselves as roadblocks unless both countries move quickly to achieve their desired ‘strategic partnership’.

The very objective of a ‘strategic partnership’ was not established until November 2009, when then-prime minister Kevin Rudd and Manmohan Singh issued a joint statement to that effect.  It was then not until 2011 that India made some moves to strengthen the relationship.  In January 2011, India’s minister of external affairs, S.M. Krishna, visited Melbourne for the Australia-India Foreign Ministers’ Framework Dialogue. This was followed in May 2011 with a visit by Anand Sharma, India’s minister for commerce and industry, which resulted in the agreement to begin formal Comprehensive Economic Cooperation Agreement (CECA) negotiations. The CECA aims to broaden and liberalise merchandise trade by removing non-tariff trade barriers, facilitating two-way investments between the two countries. Sharma’s visit and the subsequent agreement signalled a renewal of bilateral trade.

Trade is an area in which closer cooperation could easily have been achieved earlier, with good trade relations then paving the way for stronger bilateral ties – but the question of India and Australia’s balance of trade has not found an early resolution. India’s trade imbalance with Australia is one of the largest among its major trade relationships, with a deficit of around $12.4 billion in 2011-12, according to statistics from India’s Department of Commerce.

To reduce this deficit, Indian authorities have often sought wider access to Australia for exporting information technology, pharmaceuticals, fruits and vegetables.

However, Australia has already opened its markets; its tariff rates and trade restrictions are among the lowest of any OECD country. The challenge for India is for its manufacturing and services sector to penetrate the Australian domestic market, and successfully compete with imports from other countries, such as China.

Gillard announced on 17 October that the two countries had set a ‘goal of $40 billion trade in 2015′. At present, annual bilateral trade stands at about $21 billion. Gillard was accompanied this week by a business delegation that included Linfox chairman Lindsay Fox, Rio Tinto Australia chief executive Sam Walsh, and ANZ CEO Mike Smith – indicating Australia’s desire to move beyond commodities trade and push towards services trade. India, however, remains focused on commodities trade – especially on importing coal to fuel its power plants. Indian companies are slowly increasing their presence in Australian mining operations, with companies such as India’s GVK Group purchasing a majority stake in Australia’s Hancock coal project for $1.26 billion in 2011 and Adani Group’s business interests in Carmichael Coal Project in the Galilee Basin, Queensland.

Another issue is the spate of attacks in recent years on Indian students studying in Australia. While Australian authorities viewed these as normal incidents of crime, many in India saw them as racially motivated assaults. The joint statement issued last week by the Australian and Indian Prime Ministers, therefore, featured education prominently, highlighting the success of the Australia-India Strategic Research Fund and the Australia-India Education Council (AIEC).  The new Memorandum of Understanding on Student Mobility and Welfare aims to expand cooperation on student welfare matters, thereby allaying the fears of Indian students in Australia.

A more robust area of the bilateral relationship is reflected in Asia-Pacific regional integration.  During her visit, Gillard reaffirmed Australia’s support for India’s membership of the Asia Pacific Economic Cooperation forum (APEC). India and Australia, as Chair and Vice Chair respectively of the Indian Ocean Rim Association for Regional Cooperation, said they hope to work closely to strengthen the Association, the apex pan-Indian Ocean multilateral forum, through ‘practical cooperation’ in priority areas of maritime security and piracy.

Gillard’s state visit has provided some practical results, as well as signalling an important show of faith in future bilateral cooperation. The next milestone in the evolving relationship – which will also provide insight into Australia’s plans for it – will be the unveiling of the Australian government’s Asian Century White Paper, detailing the country’s future strategic and economic engagement with the region.


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