Australia and India have revived their discussions on a free trade agreement that would liberalize and deepen their bilateral trade, and result in a corresponding increase in work for law firms.
The India-Australia Comprehensive Economic Cooperation Agreement (CECA), would lower tariffs on goods and facilitate more trade between the two countries. And if the monetary thresholds for which Indian investments into Australia need regulatory approval are increased, the trade agreement will make way for even more investment and more legal work, said Samy Mansour, a partner at Australian firm Clayton Utz.
Australia and India’s trade in goods and services was valued at close to $18 billion in 2020— about $11 billion of which was Australian investments into India. According to data from Australia’s Department of Foreign Affairs and Trade, the 2020 value was double that of 2007.
Last year, India’s exports to Australia totaled $4.04 billion.
Which Law Firms Stand to Gain?
Over the past 18 months, most of India’s largest M&A and investment deals—which include the merger between Japan’s Sony and India’s Zee entertainment to create a mega television network; Tata Group’s acquisition of flagship carrier Air India; and Blackstone’s multiple stake investments in companies such as Indian tech company, Mphasis—have either been domestic or driven by investors from the West. Correspondingly, international firms like Clifford Chance, Simpson Thacher & Bartlett, Latham & Watkins and DLA Piper have topped the charts as leading foreign legal advisors on deals involving India, according to Mergermarket Asia Pacific league table reports.
The largest Indian law firms, including J. Sagar, AZB & Partners, Cyril Amarchand Mangaldas, Shardul Amarchand Mangaldas, Khaitan & Co and Trilegal, have all benefited from this increased deal activity, regardless of investor demographics.
Australian firms, too, can expect to benefit from more deals under the trade pact. But lawyers warn that it won’t necessarily be the boon they hope for. They will continue to face significant competition from U.K. and U.S. law firms that have offices in Australia and are better established in India’s legal market, they say.
“There will be a fair amount of bridging required because how Australian and Indian businesses work and approach risk and value are very different,” said Amit Kapur, joint managing partner at Indian firm, J. Sagar Associates. “For Australian firms to do well, they will need to converge with Indian firms. It’s ultimately all about that—the comfort of the investor knowing that there’s someone who can advise on both fronts and steer [the deal] through.”
Much of the inbound investment from India to Australia so far has been centered around coal mining and international education, although the education sector has been diminished by travel bans that arose from the COVID-19 pandemic. There is also increasing interest in the tech space, said Mansour, who recently assisted technology giant Infosys on its acquisition of a digital consultancy business in Australia.
According to India’s government webpage on Australian investments in the country, Macquarie Bank, ANZ Bank, Wesfarmers Limited, BHP Billiton and Telstra are some of India’s most prominent Australian investors.
Last year, Telstra expanded its presence in India by setting up two innovation centers in Hyderabad and Pune, as well as a product engineering lab in Bengaluru.
But Australia’s investments in India are dwarfed by China, the country’s second-largest trading partner after the U.S. To be sure, China is Australia’s largest trading partner, accounting for more than a quarter of the country’s entire trade. Two-way trade between China and Australia totaled $180 billion in 2020. And bilateral trade between China and India has grown rapidly: It surged 43.3% year-on-year, reaching $28.14 billion in 2021.
Both India and Australia view the CECA as a vehicle that will enable them to rebalance their investment portfolios and reduce their reliance on trade with China—something they both would like to see happen. China’s stringent zero-COVID policy has strained trade flows globally, severely disrupting supply chains. The Chinese government’s recent crackdown on data-heavy, technology companies and foreign listed Chinese corporates has also spooked investors across the globe.
For India, the CECA may trigger a broader spectrum of investments from Australia, lawyers say.
In 2019, India introduced its five-year National Infrastructure Pipeline, a government plan to improve infrastructure and attract investments into the sector. Last year, the country also launched its National Monetization Pipeline, an initiative aimed at monetizing brownfield public sector assets to raise approximately $81 billion over four years.
“This is an area that is low-hanging fruit for Australians to come in and think about,” said Kapur “They are resource-rich; they are strong in engineering, and, in some ways, they also have the same common law approach to handling contracts.”
But lawyers say even with the CECA, an increase in trade and investment will not occur overnight.
According to Kapur, Australian investors sometimes struggle with breaking into the Indian market, despite their interest, and fail to accurately assess how much return on investment they can expect due to a lack of understanding of the market’s regulations and policies around foreign investments.
The CECA, as it stands, does not address those issues, he said.
“Those facets have not been addressed very much in the [CECA] trade pact, and we haven’t really gone to the level where people have already started talking, engaging and looking at opportunities,” he added. “Unless we take it that far, we are still quite a few steps away.”
Anne Petterd, Sydney-based chair of Asia-Pacific for Baker McKenzie’s international commercial and trade team, says she expects the free trade agreement, when it eventually takes effect, to have a gradual rather than immediate impact.
“My experience is that free trade agreements, at least at the beginning, don’t bring immediate results. But particularly on the investment side of things, they’re a good facilitator,” she said.
“What it will definitely do is increase the investigation of opportunities,” she added. “And once somebody breaks the ground and does something, others tend to follow suit.”