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India-Australia
FTA Will Help
Boost Mining Ties
-Mining
Council of Australia
Minerals Council
of Australia (MCA)
has made a Submission
to the Feasibility
Study on the prposed
India-Australia
Free Trade Agreement.
In the Submission
made to to the
Department of
Foreign Affairs
and Tradein June
2008, MCA has
said the Australian
minerals sector
strongly supports
the negotiation
of a free trade
agreement with
India. MCA welcomes
the commitment
of both Indian
and Australian
governments to
assess the merits
of a bilateral
trade and investment
agreement between
Australian and
India. India is
both an important
export market
as well as an
attractive destination
for foreign investment.
With a combined
export value in
excess of A$7.4
billion, Australia's
mineral and metals
exports to India
in 2006-07 (mainly
metallurgical
coal, copper and
gold) accounted
for approximately
6.0 per cent of
Australia's total
minerals exports
(A$106.5 billion).
This represents
a substantial
increase with
India accounting
for only 1.0 percent
of Australia's
minerals trade
in 1996/97.
Expectations are
that India's future
minerals consumption
will continue
to increase significantly
into the future
in gross and per
capita terms on
account of India's:
•
Development path
coupled with strong
future expectations
for growth;
• Growing
middle class and
incomes with accompanying
strong domestic
demand;
• Institutional
reform that is
promoting improved
competitiveness,
greater investment,
and greater output
on account of
efficiency (productivity)
improvements;
and
• The low
base (performance
and size) of its
domestic industry
(mainly manufacturing)
coupled with significant
growth potential.
Australia is well
placed to respond
to this burgeoning
demand. Economic
demonstrated resources
remain very high
for those commodities
of interest to
India, and further,
multi-billion
capex is proposed
to expand brown
and greenfield
minesites, as
well the supporting
hard and soft
infrastructure.
Further, domestic
exploration has
hit record highs,
which should also
have a positive
effect on demonstrated
resources. Minerals
exports to India
are however affected
by high tariffs.
By 2006, India's
average tariff
on metals was
7.5%. In the case
of minerals, the
average tariff
varied between
2% and 5%, with
the exception
of marbles, granites,
cement and asbestos.
In terms of WTO
tariff bindings,
India's average
bound tariff rates
for metals, mineral
products and precious
stones is over
30%; and the average
bound tariff for
all non-agricultural
goods is 69.8%
India remains
rich in mineral
endowment and
its proximity
to burgeoning
Asian commodity
markets offers
opportunities
for companies
to continue to
diversify and
expand operations.
Companies such
as Rio Tinto and
BHP Billiton are
increasingly active
investors in India
with substantive
interests in iron
ore, diamond,
coking coal and
steel production.
A number of other
Australian resource
companies are
also actively
assessing opportunities
for expansion
into India.
Experience demonstrates
however that India
is not an easy
destination to
do business. In
2008, the World
Bank's Doing Business
survey ranked
India 120 out
of 178 countries
for ease of doing
business. This
is an improvement
of 12 ranks compared
to 2007. Further,
in the 2007/08
Fraser Institute
Survey, India
scored 63rd out
of 68 countries/mining
regions surveyed
in 2007/08 (63/68)
against the Policy
Potential Index.
Specifically,
further expansion,
and new investment
in India is tempered
by the following
'beyond-the-border'
barriers:
• Onerous
technical standards
on downstream
processed products
such as steel
and cement that
shut out exports
altogether.
• Regulations
frequently require
that resources
mined in one Indian
state should be
processed in that
state.
• GATS commitments
are largely 'unbound'
which means no
commitments to
liberalization
have been made.
India has made
few commitments
to open mining
services by providing
market access
or national treatment
to foreign providers.
• India's
decentralized
federal system
of government
in which the state
governments possess
broad regulatory
powers means regulatory
decisions governing
important issues
such as zoning,
land-use and environment
can vary from
one state to another.
As such, establishing
a mining project
in India currently
requires multiple
approvals from
different layers
of government
that is cumbersome
and slow. The
cumbersome rules
relating to foreign
investors with
existing joint-venture
partnerships can
make foreign investment
for miners less
attractive.
• The time
required to gain
approval for a
new business (in
days) vary across
the different
Indian states,
and are generally
considered long
by international
comparison.
• Security
of tenure: the
State (and sometimes
Central) Governments
have discretion
to terminate leases
for vague reasons.
Investors should
have the guarantee
that if in the
course of exploration
a deposit is discovered,
the exclusive
right to mine
it would vest
with them and
that they would
not be deprived
of this right
(except under
codified circumstances
known to them
prior to the granting
of the initial
licence).
• Reconnaissance
permits convert
to prospecting
licenses (and
after that mining
leases) after
three years if
mining has not
begun in that
time. When the
conversion occurs,
it reduces the
area approved
for prospecting
quite dramatically.
The three year
time frame is
considered short
in global terms.
Further this should
be a statutory
right and not
subject to discretion.
• The regulation
surrounding gaining
environmental
approvals (i.e
Forestry and environmental
clearances from
the Ministry of
Environment and
Forests) necessary
for a mining lease
is considered
by some international
investors to be
burdensome and
unnecessarily
bureaucratic.
• Increase
in taxes and cesses
at state and central
level can be unpredictable,
making it difficult
to forecast the
long term return
likely from a
given investment.
Equally, the various
rebate system
that operates
on exports and
imports of capital
equipment is complicated
and only operates
selectively.
• Foreign
investors face
long delays in
having investment
disputes dealt
with in India.
• A very
large problem
commonly cited
by minerals companies
is the lack of
adequate infrastructure.
Specific issues
include the railway
network is shared
with passengers
leading to congestion
and delays.
• High rail
freight tariffs;
the lack of availability
of rakes; and
ports that have
insufficient capacity
to handle increasing
volume of exports.
• State
Governments are
able to put licenses
out to tender
under certain
circumstances,
for example, when
the prospecting
party seeks to
exit. However,
because the tendering
process is not
transparent (and
creates an opportunity
for the Government
to bypass the
tender altogether),
tendering should
be avoided. More
transparent and
market-based means
should be adopted.
Recent developments
The Indian Government
in September 2005
formed a high
level Committee
to review India's
1993 National
Mineral Policy
and the Mines
and Minerals (Development
and Regulation)
Act 1957 and to
suggest changes
needed (inter
alia) 'for encouraging
investment in
public and private
sector exploration
and exploitation
of minerals',
and 'to prioritize
the critical infrastructure
needs of the Indian
mining sector'.
The Hoda report
has been approved
by Cabinet and
a bill has been
drafted. It is
unclear when exactly
this bill will
go to Parliament.
It is thought
that many of the
above concerns
may be addressed
if the Hoda reports
are enacted.
The MCA supports
the negotiation
of a free trade
agreement with
India. It is generally
accepted that
India, with China,
will be an emerging
superpower in
terms of global
economies. The
general benefits
of a comprehensive
FTA with India
would include:
• a broadening
and strengthening
of the bilateral
relationship with
India;
• the removal
of restrictions
on goods, services
and capital and
an expansion of
two way trade
and investment;
• the anchoring
of Australia within
the emerging Asian/sub-continent
community;
• a hedge
against further
preferential access
being granted
to global competitors;
and
• dissemination
of knowledge,
technology and
intellectual capital.
For example, diffusion
of Australia's
world-best 'know-how'
in relation to
Occupational Health
& Safety,
environmental
and general mine;
• management
would produce
significant environmental,
safety and economic
benefits.
Main Australian
Mineral and Metals
Exports to India
2006-07
Metallurgical
coal A$2.4 billion
Australia's second
largest export
Market , Gold
A$4.1 billion
Australia's largest
export market
Copper A$0.9 billion
, Australia's
third largest
export market.
Uranium exports
to India
The MCA supports
exports of uranium
to India on the
proviso that India
has met all the
necessary regulatory
and safeguard
requirements.
Future metals
and minerals demand
in India
The world's two
largest emerging
economies China
and India are
having an industrial
revolution, with
the incomes of
almost half the
world's population
rising substantially
in the process.
The rapid evolution
from farm-to factory-based
economies has
generated the
most sustained
burst of global
growth since the
1950s, with India
and China leading
the charge.
In the process,
these two economies
are becoming integral
contributors and
drivers of the
global growth
cycle. Importantly,
the sustained
and significant
growth of emerging
nations has thus
far offset the
impact of the
slowdown in the
United States,
with global output
expected to continue
recording above
average growth
into 2008 and
beyond.
While India has
plentiful supplies
of iron ore (another
steel making option),
domestic supply
constraints will
see a large on-going
dependency on
foreign metallurgical
coal imports.
In relation to
aluminium, very
strong demand
growth is forecasted
on account of
growing incomes.
Growing middle
class with accompanying
strong domestic
demand
India currently
accounts for some
17 percent of
the world's population
and will retain
a commanding share
of the global
workforce in the
coming decades.
A very large proportion
of India's demographic
will become of
'working age'
in the short term,
and it won't experience
the same ageing
population problems
anticipated in
developed countries
and in China (as
a result of its
one child policy).
India appears
on track to overtake
China as the world's
most populous
nation before
2030. With this,
India's household
income distribution
is expected to
change markedly,
as will its goods,
and resource consumption.
The percentage
of India's 'middle
class' (i.e. those
earning between
$4,000-$18,000
per annum) will
increase from
20 per cent in
1995-96, to 38
per cent in 2006-07.
This increase
in middle class
incomes will be
a global trend
in the developing
world. The numbers
of the global
population who
sit in the 'commodity
hungry' portion
of the income
scale between
US $4,000 and
US $17,000 per
person is expected
to triple between
now and 2030.
Through institutional
reform, improved
productivity and
global competitiveness
is expected, although
true potential
is unlikely to
be reached unless
more is done to
address the following
systemic concerns:
• Foreign
investors still
have reservations
about investing
in India;
• Infrastructure
(roads, rail,
ports and airports)
remains inadequate;
and
• Rigidities
in markets remain
(poor regulation,
red tape etc)
- especially in
mining and resources.
India's (energy
intensive) manufacturing
sector may experience
strong growth
into the future.
This sector is
currently 'understated'
due to India's:
• bias towards
service-based
industries (especially
technological);
• poor infrastructure
provision such
as electricity
generation (due
to high interest
rates and a reticence
to increase taxes);
and
• protectionist
trade policies
including very
high tariffs.
The Indian Government
has a number of
reform initiatives
in place to address
all three barriers.
Australia has
considerable supplies
of those commodity
supplies most
preferred by India.
Of note is that
expectations of
continued strong
global minerals
and metals demand
into the future,
coupled with prices
perhaps at a higher
plateau than long-run
averages, has
seen a renaissance
of exploration
activity in Australia.
In the 12 months
ended December
2007, (real) Australian
minerals exploration
increased by 33
per cent to $A1.1
billion - the
highest expenditure
in real terms
ever recorded.
Whilst there are
no guarantees
of success, discovery
rates are directly
correlated to
the amount of
metres that are
drilled.
Further, capital
expenditure (capex)
on mining projects
is predicted to
remain strong
in 2007/08, with
an estimated spending
of $30 billion
on mining. It
is also estimated
that there are
approximately
50 'advanced'
minerals mining
and processing
projects' (i.e.
projects that
are either committed
or under construction)
at a cost of $26
billion, and 182
'less advanced
projects' (i.e.
projects that
are either undergoing
a feasibility
study or no definite
decision has been
made to proceed)
at a cost of $140
billion.
Current levels
of Australian
mining company
investment in
India
Given the nature
and anticipated
strength of the
global supply/demand
commodities business
cycle, MCA member
companies with
the capacity to
become more globally
integrated are
pursuing vigorous
global acquisition
strategies to
enhance the quality,
scale and growth
of their portfolios.
India is endowed
with significant
mineral resources.
India produces
89 minerals -
of which 4 are
fuel minerals,
11 metallic (mainly
iron-ore, copper-ore,
chromite and/or
zinc concentrates,
gold, manganese
ore, bauxite,
lead concentrates),
52 non-metallic
(mainly limestone,
magnesite, dolomite,
barytes, kaolin,
gypsum, apatite
& phosphorite,
steatite and fluorite)
and 22 minor minerals.
Current mining
in India is small
and sub-scale.
Due to a lack
of economies of
scale and scope
and high costs,
India's mines
are prone to environmental
degradation and
a lack of investment
in technology
and high productivity
initiatives. There
has also been
poor investment
in supporting
infrastructure
ports, rail and
shipping.
MCA member companies
are increasingly
active in India,
for example:
• Rio Tinto's
Iron Ore group
(RTIO) comprises
iron ore operations
in Australia,
Canada and Brazil
and development
projects in Guinea
(west Africa)
and India (Orissa).
Orissa is one
of the key iron
ore regions of
the world. RTIO
has a joint venture
interest in Rio
Tinto Orissa Mining
with the state
owned Orissa Mining
Corporation. The
joint venture
holds rights to
iron ore leases
in Orissa, which
it is seeking
to develop. Rio
Tinto is keen
to participate
in the development
of the Indian
iron ore sector
through its joint
venture. A project
team has been
established and
is working to
expedite the development
of operations
in India. India's
economy is expected
to maintain its
present growth,
so providing support
for an expanding
domestic steel
industry, and
discussions have
continued with
major domestic
steel companies;
• Rio Tinto
has also advanced
a proposed diamond
project in India
from exploration
to project evaluation
stage;
BHP Billiton Strategic
Alliance has signed
a memorandum of
Understanding
with the Steel
Authority of India
(SAIL) for potential
development of
Iron Ore mines
in India as well
as Coking coal
mines in other
countries. BHP
Billiton is also
assessing involvement
in a possible
Joint Venture
with Posco for
a proposed 10
mtpa steel plant
in Orissa, where
BHP Billiton would
supply raw materials
and infrastructure
to the project
and the local
steel industry.
Other opportunities
are also being
assessed;
• Bluescope
Steel and Tata
Steel have a JV
company that manufactures
zinc/aluminium
metallic coated
steel with the
head office situated
in Pune;
• BHP Billiton
and Rio Tinto
(diamonds etc)
both have marketing
and representative
offices in India;
and
• Other
minerals companies
are actively engaged
in India and are
assessing opportunities.
Australian companies
such as Thiess
are also active
in India in the
area of civil
construction.
Indian FDI into
the Australian
resources industry
There are a number
of Australian
mining operations
fully or partially
controlled by
Indian investors.
Two operations
are the Nifty
Copper Mine in
Western Australia
and the Mount
Gordon Copper
Mine in north-west
Queensland both
owned by the Aditya
Birla Group, a
multinational
corporation based
in Mumbai, India.
This corporation
has stated publicly
that it wishes
to expand its
interests even
further in Australia.
Other Australian
mining projects
with vested Indian
interests include:
• Sterelite
(Vedanta) also
has a copper mine
in Australia.
It has invested
US $ 40 million
for a copper mine
in Tasmania from
1999. This mine
has a concentrate
production capacity
of about 120,000;
• tonnes
per annum. This
group is quite
happy with the
conditions in
Australia for
Indian investors.
However, they
also have felt
that there are
some minor problems
with the man power
availability in
Australia;
• Pune-based
Indian Seamless
Metal Tubes has
just announced
an investment
of US$300 million
to set up a steel
mill in Australia;
• Tata Steel's
investment in
a greenfield coalmine
in New South Wales
while another
Gujarat-based
company, Gujarat
NRE Coke limited,
has bought two
coal mines in
QLD; and
• Gujarat
NRE Coke Ltd.'s
investment in
the Hunter coal
mining industry
in Australia.
India has lifted
many barriers
to trade and investment
since it began
reforms in 1991,
but fundamental
barriers remain.
This is evident
when India's trade
and investment
flows are compared
with China's,
where the latter
has a regime designed
to attract foreign
investors and
to encourage them
to export. In
2005, China took
in 12 times as
much in annual
foreign direct
investment as
India (US$60 billion
vs. US$5 billion),
and exported almost
six times as much
(US$600 billion
vs. US$105 billion).
Further, two recently
completed reports
demonstrate that
India's institutional
settings, whilst
improving, are
subpar when compared
globally.
World Bank's Doing
Business Survey
In 2008, the World
Bank's Doing Business
survey ranked
India 120 out
of 178 countries
for ease of doing
business. This
is an improvement
of 12 ranks compared
to 2007.
An example of
a positive reform
includes:
India was the
top reformer in
trading across
borders in 2006/07.
It introduced
online customs
declarations for
imports and exports.
Arriving ships
now submit their
cargo manifests
electronically,
allowing the clearance
process to begin
even before the
ship docks.
These reforms
helped cut delays
for exporters
and importers
by 7 days. On
average the top
10 reformers each
cut the time to
export by 5 days.
Other reoccurring
problems include:
• India's
judicial system.
India ranks 177
out of 178 countries
on this criterion
with a very high
number of procedures
and high costs
being encountered;
• The tax
burden. India
rank 165 out of
178 countries
on this criterion
with high marginal
rates and inefficient
administration
requirements being
encountered;
• Building
licenses. India
rank 134 out of
178 countries
on this criterion
with a very high
number of procedures
and high costs
being encountered;
and
• Starting
a business. India
rank 111 out of
178 countries
on this criterion
with a very high
number of procedures
and high costs
being encountered.
Fraser Institute
study
The Fraser Institute
is an independent
research and educational
organisation based
in Canada. Each
year since 1997,
the Fraser Institute
has conducted
an annual survey
of metal mining
and exploration
countries. The
survey aims to
asses 'how mineral
endowments and
public policy
factors such as
taxation and regulation
affect exploration
investment'.
In 2008, the survey
covered a total
of 68 jurisdictions
(countries, states
or territories)
from every continent
except Antarctica.
The Policy Potential
Index (PPI) is
a composite index
that measures
the effects on
exploration of
government policies
including uncertainty
concerning the
administration,
interpretation,
and enforcement
of existing regulations;
environmental
regulations; regulatory
duplication and
inconsistencies;
taxation; uncertainty
concerning native
land claims and
protected areas;
infrastructure;
socio-economic
agreements; political
stability; labour
issues; geological
database; and
security.
Against the PPI,
India scored 63rd
out of 68 countries/mining
regions surveyed
in 2007/08 (63/68).
Against this measure,
India has languished
in the bottom
quarter for four
years straight.
Reforms
Sought BY MCA
to Raise Exports
& Investment
in India
The MCA believes
there are a number
of tariff, non-tariff
and beyond the
border barriers
that can be addressed
in an Australian-India
FTA. The MCA is
confident that
reforms that address
these issues will
lead to:
• greater
interest in India
as a destination
for exploration
and mining activity.
A number of MCA
member companies
are already highly
committed to India
and many more
are showing interest
with feasibility
studies being
completed. An
effective FTA
would provide
a stimulus to
these current
and proposed investments;
and
• greater
market access
for Australian
produced metal
and minerals commodities
into the burgeoning
Indian market.
Benefits from
FTA
The MCA supports
the negotiation
of a free trade
agreement with
India. It is generally
accepted that
India, with China,
will be an emerging
superpower in
terms of global
economies. The
Australian minerals
industry enjoys
an increasingly
significant trading
relationship with
India with metallurgical
coal, gold and
copper Australia's
main exports.
Further, Australian
metal and minerals
companies are
increasingly interested
in India as a
preferred destination
for exploration
and mining activity
despite perceived
institutional
and public policy
shortcomings.
The general benefits
of a comprehensive
FTA would include:
• a broadening
and strengthening
of the bilateral
relationship with
India;
• the removal
of restrictions
on goods, services
and capital and
an expansion of
two way trade
and investment;
• the anchoring
of Australia within
the emerging Asian/sub-continent
community;
• a hedge
against further
preferential access
being granted
to global competitors;
and
• dissemination
of knowledge,
technology and
intellectual capital.
For example, diffusion
of Australia's
world-best 'know-how'
in relation to
Occupational Health
& Safety,
environmental
and general mine
management would
produce significant
environmental,
safety and economic
benefits.
From the perspective
of the Australian
minerals industry,
the completion
of a comprehensive
FTA would:
• reduce
or eliminate tariff
and non-tariff
barriers on products,
thus increasing
the access and
competitiveness
of Australian
mineral and metals
imports into India;
• provide
a stimulus to
further 'beyond-the-border'
economic reform
that may enhance
and reinvigorate
both Australia's
and India's attractiveness
as a preferred
FDI destination,
as well as maximise;
• opportunities
for those companies
already operating;
• internal
reforms (especially
in India) may
also stimulate
greater domestic
investment which
is critical if
the industry is
to develop scale
and scope that
encourages the
provision of world
class infrastructure;
• against
the background
of expected continued
strong international
demand for metals
and minerals,
further expansion
via greater domestic
and foreign direct
investment in
brown and greenfield
sites will intuitively
boost economic
growth and social
outcomes; and
improve the potential
for Australian
mining technology
and service industries
to enter the Indian
mining market
and/or build partnerships
with Indian technology
firms.
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