The Australia-UK agreement is of potentially significant commercial benefit to both countries, but its real value goes much further than mere economics. It extends to geo-strategic considerations (shared with many others) related to China’s increasingly assertive, muscular role in the world. Big platform free trade agreements such as CPTPP can play an important part in constraining China’s market distorting practices. In this context, the Australia-UK FTA should also be one of the critical pillars of the UK’s CPTPP accession.
The UK leaving the EU is undoubtedly a significant global event, and the Australia-UK trade negotiations will be conducted differently to accommodate this reality. Other trading partners of the UK¸ including Australia and others committed to building more liberal international markets, need to take that into account. The UK had previously been constrained in its external trade policy, its domestic settings and also its domestic regulatory choices by EU rules and the EU’s common commercial policy. This is now changing.
However, this does not mean the UK will automatically embrace a more liberalising trade policy or a more pro-competitive and investor-friendly position across the board with other trading partners. Moving in that direction would depend on the benefits it and other trading partners perceive as a result of FTA negotiations; as well as participating in joint opportunities for economic growth as a result of greater investment flows and creating a bigger market (especially in the areas of trade in services and impacts on opportunities for digital trade).
If those benefits appear not to be real, it’s possible Australia could lose the opportunity to expand trade with the UK as an FTA partner with serious commitments to trade liberalisation in agriculture. It may also lose the opportunity that the UK will embrace SPS rules that are compliant with the World Trade Organization (WTO) and do not present obstacles to Australian trade. There is at least the possibility, if no benefits appear to be on the table, the UK may fall back into an EU regulatory approach, especially with regard to agricultural trade (in terms both of liberalisation and approaches to sanitary and phytosanitary standards (SPS) which could have a material negative impact on Australian agricultural exporters). The FTA is an opportunity to move the UK away from the EU’s regulatory and trade approaches about which Australia has previously complained.
In light of the above, we recommend that Australian trade negotiators take into account this strategic dimension of the trade negotiation. The practical implications would be to not push difficult issues into the final stages of the negotiation, as is normally the case, but to actually scope out the contours of the final deal early in the process, including capturing an early harvest or down payment on the deal itself.
Contours of the deal
We already have some ideas about the contours of the deal: liberalising agricultural trade would certainly be one of Australia’s top priorities.
In this regard it is worth noting that the UK’s Trade and Agriculture Commission (TAC) – an independent body which recently reported to the UK Trade Secretary – has advocated for zero tariffs and zero quotas, provided there were mechanisms to deal with potential anti-competitive market distortions (ACMDs) where trading partners derogate from agreed standards. Given that the TAC included six farmers (including four members of the National Farmers Union) out of a total commission of 15, there should be widespread support for this suggestion in the UK. It is something that Australian negotiators should highlight in their negotiations. The TAC report also said that the UK should anchor itself in the WTO SPS agreement, another very welcome recommendation to Australian agricultural export interests.
Among other things, the UK will be looking for high level commitments from Australia in the areas of digital, services and investment – and the UK is encouraging Australian negotiators to put their cards on the table in areas they should be able to deliver without difficult. These rules-based negotiations ought not be held hostage to the market access negotiations, as there are clearly huge wins for both sides here. It is only a mercantilist approach to negotiations that would cause the Australian negotiators not to show their hand in these areas.
These are some of the key issues and objectives ahead of British and Australian negotiators:
Agriculture and Market Access
The key aim here is zero tariffs and zero quotas across all agricultural goods, provided both sides agree the mechanism to deal with the ACMDs proposed in the Trade and Agriculture Commission (TAC) report. As noted above, this is a key development in that the TAC report is a unanimous commitment to liberal trade in agriculture and was made by an independent body established to advise the Department for International Trade. It is particularly significant that the body contains four representatives of the UK’s National Farmers Union, including its policy lead, and all signed off on this recommendation. This arguably changes the game for agricultural negotiations and is certainly a marked departure from the EU’s approach.
Agriculture SPS Issues
Both sides should commit to full compliance with the WTO SPS agreement, with sound science-based approaches to any residue regulation and the application of the necessity test for SPS regulations. Both sides would also agree maximum possible equivalence arrangements including underlying product market regulatory equivalence such as the NZ-EU veterinary agreement. The TAC report recommends such equivalence as well as the UK rooting itself in the SPS agreement. Once again, this is a marked departure from the EU’s approach.
Technical Barriers to Trade (TBT)
Both sides should agree full compliance with the WTO’s TBT agreement – another recommendation of the TAC report. This could certainly have an impact on any import bans which the UK might adopt which might be discriminatory in nature and could lead to damage to the Australian export sector.
Both sides should agree to no localisation of data requirement, with agreed adequacy arrangements to maximise data flow.
Both sides should agree advanced and liberal arrangements for services, especially for financial services. There is a real possibility for a group of liberal nations – such as the UK, US, Australia, Singapore – and others to agree highly open financial services environments along the lines proposed in the attached paper which could stimulate a bigger financial services market benefiting their export interests.
The two sides should also aim for agreement on making temporary business visas available, and on Mode 4 services – this broadly means lifting restrictions on business travel where individuals are moving to satisfy commercial needs between the two parties, such as where Indian tech company personnel need to be placed in the UK to manage a UK subsidiary of the Indian company.
Just as in other rules-based areas, strong intellectual property protection will be required in the interests of both sides and should be a win-win.
The areas above are where the parties should be broadly agreed. If the Australian negotiators were to signal advanced commitments in these areas, then it is more likely that the UK will be able to give more liberalisation in agriculture. Thankfully, there are already signs the UK is moving in this direction as a result of the TAC Report.
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