UK – Australia trade deal: Down Under coming out on top

The UK Government announced today that it has secured a free trade agreement (FTA) with Australia. Below, Sabine Tyldesley and Matthew Williams analyse the deal from both a UK and Australian perspective, identifying who the big winners are, and determining whether the deal is more symbolic or substantial. Perspective from Australia – By Matt Williams  After close to 50 years of Australia’s trade with Britain being limited due to the UK’s entry into the common European market, Australian farmers are smiling again following today’s in-principle agreement between Prime Ministers Morrison and Johnson. Although some details are still to be released, Australia’s beef and sheep, dairy, rice, sugar and wine makers are likely to be the big winners. The deal will see the UK’s tariff-free quota on Australian beef, sheep meat and sugar increase, and tariffs will taper off completely over a period of time. The agreement will bring optimism to the wine sector, following a challenging 12 months in which the industry has been the consumer face of Australia’s trade tensions with China. The FTA will eliminate tariffs on the UK’s favourite Australian wines and boosting choice for British consumers. The Chief Executive of Australian Grape & Wine stated that “the UK is an incredibly important market for Australia’s grape and wine businesses, and British consumers are some of the most enthusiastic Australian wine aficionados”. Australian import businesses and consumers will also win, with the federal government reducing tariffs on a range of British goods including whisky, pharmaceuticals, cars, and machinery, as well as more providing more access for services companies. Australia’s Prime Minister Scott Morrison asserted that the deal is “the most comprehensive and ambitious agreement that Australia has concluded” and that it would underpin a broader post-Brexit relationship with Australia. Finance Minister Simon Birmingham — who oversaw initial negotiations as the former trade minister — said it would be a big win for farmers and small businesses. In a recent speech to the Australia British Chamber of Commerce, Trade Minister Tehan said that it would be one of Australia’s most liberalised and ambitious agreements. It would result in more Australian beef and lamb being sold to UK, an increase in investment flows to drive innovation and jobs and in terms of the services. Ultimately, this FTA is a major win for Australia. Prior to entering the European common market in 1973, the UK was Australia’s most lucrative trading market. In 2018, the UK was Australia’s eighth-largest two-way trading partner, worth $A26.9 billion. This position should now significantly improve notwithstanding the transition of some agriculture tariffs over the next 15 years. The president of the National Farmers Federation in Australia has said that the “volume of Australian red meat to the UK, in the context of the UK’s total red meat imports and Australia’s total exports, is very, very small” so there is significant upside for Australian farmers. The final word goes to Prime Minister Boris Johnson who said the deal marked a “new dawn” in the relationship, surmising: “You give us Tim Tams, we give you Penguins, you give us Vegemite, you give us Marmite, we give you Burberry mackintoshes and you give us RM Williams”. Perspective from the UK – By Sabine Tyldesley For nearly a year, the UK and Australia have been in negotiations, many of which will have gone unnoticed by the wider public. From an optics point of view, a deal with Australia – as a Commonwealth country close to the UK in terms of values and culture, was viewed as a ‘quick win’ for the UK post-Brexit, and a must if the UK Government’s Global Britain project was to happen right out of the gate. A deal was therefore expected to be agreed in early 2021, but an update in April pushed this timeline as the two countries were “ironing out details and resolving outstanding issues, with a view to reaching a deal by June”. Today, both Governments were able to make good on this: a deal is done (in principle). The Department for International Trade has hailed the deal as a “new dawn” for British cars, Scotch whisky and confectionery as well as emphasised the options for Brits under the age of 35 to be able to travel and work in Australia more freely. Given the Cabinet tensions over agriculture in recent weeks, it was also no surprise that the announcement gave a nod to British farmers, saying they will be protected by a cap on tariff-free imports for 15 years, using tariff-rate quotas and other safeguards. However, the reassurance hasn’t gone down well Scotland, particularly as it is Scottish and Welsh farmers that are the most vulnerable in this deal; which led to a letter from Scottish Cabinet Secretary for Rural Affairs Mairi Gougeon MSP to Secretary of State for International Trade, Liz Truss, in May. In this, she raised concerns and warned that without protections, this deal would be another reason for Scots to reject the union in favour of independence. This morning the Scottish Minister for Business, Trade, Tourism and Enterprise Ivan McKee MSP was due to be briefed on the deal but claimed this was pushed back by the Government in favour of the press; another symbolic arrow in the quiver of the Indy vote. Aside from goods, there are encouraging signs for services and tech firms given the UK exported £5.4 billion worth of services, including £1.4bn of insurance and pension services and £780m of financial services, to Australia in 2020. So how much is the deal actually worth to the UK economy? The FTA is forecast to increase GDP by a mere 0.02 per cent over the next 15 years. The text of the deal will be published in the coming days and Parliament will then have the opportunity to scrutinise the agreement and impact assessment in detail. It’s already looking to be a bigger fight that the Government had hoped after the cross-party UK Trade and Business commission led by Hilary Benn MP and managed by pro-internationalist group Best for Britain announced in-depth scrutiny. The International Trade Committee has also announced detailed scrutiny sessions. Expect Labour and opposition parties to push hard on how small the economic contribution to the UK will be, and accuse the Conservatives of betraying UK farmers. In response, a Departmental spokesperson said: “Our scrutiny arrangements are some of the most robust and transparent in the world, and the Trade and Agriculture Commission will play a full role, providing expert and independent advice” and reiterated the role MPs had in blocking the deal if they wished. Critics argue further that if protections and access are not sufficiently well balanced to protect UK farmers and businesses, this deal could set a disadvantageous precedent for future deals with large economies such as the US and Brazil. Given the limited value to the UK economy, experts agree that this deal’s symbolic and strategic value is a much bigger driver. An FTA with Australia will be the first big deal that expands markets rather than roll-over deal that existed when the UK was a member of the EU. It is a deal with a country geographically as far away from the EU as possible, one of the UK’s strongest allies, and a member of the Commonwealth – all powerful symbols for the UK’s post-Brexit mission. Equally important to the UK is Australia’s membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (see SEC Newgate analysis on the UK and the CPTPP here). With the Australia FTA joining the agreement the UK has with Japan, and negotiations with North American CPTPP members Canada and Mexico due to begin in the autumn, the UK is one step closer to bringing all 11 CPTPP members onside to approve its accession to join the partnership. The deal therefore is not to be evaluated on its merits, but on its wider implications. As Johnson said of the deal: “This is global Britain at its best – looking outwards and striking deals that deepen our alliances and help ensure every part of the country builds back better from the pandemic.”